-----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, Kh29RuQTxFNWuknvRyhX8Kkge49iTTAyXQdVFGTVGY1TmJ0m6JSYivAnCnOVEeW5 cSeiKgYuWhJ1AGWlyqflyg== 0000040493-95-000003.txt : 19950608 0000040493-95-000003.hdr.sgml : 19950608 ACCESSION NUMBER: 0000040493-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARCOURT GENERAL INC CENTRAL INDEX KEY: 0000040493 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 041619609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04925 FILM NUMBER: 95503760 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST / BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172328200 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 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-K 1 FORM 10-K FOR FISCAL YEAR ENDED 10/31/94 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended October 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 (IRS Employer incorporation or organization) Identification No.) 27 Boylston Street, Chestnut Hill, Massachusetts 02167 (Address of principal executive offices) (Zip Code) Registrant's telephone number and area code: 617-232-8200 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on which Registered Common Stock, $1.00 par value Series A Cumulative Convertible New York Stock Exchange Stock, $1.00 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,878,455,759 on January 20, 1995. There were 56,604,465 shares of Common Stock, 21,316,581 shares of Class B Stock and 1,449,875 shares of Series A Cumulative Convertible Stock outstanding as of January 20, 1995. ______________________ Documents Incorporated by Reference Portions of the Company's 1994 Annual Report to Stockholders are incorporated by reference in Parts I, II and IV of this Report. Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on March 10, 1995 are incorporated by reference in Part III of this Report. HARCOURT GENERAL, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1994 TABLE OF CONTENTS PART I Page No. Item 1. Business 1 Item 2. Properties 5 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for the Registrant's Common Equity 7 and Related Stockholder Matters Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III Item 10. Directors and Executive Officers of the Registrant 8 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11 Signatures 13 PART I ITEM 1. BUSINESS General The principal businesses of Harcourt General, Inc., a Delaware corporation formed in 1950 (the "Company"), are publishing and specialty retailing. The Company also has significant operations in career transition and human resources consulting. In December 1993, the Company completed the spinoff of its motion picture exhibition business to the holders of the Company's Common Stock and Class B Stock. In October 1994, the Company completed the sale of its insurance business. See "Discontinued Operations" below for additional information about the theatre and insurance operations. A. Publishing Harcourt Brace & Company ("Harcourt Brace") is among the world's largest publishing houses, publishing books and scholarly journals for the educational, scientific, technical, medical, professional and trade markets. Most of the operations of Harcourt Brace are in the United States, but Harcourt Brace also has international publishing operations in London, Tokyo, Sydney, Toronto and Montreal, as well as an export business headquartered in Orlando, Florida. Educational Publishing. The educational publishing group includes the operations of Harcourt Brace School; Holt, Rinehart and Winston; Harcourt Brace College and The Psychological Corporation. Harcourt Brace School publishes textbooks and related instructional materials for the elementary grades. Holt, Rinehart and Winston publishes instructional materials for grades 7 through 12. Harcourt Brace College publishes books for the college and university market under the Harcourt Brace, Saunders and Dryden Press imprints. The Psychological Corporation provides aptitude, diagnostic, achievement and performance tests and related products for educational, psychological, clinical and professional assessment. Scientific, Technical, Medical and Professional Publishing. The scientific, technical, medical and professional publishing group includes the operations of Academic Press, W.B. Saunders, Harcourt Brace Professional Publishing and Harcourt Brace Legal and Professional Publishing. Academic Press publishes scholarly books and journals in the life, physical and social sciences, which are sold in the United States and abroad. W.B. Saunders publishes books and periodicals in the health sciences, which are sold in the United States and abroad. Harcourt Brace Professional Publishing publishes reference guides and newsletters for certified public accountants and tax professionals. Harcourt Brace Legal and Professional Publishing conducts review courses for individuals preparing for bar examinations under the BAR/BRI name, as well as review courses for CPA accreditation and graduate school entrance examinations. Trade Publishing. The Harcourt Brace trade division publishes children's books, general adult fiction and nonfiction hardcover books, and trade paperbacks under the Harvest imprint. Competition Numerous companies compete in all of the markets in which the Harcourt Brace businesses operate. The Company believes that the principal competitive factors for its publishing operations are the quality of its publications and customer service. The principal competitive factors in obtaining the publishing rights which are the foundation for the quality of its publications are the reputation of the Company and its financial resources, editorial and marketing skills and distribution capabilities. B. Specialty Retailing The Company owns approximately 65% of the outstanding equity, on a fully- converted basis, of The Neiman Marcus Group, Inc. ("NMG"), which operates Neiman Marcus, Bergdorf Goodman and Contempo Casuals. NMG is a separate public company which is listed on the New York Stock Exchange and is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On October 27, 1994, NMG filed an Annual Report on Form 10-K with respect to its fiscal year ended July 30, 1994. Following is a brief description of the businesses of NMG. For further information with respect to NMG, reference may be made to the NMG Annual Report on Form 10-K and to subsequent reports and other information which may be filed by NMG from time to time with the Securities and Exchange Commission (the "SEC"). Neiman Marcus Neiman Marcus is a high fashion, specialty retailer which offers high quality women's and men's apparel, fashion accessories, precious jewelry, decorative home accessories, fine china, crystal, silver and epicurean products. As of October 31, 1994, Neiman Marcus operated 27 stores in 24 cities. The average Neiman Marcus store size is 142,000 gross square feet and the stores range in size from 90,000 gross square feet to 269,000 gross square feet. Neiman Marcus plans to open a new store in Short Hills, New Jersey, in calendar 1995 and new stores in King of Prussia, Pennsylvania, and Paramus, New Jersey, in calendar 1996. In addition, through NM Direct, Neiman Marcus operates a state-of-the-art direct marketing business, including the catalogues of Neiman Marcus and Horchow. 2 Bergdorf Goodman Bergdorf Goodman is a high fashion exclusive retailer of high quality women's and men's apparel, fashion accessories, precious jewelry, decorative home accessories, fine china, crystal and silver. It operates two leased stores on Fifth Avenue and 58th Street in New York City. The original store, consisting of 250,000 gross square feet, is dedicated to women's apparel and accessories, home furnishings and gifts. Bergdorf Goodman Men, which opened in August 1990, consists of 66,000 gross square feet and is dedicated to men's apparel and accessories. Bergdorf Goodman also operates a significant direct marketing business through NM Direct. Contempo Casuals Contempo Casuals, based in Los Angeles, operates a chain of retail stores which sells contemporary fashion apparel and accessories primarily for young women between the ages of 15 and 21 at moderate prices. Almost all apparel sold in the Contempo Casuals stores carries the Contempo Casuals label. In April 1994, NMG implemented a plan to restructure the Contempo Casuals division (including its chain of retail stores operated under the name Pastille) as a result of its continued poor operating performance. The restructuring included the closing of 40 underperforming Contempo Casuals stores, the closing of the Hong Kong buying office and the closing of the Pastille chain of 39 stores in 15 states. In June 1994, the Pastille direct marketing operations were consolidated with NM Direct. The Contempo Casuals chain includes 246 stores in 33 states and Puerto Rico with an average store size of approximately 4,000 gross square feet. All of the stores are located in leased facilities, primarily in regional shopping malls. Competition NMG's specialty store operations compete with numerous specialty retail stores and department stores for customers and merchandise. The Company believes that the principal competitive factors for specialty store operations are customer service, quality of merchandise, merchandise assortment, store ambience and price. The direct marketing operations of NM Direct compete with numerous other retail and direct marketing operations for both customers and merchandise. The Company believes that the principal competitive factors for NM Direct's operations are customer service, price, merchandise quality and assortment and catalogue presentation. 3 C. Professional Services The Company believes that Drake Beam Morin ("DBM") is the world's leading organizational and individual transition consulting firm. DBM assists organizations and individuals worldwide in outplacement, employee selection, performance evaluation, career management and transition management. DBM has expanded its services in recent years to include employee training and consulting for organizations in the process of change. The Company believes that the principal competitive factors for DBM are quality of service (including its ability to promptly respond to clients' needs for services) and price. D. Discontinued Operations Insurance On October 31, 1994, the Company completed the sale of its insurance operations to GNA Corporation, an affiliate of General Electric Capital Corporation, for $410.4 million in cash, as specified in the Stock Purchase Agreement. For additional information with respect to this transaction, reference may be made to the Report on Form 8-K filed by the Company with the SEC on November 14, 1994. Motion Picture Exhibition On December 15, 1993, the Company completed the spinoff of GC Companies, Inc. ("GCC") to the holders of the Company's Common Stock and Class B Stock. GCC is an independent public company which operates the "General Cinema Theatres" motion picture exhibition business formerly operated by the Company, and which is listed on the New York Stock Exchange and is subject to the reporting requirements of the Exchange Act. Following the spinoff, Harcourt General retained no ownership interest in GCC. However, GCC and Harcourt General have entered into various agreements which govern their ongoing relationship, including a Reimbursement and Security Agreement and an Intercompany Services Agreement. See Note 2 of the Notes to the Consolidated Financial Statements for further information regarding such agreements. 4 E. Certain Additional Information 1. Employees Percentage of Employees Number of Each Operating Unit Number of of Part-Time Covered by Collective Employees Employees Bargaining Agreements Harcourt Brace 4,500 50 Less than 1% The Neiman Marcus Group 10,200 5,300 Less than 1% Drake Beam Morin 610 10 None Corporate 120 2 None The figures in the above table are approximate as of October 31, 1994 and exclude the employees of the insurance business. At October 31, 1994, DBM also utilized the services of approximately 1,350 independent contractors and adjunct employees. The Company believes that its relations with its employees are generally good. 2. Capital Expenditures; Seasonality; Liquidity; Capital Resources For a review of the Company's financial results for fiscal 1994, including information on capital expenditures, seasonality, liquidity, capital resources and other financial information, reference is made to pages 22 through 25 of the "Financial Review" section of the Company's Annual Report to Stockholders for the fiscal year ended October 31, 1994 (the "1994 Annual Report"), which information is incorporated herein. 3. Financial Information About Industry Segments The information set forth under the heading "Additional Financial Information" in Note 3 of the Notes to the Company's Consolidated Financial Statements on page 33 of the 1994 Annual Report is incorporated herein. ITEM 2. PROPERTIES The Company's corporate headquarters, as well as the corporate headquarters for The Neiman Marcus Group, Inc., are located in leased facilities in Chestnut Hill, Massachusetts. The headquarters for Harcourt Brace's publishing operations are located in a leased office in Orlando, Florida. The headquarters for Drake Beam Morin are located in a leased office in New York City. 5 At October 31, 1994, the office, warehouse and other facilities owned or leased by Harcourt Brace and its publishing affiliates were located in 29 states, the District of Columbia, Puerto Rico and five foreign countries. NMG's operating divisions are headquartered in leased or owned facilities in Dallas (Neiman Marcus), New York City (Bergdorf Goodman) and Los Angeles (Contempo Casuals). At October 31, 1994, the approximate square footage used in NMG's operations was as follows: Owned Subject to Owned Ground Lease Leased Total Stores .......... 347,000 1,170,300 3,610,800 5,128,100 Distribution centers and office facilities... 627,000 --- 1,425,100 2,052,100 Leases for Neiman Marcus stores, including renewal options, range from 30 to 99 years. Leases for Contempo Casuals stores are generally for 10 to 15 years, with no renewal options. The lease on the Bergdorf Goodman main store expires in 2050 and the lease on the Bergdorf Goodman Men's store expires in 2010, with two 10-year renewal options. Leases are generally at fixed rentals, except that certain leases provide for additional rentals based on sales in excess of predetermined levels. NMG also owns approximately 50 acres of land and a 520,000 square foot facility in Las Colinas, Texas, where the direct marketing operations of NM Direct are located. At the end of fiscal 1994, Neiman Marcus began construction on a new $20 million 400,000 square-foot national service and distribution center in Longview, Texas to service Neiman Marcus stores nationwide. At October 31, 1994, Drake Beam Morin conducted its business from 80 leased offices in the United States and 86 offices in 26 countries around the world. For additional information about the properties of the Company, see Item 1 above and the information contained in Note 12 of the Notes to the Company's Consolidated Financial Statements under the heading "Leases", which is incorporated herein. ITEM 3. LEGAL PROCEEDINGS In previous reports, the Company has described certain class action cases which are known as In re Harcourt Brace Jovanovich, Inc. Securities Litigation and Nivram Corp. v. Harcourt Brace Jovanovich, Inc., et. al. The allegations in these cases relate to actions involving the securities of Harcourt Brace Jovanovich, Inc. that occurred prior to its acquisition by the Company in 1991. The parties have negotiated a tentative settlement of both of these cases. 6 Settlement documents have been finalized and class members will be given the option to participate or not participate in the settlement, after which the court will conduct a hearing to approve the settlement. The disposition of these cases will not have a material adverse effect on the financial position or continuing operations of the Company. The Company is involved in various other suits and claims in the ordinary course of business. The Company does not believe that the disposition of any such suits or claims will have a material adverse effect on the financial position or continuing operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following information contained in the 1994 Annual Report is incorporated herein: (i) the last paragraph of Note 6 of the Notes to the Company's Consolidated Financial Statements on page 35 of the Annual Report relating to restrictions on the Company's ability to pay dividends; (ii) "Dividends per share" in Note 14 of the Notes to the Company's Consolidated Financial Statements on page 41 of the 1994 Annual Report; and (iii) "Stock Information" on page 45 of the 1994 Annual Report. In addition to the information set forth therein with respect to the Company's Common Stock and Series A Cumulative Convertible Stock, the Company's Class B Stock is subject to significant restrictions on transfer and is not listed or traded on any exchange or in any market. As of January 20, 1995, there were 2,197 record holders of Class B Stock. For further information with respect to the Class B Stock, including the ownership of 99.8% of the Class B Stock by the family of Richard A. Smith (the Chairman of the Board of Directors of the Company), reference is made to the information contained in the Company's Proxy Statement for the 1995 Annual Meeting of Stockholders under the heading "Stock Ownership of Certain Beneficial Owners and Management." 7 ITEM 6. SELECTED FINANCIAL DATA The response to this Item is contained in the 1994 Annual Report under the caption "Five Year Summary" on page 43 and is incorporated herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The response to this Item is contained in the 1994 Annual Report under the caption "Financial Review" on pages 22 through 25 and is incorporated herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary data set forth in Item 14 are incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. Directors The response to this Item regarding the directors of the Company and compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's officers and directors is contained in the Proxy Statement for the 1995 Annual Meeting of Stockholders under the captions "Election of Directors" and "Section 16 Reports" and is incorporated herein. B. Executive Officers Below is the name, age and principal occupations for the last five years of each current executive officer of the Company. All such persons have been elected to serve until the next annual election of officers and their successors are elected or until their earlier resignation or removal. Richard A. Smith - 70 Chairman of the Board of Directors of the Company and of The Neiman Marcus Group, Inc.; Chief Executive Officer of the Company and of The Neiman Marcus Group, Inc. until December 1991; Chairman of the Board, President and Chief Executive Officer of GC Companies, Inc. since December 1993. Mr. Smith is the father of Robert A. Smith, a director and officer of the Company, and the father-in-law of Brian J. Knez, an officer of the Company. 8 Robert J. Tarr, Jr. - 51 President, Chief Executive Officer (since December 1991), Chief Operating Officer and Director of the Company and of The Neiman Marcus Group, Inc.; Director of GC Companies, Inc. John R. Cook - 53 Senior Vice President and Chief Financial Officer of the Company and of The Neiman Marcus Group, Inc. since September 1992; Senior Vice President - Finance and Administration and Chief Financial Officer of NACCO Industries prior thereto. Eric P. Geller - 47 Senior Vice President and General Counsel of the Company and of The Neiman Marcus Group, Inc. since May 1992; Vice President and Associate General Counsel of the Company and of The Neiman Marcus Group, Inc. prior thereto; Secretary of the Company since December 1991 and of The Neiman Marcus Group, Inc. since January 1992. Paul F. Gibbons - 43 Vice President and Treasurer of the Company and of The Neiman Marcus Group, Inc. since August 1992; Vice President and Treasurer of GC Companies, Inc. since March 1994; Vice President - Taxation of the Company and of The Neiman Marcus Group, Inc. prior to August 1992. Gerald T. Hughes - 38 Vice President-Human Resources of the Company since June 1994; Associate General Counsel of the Company and The Neiman Marcus Group, Inc. with responsibility for labor and employment matters from August 1992 to June 1994; Labor Counsel of the Company and The Neiman Marcus Group, Inc. prior thereto. Brian J. Knez - 37 Vice President of the Company since November 1991 and President of the Scientific, Technical, Medical and Professional Group of Harcourt Brace since 1993; Group Vice President of the Scientific, Technical and Medical Group of Harcourt Brace from 1991 to 1993; Assistant to the President of the Company from 1989 to November 1991. Mr. Knez is the son-in-law of Richard A. Smith, Chairman of the Board of Directors of the Company, and the brother-in-law of Robert A. Smith, a director and officer of the Company. 9 Stephen C. Richards - 39 Vice President and Controller of the Company and of The Neiman Marcus Group, Inc. since June 1993; Vice President and Controller of GC Companies, Inc. since January 1994; Partner, Deloitte & Touche, from June 1990 to May 1993; Senior Manager, Deloitte & Touche, prior thereto. Craig B. Sawin - 38 Vice President - Planning and Analysis of the Company and of The Neiman Marcus Group, Inc. since 1990; Director of Planning and Analysis and Director of Administration of the Company and The Neiman Marcus Group, Inc. prior thereto. Robert A. Smith - 35 Group Vice President of the Company since December 1991 and of The Neiman Marcus Group, Inc. since January 1992; Director of the Company since 1989; Vice President - Corporate Development of the Company from December 1988 to December 1991. Mr. Smith is the son of Richard A. Smith, Chairman of the Board of Directors of the Company, and the brother-in-law of Brian J. Knez, an officer of the Company. ITEM 11. EXECUTIVE COMPENSATION The response to this Item is contained in the Proxy Statement for the 1995 Annual Meeting of Stockholders under the captions "Directors' Compensation", "Executive Compensation" and "Transactions Involving Management" and is incorporated herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this Item is contained in the Proxy Statement for the 1995 Annual Meeting of Stockholders under the caption "Stock Ownership of Certain Beneficial Owners and Management" and is incorporated herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this Item is contained in the Proxy Statement for the 1995 Annual Meeting of Stockholders under the captions "Executive Compensation" and "Transactions Involving Management" and is incorporated herein. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 14(a)(1) Financial Statements The documents listed below are incorporated herein by reference to the Company's 1994 Annual Report to Shareholders and are incorporated herein by reference to Item 8 hereof: Consolidated Balance Sheets - October 31, 1994 and 1993. Consolidated Statements of Earnings for the fiscal years ended October 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows for the fiscal years ended October 31, 1994 , 1993 and 1992. Consolidated Statements of Shareholders' Equity for the fiscal years ended October 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements. Independent Auditors' Report. 14(a)(2) Consolidated Financial Statement Schedules The document and schedule listed below are filed as part of this Form 10-K: Page In Form 10-K Independent Auditors' Report on Consolidated Financial Statement Schedule F-1 Schedule VIII - Valuation and Qualifying Accounts and Reserves F-2 All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted because the information is disclosed in the Consolidated Financial Statements or because such schedules are not required or are not applicable. 11 14(a)(3) Exhibits The exhibits filed as part of this Annual Report are listed in the Exhibit Index immediately preceding the exhibits. The Company has identified with an asterisk in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Form 10-K in response to Item 14(c) of Form 10-K. 14(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended October 31, 1994. The Company filed a report on Form 8-K on November 14, 1994 to report the sale of its insurance business. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. HARCOURT GENERAL, INC. By: s/ Robert J. Tarr, Jr. Robert J. Tarr, Jr., President, Chief Executive Officer and Chief Operating Officer Dated: January 26, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated. Signature Title Date Principal Executive Officer: s/Robert J. Tarr, Jr. President, Chief Executive January 12, 1995 Robert J. Tarr, Jr. Officer, Chief Operating Officer and Director Principal Financial Officer: s/John R. Cook Senior Vice President and January 13,1995 John R. Cook Chief Financial Officer Principal Accounting Officer: s/Stephen C. Richards Vice President and January 13, 1995 Stephen C. Richards Controller 13 Directors: s/William F. Connell January 17, 1995 William F. Connell s/Jack M. Greenberg January 17, 1995 Jack M. Greenberg s/Herbert W. Jarvis January 26, 1995 Herbert W. Jarvis s/Lynn Morley Martin January 16, 1995 Lynn Morley Martin s/Maurice Segall January 10, 1995 Maurice Segall s/Richard A. Smith January 16, 1995 Richard A. Smith s/Robert A. Smith January 10, 1995 Robert A. Smith s/Paula Stern January 9, 1995 Paula Stern s/Sidney Stoneman January 7, 1995 Sidney Stoneman s/Hugo Uyterhoeven January 13, 199 Hugo Uyterhoeven s/Clifton R. Wharton, Jr. January 17, 1995 Clifton R. Wharton, Jr. 14 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Harcourt General, Inc. Chestnut Hill, Massachusetts We have audited the consolidated financial statements of Harcourt General, Inc. and its subsidiaries (the "Company") as of October 31, 1994 and 1993 and for each of the three years in the period ended October 31, 1994, and have issued our report thereon dated December 5, 1994. Such consolidated financial statements and report are included in the Company's 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Harcourt General, Inc. and its subsidiaries, listed in Item 14(a)(2). The consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts December 5, 1994 F-1 HARCOURT GENERAL, INC. AND SUBSIDIARIES. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES THREE YEARS ENDED OCTOBER 31, 1994 (In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions Charged to Balance at Charged to Other Balance at Beginning Costs and Accounts- Deductions- End of Description of Period Expenses Describe Describe Period _________________________________________________________________________________________________________________ YEAR ENDED OCTOBER 31, 1994 Allowance for doubtful accounts $20,363 32,247 - 26,171(B) $26,439 (deducted from accounts receivable) Allowance for book returns (A) $49,730 79,097 - 79,736(C) $49,091 (deducted from accounts receivable) YEAR ENDED OCTOBER 31, 1993 Allowance for doubtful accounts $12,781 23,616 - 16,034(B) $20,363 (deducted from accounts receivable) Allowance for book returns (A) $45,576 79,345 - 75,191(C) $49,730 (deducted from accounts receivable) YEAR ENDED OCTOBER 31, 1992 Allowance for doubtful accounts $12,062 16,612 - 15,893(B) $12,781 (deducted from accounts receivable) Allowance for book returns (A) $42,880 69,912 - 67,216(C) $45,576 (deducted from accounts receivable) (A) Reflects gross allowance netted against accounts receivable. Reserves for returns to inventory and recovery of royalties payable are netted directly against those balances and are not material. (B) Write-off of uncollectible accounts net of recoveries. (C) Book actually returned during the year.
F-2 EXHIBIT INDEX Page No. 3.1 Restated Certificate of Incorporation of the Company, as amended, incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on form 10-K for the fiscal year ended October 31, 1993. 3.2 By-Laws of the Company, as amended, incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1991. 4.1 Indenture, dated as of May 1, 1987, between the Company and Manufacturers Hanover Trust Company, as Trustee and (a) Terms Agreement, dated June 23, 1987, among the Company, The First Boston Corporation and Salomon Brothers Inc. relating to the Company's 9 3/8% Subordinated Notes due 1997, incorporated herein by reference to Exhibit 4.3 to the Company's Report on Form 8-K, dated June 23, 1987, and to Exhibit 4.3 to the Company's Registration Statement on Form S-3, File No. 33-13936, and (b) Terms Agreement, dated March 16, 1988, among the Company, The First Boston Corporation and Salomon Brothers Inc relating to the Company's 9 1/2% Subordinated Notes due 2000, incorporated herein by reference to Exhibit 1 to the Company's Report on Form 8-K, dated March 16, 1988. 4.2 Indenture, dated as of April 23, 1992, between the Company and Bankers Trust Company, as Trustee, relating to the 8 1/4% Senior Notes Due 2002 and the 8 7/8% Senior Debentures Due 2022, incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, File No. 33-46148. 4.3 Smith-Lurie/Marks Stockholders' Agreement, dated December 29, 1986, as supplemented January 8, 1988, December 5, 1988, April 29, 1989 and December 5, 1990, incorporated herein by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992. *10.1 Executive Incentive Bonus Plan, as amended, incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1986. *10.2 1981 Stock Option Plan, as amended and restated, incorpor- ated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1987. *10.3 1988 Stock Incentive Plan, incorporated herein by reference to Exhibit 28.1 to the Company's Registration Statement on Form S-8, File No. 33-26079. *10.4(a) 1975 Key Executive Stock Purchase Loan Plan, as amended, incorporated herein by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1982. *10.4(b) 1983 Key Executive Stock Purchase Loan Plan, as amended, incorporated herein by reference to Exhibit 10.4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1984. *10.5 Executive Medical Plan, as amended. *10.6(a) Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1988. *10.6(b) Amendment to Supplemental Executive Retirement Plan, dated October 26, 1990, incorporated herein by reference to Exhibit 10.7(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1990. *10.7 Deferred Compensation and Retirement Income Plan for Non- Employee Directors, incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993. *10.8 Deferred Compensation Agreement between the Company and Herbert W. Jarvis, a director, incorporated herein by 2 reference to Exhibit 10.12(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1981. *10.9 Amended and Restated Deferred Compensation Agreement, dated August 27, 1990, between the Company and Richard A. Smith, incorporated herein by reference to Exhibit 10.13 the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1990. 10.10 Intercompany Services Agreement, dated as of July 24, 1987, between the Company and NMG, incorporated herein by reference to Exhibit 10.17(c) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1987. 10.11 Intercompany Services Agreement, dated as of December 14, 1993, between the Company and GC Companies, Inc., incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993. 10.12 Reimbursement and Security Agreement, dated as of December 14, 1993, between the Company and GC Companies, Inc., incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1993. *10.13 Split Dollar Life Insurance Agreement, dated as of June 21, 1990, by and between the Company and the Richard and Susan Smith 1990 Issue Trust, under a Declaration of Trust dated as of April 3, 1990, incorporated herein by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1991. *10.14 Key Employee Deferred Compensation Plan, as amended. *10.15(a) Employment Agreement, dated as of November 15, 1991, by and between the Company and Robert J. Tarr, Jr., incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1991. 3 *10.15(b) Supplemental Agreement, dated as of December 17, 1992, by and between the Company and Robert J. Tarr, Jr., incorporated herein by reference to Exhibit 10.16(b) to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1992. 10.16 Stock Purchase Agreement, dated as of June 30, 1994, among the Company, Harcourt Brace & Company, Harcourt General Insurance, Inc. and General Electric Capital Corporation, incorporated herein by reference to Exhibit 10.0 to the Company's Current Report on Form 8-K dated November 14, 1994. 11.1 Computation of Average Number of Shares Outstanding Used In Determining Primary and Fully Diluted Earnings Per Share. 13.1 1994 Annual Report to Stockholders (which is not deemed to be filed except to the extent that portions thereof are expressly incorporated by reference in this Annual Report on Form 10-K). 21.1 Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP. 27.1 Financial Data Schedule. __________________________ * Exhibits filed pursuant to Item 14(c) of Form 10-K. 4 EX-10.5 2 EXHIBIT 10.5 - EXECUTIVE MEDICAL PLAN HARCOURT GENERAL, INC. EXECUTIVE MEDICAL PLAN (Amended and Restated Effective as of December 15, 1994) I. This Plan amends and restates and renames the General Cinema Corporation Executive Medical Plan as the "Harcourt General, Inc. Executive Medical Plan" (hereinafter the "Plan"), effective December 15, 1994. This written Plan document is intended to comply with all relevant provisions of the Code and ERISA and is to be interpreted in a manner consistent with the requirements of such laws including, but not limited to, Sections 601 through 609 of ERISA and Section 4980B of the Code. The Plan shall consist of this document and the Insurance Contract. The provisions of the Insurance Contract are incorporated by reference into this Plan document. II. Until this Plan is limited or terminated, the insurance carrier issuing the Insurance Contract shall reimburse all Medical Expenses not otherwise covered by any other medical reimbursement, health, accident or other similar plan, arrangement or program ("Uninsured Medical Expenses") which are incurred by or for the benefit of Participants, their Dependent Children, or their spouses (other than spouses of Participants described in paragraph III(c) below), but such reimbursement of Uninsured Medical Expenses shall be subject to the following limitations in addition to the limitations and other terms and -1- conditions of the Insurance Contract, which is incorporated by reference: (a) The total amount payable to any Participant under this Plan shall not exceed $100,000 with respect to the aggregate Uninsured Medical Expenses incurred during any one calendar year by the family unit consisting of each such Participant, his or her spouse and Dependent Children; and of such $100,000 no more than $12,500 shall be allocable, directly or indirectly, to expenses incurred for psychological care or treatment. However, in respect to Uninsured Medical Expenses incurred for psychological care or treatment, the first $2,000 of such expenses shall be reimbursed in full and, thereafter, reimbursement shall be limited to one-half of the remainder of such Expenses up to the maximum of $12,500. (b) The amount payable to any Participant under this Plan shall be reduced to the extent reimbursement is provided for or to such Participant in respect of Medical Expenses incurred during the same calendar year by any other medical reimbursement, health, accident or other similar plan, arrangement or program. In the event there is such a plan in effect providing for such reimbursement in whole or in part, then to the extent of the coverage under such other plan this Plan shall be relieved of any liability hereunder. Liability for providing benefits under the Plan and the Insurance Contract shall be solely that of the insurer issuing the Insurance Contract. Harcourt General, Inc. shall have no liability for any benefits due, or alleged to be due, under the Insurance Contract or the Plan. III. As used in this Plan "Participants" shall mean all (a) full-time employees who are officers of Harcourt General, Inc. and such full-time key employees of Harcourt General, Inc. or of any of its subsidiaries as may, during the period of their employment, be designated as Participants by the Compensation -2- Committee of the Board of Directors of Harcourt General, Inc. (formerly General Cinema Corporation), (b) former employees who have been Participants in this Plan or the General Cinema Florida Executive Medical Plan dated May 1, 1977, and who have met the requirements for normal, late or early retirement under the Harcourt General, Inc. Retirement Plan (formerly the General Cinema Corporation Retirement Plan), but excluding any employee whose employment has been terminated for cause, and (c) the surviving spouses of the persons specified in clauses (a) and (b) of this paragraph, provided, that each Participant in the categories specified in clauses (b) and (c) of this paragraph shall pay to Harcourt General, Inc. promptly after being billed an amount which, for the Plan Year ended October 31, 1986, was $165.20 per month and which, for each succeeding Plan Year, shall be that amount per month equal to the product obtained by multiplying $165.20 by a fraction whose numerator shall be the national consumer price index (for All Urban Consumers, i.e. the "CPI-U") published in the September preceding such Plan Year and whose denominator shall be 324.5 (which was the CPI-U published in September, 1985); and provided, further, that each Participant and his or her dependents be covered to the maximum extent available by the Harcourt General, Inc. Benefit Program, Medicare Part B, or any medical reimbursement, health, accident or other similar plan offered by an employer (other than Harcourt General, Inc. or any of its subsidiaries) of such Participant or dependent. -3- During temporary leaves of absence from service for sickness or disability, or during leaves of absence provided for in the Family and Medical Leave Act of 1993, no person described in clause (a) of paragraph III hereof shall be deemed to have lost participant status unless such person terminates his or her service as an employee (otherwise than under the conditions set forth in clause (b) of the immediately preceding paragraph) or is otherwise severed from service as an employee, so that, in either case, he or she is no longer in the employ of Harcourt General, Inc. or any of its subsidiaries. For purposes of this paragraph III, GC Companies, Inc. and its subsidiaries shall no longer be considered subsidiaries of Harcourt General, Inc., effective December 15, 1993. In addition, each Participant who (1) is employed by GC Companies, Inc. or any of its subsidiaries on December 15, 1993, (2) previously retired from GC Companies, Inc. or any of its subsidiaries or from the motion picture exhibition division of Harcourt General, Inc., or (3) is the surviving spouse of a Participant described in clause (1) or (2) shall cease to be a Participant in this Plan on December 15, 1993 and shall participate instead in the GC Companies, Inc. Executive Medical Plan. All liabilities under this Plan to each such Participant shall be assumed by GC Companies, Inc., except with respect to Medical Expenses incurred before December 15, 1993 that are covered by the Insurance Contract. -4- IV. As used in this Plan "Insurance Contract" shall mean Harcourt General, Inc.'s contract with an insurance company under which reimbursement for certain Uninsured Medical Expenses is available to Participants, spouses and Dependent Children. The Insurance Contract shall be of such kind as Harcourt General, Inc., in its sole discretion, deems appropriate for the funding of the Plan. V. As used in this Plan "Medical Expenses" shall mean and be limited to those paid for medical care as defined in Section 213(d) of the Internal Revenue Code of 1986, as the same may be amended and in effect for the calendar year in which such Medical Expenses are incurred. VI. As used in this Plan "Dependent Children" shall mean only those persons who would be deemed such under Section 152(a)(1) or (2) of the Internal Revenue Code of 1986, as the same may be amended and in effect for the calendar year in which Medical Expenses are incurred. VII. As used in this Plan, "Plan Year" shall be the 12- month period beginning on each November 1 and ending on the next following October 31. VIII. Any claim for benefits under the Plan shall be filed in accordance with the provisions of the Insurance Contract and -5- such other claim procedures as may be established by the Administrator from time to time. Notice of the decision on such claim shall also be provided by the insurance company, Blue Cross-Blue Shield organization, or health maintenance organization issuing the Insurance Contract in accordance with the provisions of such Insurance Contract and ERISA. IX. Payment of amounts due pursuant to this Plan shall be made by the insurance carrier upon receipt of evidence satisfactory to the insurance carrier of the amount of Medical Expenses incurred and the amount thereof not reimbursable by any other medical reimbursement, health, accident or other similar plan, arrangement or program. Upon the written direction of the Participant, the insurance carrier may pay any or all of the above-defined reimbursable expenses directly in lieu of making reimbursement therefor. X. The administration of the Plan shall be under the supervision of the Administrator, which shall be the Employee Benefits Committee of Harcourt General, Inc. It shall be a principal duty of the Administrator to see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan without discrimination among them. The Administrator will have full power and discretion to administer the Plan in all of its details, subject to applicable requirements of law. For this -6- purpose, the Administrator's discretionary powers will include, but will not be limited to, the following discretionary authority, in addition to all other powers provided by this Plan: (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan; (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) To compute the amount of benefits which will be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the person or persons to whom such benefits will be paid; (e) To authorize the payment of benefits; (f) To appoint such agents, counsel, accountants, consultants and other persons as may be required to assist in administering the Plan; and (g) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation or designation to be by written instrument and in accordance with applicable requirements of law. Any determination by the Administrator shall be final and conclusive on all persons, in the absence of clear and convincing evidence that the Administrator acted arbitrarily and capriciously. XI. In administering the Plan, the Administrator will be entitled to the extent permitted by law to rely conclusively on all tables, valuations, certificates, opinions and reports which -7- are furnished by accountants, counsel or other experts employed or engaged by the Administrator. XII. Harcourt General, Inc. agrees to indemnify and to defend to the fullest extent permitted by law any employee serving as the Administrator or as a member of a committee designated as Administrator (including any employee or former employee who formerly served as Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by Harcourt General, Inc.) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. XIII. Harcourt General, Inc. reserves the power at any time or times to amend the provisions of the Plan to any extent and in any manner that it may deem advisable, or to terminate the Plan, by the vote of the Board of Directors of Harcourt General, Inc. or by vote of its Compensation Committee, without the approval of any other person; except that with respect to Participants described in clauses (b) and (c) of paragraph III hereof, the benefits available under this Plan shall not be reduced by any such amendment to levels that are less favorable to such Participants than those benefit levels in effect on their respective dates of termination. -8- XIV. To the extent not preempted by ERISA or any other federal statutes or regulations, this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, Harcourt General, Inc. has caused this amended and restated Plan to be executed in its name and on its behalf by its duly authorized representative as of December 15, 1994. HARCOURT GENERAL, INC. By:________________________ Title:_____________________ -9- EX-10.14 3 KEY EMPLOYEE DEFERRED COMPENSATION PLAN HARCOURT GENERAL, INC. KEY EMPLOYEE DEFERRED COMPENSATION PLAN (Amended and Restated Effective March 15, 1993) TABLE OF CONTENTS ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . 1 1.1. Purpose of Plan . . . . . . . . . . . . . . . . . 1 1.2. Status of Plan . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . 1 2.1. "Account" . . . . . . . . . . . . . . . . . . . . 1 2.2. "Base Pay" . . . . . . . . . . . . . . . . . . . . 2 2.3. "Bonus" . . . . . . . . . . . . . . . . . . . . . 2 2.4. "Code" . . . . . . . . . . . . . . . . . . . . . . 2 2.5. "Committee" . . . . . . . . . . . . . . . . . . . 2 2.6. "Company" . . . . . . . . . . . . . . . . . . . . 2 2.7. "Compensation" . . . . . . . . . . . . . . . . . . 2 2.8. "Effective Date" . . . . . . . . . . . . . . . . . 3 2.9. "Elective Deferral" . . . . . . . . . . . . . . . 3 2.10. "Eligible Employee" . . . . . . . . . . . . . . . 3 2.11. "ERISA" . . . . . . . . . . . . . . . . . . . . . 3 2.12. "Financial Hardship" . . . . . . . . . . . . . . 4 2.13. "Matching Deferral" . . . . . . . . . . . . . . . 4 2.14. "Participant" . . . . . . . . . . . . . . . . . . 5 2.15. "Plan" . . . . . . . . . . . . . . . . . . . . . 5 2.16. "Plan Year" . . . . . . . . . . . . . . . . . . . 5 2.17. "Retirement" . . . . . . . . . . . . . . . . . . 5 2.18. "Savings Plan" . . . . . . . . . . . . . . . . . 5 2.19. "Year of Service" . . . . . . . . . . . . . . . . 5 ARTICLE 3. PARTICIPATION . . . . . . . . . . . . . . . . . . 5 3.1. Commencement of Participation . . . . . . . . . . 5 3.2. Continued Participation . . . . . . . . . . . . . 6 ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS . . . . . . . . . 6 4.1. Elective Deferrals . . . . . . . . . . . . . . . . 6 4.2. Matching Deferrals . . . . . . . . . . . . . . . . 7 ARTICLE 5. ACCOUNTS; INTEREST . . . . . . . . . . . . . . . 8 5.1. Accounts . . . . . . . . . . . . . . . . . . . . . 8 5.2. Interest . . . . . . . . . . . . . . . . . . . . . 8 5.3. Payments . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 6. PAYMENTS . . . . . . . . . . . . . . . . . . . . 9 6.1. Time and Form of Payment . . . . . . . . . . . . . 9 6.2. Termination of Employment . . . . . . . . . . . . 10 6.3. Death . . . . . . . . . . . . . . . . . . . . . . 10 6.4. Reduction in Shareholders' Equity . . . . . . . . 11 6.5. Hardship . . . . . . . . . . . . . . . . . . . . . 11 6.6. Changes in Time and Form of Payment . . . . . . . 12 6.7. Payment Dates . . . . . . . . . . . . . . . . . . 12 6.8. Withholding . . . . . . . . . . . . . . . . . . . 12 6.9. Spinoff of GC Companies, Inc . . . . . . . . . . . 12 -i- ARTICLE 7. COMMITTEE . . . . . . . . . . . . . . . . . . . . 13 7.1. Plan Administration and Interpretation . . . . . . 13 7.2. Powers, Duties, Procedures, Etc . . . . . . . . . 14 7.3. Information . . . . . . . . . . . . . . . . . . . 14 7.4. Indemnification of Committee . . . . . . . . . . . 15 ARTICLE 8. AMENDMENT AND TERMINATION . . . . . . . . . . . . 15 8.1. Amendments . . . . . . . . . . . . . . . . . . . . 15 8.2. Termination of Plan . . . . . . . . . . . . . . . 15 8.3. Existing Rights . . . . . . . . . . . . . . . . . 16 ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 16 9.1. No Funding . . . . . . . . . . . . . . . . . . . . 16 9.2. Nonassignability . . . . . . . . . . . . . . . . . 16 9.3. Limitation of Participants' Rights . . . . . . . . 17 9.4. Participants Bound . . . . . . . . . . . . . . . . 17 9.5. Receipt and Release . . . . . . . . . . . . . . . 17 9.6. Governing Law . . . . . . . . . . . . . . . . . . 18 9.7. Headings and Subheadings . . . . . . . . . . . . . 18 -ii- HARCOURT GENERAL, INC. KEY EMPLOYEE DEFERRED COMPENSATION PLAN ARTICLE 1. INTRODUCTION 1.1. Purpose of Plan. The Company originally adopted the General Cinema Corporation Key Employee Deferred Compensation Plan, effective December 14, 1990, to provide a means by which certain employees who are not eligible to participate in the Savings Plan may elect to defer receipt of designated percentages of their Compensation. The Company hereby amends and restates the Plan to make certain clarifications and to rename the Plan, coincident with the name change of the Company, the "Harcourt General, Inc. Key Employee Deferred Compensation Plan." 1.2. Status of Plan. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2) and 301(a)(3) of ERISA, and shall be interpreted and administered to the extent possible in a manner consistent with that intent. ARTICLE 2. DEFINITIONS Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: 2.1. "Account" means, for each Participant, the account established for his or her benefit under Section 5.1. -1- 2.2. "Base Pay" means the base salary payable to an employee by the Company and its subsidiaries, including amounts that would have been payable to the employee as base salary but for an election under Section 125 of the Code or a deferral election under this Plan. 2.3. "Bonus" means any cash bonus payable to an employee by the Company and its subsidiaries, including any portion of such a bonus that would have been payable to the employee but for an election under Section 125 of the Code or a deferral election under this Plan. However, the term "Bonus" shall not include any amount paid under or in connection with a stock appreciation right or stock option plan or arrangement. 2.4. "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.5. "Committee" means the Harcourt General, Inc. Employee Benefits Committee or any successor committee appointed by the Board of Directors of Harcourt General, Inc. or its delegate. 2.6. "Company" means Harcourt General, Inc. (formerly General Cinema Corporation), a Delaware corporation, and any successor to all or substantially all of the Company's assets or business which assumes the obligations of the Company. 2.7. "Compensation" means Base Pay and any Bonus payable to an employee. -2- 2.8. "Effective Date" means December 14, 1990. 2.9. "Elective Deferral" means the portion of Compensation which is deferred by a Participant under Section 4.1. 2.10. "Eligible Employee" means each officer or employee of the Company (or, until December 15, 1993, any subsidiary of the Company that was directly or indirectly wholly owned by the Company on the Effective Date) who, on the first day of any month, (a) has completed at least one Year of Service, or such shorter period of service as may be specified by the Chief Executive Officer of Harcourt General, Inc. in such Officer's sole discretion; and (b) had in effect on November 1 of the preceding calendar year (or, if later, on the employee's date of hire) an annual rate of Base Pay of at least $150,000 (over $90,000 in the case of an employee who is an Eligible Employee before January 1, 1994 under the terms of the Plan in effect on March 14, 1993). Notwithstanding the foregoing, no individual who was not already an Eligible Employee on January 1, 1993 shall become an Eligible Employee prior to July 1, 1993. An Eligible Employee shall remain an Eligible Employee notwithstanding any reduction in his or her annual rate of Base Pay below the applicable minimum under (b) above. 2.11. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any -3- section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.12. "Financial Hardship" means an immediate and heavy financial need resulting from (a) major medical expenses incurred to obtain, or necessary to obtain, medical care (described in Section 213(d) of the Code) with respect to the Participant or his or her spouse or dependent which are not covered by insurance; (b) costs directly related to the purchase of a principal residence of the Participant (excluding mortgage payments); (c) the payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant or his or her spouse, children, or dependents; (d) payments necessary to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence; or (e) any other circumstance that is determined by the Committee in its sole discretion to constitute a severe hardship need. 2.13. "Matching Deferral" means a deferral made for the benefit of a Participant under Section 4.2. -4- 2.14. "Participant" means any individual who participates in the Plan in accordance with Article 3. 2.15. "Plan" means the Harcourt General, Inc. Key Employee Deferred Compensation Plan set forth herein and all subsequent amendments hereto. 2.16. "Plan Year" means the calendar year. 2.17. "Retirement" means retirement in accordance with the normal, late, or early retirement provisions of the Harcourt General, Inc. Retirement Plan. 2.18. "Savings Plan" means the Harcourt General, Inc. Employee Savings Plan, effective June 1, 1984, as amended from time to time. 2.19. "Year of Service" means a twelve month period, beginning on the date the employee first performs an hour of service or on any January 1 thereafter, in which the employee is credited with 1,000 or more hours of service. For this purpose, an "hour of service" shall have the same meaning as under the Savings Plan. ARTICLE 3. PARTICIPATION 3.1. Commencement of Participation. Any individual who was a Participant in the Plan on March 14, 1993 shall continue to be a Participant under this restatement of the Plan, provided that an amount remains credited to his or her Account on March 15, 1993. Any other Eligible Employee shall become a Participant on -5- the effective date of an election to defer Compensation in accordance with Section 4.1. 3.2. Continued Participation. An individual who has become a Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account. ARTICLE 4. ELECTIVE AND MATCHING DEFERRALS 4.1. Elective Deferrals. (a) An individual who is an Eligible Employee on any January 1 may elect to defer a designated whole percentage, not to exceed 15 percent, of all Base Pay that is payable to the individual for services to be performed on or after that date, and all Bonuses payable to the individual for Company fiscal years ending after that date, by filing an election with the Committee prior to that January 1. In addition, an individual may elect before the date he or she becomes an Eligible Employee, or within 30 days thereafter, to defer a designated whole percentage, not to exceed 15 percent, of all Base Pay that is payable to the individual for services to be performed after such election (or, if later, after the date he or she becomes an Eligible Employee), and all Bonuses payable to the individual for Company fiscal years ending thereafter. (b) Each election under paragraph (a) shall be made in writing on a form approved or prescribed by the Committee, and shall specify the time and form of distribution of the -6- amounts deferred and of related Matching Deferrals as provided in Section 6.1. The same deferral percentage shall apply to each payment of Compensation covered by the election, and the amount of each such payment that is deferred hereunder shall be credited to the Participant's Account as of the date such amount would otherwise have been paid to the Participant. (c) A Participant may revoke his or her deferral election with respect to Base Pay earned on or after the first day of any pay period, and with respect to Bonuses payable for fiscal years ending on or after that day, by giving written notice to the Committee before that day (or by such earlier date as the Committee may prescribe). However, except as otherwise provided in Section 6.5, a Participant may otherwise modify an existing election, or may make another deferral election, only as of a January 1, and only with respect to Base Pay earned thereafter, and Bonuses payable for fiscal years ending thereafter, in accordance with paragraphs (a) and (b) above. 4.2. Matching Deferrals. As of the last day of each calendar month, the Company shall credit to each Participant's Account a Matching Deferral equal to the sum of (a) 100% of the Participant's Elective Deferrals for the month which do not exceed the first two percent of his or her Compensation payable during the month and (b) 25% of the Participant's Elective -7- Deferrals for the month that do not exceed the next four percent of his or her Compensation payable during the month. ARTICLE 5. ACCOUNTS; INTEREST 5.1. Accounts. The Committee shall establish an Account for each Participant reflecting Elective Deferrals and Matching Deferrals for the Participant's benefit and any adjustments hereunder. Within 45 days after the end of each calendar quarter, the Committee shall provide the Participant with a statement of his or her Account. 5.2. Interest. As of the last day of each calendar quarter, the Committee shall credit each Participant's Account with interest on the balance of such Account from time to time during the calendar quarter at an annual rate equal to the average prime interest rate published in the Eastern Edition of The Wall Street Journal on the last business day of the calendar quarter (or, if two or more such rates are published, the mean of such rates), increased by two percentage points. In addition, any payment under Article 6 which is not made on the first day of a calendar quarter shall be increased by interest on the amount of such payment, from the end of the preceding calendar quarter, at the interest rate applicable for the preceding calendar quarter. 5.3. Payments. Each Participant's Account shall be reduced by the amount of any payment made to or on behalf of the -8- Participant under Article 6 (including any interest paid with respect to such payment) as of the date such payment is made. ARTICLE 6. PAYMENTS 6.1. Time and Form of Payment. When a Participant elects to defer Compensation in accordance with Section 4.1, the Participant shall also elect the time at which the Elective Deferrals and related Matching Deferrals (including interest attributable thereto) will be paid or begin to be paid to the Participant, from among the following options: (a) 5, 10, 15 or 20 years after the end of the Plan Year in which the Compensation deferred would otherwise have been paid; (b) attainment of age 65; or (c) retirement. The Participant shall also elect the form of payment of such amounts, from among the following options: (i) a single lump sum payment; or (ii) annual installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of his or her Account immediately prior to the installment divided by the number of installments remaining to be paid. The foregoing elections shall be made on a form approved or prescribed by the Committee. Each such election shall be irrevocable with respect to amounts deferred while the election -9- remains in effect (and with respect to related Matching Deferrals and interest), except as otherwise provided in Section 6.2, 6.3, 6.4, 6.5 or 6.6. 6.2. Termination of Employment. Upon termination of a Participant's employment with the Company and its affiliates for any reason other than death or Retirement, the Participant's Account shall be paid to the Participant in a single lump sum payment as soon as practicable following the date of such termination. 6.3. Death. If a Participant dies prior to the complete distribution of his or her Account, the balance of the Account shall be paid as soon as practicable to the Participant's designated beneficiary or beneficiaries, in the form elected by the Participant from among the following options: (a) a single lump sum payment; or (b) subject to Section 6.4, annual installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of the Account immediately prior to the installment divided by the number of installments remaining to be paid. Any designation of beneficiary and form of payment shall be made by the Participant in writing on a form approved or prescribed by the Committee, and may be changed by the Participant at any time. If there is no such designation or no designated beneficiary survives the Participant, payment shall be made to the Participant's surviving spouse or, if none, to his or her issue -10- per stirpes, in a single lump sum payment. If no spouse or issue survives the Participant, payment shall be made in a single lump sum to the Participant's estate. 6.4. Reduction in Shareholders' Equity. If at any time the shareholders' equity of the Company, as shown on the Company's consolidated balance sheet reported in its then most recent annual or quarterly report filed with the U.S. Securities and Exchange Commission, falls below $500 million, each Participant's Account shall be paid as soon as practicable to the Participant (or, if the Participant has died, to his or her beneficiary) in a single lump sum. 6.5. Hardship. If a Participant suffers a Financial Hardship, the Committee, in its sole discretion, may pay to the Participant that portion, if any, of his or her Account which the Committee determines is necessary to satisfy the hardship need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the hardship payment, but only to the extent such need cannot reasonably be relieved by the liquidation of the Participant's assets (to the extent that such liquidation would not in itself cause hardship) or by cessation of Elective Deferrals. A Participant who has a Financial Hardship may also cease or reduce future Elective Deferrals with the consent of the Committee. A Participant requesting a distribution, or a cessation or reduction of future Elective Deferrals, on account of a Financial Hardship shall apply in writing in a letter submitted to the -11- Committee and shall provide such information as the Committee may require. 6.6. Changes in Time and Form of Payment. The Committee may, in its sole discretion, at the request of or with the consent of the Participant, change the time at which any Elective Deferral or Matching Deferral will be paid or begin to be paid to the Participant under Section 6.1, or the form of such payment, or both, provided that (a) no such change may be made less than 24 months prior to the date such Elective Deferral or Matching Deferral would otherwise have been paid or commenced to be paid, and (b) the form of payment shall be a form described in clause (i) or (ii) of Section 6.1. 6.7. Payment Dates. Each payment under Section 6.1, 6.2, 6.3 or 6.6 shall be made on or about the first day of a calendar quarter. 6.8. Withholding. Each payment otherwise due under the Plan shall be reduced by withholding taxes and other legally required deductions. 6.9. Spinoff of GC Companies, Inc. As of December 15, 1993, the date the common stock of GC Companies, Inc. is distributed to the stockholders of the Company: (a) any Eligible Employee who, immediately after such distribution, is employed by GC Companies, Inc. or any of its subsidiaries shall cease to be an Eligible Employee at the time of such distribution; -12- (b) the Account of each Participant who is, immediately after such distribution, employed by GC Companies, Inc. or any of its subsidiaries, or who previously ceased to be employed by GC Companies, Inc., any of its subsidiaries, or the Company's motion picture exhibition division and has not thereafter been employed by the Company or any of its directly or indirectly wholly owned subsidiaries, shall cease to be maintained under this Plan, and an account with the same balance shall be established under the GC Companies, Inc. Key Employee Deferred Compensation Plan; and (c) the Company shall have no further obligation under this Plan with respect to such Accounts or Participants. Notwithstanding any other provision of this Plan to the contrary, neither the distribution of GC Companies, Inc. common stock to stockholders of the Company nor the transfer of employment of any Participant from the Company or any of its subsidiaries to GC Companies, Inc. or any of its subsidiaries in connection with such distribution shall be treated as a retirement or other termination of employment that would entitle the Participant to any benefit payments under this Plan. ARTICLE 7. COMMITTEE 7.1. Plan Administration and Interpretation. The Committee shall oversee the administration of the Plan. The Committee shall have complete control and authority to determine the rights -13- and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or other person having or claiming to have any interest under the Plan. The Committee shall have the exclusive power to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Committee acted arbitrarily and capriciously. Any individual serving on the Committee who is a Participant will not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant, a beneficiary, or the Company. The Committee shall be deemed to be the Plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA. 7.2. Powers, Duties, Procedures, Etc. The Committee shall have such powers and duties, may adopt such rules and tables, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties, may receive such reimbursements and compensation, and shall follow such claims and appeal procedures with respect to the Plan as are permitted or required under the terms of the Savings Plan. 7.3. Information. To enable the Committee to perform its functions, the Company shall supply full and timely information -14- to the Committee on all matters relating to the compensation of Participants, their employment, retirement, death, termination of employment, and such other pertinent facts as the Committee may require. 7.4. Indemnification of Committee. The Company agrees to indemnify and to defend to the fullest extent permitted by law any officer or employee who serves as a member of the Committee (including any such individual who formerly served as a member of the Committee) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. ARTICLE 8. AMENDMENT AND TERMINATION 8.1. Amendments. The Company shall have the right to amend this Plan from time to time, subject to Section 8.3, by an instrument in writing which has been executed by its duly authorized officer. 8.2. Termination of Plan. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any employee or a consideration for, or an inducement or condition of employment for, the performance of services by any employee. The Company reserves the right to terminate this Plan at any time, -15- subject to Section 8.3, by an instrument in writing which has been executed by its duly authorized officer. 8.3. Existing Rights. No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts credited to his or her Account that are attributable to Elective Deferrals or Matching Deferrals credited prior to the date of such amendment or termination. ARTICLE 9. MISCELLANEOUS 9.1. No Funding. Nothing in this Plan will be construed to create a trust or to obligate the Company or any other person to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give any employee or any other person rights to any specific assets of the Company or of any other person. Any benefits which become payable hereunder shall be paid from the general assets of the Company. 9.2. Nonassignability. None of the benefits, payments, proceeds or claims of any Participant or beneficiary shall be subject to any claim of any creditor and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor, nor shall any Participant or beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he -16- may expect to receive, contingently or otherwise, under this Plan. 9.3. Limitation of Participants' Rights. Participation in this Plan shall not give any Eligible Employee the right to be retained in the employ of the Company or any right or interest in the Plan other than as herein provided. The Company reserves the right to dismiss any Eligible Employee without any liability for any claim against the Company, except to the extent provided herein. 9.4. Participants Bound. Any action with respect to this Plan taken by the Committee or the Company or any action authorized by or taken at the direction of the Committee or the Company shall be conclusive upon all Participants and any other persons who claim entitlement to benefits under the Plan. 9.5. Receipt and Release. Any payment to any Participant or beneficiary in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company and the Committee under this Plan, and the Committee may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Committee may cause the payment or -17- payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Committee or the Company to follow the application of such funds. 9.6. Governing Law. This Plan shall be construed, administered, and governed in all respects under and by the laws of the Commonwealth of Massachusetts. If any provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 9.7. Headings and Subheadings. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer this ______ day of _______________, 1994. HARCOURT GENERAL, INC. By: ____________________________ -18- EX-11.1 4 EXHIBIT 11.1 - COMPUTATION OF AVERAGE NUMBER OF SH EXHIBIT 11.1 HARCOURT GENERAL, INC. AND SUBSIDIARIES OCTOBER 31, 1994 EXHIBIT TO FORM 10-K
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING USED IN DETERMINING PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (In thousands) 1994 1993 1992 PRIMARY 1. Weighted average number of Common shares outstanding 77,802 76,493 75,554 2. Assumed conversion of Series A Cumulative Convertible Preferred Stock 1,677 2,736 3,449 3. Assumed exercise of certain stock options based on average market value during the year 330 396 136 4. Weighted average number of shares used in primary per share computations 79,809 79,625 79,139 FULLY DILUTED (A) 1. Weighted average number of Common shares outstanding 77,802 76,493 75,554 2. Assumed exercise of Series A Cumulative Convertible Preferred Stock 1,677 2,736 3,449 3. Assumed exercise of certain stock options based on market value at October 31 340 420 178 4. Weighted average number of shares used in primary per share computations 79,819 79,649 79,181 (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%.
EX-13.1 5 HARCOURT GENERAL [logo] 1994 ANNUAL REPORT [stack of books] 1 Company Profile 2 Shareholder Letter 6 Corporate Overview 8 Publishing 14 Specialty Retailing 18 Professional Services 19 Mission Statement 20 Financial Section 44 Directors and Officers 45 Shareholder Information COMPANY PROFILE Harcourt General's operating businesses in publishing, specialty retailing and professional services represent valuable corporate assets. Our principal objective as managers of those assets is to enhance their value to shareholders. Harcourt Brace's worldwide PUBLISHING operations include a well-balanced mix of educational, scientific, technical, medical, professional and trade publishing businesses. Each holds a leadership position in its market segment and, importantly, has the potential to strengthen that position even further. Our SPECIALTY RETAILING operations consist of Neiman Marcus stores, NM Direct, Bergdorf Goodman and Contempo Casuals - some of the most valuable consumer franchises in the retail industry today. These businesses are well-positioned to provide a meaningful return to shareholders in coming years. Drake Beam Morin's PROFESSIONAL SERVICES operation is the leading provider of human resources consulting services to corporations worldwide and continues to explore opportunities to build its business both domestically and internationally. Each of these corporate assets has the potential to significantly increase the value of Harcourt General over the long-run. We, as managers and shareholders, are charged with making that potential a reality. This report expands on our continuing efforts and progress in achieving this objective. TO OUR SHAREHOLDERS In last year's annual report we talked about developing a strategy and laying the groundwork for growth in years to come. We talked about our focus on creating value through a variety of means - * STREAMLINING OUR OPERATIONS TO MAKE THEM MORE COMPETITIVE; * SEEKING OPPORTUNITIES FOR GROWTH FROM EXISTING BUSINESSES; AND * ACCELERATING GROWTH THROUGH ACQUISITIONS. We are pleased to report that 1994 was a year of achievement in each of these strategic challenges. We were able to meet our earnings objectives for 1994 despite reduced selling opportunities in the educational publishing area and a continued difficult operating environment for our Contempo Casuals retail stores. Prior to a restructuring charge at Contempo, earnings from continuing operations rose to $1.57 per share from $1.50 per share in 1993. The 1993 figure includes 15 cents per share of income from non-recurring items. Fiscal 1994 operating earnings from continuing operations prior to the Contempo restructuring charge grew 12.0% to $272.8 million from $243.5 million in 1993. Total revenues from continuing operations increased slightly for the year to $3.2 billion compared to revenues of $3.1 billion in 1993. Overall, we are satisfied with our financial results in what we expected to be a year of measured improvement for our operations. More importantly, we are proud of the progress made on several of our strategic imperatives that are laying the groundwork for future growth. - ------------------------------------------------------------------------------- STREAMLINING FOR GROWTH We continued our efforts last year to further streamline the Company. In December of 1993, we spun off General Cinema Theatres along with $64 million in cash in a tax-free distribution to our shareholders. We believed that business would receive a higher market valuation over time as a stand-alone company than it did as part of Harcourt General. The new public corporation, GC Companies, Inc., is listed on the New York Stock Exchange. In June of 1994, we reached an agreement to sell the Harcourt General Insurance Companies to GNA Corp., an affiliate of GE Capital, for $400 million in cash. That transaction closed in October 1994, and the insurance business is treated as a discontinued operation in this report. In addition to the desire to further simplify Harcourt General, an important consideration for us in evaluating the insurance business was that it was not a cash generator for the parent company. In fact, the business required additional funds to maintain regulatory capital requirements as it grew. We believe our shareholders will be better served by using the sale proceeds - approximately $375 million after-tax - to reinvest in our existing businesses or in new areas which we find attractive. We took decisive action during the year to address the ongoing weakness at Contempo Casuals, our fashion-forward junior retailing chain. That business has been negatively affected by continuing softness in the junior apparel market and by a lack of new fashion trends. Reduced mall traffic and unsuccessful merchandising strategies have also contributed to operating losses at Contempo over the past several years. In response to these conditions, we recognized a $48.4 million pre-tax restructuring charge during the third quarter of 1994 to cover the closing of 40 under-performing Contempo stores and the discontinuation of the 39-store Pastille chain that Contempo had been testing. Other cost cutting actions taken at Contempo over the past year include the closing of Contempo's Hong Kong buying office and the elimination of its in-house production department. These efforts have significantly improved the outlook for this segment of our retail operations. - ------------------------------------------------------------------------------ PROGRESS IN CORE BUSINESSES Publishing and Specialty Retailing One of the most important ways we can create value for shareholders is by managing growth at our existing RICHARD A. SMITH (LEFT), ROBERT J. TARR, JR. 2 operations. Our core businesses - publishing and specialty retailing - continued their progress in 1994. We believe these businesses offer substantial opportunities for revenue increases and profit margin improvement going forward. - ------------------------------------------------------------------------------- PUBLISHING Performance in a Year of Modest Opportunity We continue to be pleased with the overall performance and outlook for our publishing operations. The Harcourt Brace publishing business is an exceptionally attractive one given its strong cash generating characteristics as well as the solid reputation of its many well-established imprints. The intellectual property that we as publishers create and hold is a vital asset that will benefit from the advent of new technologies and distribution methods. Quality content and editorial reputation will remain the primary determinants of success in this new environment, and our position is secure. We are working on a number of fronts to incorporate technology as appropriate in all of our publishing operations. We have technology groups in each of our major publishing units and have introduced multimedia products to meet market demand. Importantly, we announced a product development collaboration in December of 1994 with Edmark Corporation to develop new lines of multimedia educational software products for the elementary school market. As expected, publishing revenues in 1994 decreased slightly to $919.5 million from $944.5 million in 1993, primarily the result of anticipated revenue declines in elementary and secondary publishing due to reduced state textbook purchase schedules. Despite this revenue decline, the Harcourt Brace publishing businesses achieved operating earnings of $165.4 million in 1994, a 16.4% increase over operating earnings of $142.2 million in 1993. These results are due to effective expense controls and a strong performance by our STMP group, which includes our scientific, technical, medical and professional publishing businesses. The adoption schedule - the number of states planning to purchase textbooks - will work in our favor over the next several years, presenting strong revenue opportunities in both the elementary and secondary school areas. Increasing enrollments and improved funding prospects further brighten the outlook for our educational businesses. Most importantly, our enhanced product development efforts and major capital commitment will create significant growth opportunities for both our educational and STMP publishing businesses. Over the three years that we've managed these publishing businesses, we've invested approximately $320 million in capital expenditures, with roughly 90% of those funds devoted to developing new products and revising existing programs across all of our publishing operations. Over the next three years, we expect to invest more than $400 million in publishing, again with the vast majority of those funds going toward product development. The cash from these capital expenditures is rapidly recovered through accelerated depreciation over a period of three to five years. Our outlook for our publishing businesses is very positive. We expect strong revenue growth in 1995, led by our elementary school business, which will benefit from an increased number of state adoptions. We should also see another year of steady growth in our STMP businesses and continued progress in our foreign operations. International sales including our London operation, which is part of the STMP group, totaled just over $140 million in 1994. Although we anticipate substantial publishing revenue growth in 1995, we will be incurring significant initial-year expenses to support our selling and marketing efforts, particularly in the elementary area. As a result, the growth in publishing operating earnings in 1995 will likely be somewhat less than the revenue growth rate. Beyond 1995, the prospects for further expansion in publishing are excellent as we gain market share from our substantial investment in product development. - ------------------------------------------------------------------------------- SPECIALTY RETAILING Momentum at the High-End The upscale retailing operations of the Neiman Marcus Division - Neiman Marcus stores and NM Direct - made significant progress in 1994 in attracting new customers, improving margins and growing operating earnings. At Bergdorf Goodman, several unusual factors - including difficult weather conditions and the opening of a new competitor nearby - hampered results, 3 and that business showed a modest decline in operating earnings for the year. These circumstances, coupled with a significantly larger operating loss at Contempo, mask the very strong earnings performance achieved by the Neiman Marcus Division. Prior to the $48.4 million pre-tax restructuring charge at Contempo, our specialty retailing operations had essentially an operating earnings in 1994 of $120.7 million, compared to operating earnings of $120.2 million in 1993. Prior to the restructuring charge, which amounted to $0.35 per share, the specialty retailing segment contributed $0.52 per share to Harcourt General's results. In 1993, the specialty retailing contribution was $0.71 per share and included non-recurring other income of $0.15 per share. We are working diligently to improve Contempo's operating performance in 1995 and are encouraged by our progress. Strong momentum at the Neiman Marcus Division continues, and we are confident that Bergdorf Goodman will rebound from 1994's results. Our specialty retailing operations as a whole are poised to begin realizing an attractive return for shareholders on the substantial investments which have been made in these businesses. PROFESSIONAL SERVICES The corporate career transition (outplacement) operations of Drake Beam Morin (DBM) faced very difficult comparisons in the 1994 fiscal year given their exceptionally strong performance in 1993, when two major corporate projects accounted for an unusually large percentage of DBM's total revenues. With work on those two projects diminishing in 1994, revenues declined 3.0% to $141.8 million. Operating earnings for the year were $22.1 million, a 22.3% decline. Programs to bring the expense structure in line with the lower revenue base were initiated during the second half of the year and should help stabilize DBM's operating results in 1995 and position it for growth in the years ahead. GROWTH THROUGH ACQUISITIONS In addition to managing our existing operations, we are also actively seeking appropriate avenues for growth through acquisitions, and we have purchased a number of smaller publishing properties over the past year. These acquisitions will enhance value by rounding out an existing product line, providing access to new or complementary fields of publishing or facilitating access to new distribution channels. - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - Results from Continuing Operations
(In millions, except for per share data) 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ - -- Revenues $ 3,154.2 $ 3,107.7 $ 2,795.1 Operating earnings 224.4 (1) 243.5 188.1 Operating margin 7.1% (1) 7.8% 6.7% Earnings from continuing operations 97.5 (1) 119.5 80.2 Per share $ 1.22 (1) $ 1.50(2) $ 1.01 Net cash provided by continuing operations 189.8 210.1 201.3 Capital expenditures 196.2 159.9 186.0 Shareholders' equity 1,047.4 1,051.6 924.4 Common dividends paid $ 0.61 $ 0.57 $ 0.53 - -------------------------------------------------------------------------------------------------------------------- (1) After a specialty retailing restructuring charge of $48.4 million, or $0.35 per share. (2) Includes other income of $0.15 per share resulting from the settlement of legal and tax issues with Broadway Stores, Inc.
4 For example, The Psychological Corporation, our testing business, acquired Communication Skill Builders (CSB), a developer of therapy products for use by speech, language and hearing clinicians in schools and health care institutions. CSB's products fit well with The Psychological Corporation's existing portfolio of speech and language assessment products. Harcourt Brace School, our elementary school publishing business, acquired Brown-ROA, a leading educational publisher of religious textbooks and technology products for the pre-school through adult education markets. While adding a valuable product line, this business will also enable our elementary operation to more effectively sell Harcourt Brace products to parochial schools. In the STMP area, we acquired a number of newsletter publications for tax professionals for Harcourt Brace Professional Publishing as well as several veterinary publications for our WB Saunders medical publishing business. Following our sale of the insurance operations, Harcourt General has a cash balance of approximately $820 million. Our operating units will not require that cash to expand their businesses going forward. Therefore, our current cash balance and our substantial unused borrowing power are available to pursue acquisition opportunities to enhance the Company's growth prospects and build total shareholder value. We continue to search for an acquisition of size to expand our presence in publishing or to enter a new business area. - ------------------------------------------------------------------------------- ORGANIZATIONAL CHANGES We would like to welcome Dr. Clifton R. Wharton, Jr. to the Harcourt General Board of Directors. Dr. Wharton is a former United States Deputy Secretary of State and served as chairman and chief executive officer of the Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF). Gerald T. Hughes, who has been with Harcourt General for six years, was promoted to the new position of vice president, human resources in 1994. Mr. Hughes had been associate general counsel with responsibility for all legal matters pertaining to labor and employment for the Company. It is with regret that we inform you of the resignation for health reasons of Richard T. Morgan as president and chief executive officer of Harcourt Brace & Company, effective January 15, 1995. We thank Dick for his excellent service to the Company since he joined Harcourt General in June of 1992. He is an outstanding publisher and an individual of the highest caliber, and we wish him all the best. The Board of Directors voted in September to increase the quarterly cash dividend on the Company's Common Stock from 15 cents to 16 cents per share, an increase of 6.7%. This is the 26th consecutive year in which the Board has increased the cash payment to shareholders and the 36th consecutive year in which the Company has paid cash dividends. - ------------------------------------------------------------------------------- WHAT'S AHEAD What follows in this report is an in-depth discussion of our operations - the valuable assets that we are managing on behalf of Harcourt General's shareholders. In the publishing area, you'll read how we're working to build upon the strong foundation represented by our wide array of publishing businesses. In specialty retailing, you'll learn how our upscale businesses are strategically positioned for growth, which - coupled with an anticipated improvement at Contempo - bodes well for attractive returns in the years ahead. Our Company's prospects are excellent. We expect both of our core businesses to continue their growth, not only in the coming year, but throughout the remainder of the decade. We would like to take this opportunity to extend our sincere appreciation to all of the employees who are responsible for these results. Thanks to them, our Company remains strong and well-positioned for long-term growth. Sincerely, [signatures] [signatures] Richard A. Smith Robert J. Tarr, Jr. Chairman of the Board President and Chief Executive Officer January 6, 1995 5 HARCOURT BRACE HOLT, RINEHART AND WINSTON THE PSYCHOLOGICAL CORPORATION ACADEMIC PRESS W.B. SAUNDERS CORPORATE OVERVIEW PUBLISHING Harcourt Brace & Company owns some of the world's most prestigious publishing imprints - imprints which distinguish quality products for the educational, scientific, technical, medical, professional and trade markets worldwide. Harcourt Brace and Holt, Rinehart and Winston are the Company's educational imprints used on textbooks, technology products and other instructional materials for elementary and secondary schools. The college division publishes its products under the Harcourt Brace, Saunders and Dryden Press imprints. The Psychological Corporation is the country's largest for- profit publisher of tests for educational, psychological, clinical and professional assessment. Academic Press, WB Saunders and Harcourt Brace Professional Publishing constitute the Company's STMP operations. Academic Press is well known as a leading international publisher of books and scholarly journals in the life, physical and social sciences. WB Saunders is the world's leading publisher of medical books and periodicals for the health sciences. Harcourt Brace Professional Publishing produces accounting and tax practice reference materials for professionals in those fields. The Company also conducts the country's largest bar examination review program under the BAR/BRI name as well as review courses for accounting professionals. Harcourt Brace serves the international markets through offices in London, Tokyo, Sydney, Toronto and Montreal as well as a foreign export division based in Orlando, Florida. These operations publish in their local markets and distribute domestic educational and STMP product internationally. The Company's trade division publishes distinguished literature for adults and children. 1994 REVENUE CONTRIBUTION [pie 29% chart] 66% 5% [scale] Publishing Specialty Retailing Professional Services
HISTORICAL REVENUE CONTRIBUTION (Dollars in millions) $3,154.2 $3,107.7 $2,795.1 $ 919.5 $ 944.5 $ 865.3 $2,092.9 $2,016.9 $1,808.4 $ 121.4 $ 146.3 $ 141.8 ------------------------------------------------------------- 1992 1993 1994
6 1994 OPERATING EARNINGS CONTRIBUTION (1) [pie 28% chart] 64% 8% [scale] Publishing Specialty Retailing Professional Services
HISTORICAL OPERATING EARNINGS CONTRIBUTION(1) (Dollars in millions) $ 290.8 $ 259.8 $ 229.9 $ 142.2 $ 165.4 $ 124.5 $ 120.2 $ 81.5 $ 72.3 $ 23.9 $ 28.4 $ 22.1 ---------------------------------------- 1992 1993 1994
(1) Operating earnings are prior to corporate expenses but include a $48.4 million specialty retailing restructuring charge in 1994. SPECIALTY RETAILING The Company's specialty retailing operations include valuable and well-recognized consumer franchises with a primary focus on the fashion-conscious high-end customer seeking exceptional service and unique designer merchandise. Neiman Marcus, a leading upscale specialty retailer, serves customers through 27 stores in 24 cities nationwide. The Company's state-of-the-art direct marketing operation, NM Direct, includes the well-known Horchow catalogues in addition to those of Neiman Marcus. Bergdorf Goodman and Bergdorf Goodman Men, located across from each other on Fifth Avenue at 58th Street - Manhattan's premier shopping location - - offer customers exclusive apparel and accessories from leading American and foreign designers. Contempo Casuals provides contemporary fashion apparel and accessories for young women through a group of 246 stores primarily in regional shopping malls in 33 states and Puerto Rico. - ----------------------------------------------------------------------------- PROFESSIONAL SERVICES Drake Beam Morin is the world's leading provider of organizational and individual transition consulting services. In addition, DBM offers leading edge consulting and training in the career management and change management lines of business. Founded in 1967, DBM operates a total of 162 offices - 76 domestic and 86 international - in 27 countries. NEIMAN MARCUS NM DIRECT BERGDORF GOODMAN CONTEMPO CASUALS DBM DRAKE BEAM MORIN 7 [CD DISK] [stack of books] PUBLISHING BUILDING ON STRENGTH GROWTH THROUGH PRODUCT DEVELOPMENT AND ACQUISITIONS - --------------------------------------------------- Since Harcourt Brace & Company became part of Harcourt General three years ago, the Company has focused on revitalizing and building its prestigious publishing businesses. We've been able to build from a position of strength while working to capture opportunities for growth through enhanced product development and strategic acquisitions. Our position of strength stems from the well-balanced mix of educational, scientific, technical, medical, professional and trade publishing properties that make up Harcourt Brace. Each business holds claim to some of the most well-respected and valuable imprints in the publishing industry - imprints which have secured leading market shares in their respective disciplines. Over the next few years, external factors like rising school enrollments, stronger adoption schedules (plans by school districts to purchase instructional materials) and increasing public concern over the quality of education are expected to facilitate our efforts to expand our educational publishing operation. The outlook is also encouraging for our STMP group. The total number of scientific, technical and medical professionals - our customers - has grown steadily in recent years, and this growth is expected to continue beyond the turn of the century. Furthermore, scientific output is expected to increase at a rate of 4-6% for the foreseeable future, ensuring both the demand and need for scientific and medical publications. These external factors - coupled with the product development and acquisition initiatives we're executing internally - support our positive outlook for our publishing businesses. Approximately $150 million in capital investment is planned for the publishing area in 1995, with comparable expenditures in 1996 and 1997. Nearly 90% of that expenditure will be devoted to new and revised product development in both the educational and STMP areas. We are monitoring the impact of technology on our businesses and are incorporating it as an enhancement to our products, expanding our multimedia offerings as market demand grows. In addition, the application of technology to the product development process has already improved efficiencies, shortened lead times and reduced production costs for our businesses. Along with internal product development, we are building our publishing operation through acquisitions. We've purchased several small companies as well as publications and book lists over the past few years to round out product lines or gain access to important distribution networks. These include acquisitions in the areas of multimedia, CD-ROM and software development; religious educational publishing; speech, language and hearing therapy; and veterinary medicine as well as several publications for tax and accounting professionals. Each represents a business that - along with the impact of external factors and product development efforts - will over the long-run add to the strength that is Harcourt Brace & Company. 9 OVER THE PAST YEAR, HARCOURT BRACE & COMPANY HAS CONTINUED TO EXPAND AND REVITALIZE PRODUCT LINES ACROSS BUSINESS AREAS. THIS INITIATIVE IS ENHANCING THE MARKET POSITIONS OF EACH OF THE COMPANY'S IMPRINTS AND SHOULD CONTINUE TO GENERATE INCREASES IN MARKET SHARE. TOTAL PUBLISHING OPERATING EARNINGS INCREASED 16.4% IN 1994 TO $165.4 MILLION FROM $142.2 MILLION IN 1993. THIS INCREASE WAS ACHIEVED DESPITE A 2.7% DECLINE IN REVENUES TO $919.5 MILLION THAT REFLECTS REDUCED MARKET OPPORTUNITIES, PRIMARILY FOR ELEMENTARY PRODUCT. THE COMPANY'S PUBLISHING OPERATING MARGIN IMPROVED TO 18.0% FROM 15.1% IN 1993. BUSINESS REVIEW - Publishing EDUCATIONAL PUBLISHING The educational publishing group includes the Company's elementary, secondary and college publishing businesses along with The Psychological Corporation's testing operations. This group had lower revenues and slightly reduced operating earnings primarily due to anticipated declines in the elementary publishing business in fiscal 1994 after an exceptionally strong 1993. The performance of the educational group should improve in 1995 as we benefit from the introduction of new and revised products and an increase in textbook purchases, particularly at the elementary level. - ------------------------------------------------------------------------------ HARCOURT BRACE SCHOOL Elementary publishing As anticipated, both revenues and operating earnings at Harcourt Brace School declined in 1994 from a very strong 1993. The declines reflect reduced market demand due to the small number of state adoptions in 1994. However, the Company's products continued to perform well in those areas where textbook purchases did occur. Harcourt Brace's successful reading program, Treasury of Literature - which was revised for 1995 - won approximately 38% of the reading markets in Arkansas and Louisiana and continued to sell well in non-adoption states. In addition, the division's Mathematics Plus program maintained a leading market share. New elementary product introductions in 1994 include the Passports supplementary reading program for grades one through six; the AnyTime Math program for the K-2 market; and Science AnyTime for grades K-6. The Passports supplementary reading program has already secured approximately 33% of an important Texas adoption with the bulk of those sales scheduled for 1995. AnyTime Math was approved for sale in California in 1995 and has been well received nationally. Science AnyTime provides the elementary division with a strong product to participate in the significant elementary science business available in 1995.
PUBLISHING REVENUE HISTORY (In millions) 1994 1993 1992 - ----------------------------------------------------------------- Elementary $145.3 $187.4 $124.4 Secondary 120.5 125.0 99.0 College 145.4 149.0 147.3 Testing 99.1 93.2 96.5 STMP 342.0 323.0 348.9 International 83.2 84.0 86.7 Trade 34.3 30.7 29.1 Elimination of intercompany sales (50.3) (47.8) (66.6) - ----------------------------------------------------------------- TOTAL $919.5 $944.5 $865.3 - -----------------------------------------------------------------
Harcourt Brace School is currently integrating the Brown-ROA religious publishing operation, which was acquired in 1994 and has annual revenues of about $9 million. - ----------------------------------------------------------------------------- HOLT, RINEHART AND WINSTON Secondary publishing Revenues at Holt, Rinehart and Winston (HRW) declined slightly in 1994, but careful expense controls led to a moderate increase in operating earnings for the year. In a year with limited adoption opportunities, strong sales of the division's language arts programs, Elements of Literature and Elements of Writing, made a substantial contribution to revenues. HRW's successful science program, SciencePlus, introduced in 1993, continued to perform well in 1994, achieving healthy sales in the second year of the important California science adoption. In addition, strong sales of Biology: Visualizing Life contributed to 1994's results. During the year, HRW formed a new multi-media group to concentrate on the development of technology-based products. These products will include stand-alone multimedia programs like Concepts of Biology - the division's electronic textbook introduced in 1994 - as well as technology components designed to complement HRW's traditional textbook programs. Operating results in the secondary publishing area are expected to be relatively unchanged 10 in 1995 given the specific disciplines scheduled for adoption in that year. In 1995, HRW will focus on the completion of new integrated language arts, mathematics, foreign language and science programs to be introduced in 1996 and 1997, which should be strong growth years for the Company's secondary publishing business. - ------------------------------------------------------------------------------ - - HARCOURT BRACE COLLEGE PUBLISHERS In 1994, the college division had slightly lower revenues. The college marketplace continued to experience difficulties, with total industry sales essentially unchanged from 1993. The impact of used books, along with the increasing numbers of students selecting alternatives to purchasing textbooks, has contributed to declining sales in the Company's college publishing division. To address these industry realities and bring costs in line with existing revenues, Harcourt Brace College implemented a restructuring in 1994. The division reduced its editorial and production staff as well as the size of its sales force. These efforts improve the profit outlook in 1995 for the college business. Harcourt Brace College published approximately 256 new and revised titles in 1994, a significant increase from the 227 introduced in 1993. Revenues in 1994 benefited from strong sales of revised titles including the Harbrace College Handbook, Brigham's Financial Management and Kornblum's Sociology in a Changing World. Top-selling new titles were Kotz's The Chemical World, Serway's Principles of Physics and Hungerford's Contemporary Precalculus. Harcourt Brace is continuing its emphasis on author signings to revitalize the college division's product offering. More than 400 author acquisitions have been completed over the past three years. These signings will ultimately lead to important new product introductions over the next several years. THE PSYCHOLOGICAL CORPORATION Educational and clinical testing The Psychological Corporation had higher revenues in 1994. A number of smaller new product introductions - including 50 clinical assessment products and 90 educational assessment products - contributed to the revenue growth. The Psychological Corporation this year also introduced the first volume of PictureGallery, a CD-ROM product designed for use by speech practitioners. Additional volumes of this technology product are planned for publication over the next few years. Top-selling products in 1994 included the eighth edition of the Stanford Achievement Test series (SAT-8) and the seventh edition of the Metropolitan Achievement Test (MAT-7) as well as the third edition of the Wechsler Intelligence Scale for Children (WISC-III) and the Bayley Scales of Infant Development, Second Edition (BSID-II). The Psychological Corporation will benefit in 1995 from its recent acquisition of Communication Skill Builders, a developer and marketer of therapy products for use by speech, language and hearing clinicians. These products, which generate approximately $8 million of annual revenue, complement The Psychological Corporation's existing line of speech and language assessment materials. New products scheduled for introduction in 1995 include the ninth edition of The Psychological Corporation's best-selling Stanford Achievement Test series (SAT-9) as well as the third edition of Clinical Evaluation of Language Fundamentals (CELF-3), an important speech and language assessment product. The Psychological Corporation's business continues to be affected by a shift in market demand from standardized testing to more customized, performance-based assessment methods. Performance-based methods require individualized scoring and are, therefore, less profitable. In addition, budgetary constraints are causing school districts to reduce the frequency of student testing, which may limit educational revenue opportunities going forward. The new Science AnyTime program complements successful elementary reading and math programs. HRW is strengthening its traditional and technology-based product lines. New titles complement the college division's traditional best sellers. PictureGallery and M-KIDS are important new products for The Psychological Corporation. 11 Academic Press is working to expand its scientific and technical book business. New titles in allied health fields complement WB Saunders' traditional medical books. Academic Press and WB Saunders publish leading journals in established and emerging disciplines. BUSINESS REVIEW - Publishing SCIENTIFIC, TECHNICAL, MEDICAL AND PROFESSIONAL PUBLISHING (STMP) The STMP group includes the scientific and technical publishing operations of Academic Press; WB Saunders' medical publishing business; the Harcourt Brace London operations; and Harcourt Brace Professional, which distributes publica- tions for tax and accounting professionals. The STMP group achieved steady increases in revenues and operating earnings in 1994, reflecting strong domestic and international sales of scientific product. - ------------------------------------------------------------------------------- ACADEMIC PRESS Scientific and technical publishing Academic Press had higher revenues in 1994 due to especially strong worldwide sales of scientific journals from both its U.S. and London-based operations. Academic Press published approximately 400 scientific and technical books during the year. More than 200 scholarly journals were released, including three new journal introductions in 1994. Major titles contributing to 1994 sales included Ramachandran's Encyclopedia of Human Behavior, Yost's Fundamentals of Hearing and White and Fenner's Medical Virology as well as several volumes in Abelson and Simon's Methods in Enzymology. The AP Professional imprint - introduced in 1993 to publish both print and electronic technical and reference books for advanced computer professionals - has been very well received. In 1994, 50 works were published under this new imprint, with the same number of new titles planned for release in the coming year. Significant 1995 releases under the AP Professional imprint will be Paeth's Graphics Gems V (IBMand Macintosh versions), Tittel and Robbins' Wide-Area Networks and LeVitus' WebMaster (for Windows and Macintosh). Academic Press will benefit in 1995 from an increase in the number of books scheduled for publication, when it will release approximately 415 scientific and technical books as well as several CD-ROM titles. Included in that schedule are important introductions of Townshend's Encyclopedia of Analytical Science, Celis' Cell Biology: A Laboratory Handbook, Nierenberg's Encyclopedia of Environmental Biology and Arntzen and Ritter's Encyclopedia of Agricultural Science. An increase in the number of journal issues and pages is planned for 1995 with no change in the total number of journal titles released. Academic Press is working to expand its book publishing operations in the scientific field, and product development efforts will focus on high growth areas like computer science, materials science and engineering, automation technology and biomedicine. In addition, Academic Press will introduce several titles on CD-ROM in coming years, including the AP Dictionary of Science & Technology and the Encyclopedia of Physical Science and Technology. Academic Press is also aggressively exploring on-line electronic publishing opportunities while applying technology to the product development process. - -------------------------------------------------------------------------------- WB SAUNDERS Medical publishing WB Saunders had higher revenues in 1994, reflecting strong sales of nursing and health-related titles partially offset by weaker sales of medical and veterinary textbooks. In 1994, WB Saunders published approximately 190 books and 140 periodicals for the health sciences market. Key book titles contribu- ting to 1994 revenues include Chabner's The Language of Medicine, Dorland's Illustrated Medical Dictionary, Cotran's Robbins Pathologic Basis of Disease, and Guyton's Textbook of Medical Physiology. WB Saunders introduced five new periodicals during the past year and won the publishing rights to two major medical society journals, Arthroscopy and Hepatology. Saunders will publish its first issues of these journals in 1995. WB Saunders acquired a veterinary book list from Churchill Livingstone in 1994, which will add to future revenues and complement Saunders' existing line of veterinary titles. Approximately 180 books are planned for publication in 1995. Key titles include the second edition of Ignatavicius' Medical-Surgical 12 Nursing, Rakel's Conn's Current Therapy 1995 and Bonagura's Kirk's Current Veterinary Therapy XII. Eight new print periodicals will be introduced in 1995. In addition, WB Saunders will publish its best-selling title, Albert & Jakobiec's Principles & Practice of Ophthalmology, in a CD-ROM version and expects to introduce its first medical journal in an electronic format. WB Saunders will be devoting significant capital expenditures to product development efforts in 1995 in preparation for the publication of a large number of new and revised major book titles in 1996 and 1997 in the medical/clinical, nursing and allied health areas. - ------------------------------------------------------------------------------- HARCOURT BRACE PROFESSIONAL Revenues at Harcourt Brace Professional were up substantially in 1994, benefiting from the acquisition and integration of six tax professional newsletters acquired during the year from Prentice Hall. The division also benefited from strong sales of its market-leading publications - the GAAP, GAAS and Governmental GAAP Guides, reflecting the successful introduction of these products in electronic versions. Harcourt Brace Professional will focus in 1995 on the continued acquisition and development of new products for tax and accounting professionals while also translating a number of its print products into alternative electronic formats. Harcourt Brace conducts the largest bar examination review program in the country under the well-respected BAR/BRI name as well as review courses for CPA accreditation and graduate school entrance examinations. More than 35,000 students completed its review courses in 1994. - -------------------------------------------------------------------------------- HARCOURT BRACE INTERNATIONAL The international group experienced a small decline in revenues for the year, reflecting a refocusing of businesses in several countries. Over the past few years, Harcourt Brace has exited the school business in Australia and sharply narrowed the focus of its publishing activities in Japan to concentrate on medical, nursing and computer publications. These efforts are intended to direct resources toward specific market niches in these countries where Harcourt Brace can be an important and profitable publisher. In 1995, the international group will focus on further development of English-as-a-Second-Language (ESL) product, which has demonstrated strong potential in markets worldwide. Harcourt Brace International will also increase its presence in the Caribbean, Central and South American markets and will work to enhance its position in Canada, where the Montreal operation continues to perform very well. Importantly, a number of the overseas markets which the Company services are currently emerging from sustained periods of economic difficulty. This should present further growth opportunities for Harcourt Brace's international publishing operations in the years ahead. - ------------------------------------------------------------------------------- HARCOURT BRACE TRADE The trade division had an increase in revenues in 1994, benefiting from strong sales of children's book titles. During the year the Company completed a realignment of its adult trade operations. The division plans to reduce the number of adult hardcover titles published, increasing its focus on adult paperback books of literary quality as well as children's titles. New adult titles that will be introduced in 1995 include works by well-known authors such as Umberto Eco and Mark Helprin to be published under the Harcourt Brace imprint along with paperback titles by Tina Ansa, Gary Paulsen and Paul Monette for the Harvest Books line. The trade division's children's book business is exceptionally strong. The popular title, Stellaluna, has remained on the Publishers Weekly best-seller list for 18 months and is currently ranked first, with over 250,000 copies sold. Important children's books to be published in the coming year include new works by prominent authors such as Alice Provensen, Audrey Wood and Cynthia Rylant. Harcourt Brace Professional's best-selling GAAP Guide is now available in electronic format. English-as-a-Second-Language (ESL) products represent a growth opportunity for Harcourt Brace International. The trade division publishes high quality literature for children and adults. 13 [hand holding boxes] SPECIALTY RETAILING FOCUSING ON UPSCALE POSITIONED FOR IMPROVED PERFORMANCE --------------------------------------- Neiman Marcus ... NM Direct ... Bergdorf Goodman ... Bergdorf Goodman Men ... Contempo Casuals - specialty retailing operations together poised to realize a return on the significant investments made over the past seven years. During that time nearly $500 million has been devoted to store expansion and renovation efforts and the building of a strong infrastructure. Since 1989, five new Neiman Marcus stores have been built, with three additional openings planned over the next two years. Bergdorf Goodman Men opened its doors in 1990. In addition, a significant portion of the square footage at existing Neiman Marcus stores and the original Bergdorf Goodman store has been remodeled and revitalized to better showcase merchandise and service customers. We've refined merchandising strategies at our upscale operations and strengthened our relationships with leading designers through our strong commitment to the high-end sector of the specialty retailing market. These efforts have led to steady business improvement during the past several years at Neiman Marcus and NM Direct. Neiman Marcus stores are expanding their customer base and improving their profitability. NM Direct, which has a strong growth record, continues to build its core mail order business while testing new avenues of distribution including electronic retailing and international markets. However, a number of factors have slowed progress at Bergdorf Goodman and Contempo Casuals. At Bergdorf Goodman, the men's store - opened at the start of an economic downturn - has taken longer than anticipated to mature and reach profitability. The opening of a new competitor near Bergdorf Goodman in the fall of 1993 also had a temporary impact on the level of business at both stores. At Contempo Casuals, weakness in the junior retailing market exacerbated by unsuccessful merchandising strategies as we attempted to stimulate demand has resulted in three years of performance declines and operating losses. Early results from programs that are now in place indicate that both Bergdorf and Contempo will have an improved performance in the fall season. Potential for revenue and earnings growth through margin enhancement at the original Bergdorf Goodman store is strong. With continued volume growth, Bergdorf Goodman Men is expected to reach profitability in 1995. Moreover, restructuring efforts at Contempo should - at the very least - significantly reduce that business' operating losses in 1995 and - at best - restore it to profitability. With continued progress at Neiman Marcus stores and NM Direct, the outlook is positive for realizing a meaningful return on our substantial investment in specialty retailing. 15 BUSINESS REVIEW - Specialty Retailing Total revenues for the Company's specialty retailing operations grew 3.8% in 1994 to $2.1 billion, with comparable revenues increasing 4.4% despite a substantial comparable store sales decline at Contempo Casuals. Operating earnings prior to a $48.4 million restructuring charge at Contempo were $120.7 million, approximately equal to last year's $120.2 million operating earnings level. Continuing strong results at Neiman Marcus stores and NM Direct drove the performance, as several unusual factors resulted in lower earnings for Bergdorf Goodman, and Contempo Casuals had a substantially larger operating loss for the year. SPECIALITY RETAILING REVENUE HISTORY
(In millions) 1994 1993 1992 - ------------------------------------------------------ Neiman Marcus Division $1,560.0 $1,448.7 $1,285.8 Bergdorf Goodman 229.5 219.1 199.1 Contempo Casuals 303.4 349.1 323.4 TOTAL $2,092.9 $2,016.9 $1,808.3
SPECIALTY RETAILING NEIMAN MARCUS DIVISION The Neiman Marcus Division, which includes Neiman Marcus stores and NM Direct, achieved exceptional results in 1994, with operating earnings rising 21.3% to $147.4 million from $121.5 million in 1993. This represents the third consecutive year of operating earnings improvement in excess of 20% for this division. Operating margins improved to 9.4% from 8.5% in the prior year. Total revenues grew 7.7% to $1.56 billion, with revenues at Neiman Marcus stores increasing 7.6% and revenues at NM Direct rising 8.2% Factors contributing to strong improvement at Neiman Marcus stores include extensive remodelings, an increased level of in-store events and advertising activity, an expansion of assortments in the career and casual areas, a greater emphasis on opening price point merchandise and an increase in finance charge income resulting from changes in the credit terms offered to Neiman Marcus cardholders. NM Direct, which distributed approximately 90 catalogues during the year, contributed to the operating earnings improvement with an increase in the number of transactions, an improved operating expense rate and a higher gross margin. Selective remodeling and expansion activity is continuing at Neiman Marcus. Major renovations were completed during 1994 at stores in San Francisco and Boston. Ongoing remodeling work in 1995 includes renovations at the NorthPark store in Dallas as well as projects in Westchester, New York and Northbrook, just outside Chicago. The bulk of major renovation work has been completed although ongoing activity is always required to ensure that the Company's stores remain modern and competitive. Construction began this year on a new Neiman Marcus store in Short Hills, New Jersey, scheduled to open in August 1995. Other planned openings include stores in King of Prussia, Pennsylvania and Paramus, New Jersey, both planned for calendar 1996 openings. NM Direct completed construction on a major expansion of its telemarketing and fulfillment facility in Las Colinas, Texas. The expansion increased capacity by more than 50% and will accommodate significant future growth in the direct marketing business. At the end of 1994, Neiman Marcus began construction on a new $20 million 400,000 square-foot national service and distribution center in Longview, Texas to service Neiman Marcus stores nationwide. BERGDORF GOODMAN Revenues at Bergdorf Goodman rose 4.7% to $229.5 million in 1994, with both the original store and Bergdorf Goodman Men making progress. However, Bergdorf's operating performance was affected by difficult winter 16 weather conditions as well as the opening of a major new competitor nearby. Both factors temporarily reduced store traffic, leading to higher markdowns and a lower gross margin. As a result, operating earnings for the year declined to $10.3 million from $12.8 million in 1993. Ongoing remodeling activity at Bergdorf Goodman will include the renovation of the original store's sixth floor, which will house designer sportswear, coats, dresses and eveningwear along with merchandise specifically targeted toward the career customer. Bergdorf Goodman Men continued to expand its volume and reduce its operating loss in 1994. As a result, the store was only modestly unprofitable for the year. With the continuation of current revenue growth trends, Bergdorf Goodman Men should reach profitability in 1995. Both Bergdorf Goodman and Bergdorf Goodman Men will continue their successful merchandising programs and enhanced calendar of special events to attract new customers and increase sales volume in 1995. CONTEMPO CASUALS Revenues at the Contempo Division declined 13.1% in 1994 to $303.4 million, with comparable store revenues decreasing 12.5%. Prior to a restructuring charge, the division incurred an operating loss of $37.0 million for the year, $9.5 million of which was attributable to Pastille, a new retail concept that Contempo had been testing. In 1993, the Contempo Division had an operating loss of $14.1 million, $10.5 million of which was attributable to the Pastille test. This weakness necessitated the $48.4 million restructuring charge taken in the third quarter of 1994 to cover the closing of 40 under-performing Contempo stores and the shutdown of the 39-store Pastille operation. Other actions taken during the year to reduce operating expenses at Contempo include the closing of its Hong Kong buying office and the elimination of its in-house production department. Continued efforts are under way to reverse the operating decline at Contempo. The division has a new chief merchant in place and has implemented a new everyday fair pricing strategy in an attempt to reduce the markdown problem that plagued Contempo over the past year. Management is focusing on tight inventory control and better assortment planning to stimulate sales and improve gross margins. Early results from restructuring activities and new merchandising strategies are indicating that Contempo Casuals should achieve a significantly improved performance in 1995. Neiman Marcus will open three new stores by the end of 1996. NM Direct's catalogues offer a unique array of apparel, home furnishings and gift items. Bergdorf Goodman remains the ultimate upscale shopping experience in New York City. Contempo Casuals is working to enhance its image and improve its merchandising efforts. 17 DBM is a leading provider of transition management services for individuals and corporations. DBM supports its change management and career counseling activity with informative publications. BUSINESS REVIEW - Professional Services PROFESSIONAL SERVICES The professional services segment consists of the operations of Drake Beam Morin (DBM), the world's leading provider of organizational and individual transition consulting services. DBM is especially focused on supporting organizations in the process of change, assisting organizations and individuals worldwide in career transition, career management and change management. As a human resources management consulting firm, the company services a wide array of clients including large and small corporations as well as private and government organizations. DBM's services include assessment, counseling, coaching and training for individuals and groups at all organizational levels. In 1994, DBM had lower revenues and operating earnings compared to an exceptionally strong performance in 1993. Revenues in 1994 declined 3.0% to $141.8 million from $146.3 million in 1993 due to lower sales of group programs. Operating earnings were $22.1 million, a 22.3% decrease from earnings of $28.4 million last year. Operating margins declined to 15.6% from 19.4% in 1993. The decline reflects a reduced workload on major projects conducted for two corporate clients in 1993. DBM was unsuccessful in fully replacing those revenues with new business in 1994. As a result, expense containment programs were implemented during the second half of the year to adjust to the decreased revenue volume. During the year Drake Beam Morin acquired a 100% ownership interest in its prior affiliate in the United Kingdom. Results from that business, which previously had provided affiliate licensing revenue to the Company, will be consolidated going forward. In 1995, DBM will seek to expand its career and change management lines of business while protecting and building on its leadership position in both individual and group career transition services. PROFESSIONAL SERVICES OPERATING RESULTS
(In millions) 1994 1993 1992 - --------------------------------------------------- Revenues $141.8 $146.3 $121.4 Operating Earnings $ 22.1 $ 28.4 $ 23.9 - ---------------------------------------------------
18 OUR MISSION Harcourt General is an international operating company founded upon and committed to a fundamental economic principle: Management is responsible for generating above-average returns to the Company's shareholders on a consistent, long-term basis. Our mission, therefore, is to aggressively, yet responsibly, manage our operating businesses to create steadily appreciating value for those who invest in our Company. As we pursue this mission we are guided by the following important values: 1. We will maintain an uncompromising commitment to quality and the highest levels of customer service in all our businesses and endeavors. 2. We will adhere to the highest levels of integrity and ethical standards in dealing with all constituencies, including customers, suppliers and employees. 3. We will aspire to achieve a leadership position in every one of our operating businesses. 4. Our management decisions will emphasize long-term benefits to the value of our businesses, not short-term gains. We will employ capable, motivated people; follow sound management practices; utilize new technology efficiently; and reinvest earnings and new capital as required to grow our businesses and maintain the Corporation's financial health. 5. We will strive to maximize the potential of all employees and maintain a professionally challenging work environment. 6. We will be socially responsible and provide financial and human resources support for worthwhile causes, especially in those communities in which we operate. 19 21 Financial Review 26 Consolidated Balance Sheets 28 Consolidated Statements of Earnings 29 Consolidated Statements of Cash Flows 30 Consolidated Statements of Shareholders' Equity 31 Notes to Consolidated Financial Statements 42 Independent Auditors' Report 42 Statement of Management's Responsibility for Financial Statements 43 Five Year Summary 44 Directors and Officers 45 Shareholder Information 20 FINANCIAL REVIEW Harcourt General's primary objective is to create value for its shareholders. Management believes it can achieve this objective over the long-term by actively managing operating businesses and financial assets to enhance the Company's earnings and to generate a consistent and expanding cash flow. Harcourt General has core businesses in publishing and specialty retailing as well as a professional services segment consisting of the Drake Beam Morin (DBM) outplacement operations. Management believes the Company's outlook for growth in its existing businesses is positive. Harcourt General remains in very sound financial condition with the financial resources to support expansion of its existing businesses as well as an active acquisition effort. The Company's balance sheet is strong, with $819.7 million in cash and shareholders' equity in excess of $1.0 billion. Harcourt General has total long-term liabilities of approximately $1.2 billion, of which $560.2 million represents obligations of The Neiman Marcus Group (NMG), which the Company does not guarantee. The Neiman Marcus Group is a separate, publicly-held company with its own cash flow, financing and capital expenditures to support its growth. Harcourt General receives a cash dividend on its common and preferred shares in NMG. The Company has consistently generated a positive cash flow in excess of that required for capital expenditures. As a result, a significant portion of Harcourt General's earnings are available for reinvestment in existing businesses, new business activities, working capital, debt repayment and dividends. During 1994, 1993 and 1992, the Company invested approximately $129.7 million, $97.7 million and $109.4 million, respectively, in its publishing and professional services businesses. As highlighted in the chart below, the cash generated by the Company's businesses (operating earnings plus depreciation and amortization) was $317.8 million, $294.0 million and $242.0 million in the years ended October 31, 1994, 1993 and 1992, respectively. At October 31, 1994, shareholders' equity was $1.05 billion. During 1994, shareholders' equity was reduced by $135.8 million, or approximately $1.70 per share, due to the spinoff of the Company's theatre operations in December of 1993. The 1994 book value per share of $13.12 at the end of the year represents an increase of 14.1% from $11.50 in 1993.
BOOK VALUE PER SHARE 1992 $ 9.97 1993 $11.50 1994 $13.12 The 1992 and 1993 book values per share have been adjusted to reflect the spinoff of GC Companies in December 1993, which reduced shareholders' equity, by $1.70 per share.
CASH GENERATED BY BUSINESS SEGMENTS (Dollars in millions) 1992 Professional Services $ 26.1 Publishing $215.9 TOTAL $242.0 1993 Professional Services $ 31.4 Specialty Retailing $ 15.8 Publishing $246.8 TOTAL $294.0 1994 Professional Services $ 26.1 Speciality Retailing $ 31.4 Publishing $260.3 TOTAL $317.8 Cash from publishing and professional services is comprised of operating earnings plus depreciation and amortization. The cash generated from specialty retailing represents the cash dividends paid by The Neiman Marcus Group to Harcourt General. Through a dividend reinvestment plan, Harcourt General reinvested $15.6 million and $30.9 million of its common and preferred NMG cash dividends in additional shares of NMG Common Stock in 1993 and 1992, respectively. Harcourt General ceased its participation in the dividend reinvestment plan in January 1993.
21 SEGMENT OPERATING RESULTS The following table reflects revenues and operating earnings by business segment.
Years ended October 31 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------ (In thousands) REVENUES Publishing $ 919,498 $ 944,545 $ 865,336 Specialty retailing 2,092,906 2,016,914 1,808,354 Professional services 141,818 146,252 121,391 ---------- ---------- ---------- TOTAL REVENUES $3,154,222 $3,107,711 $2,795,081 ========== =========== ========== OPERATING EARNINGS Publishing $ 165,436 $ 142,177 $ 124,503 Specialty retailing 120,704 120,191 81,510 Professional services 22,072 28,395 23,938 Corporate expenses (35,456) (47,307) (41,876) Restructuring of Contempo Casuals (48,401) - - ---------- ---------- ---------- TOTAL OPERATING EARNINGS $ 224,355 $ 243,456 $ 188,075 ========== ========== ==========
OPERATING RESULTS 1994 VS. 1993 Net earnings applicable to common shareholders in 1994 were $177.5 million, or $2.22 per share, compared to $171.3 million, or $2.15 per share, in 1993. Results have been restated to reflect the insurance and theatre businesses as discontinued operations. PUBLISHING Publishing revenues decreased 2.7% in 1994 to $919.5 million, compared to $944.5 million in 1993. The anticipated decline in revenues following a strong 1993 performance was primarily the result of decreased elementary and secondary publishing orders due to state textbook purchase schedules. Offsetting the decreases in educational publishing sales were increases in scientific, technical, medical and professional (STMP) group revenues resulting from strong domestic and international sales of books and periodicals. Despite the decline in revenues, the publishing business achieved a 16.4% improvement in operating earnings. Publishing operating earnings were $165.4 million in 1994, compared to $142.2 million in 1993. Lower plate amortization costs and decreased marketing expenses in the educational publishing group, along with improved operating earnings from higher revenues in the STMP group, contributed to the increase. SPECIALITY RETAILING Total revenues from specialty retailing increased 3.8% to $2.09 billion in 1994 from $2.02 billion in 1993. The increase was driven by comparable store sales growth at Neiman Marcus and Bergdorf Goodman, offset by a revenue decline at Contempo Casuals. Comparable store sales increased 7.6% at Neiman Marcus and 4.7% at Bergdorf Goodman but declined 12.5% at Contempo Casuals. Operating earnings from specialty retailing were $72.3 million in 1994 after a $48.4 million restructuring charge related to Contempo Casuals, compared to operating earnings of $120.2 million in 1993. Operating earnings before the restructuring charge were $120.7 million in 1994. The $48.4 million pre-tax restructuring charge was the result of an evaluation of the operating performance of Contempo Casuals. Based upon this evaluation, NMG decided to close 40 under-performing Contempo Casuals retail stores and all of the Pastille retail stores. The restructuring charge for Contempo Casuals and Pastille included the following components:
(In millions) Contempo Pastille Total - -------------------------------------------------------------------------------------------------------------- Lease termination costs $10.7 $10.0 $20.7 Write-down of fixed assets 6.2 6.6 12.8 Inventory liquidation costs 2.2 4.7 6.9 Fabric inventory liquidation 2.6 1.3 3.9 Other expenses 1.4 2.7 4.1 ----- ----- ----- Total restructuring charge $23.1 $25.3 $48.4 ===== ===== =====
22 NMG does not anticipate additional charges related to this restructuring and does not currently contemplate any future restructuring charges. Substantially all of the savings which are expected to result from the restructuring are attributable to the elimination of losses generated by the closed stores. Fiscal 1994 losses attributable to the closed stores were approximately $4.5 million for Contempo Casuals and $8.3 million for Pastille. In addition, NMG anticipates other cost savings due to the streamlining of foreign buying, product development and other business processes. As of October 31, 1994, all of the Contempo Casuals and Pastille stores provided for in the restructuring charge were closed, and substantially all cash payments for lease terminations were completed. PROFESSIONAL SERVICES Revenues from the professional services segment decreased 3% to $141.8 million in 1994 from $146.3 million in 1993. The decrease was a result of lower group sales, principally attributable to two major corporate projects that contributed significantly fewer revenues in 1994 compared to 1993. Operating earnings for the professional services segment were $22.1 million in 1994 compared with $28.4 million in 1993. The 22.3% decrease was the result of reduced group sales and operating expenses at levels comparable to the previous year. CORPORATE EXPENSES Corporate expenses decreased 25.1%, or $11.9 million, to $35.5 million in 1994. The decrease in corporate expenses was the result of effective cost controls across substantially all administrative groups as well as lower employee benefit costs, professional fees and one-time charges related to corporate activities as compared to 1993. INVESTMENT INCOME Investment income remained essentially unchanged at $14.2 million, compared to $14.1 million in 1993. Slightly lower invested balances were offset by slightly higher rates of return. INTEREST INCOME Interest expense increased $1.6 million to $86.2 million in 1994. The increase resulted from higher interest rates and increased borrowings under the NMG credit agreements. OTHER INCOME Other income in 1993 includes a $20.8 million pre-tax gain from the reduction in the level of NMG's estimated liabilities due to the settlement of various legal and tax issues with Carter Hawley Hale Stores, Inc., now Broadway Stores, Inc. INCOME TAXES The effective income tax rate was 36.0% in 1994, compared to 37.5% in 1993. The decrease in the rate is primarily due to lower state tax expenses. DISCONTINUED OPERATIONS Included in 1994 earnings from discontinued operations are after-tax earnings related to the insurance business of $37.1 million, an after-tax gain of $8.0 million on the sale of the insurance business, and $35.0 million related to the settlement of certain tax matters associated with the sale of the Company's soft drink bottling business in 1989. The 1993 earnings from discontinued operations include after-tax earnings from insurance and theatre operations of $46.0 million and $5.8 million, respectively. OPERATING RESULTS 1993 VS. 1992 Net earnings applicable to common shareholders were $171.3 million in 1993, or $2.15 per share, compared to net earnings of $494.5 million, or $6.25 per share, in 1992. The 1993 and 1992 results have been restated to reflect the insurance and theatre businesses as discontinued operations. The 1993 net earnings include earnings of $46.0 million from the insurance business; earnings of $5.8 million from the theatre business; and other income of $12.2 million from NMG's settlement of legal and tax issues with Carter Hawley Hale Stores, Inc., now Broadway Stores, Inc. The 1992 net earnings include $27.7 million of earnings from the insurance business; earnings of $6.2 million from the theatre business; an after-tax gain on the retirement of Harcourt Brace debt of $419.6 million; and an after-tax charge of $33.0 million relating to the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). PUBLISHING Publishing revenues increased 9.2% to $944.5 million in 1993, primarily the result of strong sales of new elementary and secondary textbooks. These increases were partially offset by the absence of $18.6 million in revenues generated in 1992 by the Company's Weber Costello subsidiary, which was sold in August 1992. 23 Operating earnings in 1993 were $142.2 million, compared to $124.5 million in 1992, an increase of 14.2%. The increase is attributable to incremental textbook revenues partially offset by the impact of increased operating expenses associated with the higher sales activity. SPECIALITY RETAILING Total revenues from specialty retailing increased 11.5% to $2.02 billion from $1.81 billion in fiscal 1992, benefiting from a new Neiman Marcus store in Troy, Michigan; 52 weeks of revenues from the Neiman Marcus store in Scottsdale, Arizona in 1993 compared to 42 weeks in 1992; 10 incremental Contempo Casuals stores; and 31 incremental Pastille stores. Comparable revenues for NMG increased 6.6%. Operating earnings from specialty retailing were $120.2 million in 1993, a 47.5% increase from $81.5 million in 1992. The earnings increase reflects higher transaction volume and improved gross margins at both the Neiman Marcus Division and Bergdorf Goodman partially offset by an operating loss at Contempo Casuals. PROFESSIONAL SERVICES Revenues from the professional services segment increased 20.5% in 1993 to $146.3 million from $121.4 million in 1992, benefiting from increased corporate downsizing and restructuring activities. Operating earnings for the professional services segment were $28.4 million in 1993, compared with $23.9 million in 1992. The improvement was primarily due to increased revenues partially offset by higher labor costs. CORPORATE EXPENSES Corporate expenses increased $5.4 million to $47.3 million in 1993, primarily due to higher employee and director benefit costs, professional fees and other corporate activities. INVESTMENT INCOME Investment income declined $9.2 million to $14.1 million in 1993, primarily due to lower interest rates and a lower average portfolio balance. The 1992 portfolio included $1.3 billion of cash for a 25-day period prior to the Company's merger with Harcourt Brace. INTEREST EXPENSE Interest expense decreased $0.9 million to $84.6 million in 1993. A higher level of NMG debt was more than offset by lower interest rates on NMG borrowings. OTHER INCOME AND EXPENSE Other income in 1993 includes a $20.8 million pre-tax gain from the reduction in the level of NMG's estimated liabilities due to the settlement of various legal and tax issues with Carter Hawley Hale Stores, Inc., now Broadway Stores, Inc. Other income in 1992 reflects an $11.6 million gain on the exchange of Cadbury Schweppes stock for subordinated debentures of the Company. INCOME TAXES The effective income tax rate was 37.5% in 1993 compared to 40.2% in 1992. The lower 1993 rate reflects lower state and foreign tax expenses. DISCONTINUED OPERATIONS Discontinued operations include after-tax earnings of the insurance and theatre businesses amounting to $46.0 million and $5.8 million in 1993, respectively, and $27.7 million and $6.2 million in 1992, respectively. The after-tax charge of $6.2 million in 1992 represents the insurance and theatre businesses' portion of the cumulative effect of a change in accounting for postretirement health care benefits. LIQUIDITY AND CAPITAL RESOURCES Cash and equivalents totaled $819.7 million at October 31, 1994, an increase of $352.7 million from the previous year. Working capital increased $414.4 million to $1.1 billion in 1994. The increase in cash was principally due to the sale of the Company's insurance business, positive cash flows from operations and increases in short-term borrowings, reduced by capital expenditures, dividend payments and publishing acquisitions. Cash provided by continuing operating activities in 1994 was $189.8 million, compared to $210.1 million in 1993. All major business segments generated positive cash flows from operations. Investing activities in 1994 included $410.4 million of proceeds from the sale of the insurance business. Capital expenditures were $196.2 million in 1994, compared to $159.9 million in 1993; publishing acquisitions were $36.2 million in 1994. Publishing capital expenditures in 1994 totaled $122.8 million and were principally related to prepublication costs. Capital investment in the publishing business is expected to approximate $150.0 million in fiscal 1995, which also will be primarily for prepublication costs. 24 Specialty retailing capital expenditures in 1994 totaled $65.1 million and were primarily related to store renovation and expansion projects. Future store renovation and expansion plans include the opening of three new Neiman Marcus stores by the end of calendar 1996; the renovation of three Neiman Marcus stores in fiscal 1995; and the construction of a national service and distribution center. Capital expenditures for NMG are currently estimated at $100.0 million in fiscal 1995. Financing activities primarily reflect additional NMG borrowings of $73.8 million under its revolving credit agreements. On October 31, 1994, the Company's consolidated long-term liabilities totaled $1.2 billion, an increase of $70.6 million from the previous year. Long-term liabilities in 1994 include $560.2 million of NMG obligations, which are not guaranteed by Harcourt General. At year-end, the Company's consolidated ratio of long-term debt to equity was 1.19 to 1, compared to 1.11 to 1 in 1993. Excluding NMG's debt, the Company's debt to equity ratio was .65 to 1, compared to .64 to 1 in the previous year. Dividend payments totaled $47.2 million in 1994 compared to $44.0 million in 1993. The Company has a revolving credit agreement with thirteen banks, pursuant to which the Company may borrow up to $400.0 million. The revolving credit agreement expires on December 16, 1999. With the exception of amounts outstanding under NMG's credit facilities, there were no borrowings outstanding during 1994 or at October 31, 1994. NMG has a revolving credit agreement with nine banks, pursuant to which NMG may borrow up to $300.0 million, of which $100.0 million expires during fiscal 1995; $175.0 million expires in fiscal 1996; and $25.0 million may be terminated on not less than three years' notice. NMG may terminate the agreement at any time. Borrowings under this agreement were $295.0 million at July 30, 1994. NMG has additional revolving credit agreements with six banks under which NMG may borrow up to $25.0 million from each financial institution. These agreements expire on March 31, 1995. Borrowings under these agreements were $11.0 million at July 30, 1994. NMG anticipates that it will be able to secure additional or new financing to supplement and replace existing credit arrangements. In addition to its funded debt, the Company has significant lease commitments which require cash outflows. Lease payments attributable to continuing operations totaled $113.1 million in 1994, and minimum lease payments are expected to approximate $81.1 million in 1995. The Company believes its financial resources are more than sufficient to meet its foreseeable cash requirements. SEASONALITY The Company's businesses are seasonal in nature. More than one-half of annual operating earnings are generated in the third quarter of the Company's fiscal year since that quarter includes the important educational publishing selling season. Conversely, first and second quarter operating earnings are expected to be minimal during a period when publishing sales are at their lowest level and that business segment typically reports operating losses. Those losses partially offset retail earnings, which are at their highest point in the Company's second quarter, which includes NMG's holiday selling season. IMPACT OF INFLATION The Company's financial statements are prepared on an historical cost basis under generally accepted accounting principles. The Company uses the last-in, first-out (LIFO) method of accounting for all domestic publishing inventories and for approximately 83% of its retail inventories, or approximately 82% of the consolidated inventory reported in its financial statements. Thus, the cost of goods sold approximates current cost. The Company adjusts selling prices to maintain profit levels and will continue to do so as competitive conditions permit. In general, management believes that the impact of inflation or of changing prices is not material to the results of operations in its business segments. DIVIDENDS The Company has a long-standing policy of returning a portion of its earnings and cash flow to shareholders through the payment of cash dividends. In September 1994, the Board of Directors voted to increase the quarterly cash dividend on the Common Stock to 16 cents per share. The Board also increased the quarterly cash dividend on the Series A Stock to 18.35 cents per share and on the Class B Stock to 14.40 cents per share. This is the 26th consecutive year in which cash dividends have been increased. NEW ACCOUNTING STANDARD The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which is effective for fiscal years beginning after December 15, 1993. The Company does not expect that its planned adoption of this standard in fiscal 1995 will have a material impact on its financial position or results of operations. 25 CONSOLIDATED BALANCE SHEETS
October 31 1994 1993 - ---------------------------------------------------------------------------------------------------------------- (In thousands) ASSETS CURRENT ASSETS Cash and equivalents $ 819,659 $ 466,925 Accounts receivable - trade, net 578,575 493,384 Inventories 466,177 470,525 Deferred income taxes 90,501 20,016 Other current assets 66,096 53,095 ---------- ---------- TOTAL CURRENT ASSETS 2,021,008 1,503,945 ========== ========== PROPERTY AND EQUIPMENT Land, buildings and improvements 445,968 494,438 Fixtures and equipment 378,691 301,941 ---------- ---------- 824,659 796,379 Less accumulated depreciation and amortization 302,989 279,838 ---------- ---------- TOTAL PROPERTY AND EQUIPMENT, NET 521,670 516,541 ========== ========== OTHER ASSETS Prepublication costs, net 164,160 137,959 Intangible assets 422,566 400,028 Other 112,960 108,807 ---------- ---------- TOTAL OTHER ASSETS 699,686 646,794 ========== ========== NET ASSETS OF DISCONTINUED OPERATIONS - 464,127 ---------- ---------- TOTAL ASSETS $3,242,364 $3,131,407 ========== ========== - ---------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. Harcourt General, Inc. and Subsidiaries
26
October 31 1994 1993 - --------------------------------------------------------------------------------------------------------------- (In thousands) LIABILITIES CURRENT LIABILITIES Notes payable and current maturities of long-term liabilities $ 119,529 $ 64,904 Accounts payable 273,098 283,693 Accrued liabilities 363,333 339,120 Taxes payable 71,209 35,322 Other current liabilities 47,835 49,331 ---------- ---------- TOTAL CURRENT LIABILITIES 875,004 772,370 ========== ========== LONG-TERM LIABILITIES Notes and debentures 915,464 923,618 Other long-term liabilities 207,877 183,753 ---------- ---------- TOTAL LONG-TERM LIABILITIES 1,123,341 1,107,371 ========== ========== DEFERRED INCOME TAXES 196,664 200,088 COMMITMENTS AND CONTINGENCIES - - SHAREHOLDERS' EQUITY PREFERRED STOCK Series A Cumulative Convertible - $1 par value Issued and outstanding - 1,453 and 1,996 shares 1,453 1,996 COMMON STOCKS Class B Stock - $1 par value Issued and outstanding - 21,444 and 21,934 shares 21,444 21,934 Common Stock - $1 par value Issued and outstanding - 56,443 and 55,373 shares 56,443 55,373 PAID-IN CAPITAL 726,505 861,928 CUMULATIVE TRANSLATION ADJUSTMENTS (4,710) (5,524) RETAINED EARNINGS 246,220 115,871 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 1,047,355 1,051,578 ========== ========== TOTAL LIABILITY AND SHAREHOLDERS' EQUITY $3,242,364 $3,131,407 ========== ==========
See notes to consolidated financial statements. Harcourt General, Inc. and Subsidiaries 27 CONSOLIDATED STATEMENTS OF EARNINGS
Years ended October 31 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- (In thousands except for per share amounts) Revenues $3,154,222 $3,107,711 $2,795,081 Costs applicable to revenues 1,911,919 1,847,692 1,630,081 Selling, general and administrative expenses 934,091 969,256 935,049 Corporate expenses 35,456 47,307 41,876 Restructuring of Contempo Casuals 48,401 - - ---------- ---------- ---------- OPERATING EXPENSES 224,355 243,456 188,075 Investment income 14,239 14,072 23,239 Interest expense (86,219) (84,585) (85,442) Other income, net - 18,303 8,341 ---------- ---------- ---------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY GAIN AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 152,375 191,246 134,213 Income tax expense (54,855) (71,792) (54,017) ---------- ---------- ---------- EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 97,520 119,454 80,196 EARNINGS FROM DISCONTINUED OPERATIONS, NET 80,012 51,879 27,674 ---------- ---------- ---------- EARNINGS BEFORE EXTRAORDINARY GAIN AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 177,532 171,333 107,870 Extraordinary gain on elimination of debt, net - - 419,557 Charge for cumulative effect of change in accounting for postretirement health care benefits, net - - (32,967) ---------- ---------- ---------- NET EARNINGS $ 177,532 $ 171,333 $ 494,460 ========== ========== ========== AMOUNTS PER SHARE OF COMMON STOCK Earnings from continuing operations before extraordinary gain and cumulative effect of accounting change $ 1.22 $ 1.50 $ 1.01 Earnings from discontinued operations, net 1.00 .65 .35 Extraordinary gain, net - - 5.30 Cumulative effect of accounting change, net - - (.41) ---------- ---------- ---------- NET EARNINGS $ 2.22 $ 2.15 $ 6.25 ========== ========== ==========
See notes to consolidated financial statements. Harcourt General, Inc. and Subsidiaries 28 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Earnings from continuing operations $ 97,520 $119,454 $ 80,196 Adjustments to reconcile earnings to net cash provided by continuing operations: Depreciation and amortization 163,094 169,254 53,417 Other income - (20,755) - Deferred income taxes (38,909) 13,145 (1,943) Gain on sales of long-term assets - - (11,633) Other 10,932 19,566 17,564 Changes in assets and liabilities: Accounts receivable (86,499) (105,218) (66,894) Inventories 2,622 (61,870) 3,486 Other current assets 6,870 (11,746) (11,541) Accounts payable and accrued liabilities 34,187 88,246 38,686 -------- -------- -------- 189,817 210,076 201,338 Discontinued theatre operating activities - 43,687 32,295 -------- -------- -------- Net cash provided by operating activities 189,817 253,763 233,633 ======== ======== ======== CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (196,160) (59,860) (185,997) Proceeds from sale of insurance business 410,432 - - Acquisitions (36,215) - - Other investing activities (9,570) (2,057) (10,650) -------- -------- -------- 168,487 (161,917) (196,647) Discontinued operations investing activities - (82,984) (38,803) -------- -------- -------- Net cash provided (used) by investing activities 168,487 (244,901) (235,450) ======== ======== ======== CASH FLOW FROM FINANCING ACTIVITIES Cash used to purchase Harcourt Brace debt - - (1,369,473) Issuance of debt 73,800 77,200 369,330 Repayment of debt (30,325) (6,500) (150,000) Dividends paid (47,183) (43,997) (40,826) Equity transactions, net (1,862) 632 4,546 -------- -------- -------- Net cash provided (used) by financing activities (5,570) 27,335 (1,186,423) ======== ======== ======== CASH AND EQUIVALENTS Increase (decrease) during the year 352,734 36,197 (1,188,240) Beginning balance 466,925 430,728 1,618,968 -------- -------- -------- ENDING BALANCE $819,659 $466,925 $ 430,728 ======== ======== ======== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash payments for: Interest $ 82,409 $ 82,280 $ 109,944 Income taxes $ 56,821 $ 84,087 $ 59,192 Non-cash items: Tax settlement in discontinued operations $ 35,000 - - Extraordinary gain, net - - $ 419,557 Charge for accounting change - - $ (32,967)
See notes to consolidated financial statements. Harcourt General, Inc. and Subsidiaries 29 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cumulative Retained Common Series A Paid-in Translation Earnings (In thousands) Stocks Stock Capital Adjustments (Deficit) - ----------------------------------------------------------------------------------------------------------------------- BALANCE AT OCTOBER 31, 1991 $ 75,160 $ 3,855 $854,240 $ 4,598 ($465,099) Net earnings - - - - 494,460 Cash dividends paid - - - - (40,826) Conversion of Series A Stock 965 (965) - - - Translation adjustments - - - (8,007) - Other equity transactions, net 167 - 5,893 - - ------- ------ -------- ------ --------- BALANCE AT OCTOBER 31, 1992 76,292 2,890 860,133 (3,409) (11,465) Net earnings - - - - 171,333 Cash dividends paid - - - - (43,997) Conversion of Series A Stock 894 (894) - - - Translation adjustments - - - (2,115) - Other equity transactions, net 121 - 1,795 - - ------- ------ -------- ------ -------- BALANCE AT OCTOBER 31, 1993 77,307 1,996 861,928 (5,524) 115,871 Net earnings - - - - 177,532 Cash dividends paid - - - - (47,183) Conversion of Series A Stock 543 (543) - - - Translation adjustments - - - 814 - Spinoff of theatre operations - - (135,804) - - Other equity transactions, net 37 - 381 - - ------- ------ -------- ------ --------- BALANCE AT OCTOBER 31, 1994 $ 77,887 $1,453 $726,505 ($4,710) $246,220 ======== ====== ======== ======= ========= - --------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. Harcourt General, Inc. and Subsidiaries
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Harcourt General, Inc. (the Company or Harcourt General) and its majority-owned subsidiaries. The consolidated financial statements of The Neiman Marcus Group, Inc. (NMG) are consolidated with a lag of one fiscal quarter. All significant intercompany accounts and transactions have been eliminated. CASH AND EQUIVALENTS Cash and equivalents consist of cash and liquid debt instruments such as commercial paper and certificates of deposit with maturities of three months or less from the date of purchase. Cash and equivalents are stated at cost plus accrued interest, which approximates market value. The Company's practice is to invest cash with financial institutions that have acceptable credit ratings and to limit the amount of credit exposure to any one financial institution. ACCOUNTS RECEIVABLE Certain publications are sold to customers with a right of return. Revenues from such sales represent gross sales less a provision for future returns. Returned goods included in inventory are valued at estimated realizable value not exceeding cost. Accounts receivable are reported net of both an allowance for book returns of $49.1 million in 1994 and $49.7 million in 1993 and an allowance for doubtful accounts of $26.4 million in 1994 and $20.4 million in 1993. INVENTORIES Inventories are stated at the lower of cost or market. All domestic publishing inventories are valued using the last-in, first-out (LIFO) method. Approximately 83% of retail inventories are valued using the retail method on a LIFO basis. The remaining retail inventories are valued using the retail or cost method on a first-in, first-out (FIFO) basis. If the FIFO method of inventory valuation had been used to value all inventories, the inventories would have been $24.6 million and $22.2 million higher than reported at October 31, 1994 and October 31, 1993, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided using straight-line or accelerated methods over the estimated useful lives of the related assets or over the terms of the related leases, if shorter. When property and equipment are retired or have been fully depreciated, the cost and the related accumulated depreciation are eliminated from the respective accounts. Gains or losses arising from the dispositions are reported as income or expense. PREPUBLICATION COSTS Prepublication costs are amortized using the sum-of-the-years-digits method over the estimated useful lives not exceeding five years. INTANGIBLE ASSETS Intangible assets represent trademarks and goodwill. Amortization is provided on a straight-line method over the estimated useful lives of these assets not exceeding forty years. INCOME TAXES Effective November 1, 1993, income taxes are calculated in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires the asset and liability method of accounting for income taxes. Prior to November 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. The effects of adopting SFAS 109 were not material to the Company's financial position or results of operations. RECEIVABLES AND FINANCE CHARGE INCOME NMG extends credit to its specialty retailing customers. NMG's retail credit operations generate finance charge income which is treated as a reduction of selling, general and administrative expenses. Finance charge income amounted to $54.3 million in 1994, $36.3 million in 1993 and $28.3 million in 1992. Credit risk with respect to trade receivables is limited due to the large number of customers to whom the Company extends credit. Collateral is not required as a condition of extending credit, but credit evaluation of customers' financial position is performed. The Company maintains reserves for potential credit losses. Harcourt General, Inc. and Subsidiaries 31 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common share is based upon the weighted average number of common and, when dilutive, common equivalent shares outstanding during the year. Weighted average shares outstanding amounted to 79.8 million shares in 1994, 79.6 million shares in 1993 and 79.1 million shares in 1992. Earnings per common and common equivalent share, assuming full dilution, have not been presented because the dilutive effect is not material. CHANGES IN PRESENTATION Certain prior year amounts have been reclassified to conform to the current year presentation and to reflect the sale of the insurance operations in 1994 and the spinoff of the theatre operations in 1993. 2. DISCONTINUED OPERATIONS Discontinued operations consist of the following:
Years ended October 31 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- (In thousands) Earnings from insurance operations, net of income taxes of $20,844, $24,835 and $15,067 $37,056 $46,036 $27,731 Gain on sale of insurance operations, net of income taxes of $4,475 7,956 - - Tax settlements 35,000 - - Earnings from theatre operations, net of income taxes of $6,958 and $3,863 - 10,503 6,172 Theatre spinoff transaction expenses - (4,660) - Cumulative effect of change in accounting for postretirement health care benefits - - (6,229) -------- -------- -------- EARNINGS FROM DISCONTINUED OPERATIONS, NET $80,012 $51,879 $27,674 -------- -------- -------- - -----------------------------------------------------------------------------------------------------------------------------
INSURANCE OPERATIONS Pursuant to a Stock Purchase Agreement dated June 30, 1994, the Company sold its insurance businesses to an affiliate of General Electric Capital Corporation ("GECC"). The transaction closed on October 31, 1994. GECC paid the Company $410.4 million in cash, as specified in the Stock Purchase Agreement. The consolidated financial statements have been restated to report separately the net assets and operating results of these discontinued operations. Revenues applicable to discontinued insurance operations were $485.8 million in 1994, $548.0 million in 1993 and $464.6 million in 1992. THEATRE OPERATIONS On December 15, 1993, 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 $135.8 million of net theatre assets including $64.0 million in cash. Each common shareholder of the Company received one share of Common Stock in GCC for every ten shares of Harcourt General Common and Class B shares held on December 10, 1993, the record date for the distribution. In connection with the distribution, GCC and Harcourt General entered into various agreements which govern their ongoing relationship, including a Reimbursement and Security Agreement, an Intercompany Services Agreement, a Tax Agreement and certain subleases. Under the Reimbursement and Security Agreement, GCC granted to Harcourt General a security interest in the stock of its theatre subsidiaries in order to secure GCC's obligation to indemnify Harcourt General from losses Harcourt General may incur due to its secondary liability on theatre leases which were transferred to GCC as part of the spinoff. In addition, GCC has agreed to certain financial covenants designed to protect Harcourt General from incurring such liabilities. Under the Intercompany Services Agreement, Harcourt General provides certain management, accounting, financial, legal, tax and other corporate services to GCC. The fees for these services are based on Harcourt General's costs and are subject to the approval of a committee of directors of GCC who are not affiliated with Harcourt General. This agreement may be terminated on 90 days' notice. The fees for these services totaled $1.7 million in fiscal 1994. The Company's Chairman of the Board serves as the Chairman, President and Chief Executive Officer of GCC, and the Company's Chief Executive Officer and President serves as a director of GCC. Revenues applicable to discontinued theatre operations were $495.0 million in 1993 and $457.2 million in 1992. Harcourt General, Inc. and Subsidiaries 32 TAX SETTLEMENTS The Company recognized $35.0 million of tax benefits for various federal and state tax settlements relating to the Company's soft drink bottling business, which was sold in 1989. 3. DESCRIPTION OF CONTINUING OPERATIONS PUBLISHING Harcourt Brace & Company (Harcourt Brace) publishes textbooks and other materials for elementary and secondary schools and colleges, as well as scientific, technical, medical and professional books and journals, fiction, non-fiction and children's books. It publishes and scores tests that measure individual aptitude and competency and also conducts bar examination and accounting accreditation review courses. SPECIALTY RETAILING NMG operates three specialty retailing businesses: Neiman Marcus, Bergdorf Goodman and Contempo Casuals. Neiman Marcus operates 27 stores in 14 states and the District of Columbia. Bergdorf Goodman operates two stores in New York City, and Contempo Casuals operates 246 stores in 33 states and Puerto Rico. In addition, Neiman Marcus and Bergdorf Goodman operate mail order businesses through NM Direct. PROFESSIONAL SERVICES Drake Beam Morin provides human resources management consulting services such as career transition, outplacement and other consulting services to organizations and individuals worldwide. ADDITIONAL FINANCIAL INFORMATION
Years ended October 31 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------ (In thousands) REVENUES Publishing $ 919,498 $ 944,545 $ 865,336 Specialty retailing 2,092,906 2,016,914 1,808,354 Professional services 141,818 146,252 121,391 ........... ........... ........... Total revenues $ 3,154,222 $3,107,711 $ 2,795,081 ----------- ----------- ----------- OPERATING EARNINGS Publishing $ 165,436 $ 142,177 $ 124,503 Specialty retailing 120,704 120,191 81,510 Professional services 22,072 28,395 23,938 Corporate expenses (35,456) (47,307) (41,876) Restructuring of Contempo Casuals (48,401) - - ........... ........... ........... TOTAL OPERATING EARNINGS $ 224,355 $ 243,456 $ 188,075 ----------- ----------- ----------- IDENTIFIABLE ASSETS Publishing $ 842,850 $ 739,746 $ 811,614 Specialty retailing 1,408,238 1,362,657 1,221,693 Professional services 69,562 55,973 46,587 Corporate 921,714 973,031 382,714 ........... ........... ........... TOTAL IDENTIFIABLE ASSETS $ 3,242,364 $3,131,407 $ 2,462,608 ----------- ----------- ----------- CAPITAL EXPENDITURES Publishing $ 122,761 $ 92,864 $ 106,491 Specialty retailing 65,074 56,325 73,933 Professional services 6,910 4,813 2,892 Corporate 1,415 5,858 2,681 ........... ........... ........... TOTAL CAPITAL EXPENDITURES $ 196,160 $ 159,860 $ 185,997 ----------- ----------- ----------- DEPRECIATION AND AMORTIZATION Publishing $ 94,879 $ 104,603 $ 91,403 Specialty retailing 60,833 59,025 57,376 Professional services 4,006 3,036 2,205 Corporate 3,376 2,590 2,433 ........... ........... ........... Total depreciation and amortization $ 163,094 $ 169,254 $ 153,417 ----------- ----------- ----------- - ------------------------------------------------------------------------------------------------------------------------
Harcourt General, Inc. and Subsidiaries 33 4. INTANGIBLE ASSETS Intangible assets consisted of the following at October 31:
(In thousands) 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Goodwill $431,645 $394,452 Trademarks 73,000 73,000 Other 17,492 17,205 ........ ........ TOTAL 522,137 484,657 Accumulated amortization (99,571) (84,629) ........ ........ TOTAL $422,566 $400,028 ======== ======== - ---------------------------------------------------------------------------------------------------------------------
During 1994, the Company acquired several publishing related companies for $36.2 million in cash. Those operations are reflected in the Company's statement of earnings from the date of acquisition. Amortization expense was $14.9 million in 1994, $14.4 million in 1993 and $14.3 million in 1992. 5. THE NEIMAN MARCUS GROUP, INC. The Company owns 21.4 million shares of NMG Common Stock, all 0.5 million outstanding shares of the NMG 9 1/4% Cumulative Redeemable Preferred Stock (9 1/4% Preferred Stock) and all 1.0 million outstanding shares of the NMG 6% Cumulative Convertible Preferred Stock (6% Preferred Stock). On a fully-converted basis the shares presently owned by the Company represent approximately 65% of the voting power and equity of NMG. The 6% Preferred Stock is entitled to vote on all matters and is convertible on a per share basis into approximately 8.99 shares of NMG Common Stock, subject to certain antidilution adjustments. The conversion price for the 6% Preferred Stock at October 31, 1994 was approximately $41.70 per share of Common Stock, which was substantially above the $14.38 market price of NMG Common Stock on October 31, 1994. The earnings and cash flows of NMG are not available to the Company except through NMG dividend payments. In August 1990, NMG adopted a dividend reinvestment plan enabling all shareholders to invest their dividends in shares of NMG Common Stock. The Company reinvested $15.6 million in fiscal 1993 and $30.9 million in fiscal 1992 of common and preferred dividends in additional shares of NMG's Common Stock. The Company ceased participation in NMG's dividend reinvestment plan after the January 1993 dividend payment. The Company and NMG are parties to an agreement pursuant to which the Company provides certain management, accounting, financial, legal, tax and other corporate services to NMG. The fees for these services are based on the Company's costs and are subject to the approval of a committee of directors of NMG who are not affiliated with the Company. This agreement may be terminated by either party on 180 days' notice. Charges to NMG were $6.9 million in 1994, $7.2 million in 1993 and $6.4 million in 1992. The Company's Chairman of the Board; President and Chief Executive Officer; Senior Vice President and Chief Financial Officer; and Senior Vice President and General Counsel as well as certain other officers of the Company serve in similar capacities with NMG. The first two named officers also serve as directors of both companies. 6. LONG-TERM LIABILITIES Long-term liabilities of Harcourt General and NMG at October 31, 1994 and 1993 were as follows:
(In thousands) Interest Rate Maturity 1994 1993 - -------------------------------------------------------------------------------------------------------------------------- HARCOURT GENERAL Revolving credit agreement Variable December 1999 - - Senior debt 8.25% June 2002 $ 149,291 $ 149,225 Senior debt 8.88% June 2022 147,945 147,928 Subordinated notes 9.38% June 1997 124,750 124,657 Subordinated notes 9.50% March 2000 124,841 124,808 Other long-term liabilities Various Various 135,775 130,332 .......... .......... TOTAL HARCOURT GENERAL $ 682,602 $ 676,950 ========== ========== NMG Revolving credit agreements Variable Various $ 306,000 $ 232,200 Senior notes 9.83% May 1994 - 10,000 Senior notes 9.89% May 1996 40,000 40,000 Senior notes 9.59% August 1996 52,000 52,000 Senior notes 9.24% December 1996 40,000 40,000 Senior notes Variable December 1996 40,000 40,000 Other long-term liabilities Various Various 82,268 81,125 .......... .......... TOTAL NMG 560,268 495,325 Less current maturities (119,529) (64,904) .......... .......... TOTAL LONG-TERM LIABILITIES $1,123,341 $1,107,371 ========== ==========
Harcourt General, Inc. and Subsidiaries 34 The Company has a revolving credit agreement with thirteen banks, pursuant to which the Company may borrow up to $400.0 million. The agreement, which expires on December 16, 1999, may be terminated by the Company at any time on three business days' notice. The rate of interest payable is determined according to the senior debt rating of the Company and one of four pricing options selected by the Company. The Company is required to pay a facility fee on the total amount of the revolving credit facility at an annual rate dependent upon the senior debt rating of the Company. Based on the Company's present senior debt rating, the annual facility fee is equal to 0.125%. Other long-term liabilities of Harcourt General consist primarily of a liability for postretirement health care benefits and provisions for other employee benefits (see Note 12). NMG has a revolving credit agreement with nine banks pursuant to which NMG may borrow up to $300.0 million. NMG may terminate the agreement at any time. The rate of interest payable (4.8% at July 30, 1994) varies according to one of four pricing options selected by NMG. At July 30, 1994, under the terms of the agreement, the amount available for dividend payments by NMG was $121.5 million. Borrowings under this agreement were $295.0 million and $205.0 million at July 30, 1994 and July 31, 1993, respectively. NMG also has revolving credit agreements with six banks, pursuant to which NMG may borrow up to $25.0 million from each bank. All six of these credit agreements expire on March 31, 1995. Borrowings under these agreements were $11.0 million and $17.2 million at July 30, 1994 and July 31, 1993, respectively. In addition to its revolving credit agreements, NMG borrows from other banks on an uncommitted basis. Such bank borrowings are included in notes payable and current maturities of long-term liabilities and amounted to $10.0 million at July 31, 1993. The NMG senior notes have no sinking fund requirements. All fixed rate senior notes may be redeemed at a premium plus accrued interest. The variable rate note bears interest at LIBOR plus 0.7% (4.83% at July 30, 1994) and is adjusted semi-annually. Other long-term liabilities of NMG consist primarily of the present value of certain employee benefit obligations assumed by NMG, postretirement health care benefits and a provision for certain scheduled rent increases. The present value of the employee benefit obligations assumed by NMG increases on average by 10% annually. The aggregate maturities of all long-term liabilities are as follows:
Harcourt (In thousands) General NMG Total - ---------------------------------------------------------------------------------------------------------------- 1995 $ 2,900 $116,600 $119,500 1996 3,600 217,900 221,500 1997 128,300 138,400 266,700 1998 4,200 6,400 10,600 1999 3,200 6,500 9,700 Thereafter 540,400 74,500 614,900 - ----------------------------------------------------------------------------------------------------------------
Certain of Harcourt General's and NMG's loan agreements contain, among other restrictions, provisions limiting the issuance of additional debt and guarantees, the purchase of the Company's capital stock and the payment of dividends. Certain of these loan agreements also require the maintenance of minimum net worth. Under the most restrictive of these covenants, $250.0 million was available for the payment of dividends by Harcourt General. 7. SHAREHOLDERS' EQUITY SERIES A CUMULATIVE CONVERTIBLE STOCK Each share of Series A Stock is convertible into 1.1 shares of Common Stock, and is entitled to a quarterly dividend equal to the quarterly dividend on each share of Common Stock multiplied by 1.1, plus $.0075. Each share of Series A Stock is entitled to a liquidation preference of $5.00 plus any accrued but unpaid dividends. Liquidation proceeds remaining after the satisfaction of such preference and the payment of $4.55 per share of Common Stock would be distributed ratably to the holders of Common Stock and Series A Stock. There were 10,000,000 shares of Series A Stock authorized for issuance at October 31, 1994. CLASS B STOCK AND COMMON STOCK The Class B Stock is not transferable except to family members and related entities but is convertible at any time on a share-for-share basis into Common Stock. The holders of Class B Stock are entitled to cash dividends which are 10% lower per share than the cash dividends paid on each share of Common Stock. The Class B Stock and the Common Stock are each entitled to vote separately as a class on charter amendments, mergers, consolidations and certain extraordinary transactions which are required to be approved by shareholders under Delaware law. Under certain circumstances, the holders of Class B Stock have the right to cast 10 votes per share for the election of directors. There were 40,000,000 and 100,000,000 shares of Class B Stock and Common Stock authorized for issuance at October 31, 1994, respectively. Harcourt General, Inc. and Subsidiaries 35 COMMON STOCK INCENTIVE PLANS The Company has established stock incentive plans which provide for the granting of stock options, stock appreciation rights (SARs), restricted stock and other stock-based awards. Eligible employees have been granted 10-year options under the 1981 Stock Option Plan and the 1988 Stock Incentive Plan. No further grants may be made under the 1981 plan. The number of authorized shares available for future awards under the 1988 Stock Incentive Plan was 1.3 million shares of Common Stock at October 31, 1994. Options outstanding at October 31, 1994 were granted at prices (not less than 100% of the fair market value on the date of grant) varying from $13.34 to $32.75 per share and expire between 1995 and 2004. There were 73 employees with options outstanding, and the weighted average exercise price for all options outstanding was $17.87 at October 31, 1994. There were 2.1 million shares of Common Stock reserved at October 31, 1994 for issuance upon the exercise of stock options. The Company has allowed SAR treatment in connection with the exercise of certain options. Optionees allowed SAR treatment surrender an exercisable option for an amount of cash equal to the excess of the market price of the Common Stock at the time of surrender over the option exercise price. Option activity on the Company's Common Stock was as follows:
Years ended October 31 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------- Options outstanding - beginning of year 919,911 918,432 852,030 Granted 107,550 105,250 461,338 Exercised (33,805) (131,676) (217,408) SAR surrenders (68,860) (32,346) (40,900) Cancelled (169,084) (19,680) (136,628) ........ ........ ........ OPTIONS OUTSTANDING - END OF YEAR 755,712 839,980 918,432 ======== ======== ======== EXERCISABLE OPTIONS - END OF YEAR 422,477 452,800 486,402 ======== ======== ======== RESTRICTED COMMON STOCK ISSUED - - 100,000 ======== ======== ========
The number of options outstanding and their exercise prices were adjusted pursuant to a formula as a result of the spinoff of GCC in December 1993. The adjustment increased the number of options outstanding at the beginning of fiscal 1994 by approximately 80,000. 8. INCOME TAXES A reconciliation of the statutory federal income tax rates to the Company's effective tax rate is as follows:
Years ended October 31 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------- (In thousands) Amount % Amount % Amount % Statutory tax (expense) $(53,331) (35) $(66,936) (35) $(45,632) (34) State income taxes, net of federal tax effect (3,418) (2) (5,214) (2) (4,961) (3) Tax credits 193 - 704 - 842 - Dividends received exclusion 2,042 1 1,646 1 1,435 1 Foreign tax rate differentials 265 - 310 - 264 - Permanent items (5,268) (3) (3,920) (2) (6,475) (4) Capital gains and other 4,662 3 1,618 1 510 - INCOME TAX (EXPENSE) ........ ... ........ ... ........ ... FROM CONTINUING OPERATIONS $(54,855) (36) $(71,792) (37) $(54,017) (40) ======== === ======== === ======== === - -----------------------------------------------------------------------------------------------------------------------
Income tax expense was as follows:
Years ended October 31 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ (In thousands) CURRENT Federal $42,439 $56,446 $54,408 State 6,118 4,425 7,990 DEFERRED Federal 7,157 8,647 (6,815) State (859) 2,274 (1,566) ....... ....... ....... INCOME TAX EXPENSE $54,855 $71,792 $54,017 ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------
Harcourt General, Inc. and Subsidiaries 36 Significant components of the net deferred tax liabilities stated on a gross basis were as follows:
October 31 1994 - ------------------------------------------------------------------------------------------------------------------------ (In thousands) GROSS DEFERRED TAX ASSETS Accrued liabilities and reserves $ 97,026 Employee benefits 32,278 Postretirement health care benefits 37,001 Inventories 28,225 Difference in basis of assets acquired 42,772 ........ Total gross deferred tax assets 237,302 Valuation allowance (25,538) ........ Net deferred tax assets 211,764 GROSS DEFERRED TAX LIABILITIES Property, equipment, prepublication costs and intangibles 147,170 Pension and employee benefits accrual 21,340 Difference in basis of assets acquired 124,072 Accrued liabilities and reserves 25,345 ........ Total gross deferred tax liabilities 317,927 ........ NET DEFERRED TAX LIABILITIES $106,163 ========
The tax benefit (expense) of deferred items was as follows:
October 31 1993 1992 - --------------------------------------------------------------------------------------------------------------------- (In thousands) Depreciation and amortization ($8,525) ($ 1,451) Settlements (8,600) 704 Inventory valuation 255 3,183 Other 5,911 1,449 ....... ........ Deferred tax benefit (expense) (10,959) 3,885 Amounts included in current deferred taxes (1,355) 4,911 ....... ........ (12,314) 8,796 Discontinued operations: Theatre 18,657 - Insurance (831) (6,853) Extraordinary item and accounting change - (70,582) ....... ........ Net change in deferred taxes $5,512 ($68,639) ======= ======== - ---------------------------------------------------------------------------------------------------------------------
9. RESTRUCTURING OF CONTEMPO CASUALS In April 1994, NMG recorded a pre-tax charge of $48.4 million related to the decision to close 40 under-performing Contempo Casuals retail stores and all of the Pastille retail stores which had been operated by Contempo Casuals. This charge included an estimate for lease termination costs, the write-down of fixed assets, inventory liquidation costs and other related expenses. Accrued liabilities includes $14.4 million related to this charge. 10. INVESTMENT AND OTHER INCOME (EXPENSE) Investment and other income (expense) consisted of the following: Years ended October 31 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- (In thousands) INVESTMENT INCOME Interest income $ 5,510 $ 7,139 $ 11,342 Dividend income 8,729 6,933 11,897 ........ ........ ......... TOTAL INVESTMENT INCOME $ 14,239 $14,072 $ 23,239 ======== ======== ========= OTHER INCOME (EXPENSE) Broadway Stores, Inc. settlement - $20,755 - Gain on sale of securities - - $ 11,633 Other - (2,452) (3,292) ........ ........ ......... TOTAL OTHER INCOME (EXPENSE) - $18,303 $ 8,341 ======== ======== =========
Harcourt General, Inc. and Subsidiaries 37 When NMG was formed in 1987 as part of the restructuring of Carter Hawley Hale Stores, Inc., now Broadway Stores, Inc. (CHH), NMG and CHH entered into a variety of agreements, including agreements regarding the allocation of taxes and the guarantee by NMG of certain CHH employee benefits. In October 1992, CHH successfully emerged from Chapter 11 with the result that all legal and tax issues between the parties were settled. NMG paid CHH $7.7 million and was discharged as guarantor of certain CHH employee benefits. NMG reevaluated its liabilities to CHH and recognized a gain on settlement of these liabilities of $20.8 million in fiscal 1993. 11. MERGER WITH HARCOURT BRACE & COMPANY Harcourt Brace & Company was acquired on November 25, 1991 through an exchange of stock and the purchase of approximately $1.7 billion of certain Harcourt Brace indebtedness for approximately $1.1 billion in cash. This acquisition was accounted for as a pooling-of-interests. Subsequent to the acquisition, all remaining Harcourt Brace indebtedness was purchased from bondholders for approximately $188.0 million in cash. In the aggregate, these purchases resulted in a net extraordinary gain on a consolidated basis of $419.6 million, net of $175.0 million of costs associated with the acquisition of the debt including transaction fees, redemption premiums, other direct costs and taxes. 12. COMMITMENTS AND CONTINGENCIES LEASES The Company and NMG have long-term operating leases primarily for retail stores, distribution centers, offices, other facilities and equipment. Leases are generally for periods of up to thirty years with renewal options at fixed rentals. Certain leases also provide for additional rentals based on revenues in excess of predetermined levels. Rent expense for continuing operations under operating leases for the years ended October 31 was as follows:
(In thousands) 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------- Minimum rent $ 103,731 $102,823 $ 95,297 Rent based on revenues 9,400 8,200 7,300 ......... ......... ......... $ 113,131 $111,023 $ 102,597 ========= ========= ========= - --------------------------------------------------------------------------------------------------------------------
Assuming renewal options are not exercised, the future minimum rental payments will be as follows:
Harcourt (In thousands) General NMG Total - ------------------------------------------------------------------------------------------------------------------ 1995 $25,900 $ 55,200 $ 81,100 1996 25,300 53,200 78,500 1997 22,000 50,900 72,900 1998 17,300 47,300 64,600 1999 13,900 43,800 57,700 Thereafter 74,000 1,100,000 1,174,000 - ------------------------------------------------------------------------------------------------------------------
Harcourt General is secondarily liable for certain lease obligations that were transferred to and assumed by GCC in connection with the spinoff of GCC. Under the terms of the Reimbursement and Security Agreement between GCC and Harcourt General, GCC is obligated to indemnify Harcourt General against liabilities with respect to such transferred obligations. As of October 31, 1994, future rental payments due under such theatre leases amounted to approximately $802.1 million. PENSION PLANS Harcourt General and NMG each have non-contributory defined benefit pension plans covering substantially all full-time employees other than union employees. Harcourt General and NMG also sponsor unfunded supplemental executive retirement plans which provide certain employees with additional pension benefits. Benefits under the plans are based on employees' years of service and compensation prior to retirement. When funding is required, the policy is to contribute amounts that are deductible for federal income tax purposes. Harcourt General, Inc. and Subsidiaries 38 Net pension expense for continuing operations was as follows:
Years ended October 31 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- (In millions) Harcourt General $(3.1) $(1.8) $(1.4) NMG (6.3) (6.5) (5.7) ...... ..... ..... NET PENSION EXPENSE $(9.4) $(8.3) $(7.1) ====== ===== ===== - --------------------------------------------------------------------------------------------------------------------
Net pension expense for both Harcourt General and NMG included the following components:
Years ended October 31 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- (In millions) Service cost - benefits earned $(11.2) $(9.5) $(8.2) Interest cost on projected benefit obligation (9.8) (8.7) (7.7) Actual return on assets 2.8 17.6 15.8 Net amortization and deferral 8.8 (7.7) (7.0) ...... ..... ..... NET PENSION EXPENSE $ (9.4) $(8.3) $(7.1) ====== ===== ===== - ---------------------------------------------------------------------------------------------------------------------
The following table sets forth the plans' funded status and amounts recognized in the consolidated balance sheets
at October 31: (In millions) 1994 1993 - --------------------------------------------------------------------------------------------------------------------- FUNDED UNFUNDED Funded Unfunded PLANS PLANS Plans Plans VESTED BENEFIT OBLIGATION $(92.4) $(14.0) $(91.6) $(12.4) ====== ====== ======= ====== ACCUMULATED BENEFIT OBLIGATION $(96.8) $(16.3) $(95.2) $(14.3) ====== ====== ======= ====== Projected benefit obligation $(122.9) $(23.9) $(118.6) $(20.6) Plan assets at fair value 144.9 - 162.5 - ..... ...... ....... ...... Assets in excess of (less than) projected obligation 22.0 (23.9) 43.9 (20.6) Unrecognized net (asset) obligation at transition 0.5 2.8 (2.9) 1.4 Unrecognized net (gain) loss 15.7 2.0 (3.3) 1.4 Unrecognized prior service cost 1.5 (0.2) 2.9 1.7 PREPAID (ACCRUED) PENSION COST RECOGNIZED IN THE ..... ...... ....... ...... CONSOLIDATED BALANCE SHEETS $39.7 $(19.3) $ 40.6 $(16.1) ===== ====== ======= ====== - ---------------------------------------------------------------------------------------------------------------------
Plan assets include $8.9 million and $9.9 million of Harcourt General Common and Series A Stock at October 31, 1994 and 1993, respectively, and consist primarily of equity and fixed income securities. The plans' funded status by company as of October 31 was as follows:
(In millions) 1994 1993 - --------------------------------------------------------------------------------------------------------------------- FUNDED UNFUNDED Funded Unfunded PLANS PLANS Plans Plans Harcourt General $24.4 $(4.7) $27.0 $(3.9) NMG 15.3 (14.6) 13.6 (12.2) ..... ...... ..... ...... $39.7 $(19.3) $40.6 $(16.1) ===== ====== ===== ====== - ---------------------------------------------------------------------------------------------------------------------
Assumptions used in the computation of pension costs for Harcourt General and NMG were as follows:
1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- HG NMG HG NMG HG NMG Discount rate 7.5% 7.5% 7.5% 8.5% 8.5% 8.5% Long-term rate of return on plan assets 9.0% 9.0% 9.0% 9.0% 9.0% 10.0% Rate of increases in future compensation levels 6.0% 5.0% 6.0% 6.0% 6.0% 6.0% - ---------------------------------------------------------------------------------------------------------------------
In addition to the pension plans, Harcourt General and NMG each have two defined contribution plans for certain employees. The Savings Plans permit employee contributions and provide for certain matching contributions. The Employee Stock Ownership Plans are non-contributory. Harcourt General, Inc. and Subsidiaries 39 POSTRETIREMENT HEALTH CARE BENEFITS The Company provides health care benefits for retired employees which are funded as claims are incurred. Retirees and active employees hired prior to March 1, 1989 are eligible for these benefits if they meet certain service and minimum age requirements. Beginning in fiscal 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires accrual of these postretirement health care benefits during the years in which an employee provides services. The Company paid $3.7 million during fiscal 1994 and $3.0 million during fiscal 1993 for postretirement health care benefit claims. The actuarial present value of accumulated postretirement benefit obligations and the amounts recognized in the Company's consolidated balance sheets as of October 31 were as follows:
(In thousands) 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- Retirees $49,449 $61,053 Fully eligible active plan participants 6,901 8,308 Other active plan participants 14,876 18,545 ....... ....... Accumulated postretirement benefit obligation 71,226 87,906 Unrecognized net gain (loss) 7,880 (8,880) ....... ....... ACCRUED POSTRETIREMENT BENEFIT LIABILITY $79,106 $79,026 ======= ======= - -----------------------------------------------------------------------------------------------------------------------
The postretirement benefit cost for continuing operations was as follows: Years ended October 31 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- (In thousands) Service cost $1,257 $1,519 Interest cost on accumulated benefit obligation 4,891 6,239 ...... ...... POSTRETIREMENT BENEFIT COST $6,148 $7,758 ====== ====== - -----------------------------------------------------------------------------------------------------------------------
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 18% in 1993 and 16% in 1994, gradually declining to 5% in the year 2005. Measurement of the accumulated postretirement benefit obligation was based on an assumed 7.5% discount rate in both 1994 and 1993. An increase of 1% in the health care cost trend rate would increase the accumulated postretirement obligation as of October 31, 1994 by $4.8 million. This change would increase the annual expense by $0.4 million. LITIGATION Both Harcourt General and NMG are involved in various suits and claims in the ordinary course of business. Management does not believe that the disposition of such suits and claims will have a material adverse effect on the financial position or continuing operations of Harcourt General or NMG. LETTERS OF CREDIT NMG had approximately $38.7 million of irrevocable letters of credit relating to purchase commitments outstanding at July 30, 1994. 13. FAIR VALUE OF FINANCIAL INSTRUMENTS During the normal course of business, the Company uses various financial instruments. Discussed below is the fair value of financial instruments not presented elsewhere in these financial statements. INTEREST RATE SWAP During September 1991, NMG entered into an interest rate swap agreement having a notional principal amount of $50.0 million that effectively fixes NMG's interest rate on variable rate debt at 8.94%. The amount to be paid or received is accrued as interest rates change and is recognized over the life of the agreement. The interest rate swap matures in September 1996. The fair value of the interest rate swap is the amount at which it could be settled, based on estimates obtained from dealers. The estimated unrealized pre-tax loss on the interest rate swap was approximately $2.8 million at July 30, 1994, $6.6 million at July 31, 1993 and $5.2 million at August 1, 1992. This amount changes during the life of the swap as a function of maturity, interest rates and the credit standing of the parties to the swap agreement. The incremental pre-tax interest expense incurred due to the interest rate swap agreement was $2.3 million in 1994, $2.4 million in 1993 and $1.3 million in 1992. Harcourt General, Inc. and Subsidiaries 40 LONG-TERM DEBT The fair value of Harcourt General's and NMG's senior debt and subordinated notes was $734.7 million on October 31, 1994 and was based upon comparable publicly-traded issues. 14. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The 1994 and 1993 comparative quarterly financial information has been restated to reflect the discontinued insurance and theatre operations.
(In thousands except for per share data) 1994 - --------------------------------------------------------------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR - ------------------------------------------------------------------------------------------------------------------------------- REVENUES $ 703,751 $ 832,678 $ 815,114 $ 802,679 $ 3,154,222 =========== ========== ========== ========== =========== GROSS PROFIT $ 260,698 $ 283,072 $ 365,109 $ 333,424 $ 1,242,303 =========== ========== ========== ========== =========== EARNINGS FROM Continuing operations $ 5,923 $ 2,920 $ 45,521 $ 43,156 $ 97,520 Discontinued operations 14,039 8,394 43,664 13,915 80,012 ........... .......... .......... ........... ........... NET EARNINGS $ 19,962 $ 11,314 $ 89,185 $ 57,071 $ 177,532 ----------- ---------- ---------- ----------- ----------- NET EARNINGS PER COMMON SHARE FROM Continuing operations $ .07 $ .04 $ .57 $ .54 $ 1.22 Discontinued operations .18 .10 .55 .17 1.00 ........... .......... .......... ........... ........... Net earnings $ .25 $ .14 $ 1.12 $ .71 $ 2.22 =========== ========== ========== =========== ========== DIVIDENDS PER SHARE Common Stock $ 0.15 $ 0.15 $ 0.15 $ 0.16 $ 0.61 Class B Stock $ 0.135 $ 0.135 $ 0.135 $ 0.144 $ 0.549 Series A Stock $ 0.1725 $ 0.1725 $ 0.1725 $ 0.1835 $ 0.7010 - ---------------------------------------------------------------------------------------------------------------------------------
(In thousands except for per share data) 1993 - --------------------------------------------------------------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR - --------------------------------------------------------------------------------------------------------------------------------- REVENUES $ 668,811 $ 792,019 $885,775 $ 761,106 $ 3,107,711 =========== ========== ========= ========== =========== GROSS PROFIT $ 273,186 $ 246,936 $423,360 $ 316,537 $ 1,260,019 =========== ========== ========= ========== =========== EARNINGS (LOSS) FROM Continuing operations $ 15,452 ($ 4,541) $ 93,352 $ 15,191 $ 119,454 Discontinued operations 16,353 10,346 13,403 11,777 51,879 ----------- ---------- --------- ---------- ----------- Net earnings $ 31,805 $ 5,805 $106,755 $ 26,968 $ 171,333 =========== ========== ========= ========== =========== NET EARNINGS (LOSS) PER COMMON SHARE FROM Continuing operations $ .19 ($ .06) $ 1.17 $ .19 $ 1.50 Discontinued operations .21 .13 .17 .15 .65 ........... .......... .......... ........... ........... NET EARNINGS $ .40 $ .07 $ 1.34 $ .34 $ 2.15 =========== ========== ========== =========== =========== DIVIDENDS PER SHARE Common Stock $ 0.14 $ 0.14 $ 0.14 $ 0.15 $ 0.57 Class B Stock $ 0.126 $ 0.126 $ 0.126 $ 0.135 $ 0.513 Series A Stock $ 0.1475 $ 0.1475 $0.1475 $ 0.1575 $ 0.60 - ---------------------------------------------------------------------------------------------------------------------------------
Harcourt General, Inc. and Subsidiaries 41 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Harcourt General, Inc. Chestnut Hill, Massachusetts We have audited the consolidated balance sheets of Harcourt General, Inc. and its subsidiaries as of October 31, 1994 and 1993 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harcourt General, Inc. and its subsidiaries as of October 31, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 12 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in fiscal 1992. Deloitte & Touche LLP Boston, Massachusetts December 5, 1994 STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Harcourt General, Inc. and its subsidiaries is responsible for the integrity and objectivity of the financial and operating information contained in this Annual Report, including the consolidated financial statements covered by the Independent Auditors' Report. These statements were prepared in conformity with generally accepted accounting principles and include amounts that are based on the best estimates and judgments of management. The Company maintains a system of internal financial controls which provides management with reasonable assurance that transactions are recorded and executed in accordance with its authorization; that assets are properly safeguarded and accounted for; and that records are maintained so as to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, an organizational structure that segregates duties, and a comprehensive program of periodic audits by the internal auditors. The Company has policies and guidelines which require employees to maintain a high level of ethical standards. In addition, the Audit Committee of the Board of Directors, consisting solely of outside directors, meets periodically with management, the internal auditors and the independent auditors to review internal accounting controls, audit results and accounting principles and practices, and recommend the selection of independent auditors to the Board of Directors. John R. Cook Senior Vice President and Chief Financial Officer Stephen C. Richards Vice President and Controller Harcourt General, Inc. and Subsidiaries 42 FIVE YEAR SUMMARY - (Unaudited) (1)(2)
(In thousands except for per share amounts) 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------- REVENUES Publishing $ 919,498 $ 944,545 $ 865,336 $ 807,689 $ 853,725 Specialty retailing 2,092,906 2,016,914 1,808,354 1,744,800 1,688,611 Professional services 141,818 146,252 121,391 103,795 82,212 ---------- ---------- ---------- ---------- ---------- TOTAL $3,154,222 $3,107,711 $2,795,081 $2,656,284 $2,624,548 ========== ========== ========== ========== ========== OPERATING EARNINGS (LOSS) Publishing $ 165,436 $ 142,177 $ 124,503 ($ 73,792) $ 121,650 Specialty retailing 120,704 120,191 81,510 82,277 99,191 Professional services 22,072 28,395 23,938 14,309 17,062 Corporate expenses (35,456) (47,307) (41,876) (40,706) (42,072) Merger and restructuring charges (48,401) - - (72,777) - ---------- ---------- ---------- ---------- ---------- Operating earnings (loss) 224,355 243,456 188,075 (90,689) 195,831 Investment income 14,239 14,072 23,239 128,533 124,411 Interest expense (86,219) (84,585) (85,442) (348,260) (363,021) Other income (expense), net - 18,303 8,341 (15,171) 126,020 ---------- ---------- ---------- ---------- ---------- Earnings (loss) from continuing operations before income taxes, extraordinary item and cumulative effect of accounting change 152,375 191,246 134,213 (325,587) 83,241 Income tax (expense) benefit (54,855) (71,792) (54,017) 57,780 (38,493) ---------- ---------- ----------- ---------- ---------- Earnings (loss) from continuing operations before extraordinary item and cumulative effect of accounting change 97,520 119,454 80,196 (267,807) 44,748 Discontinued operations, net 80,012 51,879 27,674 (25,315) (14,365) Extraordinary item, net - - 419,557 - - Accounting change, net - - (32,967) - - ---------- ---------- ---------- ---------- ---------- Net earnings (loss) 177,532 171,333 494,460 (293,122) 30,383 Dividends on Harcourt Brace preferred stock - - - 12,684 18,242 NET EARNINGS (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ 177,532 $ 171,333 $ 494,460 ($ 305,806) $ 12,141 ========== ========== ========== ========== ========== Depreciation and amortization $ 163,094 $ 169,254 $ 153,417 $ 293,776 $ 153,678 Capital expenditures 196,160 159,860 185,997 164,917 136,106 Total assets 3,242,364 2,805,878 2,675,962 3,908,330 4,154,008 Total long-term liabilities 1,123,341 1,107,371 1,086,053 980,224 2,658,734 Weighted average number of common and common equivalent shares outstanding 79,809 79,625 79,139 78,876 79,027 AMOUNTS PER SHARE OF COMMON STOCK Earnings (loss) from continuing operations before extraordinary item and cumulative effect of accounting change $ 1.22 $ 1.50 $ 1.01 ($ 3.40) $ .57 Net earnings (loss) applicable to common shareholders $ 2.22 $ 2.15 $ 6.25 ($ 3.88) $ .15 Dividends paid on common stock $ .61 $ .57 $ .53 $ .49 $ .45 - --------------------------------------------------------------------------------------------------------------------------- (1) In October 1994, the Company sold its insurance operations. Effective December 15, 1993, the Company distributed its theatre operations to the Company's shareholders. In November 1989, Harcourt Brace sold its six theme parks and related land holdings. (2) Prior year amounts have been restated to reflect the sale of the Company's insurance operations. Harcourt General, Inc. nd Subsidiaries
43
DIRECTORS AND OFFICERS DIRECTORS EXECUTIVE OFFICERS OPERATING OFFICERS RICHARD A. SMITH (1)(4) RICHARD A. SMITH PUBLISHING Chairman of the Board Chairman of the Board and Chairman of the JAMES P. LEVY Executive Committee ROBERT J. TARR, JR. President President, Chief Harcourt Brace Education Group SIDNEY STONEMAN (4) Executive Officer and Vice Chairman of the Board Chief Operating Officer BRIAN J. KNEZ President WILLIAM F. CONNELL (2)(4) JOHN R. COOK Harcourt Brace STMP Group Chairman and Senior Vice President Chief Executive Officer, and Chief Financial Officer SPECIALTY RETAILING Connell Limited Partnership ERIC P. GELLER BURTON TANSKY JACK M. GREENBERG (2)(3) Senior Vice President, Chairman and Chief Vice Chairman and General Counsel and Secretary Executive Officer Chief Financial Officer, Neiman Marcus Stores McDonald's Corporation ROBERT A. SMITH Group Vice President B.D. FEIWUS HERBERT W. JARVIS (2)(4) President and Former President and STAFF OFFICERS Chief Executive Officer Chief Executive Officer, NM Direct Sybron Corporation PETER FARWELL and Director of several Vice President-Corporate STEPHEN C. ELKIN corporations Relations Chairman and Chief Executive Officer LYNN MORLEY MARTIN (3)(4) PAUL F. GIBBONS Bergdorf Goodman Former U.S. Secretary of Labor and Vice President and former member of U.S. House of Treasurer ROBERT S. KELLEHER Representatives; Davee Chair, J.L. President and Chief Kellogg School of Management at GERALD T. HUGHES Operating Officer Northwestern University; Advisor, Vice President-Human Contempo Casuals Deloitte & Touche LLP and Director Resources of several corporations PROFESSIONAL SERVICES MICHAEL F. PANUTICH MAURICE SEGALL (3) Vice President- WILLIAM J. MORIN Former Chairman and Chief Executive General Auditor Chairman and Chief Officer, Zayre Corp.; Senior Executive Officer Lecturer, M.I.T. and Director of STEPHEN C. RICHARDS Drake Beam Morin several corporations Vice President and Controller ROBERT A. SMITH (1) Group Vice President CRAIG B. SWAIN Vice President- DR. PAULA STERN (2) Planning and Analysis Former Chairwoman, U.S. International Trade Commission; President, The Stern Group, Inc.; Senior Fellow, Progressive Policy Institute and Director of several corporations ROBERT J. TARR, JR. (1) President, Chief Executive Officer and Chief Operating Officer HUGO UYTERHOEVEN (2)(3)(4) Timken Professor of Business Administration, Harvard Business School DR. CLIFTON R. WHARTON, JR. Former Chairman and Chief Executive Officer, TIAA-CREF and Director of several companies (1) Executive Committee (2) Audit Committee (3) Compensation Committee (4) Nominating Committee
44 SHAREHOLDER INFORMATION Requests for general information or published financial information can be made in writing to the Corporate Relations Department, Harcourt General, Inc., 27 Boylston Street, Chestnut Hill, MA 02167. Telephone: (617) 232-8200. To hear the latest company news, including quarterly earnings releases, or to request printed financial information or leave a message for the Company's Transfer Agent, individuals may call The Shareholder Line at (800) 225-9194, Extension 2345. AUTOMATIC DIVIDEND REINVESTMENT AND CASH STOCK PURCHASE PLAN The Plan provides stockholders with a convenient way to purchase Common shares by reinvesting their Common and Series A cash dividends and/or by investing additional cash amounts. The Company will absorb all brokerage and agency fees for stock purchased in connection with the Plan. For further information, please call The Shareholder Line or write to: Harcourt General, Inc., c/o The First National Bank of Boston, Automatic Dividend Reinvestment Plan, Post Office Box 1681, Boston, MA 02105. TRANSFER AGENT AND REGISTRAR FOR COMMON, SERIES A AND CLASS B STOCK The First National Bank of Boston Shareholder Services Division Mail Stop 45-01-05 Post Office Box 644 Boston, MA 02102-0644 (800) 442-2001 FORM 10-K The Company's Form 10-K as filed with the Securities and Exchange Commission is available upon written request to the Corporate Relations Department of the Company. ANNUAL MEETING The Annual Meeting of Stockholders will be held on Friday, March 10, 1995 at 10:00 a.m. at The First National Bank of Boston, 100 Federal Street, Boston, Massachusetts. STOCK INFORMATION Harcourt General's Common Stock and Series A Cumulative Convertible Stock are traded on the New York Stock Exchange under the symbols H and HPRA, respectively. The following table indicates the quarterly price range of the Common Stock and Series A Stock for the past two fiscal years. The prices for fiscal 1993 and the "high" price for the first quarter of fiscal 1994 are prior to the tax-free distribution of shares in GC Companies, Inc., which was effective on December 15, 1993.
COMMON STOCK Quarter 1994 1993 - -------------------------------------------------------------- High Low High Low First $44.00 $32.00 $38.13 $28.50 Second $37.88 $30.25 $37.50 $31.25 Third $39.50 $32.25 $40.00 $32.63 Fourth $38.00 $31.25 $46.13 $37.50 - --------------------------------------------------------------
SERIES A STOCK Quarter 1994 1993 - -------------------------------------------------------------- High Low High Low First $42.00 $35.00 $37.13 $28.00 Second $40.25 $34.88 $36.63 $32.75 Third $41.75 $37.50 $39.00 $33.75 Fourth $40.25 $35.25 $46.00 $40.25 - --------------------------------------------------------------
Harcourt General had 12,803 and 13,398 Common shareholders of record at October 31, 1994 and 1993, respectively, and 691 and 847 Series A shareholders of record at October 31, 1994 and 1993, respectively. Following an adjustment related to the spinoff of GC Companies, the Series A shares are now convertible into Common Stock on a 1:1.1 basis. CORPORATE ADDRESS Harcourt General, Inc. 27 Boylston Street Chestnut Hill, MA 02167 (617) 232-8200 Harcourt General is an Equal Opportunity Employer. This book is printed on recycled paper. HARCOURT GENERAL, INC. 27 BOYLSTON STREET CHESTNUT HILL, MA 02167 HARCOURT GENERAL, INC. 1994 ANNUAL REPORT EX-21.1 6 SUBSIDIARIES & AFFILIATES LISTING Exhibit 21.1 HARCOURT GENERAL, INC. SUBSIDIARIES & AFFILIATES (includes Harcourt Brace and Neiman Marcus Group companies)
JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION STOCKHOLDER Acadata (London) Limited England Harcourt Brace & Company Limited (50%) Academic Press, Inc. New York Harcourt Brace & Company Academic Press Limited England Harcourt Brace & Company Limited (99%) Harcourt Brace & Company (1%) Bailliere Tindall Limited England Harcourt Brace & Company Limited (99%) Harcourt Brace & Company (1%) Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc. Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc. Books for Professionals, Inc. Delaware Harcourt Brace & Company Broadcasters, Inc. Texas Neiman Marcus Holdings, Inc. C.C. Group Limited Hong Kong The Neiman Marcus Group, Inc. (50%) Contempo Casuals (50%) Contempo Casuals California The Neiman Marcus Group, Inc. Coronado Publishers, Inc. Delaware Academic Press, Inc. DBM de Mexico, S.A. de C.V. Mexico Drake Beam Morin, Inc. (99%) DBM International, Inc. (1%) DBM France, S.A. France Drake Beam Morin, Inc. (99%) DBM International, Inc. Delaware Drake Beam Morin, Inc. DBM Training and Consulting, Inc. Delaware Drake Beam Morin, Inc. Devices for Learning, Inc. Delaware Harcourt Brace & Company Drake Beam Morin-Canada, Inc. Ontario Drake Beam Morin, Inc. Drake Beam Morin, Inc. Delaware SIFTCO, Inc. Drake Beam Morin plc England and Drake Beam Morin, Inc. Wales Emcor, Inc. Delaware Harcourt General, Inc. Executive In Residence, Inc. New York Drake Beam Morin, Inc. Foundation for Marine Animal Husbandry, Inc. Florida Harcourt Brace & Company GCC Films, Inc. Delaware Harcourt General, Inc. GCC Investment Trust Massachusetts Hammond Pond Investments, Inc. (50%) Emcor, Inc. (50%) GCC Land Co., Inc. Delaware Harcourt General, Inc. General Cinema Broadcasting, Inc. Delaware Harcourt General, Inc. GMN, INC. Delaware Harcourt General, Inc. Grune & Stratton, Inc. New York Harcourt Brace & Company Grune & Stratton Limited England Harcourt Brace & Company Limited (50%) Harcourt Brace & Company (50%) Hammond Pond Investments, Inc. Massachusetts SIFTCO, Inc. Harcourt Brace & Company Delaware SIFTCO, Inc. Harcourt Brace & Company Australia Pty. Limited Australia Harcourt Brace & Company (99%) Harcourt Brace & Company Canada, Ltd. Ontario HRW and WBS Canada Corporation, Inc. Harcourt Brace & Company Limited England Academic Press, Inc. (99%) Harcourt Brace & Company (1%) Harcourt Brace & Company Australia Harcourt Brace & Company New Zealand Pty. Limited Australia Pty. Limited Harcourt Brace FSC, Inc. U.S. Virgin Harcourt Brace & Company Islands Harcourt Brace Japan, Inc. Japan Harcourt Brace & Company (99.17%) Harcourt Brace Legal and Delaware SIFTCO, Inc. Professional Publications, Inc. Harcourt General Charitable Foundation, Inc. Massachusetts Harcourt General, Inc. Harcourt General Services, Inc. Delaware Harcourt General, Inc. Health Careers Academy New Jersey Heritage Land Company, Inc. Oklahoma Harcourt Brace & Company Holt, Rinehart and Winston, Inc. Delaware Harcourt Brace & Company Holt, Rinehart and Winston Limited England W. B. Saunders Company Limited (99%) Harcourt Brace & Company (1%) Holt, Rinehart & Winston Harcourt Brace & Company (99%) Publishing Asia Limited Hong Kong Harcourt Brace & Company Australia Pty. Limited (1%) HRW and WBS Canada Corporation, Inc. New York Harcourt Brace & Company HRW Distributors, Inc. Delaware Harcourt Brace & Company Human Nature, Inc. Delaware Harcourt Brace & Company (83%) Innovation Research, Inc. Delaware Harcourt Brace & Company Johnson Reprint Company Limited England Harcourt Brace & Company Limited (99%) Harcourt Brace & Company (1%) Johnson Reprint Corporation New York Academic Press, Inc. Last Call, Inc. New Jersey The Neiman Marcus Group, Inc. Le Group Educalivres Inc. Quebec Harcourt Brace & Company Canada, Ltd. Jean-Guy Blanchette Learned & Tested, Inc., The Education Company Delaware Harcourt Brace & Company Miller Accounting Publications, Inc. Delaware Harcourt Brace & Company Miller Comprehensive CPA Review, Inc. Delaware Legal and Professional Publications, Inc. MSRD, Inc. New York The Psychological Corporation Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc. Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc. NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc. (99%) Neiman Marcus Holdings, Inc. (1%) Pastille, Inc. Delaware The Neiman Marcus Group, Inc. Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc. Reference Works Limited England W.B. Sauders Company Limited (99%) Harcourt Brace & Company (1%) Seminar Press Limited England Harcourt Brace & Company Limited (99%) Harcourt Brace & Company (1%) SIFTCO, Inc. Massachusetts Harcourt General, Inc. T & A D Poyser Limited England Harcourt Brace & Company Limited (50%) Harcourt Brace & Company (50%) The Initiative for Better Learning, Inc. Massachusetts Harcourt Brace & Company The Marine Research Center at Sea World, Inc. Florida The Neiman Marcus Group, Inc. Delaware Harcourt General, Inc. (65%) The Psychological Corporation New York Harcourt Brace & Company The Psychological Corporation Limited England Harcourt Brace & Company Limited (99%) Harcourt Brace & Company (1%) W. B. Saunders Company Delaware Harcourt Brace & Company W. B. Saunders Company Limited England Harcourt Brace & Company Limited (99%) Harcourt Brace & Company (1%)
EX-23.1 7 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements of Harcourt General, inc. on Form S-3 (Nos. 33-13936 and 33-46148) and Form S-8 (No. 33-26079) of our report dated December 5, 1994, appearing in and incorporated by reference in this Annual Report on Form 10-K of Harcourt General, Inc. for the year ended October 31, 1994. DELOITTE & TOUCHE LLP Boston, Massachusetts January 27, 1995 EX-27.1 8 EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE
EXHIBIT 27.1 Harcourt General Article 5 of Regulation S-X
5 The schedule contains a summary of financial information extracted from the Consolidated Balance Sheet and Consolidated Statement of Earnings and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS Oct-31-1994 Oct-31-1994 $ 819,659 0 605,014 26,439 466,177 2,021,008 824,659 302,989 3,242,364 875,004 915,464 77,887 0 1,453 968,015 3,242,364 3,154,222 3,154,222 1,911,919 2,929,867 0 28,422 86,219 152,375 54,855 97,520 80,012 0 0 177,532 2.22 2.22
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