-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DvoFwzOfwSCsVzadKAX2v9MxCojZ3MuHQBZWBC3isSF2U7qhpfOkieRKKxLHLuMY +t4tbRN3d0lh2zqDhSBj0A== 0000040493-96-000009.txt : 19960916 0000040493-96-000009.hdr.sgml : 19960916 ACCESSION NUMBER: 0000040493-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960913 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04925 FILM NUMBER: 96629874 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-Q 1 HARCOURT GENERAL, INC. 3RD QUARTER 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 31, 1996 Commission File Number 1-4925 HARCOURT GENERAL, INC. (Exact of name of registrant as specified in its charter) Delaware 04-1619609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27 Boylston Street, Chestnut Hill, MA 02167 (Address of principal executive offices) (Zip Code) (617) 232-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of September 10, 1996, the number of shares outstanding of each of the issuer's classes of common stock was: Class Shares Outstanding Common Stock, $1 Par Value 51,061,435 Class B Stock, $1 Par Value 20,051,192 HARCOURT GENERAL, INC. I N D E X Part I. Financial Information Page Number Item 1. Condensed Consolidated Balance Sheets as of July 31, 1996 and October 31, 1995 1 Condensed Consolidated Statements of Earnings for the Nine and Three Months Ended July 31, 1996 and 1995 2 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 1996 and 1995 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 Exhibit 11.1 12 Exhibit 27.1 13 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands) July 31, October 31, 1996 1995 Assets Current assets: Cash and equivalents $ 315,909 $ 363,750 Short-term investments 124,745 243,073 Accounts receivable, net 477,495 372,700 Inventories 573,852 495,222 Deferred income taxes 79,083 79,083 Other current assets 71,967 55,970 Total current assets 1,643,051 1,609,798 Property and equipment, net 571,883 540,347 Other assets: Prepublication costs, net 202,763 164,449 Intangible assets, net 469,542 442,566 Other 147,179 127,176 Total other assets 819,484 734,191 Total assets $3,034,418 $2,884,336 Liabilities and Shareholders' Equity Current liabilities: Notes payable and current maturities of long-term liabilities $ 159,942 $ 15,484 Accounts payable 280,969 284,481 Accrued liabilities 324,220 334,479 Taxes payable 62,579 58,104 Other current liabilities 79,814 52,423 Total current liabilities 907,524 744,971 Long-term liabilities: Notes and debentures 739,253 789,008 Other long-term liabilities 218,649 210,846 Total long-term liabilities 957,902 999,854 Deferred income taxes 198,398 198,398 Shareholders' equity: Preferred stock 1,162 1,210 Common stock 71,108 72,699 Paid-in capital 728,795 727,285 Cumulative translation adjustments (6,458) (5,166) Retained earnings 175,987 145,085 Total shareholders' equity 970,594 941,113 Total liabilities and shareholders' equity $3,034,418 $2,884,336 See Notes to Condensed Consolidated Financial Statements.
1 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands except for per share amounts) Nine Months Three Months Ended July 31, Ended July 31, 1996 1995 1996 1995 Revenues $2,421,996 $2,251,041 $ 879,212 $813,255 Costs applicable to revenues 1,421,773 1,325,425 460,406 424,937 Selling, general and administrative expenses 735,140 678,353 236,626 221,416 Corporate expenses 23,627 25,356 7,787 7,936 Operating earnings 241,456 221,907 174,393 158,966 Investment income 20,957 31,955 5,534 8,198 Interest expense (61,876) (68,577) (20,431) (21,782) Earnings from continuing operations before income taxes 200,537 185,285 159,496 145,382 Income taxes (68,183) (62,997) (54,229) (49,430) Earnings from continuing operations 132,354 122,288 105,267 95,952 Loss from discontinued operations, net - (11,727) - (11,421) Net earnings $ 132,354 $ 110,561 $ 105,267 $ 84,531 Weighted average number of common and common equivalent shares outstanding 72,832 77,557 72,578 74,391 Earnings per common share: Earnings from continuing operations $ 1.82 $ 1.58 $ 1.45 $ 1.29 Loss from discontinued operations, net - (.15) - (.15) Net earnings $ 1.82 $ 1.43 $ 1.45 $ 1.14 Dividends per share: Common Stock $ .51 $ .48 $ .17 $ .16 Class B Stock $ .459 $ .432 $ .153 $ .144 Series A Stock $ .5835 $ .5505 $ .1945 $ .1835 See Notes to Condensed Consolidated Financial Statements.
2 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Nine Months Ended July 31, 1996 1995 Cash flows from operating activities: Net earnings from continuing operations $132,354 $122,288 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 127,706 122,470 Other items 3,592 (1,455) Changes in current assets and liabilities: Accounts receivable (105,318) (116,849) Inventories (78,633) (64,981) Other current assets (1,410) 7,713 Current liabilities 18,889 (921) 97,180 68,265 Discontinued operating activities - 934 Net cash provided by operating activities 97,180 69,199 Cash flows from investing activities: Capital expenditures (184,799) (147,275) Purchase of short-term investments (140,755) (297,847) Maturities of short-term investments 244,470 - Acquisitions (19,197) (41,250) Other investing activities (35,619) 295 Net cash used for investing activities (135,900) (486,077) Cash flows from financing activities: Proceeds from borrowings 93,250 47,665 Repayment of debt (1,088) (246,961) Repurchase of Common Stock (67,150) (220,039) Proceeds from receivables securitization - 245,965 Dividends paid (36,016) (35,468) Other financing activities 1,883 757 Net cash used for financing activities (9,121) (208,081) Cash and equivalents: Decrease during the period (47,841) (624,959) Beginning balance 363,750 819,659 Ending balance $315,909 $194,700 See Notes to Condensed Consolidated Financial Statements.
3 HARCOURT GENERAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of presentation The condensed consolidated financial statements of Harcourt General, Inc. (the Company) are submitted in response to the requirements of Form 10-Q and should be read in conjunction with the consolidated financial statements in the Company's Annual Report on Form 10-K. In the opinion of management, these statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The July 31, 1996 condensed consolidated financial statements include the April 27, 1996 condensed consolidated financial statements of The Neiman Marcus Group, Inc. (NMG). 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. The Company owns approximately 59% of the common stock of NMG. See Note 4 below. The Company's businesses are seasonal in nature, and historically the results of operations for these periods have not been indicative of the results for the full year. 2. Discontinued operations On June 30, 1995, NMG sold its Contempo Casuals operations to The Wet Seal, Inc. Revenues applicable to the discontinued Contempo Casuals operations were $47.9 million and $174.3 million for the thirteen and the thirty-nine week periods ended April 29, 1995. The losses from discontinued operations recorded in the thirteen and thirty-nine week periods ended April 29, 1995 are net of applicable income tax benefits of $8.2 million and $8.4 million, respectively. 3. Stock purchase programs In April 1995, the Company completed a "Dutch Auction" tender offer and purchased approximately 5.4 million shares of the Company's Common Stock at $40.50 per share. In May 1995, the Company's Board of Directors authorized the purchase of up to 2.5 million shares of the Company's Common Stock on the open market. In March 1996, the Company's Board of Directors authorized an increase in the open market stock purchase program to 3.5 million shares of the Company's Common Stock. During the nine months ended July 31, 1996, the Company purchased approximately 1.7 million shares at an average price of $39.18 per share under this buyback program. 4. NMG public offering On September 11, 1996, NMG filed with the Securities and Exchange Commission a Registration Statement for a public offering of NMG's common stock. If the offering and related transactions are completed as described in the Registration Statement, NMG will use all of the net cash proceeds from the offering, together with shares of its common stock and borrowings under its revolving credit agreement, to purchase from the Company all of the NMG preferred stock held by the Company. The aggregate consideration which the Company will receive for its NMG preferred stock will be approximately $416.4 million consisting of $135 million in NMG common stock valued at the public offering price and the remainder in cash. At the conclusion of the offering and the related transactions, the Company's cash will be increased by the cash portion of the consideration received for its NMG preferred stock, less applicable taxes, and no gain or loss will be recognized. The Company will still own a majority of the outstanding NMG common stock, and NMG will not have any preferred stock outstanding. 4 HARCOURT GENERAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table illustrates revenues and operating earnings from continuing operations by business segment.
Nine Months Ended July 31, Three Months Ended July 31, (In thousands) 1996 1995 1996 1995 Revenues: Publishing $ 739,763 $ 687,516 $377,131 $365,530 Specialty retailing 1,589,381 1,467,604 474,059 415,746 Professional services 92,852 95,921 28,022 31,979 Total revenues $2,421,996 $2,251,041 $879,212 $813,255 Operating earnings: Publishing $ 113,601 $ 101,659 $139,884 $133,848 Specialty retailing 142,980 135,504 41,655 30,013 Professional services 8,502 10,100 641 3,041 Corporate expenses (23,627) (25,356) (7,787) (7,936) Total operating earnings $ 241,456 $ 221,907 $174,393 $158,966
Nine Months Ended July 31, 1996 Compared To Nine Months Ended July 31, 1995 Publishing Publishing revenues for the nine months ended July 31, 1996 increased 7.6% to $739.8 million from $687.5 million for the nine months ended July 31, 1995. The increase was primarily attributable to higher testing program and college publishing revenues, offset in part by decreased elementary program revenues, at the Company's educational publishing group, and significantly higher revenues at the scientific, technical, medical and professional (STMP) publishing group. The testing program revenue growth was primarily a result of the acquisition of Assessment Systems, Inc. in the third quarter of 1995, while the decline in elementary publishing revenues reflects fewer adoption opportunities in comparison to 1995. STMP revenue growth reflects both increased book and journal sales at W.B. Saunders as well as revenue increases due to the acquisition of International Medical News Group (IMNG) in the first quarter of 1996. Publishing operating earnings increased 11.7% compared with the same period last year. STMP operating earnings, specifically at W.B. Saunders and Academic Press, were significantly higher than those of the prior year due to higher sales volume of W.B. Saunders books, W.B. Saunders and Academic Press journals, and lower selling, general and administrative expenses as a percentage of revenues. Operating earnings for the educational publishing group decreased in comparison to the same period last year primarily as a result of expected lower sales volume and increased sample an administrative costs. 5 HARCOURT GENERAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Specialty Retailing Specialty retailing results are reported with a lag of one quarter. Accordingly, the operating results of The Neiman Marcus Group, Inc. (NMG) for the thirty-nine weeks ended April 27, 1996 are consolidated with the Company's operating results for the nine months ended July 31, 1996. In June 1995, NMG sold its Contempo Casuals operations to The Wet Seal, Inc. Revenues in the thirty-nine weeks ended April 27, l996 increased 8.3% over revenues in the thirty-nine weeks ended April 29, 1995. Comparative sales for the period increased 5.3%. Neiman Marcus store openings in Short Hills, New Jersey in August 1995 and King of Prussia, Pennsylvania in February 1996 also contributed to the overall increase in revenues. NMG's operating earnings increased 5.5% to $143.0 million in the thirty-nine week period ended April 27, 1996 compared to $135.5 million in 1995. An $11.9 million reduction in finance charge income related to the securitization of NMG s credit card receivables in March 1995 was offset by higher operating earnings resulting from increased sales volume at Neiman Marcus Stores and NM Direct in comparison to the prior year. Professional Services Professional services revenues decreased 3.2% to $92.9 million from $95.9 million in the same period last year. The decrease was primarily due to lower volume in group outplacement programs. Professional services operating earnings decreased $1.6 million to $8.5 million compared with the same 1995 period. The decrease was primarily attributable to the lower sales volume, offset in part by lower operating expenses as a percentage of revenues. Investment Income Investment income decreased $11.0 million to $21.0 million compared to the same nine month period in 1995. The decrease was due to a reduction in the average portfolio balance primarily as a result of the Company s common stock purchase program which commenced in April 1995 and, to a lesser extent, a lower rate of return on portfolio assets. Interest Expense Interest expense decreased 9.8% to $61.9 million from $68.6 million in the comparable period last year. The decrease was primarily due to the use of NMG securitization proceeds to pay down outstanding NMG bank debt. Income Tax Expense The Company's effective tax rate is estimated to be 34.0% in fiscal 1996, unchanged from fiscal 1995. 6 HARCOURT GENERAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarter Ended July 31, 1996 Compared to Quarter Ended July 31, 1995 Publishing Publishing revenues increased by $11.6 million or 3.2% for the three months ended July 31, 1996 compared to the same period last year. Substantially higher revenues at STMP were partially offset by decreased sales volume at the educational publishing group and in international sales. STMP revenues increased primarily as a result of higher book sales at W.B. Saunders and the IMNG acquisition. At the educational publishing group, anticipated volume decreases in sales of elementary programs resulting from fewer adoption opportunities outweighed the revenue increases of the college and testing program businesses. Operating earnings increased by $6.0 million or 4.5% compared to the same period last year. The improvement was attributable to higher sales volume and lower selling and marketing costs as a percentage of revenues at W.B. Saunders and improved gross margins and volume at Academic Press. These increases at STMP were partially offset by a decline in operating earnings at the educational publishing group which primarily related to the lower sales volume. Specialty Retailing Results of NMG are reported with a lag of one quarter. Accordingly, NMG's operating results for its quarter ended April 27, 1996 are consolidated with the Company's operating results for the quarter ended July 31, 1996. Revenues in the thirteen weeks ended April 27, l996 increased 14.0% over revenues in the thirteen weeks ended April 29, 1995. Comparative sales for the period increased 9.2%. New Neiman Marcus stores in Short Hills, New Jersey and King of Prussia, Pennsylvania also contributed to the higher revenues. Operating earnings increased 38.8% to $41.7 million in the thirteen week period ended April 27, 1996 compared to $30.0 million in 1995. The increase was primarily a result of the higher sales volume, and significantly improved operating margins at NM Direct related to comparatively lower circulation costs in 1996. Professional Services Professional services revenues decreased 12.4% to $28.0 million in the 1996 third quarter from $32.0 million in the 1995 third quarter. The decrease resulted from lower volume in both group and executive outplacement programs. Professional services operating earnings decreased $2.4 million to $.6 million compared to the same period in the prior year. The decrease was primarily due to the lower sales volume. Investment Income Investment income decreased $2.7 million to $5.5 million compared with the same period last year, due primarily to a lower average portfolio balance as a result of the Company s common stock repurchase program. Interest Expense Interest expense decreased 6.2% to $20.4 million compared to $21.8 million in last year's third quarter. The decrease resulted from the use of NMG securitization proceeds to pay down outstanding NMG bank debt. 7 HARCOURT GENERAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The following discussion analyzes liquidity and capital resources by operating, investing and financing activities as presented in the Company's condensed consolidated statement of cash flows. During the nine months ended July 31, l996, the Company had sufficient cash flows to fund working capital, capital expenditures and dividend requirements. Cash provided by operating activities for the period was $97.2 million. The publishing and professional services business segments provided $101.2 million of cash from operations while NMG's operations used $4.0 million. Net earnings from continuing operations before depreciation and amortization provided cash of $260.1 million while changes in working capital and other items used cash of $162.9 million. The primary items affecting working capital were increases in accounts receivable of $105.3 million and inventories of $78.6 million, due to higher sales volume and the opening of two new Neiman Marcus stores during the period. The Company's capital expenditures totaled $184.8 million in the nine months ended July 31, 1996. Publishing capital expenditures were $111.7 million and related principally to expenditures for prepublication costs. The Company expects capital expenditures in the publishing business to approximate $170.0 million in fiscal 1996. Specialty retailing capital expenditures in the 1996 period totaled $70.8 million and primarily related to the construction of three new stores, a new distribution and service center and existing store renovations. NMG s capital expenditures in fiscal 1996 were $85.7 million. During the nine months ended July 31, 1996, $244.5 million of short-term investments matured, and the Company purchased $140.8 million of short-term investments. These investments are highly liquid and consist of high quality commercial paper, certificates of deposit, corporate debt securities and U.S. Government securities. In November 1995, the Company acquired 831,400 shares of NMG common stock in a privately negotiated transaction at $18.75 per share. In May 1996, the Company acquired an additional 300,000 shares of NMG common stock in a privately negotiated transaction at $24.13 per share. Financing activities primarily reflect the payment of $36.0 million in dividends and the purchase of approximately 1.7 million shares of the Company's common stock for $67.2 million on the open market at an average price of $39.18 per share. NMG's financing activities reflect additional borrowings of $93.3 million under its revolving credit agreements. NMG eliminated its quarterly cash dividend on common stock beginning with its third quarter of fiscal 1995. Elimination of this dividend conserves approximately $7.6 million of NMG's cash annually. At July 31, 1996, the Company's consolidated long-term liabilities totaled $957.9 million. That amount includes approximately $385.0 million of NMG long-term liabilities, which are not guaranteed by the Company. 8 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources (Continued) At July 31, 1996, the Company had available the entire $400 million under its revolving credit agreement with thirteen banks. The Company's revolving credit agreement expires in December 1999. At April 27, 1996, NMG had $355 million available under its revolving credit facility, which expires in April 2000. The Company believes its cash on hand, cash generated from operations and its debt capacity will be sufficient to fund its planned capital growth as well as its working capital and dividend requirements. 9 PART II Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 11.1 Computation of weighted average number of shares outstanding used in determining primary and fully diluted earnings per share. 27.1 Financial data schedule (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended July 31, 1996. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HARCOURT GENERAL, INC. Date: September 13, 1996 s/John R. Cook John R. Cook Senior Vice President and Chief Financial Officer Date: September 13, 1996 s/Stephen C. Richards Stephen C. Richards Vice President and Controller Principal Accounting Officer 11 EX-11.1 2 COMPUTATION OF WEIGHTED AVERAGES EXHIBIT 11.1 HARCOURT GENERAL, INC. AND SUBSIDIARIES Computation of weighted average number of shares outstanding used in determining primary and fully diluted earnings per share:
(In thousands) Nine Months Three Months Ended July 31, Ended July 31, 1996 1995 1996 1995 PRIMARY 1. Weighted average number of common shares outstanding 71,332 75,737 71,104 72,702 2. Assumed conversion of Series A Cumulative Convertible Stock 1,298 1,526 1,281 1,417 3. Assumed exercise of certain stock options based on average market value 202 294 193 272 4. Weighted average number of shares used in primary per share computations 72,832 77,557 72,578 74,391 FULLY DILUTED (A) 1. Weighted average number of common shares outstanding 71,332 75,737 71,104 72,702 2. Assumed conversion of Series A Cumulative Convertible Stock 1,298 1,526 1,281 1,417 3. Assumed exercise of all dilutive options based on higher of average or closing market value 203 312 193 291 4. Weighted average number of shares used in fully diluted per share computations 72,833 77,575 72,578 74,410 (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-27.1 3 ARTICLE 5
5 This schedule contains a summary of financial information extracted from the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations and is qualified in its entirety by reference to such financial statement. 1000 9-MOS OCT-31-1996 JUL-31-1996 315,909 124,745 499,859 22,364 573,852 1,643,051 907,600 335,717 3,034,418 907,524 739,253 0 1,162 71,108 898,324 3,034,418 2,421,996 2,421,996 1,421,773 2,180,540 0 82,587 61,876 200,537 68,183 132,354 0 0 0 132,354 1.82 1.82
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