-----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, NDoH5tKqqSyhFAZnQytvcYjL6mNfxx3iR5w0ekGez0XW7EkKWo2YznRCBcgiPB3a lpTFitGDKh1fOS0KlhcrqA== 0000040493-99-000004.txt : 19990315 0000040493-99-000004.hdr.sgml : 19990315 ACCESSION NUMBER: 0000040493-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990312 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: SEC FILE NUMBER: 001-04925 FILM NUMBER: 99564324 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. 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended January 31, 1999 Commission File Number 1-4925 HARCOURT GENERAL, INC. (Exact name of registrant as specified in its charter) Delaware 04-1619609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27 Boylston Street, Chestnut Hill, MA 02467 (Address of principal executive offices) (Zip Code) (617) 232-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of March 8, 1999, the number of outstanding shares of each of the issuer's classes of common stock was: Class Shares Outstanding Common Stock, $1.00 Par Value 51,092,026 Class B Stock, $1.00 Par Value 20,020,521 HARCOURT GENERAL, INC. I N D E X Part I. Financial Information Page Number Item 1. Condensed Consolidated Balance Sheets as of January 31, 1999 and October 31, l998 1 Condensed Consolidated Statements of Operations for the Three Months Ended January 31, 1999 and l998 2 Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, l999 and l998 3 Notes to Condensed Consolidated Financial Statements 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit 27.1 13
HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) January 31, October 31, 1999 l998 ----------- ----------- Assets Current assets: Cash and equivalents $ 81,868 $ 115,200 Undivided interests in NMG Credit Card Master Trust 180,504 138,867 Accounts receivable, net 361,451 479,569 Inventories 862,443 706,586 Deferred income taxes 114,794 114,794 Other current assets 86,727 94,024 ----------- ----------- Total current assets 1,687,787 1,649,040 Property and equipment, net 658,793 645,213 Other assets: Prepublication costs, net 255,712 252,831 Goodwill, net 1,604,352 1,614,369 Other intangible assets, net 174,904 183,431 Other 106,839 104,215 ----------- ----------- Total other assets 2,141,807 2,154,846 ----------- ----------- Total assets $4,488,387 $4,449,099 =========== =========== Liabilities and Shareholders' Equity Current liabilities: Notes payable and current maturities of long-term liabilities $ 7,179 $ 10,013 Accounts payable 413,827 392,417 Taxes payable 9,196 20,928 Other current liabilities 764,866 701,212 ----------- ----------- Total current liabilities 1,195,068 1,124,570 Long-term liabilities: Notes and debentures 1,723,962 1,729,459 Other long-term liabilities 261,951 258,621 Deferred income taxes 118,162 118,162 ----------- ----------- Total long-term liabilities 2,104,075 2,106,242 Minority interest 290,309 292,565 Shareholders' equity: Preferred stock 906 914 Common stock 71,086 71,029 Paid-in capital 746,548 745,679 Accumulated other comprehensive loss (9,591) (15,407) Retained earnings 89,986 123,507 ----------- ----------- Total shareholders' equity 898,935 925,722 ----------- ----------- Total liabilities and shareholders' equity $4,488,387 $4,449,099 =========== ========== See Notes to Condensed Consolidated Financial Statements.
1
HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands except for per share amounts) For the three months ended January 31, -------------------- 1999 1998 -------- -------- Revenues $974,750 $900,624 Costs applicable to revenues 528,913 502,544 Selling, general and administrative expenses 419,217 362,616 Corporate expenses 8,956 8,880 --------- -------- Operating earnings 17,664 26,584 Investment income 877 1,416 Interest expense (32,604) (26,651) --------- -------- Earnings (loss) before income taxes and minority interest (14,063) 1,349 Income tax benefit (expense) 5,344 (513) --------- -------- Earnings (loss) before minority interest (8,719) 836 Minority interest in net earnings of subsidiaries (10,784) (15,282) --------- -------- Net loss ($19,503) ($14,446) --------- -------- Weighted average number of common and common equivalent shares outstanding: Basic 71,060 70,786 ========= ========= Diluted 71,060 70,786 ========= ========= Loss per common share: Basic ($ .28) ($ .21) ========= ========= Diluted ($ .28) ($ .21) ========= ========= Dividends per share: Common Stock $ .20 $ .19 ========= ========= Class B Stock $ .18 $ .171 ========= ========= Series A Stock $ .2275 $ .2165 ========= ========= See Notes to Condensed Consolidated Financial Statements.
2
HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) For the three months ended January 31, ---------------------- 1999 1998 -------- --------- Cash flows from operating activities: Net loss ($19,503) ($ 14,446) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 79,046 71,012 Minority interest 10,784 15,282 Other items 2,080 172 Changes in current assets and liabilities: Accounts receivable 118,118 62,543 Inventories (155,857) (108,931) Other current assets 7,297 6,087 Accounts payable and current liabilities 70,600 110,260 -------- --------- Net cash provided by operating activities 112,565 141,979 -------- --------- Cash flows from investing activities: Capital expenditures (71,149) (52,632) Purchases of held-to-maturity securities (160,652) (164,817) Maturities of held-to-maturity securities 119,015 115,890 Other investing activities (15,356) - -------- --------- Net cash used for investing activities (128,142) (101,559) -------- --------- Cash flows from financing activities: Proceeds from (repayments of) revolving credit facility borrowings (5,000) 48,656 Repayment of debt (477) (463) Cash dividends paid (14,018) (13,313) Other equity transactions 1,740 (2,144) -------- --------- Net cash provided by (used for) financing activities (17,755) 32,736 -------- --------- Cash and equivalents Increase (decrease) during the period (33,332) 73,156 Beginning balance 115,200 82,644 -------- --------- Ending balance $ 81,868 $ 155,800 ======== ========= See Notes to Condensed Consolidated Financial Statements.
3 HARCOURT GENERAL, INC. 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 consolidated financial statements of The Neiman Marcus Group, Inc. (NMG) are consolidated with a lag of one fiscal quarter. 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 54% of the common stock of NMG. The Company does not include in its earnings that portion of NMG earnings (currently 46%) attributable to the minority shareholders. 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. Loss per share Pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share," the net loss and the number of weighted average shares used in computing basic and diluted loss per share are as presented in the table below. Options to purchase 1,050,086 and 739,807 shares of common stock and the assumed conversion of 906,000 and 1,122,000 shares of Series A Cumulative Convertible Stock were not included in the computation of diluted loss per share because of the net loss in the first quarter of fiscal 1999 and 1998, respectively.
Three Months Ended ------------------------ January 31, January 31, (In thousands) 1999 1998 ---------- ---------- Net loss ($19,503) ($ 14,446) Less: dividends on Series A Cumulative Convertible Stock (206) (243) --------- --------- Net loss for computation of basic and diluted loss per share ($19,709) ($ 14,689) ========= ==========
4 HARCOURT GENERAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Loss per share (continued) The shares for the computation of basic and diluted loss per share are 71,060,000 and 70,786,000 shares for the three months ended January 31, 1999 and 1998, respectively. 3. NMG stock repurchase During the first thirteen weeks of NMG's fiscal 1999, NMG repurchased 827,000 shares at an average price of $18.57 per share, and 512,900 shares were remaining under this program. 4. NMG acquisitions On November 2, 1998, NMG acquired a 51 percent interest in Gurwitch Bristow Products for approximately $6.7 million in cash. Gurwitch Bristow Products manufactures and markets Laura Mercier cosmetic lines. On February 1, 1999, NMG acquired a 56 percent interest in Kate Spade LLC for approximately $33.6 million in cash. Kate Spade LLC is a manufacturer and marketer of high-end fabric and leather handbags and accessories. 5. Comprehensive loss As of November 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) and has reclassified certain amounts to conform to the requirements of SFAS 130. The adoption of SFAS 130 had no impact on the Company's net loss or shareholders' equity. Total comprehensive loss amounted to $13.7 million and $16.8 million for the three months ended January 31, 1999 and 1998, respectively. Comprehensive loss differs from net loss primarily due to foreign currency translation adjustments and unrealized gains or losses on the Company's available-for-sale securities. 5
HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended January 31, 1999 Compared to Three Months January 31, 1998 The following table presents revenues and operating earnings (loss) by business segment for the three months ended January 31. (In thousands) 1999 1998 -------- -------- Revenues: Publishing and educational services $387,637 $320,125 Specialty retailing 587,113 580,499 -------- -------- Total revenues $974,750 $900,624 ======== ======== Operating earnings (loss): Publishing and educational services ($23,560) ($27,567) Specialty retailing 50,180 63,031 Corporate expenses (8,956) (8,880) -------- -------- Total operating earnings $17,664 $26,584 ======== ========
Publishing and Educational Services Revenues from the Harcourt Brace publishing and educational services businesses increased $67.5 million, or 21.1%, compared to the same period last year, primarily as a result of revenues generated by Mosby, Inc., acquired in October 1998. The Education Group's revenues fell 5.3% to $88.1 million, primarily due to lower revenues at the Steck-Vaughn supplemental publishing business. Revenues of the Lifelong Learning & Assessment Group increased 14.6% to $139.8 million in the first three months of fiscal 1999 from $122.0 million in the first three months of fiscal 1998. The increase in this group's revenues resulted primarily from higher sales at NETg and Drake Beam Morin, and to a lesser extent from the higher sales of testing and assessment products. The Worldwide Scientific, Technical and Medical (STM) Group's revenues increased 52.0% in the first three months of fiscal 1999 to $159.7 million, primarily due to the acquisition of Mosby in October 1998. The publishing and educational services businesses incurred an operating loss of $23.6 million in the first quarter of fiscal 1999, decreasing by $4.0 million from a loss of $27.6 million in the first three months of fiscal 1998. The Education Group's loss increased primarily due to lower revenues at Steck- Vaughn and higher plate costs in its elementary school business. The loss at the Lifelong Learning & Assessment Group decreased primarily due to lower amortization of intangible assets associated with the acquisition of ICS and NETg and higher sales at DBM and NETg. These losses were offset in part by a significant increase in the Worldwide STM Group's earnings, primarily as a result of incremental earnings from Mosby, acquired in October 1998, and higher sales at Academic Press. 6 HARCOURT GENERAL, INC. 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 thirteen weeks ended October 31, 1998 are consolidated with the operating results of the Company for the three months ended January 31, 1999. Revenues in the thirteen weeks ended October 31, 1998 increased $6.6 million or 1.1% over revenues in the thirteen weeks ended November 1, l997. The increase in revenues was primarily attributable to sales from Chef's Catalog, acquired in January 1998, and the new Neiman Marcus store in Hawaii. Total comparable sales decreased 2.3%. Comparable sales decreased 1.7% at Neiman Marcus Stores, 7.4% at Bergdorf Goodman and 1.1% at NM Direct. Operating earnings decreased 20.4% to $50.2 million primarily as a result of the lower comparable sales and, to a lesser extent, to lower margins on sales by Chef's Catalog and higher markdowns at Bergdorf Goodman. Interest Expense Interest expense increased to $32.6 million from $26.7 million in the same period last year. The increase in interest expense is primarily due to interest on borrowings under the Company's revolving credit facility to fund the Mosby acquisition. The interest expense in the first three months of fiscal 1999 includes a higher amount of interest incurred by NMG in comparison to the 1998 period, resulting from both a higher effective interest rate and higher average borrowings by NMG. Minority interest The Company recorded minority interest in net earnings of its subsidiaries of $10.8 million in the first three months of fiscal 1999 compared to $15.3 million in fiscal 1998. In the first three months of fiscal 1999, minority interest includes $11.5 million relating to the minority interest in net earnings of its specialty retailing business, offset in part by minority interest in net losses of various publishing and educational services businesses. In the first three months of fiscal 1998, the entire $15.3 million consisted of minority interest in net earnings of its specialty retailing business. 7 HARCOURT GENERAL, INC. 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 statements of cash flows. Cash provided by operating activities for the three months ended January 31, 1999 was $112.6 million. The publishing and educational services businesses provided $182.4 million of cash from operations while NMG's operations used $69.8 million. The cash provided by the publishing and educational services businesses was sufficient to fund their working capital and capital expenditure requirements as well as the Company's dividend requirements. NMG used cash provided by borrowings under its own revolving credit facility to fund working capital for the holiday season and capital expenditures. The primary items affecting working capital were a decrease in accounts receivable of $118.1 million, an increase in inventories of $155.9 million, and an increase in accounts payable and current liabilities of $70.6 million. Cash flows used by investing activities were $128.1 million for the three months ended January 31, 1999. The Company's investing activities included capital expenditures totaling $71.1 million. Publishing and educational services capital expenditures in the three month period ended January 31, 1999 totaled $40.6 million and were related principally to expenditures for prepublication costs. Capital expenditures in the publishing and educational services businesses are expected to approximate $230.0 million in fiscal 1999. Specialty retailing capital expenditures in the 1999 period totaled $30.5 million. NMG purchased a building adjacent to its Neiman Marcus store in Union Square in San Francisco for a future expansion of this store. Speciality retailing capital expenditures also include existing store renovations and completion of construction of the new Neiman Marcus store in Honolulu, Hawaii. Capital expenditures for NMG in fiscal 1999 are expected to approximate $110.0 million. During the first thirteen weeks of NMG's fiscal 1999, NMG repurchased 827,000 shares at an average price of $18.57 per share. In November 1998, NMG acquired a 51 percent interest in Gurwitch Bristow Products for approximately $6.7 million in cash. In February 1999, NMG acquired a 56 percent interest in Kate Spade LLC for approximately $33.6 million in cash. The acquisitions were funded primarily through borrowings under NMG's revolving credit facility. At January 31, 1999, the Company had $405.0 available under its $750.0 million revolving credit facility which expires in July 2002. NMG had $490.0 million available at October 31, 1998 under its $650.0 million revolving credit facility, which expires in October 2002. The Company believes its cash on hand, cash generated from operations and its current and future debt capacity will be sufficient to fund its planned capital growth, operating and dividend requirements. 8 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year 2000 The Company has substantially completed its assessment of its hardware and software systems, including the embedded systems in the Company's buildings, property and equipment, and is implementing plans to ensure that the operations of such systems will not be adversely affected by the Year 2000 date change. The Company is presently in the process of renovating non-compliant systems and implementing converted and replaced systems for substantially all of its non-compliant hardware and software systems. The Company estimates that its efforts to make these systems Year 2000 compliant are approximately 60% complete, with substantial completion of the Year 2000 project currently anticipated for July 1999. The Company has established an ongoing program to communicate with its significant suppliers and vendors to determine the extent to which the Company's systems and operations are vulnerable to those third parties' failure to rectify their own Year 2000 issues. Based on responses to the Company's inquiries, the Company is in the process of identifying those suppliers and vendors most at risk for failing to achieve Year 2000 compliance on a timely basis and is monitoring their continuing progress. The Company is not presently aware of any significant exposure arising from potential third party failures. However, there can be no assurance that the systems of other companies on which the Company's systems or operations rely will be timely converted or that any failure of such parties to achieve Year 2000 compliance would not have an adverse effect on the Company's results of operations. The Company has engaged both internal and external resources to assess, reprogram, test and implement its systems for Year 2000 compliance. Based on management's current estimates, the costs of Year 2000 remediation, including system renovation, modifications and enhancements, which have been and will be expensed as incurred, have not been and are not expected to be material to the results of operations or the financial position of the Company. Additionally, such expenditures have not adversely affected the Company's ability to continue its investment in new technology in connection with it ongoing systems development plans. Management presently believes the Company's most reasonably likely worst case Year 2000 scenario could arise from a business interruption caused by governmental agencies, utility companies, telecommunication service companies, shipping companies or other service providers outside the Company's control. There can be no assurance that such providers will not suffer business interruption caused by a Year 2000 issue. Such an interruption could have a material adverse effect on the Company's results of operations. The Company is in the process of developing a contingency plan for continuing operations in the event of Year 2000 failures, and the current target for completing that plan is June 1999. Forward-Looking Statements Statements in this report referring to the expected future plans and performance of the Company are forward-looking statements. Actual future results may differ materially from such statements. Factors that could affect 9 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements (continued) future performance in the Company's publishing and educational services businesses include, but are not limited to: the Company's ability to develop and market its products and services; the relative success of the products and services offered by competitors; failure of the Company or third parties to be Year 2000 compliant; integration of acquired businesses; the seasonal and cyclical nature of the markets for the Company's products and services; changes in economic conditions; changes in public funding for the Company's educational products and services; and changes in purchasing patterns in the Company's markets. Important factors that could affect future performance in the Company's specialty retailing businesses include, but are not limited to: changes in economic conditions or consumer confidence; changes in consumer preferences or fashion trends; delays in anticipated store openings; adverse weather conditions, particularly during peak selling seasons; failure of the Company or third parties to be Year 2000 compliant; changes in demographic or retail environments; competitive influences; significant increases in paper, printing and postage costs; and changes in NMG's relationships with designers and other resources. For more information, see the Company's filings with the Securities and Exchange Commission. 10 HARCOURT GENERAL, INC. PART II Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 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 January 31, 1999. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HARCOURT GENERAL, INC. Date: March 11, 1999 S/John R. Cook John R. Cook Senior Vice President and Chief Financial Officer Date: March 11, 1999 S/Catherine N. Janowski Catherine N. Janowski Vice President and Controller 13 EX-27.1 2 FINANCIAL DATA SCHEDULE/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 statements. 1000 3-MOS OCT-31-1999 JAN-31-1999 81,868 180,504 399,864 38,413 862,443 1,687,787 1,191,349 532,556 4,488,387 1,195,068 1,723,962 0 906 71,086 826,943 4,488,387 974,750 974,750 528,913 957,086 0 24,796 32,604 (14,063) (5,344) (19,503) 0 0 0 (19,503) (0.28) (0.28)
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