-----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, PWg4bOHjG32ZRh/RpPgjghAKzoOxSnQj977Wqo+hE+PSxEI+oruMdB2eJw8seo8b 2vq+6f7rrFjRE4Tab1TNGA== 0000040493-99-000006.txt : 19990615 0000040493-99-000006.hdr.sgml : 19990615 ACCESSION NUMBER: 0000040493-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 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: 99646092 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02467 BUSINESS PHONE: 6172328200 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: BOX 1000 CITY: CHESTNUT HILL STATE: MA ZIP: 02467 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. FORM 10Q - 2ND QUARTER 1999 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 April 30, 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 June 7, 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 51,111,052 Class B Stock, $1.00 Par Value 20,020,484 HARCOURT GENERAL, INC. I N D E X Part I. Financial Information Page Number Item 1. Condensed Consolidated Balance Sheets as of April 30, 1999 and October 31, l998 1 Condensed Consolidated Statements of Operations for the Three and Six Months Ended April 30, l999 and l998 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 30, l999 and l998 3 Notes to Condensed Consolidated Financial Statements 4-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 Exhibit 27.1 14 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands) April 30, October 31, 1999 l998 ___________ __________ Assets Current assets: Cash and equivalents $ 107,737 $ 115,200 Undivided interests in NMG Credit Card Master Trust 203,282 138,867 Accounts receivable, net 295,453 479,569 Inventories 732,219 706,586 Deferred income taxes 114,794 114,794 Other current assets 93,405 94,024 ___________ __________ Total current assets 1,546,890 1,649,040 Property and equipment, net 670,843 645,213 Other assets: Prepublication costs, net 302,252 281,068 Goodwill, net 1,607,934 1,614,369 Other intangible assets, net 134,379 155,194 Other 107,986 104,215 ___________ __________ Total other assets 2,152,551 2,154,846 ___________ __________ Total assets $4,370,284 $4,449,099 ___________ __________ ___________ __________ Liabilities and Shareholders' Equity Current liabilities: Notes payable and current maturities of long-term liabilities $ 138,956 $ 10,013 Accounts payable 347,596 392,417 Other current liabilities 744,019 722,140 ___________ __________ Total current liabilities 1,230,571 1,124,570 Long-term liabilities: Notes and debentures 1,598,926 1,729,459 Other long-term liabilities 257,238 258,621 Deferred income taxes 118,162 118,162 ___________ __________ Total long-term liabilities 1,974,326 2,106,242 Minority interest 303,474 292,565 Shareholders' equity: Preferred stock 902 914 Common stock 71,104 71,029 Paid-in capital 747,352 745,679 Accumulated other comprehensive loss (9,830) (15,407) Retained earnings 52,385 123,507 ___________ __________ Total shareholders' equity 861,913 925,722 ___________ __________ Total liabilities and shareholders' equity $4,370,284 $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) Six Months Three Months Ended April 30, Ended April 30, ---------------------- --------------------- 1999 1998 1999 1998 ---------- ---------- ----------- --------- Revenues $2,142,305 $1,937,389 $1,167,555 $1,036,765 Costs applicable to revenues 1,219,794 1,119,127 690,881 616,583 Selling, general and administrative expenses 876,203 751,461 456,986 388,845 Corporate expenses 18,783 17,209 9,827 8,329 __________ __________ ___________ _________ Operating earnings 27,525 49,592 9,861 23,008 Investment income 4,504 3,361 3,627 1,945 Interest expense (65,184) (54,070) (32,580) (27,419) __________ __________ ___________ _________ Loss before income taxes and minority interest (33,155) (1,117) (19,092) (2,466) Income tax benefit 12,599 424 7,255 937 __________ __________ ___________ _________ Loss before minority interest (20,556) (693) (11,837) (1,529) Minority interest in net earnings of subsidiaries (22,519) (31,003) (11,735) (15,721) __________ __________ ___________ _________ Net loss ($43,075) ($31,696) ($23,572) ($17,250) __________ __________ ___________ _________ __________ __________ ___________ _________ Weighted average number of common and common equivalent shares outstanding: Basic 71,080 70,808 71,115 70,837 __________ __________ ___________ _________ __________ __________ ___________ _________ Diluted 71,080 70,808 71,115 70,837 __________ __________ ___________ _________ __________ __________ ___________ _________ Loss per common share: Basic ($ .61) ($ .45) ($ .33) ($ .25) __________ __________ ___________ _________ __________ __________ ___________ _________ Diluted ($ .61) ($ .45) ($ .33) ($ .25) __________ __________ ___________ _________ __________ __________ ___________ _________ Dividends per share: Common Stock $ .40 $ .38 $ .20 $ .19 __________ __________ ___________ _________ __________ __________ ___________ _________ Class B Stock $ .36 $ .342 $ .18 $ .171 __________ __________ ___________ _________ __________ __________ ___________ _________ Series A Stock $ .455 $ .433 $ .2275 $ .2165 __________ __________ ___________ _________ __________ __________ ___________ _________
See Notes to Condensed Consolidated Financial Statements. 2 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Six Months Ended April 30, ------------------------ 1999 1998 ---------- ---------- Cash flows from operating activities: Net loss ($ 43,075) ($ 31,696) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 157,879 150,818 Minority interest 22,519 31,003 Other items - 923 Changes in assets and liabilities: Accounts receivable 185,220 107,207 Inventories (24,765) 4,280 Other current assets 639 (15,228) Accounts payable and current liabilities (34,396) 32,312 _________ __________ Net cash provided by operating activities 264,021 279,619 _________ __________ Cash flows from investing activities: Capital expenditures (165,339) (114,241) Purchases of held-to-maturity securities (397,009) (272,094) Maturities of held-to-maturity securities 332,594 200,276 Acquisition of Chef's Catalog - (31,000) Acquisition of Steck-Vaughn minority interest - (40,512) Other acquisitions and investing activities (20,233) (11,057) _________ __________ Net cash used for investing activities (249,987) (268,628) _________ __________ Cash flows from financing activities: Proceeds from borrowings 2,100 11,000 Repayment of debt - (3,467) Cash dividends paid (28,047) (26,623) Other equity transactions 4,450 (1,282) _________ __________ Net cash used for financing activities (21,497) (20,372) _________ __________ Cash and equivalents Decrease during the period (7,463) (9,381) _________ __________ Beginning balance 115,200 82,644 Ending balance $ 107,737 $ 73,263 _________ __________ _________ __________
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. Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. 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 1,047,983 shares of common stock and the assumed conversion of 902,000 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 six months and three months ended April 30, 1999. Options to purchase 733,110 shares of common stock and the assumed conversion of 1,060,000 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 six months and three months ended April 30, 1998.
Six Months Ended Three Months Ended --------------------- ---------------------- April 30, April 30, April 30, April 30, (in thousands) 1999 1998 1999 1998 --------- --------- --------- --------- Net loss ($43,075) ($31,696) ($23,572) ($17,250) Less: dividends on Series A Cumulative Convertible Stock (409) (472) (203) (229) Net loss for computation ________ ________ ________ ________ of basic loss per share (43,484) (32,168) (23,775) (17,479) Add: dividends on assumed conversion of Series A Cumulative Convertible Stock - - - - ________ ________ ________ ________ Net loss for computation of diluted loss per share ($43,484) ($32,168) ($23,775) ($17,479) ________ ________ ________ _________ ________ ________ ________ _________
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 71,080,000 and 71,115,000 for the six months and three months ended April 30, 1999, respectively. The shares for the computation of basic and diluted loss per share are 70,808,000 and 70,837,000 for the six months and three months ended April 30, 1998, respectively. 3. NMG stock repurchase During the first twenty-six 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. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations of Gurwitch Bristow Products for the period from November 2, 1998 are included in the accompanying consolidated financial statements. The $5.3 million excess of cost over the estimated fair value of net assets acquired was allocated to goodwill, which will be amortized on a straight-line basis over 25 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values. On February 1, 1999, the Company acquired a 56 percent interest in Kate Spade LLC for approximately $33.6 million in cash. Kate Spade 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 $39.4 million and $33.2 million for the six months ended April 30, 1999 and 1998, respectively. Comprehensive loss differs from net loss primarily due to foreign currency translation adjustments, unrealized gains or losses on the Company's available-for-sale securities, less reclassification for realized gains or losses included in net loss. 6. Subsequent event On May 14, 1999, the Boards of Directors of the Company and of The Neiman Marcus Group, Inc. ("NMG"), and a committee of independent directors of NMG, approved a series of transactions (the "Transactions") relating to a plan by the Company to spin-off to the holders of its common stock approximately 21.4 million of the approximately 26.4 million shares of NMG common stock held by the Company in a distribution to be tax-free to the Company and its stockholders. The Transactions are expected to be completed late in the third quarter or early in the fourth quarter of the 1999 calendar year, subject to, among other things, approval of the tax- free status of the spin-off by the Internal Revenue Service, approval by the stockholders of the Company of a new class of stock, "Class C Stock," which would have one-tenth (1/10) of one vote per share on all matters and which would receive a dividend equal to the dividend received by the Common Stock, if any, and approval by the stockholders of NMG of a plan of recapitalization. 5 HARCOURT GENERAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. Subsequent event (continued) On May 27, 1999, the Company filed a Form 8-K with the Securities and Exchange Commission (the "Commission") in which the Transactions are described in greater detail. For further information regarding the Transactions, reference may be made to the Form 8-K and to such other reports filed by the Company and NMG from time to time with the Commission. 6 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table presents revenues and operating earnings (loss) by business segment.
Six Months Three Months Ended April 30, Ended April 30, --------------------- --------------------- (In thousands) 1999 1998 1999 1998 ---------- ----------- --------- ----------- Revenues: Publishing and educational services $ 766,038 $ 648,503 $ 378,401 $ 328,378 Specialty retailing 1,376,267 1,288,886 789,154 708,387 __________ __________ __________ __________ Total revenues $2,142,305 $1,937,389 $1,167,555 $1,036,765 __________ __________ __________ __________ __________ __________ __________ __________ Operating earnings (loss): Publishing and educational services ($ 64,019) ($ 61,599) ($ 40,459) ($ 34,032) Specialty retailing 110,327 128,400 60,147 65,369 Corporate expenses (18,783) (17,209) (9,827) (8,329) __________ __________ __________ __________ Total operating earnings $ 27,525 $ 49,592 $ 9,861 $ 23,008 __________ ___________ __________ ___________ __________ ___________ __________ ___________
Six Months Ended April 30, l999 Compared to Six Months Ended April 30, l998 Publishing and Educational Services Revenues from the Harcourt Inc. publishing and educational services businesses increased $117.5 million, or 18.1%, 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 1.8% to $162.5 million, due to lower revenues at the elementary educational publishing business and Steck- Vaughn, offset in part by higher sales from the trade publishing business. Revenues of the Lifelong Learning & Assessment Group increased 10.6% to $292.3 million in the first six months of fiscal 1999 from $264.2 million in the first six months of fiscal 1998, primarily from higher sales at Drake Beam Morin and NETg, and to a lesser extent from higher sales of testing and assessment products. The Worldwide Scientific, Technical and Medical (STM) Group revenues increased 42.2% in the first six months of fiscal 1999 to $311.2 million, primarily due to the acquisition of Mosby in October 1998. The publishing and educational services businesses incurred an operating loss of $64.0 million in the first six months of fiscal 1999, increasing by $2.4 million from a loss of $61.6 million in the first six months of fiscal 1998. The Education Group's loss increased primarily due to higher selling and marketing expenses. 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 Drake Beam Morin. The Worldwide STM Group's earnings decreased in comparison to the first six months of fiscal 1998 primarily as a result of weakened performance by the international operations and lower sales at WB Saunders. 7 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 twenty-six weeks ended January 30, 1999 are consolidated with the operating results of the Company for the six months ended April 30, 1999. Revenues in the twenty-six weeks ended January 30, 1999 increased $87.4 million or 6.8% over revenues in the twenty-six weeks ended January 31, l998. Total comparable sales for NMG increased 1.9%. The increase was primarily attributable to sales from Chef's Catalog, acquired in January 1998, and the new Neiman Marcus store in Hawaii, which opened in September 1998. Comparable sales increased 2.8% at Neiman Marcus Stores, decreased 2.1% at Bergdorf Goodman, and decreased 0.3% at NM Direct. Operating earnings decreased 14.1% to $110.3 million primarily due to lower gross margins, resulting from higher markdowns across all divisions during the fiscal 1999 holiday season. Selling, general and administrative expenses increased as a percentage of revenues as a result of higher selling and sales promotion expenses and pre-opening costs. Investment Income Investment income increased to $4.5 million compared to $3.4 million in the same six month period in 1998. The increase included a gain of $3.0 million from the sale of securities in the second quarter of 1999. Interest Expense Interest expense increased to $65.2 million from $54.1 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 six 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 $22.5 million in the first six months of fiscal 1999 compared to $31.0 million in fiscal 1998. In the first six months of fiscal 1999, minority interest includes $25.3 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 six months of fiscal 1998, the entire $31.0 million consisted of minority interest in net earnings of its specialty retailing business. Three Months Ended April 30, 1999 Compared to Three Months Ended April 30, 1998 Publishing and Educational Services Revenues from the Harcourt Inc. publishing and educational services businesses increased $50.0 million, or 15.2%, compared to the same period last year, primarily as a result of revenues generated by Mosby, Inc., acquired in October 1998. The Education Group revenues increased 2.8% to $74.3 million primarily due to higher sales at Harcourt Trade Publishers and the Steck- Vaughn supplemental publishing business. Revenues of the Lifelong Learning & Assessment Group increased 7.2% to $152.5 million from $142.3 million in the same period last year. The increase in this group's revenues resulted primarily from higher sales at 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 revenues increased 33.2% to $151.6 million, primarily due to the acquisition of Mosby in October 1998. 8 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The publishing and educational services businesses incurred an operating loss of $40.5 million in the second quarter of fiscal 1999, increasing by $6.5 million from a loss of $34.0 million in the fiscal 1998 second quarter. The Education Group's loss increased primarily due to higher selling and marketing expenses. 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 Drake Beam Morin. The Worldwide STM Group's earnings decreased in comparison to the 1998 quarter as a result of lower revenues at WB Saunders and weakened performance by the international operations. Specialty Retailing Specialty retailing results are reported with a lag of one quarter. The operating results of NMG for the thirteen weeks ended January 30, 1999 are consolidated with the operating results of the Company for the three months ended April 30, 1999. Revenues in the thirteen weeks ended January 30, l999 increased $80.8 million or 11.4% over revenues in the thirteen weeks ended January 31, 1998. The increase in revenues was primarily attributable to a comparable sales increase of 6.4% at Neiman Marcus Stores, the new Neiman Marcus store in Hawaii and sales from Chef's Catalog, acquired in January 1998. The increase in revenues reflected an overall comparable sales increase of 5.3%. Operating earnings decreased 8.0% to $60.1 million compared to $65.4 million in the prior year period. The decrease was primarily attributable to lower gross margins, resulting from higher markdowns as a percentage of revenues during the fiscal 1999 holiday season, as well as higher sales promotion costs. Interest Expense Interest expense increased $5.2 million or 18.8% compared to the same period last year. The increase is primarily due to interest on borrowings under the Company's revolving credit facility to fund the Mosby acquisition. The interest expense includes a higher amount of interest incurred by NMG in comparison to the 1998 period, resulting from both a higher effective rate and higher average borrowings by NMG. Minority Interest The Company recorded minority interest in net earnings of its subsidiaries of $11.7 million in the second quarter of fiscal 1999 compared to $15.7 million in fiscal 1998. In the second quarter of fiscal 1999, minority interest includes $13.8 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 six months of fiscal 1998, the entire $15.7 million consisted of minority interest in net earnings of its specialty retailing business. 9 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 statement of cash flows. Cash provided by operating activities for the six months ended April 30, l999 was $264.0 million. The publishing and educational services businesses provided $162.1 million of cash from operations while NMG's operations provided $101.9 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 operations and borrowings under its 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 $185.2 million, a decrease in current liabilities of $34.4 million and an increase in inventories of $24.8 million. Cash flows used by investing activities were $250.0 million for the six months ended April 30, 1999. The Company's investing activities included capital expenditures totaling $165.3 million. Publishing and educational services capital expenditures in the six month period ended April 30, 1999 totaled $109.4 million and were related principally to expenditures for prepublication costs. Capital expenditures in the publishing and educational service business are expected to approximate $230.0 million in fiscal 1999. NMG purchased a building adjacent to its Neiman Marcus store in Union Square in San Francisco for a future expansion of this store. Specialty 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 April 30, 1999, the Company had $340.0 available under its $750.0 million revolving credit facility with 18 banks. The agreement expires in July 2002. NMG had $555.0 million available at January 30, 1999 under its $650 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. 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 75% complete, with substantial completion of the Year 2000 project currently anticipated for July 1999. 10 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year 2000 (continued) The Company 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 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 its ongoing systems development plan. 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 interruptions 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 September 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 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; failure of the Company or third parties to be Year 2000 compliant; the relative success of the products and services offered by competitors; 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. 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 the Company's relationships with designers and other resources. For more information, see the Company's filings with the Securities and Exchange Commission. 11 HARCOURT GENERAL, INC. PART II Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders was held on March 12, 1999. The following matters were voted upon at the meeting: 1. Election of the following individuals as Class C Directors for a term of three years: Jeffrey R. Lurie Paula Stern For 64,633,554 For 64,651,828 Withheld 673,703 Withheld 655,429 Lynn Morley Martin Clifton R. Wharton, Jr. For 64,644,291 For 64,627,498 Withheld 662,966 Withheld 679,759 Ratification of the appointment of Deloitte & Touche LLP as the Company's independent auditors for the 1999 fiscal year. For 65,172,129 Against 34,711 Abstain 100,418 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 April 30, 1999. The Company filed a report on Form 8-K on May 27, 1999 describing in Item 5 (Other Events) a proposed spin-off to the holders of its common stock of approximately 21.4 million of the approximately 26.4 million shares of NMG common stock held by the Company in a distribution to be tax-free to the Company and its stockholders. 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: June 14, 1999 /S/ John R. Cook John R. Cook Senior Vice President and Chief Financial Officer Date: June 14, 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 6-MOS OCT-31-1999 APR-30-1999 107,737 203,282 337,114 41,661 732,219 1,546,890 1,223,077 552,234 4,370,284 1,230,571 1,598,926 0 902 71,104 789,907 4,370,284 2,142,305 2,142,305 1,219,794 2,114,780 0 52,319 65,184 (33,155) (12,599) (43,075) 0 0 0 (43,075) (0.61) (0.61)
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