-----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, T6WcMBDKjh+9n9lRLatrvpweYhDRTCqUSuW5/YOnMeqZp72pbUBjVILAqnPIJoe3 rzumOi3ZtGdHiRE84d7K+Q== 0000950135-01-501664.txt : 20010615 0000950135-01-501664.hdr.sgml : 20010615 ACCESSION NUMBER: 0000950135-01-501664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010614 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: 1660652 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 b39642hge10-q.txt HARCOURT GENERAL, INC. 1 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, 2001 ------------------------------------------------------- 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 5, 2001, the number of outstanding shares of each of the issuer's classes of common stock was: CLASS OUTSTANDING SHARES - ---------------------------- ------------------ Common Stock, $1.00 Par Value 55,223,036 Class B Stock, $1.00 Par Value 18,110,705 2 HARCOURT GENERAL, INC. I N D E X PAGE Part I. FINANCIAL INFORMATION NUMBER Item 1. Condensed Consolidated Balance Sheets as of April 30, 2001 and October 31, 2000 1 Condensed Consolidated Statements of Operations for the Three and Six Months Ended April 30, 2001 and 2000 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 3 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) April 30, October 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and equivalents $ 5,283 $ 29,150 Accounts receivable, net 338,784 509,163 Inventories 299,635 226,977 Deferred income taxes 126,252 126,252 Other current assets 32,341 27,917 ---------- ---------- Total current assets 802,295 919,459 ---------- ---------- Property and equipment, net 129,070 125,293 Other assets: Prepublication costs, net 408,447 391,011 Investment in The Neiman Marcus Group, Inc. 162,128 185,225 Goodwill, net 1,330,663 1,358,638 Other intangible assets, net 39,279 42,483 Other 58,574 57,684 ---------- ---------- Total other assets 1,999,091 2,035,041 ---------- ---------- Total assets $2,930,456 $3,079,793 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term liabilities $ 7,582 $ 17,603 Accounts payable 174,287 196,648 Other current liabilities 425,384 470,326 Accrued obligations under lease guarantees 123,981 170,295 ---------- ---------- Total current liabilities 731,234 854,872 ---------- ---------- Long-term liabilities: Notes and debentures 1,322,984 1,250,453 Other long-term liabilities 160,173 154,991 Deferred income taxes 75,489 75,489 ---------- ---------- Total long-term liabilities 1,558,646 1,480,933 ---------- ---------- Shareholders' equity: Preferred stock 706 727 Common stock 73,321 73,225 Paid-in capital 397,621 369,453 Accumulated other comprehensive income 15,123 30,313 Retained earnings 153,805 270,270 ---------- ---------- Total shareholders' equity 640,576 743,988 ---------- ---------- Total liabilities and shareholders' equity $2,930,456 $3,079,793 ========== ========== See Notes to Condensed Consolidated Financial Statements. 1 4 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands except for per share amounts) For the Six Months For the Three Months Ended April 30, Ended April 30, ----------------------- ------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- Revenues $ 861,704 $ 813,220 $ 454,598 $ 410,273 Costs applicable to revenues 320,436 311,297 164,835 156,400 Selling, general and administrative expenses 611,957 566,840 315,917 288,493 Corporate expenses 19,964 11,007 10,051 5,331 --------- --------- --------- --------- Operating loss (90,653) (75,924) (36,205) (39,951) Investment and other income 1,445 9,432 357 911 Interest expense (47,365) (51,566) (23,514) (25,696) --------- --------- --------- --------- Loss before income taxes and minority interest (136,573) (118,058) (59,362) (64,736) Income tax benefit 50,532 43,681 21,964 23,952 --------- --------- --------- --------- Loss before minority interest (86,041) (74,377) (37,398) (40,784) Minority interest in net losses of subsidiaries -- 815 -- 578 --------- --------- --------- --------- Net loss $ (86,041) $ (73,562) $ (37,398) $ (40,206) ========= ========= ========= ========= Weighted average number of common and common equivalent shares outstanding: Basic and diluted shares 72,874 71,286 72,913 71,501 ========= ========= ========= ========= Basic and diluted amounts per common share: Basic and diluted net loss $ (1.19) $ (1.04) $ (0.52) $ (.57) ========= ========= ========= ========= Dividends per share: Common Stock $ 0.42 $ 0.42 $ 0.21 $ 0.21 ========= ========= ========= ========= Class B Stock $ 0.378 $ 0.378 $ 0.189 $ 0.189 ========= ========= ========= ========= Series A Stock $ 0.5652 $ 0.5652 $ 0.2826 $ 0.2826 ========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements. 2 5 HARCOURT GENERAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) For the Six Months Ended April 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net loss ($ 86,041) ($ 73,562) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of prepublication costs 83,673 73,600 Depreciation and other amortization 47,403 50,776 Gain on sale of securities -- (7,644) Other items 7,539 3,128 Changes in assets and liabilities: Accounts receivable 170,379 184,797 Inventories (72,658) (61,989) Other current assets (4,424) (2,725) Accrued obligations under lease guarantees (46,314) -- Accounts payable and other current liabilities (60,738) (26,101) --------- --------- Net cash provided by operating activities 38,819 140,280 --------- --------- Cash flows from investing activities: Capital expenditures (121,164) (113,854) Proceeds from sale of securities -- 12,394 Other acquisitions and investing activities (721) -- --------- --------- Net cash used for investing activities (121,885) (101,460) --------- --------- Cash flows from financing activities: Proceeds from revolving credit facilities, net 64,573 49,100 Repayment of debt (2,594) (125,000) Proceeds from issuance of stock -- 50,000 Cash dividends paid (30,424) (29,745) Equity swap settlement 23,586 -- Other financing activities 4,058 567 --------- --------- Net cash provided by (used for) financing activities 59,199 (55,078) --------- --------- Cash and equivalents Decrease during the period (23,867) (16,258) Beginning balance 29,150 24,144 --------- --------- Ending balance $ 5,283 $ 7,886 ========= ========= See Notes to Condensed Consolidated Financial Statements. 3 6 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 or Harcourt General) 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 include the accounts of Harcourt General and its majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. Harcourt General is a leading global multiple-media publisher and service provider for the educational, assessment, training and professional information markets. 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. PENDING SALE OF THE COMPANY On October 27, 2000, the Company announced that it had entered into an agreement and plan of merger with U.S. affiliates of Reed Elsevier plc, a London-based worldwide publisher (Reed), to sell the Company for $59.00 per common share and $77.29 per share of Series A Cumulative Convertible Stock in cash. The agreement provides for a cash tender offer, (on the condition that the number of shares tendered represent at least a majority in voting power (on a fully diluted basis) of the outstanding common stock), and following completion of the tender offer, a second-step merger in which the remaining shares of the Company will be exchanged for the same cash consideration. Reed has entered into an agreement with The Thomson Corporation (Thomson) pursuant to which it has agreed to sell portions of the Company's business to Thomson immediately after consummation of the merger. Completion of the transaction is subject to clearance of the tender offer and the Thomson transaction under applicable antitrust laws, as well as other customary closing conditions. 3. 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 follows:
Six Months Ended Three Months Ended --------------------- --------------------- (In thousands) April 30, April 30, April 30, April 30, 2001 2000 2001 2000 --------- --------- --------- --------- Net loss ($86,041) ($73,562) ($37,398) ($40,206) Less: dividends on Series A Cumulative Convertible Stock (398) (458) (199) (228) Less: effect of equity swap agreement (287) -- -- -- -------- -------- -------- -------- Net loss for computation of basic and diluted loss per share ($86,726) ($74,020) ($37,597) ($40,434) ======== ======== ======== ========
4 7 HARCOURT GENERAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. LOSS PER SHARE (CONTINUED) The shares used for the computation of both basic and diluted loss per share were 72,874,000 and 71,286,000 shares for the six months ended April 30, 2001 and 2000, respectively. The shares used for the computation of both basic and diluted loss per share were 72,913,000 and 71,501,000 for the three months ended April 30, 2001 and 2000, respectively. Options to purchase 3,209,887 and 3,342,256 shares of common stock and the assumed conversion of 706,000 and 808,000 shares of Series A Cumulative Convertible Stock were not included in the computation of diluted loss per share because of the net loss in both the six months and the three months ended April 30, 2001 and 2000, respectively. 4. COMPREHENSIVE LOSS Total comprehensive loss amounted to $101.2 million and $74.6 million for the six months ended April 30, 2001 and 2000, respectively. Comprehensive loss differs from net loss primarily due to unrealized gains or losses on the Company's investment in The Neiman Marcus Group, Inc. 5. OPERATING SEGMENTS The Company has four reportable segments: Education Group, Higher Education Group, Corporate and Professional Services Group and Worldwide Scientific, Technical and Medical (STM) Group. The Education Group consists of the Company's K-12 and supplemental and trade publishing operations. The Higher Education Group includes college, distance learning and graduate test preparation businesses. The Corporate and Professional Services Group is comprised of testing and related services, career counseling and technology-based IT and human resources training. The Worldwide STM Group includes the Company's scientific, technical and medical publishing businesses and its international publishing and distribution operations. Other includes unallocated corporate items. The Company's senior management evaluates the performance of the Company's assets on a consolidated basis. Therefore, separate financial information for the Company assets on a segment basis is not presented. The following tables set forth the information for the Company's reportable segments for the six months and three months ended April 30:
(In thousands) Six Months Ended Three Months Ended ---------------------- ---------------------- April 30, April 30, April 30, April 30, 2001 2000 2001 2000 --------- --------- --------- --------- REVENUES: Education Group $ 144,509 $ 124,306 $ 90,169 $ 74,795 Higher Education Group 127,902 135,034 50,741 51,121 Corporate and Professional Services Group 265,532 222,639 147,930 120,882 Worldwide STM Group 323,761 331,241 165,758 163,475 --------- --------- --------- --------- Total $ 861,704 $ 813,220 $ 454,598 $ 410,273 ========= ========= ========= ========= OPERATING EARNINGS (LOSS): Education Group ($106,591) ($ 95,236) ($ 40,764) ($ 36,672) Higher Education Group (13,572) (9,982) (21,034) (18,824) Corporate and Professional Services Group 1,463 489 7,502 1,812 Worldwide STM Group 48,011 39,812 28,142 19,064 Other (19,964) (11,007) (10,051) (5,331) --------- --------- --------- --------- Total ($ 90,653) ($ 75,924) ($ 36,205) ($ 39,951) ========= ========= ========= =========
5 8 HARCOURT GENERAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. ACQUISITION LIABILITIES The roll-forward of the acquisition reserves since October 31, 2000 is as follows: Unfulfilled Contractual (in millions) Facilities Obligations Other Total ---------- ----------- ----- ------- Balance at October 31, 2000 $17.0 $3.1 $6.3 $26.4 Payments (2.1) -- (0.4) (2.5) ----- --- ---- ----- Balance at April 30, 2001 $14.9 $3.1 $5.9 $23.9 ===== ==== ==== ===== 7. SETTLEMENT OF EQUITY SWAP AGREEMENT On April 20, 2000 the Company issued 1,372,213 shares of common stock at a price of $36.44 per share in a private placement to Salomon Smith Barney Inc., acting as agent for Citibank, N.A. The net proceeds of $50.0 million were used to partially finance the repayment of the Company's 9.5% subordinate notes, which matured in March 2000. Concurrently with the offering, the Company entered into an equity swap agreement with Citibank, N.A. for a notional amount of $50.0 million. During the first quarter of fiscal 2001, the Company elected to settle the agreement in cash, and received $23.6 million based on the price of the Company's stock at the settlement dates. The common stock issued and the related equity swap were accounted for together as an equity instrument. At settlement, the fair value of the equity swap was recorded as an adjustment to paid-in capital. 8. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING In the first quarter of fiscal 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, which amended certain provisions of SFAS No. 133 to clarify four areas causing difficulties in implementation. The adoption of these standards did not have a material effect on the Company's consolidated financial position or results of operations. 6 9 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- The following table illustrates revenues and operating earnings (loss) by business segment for the six months and three months ended April 30:
Six Months Ended Three Months Ended ---------------------- ---------------------- April 30, April 30, April 30, April 30, (In thousands) 2001 2000 2001 2000 --------- --------- --------- --------- REVENUES: Education Group $ 144,509 $ 124,306 $ 90,169 $ 74,795 Higher Education Group 127,902 135,034 50,741 51,121 Corporate and Professional Services Group 265,532 222,639 147,930 120,882 Worldwide STM Group 323,761 331,241 165,758 163,475 --------- --------- --------- --------- Total revenues $ 861,704 $ 813,220 $ 454,598 $ 410,273 ========= ========= ========= ========= OPERATING EARNINGS (LOSS): Education Group ($106,591) ($ 95,236) ($ 40,764) ($ 36,672) Higher Education Group (13,572) (9,982) (21,034) (18,824) Corporate and Professional Services Group 1,463 489 7,502 1,812 Worldwide STM Group 48,011 39,812 28,142 19,064 Corporate expenses (19,964) (11,007) (10,051) (5,331) --------- --------- --------- --------- Total operating loss ($ 90,653) ($ 75,924) ($ 36,205) ($ 39,951) ========= ========= ========= =========
SIX MONTHS ENDED APRIL 30, 2001 COMPARED TO SIX MONTHS ENDED APRIL 30, 2000 EDUCATION GROUP Revenues from the Education Group increased $20.2 million, or 16.3%, in the first six months of fiscal 2001. The increase was primarily attributable to higher K-12 science program sales, elementary social studies and secondary language arts program sales. The Education Group incurred an operating loss of $106.6 million in the first six months of fiscal 2001, increasing by $11.4 million from a loss of $ 95.2 million in the first six months of fiscal 2000. The loss was primarily as a result of higher sampling and plate amortization costs by the Company's K-12 publishers. HIGHER EDUCATION GROUP Revenues from the Higher Education Group decreased $7.1 million or 5.3% to $127.9 million in the first six months of fiscal 2001 from $135.0 million in the first six months of fiscal 2000. The decrease was primarily due to the lower sales of college product and, to a lesser extent, the sale of the professional publishing business in fiscal 2000. Operating loss from the Higher Education Group increased $3.6 million, or 36.0%, in the first six months of fiscal 2001. The increase resulted primarily from the lower sales of college product, as well as higher selling and marketing expenses. 7 10 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CORPORATE AND PROFESSIONAL SERVICES GROUP Revenues from the Corporate and Professional Services Group increased $42.9 million or 19.3% to $265.5 million in the six months ended April 30, 2001 from $222.6 million in the prior year. The increase was primarily attributable to strong revenue growth at DBM, the Group's outplacement business, and to higher scoring and consulting revenues at The Psychological Corporation, the Group's testing and assessment business. Operating earnings from the Corporate and Professional Services Group increased $1.0 million to 1.5 million in the six months ended April 30, 2001 from $0.5 million in the prior year period. The increase was primarily due to higher sales at DBM, offset in part by higher losses at NETg. WORLDWIDE SCIENTIFIC, TECHNICAL AND MEDICAL (STM) GROUP Revenues from the Worldwide STM Group decreased $7.5 million or 2.3% to $323.8 million in the six months ended April 30, 2001 from $331.2 million in the prior year. The decrease was primarily due to lower journal sales and lower book sales at Harcourt Health Sciences, due to the discontinuance of a medical journal, and lower international sales offset in part by higher journal revenues at Academic Press. Operating earnings from the Worldwide STM Group increased $8.2 million, or 20.6%, in the six months ended April 30, 2001. The increase was primarily due to the higher revenues at Academic Press. CORPORATE EXPENSES Corporate expenses increased $9.0 million or 81.4%, to $20.0 million in the first six months of fiscal 2001. The increase reflects professional fees incurred relative to the anticipated sale of the Company. INVESTMENT AND OTHER INCOME Investment and other income decreased $8.0 million to $1.4 million in the six months ended April 30, 2001. Investment and other income for the six months ended April 30, 2000 included a $7.6 million gain from the sale of securities. INTEREST EXPENSE Interest expense decreased $4.2 million to $47.4 million in the six months ended April 30, 2001 primarily due to lower effective interest rates. THREE MONTHS ENDED APRIL 30, 2001 COMPARED TO THREE MONTHS ENDED APRIL 30, 2000 EDUCATION GROUP Revenues from the Education Group increased $15.4 million, or 20.6%, in the three months ended April 30, 2001. The increase was primarily attributable to higher elementary math, reading and science program sales. Secondary language arts and science program sales also contributed to the increase. The Education Group incurred an operating loss of $40.8 million in the three months ended April 30, 2001, increasing by $4.1 million from a loss of $ 36.7 million in the three months ended April 30, 2000. The loss increased primarily as a result of higher plate amortization costs as well as higher sampling, selling and marketing expenses. 8 11 HARCOURT GENERAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED APRIL 30, 2001 COMPARED TO THREE MONTHS ENDED APRIL 30, 2000 (CONTINUED) HIGHER EDUCATION GROUP Revenues from the Higher Education Group decreased $0.4 million to $50.7 million in the three months ended April 30, 2001 from $51.1 million in the three months ended April 30, 2000. Revenues from the college publishing, distance learning and professional education businesses were essentially the same as in the prior period. The Higher Education Group incurred an operating loss of $21.0 million in the three months ended April 30, 2001, increasing by $2.2 million from a loss of $18.8 million in the three months ended April 30, 2000. The increase resulted primarily from higher selling and marketing expenses. CORPORATE AND PROFESSIONAL SERVICES GROUP Revenues from the Corporate and Professional Services Group increased $27.0 million or 22.4% to $147.9 million in the three months ended April 30, 2001 from $ 120.9 million in the prior year. The increase was primarily attributable to significantly higher revenues at DBM, the Group's outplacement business. The Group's testing and assessment business also contributed to the higher revenues. Operating earnings at the Corporate and Professional Services Group were $7.5 million compared to $1.8 million in the prior year period. The increase was primarily due to the higher revenues at DBM. WORLDWIDE STM GROUP Revenues from the Worldwide STM Group increased $2.3 million or 1.4% to $165.8 million in the three months ended April 30, 2001 from $ 163.5 million in the prior year primarily due to higher journal sales by Academic Press. Operating earnings from the Worldwide STM Group increased $9.1 million to $28.1 million in the three months ended April 30, 2001. The increase was primarily due to the higher revenues at Academic Press. CORPORATE EXPENSES Corporate expenses increased $4.7 million or 88.5% from $5.3 million in the prior year. The increase reflects professional fees incurred relative to the anticipated sale of the Company. INVESTMENT AND OTHER INCOME Investment and other income decreased $0.5 million to $0.4 million in the three months ended April 30, 2001. INTEREST EXPENSE Interest expense decreased $2.2 million in the three months ended April 30, 2001 primarily due to lower effective interest rates. 9 12 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 six months ended April 30, 2001 was $38.8 million compared to $140.3 million in the prior year period. The cash provided by the Company's operations and borrowings under its revolving credit facility was sufficient to fund working capital, capital expenditures and the Company's dividend requirements. The most significant items affecting working capital were seasonal decreases of $170.4 million in accounts receivable and $60.7 million in accounts payable and other current liabilities. Additionally the Company paid $46.3 million of accrued obligations under lease guarantees. Cash flows used by investing activities were $121.9 million for the six months ended April 30, 2001 and consisted primarily of expenditures for prepublication costs. Capital expenditures are expected to approximate $265.0 million in fiscal 2001. During the first quarter of fiscal 2001, the Company settled its equity swap agreement for a total of $23.6 million in cash, based on the price of the Company's common stock at settlement dates. At April 30, 2001, the Company had $285.0 million available under its $750.0 million revolving credit agreement, which expires in July 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. On October 27, 2000, the Company announced that it had entered into an agreement and plan of merger with U.S. affiliates of Reed Elsevier plc, a London-based worldwide publisher (Reed), to sell the Company for $59.00 per common share and $77.29 per share of Series A Cumulative Convertible Stock in cash. The agreement provides for a cash tender offer, (on the condition that the number of shares tendered represent at least a majority in voting power (on a fully diluted basis) of the outstanding common stock), and following completion of the tender offer, a second-step merger in which the remaining shares of the Company will be exchanged for the same cash consideration. Reed has entered into an agreement with The Thomson Corporation (Thomson) pursuant to which it has agreed to sell portions of the Company's business to Thomson immediately after consummation of the merger. Completion of the transaction is subject to clearance of the tender offer and the Thomson transaction under applicable antitrust laws, as well as other customary closing conditions. 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 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; 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. 10 13 PART II Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS None. (b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended April 30, 2001. 11 14 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, 2001 /s/ John R. Cook -------------------------- John R. Cook Senior Vice President and Chief Financial Officer Date: June 14, 2001 /s/ Catherine N. Janowski -------------------------- Catherine N. Janowski Vice President and Controller 12 -----END PRIVACY-ENHANCED MESSAGE-----