HOUGHTON MIFFLIN CO - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

COMMISSION FILE NUMBERS: 333-110720 and 333-105746

HM PUBLISHING CORP.

HOUGHTON MIFFLIN COMPANY

(Exact name of registrants as specified in their charters)

DELAWARE

MASSACHUSETTS

13-4265843

04-1456030

(State or other jurisdictions of

incorporation or organization)

(I.R.S. Employer

Identification Numbers)

222 BERKELEY STREET

BOSTON, MASSACHUSETTS 02116

(Address of principal executive offices)

(617) 351-5000

(Registrants’ telephone number, including area code)

Indicate by check mark whether HM Publishing Corp. (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether Houghton Mifflin Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Act): Yes ¨ No x

The number of shares outstanding of HM Publishing Corp.’s common stock as of August 13, 2004 was 1,000 shares.

The number of shares outstanding of Houghton Mifflin Company’s common stock as of August 13, 2004 was 1,000 shares.

This Form 10-Q is a combined quarterly report being filed separately by two registrants: HM Publishing Corp. and Houghton Mifflin Company. Unless the context indicates otherwise, any reference in this report to “Publishing” refers to HM Publishing Corp., and any reference to “Houghton Mifflin” refers to Houghton Mifflin Company, the wholly-owned operating subsidiary of Publishing. The “Company,” “we,” “us,” and “our” refer to HM Publishing Corp. together with Houghton Mifflin Company.

Houghton Mifflin Company meets the conditions set forth in general instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

HM PUBLISHING CORP. AND HOUGHTON MIFFLIN COMPANY

INDEX


		PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) – June 30, 2004 and December 31, 2003	3

	HM Publishing Corp. Condensed Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2004 and 2003	4

	Houghton Mifflin Company Condensed Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2004 and 2003	5

	Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2004 and 2003	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7-16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28-29

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	29

	SIGNATURES	30

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share data)


	HM PUBLISHING CORP.						HOUGHTON MIFFLIN COMPANY
	JUNE 30, 2004			DECEMBER 31, 2003			JUNE 30, 2004			DECEMBER 31, 2003
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	23,911		$	159,093		$	23,911		$	159,093
Accounts receivable, less allowance for bad debts and book returns of $23,776 at June 30, 2004 and $33,988 at December 31, 2003		254,601			194,932			254,601			194,932
Inventories		186,337			162,130			186,337			162,130
Deferred income taxes		78,031			62,941			78,031			62,941
Prepaid expenses and other current assets		18,147			27,761			18,147			27,761

TOTAL CURRENT ASSETS		561,027			606,857			561,027			606,857

Property, plant, and equipment, net		106,246			107,990			106,246			107,990
Pre-publication costs, net		125,147			107,674			125,147			107,674
Royalty advances to authors, net of allowance of $41,285 at June 30, 2004 and $38,949 at December 31, 2003		32,558			28,814			32,558			28,814
Goodwill		627,220			646,809			627,220			646,809
Other intangible assets, net		784,622			850,709			784,622			850,709
Other assets and long-term receivables		81,400			92,310			75,681			86,533

TOTAL ASSETS	$	2,318,220		$	2,441,163		$	2,312,501		$	2,435,386

LIABILITIES AND STOCKHOLDER’S EQUITY

CURRENT LIABILITIES
Current portion of long-term debt	$	161		$	1,039		$	161		$	1,039
Short-term borrowings		50,000			—			50,000			—
Accounts payable		79,347			74,786			79,347			74,786
Due to parent		4,364			4,619			5,020			5,524
Royalties payable		39,165			62,341			39,165			62,341
Salaries, wages, and commissions		27,602			60,430			27,602			60,430
Interest payable		40,306			40,242			40,306			40,242
Restructuring accrual		9,036			12,022			9,036			12,022
Other		77,097			68,475			75,977			67,345

TOTAL CURRENT LIABILITIES		327,078			323,954			326,614			323,729

Long-term debt		1,299,537			1,289,684			1,135,477			1,134,449
Royalties payable		3,684			3,443			3,684			3,443
Accrued pension benefits		73,041			71,011			73,041			71,011
Accrued postretirement benefits		53,198			54,781			53,198			54,781
Deferred income taxes		231,489			273,973			235,957			275,394
Other		32,556			28,343			32,556			28,343

TOTAL LIABILITIES		2,020,583			2,045,189			1,860,527			1,891,150

COMMITMENTS AND CONTINGENCIES (See Note 12)

STOCKHOLDER’S EQUITY
Common stock, $1 par value; 1,000 shares authorized and issued		1			1			1			1
Capital in excess of par value		469,756			469,756			614,999			614,999
Accumulated deficit		(173,514	)		(74,662	)		(164,420	)		(71,643	)
Other comprehensive income		1,394			879			1,394			879

TOTAL STOCKHOLDER’S EQUITY		297,637			395,974			451,974			544,236

	$	2,318,220		$	2,441,163		$	2,312,501		$	2,435,386

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of dollars)


	HM PUBLISHING CORP.
	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2004			2003			2004			2003
NET SALES	$	334,089		$	361,317		$	473,135		$	494,140

COSTS AND EXPENSES
Cost of sales excluding pre-publication and publishing rights amortization		137,208			142,311			219,505			220,540
Pre-publication and publishing rights amortization		44,533			41,116			88,168			77,923

Cost of sales		181,741			183,427			307,673			298,463
Selling and administrative		127,882			134,280			253,473			266,475
Other intangible asset amortization		1,040			249			2,248			498

		310,663			317,956			563,394			565,436

OPERATING INCOME (LOSS)		23,426			43,361			(90,259	)		(71,296	)

OTHER INCOME (EXPENSE)
Net interest		(37,016	)		(28,799	)		(65,845	)		(56,604	)
Debt extinguishment costs		—			—			—			(48,427	)
Other income		160			—			184			18

		(36,856	)		(28,799	)		(65,661	)		(105,013	)

Income (loss) from continuing operations before income taxes		(13,430	)		14,562			(155,920	)		(176,309	)
Income tax provision (benefit)		(5,032	)		5,366			(57,068	)		(64,874	)

Income (loss) from continuing operations		(8,398	)		9,196			(98,852	)		(111,435	)
Loss from discontinued operations, net of tax		—			—			—			(1,221	)

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