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 SEPTEMBER 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 November 12, 2004 was 1,000 shares.

The number of shares outstanding of Houghton Mifflin Company’s common stock as of November 12, 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) – September 30, 2004 and December 31, 2003	3

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

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

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

	Notes to Condensed Consolidated Financial Statements (unaudited)	7-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	26

	SIGNATURES	27

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
	SEPTEMBER 30, 2004			DECEMBER 31, 2003			SEPTEMBER 30, 2004			DECEMBER 31, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	90,511		$	159,093		$	90,511		$	159,093
Accounts receivable, less allowance for bad debts and book returns of $41,711 at September 30, 2004 and $33,988 at December 31, 2003		368,040			194,932			368,040			194,932
Inventories		182,095			162,130			182,095			162,130
Deferred income taxes		59,358			62,941			59,358			62,941
Prepaid expenses and other current assets		19,801			27,761			19,801			27,761

TOTAL CURRENT ASSETS		719,805			606,857			719,805			606,857
Property, plant, and equipment, net		105,053			107,990			105,053			107,990
Pre-publication costs, net		132,320			107,674			132,320			107,674
Royalty advances to authors, net of allowance of $42,200 at September 30, 2004 and $38,949 at December 31, 2003		31,528			28,814			31,528			28,814
Goodwill		624,304			646,809			624,304			646,809
Other intangible assets, net		751,559			850,709			751,559			850,709
Other assets and long-term receivables		73,283			92,310			67,690			86,533

TOTAL ASSETS	$	2,437,852		$	2,441,163		$	2,432,259		$	2,435,386

LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	113		$	1,039		$	113		$	1,039
Accounts payable		109,702			74,786			109,702			74,786
Due to parent		4,284			4,619			4,920			5,524
Royalties payable		56,023			62,341			56,023			62,341
Salaries, wages, and commissions		49,253			60,430			49,253			60,430
Interest payable		15,306			40,242			15,306			40,242
Restructuring accrual		5,108			12,022			5,108			12,022
Other		64,864			68,475			63,744			67,345

TOTAL CURRENT LIABILITIES		304,653			323,954			304,169			323,729
Long-term debt		1,304,620			1,289,684			1,135,996			1,134,449
Royalties payable		3,381			3,443			3,381			3,443
Accrued pension benefits		65,265			71,011			65,265			71,011
Accrued postretirement benefits		55,549			54,781			55,549			54,781
Deferred income taxes		268,397			273,973			274,438			275,394
Other		42,921			28,343			42,921			28,343

TOTAL LIABILITIES		2,044,786			2,045,189			1,881,719			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		(77,721	)		(74,662	)		(65,490	)		(71,643	)
Other comprehensive income		1,030			879			1,030			879

TOTAL STOCKHOLDER’S EQUITY		393,066			395,974			550,540			544,236

	$	2,437,852		$	2,441,163		$	2,432,259		$	2,435,386

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of dollars)


	HM PUBLISHING CORP.
	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2004			2003			2004			2003
NET SALES	$	570,403		$	558,276		$	1,043,538		$	1,052,416
COSTS AND EXPENSES
Cost of sales excluding pre-publication and publishing rights amortization		192,524			182,934			412,029			403,474
Pre-publication and publishing rights amortization		46,483			41,871			134,651			119,794

Cost of sales		239,007			224,805			546,680			523,268
Selling and administrative		149,215			140,185			402,688			406,660
Other intangible asset amortization		1,153			250			3,401			748

		389,375			365,240			952,769			930,676

OPERATING INCOME		181,028			193,036			90,769			121,740

OTHER INCOME (EXPENSE)
Net interest		(29,204	)		(28,911	)		(95,049	)		(85,515	)
Debt extinguishment costs		—			—			—			(48,427	)
Other income (expense)		—			(12	)		184			6

		(29,204	)		(28,923	)		(94,865	)		(133,936	)

Income (loss) from continuing operations before income taxes		151,824			164,113			(4,096	)		(12,196	)
Income tax provision (benefit)		56,031			60,393			(1,037	)		(4,481	)

Income (loss) from continuing operations		95,793			103,720			(3,059	)		(7,715	)
Loss from discontinued operations, net of tax		—			—			—			(1,221	)

NET INCOME (LOSS)	$	95,793		$	103,720		$	(3,059	)	$	(8,936	)

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