Harcourt General, Inc.

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Harcourt General, Inc.

27 Boylston St.
Chestnut Hill, Massachusetts 02167
U.S.A.
(617) 232-8200
Fax: (617) 278-5397
Web site: http://www.irin.com/h

Public Company
Incorporated: 1919 as Harcourt, Brace and Company
Employees: 20,080
Sales: $3.29 billion (1996)
Stock Exchanges: New York
SICs: 5311 Department Stores; 2731 Book Publishing; 8742 Management Consultant Services

Through its core publishing arm, Harcourt General, Inc. remains one of the world’s largest publishers of scholarly books and other printed and electronic educational materials. Its focus on educational, scientific, technical, medical, and other professional fields has made it a leader in both domestic and international markets. With publishing operations based in Sydney, Tokyo, London, Toronto, and Montreal, as well as its domestic offices, the company’s Harcourt Brace publishing revenues accounted for over 34 percent of Harcourt General’s total sales revenues in the mid-1990s. The company’s retail division, composed of a majority share of The Neiman Marcus Group retailer, produced the balance, 62 percent.

Harcourt Brace (HB) publishes about 3,000 new book titles each year for the trade and textbook markets. While the company’s publishing endeavors are diverse, its greatest activity centers around elementary school, secondary school, and college textbooks, and related educational materials. In the elementary and secondary school textbook market, HB is recognized as one of the nation’s leading publishers and one of the nation’s top five in the college textbook market. It is the largest publisher of journals for the scientific and medical communities, publishing hundreds of scholarly journals each year.

Company Gets Its Start During the Interwar Years

At the close of World War I, two former classmates from Columbia University, Alfred Harcourt and Donald C. Brace, left their positions at Henry Holt & Company and started their own trade publishing house in New York. The year was 1919, and the firm was known as Harcourt, Brace, and Howe. Harcourt had served as acquisitions editor and salesman in his 15 years with Holt; Brace, in manufacturing and production. Will D. Howe, an author and editor, had headed the English department at Indiana University. He left the new firm less than a year after its founding, and the name was changed to Harcourt, Brace and Company.

Three months after incorporation, Harcourt, Brace and Company published its first book, Organizing for Work by H. L. Gantt. In the months and years that followed, the company had one success after another. John Maynard Keynes’s The Economic Consequences of Peace was considered a milestone in publishing history. Other notable works included Sinclair Lewis’s Free Air, Main Street, and Arrowsmith, the latter winning a Pulitzer Prize. Lewis had followed his editor, Harcourt, from Henry Holt.

In its first decade, Harcourt, Brace and Company diversified into a number of genres, including religious works and college and high school textbooks. The house also published some of the nation’s most outstanding trade books and best-known authors. Throughout its history, Harcourt, Brace and Company would be recognized as an innovator in the publishing industry. In the 1920s the company offered women employees equal career opportunities, a practice virtually nonexistent in the trade at that time. This philosophy was attributed in part to Ellen Knowles Eayres, the firm’s first employee, who later married Alfred Harcourt.

Company Posts Publishing Milestones, 1940s-50s

First published in 1941, the company’s ubiquitous Harbrace College Handbook would grow to 12 editions by the early 1990s to become the bestselling college textbook of all time. The head of the first children’s book department, from 1946 to 1972, was Harcourt’s Margaret McElderry. Well-known and well-liked, she is credited with the discovery of many famous children’s authors, Joan Walsh Anglund and Eleanor Estes among them.

During World War II Harcourt, Brace and Company published Men Must Act, an anti-fascist book by Lewis Mumford. It was offered free, in an advertisement in the New York Times, to the first 500 New Yorkers to respond. The response was unexpected: all 500 copies were given away by noon, and it was estimated that another 2,000 people were turned away.

The house retained many famous authors throughout the years, but in 1955 several of them followed a well-respected Harcourt editor, Robert Giroux, who left to become a partner in Farrar, Straus & Giroux. Among the more than 17 authors who left with him were T. S. Eliot, Flannery O’Connor, John Berryman, and Bernard Malamud.

In 1942 Alfred Harcourt resigned as president, leaving control of the company’s operations in the hands of Donald Brace. In 1955, one year after Harcourt’s death, William Jovanovich was elected president of Harcourt, Brace and Company. Donald Brace died in September of that year at the age of 74. Jovanovich, a Colorado native, had joined the company in 1947 as a textbook salesman with a salary of $50 per week. Six years later he headed the school department, and in 1955 had become president of the company. While Jovanovich, at the time, was the youngest director with the company and owned no stock, he was the strong leader that the families of the two founders desired.

Jovanovich Steers Company into the 1960s

Once at the helm, Jovanovich set a clear path for turning the company into a conglomerate. Two of his first goals were to take the company public and to merge with World Book Company, incorporated in 1905. Both moves were accomplished in 1960. Harcourt, Brace & World, Inc. was formed as a result, and took its position as the largest publisher of elementary, secondary, and college materials in the nation. Until 1990 the company would be led by aggressive and determined Jovanovich. The company would diversify into dozens of publishing markets as well as into businesses totally unrelated to publishing by acquiring more than 40 companies.

The late 1960s saw the acquisition of two educational filmstrip production companies; several farm and trade publications; and Academic Press, Inc., an international concern that published physical and applied science books and journals. Each year during the 1970s, except 1975, the company acquired at least one publishing or education-related firm.

In 1970 Jovanovich became chairman of the company, and its name was changed from Harcourt, Brace & World, Inc. to Harcourt Brace Jovanovich, Inc. (HBJ). Among the most notable acquisitions made during the 1970s were: The Psychological Corporation, in 1970, publishers of aptitude, diagnostic, achievement, and psychological tests; Beckley-Cardy Company, in 1972, a school-supply house; Bay Area Review Course, Inc. and BRI Bar Review Institute, Inc. in 1974, the two being among the nation’s best bar exam review courses; and Pyramid Communications, Inc. in 1974, renamed Jove Publications, Inc., a mass-market paperback publisher of romance, inspirational, sports, and health books. Also in 1984 Drake-Beam & Associates, now Drake Beam Morin, Inc., an outplacement counseling firm, was acquired. By 1978 HBJ was publishing about 2,300 titles—from newsletters to romances—and 75 magazines, with revenues hovering around $360 million.

1970s Characterized by Obstacles to Expansion

The 1970s were not without their drawbacks. In 1974 operations at four German publishing houses purchased in 1970 were terminated because of poor profits. Price controls affected profits at Academic Press for a number of years. Jove/HBJ, an experimental imprint, was failing, and it was sold in 1979. HBJ’s trade division operated at a deficit beginning early in the decade. In 1977 HBJ lost $1.6 million on its general-interest books alone.

In early 1978 Jovanovich cut the company’s budget, firing six of the trade division’s top personnel; he put himself in charge of hardcover adult and juvenile works. The discharge came several days after HBJ regrouped its operations and created an office of the president. Jovanovich claimed the firings had nothing to do with this reorganization.

Restructuring Followed by Acquisitions, the 1980s

Three executive vice-presidents were elected to fill the office of the president—Robert L. Edgell, Robert R. Hillebrecht, and Jack O. Snyder. HBJ was reorganized into five operational groups: university and scholarly publishing, school materials and assessment, periodicals and insurance, business publications and broadcasting, and popular enterprises. This latter group, headed by Hillebrecht, included the marine parks known as Sea World, an acquisition of 1976.

To acquire Sea World, Inc., HBJ had borrowed $46.7 million. Sea World was composed of three marine parks, located in San Diego, California; Cleveland, Ohio; and Orlando, Florida; and was considered to represent some of the world’s finest living museums. In 1977 Sea World helped push the company’s gross sales to $281.7 million.

Company Perspectives:

Harcourt General continues to rank among the world’s largest publishing houses, while also expanding its core business in the areas of electronic publishing and educational software. Publishing revenues are enhanced by company holdings in both specialty retailing and professional management services.

In 1980 Jovanovich told the New York Times that he was again looking for new acquisitions, and the decade would see HBJ’s attention turn to theme parks, insurance, and more publishing. In 1980 the company purchased a commercial insurance broker for the dental profession, and in 1982 bought three publishing concerns, acquiring business periodicals serving a number of specialized industries. Acquisitions made in 1984 and 1985 diversified HBJ into 11 new periodical markets. Also in 1985, HBJ acquired three insurance operations. The two largest, purchased for a total of $130 million, were Federal Home Life Insurance Company and PHF Life Insurance Company of Battle Creek, Michigan.

In 1982 HBJ made the startling announcement it would move the company’s headquarters from New York City to Orlando, Florida, and the trade department to San Diego, California. The March 31 issue of Business Week quoted Jovanovich as saying “We’re moving because the continued profitability of publishing is in jeopardy.” A projected annual savings in rent and operation expenses of $20 million topped Jovanovich’s reasons for the move. “Too much time is spent lunching, and not enough is spent reading. Many of our writers don’t live in New York anyway,” Jovanovich noted.

HBJ planned to use the employee pension fund, which, the company stated, was “hugely overfunded,” to finance the new corporate headquarters. The investment, according to Jovanovich, would yield a considerable return—15 percent of the building’s cost in annual rent. In September 1983, the U.S. Labor Department prohibited the use of the fund, and HBJ was required to return all monies to the fund. The move, complete in 1984, included the construction of an eight-story, 385,000-square-foot office building across from Sea World. The new HBJ headquarters cost the company $20 million. The move, as of 1986, cost the company a total of $35 million.

Once established in its new home, HBJ went on another theme-park buying spree, spending a total of $67.7 million. In September 1974 the company bought Stars Hall of Fame in Orlando, which was soon converted to Places of Learning. In 1985 HBJ acquired Florida Cypress Gardens, Inc., a botanical garden and entertainment park near Winter Haven, Florida, paying $22.6 million in stock for the opportunity. In December 1986 HBJ acquired Marineland Amusements Corporation in Rancho Palos Verdes, California.

Near the end of 1986 HBJ made the biggest purchase in its history. For $500 million it acquired the educational and professional publishing division of CBS Inc. The division’s primary subsidiaries included W.B. Saunders, the world’s largest publisher of medical and health science textbooks and materials; and Holt, Rinehart, and Winston, Inc. (HRW), one of the nation’s top textbook publishers. HRW was the evolutionary product of Henry Holt & Company—the firm from which Harcourt, Brace, and Howe had started. The purchase made HBJ the largest publisher of elementary school and high school textbooks.

In 1987 Robert Maxwell, the chairman of British Printing and Communications Corporation (BPCC), set his sights on acquiring Harcourt Brace Jovanovich. Maxwell was looking for a U.S. publishing house, and offered more than $2 billion for the company. HBJ was not interested. Twice in HBJ’s history takeover attempts had prompted Jovanovich into action—once in 1978 by Marvin Josephson, and again in 1981 by Warner Communications. Neither the action nor the results in either case had been far-reaching.

In a press release dated May 26, 1987, HBJ announced its plan to fight the BPPC proposal, a recapitalization distribution. The plan included a $40-per-share special dividend and the issuance of new preferred stock.

Two days later, Maxwell announced he had withdrawn his offer, but HBJ had paid a hefty price. To fend off the takeover, the company had more than tripled its debt, from $837 million to $2.9 billion, requiring bank loans for a substantial portion of that figure. The withdrawal of his offer notwithstanding, on June 1 Maxwell tried to block the reorganization plan. At the close of business June 2, more than 3.3 million HBJ shares had changed hands, with the price skyrocketing to $63.75. A number of companies, along with Maxwell’s BPCC, opposed HBJ’s reorganization. After an Orange County, Florida judge ruled in HBJ’s favor in late June, Maxwell withdrew.

In August 1987 HBJ began its attempt to cover the cost of the takeover defense by selling assets. Among the first to go were HBJ’s two VHF television stations and three corporate jets, the sales of which brought in about $20 million. Also to go were two book clubs. In November HBJ announced the sale of its 110 trade magazines and Beckley-Cardy, which it sold for $334 million. The buyer was Edgell Communications Inc., a new, private corporation formed in part by Robert Edgell, a former HBJ executive.

By year-end HBJ had met its performing-asset sale requirement under its credit agreements. The company had sold more than $370 million in assets. Speculation continued, however, as did the rumors as to which property HBJ would sell next and to whom. On January 1, 1988, William Jovanovich announced that the HBJ theme parks were not for sale.

Several months later, HBJ eliminated 729 jobs from its theme park operations. While neither the HBJ publishing or insurance divisions were affected, the layoff included more than 343 positions at Florida-based theme parks, and 17 percent of the work force at Sea World in San Antonio, Texas.

On March 30, 1988, the appointment of Ralph D. Caulo, age 53, was announced as HBJ’s newly elected president and chief operating officer. Caulo, who joined HBJ in 1967 as a textbook sales manager, served as an executive vice-president in Orlando, heading the school publishing division. Since 1970 William Jovanovich had been chief executive, president, and chairman. On December 17, 1988, at age 68, Jovanovich resigned his position as president and chief executive officer of Harcourt Brace Jovanovich, retaining only his position as chairman.

During the late 1980s some analysts believed the company’s financial situation to be anything but hopeful. Forced to sell revenue-generating assets to repay debt, HBJ was threatening its long-range solvency. William Jovanovich claimed that “HBJ could repay its obligations without now selling major assets.”

Divestiture Followed by New Leadership in 1980s

In November 1989, HBJ sold all six of its theme parks and related land holdings to Anheuser-Busch Companies. The price was $1.1 billion, which went to retire the bank loans. The year also saw significant structural changes within HBJ operations. Elementary and secondary textbook divisions were divided. HBJ would now publish kindergarten through eighth-grade textbooks, while subsidiary Holt, Rinehart and Winston would publish those for grades seven through 12. HBJ and HRW school department heads resigned, as did six executives in the elementary and secondary divisions. Ralph Caulo resigned as president, and William Jovanovich’s son, Peter Jovanovich, was elected in his place.

Peter William Jovanovich was born in New York City in 1949 and joined the HBJ trade department in 1980. He inherited the company’s $1.6 billion debt, causing Wall Street analysts and institutional investors to openly express concern regarding his ability to pull the company from its troubles. HBJ’s operating loss for 1989 reached $242 million, with interest payments on its debt at $350.8 million, and its share price at around $3.

In April 1990 HBJ confirmed its intentions to sell additional assets. Speculation by analysts targeted the company’s professional publishing division, including W. B. Saunders as one possibility, estimating a sale price at around $600 million. Another option would be the company’s insurance operations, which in 1989 had generated $456.3 million in revenues. Still other sources disclosed the possibility of a renewed interest in HBJ by BPCC chairman Robert Maxwell.

On May 29, 1990, William Jovanovich retired from his 36-year tenure as chairman of HBJ, naming John S. Herrington as his successor. The New York Times, May 30, 1990, quoted Roger Straus, chairman of Farrar, Straus & Giroux: “It is very sad. Bill was a great publisher in his time, but he went too far in resisting Maxwell. Now I suspect that he does not want to be there for the dismemberment.” A lawyer, Herrington had joined the HBJ board of directors in 1989 before serving as secretary of energy to U.S. president Ronald Reagan.

In September 1990 vice-chairman and COO J. William Brandner, HBJ’s second in command, resigned. The company announced that his resignation was part of a budget cut that was expected to help curb operating expenses without hindering operations. In the same month, HBJ hired a spokesman—a first in its 71-year history. C. Anson Franklin had served as assistant energy secretary under Herrington and as assistant press secretary in the Reagan administration. Franklin’s job, in addition to serving as liaison between the company, its shareholders, and the press, was to improve HBJ’s community and company communications.

In October 1990 speculation continued as to HBJ’s next strategy for deferring its debt burden. With the company’s stock hovering at $1.25 per share and its long-term debt at $1.76 billion, analysts projected another large asset sale. This news was offset by the announcement, in October 1990, that HBJ author Octavio Paz had been awarded the Nobel Prize for Literature. The poet, age 76, was the first Mexican writer to receive literature’s highest recognition, awarded by the Swedish Academy of Letters.

As HBJ’s 1993 obligation to pay dividends and interest to its bond holders drew near, the company continued to consider its alternatives, one of which was a merger offer from General Cinema. The offer would wipe the debt slate clean, and prove beneficial to all associated with the company except its bond holders, who would collect less than they expected. After a protracted offer to those bondholders, during which General Cinema was forced to sweeten the offer, it was accepted by the 90 percent necessary.

Merger Gives New Name and Signals New Direction, the 1990s

In January 1991, after announcing it would sell its Orlando book warehouse, the board of HBJ approved the merger with General Cinema. The $1.5 billion deal made HBJ a subsidiary of General Cinema, a movie theater giant founded in 1922 as Philip Smith Theatrical Enterprise that retained a 53 percent interest in upscale and innovative retailer Neiman Marcus through its 37 percent interest in Carter Hawley Hale. Neiman Marcus operated 28 stores in 25 cities throughout the United States, as well as two Bergdorf Goodman stores in Manhattan. In 1995 Harcourt would expand its interest in Neiman Marcus to 58.6 percent through a privately negotiated stock transaction.

In 1992 the now enlarged company consolidated its publishing operations under the name Harcourt Brace and Company, intending to incorporate the new name and logo in its many imprints to integrate its publishing identity. Through a renewed commitment to invest in the elementary and secondary textbook programs offered through its Harcourt Brace School (grades K-8) and Holt, Rinehart and Winston (grades 7-12) divisions, as well as the introduction of the popular Mathematics Plus instructional program for elementary grades, the company was able to post profitable returns in these divisions on top of several years of decline in the late 1980s. From 1992 revenues of $223.4 million, combined elementary and secondary publishing revenues would reach $313.7 million by 1995.

CEO Peter Jovanovich left the company in 1992, moving to head a joint venture between textbook publishers Macmillan Inc. and McGraw-Hill. He was replaced by Robert J. Tarr, who would remain CEO of the company until January 1997, when he was succeeded by Robert A. Smith, chairman and “patriarch” of the family-based core of HBJ. Despite the shift in leadership, the company’s focus remained consistent: as Tarr stated in the Wall Street Journal in 1993, “Publishing is going to be our core business for a long, long time. It’s going to be our growth industry for the ’90s.”

The fall of 1993 saw a streamlining of General Cinema’s long-term holdings as the company spun off its 1,351-exhibition screen General Cinema theatre chain, plus $64 million in cash, as GC Companies, giving each Harcourt shareholders one GC share for every 10 shares of the company’s common stock held. The company also laid the groundwork for divesting itself of HBJ’s British affiliate through a deal with the company-owned consulting firm Drake Beam Morin. Continuing its move to focus on publishing, General Cinema also paved the way for the 1994 sale of HBJ’s insurance division to GE Capital-affiliate GNA Corp. for $410 million. The changes begun in 1993 were symbolized by the company’s change in name from General Cinema to Harcourt General on March 12. The company ended the fiscal year by posting revenues of $3.65 billion, $944.5 million of which were generated by its publishing arm. By year-end 1994 publishing would account for 29 percent of total revenue.

The Future of Publishing in the Electronic Age

In 1995, with sales of over $3 billion and net income of $166 million, Harcourt General announced that its Academic Press unit would be making all of its scientific and technical journals available on the Internet. This move followed the lead of Harcourt Brace College, a company branch that had formed a multimedia product unit called Harcourt Interactive the previous year.

On the international front, Harcourt Brace International moved its main offices from Orlando, Florida, to London, thereby increasing its international presence. The company also responded to the increased globalization of the scientific and medical marketplace by beginning to develop new products in these areas, creating another opportunity to expand the already strong markets for both its Academic Press and W.B. Saunders imprints internationally. Harcourt General also exhibited foresight in responding to changes in worldwide demographics as it approached the millennium. In 1995 Harcourt began expanding its markets in Asia and purchased Mosby-Year Book, a Spanish-language medical publisher marketing products in Spain, Mexico, and major cities in Latin America, from Times Mirror, which complemented the company’s W.B. Saunders subsidiary, the world’s leading publisher of medical books and journals focusing on the health sciences. Among the company’s 300 scholarly journals and 2,600 titles released in 1995 was View with a Grain of Sand, by 1996 Nobel Prize-winning poet Wislawa Szymborska.

In addition to recognizing and responding to the changes in the publishing industry, Harcourt General streamlined its specialty retailing operations, focusing on the adult upscale clothing market by negotiating the exchange of its youth-oriented Contempo Casuals with Wet Seal for stock and cash in 1995. It also grew revenues in Drake Beam Morin, which by the early 1990s could claim preeminence as the world’s leading human resources consulting/management firm. By the close of 1996, the company could boast revenues of $3.28 billion, and net earnings of $1.38 billion.

Company wide efforts to redeploy cash from sales of subsidiaries and more fully utilize debt capacity, as well as its intention to expand Asian and Latin American markets and search for acquisitions capable of generating high returns relative to those standard in the publishing industry boded well for the future. The 1995 acquisition of both Mosby-Year Book and Assessment Systems Inc., a computerized licensing and credentialing testing system used nationwide, signalled Harcourt General’s belief that its future will reside in the worldwide merger of people and a far-ranging electronic technology.

Principal Subsidiaries

Academic Press, Inc.; Harcourt Brace and Company; Harcourt Brace Jovanovich International Corporation; Harcourt Brace Jovanovich Japan, Inc. (99.17%); HBJ Holding Corporation; Holt, Rinehart and Winston, Inc.; Drake Beam Morin; The Psychological Corporation; W.B. Saunders Company; Neiman Marcus Group Inc.