<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
-------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to ________
Commission File Number 1-5406
------
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
Houghton Mifflin Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116-3764
<PAGE> 2
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Houghton Mifflin Retirement Savings Plan
Date: June 20, 1997 /s/ Gary L. Smith
---------------- ----------------------------------------
Gary L. Smith
Senior Vice President, Administration
<PAGE> 3
HOUGHTON MIFFLIN
RETIREMENT SAVINGS PLAN
Audited Financial Statements
and Supplemental Schedules
Three Years ended December 31, 1996
<PAGE> 4
Houghton Mifflin Retirement Savings Plan
Table of Contents
<TABLE>
<CAPTION>
Page No.
<S> <C>
Report of Independent Auditors 3
Audited Financial Statements:
Statement of Net Assets Available for Benefits with Fund Information
as of December 31, 1996 4
Statement of Net Assets Available for Benefits with Fund Information
as of December 31, 1995 5
Statement of Changes in Net Assets Available for Benefits with Fund
Information for the year ended December 31, 1996 6
Statement of Changes in Net Assets Available for Benefits with Fund
Information for the year ended December 31, 1995 7
Statement of Changes in Net Assets Available for Benefits with Fund
Information for the year ended December 31, 1994 8
Notes to Financial Statements 9 - 17
Supplemental Schedules:
Item 27a - Schedule of Assets Held for Investment Purposes 19 - 20
Item 27d - Schedule of Reportable Transactions 21
</TABLE>
2
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
The Retirement Committee and Participants
Houghton Mifflin Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Houghton Mifflin Retirement Savings Plan as of December 31, 1996 and
1995, and the related statements of changes in net assets available for
benefits for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1996 and 1995, and the changes in its net assets available for
benefits for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of (1) assets held for investment purposes as of December 31, 1996 and
(2) reportable transactions for the year ended December 31, 1996 are presented
for purposes of complying with the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974, and are not a required part of the basic financial statements. The fund
information in the statement of net assets available for benefits and the
statement of changes in net assets available for benefits is presented for
purposes of additional analysis rather than to present the net assets available
for benefits and changes in net assets available for benefits of each fund. The
supplemental schedules and fund information have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Ernst & Young LLP
Boston, Massachusetts
June 16, 1997
3
<PAGE> 6
HOUGHTON MIFFLIN RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Fund Information
---------------------------------------------------------------------------------------------------
------- -------- --------- ------- -------- ---------- --------- ------- ------- ------- ----- --------
Asset Asset
Managed Houghton Investment Asset Manager Manager
Income Stock Parnassus Puritan Magellan Grade Manager Growth Income Total
Fund Fund Fund Fund Fund Contrafund Bond Fund Fund Fund Fund Loans Plan
------- -------- --------- ------- -------- ---------- ---------- ------- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments (Note 3) $19,957 $35,475 $1,298 $15,897 $8,428 $10,854 $1,386 $2,262 $3,228 $949 $1,369 $101,103
Contributions and
other receivables 5 43 1 3 3 4 -- 1 1 -- 3 64
------- ------- ------ ------- ------ ------- ------ ------ ------ ---- ------ --------
Total assets 19,962 35,518 1,299 15,900 8,431 10,858 1,386 2,263 3,229 949 1,372 101,167
LIABILITIES
Withdrawals and
distributions
payable 63 5 -- 6 -- -- -- -- -- -- -- 74
Net assets available ------- ------- ------ ------- ------ ------- ------ ------ ------ ---- ------ --------
for benefits $19,899 $35,513 $1,299 $15,894 $8,431 $10,858 $1,386 $2,263 $3,229 $949 $1,372 $101,093
======= ======= ====== ======= ====== ======= ====== ====== ====== ==== ====== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
HOUGHTON MIFFLIN RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Fund Information
----------------------------------------------------------------------------------------------------
------- -------- --------- ------- -------- ---------- --------- ------- ------- ------- ----- -------
Asset Asset
Managed Houghton Investment Asset Manager Manager
Income Stock Parnassus Puritan Magellan Grade Manager Growth Income Total
Fund Fund Fund Fund Fund Contrafund Bond Fund Fund Fund Fund Loans Plan
------- -------- --------- ------- -------- ---------- ---------- ------- -------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments (Note 3) $19,586 $25,765 $1,462 $12,903 $6,837 $6,020 $ 955 $1,716 $2,063 $914 $887 $79,108
Contributions and
other receivables -- 14 -- -- -- -- -- -- -- -- 22 36
------- ------- ------ ------- ------ ------ ------ ------ ------ ---- ---- -------
Total assets 19,586 25,779 1,462 12,903 6,837 6,020 955 1,716 2,063 914 909 79,144
LIABILITIES
Withdrawals and
distributions
payable 13 26 -- -- -- -- -- -- -- -- -- 39
Net assets available ------- ------- ------ ------- ------ ------ ------ ------ ------ ---- ---- -------
for benefits $19,573 $25,753 $1,462 $12,903 $6,837 $6,020 $ 955 $1,716 $2,063 $914 $909 $79,105
======= ======= ====== ======= ====== ====== ====== ====== ====== ==== ==== =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 8
HOUGHTON MIFFLIN RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Fund Information
---------------------------------------------------------------------------------------
------- -------- --------- ------- -------- ---------- ----------
Managed Houghton Investment
Income Stock Parnassus Puritan Magellan Grade
Fund Fund Fund Fund Fund Contrafund Bond Fund
------- -------- --------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 1,206 $ 51 $ 1 $ 10 $ 12 $ 8 $ 1
Dividend income -- 598 40 1,783 1,261 769 79
Net appreciation (depreciation) in
fair value of investments
(Note 3) -- 8,508 88 298 (353) 928 (36)
-------- -------- ------ ------- ------ ------- ------
1,206 9,157 129 2,091 920 1,705 44
Contributions:
Rollovers 263 228 73 371 624 533 208
Participants 978 1,500 235 1,149 1,106 1,097 148
Loans (32) (84) (17) (85) (67) (127) (11)
Employer -- 2,152 -- -- -- -- --
-------- -------- ------ ------- ------ ------- ------
1,209 3,796 291 1,435 1,663 1,503 345
-------- -------- ------ ------- ------ ------- ------
Total Additions 2,415 12,953 420 3,526 2,583 3,208 389
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (1,919) (1,671) (74) (666) (375) (544) (54)
Administrative
expenses (20) (4) -- (8) (4) (2) (2)
-------- -------- ------ ------- ------ ------- ------
Total Deductions (1,939) (1,675) (74) (674) (379) (546) (56)
-------- -------- ------ ------- ------ ------- ------
Net increase (decrease)
prior to interfund transfers 476 11,278 346 2,852 2,204 2,662 333
Fund transfers (150) (1,518) (509) 139 (610) 2,176 98
-------- -------- ------ ------- ------ ------- ------
Net increase (decrease) 326 9,760 (163) 2,991 1,594 4,838 431
Net assets available for benefits:
Beginning of year 19,573 25,753 1,462 12,903 6,837 6,020 955
-------- -------- ------ ------- ------ ------- ------
End of year $ 19,899 $ 35,513 $1,299 $15,894 $8,431 $10,858 $1,386
======== ======== ====== ======= ====== ======= ======
<CAPTION>
----------------------------------------
Fund Information
----------------------------------------
------- ------- ------- ----- -------
Asset Asset
Asset Manager Manager
Manager Growth Income Total
Fund Fund Fund Loans Plan
------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 1 $ 4 $ 1 $ -- $ 1,295
Dividend income 175 271 70 -- 5,046
Net appreciation (depreciation) in
fair value of investments
(Note 3) 66 176 -- -- 9,675
------ ------ ----- ------ --------
242 451 71 -- 16,016
Contributions:
Rollovers 54 208 50 -- 2,612
Participants 254 368 96 -- 6,931
Loans (5) (33) (2) 463 --
Employer -- -- -- -- 2,152
------ ------ ----- ------ --------
303 543 144 463 11,695
------ ------ ----- ------ --------
Total Additions 545 994 215 463 27,711
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (98) (178) (100) -- (5,679)
Administrative
expenses (2) (1) (1) -- (44)
------ ------ ----- ------ --------
Total Deductions (100) (179) (101) -- (5,723)
------ ------ ----- ------ --------
Net increase (decrease)
prior to interfund transfers 445 815 114 463 21,988
Fund transfers 102 351 (79) -- --
------ ------ ----- ------ --------
Net increase (decrease) 547 1,166 35 463 21,988
Net assets available for benefits:
Beginning of year 1,716 2,063 914 909 79,105
------ ------ ----- ------ --------
End of year $2,263 $3,229 $ 949 $1,372 $101,093
====== ====== ===== ====== ========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 9
HOUGHTON MIFFLIN RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Fund Information
--------------------------------------------------------------------------------------
------- -------- --------- ------- -------- ---------- ----------
Managed Houghton Investment
Income Stock Parnassus Puritan Magellan Grade
Fund Fund Fund Fund Fund Contrafund Bond Fund
------- -------- --------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 1,149 $ -- $ 1 $ 4 $ 5 $ 4 $ 1
Dividend income 233 584 56 649 380 464 42
Net appreciation (depreciation) in
fair value of investments
(Note 3) -- (1,263) (125) 1,546 834 662 49
-------- -------- ------ ------- ------ ------ ----
1,382 (679) (68) 2,199 1,219 1,130 92
Contributions:
Rollovers 403 159 176 801 646 495 132
Participants 648 1,387 208 1,101 731 642 143
Loans (121) (357) (19) (95) (68) (56) (26)
Employer -- 2,044 -- -- -- -- --
-------- -------- ------ ------- ------ ------ ----
930 3,233 365 1,807 1,309 1,081 249
-------- -------- ------ ------- ------ ------ ----
Total Additions 2,312 2,554 297 4,006 2,528 2,211 341
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (2,199) (2,125) (68) (692) (410) (216) (27)
Administrative
expenses (19) (2) -- (3) (1) -- (1)
-------- -------- ------ ------- ------ ------ ----
Total Deductions (2,218) (2,127) (68) (695) (411) (216) (28)
Net increase (decrease) prior -------- -------- ------ ------- ------ ------ ----
to interfund transfers 94 427 229 3,311 2,117 1,995 313
Fund transfers (4,786) (3,949) 1,219 (2,744) 4,052 3,020 642
-------- -------- ------ ------- ------ ------ ----
Net increase (decrease) (4,692) (3,522) 1,448 567 6,169 5,015 955
Net assets available for benefits:
Beginning of year 24,265 29,275 14 12,336 668 1,005 --
-------- -------- ------ ------- ------ ------ ----
End of year $ 19,573 $ 25,753 $1,462 $12,903 $6,837 $6,020 $955
======== ======== ====== ======= ====== ====== ====
<CAPTION>
------------------------------------------
Fund Information
------------------------------------------
------- ------- ------- ----- -------
Asset Asset
Asset Manager Manager
Manager Growth Income Total
Fund Fund Fund Loans Plan
------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 1 $ 1 $ 1 $ -- $ 1,167
Dividend income 46 30 38 -- 2,522
Net appreciation (depreciation) in
fair value of investments
(Note 3) 210 300 72 -- 2,285
------ ------ ---- ---- -------
257 331 111 -- 5,974
Contributions:
Rollovers 157 253 83 -- 3,305
Participants 221 322 81 -- 5,484
Loans (31) (28) (10) 811 --
Employer -- -- -- -- 2,044
------ ------ ---- ---- -------
347 547 154 811 10,833
------ ------ ---- ---- -------
Total Additions 604 878 265 811 16,807
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (154) (93) (73) -- (6,057)
Administrative
expenses (1) (1) -- -- (28)
------ ------ ---- ---- -------
Total Deductions (155) (94) (73) -- (6,085)
------ ------ ---- ---- -------
Net increase (decrease) prior
to interfund transfers 449 784 192 811 10,722
Fund transfers 1,260 1,255 31 -- --
------ ------ ---- ---- -------
Net increase (decrease) 1,709 2,039 223 811 10,722
Net assets available for benefits:
Beginning of year 7 24 691 98 68,383
------ ------ ---- ---- -------
End of year $1,716 $2,063 $914 $909 $79,105
====== ====== ==== ==== =======
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 10
HOUGHTON MIFFLIN RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fund Information
-------------------------------------------------------------------------------------
------- -------- --------- ------- -------- ---------- ----------
Managed Houghton Asset
Income Stock Parnassus Puritan Magellan Manager
Fund Fund Fund Fund Fund Contrafund Fund
------- -------- --------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 1,146 $ 5 $-- $ 1 $ -- $ -- $--
Dividend income 393 562 -- 394 -- 4 --
Net appreciation (depreciation) in
fair value of investments
(Note 3) (49) (2,707) -- (310) 12 8 --
------- ------- --- ------- ---- ------ ---
1,490 (2,140) -- 85 12 12 --
Contributions:
Rollovers 182 47 -- 73 -- -- --
Participants 1,063 1,603 14 1,606 50 77 7
Transfer of Plan Assets
from McDougal Littell 707 -- -- 1,086 606 916 --
Employer -- 1,966 -- -- -- -- --
------- ------- --- ------- ---- ------ ---
1,952 3,616 14 2,765 656 993 7
------- ------- --- ------- ---- ------ ---
Total Additions 3,442 1,476 14 2,850 668 1,005 7
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (2,716) (2,562) -- (1,009) -- -- --
Administrative
expenses (27) (19) -- (5) -- -- --
------- ------- --- ------- ---- ------ ---
Total Deductions (2,743) (2,581) -- (1,014) -- -- --
Net increase (decrease) prior ------- ------- --- ------- ---- ------ ---
to interfund transfers 699 (1,105) 14 1,836 668 1,005 7
Fund transfers (337) (1,079) -- 1,416 -- -- --
------- ------- --- ------- ---- ------ ---
Net increase (decrease) 362 (2,184) 14 3,252 668 1,005 7
Net assets available for benefits:
Beginning of year 23,903 31,459 -- 9,084 -- -- --
------- ------- --- ------- ---- ------ ---
End of year $24,265 $29,275 $14 $12,336 $668 $1,005 $ 7
======= ======= === ======= ==== ====== ===
<CAPTION>
-----------------------------
Fund Information
-----------------------------
------- ------- ----- -----
Asset Asset
Manager Manager
Growth Income Total
Fund Fund Loans Plan
------- ------- ----- -----
<S> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $-- $ -- $-- $ 1,152
Dividend income -- 8 -- 1,361
Net appreciation (depreciation) in
fair value of investments
(Note 3) -- (10) -- (3,056)
--- ---- --- -------
-- (2) -- (543)
Contributions:
Rollovers -- -- -- 302
Participants 24 15 -- 4,459
Transfer of Plan Assets
from McDougal Littell -- 678 98 4,091
Employer -- -- -- 1,966
--- ---- --- -------
24 693 98 10,818
--- ---- --- -------
Total Additions 24 691 98 10,275
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) -- -- -- (6,287)
Administrative
expenses -- -- -- (51)
--- ---- --- -------
Total Deductions -- -- -- (6,338)
Net increase (decrease) prior --- ---- --- -------
to interfund transfers 24 691 98 3,937
Fund transfers -- -- -- --
--- ---- --- -------
Net increase (decrease) 24 691 98 3,937
Net assets available for benefits:
Beginning of year -- -- -- 64,446
--- ---- --- -------
End of year $24 $691 $98 $68,383
=== ==== === =======
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 11
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
1. Plan Description
The following brief description of the Houghton Mifflin Retirement Savings Plan
("the Plan") provides only general information. Participants should refer to the
Plan document for a more complete description of the Plan's provisions.
General
- -------
The Houghton Mifflin Retirement Savings Plan, formerly known as the Houghton
Mifflin Company Employees' Saving and Thrift Plan, is a defined contribution
plan adopted as of January 1, 1981, and amended July 1, 1995. It is a long-term
savings and investment program to which Houghton Mifflin Company ("the Company")
and its employees contribute. The Plan was designed to comply with the
provisions of Sections 401(a) and 401(k) of the Internal Revenue Code ("IRC")
and is subject to the applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
In connection with the acquisition of McDougal, Littell & Company by Houghton
Mifflin Company on March 1, 1994, the plan assets and participants' equity
balances of the McDougal, Littell & Company Employee Savings and Stock Ownership
Plan, which qualify under Internal Revenue Code Section 401(a), were transferred
to the Plan effective December 1, 1994.
In connection with the acquisition of D.C. Heath and Company by Houghton Mifflin
Company on October 31, 1995, the assets and the participants' equity balances of
the retained employees, which qualified under Internal Revenue Code Section
401(k), transferred to the Plan in 1995 and are included in rollovers for the
year ended December 31, 1995.
Participation
- -------------
Employees of Houghton Mifflin Company and its subsidiaries who are scheduled to
provide 1,000 or more hours of service in the first twelve months after hire are
eligible. Employees are not eligible for Company matching contributions until
successful completion of one year of eligible service.
Vesting
- -------
Each participant is immediately vested in his or her voluntary salary
contributions plus the earnings thereon. A participant becomes fully vested in
the Company's matching contributions once the contribution has been made.
9
<PAGE> 12
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
1. Plan Description - continued
Contributions
- -------------
Eligible employees can elect to contribute in total 1% to 15% of their
compensation, excluding compensation in excess of $150,000 for 1996, 1995 and
1994, subject to an annual deferral limit for plans operating under Section
401(k) of the Internal Revenue Code ($9,500 in 1996), to any of the ten
investment options offered by the Plan. Employee contributions are made from
participants' wages through payroll deductions.
The Company may elect to match an employee's contribution equal to 1%, 2%, or 3%
of the employee's compensation. Beginning in March 1994, employees who were
members of a collective bargaining unit became eligible for a 1% Company
matching contribution. Subject to the above limitations, the Company will match
participant contributions to the Houghton Stock Fund on a 100% basis, the
Managed Income Fund, and the Mutual Fund Investments on a 50% basis. Company
contributions are invested solely in the Houghton Stock Fund. Federal, and in
most states, state and local income taxes on these contributions are deferred
until the monies are withdrawn from the Plan.
The following table presents the participant directed contributions, including
rollovers, for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995
------ ------
<S> <C> <C>
Managed Income Fund $1,241 $1,051
Houghton Stock Fund 1,728 1,546
The Parnassus Fund 308 384
Fidelity Puritan(R) Fund 1,520 1,902
Fidelity Magellan(R) Fund 1,730 1,377
Fidelity Contrafund 1,630 1,137
Fidelity Investment Grade Bond Fund 356 275
Fidelity Asset Manager 308 378
Fidelity Asset Manager: Growth 576 575
Fidelity Asset Manager: Income 146 164
------ ------
Total Participant Directed Contributions,
including rollovers $9,543 $8,789
====== ======
</TABLE>
Loans
- -----
A participant may obtain a loan against his or her account balance up to 50% of
the total aggregate value. Only one loan may be outstanding at a time, and all
loans are pre-approved. The minimum amount is established at $500. The maximum
outstanding loan balance, including accrued interest, is $50,000. The interest
rate on the loan is a fixed rate, based on the prime rate published in the Wall
Street Journal on the first business day of the calendar quarter in which the
loan commences. Loans are amortized on a straight-line basis over the term of
the loan, must be repaid in installments, at a minimum quarterly, and must be
repaid within five years. The payments can be made by after-tax payroll
deductions.
10
<PAGE> 13
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
1. Plan Description - continued
Trustee
- -------
Effective December 1, 1994, the Plan is administered under the terms of a Trust
Agreement with Fidelity Management Trust Company. The Plan's Trust Agreement
conforms to guidelines for salary reduction plans under Section 401(k) of the
Internal Revenue Code. Prior to December 1, 1994, the Plan was administered
under a trust agreement with State Street Bank and Trust.
Under the Trust Agreements, the Company remits contributions directly to the
Trustee, which the trustee must invest as directed by the participants. The
Trustee has discretionary authority, subject to certain limitations as specified
in the agreement, for the purchase and sale of investments. The Trustee holds
temporary cash reserves in short-term funds until the individual fund
investments can be made.
Benefit Payments
- ----------------
Upon retirement or termination, distribution of account balances may be made as
follows: (1) a lump-sum payment of shares of Company stock and/or cash, (2)
extended cash payments over a period not to exceed 20 years, or (3) periodic
payment of any amount until age 70-1/2, at which time another option must be
elected. Retiring or terminating members under the age of 65 who have over
$3,500 in the Plan may elect to defer payment of their account balance until a
later date. Members may make early withdrawals under certain limited conditions
as set forth in the Plan.
Plan Amendment or Termination
- -----------------------------
While the Company currently intends to continue the Plan, it reserves the right
to amend, change or terminate the Plan at any time. In the event of termination,
all interest will be distributed to the participants or will continue to be
administered by the Plan committee and later distributed in a manner approved by
the Internal Revenue Service.
Income Tax Status
- -----------------
The Internal Revenue Service has ruled by letter dated February 6, 1997, that
the Plan qualifies under Section 401(a) of the IRC and, therefore the related
trust is not subject to tax under present income tax law. Once qualified, the
Plan is required to operate in conformity with the IRC to maintain its
qualification. The Retirement Committee is not aware of any course of action or
series of events that have occurred that might adversely affect the Plan's
qualified status.
11
<PAGE> 14
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
1. Plan Description - continued
Income Tax Status - continued
- -----------------
Participant withdrawals and distributions are subject to federal income tax to
the extent such withdrawals exceed the participant's contribution to the Plan
made during the years 1981, 1982, and 1983. Participant and Company
contributions to the Plan made after January 1, 1984, are subject to federal
income tax at the time of withdrawal or distribution.
The timing of the recognition of taxable income by the participants is governed
by applicable provisions of the Internal Revenue Code.
Other
- -----
For the period January 1, 1994 through November 30, 1994, record keeping fees
and guaranteed group annuity contract insurer fees were borne by the Plan.
Effective December 1, 1994, all Plan administrative expenses are borne by the
Plan. Prior to January 1, 1994, administrative expenses of the Plan were borne
by the Company.
Subsequent Events
- -----------------
Effective January 1, 1997, the Plan's name was changed to Houghton Mifflin
401(k) Savings Plan, and the Company's maximum contribution was increased to
4-1/2% of the employee's compensation. Both actions were approved by the
Houghton Mifflin Retirement Committee on May 16, 1996. Effective January 1,
1997, any employee may rollover to the Plan any amount received by such
employee as an "eligible rollover distribution," as defined by the Plan; any
employee who has terminated employment with the sponsor and is eligible to
receive an "eligible rollover distribution," as defined by the Plan, from the
Plan may rollover to the Plan all or part of such distribution.
2. Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
supplemental schedules have been prepared to satisfy the reporting and
disclosure requirements of ERISA.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
In 1996, the Company adopted Statement of Position (SOP) No. 94-4, "Reporting of
Investment Contracts Held By Health and Welfare Benefit Plans and Defined
Contribution Pension Plans," which
12
<PAGE> 15
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
2. Summary of Significant Accounting Policies - continued
was issued by the American Institute of Certified Public Accountants in 1995.
The adoption of SOP 94-4 has not had a material impact on the Plan's financial
position or its results of operations.
Participants' Accounts
- ----------------------
Each participant's account is credited with the participant's contributions,
employer contributions, and an allocation of Plan earnings. Net investment
income is allocated to participants based upon the ratio each participant's
share bears to the respective fund. The approximate number of participants in
each of the investment programs is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
------- -------
<S> <C> <C>
Managed Income Fund 1,059 1,229
Houghton Stock Fund 2,394 2,426
Mutual Fund Investments 4,394 3,949
</TABLE>
Investments
- -----------
Investments in group annuity contracts with insurance companies are valued at
cost plus accumulated interest, which approximates fair value. Investments in
the mutual funds are carried at fair value determined by the number of units
held by the Plan and the current value of each unit based upon quotations
obtained from national securities exchanges on the last day of the Plan year.
The State Street Bank and Trust Short-Term Income Fund and/or the FMTC
Institutional Money Market are valued at its redemption price, which
approximates fair value. Purchases and sales of securities are recorded on the
trade date of the related transactions.
Dividend income is recognized on the ex-dividend date and interest income is
recorded as earned. All dividend and interest income is reinvested in the
respective funds.
Commencing on December 1, 1994, participants may direct their contributions
among ten investment options and were allowed to change their prior investment
elections subject to certain restrictions imposed by the Plan.
Common stock of Houghton Mifflin Company is valued at the closing price on the
last day of the Plan year as stated on the New York Stock Exchange. The Plan
employs the share accounting method to account for participants' share activity
in the Houghton Stock Fund which results in no realized gains and losses on
withdrawals and distributions.
13
<PAGE> 16
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
3. Investments
A brief description of the Plan funds and investment options is provided below:
MANAGED INCOME FUND, principally invests in pools and individual insurance
contracts, and other fixed income investments. The investments held by the
fund consist of the following:
Group Annuity Insurance Contracts - Investments in insurance contracts that
guarantee a specific rate of return on the invested capital over the life
of the contract.
Fidelity Managed Income Portfolio - This investment seeks preservation of
capital and a competitive level of income over time. Investments are high
quality investment contracts with variable and fixed rates that have
maturities between one and seven years.
FMTC Institutional Money Market - A short-term money market fund.
HOUGHTON STOCK FUND is invested in Houghton Mifflin Company common stock that is
either purchased by the Trustee or contributed by Houghton Mifflin Company.
A small portion is invested in cash equivalents for liquidity purposes.
MUTUAL FUND INVESTMENTS provide for investment in various mutual funds, which
include a bond fund, asset allocation funds, and aggressive growth funds,
all of which may directly or indirectly invest in equity investments. Seven
of the mutual fund options are managed by Fidelity Investments(R), a
company affiliated with the Trustee, Fidelity Management Trust Company.
The Parnassus Fund - This fund invests primarily in the equity securities
of companies that are socially conscious, and believed to be undervalued,
or fallen out of favor. The Parnassus Fund is managed by Parnassus
Financial Management.
Fidelity Puritan(R) Fund - This is a balanced fund that seeks current
income and some capital appreciation. The portfolio principally invests in
stocks and bonds.
Fidelity Magellan(R) Fund - This fund seeks long-term capital appreciation
through investment in common stocks and convertible securities of U.S.
companies. The fund diversifies investments among a variety of industries
and sectors within the market.
Fidelity Contrafund - This is a fund which seeks capital appreciation by
investing in equity securities which are believed to be undervalued.
Fidelity Investment-Grade Bond Fund - This fund seeks to provide a high
rate of income consistent with reasonable investment risk and capital
appreciation where appropriate. The underlying investments consist of
investment-grade debt securities rated Baa or higher by Moody's Investor
Service, Inc., or at least BBB by Standard & Poor's Corporation. The fund
may also invest in preferred stocks.
14
<PAGE> 17
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
3. Investments - continued
Fidelity Asset Manager(TM) Fund - This mutual fund seeks high total return
with reduced risk over the long-term. The investment portfolio consists of
domestic and foreign stocks, bonds, and short-term instruments of U.S. and
foreign issuers.
Fidelity Asset Manager: Growth Fund - This mutual fund seeks to maximize
total return over the long-term by allocating its assets among stocks,
bonds, short-term instruments and other investments.
Fidelity Asset Manager: Income Fund - This fund seeks a high level of
current income by maintaining a diversified portfolio of stocks, bonds,
short-term instruments, and other investments.
Investments held by the Plan at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
All amounts are presented in thousands of dollars, except shares and units.
<CAPTION>
1996 1995
------------------ ------------------
Market Market
Cost Value Cost Value
------- ------- ------ -------
<S> <C> <C> <C> <C>
Managed Income Fund:
- --------------------
Metropolitan Life Insurance, group
annuity contract, 8.95%, maturity
date 7/1/96 $ -- $ -- $ 6,305 $ 6,305
Aetna, group annuity contract,
4.60%, maturity date 7/2/99 456 456 608 608
------- ------- ------- -------
Total group annuity contracts 456 456 6,913 6,913
------- ------- ------- -------
Fidelity Short-term Investment Fund
(562,235 shares in 1995) -- -- 562 562
FMTC Institutional Money Market
(748,530 shares in 1996) 748 748 -- --
Fidelity Managed Income Portfolio
(18,752,670 units in 1996 and
12,110,505 units in 1995) 18,753 18,753 12,111 12,111
------- ------- ------- -------
Total $19,957 $19,957 $19,586 $19,586
------- ------- ------- -------
Houghton Stock Fund (2,762,860 units
in 1996 and 2,689,445 units in
1995) $18,184 $35,475 $15,276 $25,765
</TABLE>
15
<PAGE> 18
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
3. Investments - continued
<TABLE>
All amounts are presented in thousands of dollars, except shares and units.
<CAPTION>
1996 1995
------------------- ------------------
Market Market
Cost Value Cost Value
------- --------- ------- -------
<S> <C> <C> <C> <C>
Mutual Fund Investments:
- ------------------------
The Parnassus Fund (37,747 shares
in 1996 and 46,023 shares in
1995) $ 1,279 $ 1,298 $ 1,583 $ 1,462
Fidelity Puritan(R) Fund (922,110
shares in 1996 and 758,549 shares
in 1995) 14,503 15,897 11,643 12,903
Fidelity Magellan(R) Fund (104,504
shares in 1996 and 79,519 shares
in 1995) 7,999 8,428 6,104 6,837
Fidelity Contrafund (257,500 shares
in 1996 and 158,332 shares in
1995) 9,439 10,854 5,419 6,020
Fidelity Investment-Grade Bond,
(194,657 shares in 1996 and
129,362 shares in 1995) 1,375 1,386 909 955
Fidelity Asset Manager(TM)
(137,313 shares in 1996 and
108,302 shares in 1995) 2,058 2,262 1,544 1,716
Fidelity Asset Manager: Growth
(197,432 shares in 1996 and 135,974
shares in 1995) 2,850 3,228 1,799 2,063
Fidelity Asset Manager: Income,
(81,730 shares in 1996 and 78,809
shares in 1995) 894 949 850 914
------- -------- ------- -------
Total $40,397 $ 44,302 $29,851 $32,870
------- -------- ------- -------
Loans Receivable (from Plan participants
at various maturities and various
interest rates) $ 1,369 $ 1,369 $ 887 $ 887
------- -------- ------- -------
Total Plan Investments $79,907 $101,103 $65,600 $79,108
======= ======== ======= =======
</TABLE>
16
<PAGE> 19
Houghton Mifflin Retirement Savings Plan
Notes to Financial Statements
December 31, 1996
3. Investments - continued
The fair market value of individual investments that represent 5% or more of the
Plan's net assets as of December 31, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
All amounts are in thousands of dollars, except shares and units. 1996 1995
-------- --------
<S> <C> <C>
Metropolitan Life Insurance, group annuity contract,
8.95% maturity date 7/1/96 $ -- $ 6,305
Fidelity Managed Income Portfolio, (18,752,670 units in 1996
and 12,110,505 units in 1995) 18,753 12,111
Houghton Stock Fund,
(2,762,860 units in 1996 and 2,689,445 units in 1995) 35,475 25,765
Fidelity Puritan (R) Fund (922,110 shares in 1996 and
758,549 shares in 1995) 15,897 12,903
Fidelity Magellan (R) Fund (104,504 shares in 1996 and
79,519 shares in 1995) 8,428 6,837
Fidelity Contrafund (257,500 shares in 1996 and
158,332 shares in 1995) 10,854 6,020
</TABLE>
<TABLE>
During the year ended December 31, 1996 and 1995, the Plan's investments
(including investments bought, sold and held during the year) appreciated
(depreciated) in value as follows (all amounts are in thousands):
<CAPTION>
Year ended December 31,
1996 1995
-------- --------
<S> <C> <C>
Managed Income Fund $ -- $ --
Houghton Stock Fund 8,508 (1,263)
Parnassus Fund 88 (125)
Puritan Fund 298 1,546
Magellan Fund (353) 834
Contrafund 928 662
Investment Grade Bond (36) 49
Asset Manager 66 210
Asset Manager Growth 176 300
Asset Manager Income -- 72
------ -------
Net change in fair value $9,675 $ 2,285
====== =======
</TABLE>
The Plan routinely purchases and sells common stock of the Plan's sponsor,
Houghton Mifflin Company, a party-in-interest. During 1996, the Plan had
purchases of 111,357 shares of the stock for $5,739,048 and sales of 83,021
shares for $4,570,460. During 1995, the plan had purchases of 63,016 shares of
the stock for $2,880,824 and sales of 105,632 shares for $4,923,832.
There were no other party-in-interest transactions which were prohibited by
ERISA Section 406 and for which there is no statutory exemption.
17
<PAGE> 20
Supplemental Shedules
18
<PAGE> 21
Houghton Mifflin Retirement Savings Plan
Supplemental Schedules
Item 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1996
Name of plan sponsor: Houghton Mifflin Company
Employer Identification number: 04-1456030
Three-digit plan number: 003
<TABLE>
In thousands of dollars, except shares and unit amounts
<CAPTION>
Description of Investment,
Including Rate of Interest Current
Identity of Issue and Maturity Date Cost Value
- ----------------------------- -------------------------- ---------- --------
<S> <C> <C> <C>
Aetna Insurance Guaranteed group annuity
contract, 4.60%, maturity
date 7/2/99 $ 456 $ 456
FMTC Institutional Money
Market 748,530 shares 748 748
Fidelity Managed Income Fund 18,752,670 units 18,753 18,753
------- -------
$19,957 $19,957
Houghton Stock Fund* 2,762,860 units $18,184 $35,475
The Parnassus Fund 37,747 shares 1,279 1,298
Fidelity Puritan(R)Fund 922,110 shares 14,503 15,897
Fidelity Magellan(R)Fund 104,504 shares 7,999 8,428
Fidelity Contrafund 257,500 shares 9,439 10,854
Fidelity Investment-Grade Bond
Fund 194,657 shares 1,375 1,386
Fidelity Asset Manager (TM) Fund 137,313 shares 2,058 2,262
</TABLE>
* Indicates party-in-interest to the Plan.
19
<PAGE> 22
Houghton Mifflin Retirement Savings Plan
Supplemental Schedules
Item 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - continued
DECEMBER 31, 1996
<TABLE>
In thousands of dollars, except shares and unit amount
<CAPTION>
Description of Investment,
Including Rate of Interest Current
Identity of Issue and Maturity Date Cost Value
- -------------------------------- -------------------------- --------- ---------
<S> <C> <C> <C>
Fidelity Asset Manager: Growth
Fund 197,432 shares
$ 2,850 $ 3,228
Fidelity Asset Manager: Income
Fund 81,730 shares
894 949
------- --------
$78,538 $ 99,734
Loans Receivable Loans receivable from Plan
participants at various
maturities and various
interest rates $ 1,369 $ 1,369
------- --------
TOTAL $79,907 $101,103
======= ========
</TABLE>
* Indicates party-in-interest to the Plan.
20
<PAGE> 23
Houghton Mifflin Retirement Savings Plan
Supplemental Schedule
Item 27d - Schedule of Reportable Transactions
Year Ended December 31, 1996
Category (i)
- ------------
Single transaction within the plan year that exceeded 5% of value of net assets
available for benefits:
<TABLE>
<CAPTION>
Identity of Description of Number of Selling Price
Party Issue (Number of Shares/Units or Purchase or Maturity Realized
Involved transactions) Face Amount Price Value Cost of Asset Gain/(Loss)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Metropolitan Life
N/A Insurance $ -- $ -- $6,572,617 $6,572,617 $ --
</TABLE>
Category (iii)
- --------------
Series of transactions within the plan year that exceeded 5% of value of net
assets available for benefits:
<TABLE>
<CAPTION>
Current
Value of
Identity of No. of Asset on
Party Description Trans- Purchase Selling Cost of Transaction
Involved of Issues actions Price Price Asset Date Gain/(Loss)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity* Fidelity Managed 121 $ 8,253,000 N/A $ 8,253,000 $ 8,253,000 N/A
Income Portfolio 189 N/A 1,611,041 1,611,041 1,611,041 $ --
Houghton* Houghton Stock 238 5,755,998 N/A 5,755,998 5,755,998 N/A
Mifflin Co. Fund 217 N/A 4,570,460 3,451,725 4,570,460 1,118,735
Fidelity* Fidelity Puritan 209 4,501,905 N/A 4,501,905 4,501,905 N/A
Fund 149 N/A 1,809,205 1,642,033 1,809,205 167,172
Fidelity* Fidelity 226 5,466,236 N/A 5,466,236 5,466,236 N/A
Contrafund 121 N/A 1,562,336 1,446,150 1,562,336 116,186
Fidelity* Fidelity 213 3,786,962 N/A 3,786,962 3,786,962 N/A
Magellan(R)Fund 166 N/A 1,843,501 1,891,710 1,843,501 (48,209)
Fidelity* FMTC
Institutional 121 12,294,678 N/A 12,294,678 12,294,678 N/A
Money Market 189 N/A 11,545,981 11,545,981 11,545,981 --
<FN>
* Indicates party-in-interest to the Plan.
</TABLE>
There were no category (ii) or (iv) reportable transactions during the year
ended December 31, 1996.
21
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 2-69298) pertaining to the Retirement Savings Plan (formerly the
Employees Savings and Thrift Plan) of Houghton Mifflin Company of our report
dated June 16, 1997, with respect to the financial statements and schedules of
the Houghton Mifflin Retirement Savings Plan included in this Annual Report
(Form 11-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
------------------------
Ernst & Young LLP
Boston, Massachusetts
June 16, 1997
22
