<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, 1997
-------------------------------
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 401(k) 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 401(k) Savings Plan
Date: JUNE 29, 1998 /s/ Gary L. Smith
----------------------- -------------------------------------
Gary L. Smith
Senior Vice President, Administration
<PAGE> 3
HOUGHTON MIFFLIN
401(k) SAVINGS PLAN
Audited Financial Statements
and Supplemental Schedules
Three Years ended December 31, 1997
<PAGE> 4
Houghton Mifflin 401(k) Savings Plan
Table of Contents
Page No.
Report of Independent Auditors 3
Audited Financial Statements:
Statement of Net Assets Available for Benefits with Fund
Information as of December 31, 1997 4
Statement of Net Assets Available for Benefits with Fund
Information as of December 31, 1996 5
Statement of Changes in Net Assets Available for Benefits
with Fund Information for the year ended December 31, 1997 6
Statement of Changes in Net Assets Available for Benefits
with Fund Information for the year ended December 31, 1996 7
Statement of Changes in Net Assets Available for Benefits
with Fund Information for the year ended December 31, 1995 8
Notes to Financial Statements 9 - 18
Supplemental Schedules:
Item 27a - Schedule of Assets Held for Investment Purposes 19 - 20
Item 27d - Schedule of Reportable Transactions (a) 21
2
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
The Retirement Committee and Participants
Houghton Mifflin 401(k) Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Houghton Mifflin 401(k) Savings Plan as of December 31, 1997 and 1996,
and the related statements of changes in net assets available for plan benefits
for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the changes in its net assets available for
benefits for each of the three years in the period ended December 31, 1997, 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, 1997 and (2)
reportable transactions for the year ended December 31, 1997 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.
Boston, Massachusetts
June 22, 1998
3
<PAGE> 6
HOUGHTON MIFFLIN 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Fund Information
-------------------------------------------------------------------------------------------------
Managed Houghton Investment Asset Asset
Income Stock Parnassus Puritan Magellan Grade Manager Manager:
Fund Fund Fund Fund Fund Contrafund Bond Fund Fund Growth Fund
------- -------- --------- ------- -------- ---------- --------- ------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments (Note 3) $19,104 $51,947 $2,287 $19,861 $10,908 $14,936 $1,583 $2,329 $3,744
Contributions and
other receivables 1 20 - 1 1 1 - - -
------- ------- ------ ------- ------- ------- ------ ------ ------
Total assets 19,105 51,967 2,287 19,862 10,909 14,937 1,583 2,329 3,744
LIABILITIES
Withdrawals and
distributions
payable 3 2 - - 4 - - - -
Net assets available
for benefits $19,102 $51,965 $2,287 $19,862 $10,905 $14,937 $1,583 $2,329 $3,744
======= ======= ====== ======= ======= ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Fund Information
-------------------------------------------------------------------------------------------------
Asset Templeton The Putnam Putnam New Spartan
Manager: Foreign Fund for Growth Opportunities U.S. Equity Total
Income Fund Fund I and Income Fund Index Fund Loans Plan
----------- -------- --------------- ------------- ----------- ----- -----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Investments (Note 3) $727 $610 $407 $650 $574 $1,460 $131,127
Contributions and
other receivables - - - - - 5 29
---- ---- ---- ---- ---- ------ --------
Total assets 727 610 407 650 574 1,465 131,156
LIABILITIES
Withdrawals and
distributions
payable - - - - - - 9
Net assets available
for benefits $727 $610 $407 $650 $574 $1,465 $131,147
==== ==== ==== ==== ==== ====== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
HOUGHTON MIFFLIN 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
December 31, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Fund Information
---------------------------------------------------------------------------------------------------
Managed Houghton Investment Asset Asset
Income Stock Parnassus Puritan Magellan Grade Manager Manager:
Fund Fund Fund Fund Fund Contrafund Bond Fund Fund Growth Fund
------- -------- --------- ------- -------- ---------- --------- ------- -----------
<S> <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
Contributions and
other receivables 5 43 1 3 3 4 - 1 1
------- ------- ------ ------- ------ ------- ------ ------ ------
Total assets 19,962 35,518 1,299 15,900 8,431 10,858 1,386 2,263 3,229
LIABILITIES
Withdrawals and
distributions
payable 63 5 - 6 - - - - -
Net assets available
for benefits $19,899 $35,513 $1,299 $15,894 $8,431 $10,858 $1,386 $2,263 $3,229
======= ======= ====== ======= ====== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
Fund Information
---------------------------------
Asset
Manager: Total
Income Fund Loans Plan
----------- ----- -----
<S> <C> <C> <C>
ASSETS
Investments (Note 3) $949 $1,369 $101,103
Contributions and
other receivables - 3 64
---- ------ --------
Total assets 949 1,372 101,167
LIABILITIES
Withdrawals and
distributions
payable - - 74
Net assets available
for benefits $949 $1,372 $101,093
==== ====== ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 8
HOUGHTON MIFFLIN 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
Year Ended December 31, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Fund Information
--------------------------------------------------------------------------------------------
Managed Houghton Investment Asset
Income Stock Parnassus Puritan Magellan Grade Manager
Fund Fund Fund Fund Fund Contrafund Bond Fund Fund
------- -------- --------- ------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 1,155 $ 39 $ 1 $ 11 $ 10 $ 16 $ 2 $ 2
Dividend income - 636 444 1,574 698 1,418 90 214
Net appreciation (depreciation)
in fair value of
investments (Note 3) (19) 13,390 (79) 1,983 1,520 1,271 33 285
------- ------- ------ ------- ------- ------- ------ ------
1,136 14,065 366 3,568 2,228 2,705 125 501
Contributions:
Rollovers 233 164 180 269 258 167 25 51
Participants 704 2,397 187 1,058 878 1,355 109 261
Loans (11) 121 (23) (62) (14) (28) (21) (41)
Employer - 3,166 - - - - - -
------- ------- ------ ------- ------- ------- ------ ------
926 5,848 344 1,265 1,122 1,494 113 271
------- ------- ------ ------- ------- ------- ------ ------
Total Additions 2,062 19,913 710 4,833 3,350 4,199 238 772
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (2,259) (1,927) (108) (1,222) (810) (840) (90) (137)
Administrative
expenses (28) (8) - (15) (7) (4) (2) (4)
------- ------- ------ ------- ------- ------- ------ ------
Total Deductions (2,287) (1,935) (108) (1,237) (817) (844) (92) (141)
------- ------- ------ ------- ------- ------- ------ ------
Net increase (decrease) prior to
interfund transfers (225) 17,978 602 3,596 2,533 3,355 146 631
Fund transfers (572) (1,526) 386 372 (59) 724 51 (565)
------- ------- ------ ------- ------- ------- ------ ------
Net increase (decrease) (797) 16,452 988 3,968 2,474 4,079 197 66
Net assets available for benefits:
Beginning of year 19,899 35,513 1,299 15,894 8,431 10,858 1,386 2,263
------- ------- ------ ------- ------- ------- ------ ------
End of year $19,102 $51,965 $2,287 $19,862 $10,905 $14,937 $1,583 $2,329
======= ======= ====== ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Fund Information
------------------------------------------------------------------------------------------------
The Putnam
Asset Asset Templeton Fund for Putnam New Spartan
Manager: Manager: Foreign Growth Opportunities U.S. Equity Total
Growth Fund Income Fund Fund I and Income Fund Index Fund Loans Plan
----------- ----------- ---------- ---------- ------------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest income $ 6 $ 1 $ - $ - $ - $ - $ - $ 1,243
Dividend income 402 61 42 35 12 5 - 5,631
Net appreciation (depreciation)
in fair value of
investments (Note 3) 531 50 (79) (48) (22) (10) - 18,806
------ ----- ---- ---- ---- ---- ------ --------
939 112 (37) (13) (10) (5) - 25,680
Contributions:
Rollovers 131 18 31 30 14 6 - 1,577
Participants 410 71 10 9 12 10 - 7,471
Loans (18) (4) 2 (2) 1 7 93 -
Employer - - - - - - - 3,166
------ ----- ---- ---- ---- ---- ------ --------
523 85 43 37 27 23 93 12,214
------ ----- ---- ---- ---- ---- ------ --------
Total Additions 1,462 197 6 24 17 18 93 37,894
Deductions from net assets attributed to:
Withdrawals and
distributions (Note 1) (210) (97) - - - (67) - (7,767)
Administrative
expenses (3) (2) - - - - - (73)
------ ----- ---- ---- ---- ---- ------ --------
Total Deductions (213) (99) - - - (67) - (7,840)
------ ----- ---- ---- ---- ---- ------ --------
Net increase (decrease) prior to
interfund transfers 1,249 98 6 24 17 (49) 93 30,054
Fund transfers (734) (320) 604 383 633 623 - -
------ ----- ---- ---- ---- ---- ------ --------
Net increase (decrease) 515 (222) 610 407 650 574 93 30,054
Net assets available for benefits:
Beginning of year 3,229 949 - - - - 1,372 101,093
------ ----- ---- ---- ---- ---- ------ --------
End of year $3,744 $ 727 $610 $407 $650 $574 $1,465 $131,147
====== ===== ==== ==== ==== ==== ====== ========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 9
HOUGHTON MIFFLIN 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
Year Ended 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
======= ======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Fund Information
-----------------------------------------------------------
Asset Asset Asset
Manager Manager: Manager: Total
Fund Growth Fund Income 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.
7
<PAGE> 10
HOUGHTON MIFFLIN 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS WITH FUND INFORMATION
Year Ended 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
======= ======= ====== ======= ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------
Fund Information
--------------------------------------------------------
Asset Asset Asset
Manager Manager: Manager: Total
Fund Growth Fund Income 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.
8
<PAGE> 11
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
1. Plan Description
The following brief description of the Houghton Mifflin 401(k) 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 401(k) Savings Plan, formerly known as the Houghton Mifflin
Retirement Savings Plan, is a defined contribution plan adopted as of January 1,
1981, and amended July 1, 1995 and 1997. 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 and is subject to the
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
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. All administrative expenses are born by
the Plan.
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.
CONTRIBUTIONS
Eligible employees can elect to contribute in total 1% to 15% of their
compensation, excluding compensation in excess of $160,000 for 1997 and $150,000
for 1996 and 1995, subject to an annual deferral limit for plans operating under
Section 401(k) of the Internal Revenue Code ($9,500 in 1997), to any of the
fourteen investment options offered by the Plan. Employee contributions are made
from participants' wages through payroll deductions.
9
<PAGE> 12
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
1. Plan Description - continued
CONTRIBUTIONS - (continued)
The Company may elect to match an employee's contribution in amounts up to
4 1/2% of employee compensation, an increase from the 3% that was effective
until December 31, 1996. Subject to the above limitations, the Company will
match the first 3% of a participant's compensation that is invested in the
Houghton Stock Fund on a 100% basis, and for contributions invested in the
Houghton Stock Fund above this 3% or on contributions up to 6% invested in the
Managed Income Fund and the Mutual Fund Investments, the Company will match 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, 1997 and 1996.
In thousands of dollars 1997 1996
------ ------
Managed Income Fund $ 937 $1,241
Houghton Stock Fund 2,561 1,728
The Parnassus Fund 367 308
Fidelity Puritan(R)Fund 1,327 1,520
Fidelity Magellan(R)Fund 1,136 1,730
Fidelity Contrafund 1,522 1,630
Fidelity Investment Grade Bond Fund 134 356
Fidelity Asset Manager Fund 312 308
Fidelity Asset Manager: Growth Fund 541 576
Fidelity Asset Manager: Income Fund 89 146
Templeton Foreign Fund I 41 -
The Putnam Fund for Growth and Income 39 -
Putnam New Opportunities Fund 26 -
Spartan U.S. Equity Index Fund 16 -
------ ------
Total Participant Directed Contributions,
including rollovers $9,048 $9,543
====== ======
10
<PAGE> 13
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
1. Plan Description - continued
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.
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, (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.
11
<PAGE> 14
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
1. Plan Description - continued
INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter
dated February 6, 1997, that the Plan and the related trust are designed in
accordance with the applicable sections of the Internal Revenue Code (IRC). The
Plan has been amended since receiving the determination letter. However, the
Retirement Committee believes the Plan is designed and is currently operated in
compliance with the applicable requirements of the IRC.
SUBSEQUENT EVENT
Retiring or terminating members under the age of sixty-five may elect to defer
payment of their account balance until a later date, subject to a minimum
balance. Effective January 1, 1998, the minimum balance increased to $5,000 from
$3,500.
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 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.
12
<PAGE> 15
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
2. Summary of Significant Accounting Policies - continued
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:
December 31,
-----------------
1997 1996
----- -----
Managed Income Fund 1,026 1,059
Houghton Stock Fund 2,672 2,394
Mutual Fund Investments 5,075 4,394
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 their redemption prices, which
approximate 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.
The plan added four new fund investment options, effective October 1, 1997, the
Templeton Foreign Fund I, The Putnam Fund for Growth and Income, Putnam New
Opportunities Fund, and Spartan U.S. Equity Index Fund, increasing the total
number of funds from ten to fourteen. Also, effective on October 1, 1997 was the
closing of the Fidelity Asset Manager Fund, Fidelity Asset Manager: Income Fund
and Fidelity Asset Manager: Growth Fund to new contributions and transfers. On
October 1, 1998, these three funds will be removed from the Plan, and all
investments in these funds will be automatically transferred to the Fidelity
Puritan Fund.
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. Effective
September 15, 1997, the valuation method was changed to the share method from
unitized method.
13
<PAGE> 16
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
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 fund 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 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
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.
Templeton Foreign Fund I - This fund is a growth mutual fund that
invests internationally, primarily in common stocks, and seeks long
term capital growth. Foreign investments involve greater risk and may
offer greater potential returns than U.S. investments.
The Putnam Fund for Growth and Income - This fund seeks capital
growth and current income, primarily investing in common stocks that
offer potential for capital growth, current income, or both. The fund
may also invest up to 20% of its assets in Foreign securities, which
involve greater risk.
Putnam New Opportunities Fund - This mutual fund is an aggressive
growth mutual fund that invests primarily in the common stock of
emerging industry groups. Such investments increase the risk of
greater price fluctuations.
Spartan U.S. Equity Index Fund - This mutual fund is a growth and
income mutual fund, which primarily invests in S&P 500 companies and
other securities that are based on the value of the Index, as opposed
to a strategy of selecting attractive stocks.
15
<PAGE> 18
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
3. Investments - continued
Investments held by the Plan at December 31, 1997 and 1996 are summarized as
follows:
All amounts are presented in thousands of dollars, except shares and units.
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Market Market
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Managed Income Fund:
- --------------------
Aetna, group annuity contract,
4.60%, maturity date 7/2/99 $ 307 $ 307 $ 456 $ 456
------- ------- ------- -------
Total group annuity contracts 307 307 456 456
------- ------- ------- -------
FMTC Institutional Money Market
(422,182 shares in 1997 and 748,530
shares in 1996) 422 422 748 748
Fidelity Managed Income Portfolio
(18,374,731 units in 1997 and
18,752,670 units in 1996) 18,375 18,375 18,753 18,753
------- ------- ------- -------
Total 19,104 19,104 19,957 19,957
------- ------- ------- -------
Houghton Stock Fund (1,353,674 shares
in 1997 and 2,762,860 units in
1996) 25,214 51,947 20,751 35,475
Mutual Fund Investments:
- ------------------------
The Parnassus Fund (63,989 shares
in 1997 and 37,747 shares in
1996) 2,373 2,287 1,279 1,298
Fidelity Puritan(R)Fund (1,024,825
shares in 1997 and 922,110 shares
in 1996) 16,781 19,861 14,503 15,897
Fidelity Magellan(R)Fund (114,489
shares in 1997 and 104,504 shares
in 1996) 9,187 10,908 7,999 8,428
Fidelity Contrafund (320,307 shares
in 1997 and 257,500 shares in
1996) 12,631 14,936 9,439 10,854
Fidelity Investment-Grade Bond,
(217,403 shares in 1997 and
194,657 shares in 1996) 1,544 1,583 1,375 1,386
Fidelity Asset Manager (TM)
(126,929 shares in 1997 and
137,313 shares in 1996) 1,990 2,329 2,058 2,262
</TABLE>
16
<PAGE> 19
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
All amounts are presented in thousands of dollars, except shares and units.
<TABLE>
<CAPTION>
1997 1996
------------------------ -------------------------
Market Market
Cost Value Cost Value
------ ------- ------- -------
<S> <C> <C> <C> <C>
Fidelity Asset Manager: Growth
(202,609 shares in 1997 and 197,432
shares in 1996) 3,142 3,744 2,850 3,228
Fidelity Asset Manager: Income,
(59,664 shares in 1997 and
81,730 shares in 1996) 661 727 894 949
Templeton Foreign Fund I,
(61,266 shares in 1997) 686 610 - -
------- -------- ------- --------
The Putnam Fund for Growth and Income,
(20,812 shares in 1997) 440 407 - -
------- -------- ------- --------
Putnam New Opportunities Fund,
(13,360 shares in 1997) 657 650 - -
------- -------- ------- --------
Spartan U.S. Equity Index Fund, (16,405
shares in 1997) 569 574 - -
------- -------- ------- --------
Total 50,661 58,616 40,397 44,302
------- -------- ------- --------
Loans Receivable 1,460 1,460 1,369 1,369
------- -------- ------- --------
Total Plan Investments $96,439 $131,127 $82,474 $101,103
======= ======== ======= ========
</TABLE>
The fair market value of individual investments that represent 5% or more of the
Plan's Participants' net assets as of December 31, 1997, and 1996 are as
follows:
<TABLE>
<CAPTION>
All amounts are in thousands of dollars, except shares and units 1997 1996
------- -------
<S> <C> <C>
Fidelity Managed Income Portfolio, (18,374,731 units in 1997
and 18,752,670 units in 1996) $18,375 $18,753
Houghton Mifflin Company Common Stock,
(1,353,674 shares in 1997 and 2,762,860 shares in 1996) 51,947 35,475
Fidelity Puritan (R) Fund (1,024,825 shares in 1997 and
992,110 shares in 1996) 19,861 15,897
Fidelity Magellan (R) Fund (114,489 shares in 1997 and
104,504 shares in 1996) 10,908 8,428
Fidelity Contrafund (320,307 shares in 1997 and
257,500 shares in 1996)
14,936 10,854
</TABLE>
17
<PAGE> 20
Houghton Mifflin 401(k) Savings Plan
Notes to Financial Statements
December 31, 1997
3. Investments - continued
During 1997 and 1996, the Plan's investments (including investments bought, sold
and held during the year) appreciated (depreciated) in value as follows: (all
amounts are in thousands)
Year ended December 31, 1997 1996
------- ------
Managed Income Fund $ (19) $ --
Houghton Stock Fund 13,390 8,508
Parnassus Fund (79) 88
Puritan Fund 1,983 298
Magellan Fund 1,520 (353)
Contrafund 1,271 928
Investment Grade Bond 33 (36)
Asset Manager 285 66
Asset Manager Growth 531 176
Asset Manager Income 50 --
Templeton Foreign I (79) --
The Putnam Fund for Growth and Income (48) --
Putnam New Opportunities Fund (22) --
Spartan U.S. Equity Fund (10) --
------- ------
Net change in fair value $18,806 $9,675
======= ======
The Plan routinely purchases and sells common stock of the plan's sponsor,
Houghton Mifflin Company, a party-in-interest. During 1997, the plan had
purchases of 453,499 shares of the stock for $7,442,914 and sales of 261,033
units for $4,826,518. During 1996, the plan had purchases of 111,357 units of
the stock for $5,739,048 and sales of 83,021 units for $4,570,460.
There were no other party-in-interest transactions which were prohibited by
ERISA Section 406 and for which there is no statutory exemption.
18
<PAGE> 21
Houghton Mifflin 401(k) Savings Plan
Supplemental Schedules
Item 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
Name of plan sponsor: Houghton Mifflin Company
Employer Identification number: 04-1456030
Three-digit plan number: 003
In thousands of dollars, except shares and unit amounts
<TABLE>
<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 $ 307 $ 307
FMTC Institutional Money
Market 422,182 shares 422 422
Fidelity Managed Income Fund 18,374,731 units 18,375 18,375
------- -------
19,104 19,104
Houghton Mifflin Company*
Common Stock 1,353,674 shares 25,214 51,947
The Parnassus fund 63,989 shares 2,373 2,287
Fidelity Puritan (R) Fund 1,024,825 shares 16,781 19,861
Fidelity Magellan (R) Fund 114,489 shares 9,187 10,908
Fidelity Contrafund 320,307 shares 12,631 14,936
Fidelity Investment-Grade Bond
Fund 217,403 shares 1,544 1,583
Fidelity Asset Manager (TM) Fund 126,929 shares 1,990 2,329
</TABLE>
* Indicates party-in-interest to the Plan.
19
<PAGE> 22
Houghton Mifflin 401(k) Savings Plan
Supplemental Schedules
Item 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - continued
DECEMBER 31, 1997
In thousands of dollars, except shares and unit amounts
<TABLE>
<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 202,609 shares 3,142 3,744
Fidelity Asset Manager: Income 59,664 shares 661 727
Templeton Foreign I 61,266 shares 686 610
The Putnam Fund
for Growth and Income 20,812 shares 440 407
Putnam New Opportunities Fund 13,360 shares 657 650
Spartan U.S. Equity Index Fund 16,405 shares 569 574
------- --------
50,661 58,615
Loans Receivable Loans receivable from Plan
participants at various
maturities and various
interest rates 1,460 1,460
------- --------
TOTAL $96,439 $131,126
======= ========
</TABLE>
* Indicates party-in-interest to the Plan.
20
<PAGE> 23
Houghton Mifflin 401(K) Savings Plan
Supplemental Schedule
Item 27d - Reportable Transactions (a)
Year Ended December 31, 1997
CATEGORY (i)
None.
CATEGORY (iii)
Series of transactions within the plan year that exceeded 5% of value of net
assets available for benefits:
<TABLE>
<CAPTION>
Current Value
Identity of No. of 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>
Houghton* Houghton Stock 238 $7,442,914 N/A $7,442,914 $7,442,914 N/A
Mifflin Co. Fund 215 N/A 4,826,518 2,972,521 4,826,518 1,853,997
Fidelity* Fidelity Puritan 207 4,377,420 N/A 4,377,420 4,377,420 N/A
Fund 152 N/A 2,404,772 2,098,462 2,404,772 306,310
Fidelity* Fidelity 214 5,113,742 N/A 5,113,742 5,113,742 N/A
Contrafund 137 N/A 2,303,968 1,921,400 2,303,968 382,568
Fidelity* FMTC
Institutional 118 4,735,601 N/A 4,735,601 4,735,601 N/A
Money Market 184 N/A 5,098,651 5,098,651 5,098,651 --
</TABLE>
(a) Reportable transactions are defined as any single transaction or series
of transactions involving an amount in excess of 5% of the fair value of
the Plan's assets as of the beginning of the year.
* Indicates party-in-interest to the Plan.
There were no category (ii) or (iv) reportable transactions during 1997.
21
<PAGE> 24
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-69298, 33-59015 and 33-51098) pertaining to the Employees'
Savings and Thrift Plan, the 1992 Stock Compensation Plan and the 1995 Stock
Compensation Plan of Houghton Mifflin Company and in the Registration Statement
(Form S-3 No. 33-64903) of Houghton Mifflin Company and in the related
prospectuses pertaining to the $300 million debt securities of our report dated
June 22, 1998, with respect to the financial statements and schedules of the
Houghton Mifflin 401(k) Savings Plan (previously the Houghton Mifflin Retirement
Savings Plan) included in this Annual Report (Form 11-K) for the year ended
December 31, 1997.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Boston, Massachusetts
June 29, 1998
22
