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Previous: READING & BATES CORP, 8-K, 1994-03-14 |
Next: RHODES INC, 8-A12B, 1994-03-14 |
<PAGE> 1
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 OCTOBER 31, 1993
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 1-7916
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
THE RECOGNITION FLEX/SAVE PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
RECOGNITION INTERNATIONAL INC.
2701 EAST GRAUWYLER ROAD
IRVING, TEXAS 75061
<PAGE> 2
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the Administrator has duly caused this annual report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE RECOGNITION FLEX/SAVE PLAN
(Name of Plan)
Date: March 7, 1994 By: /s/ LARRY H. LATTIG
Larry H. Lattig, Chairperson
Retirement Plan Committee
(Plan Administrator)
<PAGE> 3
THE RECOGNITION FLEX/SAVE PLAN
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Statement of Financial Condition at
October 31, 1993 and 1992 F-3
Statement of Income and Changes in Plan Equity for
the years ended October 31, 1993, 1992 and 1991 F-4
Notes to Financial Statements F-5
F-1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Administrator and Participants
of The Recognition Flex/Save Plan
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial condition of The
Recognition Flex/Save Plan at October 31, 1993 and 1992, and the results of its
operations and the changes in its plan equity for each of the three years in
the period ended October 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Plan's Administrator; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, The Recognition Employee
Stock Ownership Plan was merged into the Plan effective October 18, 1992.
PRICE WATERHOUSE
Dallas, Texas
February 16, 1994
F-2
<PAGE> 5
THE RECOGNITION FLEX/SAVE PLAN
STATEMENT OF FINANCIAL CONDITION
At October 31,
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1993
-----------------------------------------------------------------------------------------------
RECOGNITION NEW AMERICA SCIENCE AND SPECTRUM EQUITY SPECTRUM
STOCK GROWTH TECHNOLOGY GROWTH INCOME INCOME
FUND FUND FUND FUND FUND FUND
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 6,338 $ $ $ $ $
Investment income receivable
Investments (Note 3):
Recognition International Inc.
common stock, at market
Participant account (cost of
$5,145,996 in 1993 and
$5,431,404 in 1992) 7,887,795
Suspense account (471,128 shares
in 1993 and 588,910 shares in
1992, cost of $5,243,655 in 1993
and $6,554,568 in 1992) 8,009,176
New America Growth Fund, at market
(cost of $3,531,194 in 1993 and
$2,631,492 in 1992) 4,506,263
Science and Technology Fund, at
market (cost of $2,028,813 in 1993
and $665,593 in 1992) 2,561,334
Spectrum Growth Fund, at market
(cost of $1,808,674 in 1993 and
$945,862 in 1992) 2,052,297
Equity Income Fund, at market
(cost of $6,220,956 in 1993 and
$4,690,100 in 1992) 6,729,490
Spectrum Income Fund, at market
(cost of $2,027,726 in 1993 and
$1,248,267 in 1992) 2,101,271
U.S. Treasury Money Fund
Stable Value Fund
Temporary investments 11,428
Contributions receivable (Note 4)
Participant loans (Note 1)
Other receivables
--------------- --------------- --------------- --------------- --------------- --------------
Total assets 15,914,737 4,506,263 2,561,334 2,052,297 6,729,490 2,101,271
--------------- --------------- --------------- --------------- --------------- --------------
Liabilities
Withdrawals and terminations
payable in:
Cash 12,067 32,004 1,134 32,772 48,616 49,140
Recognition International Inc.
common stock, at market (Note 5)
Long-term debt (Note 8) 4,535,997
--------------- --------------- --------------- --------------- --------------- --------------
Total liabilities 4,548,064 32,004 1,134 32,772 48,616 49,140
--------------- --------------- --------------- --------------- --------------- --------------
Plan equity $ 11,366,673 $ 4,474,259 $ 2,560,200 $ 2,019,525 $ 6,680,874 $ 2,052,131
=============== =============== =============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1993 1992
--------------------------------------------------------------- ---------------
U.S. TREASURY PARTICIPANT
MONEY STABLE LOAN
FUND VALUE FUND FUND TOTAL (Note 10)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets
Cash $ $ $ $ 6,338 $ 92,646
Investment income receivable 57,600
Investments (Note 3):
Recognition International Inc.
common stock, at market
Participant account (cost of
$5,145,996 in 1993 and
$5,431,404 in 1992) 7,887,795 6,634,224
Suspense account (471,128 shares
in 1993 and 588,910 shares in
1992, cost of $5,243,655 in 1993
and $6,554,568 in 1992) 8,009,176 7,432,044
New America Growth Fund, at market
(cost of $3,531,194 in 1993 and
$2,631,492 in 1992) 4,506,263 2,785,119
Science and Technology Fund, at
market (cost of $2,028,813 in 1993
and $665,593 in 1992) 2,561,334 732,702
Spectrum Growth Fund, at market
(cost of $1,808,674 in 1993 and
$945,862 in 1992) 2,052,297 952,424
Equity Income Fund, at market
(cost of $6,220,956 in 1993 and
$4,690,100 in 1992) 6,729,490 4,627,694
Spectrum Income Fund, at market
(cost of $2,027,726 in 1993 and
$1,248,267 in 1992) 2,101,271 1,230,915
U.S. Treasury Money Fund 1,769,052 1,769,052 1,094,277
Stable Value Fund 16,056,746 16,056,746 16,360,796
Temporary investments 11,428 10,115
Contributions receivable (Note 4) 306,773
Participant loans (Note 1) 2,280,274 2,280,274 1,784,167
Other receivables 227,869
--------------- --------------- --------------- --------------- ---------------
Total assets 1,769,052 16,056,746 2,280,274 53,971,464 44,329,365
--------------- --------------- --------------- --------------- ---------------
Liabilities
Withdrawals and terminations
payable in:
Cash 13,667 148,287 337,687 1,056,125
Recognition International Inc.
common stock, at market (Note 5) 56,330
Long-term debt (Note 8) 4,535,997 5,451,441
--------------- --------------- --------------- --------------- ---------------
Total liabilities 13,667 148,287 0 4,873,684 6,563,896
--------------- --------------- --------------- --------------- ---------------
Plan equity $ 1,755,385 $ 15,908,459 $ 2,280,274 $ 49,097,780 $ 37,765,469
=============== =============== =============== =============== ===============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 6
THE RECOGNITION FLEX/SAVE PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
Years Ended October 31,
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1993
----------------------------------------------------------------------------------------------
RECOGNITION NEW AMERICA SCIENCE AND SPECTRUM EQUITY SPECTRUM
STOCK GROWTH TECHNOLOGY GROWTH INCOME INCOME
FUND FUND FUND FUND FUND FUND
--------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (Note 3) $ 1,403 $ 22,963 $ 62,986 $ 75,518 $ 361,222 $ 117,019
Deposits and contributions
(Note 4) 1,609,632 667,380 483,348 525,307 883,812 502,456
Unrealized gains
on investments (Note 2) 3,427,024 821,441 465,413 237,062 570,939 90,898
Realized gains (losses) on
investments (Notes 2 and 7) 955,321 70,515 40,268 10,608 29,475 3,914
Withdrawals and terminations
paid in:
Cash (195,311) (170,312) (60,262) (75,966) (403,167) (115,516)
Recognition International Inc.
common stock, at market
9,965 shares, cost of $100,444
in 1993; 8,215 shares, cost of
$64,691 in 1992; 11,963 shares,
cost of $106,313 in 1991 (Note 5) (132,317)
Interfund transfers (1,779,227) 212,341 789,235 256,566 557,846 172,320
Interest expense (477,001)
Administrative fees
Other income (expense)
--------------- --------------- --------------- --------------- --------------- --------------
Net increase (decrease) in plan
equity 3,409,524 1,624,328 1,780,988 1,029,095 2,000,127 771,091
Merger of ESOP (Note 9)
Equity, beginning of year 7,957,149 2,849,931 779,212 990,430 4,680,747 1,281,040
--------------- --------------- --------------- --------------- --------------- --------------
Equity, end of year $ 11,366,673 $ 4,474,259 $ 2,560,200 $ 2,019,525 $ 6,680,874 $ 2,052,131
=============== =============== =============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1993
----------------------------------------------------------------------------------------------
U.S. TREASURY PARTICIPANT
MONEY STABLE INTEREST EQUITY LOAN
FUND VALUE FUND FUND FUND FUND TOTAL
--------------- --------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (Note 3) $ 34,388 $ 968,349 $ $ 745 $ 147,059 $ 1,791,652
Deposits and contributions
(Note 4) 350,122 1,004,727 6,026,784
Unrealized gains
on investments (Note 2) 5,612,777
Realized gains (losses) on
investments (Notes 2 and 7) 1,110,101
Withdrawals and terminations
paid in:
Cash (88,885) (1,363,025) (102,453) (2,574,897)
Recognition International Inc.
common stock, at market
9,965 shares, cost of $100,444
in 1993; 8,215 shares, cost of
$64,691 in 1992; 11,963 shares,
cost of $106,313 in 1991 (Note 5) (132,317)
Interfund transfers 388,354 (974,443) (20,342) (54,152) 451,502
Interest expense (477,001)
Administrative fees (51,124) (51,124)
Other income (expense) 26,336 26,336
--------------- --------------- --------------- --------------- --------------- --------------
Net increase (decrease) in plan
equity 632,855 (364,392) (20,342) (27,071) 496,108 11,332,311
Merger of ESOP (Note 9)
Equity, beginning of year 1,122,530 16,272,851 20,342 27,071 1,784,166 37,765,469
--------------- --------------- --------------- --------------- --------------- --------------
Equity, end of year $ 1,755,385 $ 15,908,459 $ 0 $ 0 $ 2,280,274 $ 49,097,780
=============== =============== =============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
------------------------------
1992 1991
-------------- ---------------
(Note 11) (Note 12)
-------------- ---------------
<S> <C> <C>
Investment income (Note 3) $ 1,690,192 $ 2,189,398
Deposits and contributions
(Note 4) 4,943,398 3,514,028
Unrealized gains
on investments (Note 2) 2,638,774 1,797,846
Realized gains (losses) on
investments (Notes 2 and 7) 892,000 (76,458)
Withdrawals and terminations
paid in:
Cash (3,218,204) (4,528,105)
Recognition International Inc.
common stock, at market
9,965 shares, cost of $100,444
in 1993; 8,215 shares, cost of
$64,691 in 1992; 11,963 shares,
cost of $106,313 in 1991 (Note 5) (82,108) (76,474)
Interfund transfers
Interest expense
Administrative fees (30,417) (41,807)
Other income (expense) (369) (3,026)
-------------- --------------
Net increase (decrease) in plan
equity 6,833,266 2,775,402
Merger of ESOP (Note 9) 2,893,907
Equity, beginning of year 28,038,296 25,262,894
-------------- --------------
Equity, end of year 37,765,469 28,038,296
============== ==============
</TABLE>
F-4
<PAGE> 7
THE RECOGNITION FLEX/SAVE PLAN
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization of the Plan
The Plan is a defined contribution plan for employees of Recognition
International Inc. and certain domestic subsidiaries (the "Company").
Generally, any full-time employee who has completed 90 days of continuous
service is eligible to participate. Participants may elect to defer a
percentage of their eligible compensation, as defined by the Plan, which is
withheld from their paychecks and contributed to the Plan.
The Plan Administrator was changed from an individual to the
Retirement Plan Committee effective November 1, 1991. The Trustee for the Plan
was Texas Commerce Bank-Dallas, N.A. until April 30, 1992.
Effective May 1, 1992, the Plan was amended in a number of respects
and an amended and restated Trust Agreement was entered into with the new Plan
Trustee, T. Rowe Price Trust Company. The amendments included the following:
(1) The Plan Administrator was given the power and responsibility to
select all investment funds to be offered under the Plan, other than
the Recognition Stock Fund.
(2) Participants were given the ability to change investment fund
selections daily, via telephone request.
(3) Plan provisions regarding loans and hardship withdrawals were changed
to be consistent with new Internal Revenue Service regulations.
(4) The Plan Administrator was allowed to charge fees to participants for
loans, withdrawals and certain other transactions to cover Trustee
fees and other costs.
Effective October 18, 1992 (the "Merger Date"), the Company's Employee
Stock Ownership Plan ("ESOP") was merged into the Plan and the Plan was amended
and restated (see Note 9 - Merger of ESOP). The amendments included the
following:
(1) Each participant's account in the former ESOP was transferred to the
Plan and ESOP account balances of participants who were employees on
the Merger Date became fully vested.
(2) The assets of the ESOP, including the unallocated shares of Company
common stock in the suspense account, continued to be held in a
separate trust (the "ESOP Trust") with Bankers Trust Company of New
York as the ESOP Trustee. The other assets of
F-5
<PAGE> 8
the Plan, including the pre-merger assets of the Plan and ongoing
participant deferrals, continued to be held in a separate trust (the
"401(k) Trust") with T. Rowe Price Trust Company as the 401(k)
Trustee.
(3) The Company contribution formerly allocated in cash was replaced with
an allocation of shares of Company common stock from the ESOP.
(4) Participants were allowed to transfer fully vested account balances
from the ESOP Trust to the 401(k) Trust.
The ESOP has a loan which was used to purchase shares of Company
common stock ("ESOP Stock"). The loan is payable to the Company. Each year,
the Company is required to make cash contributions to the Plan sufficient to
make payments due on the loan. The ESOP Stock purchased with the loan is held
in a suspense account and allocated to Plan participants over a period of years
as the loan is repaid.
The Plan was amended September 30, 1993 as follows:
(1) Plan provisions regarding allocation of ESOP Stock and
additional employer contributions were changed to allow former
participants whose employment was terminated during the fourth
quarter of the fiscal year because of reduction in force to
share in the allocation.
(2) Provisions were added to comply with the Internal Revenue Code
(the "Code") provisions which impose a 20% mandatory
withholding tax on a distribution from the Plan unless the
distribution is transferred directly to another qualified plan
or IRA.
The Code limits contributions to the Plan in several respects. The
total amount deferred by each participant cannot exceed a specified dollar
limit which, for calendar year 1993, was $8,994. Participant compensation in
excess of $228,860 for the Plan year 1993 was excluded in calculating
participant deferrals and allocation of employer contributions (whether in cash
or stock). Total contributions during any Plan year, including both
participants' deferrals and allocation of employer contributions (whether in
cash or stock), may not exceed the maximum amount the Company may deduct for
federal income tax purposes for the year. Additional rules apply to prevent
discrimination in favor of highly compensated employees.
Subsequent to the Merger Date, the Plan provided for the allocation of
ESOP Stock from the suspense account based on participants' proportionate
contributions for the year, with certain adjustments. For the year ended
October 31, 1993, the maximum contribution considered in the allocation was a
F-6
<PAGE> 9
contribution of three percent of each participant's compensation. For the year
ended October 31, 1992, the maximum contribution considered was six percent of
each participant's compensation. The Company's Board of Directors may also
authorize additional discretionary contributions.
Prior to the Merger Date, the Plan provided for matching contributions
by the Company generally equal to the lesser of (i) 50 percent of the eligible
compensation deferred by the participants, up to the first six percent of
compensation deferred, or (ii) the Company's retained earnings for the year
unless the Company's Board of Directors authorized a greater matching
contribution.
Contributions to the Plan are held in trust and invested in the
investment funds described in "Note 3 - Investment programs" at the election of
the participant.
The Plan allows a participant to borrow up to 50 percent of his vested
interest in the Plan (other than amounts held in the ESOP Trust). The loan
bears interest at a rate established by the Plan Administrator. Beginning May
1, 1993, interest rates on loans are based on the applicable Federal Rate (as
calculated by the IRS) as of the beginning of the fiscal quarter, plus one
percent. Prior to May 1, 1993, rates were based on the prime rate at the
beginning of the fiscal quarter, plus one percent. Repayment is made through
payroll deductions.
The total amount credited to a participant's accounts is distributed
upon retirement, disability or death, regardless of the number of years of
service. If employment terminates for any other reason, the total amount
credited to the participant's contribution account and the vested portion
(which ranges from 25 percent with two years of service to 100 percent with
five years of service) of the participant's Company contribution account is
eligible for distribution. The distribution is automatic if the participant's
account balance is $3,500 or less. If the amount is more than $3,500, the
participant must consent to distribution in writing. The distribution is
made by delivery of cash equal to the value of the participant's vested account
balance, other than the Recognition Stock Fund which may be distributed in
either cash or whole shares of Company common stock. Prior to termination, a
participant may withdraw the vested portion of Company contributions, except
those held in the ESOP Trust, which have been in the Plan at least two years.
A participant's own contributions may only be withdrawn after age 59 1/2 or in
the case of "hardship" (as defined in regulations under the Code). For six
months after any withdrawal, the participant is suspended from making
contributions.
F-7
<PAGE> 10
The Board of Directors of the Company may terminate the Plan at any
time by appropriate resolution. The Board also has the power to suspend or
discontinue the Company's contributions to the Plan. Upon termination of the
Plan or permanent discontinuance of Company contributions, the proportionate
interest of each participant becomes fully vested and is to be distributed
after provision is made for the expenses of administration, termination and
liquidation.
In accordance with the provisions of the Plan and the Trust
Agreements, all normal expenses of administering the Plan are paid by the
Trustees out of forfeitures of Company contributions with any deficiency being
paid by the Company or by the Trustees from the Trust assets, at the Company's
option. Administrative expenses paid by the Plan during 1993, the first six
months of 1992, and during 1991 were funded from forfeitures. Administrative
expenses for the last six months of 1992 were paid directly by the Company.
Note 2 - Accounting policies
The Plan maintains its accounts on the accrual basis of accounting.
Investments - Investments in marketable securities and long-term
investments are recorded in the Plan at market value. The appreciation or
depreciation of those investments, based upon the quoted market value at
October 31, is recorded as an unrealized increase or decrease in Plan equity
for the fiscal year. Securities distributed are recorded at market value (at
the date of withdrawal) and the difference between the average cost of the
investments in the fund and such market value is recorded as a realized gain or
loss in the year of distribution. Temporary investments are recorded at cost
which approximates market.
Federal income taxes - The Internal Revenue Service recently issued a
favorable determination letter dated January 28, 1994 on the qualification of
the Plan under Sections 401(a), 401(k) and 4975 of the Code and the tax-exempt
status of the related Trusts under Section 501(a) of the Code. The
determination letter covers: (1) the restated Plan, effective November 1,
1989; (2) all amendments to the 1989 restatement; (3) the restated Plan,
effective October 18, 1992; and (4) the First Amendment to the 1992
restatement. The letter also covers The Recognition Employee Stock Ownership
Plan, which was merged with the Plan effective October 18, 1992, and amendments
thereto. The determination letter is conditioned upon the Company's adoption
of a Second Amendment to the 1992 restatement of the Plan submitted to, and
approved by, the Internal Revenue Service in connection with its review of the
Plan. The Company intends to adopt this Second Amendment in the near future.
The determination letter is also conditioned on the Plan's operation in
accordance with Sections 401(a), 401(k) and 4975 of the Code.
F-8
<PAGE> 11
Under present federal income tax laws and regulations, a participant
will not be subject to federal income taxes on the contributions made by the
Company or withheld from the participant's compensation under the Plan, or on
the interest, dividends or profits on the sale of securities received by the
Plan Trustee(s), until the participant's account is distributed or
unqualifiedly made available to the participant.
Note 3 - Investment programs
Beginning May 1, 1992, each participant has the option to specify that
contributions made for his account be invested in any one of, or divided among,
the Recognition Stock Fund, and seven funds sponsored by T. Rowe Price
Associates, Inc. or its affiliates: the New America Growth Fund, the Science &
Technology Fund, the Spectrum Growth Fund, the Equity Income Fund, the Spectrum
Income Fund, the U.S. Treasury Money Fund and the Stable Value Fund. Prior to
April 30, 1992, each participant had the option to specify that contributions
made for his account be invested in any one of, or divided among, the
Recognition Stock Fund, the Aggressive Equity Fund, the Conservative Equity
Fund, or the Interest Fund.
Contributions designated to the Recognition Stock Fund are invested in
Company common stock by purchases generally made in the open market at no more
than the prevailing market price. Participants' investments in the Recognition
Stock Fund at October 31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Market value per share $17.00 $12.62
Number of shares held 463,988 525,610
Number of participants 1,023 1,753
</TABLE>
Contributions designated to the New America Growth Fund are invested
in a mutual fund which seeks long-term growth of capital through investments
primarily in the common stocks of U.S. companies which operate in the service
sector of the economy. Current income is a secondary objective of this fund.
Total return from an investment in this fund consists primarily of capital
appreciation (or depreciation), and secondarily of dividend income.
Participants' investments in the New American Growth Fund at October 31, 1993
and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Market value per share $28.95 $22.63
Number of shares held 155,657 123,072
Number of participants 669 642
</TABLE>
F-9
<PAGE> 12
Contributions designated to the Science & Technology Fund are invested
in a mutual fund which seeks long-term growth of capital through investments
primarily in the common stocks of companies which are expected to benefit from
the development, advancement and use of science and technology. Current income
is incidental to this fund's investment objective. Total return consists
primarily of capital appreciation or depreciation. Participants' investment in
the Science & Technology Fund at October 31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Market value per share $21.58 $16.04
Number of shares held 118,690 45,680
Number of participants 486 357
</TABLE>
Contributions designated to the Spectrum Growth Fund are invested in a
mutual fund which seeks long-term growth of capital and growth of income by
investing primarily in a diversified group of mutual funds which in turn invest
principally in equity securities. Current income is a secondary objective of
this fund. This fund's investment return is diversified by its investments in
the underlying mutual funds which invest in traditional growth companies, small
aggressive growth stocks, growth and income stocks and international
securities. Participants' investment in the Spectrum Growth Fund at October
31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Market value per share $12.33 $10.59
Number of shares held 166,447 89,936
Number of participants 437 383
</TABLE>
Contributions designated to the Equity Income Fund are invested in a
mutual fund which seeks to provide high current income by investing primarily
in dividend-paying stocks of established companies. In selecting such stocks,
this fund emphasizes companies with favorable prospects for increasing dividend
income, and secondarily, capital appreciation. Total return consists primarily
of dividend income and secondarily of capital appreciation (or depreciation).
Participants' investments in the Equity Income Fund at October 31, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Market value per share $17.20 $15.50
Number of shares held 391,249 298,561
Number of participants 773 706
</TABLE>
Contributions designated to the Spectrum Income Fund are invested in a
mutual fund which seeks a high level of current
F-10
<PAGE> 13
income and preservation of capital by investing primarily in a diversified
group of mutual funds which in turn invest principally in fixed income
securities. This fund's net asset value per share fluctuates principally in
response to changes in interest rate levels. Total return consists primarily
of dividend income and secondarily of capital appreciation (or depreciation).
Participants' investments in the Spectrum Income Fund at October 31, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Market value per share $11.34 $10.72
Number of shares held 185,297 114,824
Number of participants 436 392
</TABLE>
Contributions designated to the U.S. Treasury Money Fund are primarily
invested in a money market fund which seeks to maximize safety of capital,
liquidity and the highest available current income. This fund invests in
securities backed by the full faith and credit of the U.S. Government,
primarily U.S. Treasury securities. The average portfolio maturity will not be
greater than 90 days. This fund had an effective interest rate of 2.51 and
3.24 percent for the years ended December 31, 1993 and 1992, respectively. At
October 31, 1993 and 1992, the number of participants in this fund totaled 355
and 255, respectively.
Contributions designated to the Stable Value Fund are primarily
invested in a bank collective investment fund which seeks to provide a
competitive rate of return while maintaining principal stability. To achieve
its objective, this fund invests primarily in a portfolio of guaranteed
investment contracts issued by U.S. and Canadian insurance companies,
structured investment contracts and bank investment contracts. This fund had
an effective interest rate of 6.08 and 6.88 percent for the years ended
December 31, 1993 and 1992, respectively. At October 31, 1993 and 1992, the
number of participants in this fund totaled 808 and 873, respectively.
Contributions designated to the Interest Fund were primarily invested
in the Aetna Life Insurance Company Multivestor Group Annuity Contract (Aetna
Contract) which was established May 1, 1979. Active investment in this fund
was discontinued effective April 30, 1992 and participants selected amounts to
be reallocated to the other funds. The cash remaining in this fund at October
31, 1992 represented amounts awaiting final allocation by the Trustee. These
amounts were allocated by the Trustee during 1993.
Trust assets in the Equity Fund were invested primarily in the equity
fund of the special purpose funds maintained under InterFirst Bank Dallas, N.A.
Investment Trust for Employee Benefit Plans. Active investment in this fund
was discontinued effective June 30, 1986. The cash remaining in this fund at
October 31, 1992
F-11
<PAGE> 14
represented amounts awaiting final allocation by the Trustee. These amounts
were allocated by the Trustee during 1993.
Note 4 - Deposits and contributions
Deposits and contributions for the years ended October 31, 1993, 1992
and 1991 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Employee savings
contributions $3,889,668 $3,075,807 $2,625,932
Rollover contri-
butions from
unaffiliated
plans 744,671 717,591 34,266
Employer
matching
contributions 853,830
ESOP loan principal
and interest
payment 1,392,445 1,150,000
---------- ---------- ----------
$6,026,784 $4,943,398 $3,514,028
========== ========== ==========
</TABLE>
The employer matching contribution for 1991 was computed at 50 percent
up to the first six percent of eligible compensation deferred. The ESOP loan
payment in 1993 and 1992 resulted in 117,782 and 130,690 shares, respectively,
being allocated from the suspense account to participants, including, in 1992,
567 shares allocated to former ESOP participants who died, retired or were
disabled. The allocation of ESOP Stock from the suspense account for the year
ended October 31, 1993 was based on participants' proportionate contributions
for the year, with certain adjustments, up to a contribution of three percent
of each participant's compensation. The allocation of ESOP stock for the year
ended October 31, 1992 was based on participants' proportionate contributions
for the year, with certain adjustments, up to a contribution of six percent of
each participant's compensation.
Contributions receivable at October 31, 1992 included employee
contributions withheld from participants' compensation of $306,773.
F-12
<PAGE> 15
Note 5 - Withdrawals and terminations payable
Withdrawals and terminations payable in Company common stock at October
31, 1992 were as follows:
<TABLE>
<CAPTION>
1992
--------
<S> <C>
Market value per share $ 12.62
Number of shares 4,464
Aggregate market value $56,330
Aggregate cost $49,657
</TABLE>
Note 6 - Forfeitures
Employer matching contributions forfeited by participants upon
withdrawing from the Plan may be recredited to their accounts upon returning to
the Plan if certain requirements are met. In accordance with provisions of the
Plan, forfeitures of participants' equity in employer contributions of $51,124,
$30,417 and $41,807 in 1993, 1992 and 1991, respectively, which were not
required to be recredited, were used to pay administrative fees of the Plan.
F-13
<PAGE> 16
Note 7 - Realized gains (losses) from sales of investments
Realized gains (losses) for the years ended October 31, 1993, 1992 and
1991 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
Recognition Stock
Fund
Market price $4,785,325 $637,225 $216,455
Aggregate cost 3,830,004 675,983 312,454
---------- -------- --------
Realized gains
(losses) $ 955,321 $(38,758) $(95,999)
========== ======== ========
New America Growth
Fund
Market price $ 608,154 $125,187
Aggregate cost 537,639 124,092
---------- --------
Realized gains $ 70,515 $ 1,095
========== ========
Science & Technology
Fund
Market price $ 285,571 $ 40,575
Aggregate cost 245,303 38,826
---------- --------
Realized gains $ 40,268 $ 1,749
========== ========
Spectrum Growth
Fund
Market price $ 297,134 $ 37,751
Aggregate cost 286,526 37,583
---------- --------
Realized gains $ 10,608 $ 168
========== ========
Equity Income Fund
Market price $1,041,710 $227,668
Aggregate cost 1,012,235 229,482
---------- --------
Realized gains
(losses) $ 29,475 $ (1,814)
========== ========
Spectrum Income
Fund
Market price $ 329,692 $ 76,392
Aggregate cost 325,778 76,246
---------- --------
Realized gains $ 3,914 $ 146
========== ========
</TABLE>
F-14
<PAGE> 17
Realized gains (losses) for the former investment funds for the years
ended October 31, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
1992 1991
---------- --------
<S> <C> <C>
Aggressive Equity Fund
Market price $2,118,683 $349,885
Aggregate cost 1,963,220 324,785
---------- --------
Realized gains $ 155,463 $ 25,100
========== ========
Conservative Equity Fund
Market price $3,558,489 $695,072
Aggregate cost 3,416,342 700,631
---------- --------
Realized gains (losses) $ 142,147 $ (5,559)
========== ========
</TABLE>
The Interest Fund recorded a gain of $631,804 due to a market value
adjustment in April 1992 resulting from the difference between book and market
value at the time of liquidation.
Included in the Recognition Stock Fund's realized gains (losses) for
the years ended October 31, 1993, 1992 and 1991 were realized gains (losses)
from stock distributions in the amounts of $31,873, $17,418 and $(29,839),
respectively.
Note 8 - Long-term debt
In October 1992, in connection with the merger of the ESOP into the
Plan, the Plan assumed a loan which is payable to the Company (the "ESOP Loan")
in six annual installments beginning October 31, 1992. The loan accrues
interest at a rate of 8.75 percent. Annual principal payments on the ESOP Loan
are due October 31 each year as follows:
1994 $ 995,545
1995 1,082,656
1996 1,177,388
1997 1,280,408
Note 9 - Merger of ESOP
As discussed in Note 1, the Company's ESOP was merged into the Plan and
the Plan was amended and restated on October 18, 1992, the Merger Date.
On the Merger Date, the ESOP's assets consisted of 911,743 shares of
Company common stock with a market value of $10,147,700, and temporary
investments of $10,102. Of the 911,743 shares of Company common stock held by
the ESOP, 192,143 were allocated to participants in the ESOP as of the Merger
Date and 719,600 were held in a suspense account for future allocation to
participants.
F-15
<PAGE> 18
Of the shares held by the ESOP, 910,223 were acquired with the proceeds
of the ESOP Loan described in Note 8. The outstanding balance of the ESOP Loan
on the Merger Date was $6,601,441.
On the Merger Date, the ESOP had a $662,454 liability for the
distribution of cash and shares of Company common stock to former ESOP
participants.
The assets and liabilities of the ESOP were transferred to the Plan at
their fair market value on the Merger Date.
F-16
<PAGE> 19
Note 10 - Statement of Financial Condition - 1992
The statement of financial condition at October 31, 1992 was as follows:
<TABLE>
<CAPTION>
RECOGNITION NEW AMERICA SCIENCE AND SPECTRUM EQUITY SPECTRUM
STOCK GROWTH TECHNOLOGY GROWTH INCOME INCOME
FUND FUND FUND FUND FUND FUND
--------------- -------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 45,233 $ $ $ $ $
Investment income receivable
Investments:
Recognition International Inc.
common stock, at market
Participant account 6,634,224
Suspense account 7,432,044
New America Growth Fund, at market 2,785,119
Science and Technology Fund, at
market 732,702
Spectrum Growth Fund, at market 952,424
Equity Income Fund, at market 4,627,694
Spectrum Income Fund, at market 1,230,915
U.S. Treasury Money Fund
Stable Value Fund
Aetna contract
Temporary investments 10,115
Contributions receivable 11,518 51,620 31,207 30,642 52,104 30,474
Participant loans
Other receivables
Interfund receivables/(payables) 6,218 39,465 20,498 19,431 48,622 31,994
--------------- -------------- --------------- --------------- --------------- ---------------
Total assets 14,139,352 2,876,204 784,407 1,002,497 4,728,420 1,293,383
--------------- -------------- --------------- --------------- --------------- ---------------
Liabilities
Withdrawals and terminations
payable in:
Cash 674,432 26,273 5,195 12,067 47,673 12,343
Recognition International Inc.
common stock, at market 56,330
Long-term debt 5,451,441
--------------- -------------- --------------- --------------- --------------- ---------------
Total liabilities 6,182,203 26,273 5,195 12,067 47,673 12,343
--------------- -------------- --------------- --------------- --------------- ---------------
Plan equity $ 7,957,149 $ 2,849,931 $ 779,212 $ 990,430 $ 4,680,747 $ 1,281,040
=============== ============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY PARTICIPANT
MONEY STABLE INTEREST EQUITY LOAN
FUND VALUE FUND FUND FUND FUND TOTAL
-------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ $ $ 20,342 $ 27,071 $ $ 92,646
Investment income receivable 57,600 57,600
Investments:
Recognition International Inc.
common stock, at market
Participant account 6,634,224
Suspense account 7,432,044
New America Growth Fund, at market 2,785,119
Science and Technology Fund, at
market 732,702
Spectrum Growth Fund, at market 952,424
Equity Income Fund, at market 4,627,694
Spectrum Income Fund, at market 1,230,915
U.S. Treasury Money Fund 1,094,277 1,094,277
Stable Value Fund 16,360,796 16,360,796
Aetna contract
Temporary investments 10,115
Contributions receivable 29,864 69,344 306,773
Participant loans 1,784,167 1,784,167
Other receivables 227,869 227,869
Interfund receivables/(payables) 32,877 86,365 (285,470)
-------------- --------------- --------------- --------------- --------------- --------------
Total assets 1,157,018 16,516,505 20,342 27,071 1,784,166 44,329,365
-------------- --------------- --------------- --------------- --------------- --------------
Liabilities
Withdrawals and terminations
payable in:
Cash 34,488 243,654 1,056,125
Recognition International Inc.
common stock, at market 56,330
Long-term debt 5,451,441
-------------- --------------- --------------- --------------- --------------- --------------
Total liabilities 34,488 243,654 0 0 0 6,563,896
-------------- --------------- --------------- --------------- --------------- --------------
Plan equity $ 1,122,530 $ 16,272,851 $ 20,342 $ 27,071 $ 1,784,166 $ 37,765,469
============== =============== =============== =============== =============== ==============
</TABLE>
F-17
<PAGE> 20
Note 11 - Statement of Income and Changes in Plan Equity - 1992
The statement of income and changes in plan equity for the year ended October
31, 1992 was as follows:
<TABLE>
<CAPTION>
RECOGNITION NEW AMERICA SCIENCE AND SPECTRUM EQUITY
STOCK GROWTH TECHNOLOGY GROWTH INCOME
FUND FUND FUND FUND FUND
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Investment income $ 5,144 $ $ $ $ 44,259
Deposits and contributions 1,299,969 412,939 235,404 261,996 440,355
Unrealized gains (losses)
on investments 2,555,794 153,627 67,108 6,562 (62,406)
Realized gains (losses) on
investments (38,758) 1,095 1,749 168 (1,814)
Withdrawals and terminations
paid in:
Cash (165,085) (28,684) (5,870) (12,973) (142,389)
Recognition International Inc.
common stock, at market (82,108)
Interfund transfers (227,430) 2,310,954 480,821 734,677 4,402,742
Administrative fees
Other income (expense) (17,771)
--------------- --------------- --------------- --------------- ---------------
Net increase (decrease) in plan
equity 3,329,755 2,849,931 779,212 990,430 4,680,747
Merger of ESOP 2,893,907
Equity, beginning of year 1,733,487
--------------- --------------- --------------- --------------- ---------------
Equity, end of year $ 7,957,149 $ 2,849,931 $ 779,212 $ 990,430 $ 4,680,747
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
SPECTRUM U.S. TREASURY AGGRESSIVE CONSERVATIVE
INCOME MONEY STABLE EQUITY EQUITY
FUND FUND VALUE FUND FUND FUND
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Investment income $ 21,264 $ 9,302 $ 211,290 $ 111,640 $ 102,109
Deposits and contributions 249,478 317,677 612,155 115,366 151,560
Unrealized gains (losses)
on investments (17,352) (146,998) 82,439
Realized gains (losses) on
investments 146 155,463 142,147
Withdrawals and terminations
paid in:
Cash (28,888) (36,310) (555,276) (109,961) (182,436)
Recognition International Inc.
common stock, at market
Interfund transfers 1,056,392 805,431 16,004,682 (2,027,009) (3,302,113)
Administrative fees (30,417)
Other income (expense) 56,847 (4,562) (6,802)
--------------- --------------- --------------- --------------- ---------------
Net increase (decrease) in plan
equity 1,281,040 1,122,530 16,272,851 (1,906,061) (3,013,096)
Merger of ESOP
Equity, beginning of year 1,906,061 3,013,096
--------------- --------------- --------------- --------------- ---------------
Equity, end of year $ 1,281,040 $ 1,122,530 $ 16,272,851 $ 0 $ 0
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT
INTEREST EQUITY LOAN
FUND FUND FUND TOTAL
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income $ 1,102,076 $ 1,099 $ 82,009 $ 1,690,192
Deposits and contributions 846,499 4,943,398
Unrealized gains (losses)
on investments 2,638,774
Realized gains (losses) on
investments 631,804 892,000
Withdrawals and terminations
paid in:
Cash (1,883,244) (67,088) (3,218,204)
Recognition International Inc.
common stock, at market (82,108)
Interfund transfers (22,013,408) 5,016 1,769,245
Administrative fees (30,417)
Other income (expense) (28,202) 121 (369)
--------------- --------------- --------------- ---------------
Net increase (decrease) in plan
equity (21,344,475) 6,236 1,784,166 6,833,266
Merger of ESOP 2,893,907
Equity, beginning of year 21,364,817 20,835 28,038,296
--------------- --------------- --------------- ---------------
Equity, end of year $ 20,342 $ 27,071 $ 1,784,166 $ 37,765,469
=============== =============== =============== ===============
</TABLE>
F-18
<PAGE> 21
Note 12 - Statement of Income and Changes in Plan Equity - 1991
The statement of income and changes in plan equity for the year ended October
31, 1991 was as follows:
<TABLE>
<CAPTION>
RECOGNITION AGGRESSIVE CONSERVATIVE
STOCK EQUITY EQUITY INTEREST EQUITY
FUND FUND FUND FUND FUND TOTAL
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income $ 15,799 $ 74,762 $ 239,079 $ 1,858,480 $ 1,278 $ 2,189,398
Deposits and contributions 211,159 246,011 420,509 2,636,349 3,514,028
Unrealized gains
on investments 664,969 525,121 607,756 1,797,846
Realized gains (losses) on
investments (95,999) 25,100 (5,559) (76,458)
Other expense (3,026) (3,026)
Withdrawals and terminations
paid in:
Cash (119,520) (216,236) (450,411) (3,741,938) (4,528,105)
Recognition International Inc.
common stock, at market (76,474) (76,474)
Interfund transfers (180,307) 4,152 (65,669) 241,824
Administrative fees (2,726) (8,080) (10,865) (20,136) (41,807)
------------ ------------ ------------ ------------ ------------ ------------
Net increase
in plan equity 413,875 650,830 734,840 974,579 1,278 2,775,402
Equity, beginning of year 1,319,612 1,255,231 2,278,256 20,390,238 19,557 25,262,894
------------ ------------ ------------ ------------ ------------ ------------
Equity, end of year $ 1,733,487 $ 1,906,061 $ 3,013,096 $ 21,364,817 $ 20,835 $ 28,038,296
============ ============ ============ ============ ============ ============
</TABLE>
F-19
<PAGE> 22
INDEX TO EXHIBITS
Exhibit Description of Exhibit
- ------- ----------------------
1. Consent of Independent Accountants
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-38896) of Recognition International Inc. of our
report dated February 16, 1994, appearing on Page F-2 of this Annual Report on
Form 11-K.
/s/PRICE WATERHOUSE
Dallas, Texas
March 7, 1994
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