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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_______________
FRANKLIN QUEST CO.
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(Exact name of registrant as specified in its charter)
UTAH 1-11107 87-0401551
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2200 WEST PARKWAY BOULEVARD
SALT LAKE CITY, UTAH 84119-2331
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 975-1776
/ / Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
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Common Stock, $.05 Par Value New York Stock Exchange
/ / Securities registered pursuant to Section 12(g) of the Act: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. / /
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant on November 1, 1996, based upon the closing sale price of the
Common Stock of $20.125 per share on that date, was approximately $396,620,099.
Shares of the Common Stock held by each officer and director and by each person
who may be deemed to be an affiliate of the Registrant have been excluded.
As of November 1, 1996, the Registrant had 19,707,831 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in
Parts, II, III and IV of this Form 10-K: (1) Registrant's Annual Report to
Shareholders for the fiscal year ended August 31, 1996 (Parts II and IV), and
(2) Proxy Statement for Registrant's Annual Meeting of Shareholders which was
held on November 18, 1996 (Part III).
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INDEX TO FORM 10-K
Page
PART I ..................................................................................................... 1
Item 1. Business............................................................................................. 1
General.............................................................................................. 1
Products............................................................................................. 2
Planners ..................................................................................... 2
Kits ..................................................................................... 2
Binders ..................................................................................... 2
Software ..................................................................................... 3
Accessories................................................................................... 3
Training Services.................................................................................... 3
Sales and Marketing.................................................................................. 4
Direct Sales.................................................................................. 4
Catalog ..................................................................................... 5
Retail Stores................................................................................. 5
International Sales.................................................................................. 6
Clients.............................................................................................. 6
Competition.......................................................................................... 6
Products ..................................................................................... 6
Training Services............................................................................. 7
Manufacturing........................................................................................ 7
Trademarks and Copyrights............................................................................ 8
Employees............................................................................................ 8
Item 2. Properties........................................................................................... 8
Item 3. Legal Proceedings.................................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 9
PART II ..................................................................................................... 10
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters............................. 10
Item 6. Selected Financial Data.............................................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 10
Item 8. Financial Statements and Supplementary Data.......................................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 11
PART III ..................................................................................................... 12
Item 10. Directors and Executive Officers of the Registrant................................................... 12
Item 11. Executive Compensation............................................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 12
Item 13. Certain Relationships and Related Transactions....................................................... 12
PART IV ..................................................................................................... 13
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 13
(a) Documents Filed............................................................................... 13
1. Financial Statements................................................................. 13
2. Financial Statement Schedule......................................................... 13
(b) Reports on Form 8-K........................................................................... 15
(c) Exhibits...................................................................................... 15
(d) Financial Statement Schedule.................................................................. 15
SIGNATURES ..................................................................................................... 20
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PART I
ITEM 1. BUSINESS
GENERAL
Franklin Quest Co. (the "Company" or "Franklin") is a provider of
training seminars and products designed to improve individual productivity. The
Company's principal seminars and products are based upon Franklin's
comprehensive time management system which enables individuals to better manage
their time by identifying goals and prioritizing the tasks necessary to achieve
them through the use of the Company's primary product, the Franklin Day
Planner(R) (the "Franklin Planner"). The Company also provides training,
consulting services and products designed to improve written and oral business
communications skills. Through recent acquisitions, Franklin also offers fitness
training services and book and commercial printing services.
The Company sells its seminars and products to institutional clients
such as corporations, governmental agencies and other organizations, as well as
to the general public. A significant percentage of the users of the Company's
products continue to use the Franklin Planner and purchase a renewal Franklin
Planner each year, creating substantial recurring sales.
The basic Franklin Day Planner System (the "Franklin System") consists
of a paper-based, two-page per day Franklin Planner, combined with a seven-ring
binder, along with a variety of planning aids, monthly and annual calendars and
personal management sections. Franklin offers various forms and accessories that
allow users to expand and customize their Franklin System. The Company markets
the Franklin System and accessory products through its sales catalog and its
retail stores. At August 31, 1996, the Company had 90 retail stores located in
35 states and the District of Columbia, 20 of which were opened during fiscal
1996. Product sales, consisting primarily of the Franklin System and related
products, accounted for approximately 79% of the Company's sales during the
fiscal year ended August 31, 1996. The Company believes that a substantial part
of its product sales result from referrals by existing clients.
Seminars are marketed by the Company's sales force to institutions and
the general public. Each participant in a Franklin seminar receives a seminar
kit containing a Franklin Planner, a vinyl binder, a storage binder and
accompanying instructional materials. The Company's training consultants tailor
Franklin's seminars to institutional clients' specific businesses and
objectives. The Company also offers Franklin Facilitator Training ("FFT"), a
program in which employees of institutional clients are trained and certified by
the Company to conduct live or facilitate video presentations of Franklin's
seminars to in-house employees. Training seminars, including seminars presented
through the FFT program, accounted for approximately 21% of the Company's sales
during the year ended August 31, 1996. Since the beginning of fiscal 1991
approximately 1,700,000 persons have been trained to use the Franklin System,
including approximately 350,000 persons during the year ended August 31, 1996.
In June 1992, the Company completed an initial public offering of its
common stock, $0.05 par value per share (the "Common Stock") and shares of the
Common Stock began trading on the New York Stock Exchange.
In February 1994, the Company acquired the assets of Shipley Associates
and two related entities (the "Shipley Acquisition"). In November 1995, the
Shipley Division was renamed the Franklin Quest Consulting Group. This Group
provides training, consulting services and products designed to help clients
think, plan and communicate more productively.
In July 1994, the Company acquired the assets and operations of the
National Institute of Fitness, a total fitness, exercise and nutritional
training center located near St. George, Utah. The name was subsequently changed
to the Franklin Quest Institute of Fitness.
In December 1994, the Company acquired Publishers Press, Inc.
("Publishers Press"), a commercial printer located in Salt Lake City, Utah which
prints the Franklin Planner and other Franklin products and also provides book
and commercial printing services to clients in the western United States. The
Company subsequently acquired the real property upon which some of the
operations of Publishers Press are located.
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In April 1995, the Company acquired the assets of Time Systems, Inc.
("Time Systems"), a time management training and product company headquartered
in Phoenix, Arizona. In June 1995, the Company acquired the assets of LTS, Inc.,
a distributor of Time System products and training services located in Atlanta,
Georgia.
In December 1995, the Company acquired the assets of Productivity Plus,
Inc. ("Productivity Plus"), a time management company headquartered in Chandler,
Arizona. Productively Plus offers a paper-based, refillable planner/organizer
and accessories principally to customers in branches of the U.S. military.
Effective October 1, 1996, the Company acquired the assets of TrueNorth
Corporation, a training company headquartered in Salt Lake City, Utah. TrueNorth
provides post instruction personalized coaching to corporations and individuals
to augment the effectiveness and duration of quality training curricula.
The Company has organized subsidiaries for the conduct of business in
several foreign countries. The Company's real property and facilities are also
owned and operated by a wholly-owned subsidiary.
Unless the context requires otherwise, all references to the "Company"
or to "Franklin" herein refer to the Company and each of its operating divisions
and subsidiaries. The Company's principal executive offices are located at 2200
West Parkway Boulevard, Salt Lake City, Utah 84119 and its telephone number is
(801) 975-1776.
PRODUCTS
The Franklin System has been developed as the basic tool for
implementing the principles of Franklin's time management system. The Franklin
System consists of a paper-based Franklin Planner, a binder in which to carry
it, and various planning aids, monthly and annual calendars and personal
management sections. The Company offers a broad line of planners and binders for
the Franklin System, which are available in various sizes and styles. During the
fiscal year ended August 31, 1996, product sales, consisting primarily of the
Franklin System and related products, amounted to approximately $261.2 million
and accounted for approximately 79% of the Company's sales during the period.
Planners. Master planners for the Franklin System consist of monthly
calendars, task lists and indexes, calendar pages for an entire year,
prioritized daily task lists, appointment schedules, daily expense records and a
daily record of events, all in various sizes and styles. The master planner also
includes address and telephone directories, personal management sections, ready
references, sections for identifying values and goals, financial and key
information pages, future planning calendars for five years, colored tabs and
dividers, and a pagefinder/ruler. The master planner ranges in price from $25.00
to $42.00.
The Company has designed portions of the Franklin System to be updated
annually through the purchase of renewal planners. Renewal planners include a
full annual set of daily calendaring and recordkeeping pages, twelve monthly
calendar tabs and forms for personal management sections. Renewal planners range
in price from $19.00 to $31.00. The Company offers numerous accessory forms,
including check registers, spread sheets, stationery, mileage logs, maps, menu
planners, shopping lists and other information management and project planning
forms. The Company has also developed and marketed specialized forms for
government employees, students, educators, salespersons, real estate
professionals and building contractors. The Company's accessory products and
forms are generally available in the Franklin Planner sizes.
Kits. The Company provides seminar kits to all individuals who attend
live seminars or participate in the FFT program, which include a vinyl binder,
master planner, storage binder and limited training materials. In addition, the
Company sells a Standard Edition kit and a Deluxe Edition kit which contain all
of the materials in the seminar kit plus a satellite notebook and additional
training materials. Retail prices for the Standard Edition kit and the Deluxe
Edition kit range from $49.00 to $114.00.
Binders. The Company offers ring binders in a variety of materials and
styles in each of the Franklin Planner sizes. Binders are available in
heat-sealed or sewn vinyl as well as in simulated leather, deluxe leather,
premium leather or tapestry covers. Binders are offered with or without a zipper
or snap closure and with a variety of pocketholders and inserts for calculators,
checkbooks, credit cards and writing instruments. The assortment of innovative
binder styles, colors and finishes offered by the Company has been designed by a
group of skilled
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in-house craftsmen to encourage existing clients to upgrade their binders.
Binders range in price from $12.95 to $275.00. A substantial number of the
Company's clients upgrade their binders from the original vinyl binder generally
received in a kit. Binder sales (not including binders furnished as a part of
kits) accounted for approximately $68.8 million or approximately 26% of product
sales for the fiscal year ended August 31, 1996.
Software. In 1991 the Company introduced its ASCEND(R) program, a
complete Personal Information Management ("PIM") system which can be used in
conjunction with the paper-based Franklin Planner or used as a stand-alone PIM
system. ASCEND(R) permits users to generate and print data on Franklin paper
which can be inserted directly into the Franklin Planner. The ASCEND(R) program
operates in both the Windows(TM) and Macintosh(R) environments, where a user is
able to access commands with either a keyboard or mouse by clicking on icons or
activating pull-down menus. ASCEND(R) '97 was introduced in August 1996 with new
and enhanced features. The Company offers ASCEND(R) at a retail price of $99.95
which includes all necessary software, related tutorials and reference manuals.
To support users of its ASCEND(R) program, a technical support staff is
available to answer questions regarding the ASCEND(R) software. The Company
offers ASCEND(R) through nationwide retail software stores, in its own retail
stores and catalog and, in a specially-designed "home user" version, through
Sam's Club and Price Costco.
Accessories. To supplement the Company's principal products, Franklin
offers a number of accessories and related products, including books, video
tapes and audio cassettes focused on time management and other topics. The
Company also offers a variety of calculators, pens, pencils, pagefinders, hole
punches and plastic pouches.
TRAINING SERVICES
The Company's training consultants conduct seminars for employees of
institutional clients and public seminar participants. Additionally, the
Franklin System is taught through the FFT program by institutional clients who
conduct live or facilitate video seminars for their employees. Franklin's
"TimeQuest" seminar accounts for a significant portion of the Company's training
services revenues. Sales of training services for the fiscal year ended August
31, 1996 were approximately $70.8 million and accounted for 21% of the Company's
total sales during the period.
Institutional seminars are provided to corporations, government
agencies, educational organizations, small business groups and other
organizations. Prior to seminar presentations, Franklin's training consultants
work with Franklin account executives and their institutional clients to
incorporate the clients' policies and objectives in the Franklin seminars and to
present methods by which the goals of the clients' employees may be aligned with
those of the client. Institutional seminars are priced on the basis of the
length of the seminar and the number of persons trained.
The Company also offers training through the FFT program. Franklin
provides training materials to in-house training directors who are certified by
the Company to conduct live presentations and to facilitate video presentations
of the Franklin seminar to their employees. The Company receives a one-time fee
for training and certifying in-house trainers and also charges a participation
fee for each person trained by an in-house trainer. Each FFT participant
receives a seminar kit, including the Franklin System and training materials.
The Company regularly sponsors public seminars in cities throughout the
United States and in several foreign countries. Frequency of the seminars in
each city or country depends on the concentration of Franklin System users, the
level of promotion and resulting demand, and generally ranges from semi-monthly
to quarterly. Smaller institutional clients often utilize the public seminars to
train their employees.
The Company currently employs 130 training consultants in major
metropolitan areas of the United States and 21 training consultants outside of
the United States. Of the 151 training consultants employed by the Company, 75
consultants are trained to conduct time management seminars and 76 consultants
are trained to conduct business communication seminars and to provide other
consulting and training services. Training consultants are selected and trained
from a large number of experienced applicants. These consultants generally have
several years of training experience and excellent presentation skills. Once
selected, the training consultant goes through a rigorous training program
including multiple live presentations. The training program ultimately results
in the Company's certification of the consultant. Franklin believes that the
caliber of its training consultants has been responsible for its reputation of
providing high quality seminars.
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The Franklin Quest Consulting Group (formerly the Shipley Division) is
engaged in the business of providing training, consulting services, project
management services and related products designed to improve written and oral
business communication and presentation skills for clients in the private and
public sectors. The Group's consulting services are focused in five distinct
areas: business communication, procedural documentation, scientific
documentation, business development and environmental compliance. The Group's
project management services provide clients with on-site writing experts who
focus on helping organizations address unique and immediate documentation needs.
The Franklin Quest Institute of Fitness (formerly the National
Institute of Fitness) provides on-site training to individuals in fitness,
exercise, nutrition and diet and has been recognized for its quality, economy
and service. The Franklin Quest Institute of Fitness offers single week or
multi-week training programs on-site at its fitness training complex located
near St. George, Utah. Franklin has developed a special health and fitness
module to be a part of the Franklin System, and clients at the Franklin Quest
Institute of Fitness are trained in the Franklin System.
SALES AND MARKETING
The Company believes that its control over the channels through which
its seminars and products are distributed has allowed it to maintain prices
consistent with their quality and value and to provide high levels of client
service. The following table sets forth, for the periods indicated, the
Company's sales and percentage of total sales for each of its principal
distribution channels:
YEAR ENDED AUGUST 31,
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1994 1995 1996
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DOLLARS IN THOUSANDS
Training Sales $ 49,721 23.0% $ 68,168 24.6% $ 70,812 21.3%
Direct Product and Services Sales 22,041 10.2 37,087 13.4 58,845 17.7
Catalog Sales 89,691 41.6 99,220 35.8 106,956 32.2
Retail Store Sales 54,487 25.2 72,647 26.2 95,393 28.8
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Total Sales $215,940 100.0% $277,122 100.0% $332,006 100.0
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Direct Sales. The Company's direct sales force markets Franklin
products and seminars to institutional clients, public seminar clients and
network marketing companies. All of the Company's direct sales are made through
its staff of in-house account executives and other marketing personnel.
The Company employs 68 account executives and 52 inside account
executives who service major metropolitan areas throughout the United States and
sell training services to institutional clients. The Company employs an
additional 39 account executives outside of the United States. Account
executives must have significant selling experience prior to employment by the
Company and are trained and evaluated at the Company and in their respective
sales territories during the first six months of employment. Account executives
typically call upon persons responsible for corporate employee training, such as
corporate training directors or human resource officers. Account executives work
closely with training consultants in their territories to schedule and tailor
seminars to meet specific objectives of institutional clients.
The Company also employs 130 training consultants throughout the United
States who present institutional and public seminars in their respective
territories and 21 training consultants outside of the United States.
Seventy-five of the training consultants present time management seminars.
Seventy-six consultants offer business communication seminars and other
consulting and training services for businesses. Training consultants work with
account executives and institutional clients to incorporate a client's policies
and objectives in seminars and present ways that employee goals may be aligned
with those of the institution.
Public seminars are planned, implemented and coordinated with training
consultants by a staff of 46 marketing and administrative personnel at the
Company's corporate offices. These seminars provide training for
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the general public and are also used as a marketing tool for attracting
corporate and other institutional clients. Corporate training directors are
often invited to attend public seminars to preview the Franklin TimeQuest
seminar prior to engaging the Company to train in-house employees. Smaller
institutional clients often enroll their employees in public seminars under
annual group rate contracts when a private seminar is not cost effective. In the
public seminars, attendees are also invited to provide names of potential
persons and companies who may be interested in the Company's seminars and
products. These referrals are generally used as prospects for the Company's
account executives.
As part of its strategy to adapt Franklin's services and products to
additional market segments, the Company develops and markets customized forms,
pagefinders, tabs, binders and sales and training materials for specific
applications such as for use by salespersons, real estate professionals and
government employees. The Company believes that the Franklin System is effective
in communicating uniform marketing plans, product information and procedures to
large numbers of employees, sales representatives and distributors.
The Company markets the Franklin System, together with customized sales
and training materials, to selected network marketing companies who regularly
recruit large numbers of new sales representatives. Although the Company has
achieved significant revenues from sales to network marketing companies in a
relatively brief period, the Company recognizes the volatility of the network
marketing industry, which is characterized by rapid growth, high turnover among
sales representatives, sales fluctuations, exposure to adverse publicity,
regulatory scrutiny and intense competition. The Company has experienced
fluctuations in direct product sales and has experienced significantly lower
reorder rates among network marketing representatives as compared to other
users. No assurance can be given that sales to network marketing clients will
continue at existing levels or that the Company will be successful in its
efforts to market its seminars and products to existing or additional clients in
the network marketing business.
Through the acquisition of Publishers Press in December 1994 the
Company acquired greater control over printing of the materials for the Franklin
Planner and of other Franklin products. Publishers Press also provides book and
commercial printing services to clients in the western United States.
Productivity Plus markets "The Ultimate Organizer," a paper-based
refillable planner organizer, together with annual renewal calendars and
accessories. Approximately 85% of sales are to customers within branches of the
U.S. military.
Catalog. The Company periodically mails catalogs to its clients
including a reference catalog, holiday catalog, catalogs timed to coincide with
planner renewals and catalogs related to special events, such as store openings
or new product offerings. Catalogs may be targeted to specific geographic areas
or user groups as appropriate. Catalogs are typically printed in full color with
an attractive selling presentation highlighting product benefits and features.
The Company maintains a client service department which clients may
call toll-free, 24 hours a day, Monday through Saturday, to inquire about a
product or place an order. Through the Company's computerized order entry
system, client representatives have access to client preferences, prior orders,
billings, shipments and other information on a real-time basis. Each of the
Company's more than 430 client representatives has the authority to immediately
solve any client service problem.
The Company utilizes a zone picking system for processing orders. This
system enables the Company to respond rapidly to client orders. Client
information stored within the order entry system is also used for additional
purposes, including target marketing of specific products to existing clients
and site selection for Franklin retail stores. The Company believes that its
order entry system helps assure client satisfaction through both rapid delivery
and accurate order shipment.
Retail Stores. Beginning in late 1985, the Company began opening retail
stores in areas of high client density. The initial stores were generally
located in lower traffic destination locations. The Company has adopted a
strategy of locating retail stores in high-traffic retail centers, primarily
large shopping malls, to serve existing clients and to attract increased numbers
of walk-in clients. The Company believes that higher costs associated with
locating retail stores in these centers have been offset by increased sales in
these locations. Franklin's retail stores,
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which average approximately 2,000 square feet, are stocked almost entirely with
Franklin products. The Company's retail stores strategy focuses on providing
exceptional client service at the point of sale which the Company believes
increases client satisfaction and frequency and volume of purchases. At August
31, 1996, the Company had 90 retail stores located in 35 states and the District
of Columbia, of which 20 were opened during fiscal 1996. The Company plans to
open 20 additional stores by August 31, 1997.
The Company attracts existing clients to its retail stores by informing
them of store openings through direct mail. The Company believes that Franklin's
retail stores encourage walk-through traffic and impulse-buying and that store
clients are a source of participants for the Company's public seminars. The
stores have also provided the Company with an opportunity to assess client
reaction to new product offerings.
The Company believes that its retail stores have a high-end image
consistent with the Company's marketing strategy. The Company's products are
generally grouped in sections supporting the different sizes of the Franklin
Planner. Products are attractively presented and displayed with an emphasis on
integration of related products and accessories. Stores are staffed with a
manager, an assistant manager and additional sales personnel as needed. Franklin
employees have been trained in the Franklin System, enabling them to assist and
advise clients in selection and use of the Company's products. During peak
periods, additional personnel are added to promote prompt and courteous client
service.
INTERNATIONAL SALES
The Company maintains a sales office in each of Great Britain, Canada,
Hong Kong, Japan, Australia, Taiwan, New Zealand, Mexico and Switzerland. The
Company also operates retail stores in Canada, Hong Kong and Mexico.
International sales of the Company's products and services (not including sales
to network marketing companies) accounted for approximately $19.2 million or
approximately 6% of the Company's sales for the fiscal year ended August 31,
1996. To date, the Company's expansion into international markets has been
associated principally with expanding operations of its multinational and
network marketing clients in such markets. However, the Company's long-term
strategy is to provide the Company's full line of training services and products
to clients in international markets. The Company currently offers the Franklin
System in several English versions and in French, Japanese, Chinese, Spanish and
a multi-lingual European version. The Company has organized wholly-owned
subsidiaries for the purpose of conducting business in several other foreign
countries.
CLIENTS
Franklin has developed a broad base of institutional and individual
clients. The Company has more than 5,000 institutional clients consisting of
corporations, governmental agencies and other organizations. The Company
believes its products and seminars encourage strong client loyalty. Employees in
each of Franklin's distribution channels focus on providing timely and courteous
responses to client requests and inquiries. Institutional clients frequently
receive assistance in designing and developing customized forms, tabs,
pagefinders and binders necessary to satisfy specific needs. The Company
provides an unconditional guarantee with all of its seminars and products and
has adopted a 100% client satisfaction policy.
COMPETITION
Products. The paper-based time management and personal organization
products market is intensely competitive and subject to rapid change. The
Company competes directly with other companies that manufacture and market
calendars, planners, personal organizers, appointment books, diaries and related
products through retail, mail order and other direct sales channels. In this
market, several competitors have widespread name recognition. The Company
believes its principal competitors include Day Timer and Day Runner. Franklin
also competes, to a lesser extent, with companies that market substitutes for
paper-based products, such as electronic organizers, software PIMs and hand-held
computers. The Company's ASCEND(R) software competes directly with numerous
other PIMs. Many of the Company's competitors have significant marketing,
product development, financial and other resources.
Given the relative ease of entry in Franklin's product markets, the
number of competitors could increase, many of whom may imitate the Company's
methods of distribution, products and seminars, or offer similar products and
seminars at lower prices. Some of these companies may have greater financial and
other resources than the
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Company. The Company believes that the Franklin System and related products
compete primarily on the basis of user appeal, client loyalty, design, product
breadth, quality, price, functionality and client service. The Company also
believes that the Franklin System has obtained market acceptance primarily as a
result of the high quality of materials, innovative design, the Company's
attention to client service, and the strong loyalty and referrals of its
existing clients. The Company believes that its integration of training services
with products has become a competitive advantage. Moreover, management believes
that Franklin is a market leader in the United States among a small number of
integrated providers of time management products and services. Increased
competition from existing and future competitors could, however, have a material
adverse effect on the Company's sales and profitability.
Training Services. The market for time management training and business
communication services is highly competitive and fragmented. Although the
Company has become a leading provider in the United States of seminars focused
on personal productivity and time management, it faces increasing competition
from many well-established, well-financed companies with significant resources
that offer a wide variety of productivity training, time management programs and
communication training.
The principal competitive factors in the training industry are quality,
effectiveness, client service and price. Through its focus on high-quality
seminar content and presentation, the Company believes that it provides
effective seminars that improve individual productivity. The Company also
believes that the effectiveness of its seminars and related products constitutes
a competitive advantage that has produced a high degree of client loyalty among
its institutional and public clients. The Company also considers the skills,
experience and training of its account executives, training consultants and
client service representatives to be a competitive advantage. The Company
believes its seminars are competitively priced consistent with their quality and
value.
MANUFACTURING
The manufacturing operations of the Company consist primarily of
printing, assembling, storing and shipping printed materials used in connection
with the paper-based Franklin System.
The Company currently prints the various Franklin Planners and other
related forms at Publishers Press. The Company believes the acquisition of
Publishers Press will enable it to control production costs of the Franklin
Planner and other printed materials, exercise greater control over production
schedules and timing of inventories, increase quality control and reduce risks
associated with dependence on outside suppliers.
In order to obtain volume pricing and consistent quality, the Company
obtains its paper from a single source supplier in Wisconsin that is a
subsidiary of a Fortune 500 company. The paper is manufactured in two separate
facilities to reduce the risk of a supply disruption. The Company believes there
are several alternative suppliers available to meet the Company's paper needs.
If the Company were required to obtain paper from another source, any resulting
delay or disruption could have an adverse effect on the Company's short-term
profitability but is not expected to have a material adverse effect on the
Company's long-term business or financial condition.
The Planners and other forms printed by Publishers Press are delivered
to the Company's facilities where, depending on the particular product, they are
cut, collated and finished. The products are then assembled and packaged for
placement into inventory. Franklin generally maintains three to four months of
inventory. The Company primarily uses UPS, Federal Express and common carriers
to ship its products to clients and to the Franklin retail stores. Automated
production, assembly and handling equipment is used in the manufacturing process
to insure consistent quality of printed materials and to control costs and
maintain efficiencies.
Binders used for the Company's products are produced from either
leather, simulated leather or vinyl materials. All of the leather and vinyl
binders are produced by multiple and alternative product suppliers. The
simulated leather binders are manufactured by both third parties and by the
Company. Franklin believes that its knowledge and experience in the
manufacturing of binders allows it to better control the quality and cost of
binders manufactured by outside suppliers. The Company believes it enjoys good
relations with its suppliers and vendors and does not anticipate any difficulty
in obtaining the required binders and materials needed in its business.
The Company has implemented special procedures to insure a high
standard of quality for its leather binders, most of which are manufactured by
suppliers in the United States, Canada, Korea and China. Franklin
7
10
employees review and inspect leathers before they are handcrafted by outside
suppliers. Additionally, all finished binders are shipped back to the Company's
facilities for a quality inspection before being delivered to clients.
Representatives of the Company also attend leather shows and supervise the
buying process by leather suppliers who purchase and inventory leather before
producing and selling the finished binders to the Company.
The Company also purchases numerous accessories, including pens, books,
video tapes, calculators and other products, from various suppliers for resale
to its clients. These items are manufactured by a variety of outside contractors
located in the United States and abroad. The Company does not believe that it is
dependent on any one or more of such contractors and considers its relationships
with such suppliers to be good.
TRADEMARKS AND COPYRIGHTS
Franklin seeks to protect its intellectual property through a
combination of trademarks, copyrights and confidentiality agreements. The
Company claims rights for several trademarks, including "Values Quest" and "What
Matters Most?" and has obtained trademark registration in the United States for,
among others, "Franklin(R)," "Franklin Quest(R)," "Shipley Associates(R),"
"TimeQuest(R)," "Franklin Day Planner(R)," "ASCEND(R)," "Writing Advantage(R),"
the Franklin logo, and has obtained registrations in various foreign countries
for certain of its trademarks. While the Company considers its trademarks and
other proprietary rights to be important, it does not consider such rights to be
material to its business.
The Company owns all copyrights on its planners, the text and other
printed information provided in its training seminars, the programs contained
within ASCEND(R) and its instructional materials including the Shipley training
materials. The Company has been issued copyright registrations in the United
States covering the Franklin System and its time management seminar. The Company
also places copyright notices on its instructional, marketing and advertising
materials. In order to maintain the proprietary nature of its product
information, the Company enters into written confidentiality agreements with its
account executives, training consultants and certain clients in limited
instances. Although the Company believes its protective measures with respect to
its proprietary rights are important, there can be no assurance that such
measures will provide significant protection from competitors.
EMPLOYEES
As of October 1, 1996, the Company had 3,064 full and part-time U.S.
employees, including 1,600 in sales, marketing and training; 468 in client
service and product development; 624 in production operations and distribution;
and 372 in administration and support staff. None of the Company's employees are
represented by a union or other collective bargaining group. Management believes
that its relations with its employees are good. The Company does not currently
foresee a shortage in qualified personnel needed to operate the Company's
business.
ITEM 2. PROPERTIES
The Company's principal business operations and executive offices are
located in a complex of seven buildings in Salt Lake City, Utah. These buildings
form a campus of facilities on approximately 41 acres, approximately 37 of which
are developed and approximately four of which remain undeveloped to support
expanded operations in the future. The Company's central facilities currently
consist of approximately 635,000 square feet, including approximately 350,000
square feet for manufacturing, distribution and warehousing, and approximately
285,000 square feet for administration. All of the Company's principal
facilities are owned by Franklin, subject to mortgages of approximately $4.4
million as of August 31, 1996. The Company's 90 retail stores are operated under
leases with remaining terms of up to seven years; some of these leases include
rentals based on a percentage of sales. The Company also maintains sales,
administrative and/or warehouse facilities in or near Salt Lake City; Phoenix;
Atlanta; Tokyo; Hong Kong; London; Toronto; Brisbane; Taipei; Monterrey, Mexico;
Mexico City, Mexico; Guadalajara, Mexico; San Juan, Puerto Rico; Auckland, New
Zealand; and Basel, Switzerland under leases which expire intermittently through
the year 2004. Publishers Press occupies facilities of approximately 141,000
square feet of production space and 24,000 square feet of office space. In
connection with operation of the Franklin Quest Institute of Fitness, the
Company utilizes approximately 115,000 square feet of fitness and training
facilities located on 61 acres near St. George, Utah. In connection with the
acquisition of Time Systems, the Company
8
11
assumed leases totaling approximately 50,000 square feet in Phoenix, Arizona
which expire through August 1998. All of the Company's facilities are used
exclusively by Franklin and its divisions and are believed to be adequate and
suitable for its current needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property subject to,
any material pending legal proceedings, nor are any such proceedings known to
the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended August 31, 1996.
9
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") under the symbol "FNQ." The following table sets forth, for
the periods indicated, the high and low sale prices for the Company's Common
Stock, as reported on the NYSE Composite Tape, for the fiscal years ended August
31, 1996 and 1995, respectively.
HIGH LOW
--------- ----------
FISCAL YEAR ENDED AUGUST 31, 1996:
First Quarter ........... $25 5/8 $18 1/4
Second Quarter .......... 24 1/2 17 7/8
Third Quarter ........... 29 1/8 19 3/4
Fourth Quarter .......... 22 1/4 18 1/8
FISCAL YEAR ENDED AUGUST 31, 1995:
First Quarter ........... $39 3/8 $32 1/4
Second Quarter .......... 35 7/8 27 1/4
Third Quarter ........... 35 7/8 30 5/8
Fourth Quarter .......... 32 1/8 21 3/4
The Company did not pay or declare dividends on its Common Stock during
the fiscal years ended August 31, 1995 and 1996. The Company currently
anticipates that it will retain all available funds to finance its future growth
and business expansion. The Company does not presently intend to pay cash
dividends in the foreseeable future.
As of November 1, 1996, the Company had 19,707,831 shares of its Common
Stock outstanding, held by 420 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to
page one of the Company's 1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to
pages 25 through 28 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to
pages 29 through 38 of the Company's 1996 Annual Report to Shareholders.
10
13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
A Form 8-K was filed on October 13, 1995 reporting a change of
accountants which report is incorporated herein by this reference. There were no
disputes or disagreements reported in the Form 8-K nor have there been any
disagreements with the Company's independent accountants.
11
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors," "Executive Officers" and
"Executive Compensation--Employment Agreements" in the Company's definitive
Proxy Statement for the annual meeting of shareholders which was held on
November 18, 1996. The definitive Proxy Statement was filed with the Securities
and Exchange Commission on October 19, 1996 pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors--Director Compensation" and
"Executive Compensation" in the Company's definitive Proxy Statement for the
annual meeting of shareholders which was held on November 18, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the section entitled "Principal Holders of Voting Securities" in the Company's
definitive Proxy Statement for the annual meeting of shareholders which was held
on November 18, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement for the annual meeting of shareholders
which was held on November 18, 1996.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed
1. Financial Statements. The following Consolidated
Financial Statements of the Company and Report of
Independent Public Accountants included in the Annual
Report to Shareholders for the year ended August 31,
1996 are incorporated by reference in Item 8 hereof:
- Report of Arthur Andersen LLP, Independent
Public Accountants, for the year ended
August 31, 1996
- Consolidated Balance Sheets at August 31,
1996 and 1995
- Consolidated Statements of Income for the
years ended August 31, 1996, 1995 and 1994
- Consolidated Statements of Shareholders'
Equity for the years ended August 31, 1996,
1995 and 1994
- Consolidated Statements of Cash Flows for
the years ended August 31, 1996, 1995 and
1994
- Notes to Consolidated Financial Statements
Report of Price Waterhouse, Independent Public
Accountants for the year ended August 31, 1995 and
1994 (See page 16 herein).
2. Financial Statement Schedule. The following
Consolidated Financial Statement Schedule for the
three years ended August 31, 1996 is filed as part of
this Report and should be read in conjunction with
the Company's Consolidated Financial Statements and
Notes thereto:
SCHEDULE PAGE
-------- ----
Report of Arthur Andersen LLP, Independent Public Accountants, on
Consolidated Financial Statement Schedule for the year ended August 31,
1996 17
Report of Price Waterhouse, Independent Public Accountants, on
Consolidated Financial Statement Schedule for years ended August 31,
1995 and 1994 18
II -- Valuation and Qualifying Accounts and Reserves 19
Financial statements and schedules other than those
listed are omitted for the reason that they are not
required or are not applicable, or the required
information is shown in the Financial Statements or
Notes thereto, or contained in this Report.
13
16
3. Exhibit List.
EXHIBIT INCORPORATED FILED
NO. EXHIBIT BY REFERENCE HEREWITH
- ------- ------------------------------------------------------------- ------------ --------
3.1 Revised Articles of Incorporation of the Registrant (1)
3.2 Amended and Restated Bylaws of the Registrant (1)
4 Specimen Certificate of the Registrant's Common Stock, par
value $.05 per share (2)
10.1 Amended and Restated 1992 Employee Stock Purchase Plan (3)
10.2 First Amendment to Amended and Restated 1992 Stock
Incentive Plan (4)
10.3 Franklin 401(k) Profit Sharing Plan (1)
10.4 Forms of Nonstatutory Stock Options (1)
10.5 Shipley Acquisition Agreement (4)
10.6 Stock Exchange Agreement--Publishers Press, Inc. (5)
13 Annual Report to Shareholders for the year ended August 31, 1996.
Certain portions of this exhibit are incorporated by reference
into Items 6 through 8 of this Annual Report on Form 10-K and,
except as so incorporated by reference, the Annual Report to
Shareholders is not deemed to be filed as part of this Report. (6)
22 Subsidiaries of the Registrant (6)
23.1 Consent of Arthur Andersen LLP, independent public
accountants (6)
23.2 Consent of Price Waterhouse, independent public accountants (6)
27 Financial Data Schedule (6)
- -----------------------
(1) Incorporated by reference to Registration Statement on Form S-1 filed
with the Commission on April 17, 1992, Registration No. 33-47283.
(2) Incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1 filed with the Commission on May 26, 1992, Registration No.
33-47283.
(3) Incorporated by reference to Form 10-K filed November 27, 1992, for the
fiscal year ended August 31, 1992.
(4) Incorporated by reference to Registration Statement on Form S-1 filed
with the Commission on January 3, 1994, Registration No. 33-73728.
(5) Incorporated by reference to Reports on Form 8-K and Form 8-K/A dated
January 3, 1995 and February 28, 1995.
(6) Filed herewith and attached to this Report following page 18 hereof.
14
17
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the last
quarter of the fiscal year ended August 31, 1996.
(c) Exhibits
Exhibits to this Report are attached following page 21 hereof.
(d) Financial Statement Schedule
See page 17 through 19 herein.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Franklin Quest Co.
In our opinion, the consolidated balance sheets and the related consolidated
statements of income, of shareholders' equity and of cash flows as of and for
each of the two years in the period ended August 31, 1995 (appearing on pages 30
through 38 of the Franklin Quest Co. 1996 Annual Report to shareholders which
has been incorporated by reference in this Form 10-K Annual Report) present
fairly, in all material respects, the financial position, results of operations
and cash flows of Franklin Quest Co. and its subsidiaries as of and for each of
the two years in the period ended August 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; 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 examination, 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. We have not
audited the consolidated financial statements of Franklin Quest Co. for any
period subsequent to August 31, 1995.
Price Waterhouse LLP
Salt Lake City, Utah
September 20, 1995
16
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
To Franklin Quest Co.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements as of August 31, 1996 and for
the year then ended included in Franklin Quest Co.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated September 26, 1996. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index on page 13 is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule data for the year ended August 31, 1996 has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
as of August 31, 1996 and for the year then ended taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 26, 1996
17
20
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Franklin Quest Co.
Our audits of the consolidated financial statements referred to in our report
dated September 20, 1995 appearing on page 13 of this Annual Report on Form 10-K
of Franklin Quest Co. (which consolidated financial statements are incorporated
by reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14 (a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
Price Waterhouse LLP
Salt Lake City, Utah
September 20, 1995
18
21
SCHEDULE II
FRANKLIN QUEST CO.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED AUGUST 31, 1996
(DOLLARS IN THOUSANDS)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
ADDITIONS
--------------------------
CHARGED TO CHARGED
BALANCE AT COSTS AND TO OTHER BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
Year ended August 31, 1994:
Allowance for doubtful
accounts $ 734 $ 417 $ 97(1) $ (655)(3) $ 593
Allowance for inventories 956 -- -- (100)(4) 856
------ ------ ------- ------- ------
$1,690 $ 417 $ 97 $ (755) $1,449
====== ====== ======= ======= ======
Year ended August 31, 1995:
Allowance for doubtful
accounts $ 593 $ 348 $ 259(1) $ (528)(3) $ 672
Allowance for inventories 856 -- 166(2) -- 1,022
------ ------ ------- ------- ------
$1,449 $ 348 $ 425 $ (528) $1,694
====== ====== ======= ======= ======
Year ended August 31, 1996:
Allowance for doubtful
accounts $ 672 $ 301 $ 12(1) $(96) (3) $ 889
Allowance for inventories 1,022 7,267 62(2) (2,973)(4) 5,378
------ ------ ------- ------- ------
$1,694 $7,568 $ 74 $(3,069) $6,267
====== ====== ======= ======= ======
(1) Represents the addition of the allowances for doubtful accounts of
acquired companies.
(2) Represents the addition of the allowances for inventories of acquired
companies.
(3) Represents a write-off of accounts deemed uncollectible.
(4) Reduction in the allowance is due to a write-off of obsolete
inventories.
19
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 18, 1996.
FRANKLIN QUEST CO.
By: /s/ VAL JOHN CHRISTENSEN
----------------------------
Val John Christensen, Executive Vice President,
General Counsel, Corporate Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ HYRYM W. SMITH Chairman of the Board November 18, 1996
- ------------------------------
Hyrum W. Smith
/s/ ARLEN B. CROUCH President and Chief Executive November 18, 1996
- ------------------------------
Arlen B. Crouch Officer and Director (Principal
Executive Officer)
/s/ JON H. ROWBERRY Chief Operating Officer, and November 18, 1996
- ------------------------------
Jon H. Rowberry Chief Financial Officer and
Director (Principal Financial and
Accounting Officer)
/s/ VAL JOHN CHRISTENSEN Executive Vice President, General November 18, 1996
- ------------------------------
Val John Christensen Counsel, Corporate Secretary and
Director
/s/ JAMES M. BEGGS Director November 18, 1996
- ------------------------------
James M. Beggs
/s/ ROBERT F. BENNETT Director November 18, 1996
- ------------------------------
Robert F. Bennett
20
23
/s/ ROBERT H. DAINES Director November 18, 1996
- ------------------------------
Robert H. Daines
/s/ THOMAS M. LENAGH Director November 18, 1996
- ------------------------------
Thomas H. Lenagh
/s/ DANIEL P. HOWELLS Director November 18, 1996
- ------------------------------
Daniel P. Howells
/s/ E. J. "JAKE" GARN Director November 18, 1996
- ------------------------------
E. J. "Jake" Garn
/s/ BEVERLY B. CAMPBELL Director November 18, 1996
- ------------------------------
Beverly B. Campbell
21
24
3. Exhibit List.
EXHIBIT
NO. EXHIBIT
- ------- -------------------------------------------------------------
22 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP, independent public
accountants
23.2 Consent of Price Waterhouse, independent public accountants
27 Financial Data Schedule