SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the Securities Exchange Act of 1934
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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 No.
Full title of the Plan and the address of the Plan, if different
from that of the issuer named below:
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
Name of issuer of securities held pursuant to the Plan and the
address of its principal executive office:
National Education Corporation
18400 Von Karman Avenue
Irvine, CA 92715-1594
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
Financial Statements Page
1. Report of Independent Accountants. . . . . . . . . . . . . . . . . . 4
2. Consent of Independent Accountants to Incorporation
by Reference of Report In Continuous Offerings
on Form S-8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Financial Statements of the National Education
Corporation Retirement Plan:
Statements of Net Assets Available for Plan Benefits
as of December 31, 1994 and 1993. . . . . . . . . . . . . . . . . 6
Statements of Changes in Net Assets Available for Plan Benefits
for the years ended December 31, 1994 and 1993. . . . . . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . . . . . 8-12
4. Schedules I and II have been omitted due to the presentation
of the required information in the financial statements.
Schedule III - Allocation of Plan Income and Changes in
Plan Equity by Investment Program for the year ended
December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . .13
Schedule IV - Assets Acquired and Disposed of for the
year ended December 31, 1994 . . . . . . . . . . . . . . . . . . . .14
Schedule V - Transactions in Excess of 5% of Plan Assets
for the year ended December 31, 1994 . . . . . . . . . . . . . . . .15
Page 2 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the Committee administering the Plan has duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly
authorized.
NATIONAL EDUCATION CORPORATION
RETIREMENT PLAN
Date June 29, 1995 /s/ Philip C. Maynard
-------------------- -------------------------------
Philip C. Maynard
Chairman of the Retirement Plan Committee
Page 3 of 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and the
Administration Committee of the
National Education Corporation
Retirement Plan
In our opinion, the accompanying statements of net assets available for plan
benefits, and the related statements of changes in net assets available for
plan benefits present fairly, in all material respects, the net assets
available for plan benefits of the National Education Corporation Retirement
Plan (the Plan) at December 31, 1994 and 1993, and the changes in net assets
available for plan benefits for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Plan's management; our responsibility is to
express an opinion of 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.
Our audits were made for the purpose of forming am opinion on the basic
financial statements taken as a whole. The additional information included
in Schedules III, IV and V and in Note 6 to the financial statements is
presented for the purposes of additional analysis and is not a required part
of the basic financial statements but is additional information required by
ERISA. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
As discussed in Note 5 to the financial statements, on July 15, 1991, New
Jersey insurance regulators took court-supervised conservatorship of Mutual
Benefit Life Insurance Company (MBLIC) at the request of MBLIC. On August
3, 1992, the Insurance Commissioner of the State of New Jersey filed the
Mutual Benefit Rehabilitation Plan with the Superior Court of New Jersey.
On January 15, 1993, an amended Rehabilitation Plan was filed and confirmed
by the Superior Court of New Jersey on November 10, 1993. Due to the
uncertainty surrounding the ultimate recovery of principal and interest on
the MBLIC GIC's, it is not passible to quantify the effect on the financial
statements, if any, of the recovery of plan assets. No provision for any
impairment of plan assets that may result from the ultimate resolution of
this matter has been made in the accompanying financial statements.
PRICE WATERHOUSE LLP
Costa Mesa, California
April 17, 1995
Page 4 of 15
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 2-86904) of National Education Corporation
Retirement Plan of our report dated April 17, 1995 appearing on page 4 of
this Form 11-K.
Price Waterhouse LLP
Costa Mesa, California
April 17, 1995
Page 5 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31,
-------------------------------
1994 1993
-------------------------------
Contributions receivable - employee $ 139,538 $ 129,144
employer 442,269 455,352
Investments held by Bank of America as trustee and custodian:
Investment in Dodge & Cox Income Fund (revalued cost
of 13,265,416 in 1994 and $11,071,989 in 1993) 12,074,640 11,230,283
Investment in Mutual Benefit Life Income Fund 3,288,639 2,843,763
Investment in IDS Life Income Fund -- 7,871,327
Vanguard Index Trust 500 Portfolio Fund (revalued cost
of $10,465,965 in 1994 and $9,526,824 in 1993) 10,277,709 10,125,939
Investment in NEC Stock Fund, 426,086 shares (revalued
cost $2,621,321) in 1994 and 461,933 shares (revalued
cost $3,104,241) in 1993 1,757,605 2,887,081
Investment in Treasury Trust Fund 3,330,725 1,857,884
Participant loans receivable 1,748,177 1,640,489
Collective short-term investments 5,333,224 69,798
--------------------------------
38,392,526 39,111,060
Payable for administrative fees (29,642) (36,468)
--------------------------------
Plan equity (2,955 and 2,885 participants in 1994 and
1993, respectively) $38,362,884 $39,074,592
===============================
<FN>
See Notes to Financial Statements.
</FN>
Page 6 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
December 31,
-------------------------------
1994 1993
-------------------------------
Source of Assets:
Employee salary deferrals $ 4,139,430 $ 4,257,661
Employer contributions 1,954,057 1,990,573
Interest and dividend income 2,195,676 1,740,784
Unrealized appreciation on investments, net -- 540,250
Net realized gain on stock transactions -- 83,468
Other income 600 2,088
-------------------------------
Total sources 8,289,763 8,614,824
-------------------------------
Application of Assets:
Distributions to participants (6,461,585) (5,326,192)
Unrealized depreciation on investments, net (2,242,748) --
Net realized loss on stock transactions (177,879) --
Administrative expenses (119,259) (120,305)
-------------------------------
Total applications (9,001,471) (5,446,497)
-------------------------------
Increase (decrease) in net assets for the year (711,708) 3,168,327
Plan Equity:
Beginning of year 39,074,592 35,906,265
-------------------------------
End of year $38,362,884 $39,074,592
===============================
<FN>
See Notes to Financial Statements.
</FN>
Page 7 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PLAN AND SIGNIFICANT ACCOUNTING POLICIES:
The following description of the National Education Corporation Retirement
Plan (the "Plan") provides only general information. Participants should
refer to the Plan agreement for a more complete description of the Plan's
provisions. The Plan was established by the Board of Directors of National
Education Corporation (the "Company") and has been designed to qualify under
the pretax deferral provisions of Section 401(k) of the Internal Revenue
Code. Under authority granted by the Board of Directors of the Company, the
President and Chief Executive Officer has designated the Retirement Plan
Committee (the "Committee") to administer the Plan.
All full-time domestic employees of the Company with at least one year of
service are eligible to participate in the Plan. Participants may elect to
defer between 2% and 16% of their salary, up to a maximum of $9,240 during
1994, with such deferrals contributed to the Plan eligible for a matching
contribution from the Company totaling 100% of the first 2% and 50% of the
next 4% of the salary deferred. A participant's interest in the Plan is
measured in dollars (Plan account), which at the time of distribution or
withdrawal, is valued as the sum of the participants' salary deferrals, the
vested portion of the Company's contributions and the earnings thereon.
Participants are fully vested in their salary deferrals and become fully
vested in the Company's contributions ratably over four years from the date
of eligibility or in the event of normal retirement, death or total
disability. Should the Company permanently discontinue its contributions or
terminate the Plan, participants become fully vested in their Company
contributions.
The trustee of the Plan is Bank of America ("Custodian" or the "Trustee").
The Trustee is required to invest participant salary deferrals and Company
contributions, as well as investment earnings, in the Income Fund, Equity
Fund, NEC Stock Fund or the U.S. Treasury Fund, based upon each
participant's investment election. Cash awaiting distribution or investment
in each of the four funds is invested by the Trustee in short term interest
bearing securities. Trustee service costs and all other Plan expenses are
paid by the Plan unless otherwise paid by the Company. Bank of America
maintains a blanket bond in an amount of $50 million with a $20 million
deductible regarding its custodial functions for the Plan and others.
Funds invested in the Income Fund are primarily invested in the Dodge & Cox
Income Fund, Bank of America Money Market Fund for Tax Exempt Trusts, and
guaranteed investment contracts ("GICs") issued by Mutual Benefit Life
Insurance Company (see Note 5). Investment income consists of dividends,
interest earned and realized and unrealized gains or losses in the market
value of Dodge & Cox Income Fund bonds, less expenses. Investments in the
Income Fund are stated at quoted market value and realized gains or losses
on transactions are calculated based on revalued cost at the beginning of
the year as adjusted for current year purchases.
Page 8 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
Funds invested in the Equity Fund are invested by the Vanguard Group in a
500 Portfolio Fund managed by Vanguard Index Trust. The 500 Portfolio Fund
is designed to invest in equity securities which track the performance of
the Standard and Poor's 500 stock index. Investment income consists of
dividends, interest earned and realized and unrealized gains or losses in
the market value of investments, less expenses. Investments in the Equity
Fund are stated at quoted market value and realized gains or losses on
transactions are calculated based on revalued cost at the beginning of the
year as adjusted for current year purchases. As of December 31, 1994, the
Equity Fund included 239,183 shares invested in the Vanguard 500 Portfolio
Fund with a net asset value of $42.97 per share.
Funds invested in the NEC Stock Fund are invested in the Company's common
stock. Investment income consists of realized and unrealized gains or losses
in the market value of the stock, less expenses. Investments in the NEC
Stock Fund are stated at quoted market value and realized gains or losses on
transactions are calculated based on revalued cost at the beginning of the
year as adjusted for current year purchases. Transactions in the Company's
common stock may be carried out in the open market or with the Company.
Participants may not invest more than 40% of their current contributions in
the NEC Stock Fund. As of December 31, 1994 the NEC Stock fund included
426,086 shares of NEC common stock with a net asset value of $4.125 per
share.
Funds invested in the U.S. Treasury Fund are invested in the Treasury Trust
Fund managed by Smith Barney Shearson Inc. The Treasury Trust Fund is
designed to invest in U.S. Government securities with maturities of one year
or less or in securities exceeding one year if such securities provide for
interest rate adjustments not less frequently than annually. Investment
income primarily consists of dividends and interest earned, less expenses,
and the fund typically maintains a net asset value of $1.00 per share.
Participant loan receivables consist of outstanding loans to Plan
participants. Participants may obtain one loan in a three year period from
the Plan for up to 50% of their vested balance, minus their highest
outstanding loan balance in the last twelve months. The loans bear interest
at a fixed rate equal to the one-year certificate of deposit rate as quoted
by a national periodical at or around the loan date, plus 2%, and are
payable over a term not to exceed fifteen years.
Participants may withdraw funds from their Plan accounts only upon attaining
the age of 59-1/2 or after incurring a financial hardship which may not be
reasonably met through other resources. Upon retirement, participants may
elect to use the balance of their Plan account for the purchase of annuity
contracts or receive either a lump sum or installment payments. In addition,
participants are entitled to the vested balance of their Plan accounts, less
the allocated Mutual Benefit GIC balances (see Note 5), upon termination of
employment with the Company.
Page 9 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
The Plan does not establish an accrual for benefit payments to terminated
employees which are payable subsequent to the Plan year end. The benefits
payable to terminated employees as of December 31, 1994 and 1993 were
$1,194,655 and $1,335,058, respectively.
Except as noted above, the financial statements of the Plan are prepared on
the accrual basis of accounting.
NOTE 2 - INCOME TAXES:
The Company has received a favorable determination letter from the Internal
Revenue Service stating that the Plan qualifies for tax exempt status under
Section 401(k) of the Internal Revenue Code of 1986, as amended. The
contributions of the employee and the employer and earnings thereon will be
tax deferred until the participant receives a distribution from the Plan.
NOTE 3 - ADMINISTRATIVE EXPENSES:
Administrative expenses of $119,259 incurred in 1994 consist of
recordkeeping fees of $89,438 paid to Hewitt Associates and trustee fees of
$29,821 paid to Bank of America.
NOTE 4 - FORFEITURES:
Participant forfeitures, unvested portions of participant withdrawals, are
maintained by the Custodian and used to offset the Company's matching
contribution. Total forfeitures for 1994 and 1993 were $248,760 and
$285,308, respectively.
NOTE 5 - MUTUAL BENEFIT LIFE INSURANCE COMPANY
At the request of Mutual Benefit Life Insurance Company ("Mutual Benefit"),
New Jersey insurance regulators took court-supervised conservatorship of
Mutual Benefit on July 15, 1991 in order to protect its assets and
policyholders. On August 3, 1992, the Insurance Commissioner of the State of
New Jersey filed the Mutual Benefit Rehabilitation Plan with the Superior
Court of New Jersey. On January 15, 1993, an amended Rehabilitation Plan was
filed. The Superior Court of New Jersey confirmed the Rehabilitation Plan
for Mutual Benefit Life on November 10, 1993 and a contractholder election
form was made available to the Plan during February, 1994. In order to
preserve the account balance and full death and retirement benefits, the
Committee elected to "Opt-In" to the Mutual Benefit Rehabilitation Plan
effective April 29, 1994, upon closing of the Rehabilitation Agreement
between Mutual Benefit Life and MBL Life Assurance Corporation.
Page 10 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
During July 1, 1991, through June 30, 1994, Plan participants' interest
accruals on the Mutual Benefit GICs were suspended by the Committee. In
addition, on July 1, 1991, the Mutual Benefit GICs were segregated within
the Plan and proportionally allocated to each participant in the Income
Fund. During July of 1994, Mutual Benefit began crediting insurance
contracts with interest income per the Mutual Benefit Rehabilitation Plan.
Accordingly, during the third quarter of 1994, the Plan credited retroactive
interest for the period July 1, 1991 - June 30, 1994 and began crediting the
current quarter interest income. Interest credited represents the contract
rates of interest for 1991 (10% and 11.9%), 4% for 1992, and 3.5% for 1993
and 1994. The Plan elected to participate in an Interim Payout Program and
received payouts from Mutual Benefit totaling $136,432 to date, which have
been used to pay death benefits.
Page 11 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - ALLOCATION BY INVESTMENT PROGRAM:
Allocation of certain Plan assets and liabilities to each investment program
as of December 31, 1994 and 1993 was as follows:
December 31, 1994
--------------------------------------------------------------------------------------
Total Income Equity NEC Stock U.S. Treasury Loans
----------- ----------- ----------- ----------- ------------- -----------
Investments:
Dodge & Cox Income Fund $12,074,640 $12,074,640
Mutual Benefit Life
Income Fund $ 3,288,639 $ 3,288,639
Vanguard Index Trust 500
Portfolio Fund $10,277,709 $10,277,709
NEC Stock Fund $ 1,757,605 $1,757,605
Treasury Trust Fund $ 3,330,725 $3,330,725
Participant loans
receivable $ 1,748,177 $1,748,177
Collective short-term
investments $ 5,333,224 $ 5,225,512 $ 78,554 $ 14,285 $ 14,868 $ 5
Contributions Receivable
Employee $ 139,538 $ 57,881 $ 53,589 $ 9,051 $ 19,017
Employer $ 442,269 $ 200,768 $ 160,755 $ 32,445 $ 48,301
Payable for Administrative
Fees $ (29,642) $ (16,733) $ (8,657) $ (1,750) $ (2,502)
December 31, 1993
--------------------------------------------------------------------------------------
Total Income Equity NEC Stock U.S. Treasury Loans
----------- ----------- ----------- ----------- ------------- -----------
Investments:
Dodge & Cox Income Fund $11,230,283 $11,230,283
Mutual Benefit Life
Income Fund $ 2,843,763 $ 2,843,763
IDS Life Income Fund $ 7,871,327 $ 7,871,327
Vanguard Index Trust 500
Portfolio Fund $10,125,939 $10,125,939
NEC Stock Fund $ 2,887,081 $2,887,081
Treasury Trust Fund $ 1,857,884 $1,857,884
Participant loans
receivable $ 1,640,489 $1,640,489
Collective short-term
investments $ 69,798 $ 32,609 $ 23,601 $ 7,056 $ 6,532 $ --
Contributions Receivable
Employee $ 129,144 $ 58,868 $ 46,242 $ 10,897 $ 13,137
Employer $ 455,352 $ 218,229 $ 149,840 $ 47,679 $ 39,604
Payable for
Administrative Fees $ (36,468) $ (21,650) $ (10,042) $ (2,881) $ (1,895)
Page 12 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SCHEDULE III - ALLOCATION OF PLAN INCOME AND CHANGES IN PLAN
EQUITY BY INVESTMENT PROGRAM
Year Ended December 31,
-------------------------------------------------------------------------------------
1994
-------------------------------------------------------------------------------------
Total Income Equity NEC Stock U.S. Treasury Loans
----------- ----------- ----------- ----------- ------------- ----------
Sources of Assets:
Employee salary deferrals $ 4,139,430 $ 1,749,690 $ 1,597,830 $ 319,858 $ 472,052 $ --
Employer contributions 1,954,057 895,865 698,537 158,687 200,968 --
Interest and dividend
income 2,195,676 1,694,268 328,574 1,183 95,289 76,362
Other income 600 -- -- 600 -- --
----------- ----------- ----------- ---------- ---------- ----------
Total sources 8,289,763 4,339,823 2,624,941 480,328 768,309 76,362
----------- ----------- ----------- ---------- ---------- ----------
Application of Assets:
Distributions to
participants (6,461,585) (3,482,944) (1,937,565) (479,901) (284,879) (276,296)
Unrealized depreciation
on investments (2,242,748) (1,190,776) (188,255) (863,717) -- --
Net realized loss on
security transactions (177,879) (109,938) (11,397) (56,544) -- --
Administrative expense (119,259) (68,906) (34,085) (7,538) (8,730) --
Transfers between funds,
net -- (889,980) (227,270) (210,825) 1,020,449 307,626
----------- ----------- ----------- ---------- ---------- ----------
Total applications (9,001,471) (5,742,544) (2,398,572) (1,618,525) 726,840 31,330
----------- ----------- ----------- ---------- ---------- ----------
Increase (decrease) in
assets for the period (711,708) (1,402,721) 226,369 (1,138,197) 1,495,149 107,692
Plan Equity:
Beginning of year 39,074,592 22,233,428 10,335,581 2,949,832 1,915,261 1,640,490
----------- ----------- ----------- ---------- ---------- ----------
End of year $38,362,884 $20,830,707 $10,561,950 $1,811,635 $3,410,410 $1,748,182
=========== =========== =========== ========== ========== ==========
Page 13 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SCHEDULE IV - ASSETS ACQUIRED AND DISPOSED OF
FOR THE YEAR ENDED DECEMBER 31, 1994
Purchase Selling Realized
Identity of Issue/Description Price/Cost Price Gain/(Loss)
- ----------------------------- ----------- ----------- -----------
Dodge & Cox Income Fund $ 2,483,888 $ 2,349,577 $ (134,311)
The Vanguard Group
Index Trust 500 Portfolio $ 1,459,564 $ 1,448,167 $ (11,397)
NEC Common Stock
$.01 par value $ 539,940 $ 483,396 $ (56,544)
Page 14 of 15
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SCHEDULE V - TRANSACTIONS IN EXCESS OF 5% OF ASSETS
FOR THE YEAR ENDED DECEMBER 3,1994
Aggregate Aggregate
Identity of Party/ Purchase Selling Lease Current Realized
Description Price Price Rental Expenses Asset Cost Value Gain/(Loss)
- -------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Dodge & Cox Income Fund
Purchases - 22 transactions $ 4,519,021 $ -- $ -- $ -- $4,519,021 $4,519,021 $ --
Sales - 4 transactions $ -- $ 2,349,577 $ -- $ -- $2,483,888 $2,349,577 $ (134,311)
The Vanguard Group
Purchases - 32 transactions $1,799,589 $ -- $ -- $ -- $1,799,589 $1,799,589 $ --
Sales - 5 transactions $ -- $ 1,448,167 $ -- $ -- $1,459,564 $1,448,167 $ (11,397)
Page 15 of 15