<PAGE> 1
COMMISSION FILE NO 1-10875
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
OR
__ TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10875
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
(FULL TITLE OF THE PLAN AND ADDRESS OF THE PLAN,
IF DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW)
NOVACARE, INC.
1016 WEST NINTH AVENUE, KING OF PRUSSIA, PA 19406
(NAME OF ISSUER OF THE SECURITIES HELD PURSUANT TO THE PLAN
AND THE ADDRESS OF ITS PRINCIPAL EXECUTIVE OFFICE)
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<PAGE> 2
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS AND EXHIBIT
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
-------------------- ----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 2
FINANCIAL STATEMENTS:
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AT DECEMBER 31, 1999 AND 1998 3
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR
BENEFITS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998 4
NOTES TO FINANCIAL STATEMENTS 5 - 9
SUPPLEMENTAL SCHEDULE:*
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT
DECEMBER 31, 1999 10
SIGNATURE PAGE 11
EXHIBITS
--------
CONSENT OF INDEPENDENT ACCOUNTANTS 12
</TABLE>
* OTHER SCHEDULES REQUIRED BY SECTION 2520.103-10 OF THE DEPARTMENT OF LABOR
RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE UNDER THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974 HAVE BEEN OMITTED BECAUSE THEY ARE NOT
APPLICABLE.
1
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of
NCES/Novacare, Inc. 401(k) Retirement Savings Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of NCES/Novacare, Inc. 401(k) Retirement Savings Plan (the "Plan") at December
31, 1999 and 1998, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Plan's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, 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 statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits 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 disclosed in Note 1 of the financial statements, the Plan was terminated
effective December 31, 1999.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
May 30, 2000
2
<PAGE> 4
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
INVESTMENTS $155,678,919 $182,208,578
RECEIVABLES:
PARTICIPANTS' CONTRIBUTIONS 34,292 1,040,698
EMPLOYER'S CONTRIBUTIONS 7,188 214,633
------------ ------------
TOTAL RECEIVABLES 41,480 1,255,331
TOTAL ASSETS 155,720,399 183,463,909
LIABILITIES:
ADMINISTRATIVE FEES PAYABLE 32,601 48,153
------------ ------------
NET ASSETS AVAILABLE FOR
BENEFITS $155,687,798 $183,415,756
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE> 5
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
ADDITIONS: 1999 1998
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
DIVIDENDS AND INTEREST $ 13,847,997 $ 11,020,476
NET APPRECIATION
IN FAIR VALUE OF INVESTMENTS 14,664,732 10,137,382
------------- -------------
28,512,729 21,157,858
------------- -------------
CONTRIBUTIONS:
PARTICIPANTS' 14,202,482 30,104,032
EMPLOYER'S 2,386,388 5,721,437
PLAN MERGERS 3,299,439 1,726,672
------------- -------------
19,888,309 37,552,141
------------- -------------
TOTAL ADDITIONS 48,401,038 58,709,999
------------- -------------
DEDUCTIONS FROM NET ASSETS:
BENEFITS PAID TO PARTICIPANTS 75,965,653 12,610,726
ADMINISTRATIVE FEES 163,343 193,912
------------- -------------
TOTAL DEDUCTIONS 76,128,996 12,804,638
------------- -------------
NET INCREASE (DECREASE) (27,727,958) 45,905,361
NET ASSETS AVAILABLE FOR BENEFITS:
BEGINNING OF YEAR 183,415,756 137,510,395
------------- -------------
NET ASSETS END OF YEAR $ 155,687,798 $ 183,415,756
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE> 6
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
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1. PLAN TERMINATION
Effective December 31, 1999, as approved by the Board of Directors of
NCES/Novacare, Inc. (the "Company"), the NCES/Novacare, Inc. 401(k) Retirement
Savings Plan (the "Plan") was terminated. Upon termination of the Plan,
participants became 100% vested in Company matching contributions and earnings
there on. In addition, participant and employer contributions ceased as of the
termination date. Assets of the Plan are expected to be transferred into another
qualified plan.
2. DESCRIPTION OF PLAN
GENERAL. The following description of 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, which was formed effective July
1, 1990, is a defined contribution plan subject to the Employee Retirement
Income Security Act of 1974 ("ERISA") and the Internal Revenue Code ("IRC"). All
full and part-time employees of the Company working a minimum of twenty hours
per week on a regularly scheduled basis may enroll beginning on the first day of
the first payroll period of the month following six months of consecutive
service.
ENROLLMENT. An eligible employee participates in the Plan by authorizing the
Company to make tax-deferred contributions to the Plan on the employee's behalf,
resulting in a reduction of the employee's taxable earnings. The employee may
direct these contributions into various investment options offered by the Plan.
CONTRIBUTIONS TO THE PLAN. Participants may authorize basic contributions
ranging from 1% to 15% of their compensation. Certain highly compensated
participants may have their basic contributions limited to 6% of their
compensation. In accordance with the IRC such contributions may not exceed
$10,500 and $10,000 in 1999 and 1998, respectively. The Company makes matching
contributions in the amount of 30% of participant contributions up to the first
6% of compensation.
PARTICIPANT ACCOUNT. Each participant's account is credited with the
participant's contributions and allocations of (a) the Company's matching
contribution when made and, (b) Plan earnings when earned, less administrative
fees. Company contributions are allocated based on the matching percentage for
participant contributions. Plan earnings are allocated to each participant's
account based on the respective account balances. The benefit to which a
participant is entitled is the vested amount that can be provided from the
participant's vested account.
VESTING. Participant's are fully vested in their contributions plus actual
earnings on those contributions. Prior to December 31, 1999, vesting in the
remainder of the account was based on years of continuous service according to a
tiered vesting schedule. Participants became fully vested upon death or
disability, attainment of normal retirement age, or after five years of credited
service. As disclosed above, the Plan terminated effective December 31, 1999 at
which time participants became 100% vested in Company matching contributions and
earnings thereon.
PARTICIPANT LOANS. Participants may borrow from their accounts a minimum of
$1,000 up to a maximum equal to the lesser of 50 percent of their vested account
balance or $50,000. Loan terms range from six months to five years, are
collateralized by the vested balance in the participant's account and bear
interest at a rate commensurate with prevailing commercial lending institutions
rates. Interest rates ranged from 6% to 9.50% during 1999 and 1998.
Principal and interest is paid ratably through payroll deductions.
5
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NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
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DISTRIBUTIONS AND WITHDRAWALS. Distributions are paid in the following manner:
I. Distributions from all funds, except the NovaCare
Stock Fund, are paid in cash.
II. Distributions from the NovaCare Stock Fund are paid
in cash or shares of NovaCare, Inc. common stock at
the participant's option. Fractional shares are paid
in cash.
Prior to termination of service, participants may, in the event of financial
hardship, withdraw amounts from the Plan twice in any 12-month period. In the
absence of financial hardship, a participant's contribution may not be withdrawn
prior to attainment of age 59 1/2.
Upon termination of service for reasons other than death, participants are
entitled to a lump-sum amount equal to the value of the vested balance of their
account. Participants with account balances exceeding $5,000 may defer receipt
of the lump-sum amount until reaching age 70 1/2. If a participant dies, the
entire amount in the participant's account is distributed in a lump sum to the
participant's beneficiaries.
FORFEITED ACCOUNTS. A terminating participant's unvested account balance is
forfeited. In the event of reemployment, the employee is eligible for all
previously forfeited amounts. At December 31, 1999 and 1998, forfeited nonvested
accounts totaled $787,959 and $599,652, respectively. As a result of termination
as of December 31, 1999 all participants terminated in 1999 became fully vested.
Remaining unapplied forfeitures will be remitted to the Company as allowed under
the plan agreement. During 1999 and 1998, employer contributions were reduced by
$483,642 and $6,995, respectively, from forfeited nonvested accounts.
ADMINISTRATIVE EXPENSES. The Company may elect to pay all Plan administrative
expenses. If the Company elects not to pay such expenses, the expenses will be
paid by the Plan. During 1999 and 1998, Plan administrative expenses were shared
by both the Company and the Plan participants. Participant accounts are assessed
quarterly maintenance fees and new loans are subject to a one time charge.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING. The Plan's financial statements are prepared on the accrual
method of accounting.
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities and changes therein and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION. The Plan's investments are stated
at fair value. Shares of registered investment companies are valued at quoted
market prices which represent the net asset value of shares held by the Plan at
year end. The Fidelity Managed Income Portfolio is a common trust fund, which is
stated at its net asset value as determined by the fund administrator as of the
year-end valuation date. The NovaCare Stock Fund is valued at its year end unit
value as determined by the trustee which is based upon the underlying value of
NovaCare common stock and short term money market instruments. Participant loans
are valued at cost, which approximates fair value. Purchases and sales are
recorded on a trade date basis. Investment income is recorded when earned.
PAYMENT OF BENEFITS. Benefits are recorded when paid.
6
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NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
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RECLASSIFICATIONS. These financial statements reflect the reclassification of
certain prior year amounts in connection with the adoption of American Institute
of Certified Public Accountants Statement of Position 99-3, "Accounting for and
Reporting of Certain Employee Benefit Plan Investments and Other Disclosure
Matters" ("SOP 99-3"). SOP 99-3 is effective for financial statements for plan
years ending after December 15, 1999.
4. INVESTMENTS
Investments that represent more than 5% of the net assets available for benefits
as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Fidelity Magellan Fund $78,667,174 85,766,228
Fidelity Puritan Fund 34,421,873 49,309,241
Fidelity Aggressive Growth Fund 18,866,810 9,842,337
Fidelity Managed Income Portfolio 14,699,705 22,263,439
</TABLE>
During the years ended December 31, 1999 and 1998, the Plan's investments
appreciated (depreciated) in value, including realized gains and losses as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Mutual Funds $ 18,203,490 $ 20,477,755
NovaCare Stock Fund (3,538,758) (10,340,373)
------------ ------------
Net Unrealized Appreciation $ 14,664,732 $ 10,137,382
============ ============
</TABLE>
5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net assets available for benefits per the financial statements $ 155,678,919 $ 183,415,756
Less: Amounts allocated to withdrawing participants (214,332) (280,712)
------------- -------------
Net assets available for benefits per the Form 5500 $ 155,464,587 $ 183,135,044
============= =============
</TABLE>
7
<PAGE> 9
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following is a reconciliation of benefits paid to participants per the plan
financial statements to the Form 5500:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Benefits paid to participants per the financial statements $ 75,965,653
Add: Amounts allocated to withdrawing participants at December 31, 1999 214,332
Less: Amounts allocated to withdrawing participants at December 31, 1998 (280,712)
------------
Benefits paid to participants per the Form 5500 $ 75,899,273
============
</TABLE>
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31 but not yet paid as of that date.
6. PLAN MERGERS
During 1999 and 1998, the assets of the following plans were merged with and
into the Plan as follows:
<TABLE>
<CAPTION>
----------------------------------------------
Effective Date 1999 1998
----------------------------------------------
<S> <C> <C> <C>
Dale Clark Division of O&P
401(k) plan 01/15/99 $ 90,089
Frank Malone & Son, Inc.
Profit Sharing 401(k) plan 01/15/99 504,240
J.E. Hanger
401(k) plan 06/01/99 2,315,781
Gallery
401(k) plan 07/30/99 356,101
Certified Orthopedic
401(k) plan 10/01/99 33,228
Advanced Orthopedic Technologies, Inc.
401(k) Plan 07/01/98 $1,117,145
Fine, Bryant & Wah, P.T. Chartered
Profit Sharing Trust 10/06/98 131,035
Georgia Physical Therapy, Inc.
Profit Sharing Plan 10/27/98 478,492
---------- ----------
$3,299,439 $1,726,672
========== ==========
</TABLE>
8
<PAGE> 10
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7. TAX STATUS
On February 2, 1996 the Internal Revenue Service determined and informed the
Company by letter that the Plan and related trust qualifies under Section 401
(a) of the IRC and is exempt from federal income taxes under Section 501(a) of
IRC. Once qualified, the Plan is required to operate in conformity with the IRC
to maintain its qualification. The Plan has been amended since receiving the
determination letter. However, the Plan Administrator believes that the Plan is
designed and is currently being operated with the applicable requirements of the
IRC.
8. RELATED PARTY TRANSACTIONS
Certain Plan investments represent shares of mutual funds and a collective trust
fund managed by an affiliate of Fidelity Management Trust Company ("FMTC"). FMTC
is the trustee as defined by the Plan and, therefore, transactions in these
mutual funds are party-in-interest transactions which are exempt from the
prohibited transaction rules of ERISA.
The Company, as Plan sponsor, is also a related party. The Plan has a NovaCare
Stock Fund investment option which invests in NovaCare, Inc. common stock. The
balance of the NovaCare Stock Fund at December 31, 1999 and 1998, was $256,294
and $3,805,876, respectively. During the years ended December 31, 1999 and 1998,
respectively, the NovaCare Stock Fund depreciated in value (including realized
gains and losses) by $3,538,758 and $10,340,373.
9. RESTRUCTURING OF PLAN SPONSOR
Under a Restructuring Plan approved by the Stockholders of NovaCare, Inc. on
September 21, 1999, NovaCare, Inc. executed the sale of all of NovaCare's former
operating businesses and NovaCare continues to wind-down the administrative
functions. Under the Restructuring Plan NovaCare may reinvest the net proceeds
from its recently completed divestitures in a new business or businesses,
subject to stockholders approval. As a result of the sale of all its operating
businesses, NovaCare's board of directors approved the termination of the 401(k)
plan.
9
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NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IDENTITY OF ISSUE/DESCRIPTION OF ASSET CURRENT VALUE
-------------------------------------- -------------
<S> <C>
MUTUAL FUNDS:
FIDELITY MAGELLAN FUND* $ 78,667,174
FIDELITY PURITAN FUND* 34,421,873
FIDELITY AGGRESSIVE GROWTH FUND* 18,866,810
FIDELITY MANAGED INCOME PORTFOLIO* 14,699,705
FIDELITY DIVERSIFIED INTERNATIONAL FUND* 4,921,028
FIDELITY RETIREMENT GOVERNMENT MONEY
MARKET PORTFOLIO* 1,807,248
FIDELITY U.S. BOND INDEX FUND* 1,189,879
------------
154,573,717
NOVACARE STOCK FUND* 256,924
NOVACARE LOAN FUND
(MATURITY 1999-2004; INTEREST RATE 6% - 9.5%) 848,278
------------
$155,678,919
============
</TABLE>
* PARTY-IN-INTEREST.
10
<PAGE> 12
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE PLAN
ADMINISTRATORS OF THE "NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN" HAVE
DULY CAUSED THIS ANNUAL REPORT TO BE SIGNED BY THE UNDERSIGNED HEREUNTO DULY
AUTHORIZED.
NCES/NOVACARE, INC. 401(k) RETIREMENT SAVINGS PLAN
DATE: JUNE 28, 2000 BY: /S/ ROBERT E. HEALY JR.
--------------------------------
ROBERT E. HEALY JR.
PRESIDENT AND CHIEF FINANCIAL OFFICER
11
