<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON 25, D.C.
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission File No. _______________________
A. 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
B. 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
<PAGE> 2
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 Financial Condition as of
December 31, 1993 and 1992 . . . . . . . . . . 6
Statement of Income and Changes in Plan
Equity for the year ended December 31, 1993 . . 7
Notes to Financial Statements . . . . . . . . . 8-10
(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 to Investment Programs for the year ended
December 31, 1993 . . . . . . . . . . . . . . . . . 11
Schedule IV -- Assets Acquired and Disposed of for the
year ended December 31, 1993 . . . . . . . . . . . . . 12
Schedule V -- Transactions in Excess of 5% of
Plan Assets for the year ended December 31, 1993 . . . 13
<PAGE> 3
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 10, 1994 /s/ Philip C. Maynard
------------- -----------------------------------------
Philip C. Maynard
Chairman of the Retirement Plan Committee
Page 3 of 13
<PAGE> 4
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
benefits and of accumulated plan benefits, and the related statements of
changes in net assets available for benefits and of changes in accumulated plan
benefits present fairly, in all material respects, the financial status of the
National Education Corporation Retirement Plan (the Plan) at December 31, 1993
and 1992, and the changes in its financial status 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 on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting princples used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 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. At present, the restructured
contract is expected to be issued to contractholders sometime during the Fall
of 1994. Due to the uncertainty surrounding the ultimate recovery of principal
and interest on the MBLIC GIC's, it is not possible 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.
/s/ PRICE WATERHOUSE
- - - -------------------------------
Price Waterhouse
Costa Mesa, California
May 27, 1994
Page 4 of 13
<PAGE> 5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 (No. 2-86904) of
National Education Corporation Retirement Plan of our report dated May 27, 1994
appearing on page 4 of this Form 11-K.
/s/ PRICE WATERHOUSE
- - - --------------------------------
Price Waterhouse
Costa Mesa, California
May 27, 1994
Page 5 of 13
<PAGE> 6
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AND OF ACCUMULATED PLAN BENEFITS
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1993 1992
----------------- -----------------
<S> <C> <C>
Contributions receivable - employee $ 129,144 $ 145,500
employer 455,352 526,048
Investments held by Bank of America as trustee
and custodian:
Investment in Dodge & Cox Income Fund
(revalued cost of $11,071,989 in 1993 and
$7,384,498 in 1992) 11,230,283 7,380,151
Investment in Mutual Benefit Life Income Fund 2,843,763 2,888,011
Investment in IDS Life Income Fund 7,871,327 5,410,832
Vanguard Index Trust 500 Portfolio Fund
(revalued cost of $9,526,824 in 1993 and
$7,982,994 in 1992) 10,125,939 8,312,406
Investment in NEC Stock Fund, 461,933 shares
(revalued cost $3,104,241) in 1993 and
424,801 shares (revalued cost $3,835,155) in 1992 2,887,081 2,867,407
Investment in Treasury Trust Fund 1,857,884 1,718,730
Participant loans receivable 1,640,489 1,446,895
Collective short-term investments 69,798 5,239,042
------------- -------------
39,111,060 35,935,022
Payable for administrative fees (36,468) (28,757)
------------- -------------
Plan equity (2,885 and 2,704 participants
in 1993 and 1992, respectively) $ 39,074,592 $ 35,906,265
============= =============
</TABLE>
See Notes to Financial Statements.
Page 6 of 13
<PAGE> 7
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
STATEMENTS OF CHANGES AND NET ASSETS
AVAILABLE FOR BENEFITS AND OF CHANGES
IN ACCUMULATED PLAN BENEFITS
<TABLE>
<CAPTION> Years Ended December 31,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
Sources of Assets:
- - - -----------------
Employee salary deferrals $ 4,257,661 $ 4,115,257
Employer contributions 1,990,573 2,112,487
Interest and dividend income 1,740,784 1,738,459
Participant loans -- 950,200
Unrealized appreciation on investments, net 540,250 --
Net realized gain on stock transactions 83,468 85,453
Other income 2,088 19,139
----------- -----------
Total sources 8,614,824 9,020,995
----------- -----------
Applications of Assets:
- - - ----------------------
Distributions to participants (5,326,192) (3,610,290)
Unrealized depreciation on investments, net -- (642,883)
Administrative expenses (120,305) (122,994)
----------- -----------
Total applications (5,446,497) (4,376,167)
----------- -----------
Increase in net assets for the year 3,168,327 4,644,828
Plan Equity:
- - - -----------
Beginning of year 35,906,265 31,261,437
----------- -----------
End of year $39,074,592 $35,906,265
=========== ===========
</TABLE>
See Notes to Financial Statements.
Page 7 of 13
<PAGE> 8
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE PLAN AND SIGNIFICANT ACCOUNTING POLICIES:
The National Education Corporation Retirement Plan (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 $8,994 during
1993, 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 invested in the Dodge & Cox
Income Fund and guaranteed investment contracts ("GICs") issued by IDS Life
Insurance Company and 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.
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, 1993, the Equity Fund included 231,028
shares invested in the Vanguard 500 Portfolio Fund with a net asset value of
$43.83 per share.
Page 8 of 13
<PAGE> 9
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, 1993 the NEC Stock fund included 461,933 shares of
NEC common stock with a net asset value of $6.25 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.
During the year ended December 31, 1992, the Plan changed its method of
accounting for benefit payments to terminated employees in order to comply with
recently issued guidance for accounting and disclosure by employee benefit
plans. Accordingly, the Plan no longer establishes an accrual for benefit
payments of terminated employees which are payable subsequent to the Plan year
end. The benefits payable to terminated employees as of December 31, 1993 and
1992 were $1,335,058 and $995,996, 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 $120,305 incurred in 1993 include
recordkeeping fees of $90,885 paid to Hewitt Associates and trustee fees of
$29,413 paid to Bank of America.
Page 9 of 13
<PAGE> 10
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 1993 and 1992 were $285,308 and $140,946,
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. At present, the
restructured contract is expected to be issued to contractholders sometime
during Fall of 1994.
As of July 1, 1991, Plan participants' interest accruals on the Mutual
Benefit GICs have been suspended by the Committee. In addition, the Mutual
Benefit GICs have been segregated within the Plan and proportionally allocated
to each participant in the Income Fund. Interest income (based on the contract
rate of interest), net of applicable expenses, excluded from recognition in the
financial statements totalled $145,068 for 1991. During 1992 and 1993, Mutual
Benefit has not credited any interest to the Mutual Benefit GICs pending
implementation of the Rehabilitation Plan. According to the Rehabilitation
Plan, the interest crediting rate for 1992 and 1993 will be 4% and 3.5%,
respectively, less expenses. The Plan elected to participate in an Interim
Payout Program and received payouts from Mutual Benefit totalling $92,184 to
date, which have been used to pay death benefits.
NOTE 6 -- ALLOCATION BY INVESTMENT PROGRAM:
Allocation of certain Plan assets and liabilities to each investment
program as of December 31, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------------------------------------------
Total Income Equity NEC Stock U.S. Treasury
-------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
-------------------------------------------------------------------------------------
Total Income Equity NEC Stock U.S. Treasury
-------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Contributions Receivable
Employee $ 145,500 $ 61,845 $ 48,443 $ 16,487 $ 18,725
Employer $ 526,048 $ 279,426 $ 148,744 $ 56,861 $ 41,017
Payable for Administrative
Fees $ (28,757) $ (17,488) $ (7,537) $ (2,235) $ (1,497)
</TABLE>
Page 10 of 13
<PAGE> 11
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SCHEDULE III -- ALLOCATION OF PLAN INCOME AND CHANGES IN PLAN
EQUITY BY INVESTMENT PROGRAM
<TABLE>
<CAPTION>
Year Ended December 31, 1993
-----------------------------------------------------------------------------
U.S.
Total Income Equity Stock Treasury Loan
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sources of Assets:
Employee salary deferrals $ 4,257,661 $ 1,977,241 $ 1,428,237 $ 437,598 $ 414,585 $ --
Employer contribution 1,990,573 985,468 608,370 215,323 181,412 --
Interest and dividend 1,740,784 1,320,053 262,913 1,217 49,625 106,976
Net realized gain on
security transactions 83,468 55,216 19,279 8,973 -- --
Unrealized appreciation
(depreciation) on
investments 540,250 158,294 599,116 (217,160) -- --
Other income 2,088 1,232 543 209 104 --
----------- ----------- ----------- ---------- ---------- ----------
Total sources 8,614,824 4,497,504 2,918,458 446,160 645,726 106,976
----------- ----------- ----------- ---------- ---------- ----------
Application of Assets:
Distributions to
participants (5,326,192) (2,636,505) (1,683,111) (358,180) (508,278) (140,118)
----------- ----------- ----------- ---------- ---------- ----------
Administrative expense (120,305) (71,920) (31,728) (10,516) (6,141) --
Transfers between funds, net 0 (307,110) 189,472 (85,497) (23,602) 226,737
----------- ----------- ----------- ---------- ---------- ----------
Total applications (5,446,497) (3,015,535) (1,525,367) (454,193) (538,021) 86,619
----------- ----------- ----------- ---------- ---------- ----------
Increase in assets for
the period 3,168,327 1,481,969 1,393,091 (8,033) 107,705 193,595
Plan Equity:
Beginning of year 35,906,265 20,751,459 8,942,490 2,957,865 1,807,556 1,446,895
----------- ----------- ----------- ---------- ---------- ----------
End of year $39,074,592 $22,233,428 $10,335,581 $2,949,832 $1,915,261 $1,640,490
=========== =========== =========== ========== ========== ==========
</TABLE>
Page 11 of 13
<PAGE> 12
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SCHEDULE IV -- ASSETS ACQUIRED AND DISPOSED OF
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Purchase Realized
Identity of Issue/Description Price/Cost Selling Price Gain/Loss
----------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Dodge & Cox Income Fund $ 1,632,469 $ 1,687,685 $ 55,216
The Vanguard Group $ 590,721 $ 610,000 $ 19,279
Index Trust 500 Portfolio
NEC Common Stock $ 305,162 $ 314,135 $ 8,973
$.01 par value
Treasury Trust Dollar Fund $ 426,000 $ 426,000 $ --
</TABLE>
Page 12 of 13
<PAGE> 13
NATIONAL EDUCATION CORPORATION RETIREMENT PLAN
SCHEDULE V -- TRANSACTIONS IN EXCESS OF 5% OF ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Aggregate Aggregate
Purchase Selling Current Realized
Identity of Party/Description Price Price Expenses Asset Cost Value Gain/Loss
-------------------------------- ---------- --------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dodge & Cox Income Fund
Purchases - 30 transactions $5,324,306 $ -- $ -- $5,324,306 $5,324,306 $ --
Sales - 4 transactions $ -- $1,687,685 $ -- $1,632,469 $1,687,685 $55,216
IDS Guaranteed Annuity Contract
Contract #9310-3327427
5.35% Interest, Maturity 03/31/96
Purchases - 4 transactions $2,080,096 $ -- $ -- $2,080,096 $2,080,096 $ --
The Vanguard Group
Index Trust 500 Portfolio
Purchases - 30 transactions $1,805,139 $ -- $ -- $1,805,139 $1,805,139 $ --
Sales - 3 transactions $ -- $ 610,000 $ -- $ 590,721 $ 610,000 $19,279
</TABLE>
Page 13 of 13
