11-K 1 l01624ae11vk.txt THE COLE NATIONAL CORPORATION 401K PLAN United States Securities and Exchange Commission Washington, DC 20549 ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 11-K [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002, see Explanatory Note below OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to Commission file number 1-12814 A. Full title of the plan and address of the plan, if different from that of the issuer named below: COLE NATIONAL CORPORATION 401(k) PLAN B. Name of issuer of the securities held pursuant to the plan and the address of the principal executive office: Cole National Corporation 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Explanatory Note On March 1, 2002, Cole National merged the Cole National Corporation 401(k) Plan for Employees of Pearle Vision Centers and the Cole National Corporation 401(k) Plan for Employees at Former AVC/NuVision Locations into the Cole National Corporation 401(k) Plan (the "Plan"). REQUIRED INFORMATION Financial Statements The Plan is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). In accordance with Item 4 of Form 11-K and in lieu of the requirements of Items 1-3 thereof, the following Plan financial statements and supplemental schedule prepared in accordance with the financial reporting requirements of ERISA are included herein: Independent Auditors' Report, Deloitte & Touche LLP Report of Independent Public Accountants, Grant Thornton LLP Statements of Net Assets Available for Benefits Statement of Changes in Net Assets Available for Benefits Notes to Financial Statements Supplemental Schedule Internal Revenue Service Form 5500 - Schedule of Assets (Held at End of Year) Exhibits 23 Consent of Deloitte & Touche LLP 23.1 Consent of Grant Thornton LLP 99 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 1 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. COLE NATIONAL CORPORATION 401(k) PLAN June 26, 2003 By: /s/ Lawrence E. Hyatt ---------------------------------------- Lawrence E. Hyatt Member of the Plan's Investment Committee 2 EXHIBIT INDEX 23 Consent of Deloitte & Touche LLP 23.1 Consent of Grant Thornton LLP 99 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 3 COLE NATIONAL CORPORATION 401(k) PLAN Financial Statements as of December 31, 2002 and 2001 and for the Year Ended December 31, 2002, Supplemental Schedule as of December 31, 2002, and Independent Auditors' Report COLE NATIONAL CORPORATION 401(k) PLAN TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE INDEPENDENT AUDITORS' REPORT 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANT 2 FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits as of December 31, 2002 and 2001 3 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2002 4 Notes to Financial Statements 5-10 SUPPLEMENTAL SCHEDULE: Schedule H, Line 4i--Schedule of Assets (Held at End of Year) as of December 31, 2002 12 INDEPENDENT AUDITORS' REPORT Cole National Corporation 401(k) Plan We have audited the accompanying statement of net assets available for benefits of the Cole National Corporation 401(k) Plan (the "Plan") as of December 31, 2002 and the related statement of changes in net assets available for benefits for the year then ended. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such 2002 financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2002 and the changes in net assets available for benefits for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for purposes 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 schedule is the responsibility of the Plan's management. Such supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic 2002 financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Deloitte & Touche LLP Cleveland, Ohio June 13, 2003 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Administrative Committee of Cole National Group, Inc.: We have audited the accompanying statement of net assets available for benefits of the Cole National Corporation 401(k) Plan (the "Plan") as of December 31, 2001. This financial statement is the responsibility of the plan administrator. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ GRANT THORNTON LLP Cleveland, Ohio June 24, 2002 2 COLE NATIONAL CORPORATION 401(k) PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 2002 AND 2001 --------------------------------------------------------------------------------
ASSETS 2002 2001 Cash $ - $ 10,185 Investments 59,501,281 27,960,166 Receivables: Employee contributions 169,587 Employer contributions 962,828 423,764 Interest 8,381 ----------- ----------- Total receivables 962,828 601,732 ----------- ----------- Total assets 60,464,109 28,572,083 ----------- ----------- LIABILITIES Corrective distributions payable 82,849 ----------- ----------- Total liabilities 82,849 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $60,381,260 $28,572,083 =========== ===========
See notes to financial statements. 3 COLE NATIONAL CORPORATION 401(k) PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEAR ENDED DECEMBER 31, 2002 -------------------------------------------------------------------------------- ADDITIONS: Investment income: Interest $ 855,753 Dividends 51,752 Contributions: Employee 8,116,401 Employer 975,328 Transfers from Plan mergers: 401(k) Plan for Employees at Pearle Vision Centers 29,905,790 401(k) Plan for Employees at Former AVC/NuVision Locations 4,629,182 ----------- Total additions 44,534,206 ----------- DEDUCTIONS: Investment losses--net depreciation in fair value of investments 7,832,483 Benefits paid to participants 4,695,047 Deemed distributions on defaulted loans 154,771 Other 42,728 ----------- Total deductions 12,725,029 ----------- NET INCREASE 31,809,177 NET ASSETS AVAILABLE FOR BENEFITS--Beginning of year 28,572,083 ----------- NET ASSETS AVAILABLE FOR BENEFITS--End of year $60,381,260 ===========
See notes to financial statements. 4 COLE NATIONAL CORPORATION 401(k) PLAN NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND 2001, AND FOR THE YEAR ENDED DECEMBER 31, 2002 -------------------------------------------------------------------------------- 1. SUMMARY OF PLAN The following description of the Cole National Corporation 401(k) Plan (the "Plan") is provided for general information purposes only. Participants should refer to the Plan document for more complete information. GENERAL--The Plan, which was adopted on October 1, 1993, is a defined contribution plan covering eligible employees of Cole National Corporation, its subsidiaries and affiliated companies (hereinafter collectively referred to as the "Company") and is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On March 1, 2002, Cole National merged the Cole National Corporation 401(k) Plan for Employees at Pearle Vision Centers and the Cole National Corporation 401(k) Plan for Employees at Former AVC/NuVision Locations into the Cole National Corporation 401(k) Plan. ELIGIBILITY--All employees of the Company are eligible to participate in the Plan upon attaining the age of 21 and completing one year of service in which at least 1,000 hours of service are performed. Participation may begin as soon as administratively feasible following satisfaction of the eligibility requirements. CONTRIBUTIONS--Participants may contribute up to 17% of pretax annual compensation ("Elective Deferral"), as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans ("Rollover Contributions"). The Company makes a mandatory company-matching contribution equal to 10% of the participants' Elective Deferrals. The Company may also make a discretionary matching contribution for each plan year equal to such dollar amount or percentage of participant Elective Deferrals as determined by the Company's board of directors. The discretionary matching contributions for the year ended December 31, 2002 were $250,000. Beginning January 1, 2003, the amount of regular matching contributions will be equal to 25% of the tax-deferred contributions made for the contribution period on behalf of such participants. Participant and Company contributions are subject to certain limitations imposed by law. PARTICIPANTS' ACCOUNTS--Each participant's account is credited with the participant's Elective Deferrals and allocations of (a) the Company's contribution and (b) Plan earnings. Allocations of a Company contribution are based on the ratio of each participant's Elective Deferral for the Plan year to total Elective Deferrals of all participants for the Plan year. Allocations of the Plan earnings are based on participant account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. 5 VESTING--Participants are immediately vested in their Elective Deferrals and Rollover Contributions plus actual earnings thereon. Participants vest in the Company's contribution portion of their accounts, plus actual earnings thereon, at the following rates: 1 year of service 25% 2 years of service 50% 3 years of service 75% 4 years of service 100%
ADMINISTRATION--The administrator of the Plan is the Investment Committee of Cole National Group, Inc. INVESTMENT OPTIONS--Upon enrollment in the Plan, a participant may direct the investment of their Elective Deferral contributions in whole percentage increments. The 13 investment options as of December 31, 2002 are as follows: Guaranteed Income Fund--Fund invests in a diversified portfolio of fixed income instruments primarily intermediate-term bonds and commercial mortgages within Connecticut General Life Investment Companies general account. Cole National Corporation Common Stock--Funds are invested in the common stock of Cole National Corporation. CIGNA Lifetime Funds--Lifetime 20, Lifetime 30, Lifetime 40, Lifetime 50 and Lifetime 60 are a family of funds each comprised of multi-asset class, multi-manager investment portfolios, which offer a range of risk/return characteristics. Each investment objective varies based on the investment time horizon of the individual funds. Each fund contains Small Cap, Mid Cap and Large Cap Stocks, Global/International Stock and Fixed Income securities, the allocation of which varies depending on the individual fund. State Street Global Advisors Intermediate Bond Fund--Funds are invested solely in the State Street Global Advisors Intermediate Bond Fund, which is a commingled fund. The fund only invests in investment-grade securities, which historically, have an average credit rating of AA. Large Cap Value Fund--Fund invests primarily in U.S. securities with distinct value characteristics. Large Cap Growth/Dresdner RCM Fund--Fund invests in big companies in rapidly expanding industries such as technology and health care or companies with a high percentage of sales coming from foreign markets. Mid Cap Growth/Artisan Partners--Fund focuses on medium-sized companies with "franchise" characteristics, such as a proprietary technology, dominant market share, or some other form of sustainable competitive advantage. 6 Oakmark Select Fund--Fund holds a high concentration of assets in relatively small number of securities, offering risk-tolerant investors unique portfolio diversification opportunities within the equity asset class. Fund invests primarily in a non-diversified portfolio of equity securities. Small Cap Growth/TimesSquare Fund--Fund invests primarily in the common and preferred stocks of U.S. companies with market capitalization between $20 million and $3 billion. Focus is placed on growing companies involved in new product development and technological breakthroughs. S&P 500 Index Fund--Fund invests in common stocks included in the S&P 500 Index. Alliance Technology Fund--Fund invests in securities of companies expected to benefit from technological advances and improvements. Strong Advisor Small Cap Value Fund--Fund invests in the common stocks of small companies which portfolio management believes are underpriced relative to the market, based on earnings, cash flow or asset value. Templeton Foreign Fund--Fund invests primarily in the equity securities of companies located outside the U.S., including emerging markets. Participants may change their investment elections daily. Company contributions, which are credited to a participant's account, are allocated to the aforementioned investment options based on the participant's election on the date of the Company contribution. In conjunction with the Plan merger, the Company switched from Merrill Lynch as trustee of the Plan to CIGNA Bank & Trust Company, FSB. The fair market value of the total investments was transferred to CIGNA Bank & Trust Company, FSB on the effective date as follows:
MERRILL LYNCH CIGNA TRANSFERRED FROM: TRANSFERRED TO: ----------------------------------------------------------- -------------------------------------------------------- Merrill Lynch Retirement Preservation Trust Guaranteed Income Fund Cole National Corporation Common Stock Cole National Corporation Common Stock MFS Emerging Growth Fund Large Cap Growth/Dresdner RCM State Street Research International Templeton Foreign PIMCO Total Return Fund State Street Global Advisors Intermediate Bond Merrill Lynch S&P 500 Index Fund S&P 500 Index Fund PIMCO Capital Appreciation Fund S&P 500 Index Fund AIM Balanced Fund CIGNA Lifetime 50 Alliance Technology Fund Alliance Technology Fund Davis New York Venture Fund Large Cap Value Fund/Wellington Management
7 PARTICIPANT NOTES RECEIVABLE--Participants may borrow from their accounts a minimum of $1,000 and a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan transactions are treated as a transfer to (from) the investment fund from (to) the Participant Notes Receivable fund. The maximum term of any loan is for five years, including loans used to acquire principal residences. The loans are secured by the balance in the participant's account and bear interest at a rate equal to the Prime Interest Rate quoted in the Wall Street Journal on the first business day of the third month of the calendar quarter before the loan was made plus 1%. Administrative fees associated with such loans are deducted from the participants' accounts that incurred the expense. PAYMENT OF BENEFITS--On termination of service due to death, disability, retirement or separation from service of the Company, a participant may elect to have the value of the vested interest in his or her account paid as a lump-sum distribution, in installments or rolled over into another qualified plan. Furthermore, a participant may elect to withdraw all or any part of the vested interest in his or her account if, prior to termination of employment, a participant attains the age of 59 1/2 or if a participant incurs a hardship (as defined in the Plan document). EXPENSES--All expenses and fees associated with transactions from the Plan are charged against and withdrawn from the participants' accounts. Transactional costs include, but are not limited to, charges incurred for distribution upon termination of employment, withdrawals during employment, loans, and hardship distributions. The Company discretionarily paid approximately $15,900 in administrative expenses for the year ended December 31, 2002. FORFEITURES--Forfeitures amounted to approximately $46,600 for the year ended December 31, 2002. Future forfeitures will be used to reduce Company contributions for the respective year. Should participants to whom such forfeitures relate return to the Plan prior to incurring five consecutive one year breaks in service, the Company will increase the contributions to the Plan in an amount necessary to reinstate such forfeited amounts if the employee repays to the Plan the amount of any prior distribution. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING--The financial statements of the Plan are prepared under the accrual method of accounting. VALUATION OF INVESTMENTS--Assets of the Plan are held in trust by CIGNA Bank & Trust Company, FSB (the "Trustee") whereby the Trustee acts as custodian of the Plan's investment portfolio. The Plan's investments in pooled separate accounts are stated at fair value. The fair values of the Plan's units of participation are based on the quoted redemption value of such units on the last business day of the Plan year. The Guaranteed Income Fund, an unallocated insurance contract, is stated at the contract value (contributions plus interest earned) of the fund. Both the average yield and crediting interest rate was approximately 4.8% in 2002. The crediting interest rate is based upon the Plan assets and prevailing market rates. Management believes contract value approximates fair value. Participant notes receivable are stated at cost, which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. 8 CONTRIBUTIONS AND PAYMENT OF BENEFITS--Participant contributions are recognized at the payroll withholding date. Benefit payments to participants are recorded upon distribution. USE OF ESTIMATES--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates. 3. INFORMATION FURNISHED BY TRUSTEE Under the Plan agreement, the Trustee holds all investment assets, executes all investment transactions and distributes funds to the Plan participants in accordance with the Plan document. The financial statements have been prepared from investment information and related activity certified as complete and accurate and furnished by the Trustee. 4. RELATED PARTY TRANSACTIONS Certain Plan investments are shares of mutual funds or a common trust managed by CIGNA Bank & Trust Company, FSB ("CIGNA"). CIGNA is the Trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. 4. INVESTMENTS The following table presents the fair values of investments, as determined by the Plan Trustee, representing 5% or more of the Plan's assets as of December 31, 2002 and 2001:
DECEMBER 31, ---------------------------------- 2002 2001 Guaranteed Income Fund $ 17,677,860 Large Cap Growth/Dresdner RCM Fund 4,320,118 S&P 500 Index Fund 8,651,107 CIGNA Lifetime 50 Fund 5,579,293 Large Cap Value Fund/Wellington Management 7,982,991 State Street Global Advisors Intermediate Bond Fund 6,713,663 Merrill Lynch Retirement Preservation Trust $ 4,525,331 Cole National Corporation Common Stock 1,561,547 MFS Emerging Growth Fund 4,458,837 PIMCO Total Return Fund 3,067,365 PIMCO Capital Appreciation Fund 4,732,392 AIM Balanced Fund 4,474,578 Davis New York Venture Fund 3,147,693
6. TAX STATUS The Plan obtained a determination letter on January 30, 1996, in which the Internal Revenue Service stated that the Plan, as then designed, is in compliance with the applicable requirements 9 of the Internal Revenue Code ("IRC"). The Plan has been subsequently amended since receiving the determination letter. However, the plan administrator believes that the Plan is currently designed and is being operated in compliance with the applicable requirements of the IRC. 7. PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100 percent vested in their employer contributions. ****** 10 SUPPLEMENTAL SCHEDULE 11 COLE NATIONAL CORPORATION 401(k) PLAN SCHEDULE H, LINE 4i--SCHEDULE OF ASSETS (HELD AT END OF YEAR) EIN 34-1744334--PLAN NO. 003 DECEMBER 31, 2002
--------------------------------------------------------------------------------------------------------------------------------- CONTRACT OR MARKET ISSUER COST VALUE --------------------------------------------------------------------------- -------------------- --------------------- SHORT-TERM SECURITIES: * Guaranteed Income Fund $ 17,677,860 COMMON STOCK: * Cole National Corporation Common Stock 1,304,689 MUTUAL FUNDS: Mid Cap Growth/Artisan Partners 372,827 Oakmark Select 782,929 Small Cap Growth/TimesSquare 288,785 Strong Advisor Small Cap Value 744,942 Large Cap Growth/Desdner RCM 4,320,118 Templeton Foreign 1,258,757 State Street Global Advisors Intermediate Bond 6,713,663 S&P 500 Index 8,651,107 Alliance Technology 365,470 Large Cap Value 7,982,991 CIGNA Lifetime 20 58,747 CIGNA Lifetime 30 323,366 CIGNA Lifetime 40 165,059 CIGNA Lifetime 50 5,579,293 CIGNA Lifetime 60 47,448 ------------ Total mutual funds 37,655,502 * Participant notes receivable (interest rates ranging from 5.25% to 10.5%) 2,863,230 ------------ TOTAL INVESTMENTS $ 59,501,281 ============
* Represents a party-in-interest transactions 12