TABLE OF CONTENTS




|                               |                                                                                               |  |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II  OTHER INFORMATION   
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                     



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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|           |  |                                                                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|X          |  | Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period ended
August 4, 2001, or
|          
|           |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                                 

|                               |  |  |  |    |  |  |  | 
|------------------------------ |  |  |  | -- |  |  |  | 
|For the transition period from |  |  |  | to |  | 
|                               |  |  | 

Commission file number 33-66342

COLE NATIONAL GROUP,
INC.
(Exact name of registrant as specified in its charter)

|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                        |  | 34-1744334                          
|                                                               
|                                                               
|                                                               
|                                                               
|(State or other jurisdiction of
incorporation or organization)  |  | (I.R.S. employer
identification no.)
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|5915 Landerbrook Drive                                          |  |                                     
|                                                               
|                                                               
|                                                               
|                                                               
|Mayfield Heights, Ohio
(Address of principal executive offices) |  | 44124
(Zip code)                    

(440) 449-4100
(Registrants telephone number, including area code)

The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this form in the
reduced disclosure format.

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. X
YES   NO

All of the outstanding capital stock of the registrant is held by Cole
National Corporation.

As of August 31, 2001, 1,100 shares of the registrants common stock,
$.01 par value, were outstanding.



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COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED AUGUST 4, 2001
INDEX

|        |  |                                                                                                      |          |    | 
|------- |  | ---------------------------------------------------------------------------------------------------- | -------- | -- | 
|        |  |                                                                                                      | Page No.
|PART I  |  | FINANCIAL INFORMATION                                                                                |          |   
|       
|       
|       
|       
|        |  |                                                                                                      |          |   
|       
|       
|       
|       
|Item 1. |  | Financial Statements                                                                                 |          |   
|       
|       
|       
|       
|        |  |                                                                                                      |          |   
|       
|       
|       
|       
|        |  | Consolidated Balance Sheets as of August 4, 2001 and February 3, 2001                                |          | 1 
|       
|       
|       
|       
|        |  | Consolidated Statements of Operations for the 13 and 26 weeks ended
August 4, 2001 and July 29, 2000 |          | 2 
|       
|       
|       
|       
|        |  | Consolidated Statements of Cash Flows for the 26 weeks ended
August 4, 2001 and July 29, 2000        |          | 3 
|       
|       
|       
|       
|        |  | Notes to Consolidated Financial Statements                                                           |          | 4 
|       
|       
|       
|       
|        |  |                                                                                                      |          |   
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                |          | 6 
|       
|       
|       
|       
|        |  |                                                                                                      |          |   
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                           |          | 9 
|       
|       
|       
|       
|        |  |                                                                                                      |          |   
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                                    |          |   
|       
|       
|       
|       
|        |  |                                                                                                      |          |   
|       
|       
|       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                     |          | 10







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PART I  FINANCIAL INFORMATION




Item 1. Financial Statements

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |          |         | 
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --------- | ------- | ----------- | ------- | -------- | ------- | 
|                                                                                                                        |                                                                                              |                                            |         | August 4, |         | February 3,
|                                                                                                                        |                                                                                              |                                            |         | 2001      |         | 2001       
|                                                                                                                        |                                                                                              |                                            |         |           |         |            
|Assets                                                                                                                  |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Current assets:                                                                                                         |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Cash and cash equivalents                                                                    |                                            | $       | 34,523    |         |             | $       | 36,725   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accounts receivable, less allowance for doubtful accounts
of $6,534 and $7,348, respectively |                                            |         | 38,659    |         |             |         | 40,429   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Current portion of notes receivable                                                          |                                            |         | 4,269     |         |             |         | 4,272    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Inventories                                                                                  |                                            |         | 130,346   |         |             |         | 122,238  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Refundable income taxes                                                                      |                                            |         | 547       |         |             |         | 571      |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Prepaid expenses and other                                                                   |                                            |         | 15,408    |         |             |         | 15,188   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Deferred income tax benefits                                                                 |                                            |         | 2,040     |         |             |         | 2,009    |        
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                        |                                                                                              | Total current assets                       |         |           | 225,792 |             |         |          | 221,432 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Property and equipment, at cost                                                                                         |                                                                                              |                                            | 277,664 |           |         |             | 268,742 |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Less  accumulated depreciation and amortization                                             |                                            |         | (150,584  | )       |             |         | (145,723 | )      
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                        |                                                                                              | Total property and equipment, net          |         |           | 127,080 |             |         |          | 123,019 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Notes receivable, excluding current portion, less reserves for
uncollectible amounts of $3,945 and $4,537, respectively |                                                                                              |                                            | 4,630   |           |         |             | 6,573   |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Deferred income taxes and other assets                                                                                  |                                                                                              |                                            | 57,086  |           |         |             | 57,422  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Intangible assets, net                                                                                                  |                                                                                              |                                            | 148,680 |           |         |             | 151,588 |         
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                        |                                                                                              | Total assets                               |         | $         | 563,268 |             |         | $        | 560,034 | 
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|Liabilities and Stockholders Equity                                                                                    |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Current liabilities:                                                                                                    |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Current portion of long-term debt                                                            |                                            | $       | 75        |         |             | $       | 49       |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accounts payable                                                                             |                                            |         | 56,146    |         |             |         | 55,644   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Payable to affiliates, net                                                                   |                                            |         | 75,432    |         |             |         | 81,789   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued interest                                                                             |                                            |         | 6,272     |         |             |         | 6,337    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued liabilities                                                                          |                                            |         | 80,841    |         |             |         | 75,654   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued income taxes                                                                         |                                            |         | 3,418     |         |             |         | 502      |        
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                        |                                                                                              | Total current liabilities                  |         |           | 222,184 |             |         |          | 219,975 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Long-term debt, net of discount and current portion                                                                     |                                                                                              |                                            | 274,266 |           |         |             | 274,262 |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Other long-term liabilities                                                                                             |                                                                                              |                                            | 11,214  |           |         |             | 11,506  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Stockholders equity                                                                                                    |                                                                                              |                                            | 55,604  |           |         |             | 54,291  |         
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         
|                                                                                                                        |                                                                                              | Total liabilities and stockholders equity |         | $         | 563,268 |             |         | $        | 560,034 | 
|                                                                                                                        |                                                                                              |                                            |         |           |         |             |         |         

The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.

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COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
(Unaudited)

|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |         |        |         | 
|------------------------------------ | ----------------------------- | ---------------------------------------------- | ------------------------ | ------- | -------------------- | ------- | ---------------------- | ------- | --------- | ------- | -------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | 
|                                     |                               |                                                |                          |         | Thirteen Weeks Ended |         | Twenty-Six Weeks Ended
|                                     |                               |                                                |                          |         |                      |         |                       
|                                     |                               |                                                |                          |         | August 4,            |         | July 29,               |         | August 4, |         | July 29,
|                                     |                               |                                                |                          |         | 2001                 |         | 2000                   |         | 2001      |         | 2000    
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |         
|Net revenue                          |                               | $                                              | 273,348                  |         |                      | $       | 264,474                |         |           | $       | 543,639  |         |        | $       | 521,755 |        
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |         
|                                    
|                                    
|                                    
|                                    
|Costs and expenses:                  |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Cost of goods sold            |                                                |                          | 90,684  |                      |         |                        | 87,981  |           |         |          | 177,800 |        |         |         | 174,309 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Operating expenses            |                                                |                          | 163,364 |                      |         |                        | 159,648 |           |         |          | 329,399 |        |         |         | 317,826 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization |                                                |                          | 9,513   |                      |         |                        | 9,285   |           |         |          | 18,822  |        |         |         | 18,596  |       
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|                                     |                               |                                                | Total costs and expenses |         |                      | 263,561 |                        |         |           | 256,914 |          |         |        | 526,021 |         |         |        | 510,731 | 
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|Operating income                     |                               |                                                | 9,787                    |         |                      |         | 7,560                  |         |           |         | 17,618   |         |        |         | 11,024  |        
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |         
|                                    
|                                    
|                                    
|                                    
|Interest and other (income) expense: |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense              |                                                |                          | 6,863   |                      |         |                        | 6,859   |           |         |          | 13,764  |        |         |         | 13,741  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Interest and other income     |                                                |                          | (315    | )                    |         |                        | (103    | )         |         |          | (1,251  | )      |         |         | (236    | )     
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|                                     |                               | Total interest and other (income) expense, net |                          |         | 6,548                |         |                        |         | 6,756     |         |          |         | 12,513 |         |         |         | 13,505 |        
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|Income (loss) before income taxes    |                               |                                                | 3,239                    |         |                      |         | 804                    |         |           |         | 5,105    |         |        |         | (2,481  | )      
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |         
|                                    
|                                    
|                                    
|                                    
|Income tax provision (benefit)       |                               |                                                | 2,268                    |         |                      |         | 473                    |         |           |         | 3,574    |         |        |         | (1,464  | )      
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        
|Net income (loss)                    |                               | $                                              | 971                      |         |                      | $       | 331                    |         |           | $       | 1,531    |         |        | $       | (1,017  | )      
|                                     |                               |                                                |                          |         |                      |         |                        |         |           |         |          |         |        |         |         |        

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

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COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |         |         |         |  
|------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------- | ---------------------- | ------ | -------- | ------- | ------- | ------- | -
|                                      |                                                                                          |                                                                                           |                                                                  |         | Twenty-Six Weeks Ended
|                                      |                                                                                          |                                                                                           |                                                                  |         |                       
|                                      |                                                                                          |                                                                                           |                                                                  |         | August 4,              |        | July 29,
|                                      |                                                                                          |                                                                                           |                                                                  |         | 2001                   |        | 2000    
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |         
|Cash flows from operating activities: |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss)                                                                        |                                                                                           | $                                                                | 1,531   |                        |        | $        | (1,017  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                                                           |                                                                  |         |                        |        |          |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Depreciation and amortization                                                             |                                                                  |         | 18,822                 |        |          |         | 18,596  |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Non-cash interest, net                                                                    |                                                                  |         | 602                    |        |          |         | 543     |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Gain on sale of fixed assets                                                              |                                                                  |         | (683                   | )      |          |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Increases (decreases) in cash resulting from changes in operating
assets and liabilities: |                                                                  |         |                        |        |          |         |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accounts and notes receivable, prepaid expenses and other assets |         |                        | 3,332  |          |         |         | 2,924   |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Inventories                                                      |         |                        | (8,108 | )        |         |         | (16,354 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accounts payable, accrued liabilities and other liabilities      |         |                        | 5,743  |          |         |         | 2,377   |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accrued interest                                                 |         |                        | (65    | )        |         |         | (114    | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accrued, refundable and deferred income taxes                    |         |                        | 2,838  |          |         |         | 5,852   |  
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                      |                                                                                          | Net cash provided by operating activities                                                 |                                                                  |         | 24,012                 |        |          |         | 12,807  |        
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|Cash flows from investing activities: |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | Purchases of property and equipment, net                                                 |                                                                                           |                                                                  | (19,906 | )                      |        |          | (17,605 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of fixed assets, net                                                  |                                                                                           |                                                                  | 4,712   |                        |        |          |        |        
|                                     
|                                     
|                                     
|                                     
|                                      | Systems development costs                                                                |                                                                                           |                                                                  | (4,578  | )                      |        |          | (3,851  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                               |                                                                                           |                                                                  | (63     | )                      |        |          | (11     | )      
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                      |                                                                                          | Net cash used for investing activities                                                    |                                                                  |         | (19,835                | )      |          |         | (21,467 | )      
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|Cash flows from financing activities: |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | Repayment of long-term debt                                                              |                                                                                           |                                                                  | (20     | )                      |        |          | (220    | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Advances to affiliates, net                                                              |                                                                                           |                                                                  | (6,151  | )                      |        |          | (1,227  | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Payment of deferred financing fees                                                       |                                                                                           |                                                                  |        |                        |        |          | (375    | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                               |                                                                                           |                                                                  | (208    | )                      |        |          | (176    | )      
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                      |                                                                                          | Net cash used for financing activities                                                    |                                                                  |         | (6,379                 | )      |          |         | (1,998  | )      
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|Cash and cash equivalents:            |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net decrease during the period                                                           |                                                                                           |                                                                  | (2,202  | )                      |        |          | (10,658 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Balance, beginning of the period                                                         |                                                                                           |                                                                  | 36,725  |                        |        |          | 28,953  |        
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        
|                                      | Balance, end of the period                                                               |                                                                                           | $                                                                | 34,523  |                        |        | $        | 18,295  |        
|                                      |                                                                                          |                                                                                           |                                                                  |         |                        |        |          |        

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

3



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##### Table of Contents



COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(1) Summary of Significant Accounting Policies

Basis of Presentation

Cole National Group, Inc. is a wholly owned subsidiary of Cole National
Corporation. The consolidated financial statements include the accounts of Cole
National Group and its wholly owned subsidiaries (collectively, the Company).
All significant intercompany transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared
without audit and certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although management
believes that the disclosures herein are adequate to make the information not
misleading. Results for interim periods are not necessarily indicative of the
results to be expected for the full year. These statements should be read in
conjunction with the Companys consolidated financial statements for the fiscal
year ended February 3, 2001.

In the opinion of management, the accompanying financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Companys financial position as of August 4, 2001 and the
results of operations and cash flows for the 26 weeks ended August 4, 2001 and
July 29, 2000.

Inventories

The accompanying interim consolidated financial statements have been
prepared without physical inventories.

Cash Flows

Net cash flows from operating activities reflect cash payments for
income taxes and interest of $716,000 and $13,228,000 respectively, for the 26
weeks ended August 4, 2001, and $442,000 and $13,117,000 respectively, for the
26 weeks ended July 29, 2000.

Total Other Comprehensive Income (Loss)

Total other comprehensive income (loss) for the 13 and 26 weeks ended
August 4, 2001 and July 29, 2000 is as follows (000s omitted):

|                                     |  |                |     |                  |  |      |     |      |  |   |       |   |  |   |        |  
|------------------------------------ |  | -------------- | --- | ---------------- |  | ---- | --- | ---- |  | - | ----- | - |  | - | ------ | -
|                                     |  | Thirteen Weeks |     | Twenty-Six Weeks
|                                     |  |                |     |                 
|                                     |  | 2001           |     | 2000             |  | 2001 |     | 2000
|                                     |  |                |     |                  |  |      |     |     
|Net income (loss)                    |  | $              | 971 |                  |  | $    | 331 |      |  | $ | 1,531 |   |  | $ | (1,017 | )
|                                    
|                                    
|                                    
|                                    
|Cumulative translation income (loss) |  |                | (9  | )                |  |      | 24  |      |  |   | (218  | ) |  |   | (185   | )
|                                     |  |                |     |                  |  |      |     |      |  |   |       |   |  |   |        |  
|Total comprehensive income (loss)    |  | $              | 962 |                  |  | $    | 355 |      |  | $ | 1,313 |   |  | $ | (1,202 | )
|                                     |  |                |     |                  |  |      |     |      |  |   |       |   |  |   |        |  

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##### Table of Contents



COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(2) Segment Information

Information on the Companys reportable segments is as follows (000s
omitted):

|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |         |         |        |  
|------------------------ | --------------------------------- | ------------------------ | ------------------------------ | ------- | -------------- | ------ | ---------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | -
|                         |                                   |                          |                                |         | Thirteen Weeks |        | Twenty-Six Weeks
|                         |                                   |                          |                                |         |                |        |                 
|                         |                                   |                          |                                |         | 2001           |        | 2000             |         | 2001    |        | 2000
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |     
|Net revenue:             |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|                        
|                        
|                        
|                        
|                         | Cole Vision                       |                          | $                              | 200,714 |                |        | $                | 190,359 |         |        | $    | 417,095 |         |        | $ | 396,984 |        
|                        
|                        
|                        
|                        
|                         | Things Remembered                 |                          |                                | 72,634  |                |        |                  | 74,115  |         |        |      | 126,544 |         |        |   | 124,771 |        
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|                         |                                   | Consolidated net revenue |                                | $       | 273,348        |        |                  | $       | 264,474 |        |      | $       | 543,639 |        |   | $       | 521,755 |       
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|Operating income (loss): |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|                        
|                        
|                        
|                        
|                         | Cole Vision                       |                          | $                              | 1,426   |                |        | $                | (962    | )       |        | $    | 12,806  |         |        | $ | 8,487   |        
|                        
|                        
|                        
|                        
|                         | Things Remembered                 |                          |                                | 10,434  |                |        |                  | 11,887  |         |        |      | 9,366   |         |        |   | 9,509   |        
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|                         |                                   |                          | Total segment operating income |         |                | 11,860 |                  |         |         | 10,925 |      |         |         | 22,172 |   |         |         | 17,996 |  
|                        
|                        
|                        
|                        
|                         | Unallocated amounts:              |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |         |        
|                        
|                        
|                        
|                        
|                         |                                   |                          | Corporate expenses             |         |                | (2,073 | )                |         |         | (3,365 | )    |         |         | (4,554 | ) |         |         | (6,972 | )
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|                         | Consolidated operating income     |                          |                                | 9,787   |                |        |                  | 7,560   |         |        |      | 17,618  |         |        |   | 11,024  |        
|                        
|                        
|                        
|                        
|                         | Interest and other income, net    |                          |                                | (6,548  | )              |        |                  | (6,756  | )       |        |      | (12,513 | )       |        |   | (13,505 | )      
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        
|                         | Income (loss) before income taxes |                          | $                              | 3,239   |                |        | $                | 804     |         |        | $    | 5,105   |         |        | $ | (2,481  | )      
|                         |                                   |                          |                                |         |                |        |                  |         |         |        |      |         |         |        |   |        

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Item 2. Managements Discussion and Analysis of Financial Condition and results of Operations

Certain information required by this item has been omitted pursuant to
General Instruction H of Form 10-Q.

The following is a discussion of certain factors affecting the
Companys results of operations for the 13 and 26 week periods ended August 4,
2001 and July 29, 2000 (the Companys second quarter and first six months,
respectively). This discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
filing and the audited financial statements for the fiscal year ended February
3, 2001 included in the annual report on Form 10-K.

Fiscal years end on the Saturday closest to January 31 and are
identified according to the calendar year in which they begin. For example, the
fiscal year ended February 3, 2001 is referred to as fiscal 2000. The current
fiscal year, which will end February 2, 2002, is referred to as fiscal 2001.

Results of Operations

The following table sets forth certain operating information for the
second quarter and first six months of fiscal 2001 and fiscal 2000 (dollars in
millions):

|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |      |  
|---------------------------------------------------- | ----------------------------- | ------------------- | ----- | -------------- | ----- | ---------------- | ----- | ------ | ----- | ---- | --- | ---- | ---- | ------ | ----- | ----- | ----- | - | ----- | ----- | ----- | - | --- | ---- | ---- | -
|                                                     |                               |                     |       | Second Quarter |       | First Six Months
|                                                     |                               |                     |       |                |       |                 
|                                                     |                               |                     |       | 2001           |       | 2000             |       | Change |       | 2001 |     | 2000 |      | Change
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |       
|Net revenue:                                         |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Vision                   |                     | $     | 200.7          |       |                  | $     | 190.4  |       |      |     | 5.4  | %    |        | $     | 417.1 |       |   | $     | 397.0 |       |   |     | 5.1  | %   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 72.6           |       |                  |       | 74.1   |       |      |     | (2.0 | )    |        |       | 126.5 |       |   |       | 124.8 |       |   |     | 1.4  |     
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                     |                               | Total net revenue   |       | $              | 273.3 |                  |       | $      | 264.5 |      |     |      | 3.4  | %      |       | $     | 543.6 |   |       | $     | 521.8 |   |     |      | 4.2  | %
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                    
|                                                    
|                                                    
|                                                    
|Gross margin                                         |                               | $                   | 182.7 |                |       | $                | 176.5 |        |       |      | 3.5 | %    |      | $      | 365.8 |       |       | $ | 347.4 |       |       |   | 5.3 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses                                   |                               |                     | 163.4 |                |       |                  | 159.6 |        |       |      | 2.3 |      |      |        | 329.4 |       |       |   | 317.8 |       |       |   | 3.6 |     
|                                                    
|                                                    
|                                                    
|                                                    
|Depreciation and amortization                        |                               |                     | 9.5   |                |       |                  | 9.3   |        |       |      | 2.5 |      |      |        | 18.8  |       |       |   | 18.6  |       |       |   | 1.2 |     
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                     |                               | Operating income    |       | $              | 9.8   |                  |       | $      | 7.6   |      |     |      | 29.4 | %      |       | $     | 17.6  |   |       | $     | 11.0  |   |     |      | 59.8 | %
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|Percentage of net revenue:                           |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gross margin                  |                     |       | 66.8           | %     |                  |       | 66.7   | %     |      |     | 0.1  |      |        |       | 67.3  | %     |   |       | 66.6  | %     |   |     | 0.7  |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating expenses            |                     |       | 59.7           |       |                  |       | 60.3   |       |      |     | (0.6 | )    |        |       | 60.6  |       |   |       | 60.9  |       |   |     | (0.3 | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization |                     |       | 3.5            |       |                  |       | 3.5    |       |      |     |     |      |        |       | 3.5   |       |   |       | 3.6   |       |   |     | (0.1 | )   
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                     |                               | Operating income    |       |                | 3.6   | %                |       |        | 2.9   | %    |     |      | 0.7  |        |       |       | 3.2   | % |       |       | 2.1   | % |     |      | 1.1  |  
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|Number of retail locations
at the end of the period: |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Licensed Brands          |                     |       | 1,224          |       |                  |       | 1,106  |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Pearle company-owned          |                     |       | 435            |       |                  |       | 446    |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Pearle franchised             |                     |       | 416            |       |                  |       | 425    |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |     
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                     |                               | Total Cole Vision   |       |                | 2,075 |                  |       |        | 1,977 |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 780            |       |                  |       | 788    |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |     
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     
|                                                     |                               | Total Cole National |       |                | 2,855 |                  |       |        | 2,765 |      |     |      |      |        |       |       |       |   |       |       |       |   |     |      |      |  
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |     |      |      |        |       |       |       |   |       |       |       |   |     |     

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The increases in consolidated net revenue for the second quarter and
first six months were primarily attributable to increases in comparable store
sales at Cole Vision, an increase in the number of Target Optical locations and
additional managed vision care revenue. The second quarter revenue increase at
Cole Vision was partially offset by a sales decrease at Things Remembered caused
by the general slowdown in mall traffic and the calendar shift that benefited
first quarter of fiscal 2001 as it ended one week closer to Mothers Day, an
important gift giving occasion. Changes in comparable store sales by business
compared to the same periods a year ago were:

|                             |                     |  |                |     |                  |  |      |     |  
|---------------------------- | ------------------- |  | -------------- | --- | ---------------- |  | ---- | --- | -
|                             |                     |  | Second Quarter |     | First Six Months
|                             |                     |  |                |     |                 
|Cole Licensed Brands (U.S.)  |                     |  | 1.6            | %   |                  |  | 3.3  | %  
|                            
|                            
|                            
|                            
|Pearle U.S. company-owned    |                     |  | 3.5            | %   |                  |  | 2.3  | %  
|                            
|                            
|                            
|                            
|                             | Total Cole Vision   |  |                | 1.8 | %                |  |      | 2.2 | %
|                            
|                            
|                            
|                            
|Things Remembered            |                     |  | (1.6           | %)  |                  |  | (0.8 | %) 
|                            
|                            
|                            
|                            
|                             | Total Cole National |  |                | 0.8 | %                |  |      | 1.4 | %
|                             |                     |  |                |     |                 
|                            
|                            
|                            
|                            
|Pearle U.S. franchise stores |                     |  | (0.2           | %)  |                  |  | (1.1 | %) 
|                            
|                            
|                            
|                            
|Pearle U.S. chain-wide       |                     |  | 1.5            | %   |                  |  | 0.5  | %  

At Cole Licensed Brands, the second quarter and first six months
comparable store sales increases primarily reflect an increase in the average
spectacle selling price. Comparable store sales for the second quarter increased
despite the fact that this years National Eye Exam Month promotion at Sears
Optical will run exclusively in the third quarter rather than beginning in the
second quarter as it did last year. At Pearle company-owned stores, the second
quarter comparable store sales increase was driven by the average spectacle
selling price and an increase in the number of transactions. For the first six
months, company-owned comparable store sales were primarily driven by an
increase in average spectacle selling price that was due, in part, to not
repeating a 50% off frame promotion that ran during the entire first quarter
of fiscal 2000. At Things Remembered, comparable store sales for the first six
months decreased, in part, from not repeating February 2000s aggressive
merchandise clearance promotion and from the general slowdown in mall traffic.
However, average selling price increased as a result of sales of new merchandise
at higher average unit retails, more personalization and not repeating last
years February promotion.

The gross margin dollar increase for the second quarter resulted from
increased net revenue and gross margin rate at
Cole Vision partially offset by decreased net revenue and gross margin rate at
Things Remembered. The gross margin dollar increase for the first six months
resulted from improvements in net revenue and gross margin rate at both Cole
Vision and Things Remembered. The gross margin rate at Cole Vision improved 0.5
and 0.8 percentage points for the second quarter and first six months of fiscal
2001 compared to the same periods last year. The primary causes for the
improvement were the increased average spectacle selling price and the
additional revenue from managed vision care. The gross margin rate at Things
Remembered decreased 0.5 percentage points in the second quarter of fiscal 2001
compared to the same period last year as a result of various promotional
activities undertaken to stimulate sales. The gross margin rate for the first
six months improved 0.4 percentage points reflecting the improvement in average
selling price due in part to not repeating last years first quarter aggressive
clearance promotion.

The increases in operating expenses for the second quarter and first
six months were primarily due to costs incurred to support the increases in net
revenue and the Target Optical expansion. Operating expenses as a percentage of
net revenue decreased by 0.6 and 0.3 percentage points in the second quarter and
first six months compared to the same periods last year. The second quarter
improvement was a result of leveraging non-store overhead and Cole Visions
advertising expense, as well as improved efficiencies in the cost per managed
vision care claim processed. Partially offsetting these gains were a 1.1
percentage point increase in payroll costs and a 0.2 percentage point increase
in store occupancy costs due to the Target Optical expansion and additional
payroll costs incurred for training, improving customer satisfaction and
selling. Excluding a $1.8 million first quarter severance charge in fiscal 2000,
operating expenses as a percentage of net revenue for the first six months were
essentially flat to last year.

7



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The increase in operating income for the second quarter was primarily
attributable to the increases in net revenues and gross margin rates at Cole
Vision and the improvement in operating expense leverage. For the first six
months, the increase in operating income resulted from increases in net revenue
and gross margin rates at both Cole Vision and Things Remembered and the
severance charge included in fiscal 2000 results. During the first six months of
fiscal 2001, 60 Target Optical locations were opened, bringing the total number
to 177. The Companys profit improvement for the second quarter and first six
months was achieved after absorbing the increased losses from the continued
expansion of Target Optical.

The decrease in six month interest and other (income) expense, net, was
primarily the result of a $0.7 million first quarter gain from the sale of a
Dallas facility no longer needed for Pearles operations. An income tax
provision (benefit) was recorded in the first six months of fiscal 2001 and
fiscal 2000 using the Companys estimated annual effective tax rates of 70% and
59%, respectively.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). This standard requires that companies stop
amortizing goodwill and certain intangible assets with an indefinite useful life
created by business combinations accounted for using the purchase method of
accounting. Instead, goodwill and intangible assets deemed to have an indefinite
useful life will be subject to an annual review for impairment. The new standard
generally will be effective for the Company in the first quarter of fiscal 2002.
The Company is in the process of quantifying the impact of adopting each of the
provisions of SFAS 142.

Upon adoption of SFAS 142, the Company expects to stop amortizing
goodwill and tradenames. Based on the current level of these assets, this would
reduce annual amortization expense by approximately $5.7 million. Because a
substantial portion of the goodwill amortization is nondeductible for tax
purposes, the impacts of stopping goodwill and tradename amortization would be
to reduce the Companys annual effective tax rate and to increase its annual net
income.

The FASB has also issued Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS 141) and No. 143 Accounting for Asset
Retirement Obligations (SFAS 143). SFAS 141 changes the accounting for business
combinations by, among other things, prohibiting the use of the pooling of
interests method. SFAS 143 provides guidance for legal obligations arising from
the retirement of long-lived assets. Neither of these standards is expected to
have a material affect on the Companys financial position or operations.

Forward-Looking Information

Certain sections of this Form 10-Q Report, including this Managements
Discussion and Analysis, contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Actual results may
differ materially from those forecasted due to a variety of factors that can
adversely affect the Companys operating results, liquidity and financial
condition such as risks associated with the timing and achievement of
improvements in the operations of the optical business, the success of new store
openings and the rate at which new stores achieve profitability, the Companys
ability to select, stock and price merchandise attractive to customers, success
of systems development and integration, competition in the optical industry,
integration of acquired businesses, economic and weather factors affecting
consumer spending, operating factors affecting customer satisfaction, including
manufacturing quality of optical and engraved goods, the Companys relationship
with host stores and franchisees, the mix of goods sold, pricing and other
competitive factors, and the seasonality of the Companys business.
Forward-looking statements are made based upon managements expectations and
beliefs concerning future events impacting Cole National Group, Inc. All
forward-looking statements involve risk and uncertainty.

8



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##### Table of Contents






Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from changes in foreign currency
exchange rates, which could impact its results of operations and financial
condition. Foreign exchange risk arises from the Companys exposure in
fluctuations in foreign currency exchange rates because The Companys reporting
currency is the United States dollar. Management seeks to minimize the exposure
to foreign currency fluctuations through natural internal offsets to the fullest
extent possible.

9



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##### Table of Contents






PART II  OTHER INFORMATION




Item 6.  Exhibits and Reports on Form 8-K

|    |  |                                                                            
|--- |  | ---------------------------------------------------------------------------
|(a) |  | Exhibits. The following Exhibits are filed herewith and made a part hereof:
|   
|   
|   
|   
|   
|    |  | None.                                                                      
|   
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K                                                        
|   
|   
|   
|   
|   
|    |  | None.                                                                      

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##### Table of Contents






SIGNATURE

Pursuant to the requirements 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.

|                          |  |                                                                                                                        |  | 
|------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | 
|COLE NATIONAL GROUP, INC.
|                         
|                         
|                         
|                         
|                          |  |                                                                                                                        |  | 
|                         
|                         
|                         
|                         
|By:                       |  | /s/ William P. Lahiff, Jr.                                                                                             |  | 
|                          |  |                                                                                                                        |  | 
|                          |  | William P. Lahiff, Jr.
Senior Vice President and Controller
(Duly Authorized Officer and Principal
Accounting Officer) |  | 

Date: September 18, 2001

11