##### Table of Contents



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UNITED STATES
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 May 4, 2002
|  
|  
|  
|  
|OR
|  
|  
|  
|  
|o  |  | 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                                          |  | 44124     
|                                                               
|                                                               
|                                                               
|                                                               
|Mayfield Heights, Ohio
(Address of principal executive offices) |  | (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     o NO

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

As of May 31, 2002, 1,100 shares of the registrants common stock, $.01 par
value were outstanding.



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TABLE OF CONTENTS



|                                               |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|INDEX                                         
|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                                     
|EXHIBIT INDEX                                 
|EX-10.1--Amended and Restated Credit Agreement
|EX-10.2--Indenture                            



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##### Table of Contents



COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MAY 4, 2002
INDEX




|                              |                                                                                              |                                                                                          |  |          |   | 
|----------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |  | -------- | - | 
|                              |                                                                                              |                                                                                          |  | Page No.
|                              |                                                                                              |                                                                                          |  |         
|PART I. FINANCIAL INFORMATION |                                                                                              |                                                                                          |  |         
|                             
|                              | Item 1. Financial Statements                                                                 |                                                                                          |  |          |  
|                             
|                              |                                                                                              | Consolidated Balance Sheets as of May 4, 2002 and February 2, 2002                       |  |          | 1 | 
|                             
|                              |                                                                                              | Consolidated Statements of Operations for the 13 weeks ended May 4, 2002
and May 5, 2001 |  |          | 2 | 
|                             
|                              |                                                                                              | Consolidated Statements of Cash Flows for the 13 weeks ended May 4, 2002
and May 5, 2001 |  |          | 3 | 
|                             
|                              |                                                                                              | Notes to Consolidated Financial Statements                                               |  |          | 4 | 
|                             
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation |                                                                                          |  | 7        |  
|                             
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           |                                                                                          |  | 9        |  
|                             
|PART II. OTHER INFORMATION    |                                                                                              |                                                                                          |  |         
|                             
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     |                                                                                          |  | 9        |  





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##### Table of Contents






PART I.  FINANCIAL INFORMATION




Item 1. Financial Statements

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

|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |          |         |         | 
|----------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------ | --------------------------------- | -------- | ------- | ------- | ----------- | -------- | ------- | ------- | 
|                                                                                                |                                                                         |                                            |                                   |          | May 4,  |         | February 2,
|                                                                                                |                                                                         |                                            |                                   |          | 2002    |         | 2002       
|                                                                                                |                                                                         |                                            |                                   |          |         |         |            
|Assets                                                                                          |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Current assets:                                                                                 |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Cash and cash equivalents                                               |                                            | $                                 | 62,560   |         |         | $           | 63,656   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accounts receivable, less allowances of $5,494
and $4,008, respectively |                                            |                                   | 46,199   |         |         |             | 39,544   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Current portion of notes receivable                                     |                                            |                                   | 2,795    |         |         |             | 2,825    |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Inventories                                                             |                                            |                                   | 118,832  |         |         |             | 111,098  |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Refundable income taxes                                                 |                                            |                                   | 472      |         |         |             | 502      |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Prepaid expenses and other                                              |                                            |                                   | 21,712   |         |         |             | 22,613   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Deferred income tax benefits                                            |                                            |                                   | 500      |         |         |             | 430      |        
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                                |                                                                         |                                            | Total current assets              |          |         | 253,070 |             |          |         | 240,668 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Property and equipment, at cost                                                                 |                                                                         |                                            | 293,604                           |          |         |         | 291,148     |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Less  accumulated depreciation and amortization                        |                                            |                                   | (172,998 | )       |         |             | (169,851 | )      
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                                |                                                                         |                                            | Total property and equipment, net |          |         | 120,606 |             |          |         | 121,297 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Notes receivable, excluding current portion, less allowances
of $4,218 and $5,209, respectively |                                                                         |                                            | 3,921                             |          |         |         | 3,899       |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Deferred income taxes and other assets                                                          |                                                                         |                                            | 48,441                            |          |         |         | 49,371      |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Intangible assets, net                                                                          |                                                                         |                                            | 146,549                           |          |         |         | 146,544     |         
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                                |                                                                         |                                            | Total assets                      |          |         | 572,587 |             |          |         | 561,779 | 
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         
|Liabilities and Stockholders Equity
Current liabilities:                                       |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Current portion of long-term debt                                       |                                            | $                                 | 44       |         |         | $           | 54       |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Payable to affiliates, net                                              |                                            |                                   | 74,393   |         |         |             | 57,242   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Account payable                                                         |                                            |                                   | 60,752   |         |         |             | 73,548   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accrued interest                                                        |                                            |                                   | 7,436    |         |         |             | 6,130    |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accured liabilities                                                     |                                            |                                   | 80,475   |         |         |             | 78,725   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accrued income taxes                                                    |                                            |                                   | 907      |         |         |             | 546      |        
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                                |                                                                         |                                            | Total current liabilities         |          |         | 224,007 |             |          |         | 216,245 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Long-term debt, net of discount and current portion                                             |                                                                         |                                            | 274,346                           |          |         |         | 274,318     |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other long-term liabilities                                                                     |                                                                         |                                            | 12,046                            |          |         |         | 12,040      |         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Stockholders equity                                                                            |                                                                         |                                            | 62,188                            |          |         |         | 59,176      |         
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         
|                                                                                                |                                                                         | Total liabilities and stockholders equity |                                   | $        | 572,587 |         |             | $        | 561,779 |        
|                                                                                                |                                                                         |                                            |                                   |          |         |         |             |         

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

1



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##### Table of Contents



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

|                                     |                                     |                                                |         |                |         |        |         |         |         | 
|------------------------------------ | ----------------------------------- | ---------------------------------------------- | ------- | -------------- | ------- | ------ | ------- | ------- | ------- | 
|                                     |                                     |                                                |         | Thirteen Weeks
|                                     |                                     |                                                |         |               
|                                     |                                     |                                                |         | May 4,         |         | May 5,
|                                     |                                     |                                                |         | 2002           |         | 2001  
|                                     |                                     |                                                |         |                |         |       
|Net revenue                          |                                     | $                                              | 290,109 |                |         | $      | 270,291 |        
|                                    
|                                    
|                                    
|                                    
|Costs and expenses:                  |                                     |                                                |         |                |         |        |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Cost of goods sold                  |                                                |         | 95,648         |         |        |         | 87,722  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Operating expenses                  |                                                |         | 182,949        |         |        |         | 173,276 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Goodwill and tradename amortization |                                                |         |               |         |        |         | 1,462   |        
|                                     |                                     |                                                |         |                |         |        |         |        
|                                     |                                     | Total costs and expenses                       |         |                | 278,597 |        |         |         | 262,460 | 
|                                     |                                     |                                                |         |                |         |        |         |        
|Operating income                     |                                     |                                                | 11,512  |                |         |        | 7,831   |        
|                                    
|                                    
|                                    
|                                    
|Interest and other (income) expense: |                                     |                                                |         |                |         |        |         |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                    |                                                |         | 6,993          |         |        |         | 6,901   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest and other income           |                                                |         | (298           | )       |        |         | (936    | )      
|                                     |                                     |                                                |         |                |         |        |         |        
|                                     |                                     | Total interest and other (income) expense, net |         |                | 6,695   |        |         |         | 5,965   | 
|                                     |                                     |                                                |         |                |         |        |         |        
|Income before income taxes           |                                     |                                                | 4,817   |                |         |        | 1,866   |        
|                                    
|                                    
|                                    
|                                    
|                                    
|Income tax provision                 |                                     |                                                | 1,927   |                |         |        | 1,306   |        
|                                     |                                     |                                                |         |                |         |        |         |        
|Net income                           |                                     | $                                              | 2,890   |                |         | $      | 560     |        
|                                     |                                     |                                                |         |                |         |        |         |        

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

2



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

|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |        |       |        |        |  
|------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------- | ----- | -------------------- | ------ | ------ | ----- | ------ | ------ | -
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       | Thirteen Weeks Ended
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                     
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       | May 4,               |        | May 5,
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       | 2002                 |        | 2001  
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|Cash flows from operating activities: |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                     
|                                     
|                                     
|                                     
|                                      | Net income                                                                        |                                                                                           | $                                                                | 2,890                                                |       |                      | $      | 560    |      
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                                           |                                                                  |                                                      |       |                      |        |        |      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   | Depreciation and amortization                                                             |                                                                  |                                                      | 8,958 |                      |        |        | 9,309 |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   | Noncash interest expense                                                                  |                                                                  |                                                      | 309   |                      |        |        | 305   |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   | 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 |                                                      |       | (5,666               | )      |        |       | 4,301  |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   |                                                                                           | Inventories                                                      |                                                      |       | (7,682               | )      |        |       | (7,546 | )     
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   |                                                                                           | Accounts payable, accrued liabilities and other liabilities      |                                                      |       | 5,234                |        |        |       | (5,656 | )     
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   |                                                                                           | Accrued interest                                                 |                                                      |       | 1,306                |        |        |       | 977    |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                   |                                                                                           | Accrued, refundable and deferred income taxes                    |                                                      |       | 317                  |        |        |       | 929    |       
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                      |                                                                                   |                                                                                           |                                                                  | Net cash provided by operating activities            |       |                      | 5,666  |        |       |        | 2,496  |  
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|Cash flows from investing activities: |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                     
|                                     
|                                     
|                                     
|                                      | Purchases of property and equipment, net                                          |                                                                                           |                                                                  | (6,348                                               | )     |                      |        | (5,933 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Net proceeds from sale of fixed assets                                            |                                                                                           |                                                                  |                                                     |       |                      |        | 4,712  |      
|                                     
|                                     
|                                     
|                                     
|                                      | Systems development costs                                                         |                                                                                           |                                                                  | (1,228                                               | )     |                      |        | (2,107 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                        |                                                                                           |                                                                  | (95                                                  | )     |                      |        | (105   | )    
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                      |                                                                                   |                                                                                           |                                                                  | Net cash used for investing activities               |       |                      | (7,671 | )      |       |        | (3,433 | )
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|Cash flows from financing activities: |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                     
|                                     
|                                     
|                                     
|                                      | Repayment of long-term debt                                                       |                                                                                           |                                                                  | (11                                                  | )     |                      |        | (10    | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Advances from (to) affiliates, net                                                |                                                                                           |                                                                  | 881                                                  |       |                      |        | (94    | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                        |                                                                                           |                                                                  | 39                                                   |       |                      |        | (200   | )    
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                      |                                                                                   |                                                                                           |                                                                  | Net cash provided by (used for) financing activities |       |                      | 909    |        |       |        | (304   | )
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|Cash and cash equivalents:            |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                     
|                                     
|                                     
|                                     
|                                      | Net decrease during the period                                                    |                                                                                           |                                                                  | (1,096                                               | )     |                      |        | (1,241 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Balance, beginning of period                                                      |                                                                                           |                                                                  | 63,656                                               |       |                      |        | 36,725 |      
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       
|                                      | Balance, end of period                                                            |                                                                                           | $                                                                | 62,560                                               |       |                      | $      | 35,484 |      
|                                      |                                                                                   |                                                                                           |                                                                  |                                                      |       |                      |        |       

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 and notes
thereto included in its annual report on Form 10-K for the fiscal year ended
February 2, 2002.

In the opinion of management, the accompanying financial statements
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly Cole National Group, Inc.s financial position as
of May 5, 2001 and the results of operations and cash flows for the 13 weeks
ended May 4, 2002 and May 5, 2001.

Inventories

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

Cash Flows

Net cash flows from operating activities reflect net cash payments for
income taxes and payments for interest of $127,000 and $5,628,000,
respectively, for the 13 weeks ended May 4, 2002, and $380,000 and $5,620,000,
respectively, for the 13 weeks ended May 5, 2001.

Total Other Comprehensive Income

Total other comprehensive income for the 13 weeks ended May 4, 2002 and
May 5, 2001 is as follows (000s omitted):

|                                   |  |                |       |        |  |   |      |  
|---------------------------------- |  | -------------- | ----- | ------ |  | - | ---- | -
|                                   |  | 13 Weeks Ended
|                                   |  |               
|                                   |  | May 4,         |       | May 5,
|                                   |  | 2002           |       | 2001  
|                                   |  |                |       |       
|Net income                         |  | $              | 2,890 |        |  | $ | 560  |  
|                                  
|                                  
|                                  
|                                  
|Cumulative translation gain (loss) |  |                | 122   |        |  |   | (209 | )
|                                   |  |                |       |        |  |   |      |  
|Total other comprehensive income   |  | $              | 3,012 |        |  | $ | 351  |  
|                                   |  |                |       |        |  |   |      |  

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year presentation.

4



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##### Table of Contents



(2) Goodwill and Other Intangible Assets

The Company adopted Financial Accounting Standard Board Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
in the first quarter of fiscal 2002. This statement requires that goodwill and
certain intangible assets deemed to have indefinite lives will no longer be
amortized, but instead, will be subject to reviews for impairment annually, or
more frequently if certain indicators arise. With the adoption of this
statement, the Company ceased amortization of goodwill and tradenames as of
February 3, 2002. The Company is in the process of completing the required
transitional impairment testing of goodwill.

The following table presents the first quarter results of the Company on a
comparable basis (000s omitted, except per share amounts):

|            |                        |  |   |                |  |        |   |       |   | 
|----------- | ---------------------- |  | - | -------------- |  | ------ | - | ----- | - | 
|            |                        |  |   | 13 Weeks Ended
|            |                        |  |   |               
|            |                        |  |   | May 4,         |  | May 5,
|            |                        |  |   | 2002           |  | 2001  
|            |                        |  |   |                |  |       
|Net income: |                        |  |   |                |  |        |   |      
|           
|           
|           
|           
|            | Reported net income    |  | $ | 2,890          |  |        | $ | 560   |  
|           
|           
|           
|           
|            | Goodwill amortization  |  |   |               |  |        |   | 1,153 |  
|           
|           
|           
|           
|            | Tradename amortization |  |   |               |  |        |   | 309   |  
|           
|           
|           
|           
|            | Related tax adjustment |  |   |               |  |        |   | (25   | )
|            |                        |  |   |                |  |        |   |      
|            | Adjusted net income    |  | $ | 2,890          |  |        | $ | 1,997 |  
|            |                        |  |   |                |  |        |   |      

The net carrying amount of intangible assets at May 4, 2002, by business
segment, was $124,218,000 at Cole Vision and $22,331,000 at Things Remembered.
The change in the net carrying amount of intangible assets for the 13 weeks
ended May 4, 2002, was due to currency impact on goodwill at Cole Vision.

(3) Segment Information

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

|                         |                                |                   |                                |         |                |         |        |         |        |         |  
|------------------------ | ------------------------------ | ----------------- | ------------------------------ | ------- | -------------- | ------- | ------ | ------- | ------ | ------- | -
|                         |                                |                   |                                |         | 13 Weeks Ended
|                         |                                |                   |                                |         |               
|                         |                                |                   |                                |         | May 4,         |         | May 5,
|                         |                                |                   |                                |         | 2002           |         | 2001  
|                         |                                |                   |                                |         |                |         |       
|Net revenue:             |                                |                   |                                |         |                |         |        |        
|                        
|                        
|                        
|                        
|                         | Cole Vision                    |                   | $                              | 236,656 |                |         | $      | 216,381 |       
|                        
|                        
|                        
|                        
|                         |                                | Things Remembered |                                |         | 53,453         |         |        |         | 53,910 |        
|                         |                                |                   |                                |         |                |         |        |        
|                         |                                |                   | Consolidated net revenue       |         | $              | 290,109 |        |         | $      | 270,291 |  
|                         |                                |                   |                                |         |                |         |        |        
|Operating income (loss): |                                |                   |                                |         |                |         |        |        
|                        
|                        
|                        
|                        
|                         | Cole Vision                    |                   | $                              | 15,136  |                |         | $      | 11,380  |       
|                        
|                        
|                        
|                        
|                         | Things Remembered              |                   |                                | (1,364  | )              |         |        | (1,068  | )     
|                         |                                |                   |                                |         |                |         |        |        
|                         |                                |                   | Total segment operating income |         | $              | 13,772  |        |         | $      | 10,312  |  
|                        
|                        
|                        
|                        
|                         | Unallocated amounts:           |                   |                                |         |                |         |        |         |       
|                        
|                        
|                        
|                        
|                         |                                |                   | Corporate expenses             |         |                | (2,260  | )      |         |        | (2,481  | )
|                         |                                |                   |                                |         |                |         |        |        
|                         | Consolidated operating income  |                   |                                | 11,512  |                |         |        | 7,831   |       
|                        
|                        
|                        
|                        
|                         | Interest and other income, net |                   |                                | (6,695  | )              |         |        | (5,965  | )     
|                         |                                |                   |                                |         |                |         |        |        
|                         | Income before income taxes     |                   | $                              | 4,817   |                |         | $      | 1,866   |       
|                         |                                |                   |                                |         |                |         |        |        

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##### Table of Contents



(4) Subsequent Events

On May 22, 2002, the Company issued $150.0 million of 8-7/8% senior
subordinated notes due 2012. These notes are unsecured and mature on May 15,
2012. Interest on the notes is payable semi-annually on each May 15 and
November 15, commencing November 15, 2002.

The indenture pursuant to which the 8-7/8% notes were issued contains
certain optional and mandatory redemption features and other financial
covenants similar to those in the indentures for the Companys 8-5/8% and
previously outstanding 9-7/8% notes.

Net proceeds from the 8-7/8% note offering, together with cash on hand,
were used to retire $150.0 million of 9-7/8% senior subordinated notes due 2006
and pay premiums and other costs associated with retiring those notes. The
Company anticipates that its second quarter results will include an
extraordinary loss on early extinguishment of debt of approximately $7.6
million, net of an income tax benefit of approximately $4.1 million,
representing the payment of premiums and other costs of retiring the notes and
the write-offs of unamortized discount and deferred financing fees.

In connection with the 8-7/8% note offering, the Company and its operating
subsidiaries amended their existing credit facility to, among other things,
extend its term to May 31, 2006, provide a working capital commitment of $75.0
million and reduce borrowing rates. Borrowings under the amended credit
facility presently bear interest at a rate equal to, at the option of the
principal operating subsidiaries, either (a) the Eurodollar Rate plus 2.25% or
(b) 1.25% plus the highest of (i) the prime rate, (ii) the three-week moving
average of the secondary market rates for three-month certificates of deposit
plus 1.0% and (iii) the federal funds rate plus 0.5%. The Company pays a
commitment fee of between 0.50% and 0.75% per annum on the unused portion of
the facility based on the percentage of revolving credit commitments used.

The amended credit facility, which is guaranteed by Cole National
Corporation and Cole National Group, has customary operating and financial
covenants similar to those in the Companys previous credit agreement as
described in the Companys annual reports on Form 10-K.

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##### Table of Contents






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 Cole National
Groups results of operations for the 13-week periods ended May 4, 2002 and May
5, 2001 (the Companys first quarter). 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 2, 2002 included in the Companys 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 2, 2002 is referred to as fiscal 2001. The current fiscal
year, which will end February 1, 2003, is referred to as fiscal 2002.

Results of Operations

The following table sets forth certain operating information for the first
quarter fiscal 2002 and fiscal 2001 (dollars in millions):

|                                                    |                                     |                     |       |               |       |      |       |        |       |   |        |      |      |  
|--------------------------------------------------- | ----------------------------------- | ------------------- | ----- | ------------- | ----- | ---- | ----- | ------ | ----- | - | ------ | ---- | ---- | -
|                                                    |                                     |                     |       | First Quarter |       |      |       |       
|                                                    |                                     |                     |       |               |       |      |       |       
|                                                    |                                     |                     |       | 2002          |       | 2001 |       | Change
|                                                    |                                     |                     |       |               |       |      |       |       
|Net
revenue                                         |                                     |                     |       |               |       |      |       |        |       |   |        |     
|                                                    | Cole Vision                         |                     | $     | 236.6         |       |      | $     | 216.4  |       |   |        | 9.4  | %   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Things Remembered                   |                     |       | 53.5          |       |      |       | 53.9   |       |   |        | (0.8 | )   
|                                                    |                                     |                     |       |               |       |      |       |       
|                                                    |                                     | Total net revenue   |       | $             | 290.1 |      |       | $      | 270.3 |   |        |      | 7.3  | %
|                                                    |                                     |                     |       |               |       |      |       |       
|Gross margin                                        |                                     | $                   | 194.5 |               |       | $    | 182.6 |        |       |   | 6.5    | %   
|                                                   
|                                                   
|                                                   
|                                                   
|Operating expenses                                  |                                     |                     | 183.0 |               |       |      | 173.3 |        |       |   | 5.6    |     
|                                                   
|                                                   
|                                                   
|                                                   
|Goodwill and tradename amortization                 |                                     |                     |      |               |       |      | 1.5   |        |       |   | (100.0 | )   
|                                                    |                                     |                     |       |               |       |      |       |       
|                                                    |                                     | Operating income    |       | $             | 11.5  |      |       | $      | 7.8   |   |        |      | 47.0 | %
|                                                    |                                     |                     |       |               |       |      |       |       
|Percentage of net revenue                           |                                     |                     |       |               |       |      |       |        |       |   |        |      |      |  
|                                                    | Gross margin                        |                     |       | 67.0          | %     |      |       | 67.5   | %     |   |        | (0.5 | )%  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Operating expenses                  |                     |       | 63.0          |       |      |       | 64.1   |       |   |        | (1.1 | )   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Goodwill and tradename amortization |                     |       |              |       |      |       | 0.5    |       |   |        | (0.5 | )   
|                                                    |                                     |                     |       |               |       |      |       |       
|                                                    |                                     | Operating income    |       |               | 4.0   | %    |       |        | 2.9   | % |        |      | 1.1  | %
|                                                    |                                     |                     |       |               |       |      |       |       
|Number of retail locations at the end
of the period
|                                                    | Cole Licensed Brands                |                     |       | 1,286         |       |      |       | 1,186  |       |   |        |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Pearle company-owned                |                     |       | 422           |       |      |       | 438    |       |   |        |      |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Pearle franchised                   |                     |       | 442           |       |      |       | 421    |       |   |        |      |     
|                                                    |                                     |                     |       |               |       |      |       |       
|                                                    |                                     | Total Cole Vision   |       |               | 2,150 |      |       |        | 2,045 |   |        |      |      |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Things Remembered                   |                     |       | 776           |       |      |       | 781    |       |   |        |      |     
|                                                    |                                     |                     |       |               |       |      |       |       
|                                                    |                                     | Total Cole National |       |               | 2,926 |      |       |        | 2,826 |   |        |      |      |  
|                                                    |                                     |                     |       |               |       |      |       |       

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The increase in consolidated net revenue for the first quarter was
primarily attributable to increases in comparable store sales at Cole Vision,
growth in managed vision care revenue and an increase in the number of Target
Optical stores now open. Changes in comparable store sales by
business for fiscal 2002 compared to the same period a year ago were as follows:

|                             |                     |  |               |     |  
|---------------------------- | ------------------- |  | ------------- | --- | -
|                             |                     |  | First Quarter
|                             |                     |  |              
|Cole Licensed Brands (U.S.)  |                     |  | 3.5           | %  
|                            
|                            
|                            
|                            
|Pearle company-owned (U.S.)  |                     |  | 10.6          | %  
|                            
|                            
|                            
|                            
|                             | Total Cole Vision   |  |               | 5.9 | %
|                            
|                            
|                            
|                            
|Things Remembered            |                     |  | (3.0          | %) 
|                            
|                            
|                            
|                            
|                             | Total Cole National |  |               | 3.9 | %
|                            
|                            
|                            
|                            
|                            
|Pearle U.S. franchise stores |                     |  | 5.9           | %  
|                            
|                            
|                            
|                            
|Pearle U.S. chain-wide       |                     |  | 8.1           | %  

At Cole Licensed Brands, comparable store sales increased primarily from
an increase in the average spectacle selling price, as unit sales decreased
slightly. At Pearle, the increase in company-owned comparable store sales was
driven primarily by an increase in the number of transactions with a modest
increase in average spectacle selling price. At Things Remembered, comparable
store sales declined as fewer transactions more than offset the increase in
average selling price resulting from sales of new merchandise at higher
average unit retails, more personalization and less clearance merchandise.

The first quarter gross margin dollar increase was attributable to
improvements in net revenue at Cole Vision. Overall, the gross margin rate
decreased to 67.0% from 67.5% in fiscal 2001 due to a number of factors,
including more aggressive pricing of contact lenses, the mix of frames
selected by Sears Optical customers and an increase in products sold to Pearle
franchisees. Although sales to franchisees generate lower margins, they add
gross margin dollars and provide other benefits to the Company including a
more uniform merchandise assortment and a consistent brand look across all
stores. As a result, the gross margin rate at Cole Vision declined by 0.7
percentage points compared to first quarter 2001. However, the gross margin
rate at Things Remembered increased 0.8 percentage points compared to first
quarter 2001 benefiting primarily from the improvement in average selling
price discussed above.

The dollar increase in operating expenses for first quarter 2002 was
primarily due to costs incurred to support the increase in net revenue and the
number of Target Optical stores opened in the past twelve months, partially
offset by reduced advertising expenditures at Pearle. As a percentage of net
revenue, operating expenses improved to 63.0% from 64.1% in fiscal 2001,
gaining operating leverage of 1.1 percentage points. The leverage gain was
primarily due to the increase in comparable store sales at Cole Vision and reduced advertising expenditures. Amortization of goodwill and tradenames was
stopped in fiscal 2002 as a result of adopting Statement of Financial
Accounting Standards No. 142 (SFAS 142).

The $3.7 million improvement in first quarter 2002 operating income
compared to first quarter 2001 was primarily attributable to the increase in
net revenues and operating leverage at Cole Vision and the adoption of SFAS
142 as discussed above.

The increase in interest and other (income) expense, net, was primarily
the result of a $0.7 million gain from the sale of a Dallas office facility in
fiscal 2001. An income tax provision was recorded in the first quarter of
fiscal 2002 and fiscal 2001 using the Companys estimated annual effective tax
rates of 40.0% and 70.0%, respectively. The reduction in the estimated
effective tax rate compared to fiscal 2001 was primarily a result of adopting
SFAS 142 which stopped nondeductible goodwill amortization.

New Accounting Pronouncements

The Company adopted SFAS 142 in the first quarter of fiscal 2002. This
statement requires that goodwill and certain intangible assets deemed to have
indefinite lives will no longer be amortized, but instead, will be subject to
reviews for impairment annually, or more frequently if certain indicators
arise. With the

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adoption of this statement, the Company ceased amortization of
goodwill and tradenames as of February 3, 2002. Amortization of goodwill and
tradenames totaled $5.8 million in fiscal 2001. The Company is in the process
of completing the required transitional impairment testing of goodwill.

Forward-Looking Information

Certain sections of this Quarterly Report on Form 10-Q, 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 forecast due to a variety of factors
that can adversely affect 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 nature and extent of disruptions of the
economy from terrorist activities and from governmental and consumer responses
to such acts, the success of new store openings and the rate at which new
stores achieve profitability, the Companys relationships with host stores and
franchisees, the Companys ability to select, stock and price merchandise
attractive to customers, success of systems development and integration,
competition and regulation in the optical industry, integration of acquired
businesses, economic, political and weather factors affecting consumer
spending, operating factors affecting customer satisfaction, including
manufacturing quality of optical and engraved goods, the mix of goods sold,
pricing and other competitive factors, the seasonality of the Companys
business and the actual effect of implementation of new accounting standards.
Forward-looking statements are made based upon managements expectations and
beliefs concerning future events impacting the Company. All forward-looking
statements involve risk and uncertainty.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Companys major market risk exposure is to 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 to
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.




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 thereof:



| | 10.1 |  | Amended and Restated Credit
Agreement dated May 23, 2002, among Cole Vision Corporation,
Things Remembered, Inc., and Pearle, Inc. and Canadian
Imperial Bank of Commerce.                       
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.2 |  | Indenture dated May 22, 2002, by and among Cole National Group, Inc. and Wells Fargo Bank
Minnesota, National Association, as trustee, relating to the 8-7/8% Senior Subordinated Notes
Due 2012.

(b)  Reports on Form 8-K.



| |  | The Company filed a report on Form 8-K on April 26, 2002, which attached a
press release regarding its intention to offer $150.0 million of its senior
subordinated notes to certain institutional investors.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company filed a report on Form 8-K on May 7, 2002, which disclosed
domestic comparable store sales for first quarter of 2002.                                                                            

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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/ Tracy L. BurmeisterTracy L. Burmeister
Vice President Accounting and Reporting
(Duly Authorized Officer and
Principal Accounting Officer)
|                   
|Date: June 13, 2002 |  |  |                           |                                                                                                                                              

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COLE NATIONAL GROUP, INC.
FORM 10-Q
QUARTER ENDED MAY 4, 2002




EXHIBIT INDEX

|        |  |                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                  
|10.1    |  | Amended and Restated Credit Agreement dated May 23, 2002, among Cole Vision Corporation, Things Remembered, Inc., and
Pearle, Inc. and Canadian Imperial Bank of Commerce.                       
|       
|10.2    |  | Indenture dated May 22, 2002, by and among Cole National Group, Inc. and Wells Fargo Bank
Minnesota, National Association, as trustee, relating to the 8-7/8% Senior Subordinated Notes
Due 2012.

11