TABLE OF CONTENTS




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



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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|           |  |                                                                                          |  |  |  | 
|---------- |  | ---------------------------------------------------------------------------------------- |  |  |  | 
|(Mark One)
|          
|[X]        |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|          
|          
|          
|          
|           |  | For the quarterly period ended May 5, 2001, or                                          
|          
|[   ]      |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|          
|          
|          
|          
|           |  | For the transition period from  to .                                                    

Commission file number 33-66342

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

|                                                     |  |                                      |  |  |  | 
|---------------------------------------------------- |  | ------------------------------------ |  |  |  | 
|Delaware                                             |  | 34-1744334                          
|(State or other jurisdiction of                      |  | (I.R.S. employer identification no.)
|incorporation or organization)                      
|                                                    
|5915 Landerbrook Drive                               |  | 44124                               
|Mayfield Heights, Ohio                               |  | (Zip Code)                          
|(Address of principal executive offices)            
|                                                    
|(440) 449-4100                                      
|(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    X YES   NO

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

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



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##### Table of Contents



COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MAY 5, 2001
INDEX

|         |  |  |                       |  |  |                                                                                             |  |          |   |  |  |  |  | 
|-------- |  |  | --------------------- |  |  | ------------------------------------------------------------------------------------------- |  | -------- | - |  |  |  |  | 
|         |  |  |                       |  |  |                                                                                             |  | Page No.
|         |  |  |                       |  |  |                                                                                             |  |         
|PART I.  |  |  | FINANCIAL INFORMATION
|        
|         |  |  | Item 1.               |  |  | Financial Statements                                                                       
|        
|         |  |  |                       |  |  | Consolidated Balance Sheets as of May 5, 2001 and February 3, 2001                          |  |          | 1 | 
|        
|         |  |  |                       |  |  | Consolidated Statements of Operations for the 13 weeks ended May 5, 2001 and April 29, 2000 |  |          | 2 | 
|        
|         |  |  |                       |  |  | Consolidated Statements of Cash Flows for the 13 weeks ended May 5, 2001 and April 29, 2000 |  |          | 3 | 
|        
|         |  |  |                       |  |  | Notes to Consolidated Financial Statements                                                  |  |          | 4 | 
|        
|         |  |  | Item 2.               |  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations       |  |          | 6 | 
|        
|         |  |  | Item 3.               |  |  | Quantitative and Qualitative Disclosures about Market Risk                                  |  |          | 8 | 
|        
|PART II. |  |  | OTHER INFORMATION    
|        
|         |  |  | Item 6.               |  |  | Exhibits and Reports on Form 8-K                                                            |  |          | 9 | 





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##### Table of Contents



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







|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |          |         |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ----------- | ------- | -------- | ------- |  |  |  |  | 
|                                                                                                                        |                                                                                              |                                            |         | May 5,   |         | February 3,
|                                                                                                                        |                                                                                              |                                            |         | 2001     |         | 2001       
|                                                                                                                        |                                                                                              |                                            |         |          |         |            
|Assets                                                                                                                 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Current assets:                                                                                                        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Cash and cash equivalents                                                                    |                                            | $       | 35,484   |         |             | $       | 36,725   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accounts receivable, less allowance for doubtful accounts
of $7,011 and $7,348, respectively |                                            |         | 37,943   |         |             |         | 40,429   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Current portion of notes receivable                                                          |                                            |         | 4,272    |         |             |         | 4,272    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Inventories                                                                                  |                                            |         | 129,784  |         |             |         | 122,238  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Refundable income taxes                                                                      |                                            |         | 547      |         |             |         | 571      |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Prepaid expenses and other                                                                   |                                            |         | 12,872   |         |             |         | 15,188   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Deferred income tax benefits                                                                 |                                            |         | 2,009    |         |             |         | 2,009    |        
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total current assets                       |         |          | 222,911 |             |         |          | 221,432 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Property and equipment, at cost                                                                                         |                                                                                              |                                            | 265,891 |          |         |             | 268,742 |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Less  accumulated depreciation and amortization                                             |                                            |         | (146,527 | )       |             |         | (145,723 | )      
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total property and equipment, net          |         |          | 119,364 |             |         |          | 123,019 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Notes receivable, excluding current portion, less reserves
for uncollectible amounts of $4,585 and $4,537, respectively |                                                                                              |                                            | 5,611   |          |         |             | 6,573   |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Deferred income taxes and other assets                                                                                  |                                                                                              |                                            | 57,209  |          |         |             | 57,422  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Intangible assets, net                                                                                                  |                                                                                              |                                            | 150,117 |          |         |             | 151,588 |         
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total assets                               |         | $        | 555,212 |             |         | $        | 560,034 | 
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|Liabilities and Stockholders Equity                                                                                   
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Current liabilities:                                                                                                   
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Current portion of long-term debt                                                            |                                            | $       | 86       |         |             | $       | 49       |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accounts payable                                                                             |                                            |         | 48,656   |         |             |         | 55,644   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Payable to affiliates, net                                                                   |                                            |         | 81,596   |         |             |         | 81,789   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued interest                                                                             |                                            |         | 7,314    |         |             |         | 6,337    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued liabilities                                                                          |                                            |         | 75,951   |         |             |         | 75,654   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued income taxes                                                                         |                                            |         | 1,407    |         |             |         | 502      |        
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total current liabilities                  |         |          | 215,010 |             |         |          | 219,975 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Long-term debt, net of discount and current portion                                                                     |                                                                                              |                                            | 274,240 |          |         |             | 274,262 |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Other long-term liabilities                                                                                             |                                                                                              |                                            | 11,320  |          |         |             | 11,506  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Stockholders equity                                                                                                    |                                                                                              |                                            | 54,642  |          |         |             | 54,291  |         
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total liabilities and stockholders equity |         | $        | 555,212 |             |         | $        | 560,034 | 
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         

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

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

|                                     |                               |                          |                                                |         |                      |       |           |         |         |       |  |  |  |  | 
|------------------------------------ | ----------------------------- | ------------------------ | ---------------------------------------------- | ------- | -------------------- | ----- | --------- | ------- | ------- | ----- |  |  |  |  | 
|                                     |                               |                          |                                                |         | Thirteen Weeks Ended
|                                     |                               |                          |                                                |         |                     
|                                     |                               |                          |                                                |         | May 5,               |       | April 29,
|                                     |                               |                          |                                                |         | 2001                 |       | 2000     
|                                     |                               |                          |                                                |         |                      |       |          
|Net revenue                          |                               | $                        | 270,291                                        |         |                      | $     | 257,281   |        
|                                    
|                                    
|                                    
|                                    
|Costs and expenses:                 
|                                    
|                                    
|                                    
|                                    
|                                     | Cost of goods sold            |                          |                                                | 87,116  |                      |       |           | 86,328  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Operating expenses            |                          |                                                | 166,035 |                      |       |           | 158,178 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization |                          |                                                | 9,309   |                      |       |           | 9,311   |        
|                                     |                               |                          |                                                |         |                      |       |           |        
|                                     |                               | Total costs and expenses |                                                |         | 262,460              |       |           |         | 253,817 |      
|                                     |                               |                          |                                                |         |                      |       |           |        
|Operating income                     |                               |                          | 7,831                                          |         |                      |       | 3,464     |        
|                                    
|                                    
|                                    
|                                    
|Interest and other (income) expense:
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expence              |                          |                                                | 6,901   |                      |       |           | 6,882   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest and other income     |                          |                                                | (936    | )                    |       |           | (133    | )      
|                                     |                               |                          |                                                |         |                      |       |           |        
|                                     |                               |                          | Total interest and other (income) expense, net |         |                      | 5,965 |           |         |         | 6,749 | 
|                                     |                               |                          |                                                |         |                      |       |           |        
|Income (loss) before income taxes    |                               |                          | 1,866                                          |         |                      |       | (3,285    | )      
|                                    
|                                    
|                                    
|                                    
|Income tax provision (benefit)       |                               |                          | 1,306                                          |         |                      |       | (1,937    | )      
|                                     |                               |                          |                                                |         |                      |       |           |        
|Net income (loss)                    |                               | $                        | 560                                            |         |                      | $     | (1,348    | )      
|                                     |                               |                          |                                                |         |                      |       |           |        

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 5,               |        | April 29,
|                                      |                                                                                          |                                                                                           |                                                                  |        | 2001                 |        | 2000     
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |          
|Cash flows from operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss)                                                                        |                                                                                           | $                                                                | 560    |                      |        | $         | (1,348 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Depreciation and amortization                                                             |                                                                  |        | 9,309                |        |           |        | 9,311 |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Non-cash interest, net                                                                    |                                                                  |        | 305                  |        |           |        | 264   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | 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 |        |                      | 5,553  |           |        |       | 890     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Inventories                                                      |        |                      | (7,546 | )         |        |       | (3,615  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accounts payable, accrued liabilities and other liabilities      |        |                      | (6,908 | )         |        |       | (174    | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accrued interest                                                 |        |                      | 977    |           |        |       | 445     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accrued, refundable and deferred income taxes                    |        |                      | 929    |           |        |       | (2,503  | )
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      |                                                                                          |                                                                                           | Net cash provided by operating activities                        |        |                      | 2,496  |           |        |       | 3,270   |  
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|Cash flows from investing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Purchases of property and equipment, net                                                 |                                                                                           |                                                                  | (5,933 | )                    |        |           | (9,101 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of fixed assets, net                                                  |                                                                                           |                                                                  | 4,712  |                      |        |           |       |      
|                                     
|                                     
|                                     
|                                     
|                                      | Systems development costs                                                                |                                                                                           |                                                                  | (2,107 | )                    |        |           | (1,823 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                               |                                                                                           |                                                                  | (105   | )                    |        |           | 55     |      
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      |                                                                                          |                                                                                           | Net cash used for investing activities                           |        |                      | (3,433 | )         |        |       | (10,869 | )
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|Cash flows from financing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Repayment of long-term debt                                                              |                                                                                           |                                                                  | (10    | )                    |        |           | (123   | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Advances to affiliates, net                                                              |                                                                                           |                                                                  | (94    | )                    |        |           | (340   | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Payment of deferred financing fees                                                       |                                                                                           |                                                                  |       |                      |        |           | (188   | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                               |                                                                                           |                                                                  | (200   | )                    |        |           | (196   | )    
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      |                                                                                          |                                                                                           | Net cash used for financing activities                           |        |                      | (304   | )         |        |       | (847    | )
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|Cash and temporary cash investments: 
|                                     
|                                     
|                                     
|                                     
|                                      | Net decrease during the period                                                           |                                                                                           |                                                                  | (1,241 | )                    |        |           | (8,446 | )    
|                                     
|                                     
|                                     
|                                     
|                                      | Balance, beginning of the period                                                         |                                                                                           |                                                                  | 36,725 |                      |        |           | 28,953 |      
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      | Balance, end of the period                                                               |                                                                                           | $                                                                | 35,484 |                      |        | $         | 20,507 |      
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       

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

-3-



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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 3, 2001.

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 5, 2001 and
April 29, 2000.

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 (receipts) for income taxes and
payments for interest of $380,000 and $5,620,000, respectively, for the 13 weeks ended May 5, 2001, and
($61,000) and $6,173,000, respectively, for the 13 weeks ended April 29, 2000.

Total Other Comprehensive Income (Loss)

Total other comprehensive income (loss) for the 13 weeks ended May 5, 2001 and April 29, 2000 is as
follows (000s omitted):

|                                        |  |                |      |           |  |   |        |   |  |  |  | 
|--------------------------------------- |  | -------------- | ---- | --------- |  | - | ------ | - |  |  |  | 
|                                        |  | 13 Weeks Ended
|                                        |  |               
|                                        |  | May 5,         |      | April 29,
|                                        |  | 2001           |      | 2000     
|                                        |  |                |      |          
|Net income (loss)                       |  | $              | 560  |           |  | $ | (1,348 | )
|                                       
|                                       
|                                       
|                                       
|Cumulative translation loss             |  |                | (209 | )         |  |   | (209   | )
|                                        |  |                |      |           |  |   |        |  
|Total other comprehensive income (loss) |  | $              | 351  |           |  | $ | (1,557 | )
|                                        |  |                |      |           |  |   |        |  

-4-



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(2) Segment Information

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

|                         |                                   |                                |   |                |         |           |   |         |         |   |  |  |  | 
|------------------------ | --------------------------------- | ------------------------------ | - | -------------- | ------- | --------- | - | ------- | ------- | - |  |  |  | 
|                         |                                   |                                |   | 13 Weeks Ended
|                         |                                   |                                |   |               
|                         |                                   |                                |   | May 5,         |         | April 29,
|                         |                                   |                                |   | 2001           |         | 2000     
|                         |                                   |                                |   |                |         |          
|Net revenue:            
|                        
|                        
|                        
|                        
|                         | Cole Vision                       |                                | $ | 216,381        |         |           | $ | 206,625 |        
|                        
|                        
|                        
|                        
|                         | Things Remembered                 |                                |   | 53,910         |         |           |   | 50,656  |        
|                         |                                   |                                |   |                |         |           |   |        
|                         |                                   | Consolidated net revenue       |   | $              | 270,291 |           |   | $       | 257,281 |  
|                         |                                   |                                |   |                |         |           |   |        
|Operating income (loss):
|                        
|                        
|                        
|                        
|                         | Cole Vision                       |                                | $ | 11,380         |         |           | $ | 9,449   |        
|                        
|                        
|                        
|                        
|                         | Things Remembered                 |                                |   | (1,068         | )       |           |   | (2,378  | )      
|                         |                                   |                                |   |                |         |           |   |        
|                         |                                   | Total segment operating income |   |                | 10,312  |           |   |         | 7,071   |  
|                        
|                        
|                        
|                        
|                         | Unallocated amounts:             
|                        
|                        
|                        
|                        
|                         |                                   | Corporate expenses             |   |                | (2,481  | )         |   |         | (3,607  | )
|                         |                                   |                                |   |                |         |           |   |        
|                         | Consolidated operating income     |                                |   | 7,831          |         |           |   | 3,464   |        
|                        
|                        
|                        
|                        
|                         | Interest and other income, net    |                                |   | (5,965         | )       |           |   | (6,749  | )      
|                         |                                   |                                |   |                |         |           |   |        
|                         | Income (loss) before income taxes |                                | $ | 1,866          |         |           | $ | (3,285  | )      
|                         |                                   |                                |   |                |         |           |   |        

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

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

The following is a discussion of certain factors affecting Cole National Groups results of
operations for the 13 week periods ended May 5, 2001 and April 29, 2000 (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 3, 2001 included
in the annual report on Form 10-K.

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

Results of Operations

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

|                                                     |                               |                     |       |               |       |      |       |        |       |   |     |      |       |   |  |  |  | 
|---------------------------------------------------- | ----------------------------- | ------------------- | ----- | ------------- | ----- | ---- | ----- | ------ | ----- | - | --- | ---- | ----- | - |  |  |  | 
|                                                     |                               |                     |       | First Quarter
|                                                     |                               |                     |       |              
|                                                     |                               |                     |       | 2001          |       | 2000 |       | Change
|                                                     |                               |                     |       |               |       |      |       |       
|Net revenue:                                        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Vision                   |                     | $     | 216.4         |       |      | $     | 206.6  |       |   |     | 4.7  | %    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 53.9          |       |      |       | 50.7   |       |   |     | 6.4  |      
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Total net revenue   |       | $             | 270.3 |      |       | $      | 257.3 |   |     |      | 5.1   | %
|                                                    
|                                                    
|                                                    
|                                                    
|Gross margin                                         |                               | $                   | 183.2 |               |       | $    | 171.0 |        |       |   | 7.1 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses                                   |                               |                     | 166.1 |               |       |      | 158.2 |        |       |   | 5.0 |     
|                                                    
|                                                    
|                                                    
|                                                    
|Depreciation and amortization                        |                               |                     | 9.3   |               |       |      | 9.3   |        |       |   |    |     
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Operating income    |       | $             | 7.8   |      |       | $      | 3.5   |   |     |      | 126.1 | %
|                                                     |                               |                     |       |               |       |      |       |       
|Percentage of net revenue:                          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gross margin                  |                     |       | 67.8          | %     |      |       | 66.4   | %     |   |     | 1.4  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating expenses            |                     |       | 61.5          |       |      |       | 61.5   |       |   |     |     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization |                     |       | 3.4           |       |      |       | 3.6    |       |   |     | (0.2 | )    
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Operating income    |       |               | 2.9   | %    |       |        | 1.3   | % |     |      | 1.6   |  
|                                                     |                               |                     |       |               |       |      |       |       
|Number of retail locations at the end of
the period:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Licensed Brands          |                     |       | 1,186         |       |      |       | 1,078  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Pearle company-owned          |                     |       | 438           |       |      |       | 447    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Pearle franchised             |                     |       | 421           |       |      |       | 421    |      
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Total Cole Vision   |       |               | 2,045 |      |       |        | 1,946 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 781           |       |      |       | 791    |      
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Total Cole National |       |               | 2,826 |      |       |        | 2,737 |  
|                                                     |                               |                     |       |               |       |      |       |       

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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, an increase in the number of Target Optical locations,
additional managed vision care revenue and a shift in the calendar that benefited gift sales at Things
Remembered. Changes in comparable store sales by business compared to the same period a year ago were:

|                             |                     |  |               |     |   |  |  |  | 
|---------------------------- | ------------------- |  | ------------- | --- | - |  |  |  | 
|                             |                     |  | First Quarter
|                             |                     |  |              
|Cole Licensed Brands (U.S.)  |                     |  | 4.9           | %  
|                            
|                            
|                            
|                            
|Pearle company-owned (U.S.)  |                     |  | 1.2           | %  
|                            
|                            
|                            
|                            
|                             | Total Cole Vision   |  |               | 2.7 | %
|                            
|                            
|                            
|                            
|Things Remembered            |                     |  | 0.1           | %  
|                            
|                            
|                            
|                            
|                             | Total Cole National |  |               | 2.1 | %
|                            
|                            
|                            
|                            
|Pearle U.S. franchise stores |                     |  | (1.9          | )% 
|                            
|                            
|                            
|                            
|Pearle U.S. chain-wide       |                     |  | (0.5          | )% 

At Cole Licensed Brands, the first quarter comparable store sales increase reflected an
increase in both the number of transactions and the average spectacle selling price. Sales at Target Optical
locations opened since the first quarter 2000 provided an additional $3.4 million of net
revenue. At Pearle, the first quarter company-owned comparable store sales were driven by the average spectacle
selling price as a result of not repeating a 50% off frame promotion that ran during the entire first quarter
of fiscal 2000. At Things Remembered, comparable store sales were flat, in part from not repeating February 2000s aggressive merchandise clearance promotion and from the general slowdown in mall traffic. However, the average
selling price increased as a result of sales of new merchandise at higher average unit retails, more
personalization and not repeating last years promotion. The $3.2 million increase in total revenue at Things
Remembered resulted primarily from a calendar shift due to last years 53rd week causing the first quarter of
fiscal 2001 to end one week closer to Mothers Day, an important gift giving occasion.

The gross margin dollar increase for the first quarter resulted from improvements in net
revenue and gross margin rate at both Cole Vision and Things Remembered. The gross margin rate at Cole Vision
improved 0.9 percentage points compared to the first quarter 2000. The primary causes for the improvement were
the increased average spectacle selling price at Cole Licensed Brands and Pearle, and the additional revenue from
managed vision care. The gross margin rate at Things Remembered increased 1.8 percentage points compared to first
quarter 2000 reflecting the improvement in average selling price due in part to not repeating last years
aggressive clearance promotion.

The increase in operating expenses for the first quarter was primarily due to costs incurred to
support the increase in net revenue and the Target Optical expansion. Operating expenses as a percentage of net
revenue were essentially flat between years. However, first quarter 2000 included a $1.8 million charge for
severance costs recorded in connection with a headcount reduction at Cole Vision. Excluding last years severance
charge, operating expenses as a percentage of net revenue increased 0.7 percentage points for the first quarter
of 2001. The increase in operating expenses as a percentage of net revenue was primarily attributable to a 1.0
percentage point increase in payroll costs and a 0.2 percentage point increase in store occupancy costs partially
offset by improved leverage in systems costs and other operating expenses. The increase in payroll as a
percentage of net revenue reflected additional payroll costs incurred for training, improving customer
satisfaction and selling and for the Target Optical expansion. The leverage loss in store occupancy costs was also
a result of the Target Optical expansion.

The increase in operating income was primarily attributable to the increase in net revenues and
gross margin rates at both Cole Vision and Things Remembered, and to the severance charge included in fiscal 2000
results, which are discussed above. During the first quarter of fiscal 2001, 22
Target Optical locations were opened, bringing the total number to
139. The Companys profit improvement for the first quarter was
achieved after absorbing the increased losses from the continued
expansion of Target Optical. While progress is being made, there is
still much work to be done to build this start-up into an efficient
and profitable chain.

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

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Forward-Looking Information

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




Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

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

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                          |  |                                                            |  |  |  | 
|------------------------- |  | ---------------------------------------------------------- |  |  |  | 
|                         
|COLE NATIONAL GROUP, INC.
|                         
|                         
|By:                       |  | /s/ William P. Lahiff, Jr.                                
|                          |  |                                                           
|                          |  | William P. Lahiff, Jr.                                    
|                          |  | Senior Vice President and Controller                      
|                          |  | (Duly Authorized Officer and Principal Accounting Officer)
|                         
|                          |  | Date:  June 14, 2001                                      

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