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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##### Table of Contents



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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 1-12814

COLE NATIONAL CORPORATION(Exact name of registrant as specified in its charter)

|                                                     |  |                                      |  |  |  | 
|---------------------------------------------------- |  | ------------------------------------ |  |  |  | 
|Delaware                                             |  | 34-1453189                          
|                                                    
|                                                    
|                                                    
|                                                    
|(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)

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

As of May 31, 2001, 15,696,846 shares of the registrants common stock
were outstanding.



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##### Table of Contents



COLE NATIONAL CORPORATION 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 CORPORATION 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 |                                            |         | 38,362   |         |             |         | 40,505   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Current portion of notes receivable                                                          |                                            |         | 5,097    |         |             |         | 5,097    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Inventories                                                                                  |                                            |         | 129,784  |         |             |         | 122,238  |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Refundable income taxes                                                                      |                                            |         | 547      |         |             |         | 1,237    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Prepaid expenses and other                                                                   |                                            |         | 12,872   |         |             |         | 15,188   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Deferred income tax benefits                                                                 |                                            |         | 2,177    |         |             |         | 2,177    |        
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total current assets                       |         |          | 224,323 |             |         |          | 223,167 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Property and equipment, at cost                                                                                         |                                                                                              |                                            | 272,390 |          |         |             | 275,241 |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Less  accumulated depreciation and amortization                                             |                                            |         | (150,550 | )       |             |         | (149,543 | )      
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total property and equipment, net          |         |          | 121,840 |             |         |          | 125,698 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Notes receivable, excluding current portion, less reserves for
uncollectible amounts of $4,585 and $4,537, respectively |                                                                                              |                                            | 16,279  |          |         |             | 18,000  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Deferred income taxes and other assets                                                                                  |                                                                                              |                                            | 75,141  |          |         |             | 75,460  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Intangible assets, net                                                                                                  |                                                                                              |                                            | 150,117 |          |         |             | 151,588 |         
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total assets                               |         | $        | 587,700 |             |         | $        | 593,913 | 
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|Liabilities and Stockholders Equity                                                                                   
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Current liabilities:                                                                                                   
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Current portion of long-term debt                                                            |                                            | $       | 355      |         |             | $       | 452      |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accounts payable                                                                             |                                            |         | 49,418   |         |             |         | 56,505   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued interest                                                                             |                                            |         | 7,333    |         |             |         | 6,736    |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued liabilities                                                                          |                                            |         | 77,112   |         |             |         | 76,646   |        
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Accrued income taxes                                                                         |                                            |         | 3,810    |         |             |         | 3,458    |        
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total current liabilities                  |         |          | 138,028 |             |         |          | 143,797 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Long-term debt, net of discount and current portion                                                                     |                                                                                              |                                            | 284,254 |          |         |             | 284,286 |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Other long-term liabilities                                                                                             |                                                                                              |                                            | 16,100  |          |         |             | 16,280  |         
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Stockholders equity                                                                                                    |                                                                                              |                                            | 149,318 |          |         |             | 149,550 |         
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                        |                                                                                              | Total liabilities and stockholders equity |         | $        | 587,700 |             |         | $        | 593,913 | 
|                                                                                                                        |                                                                                              |                                            |         |          |         |             |         |         

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

-1-



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COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)

|                                     |                               |                          |                                                |         |                      |       |           |         |         |       |  |  |  |  | 
|------------------------------------ | ----------------------------- | ------------------------ | ---------------------------------------------- | ------- | -------------------- | ----- | --------- | ------- | ------- | ----- |  |  |  |  | 
|                                     |                               |                          |                                                |         | Thirteen Weeks Ended
|                                     |                               |                          |                                                |         |                     
|                                     |                               |                          |                                                |         | May 5,               |       | April 29,
|                                     |                               |                          |                                                |         | 2001                 |       | 2000     
|                                     |                               |                          |                                                |         |                      |       |          
|Net revenue                          |                               | $                        | 270,291                                        |         |                      | $     | 257,771   |        
|Costs and expenses:                 
|                                    
|                                    
|                                    
|                                    
|                                     | Cost of goods sold            |                          |                                                | 87,116  |                      |       |           | 86,328  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Operating expenses            |                          |                                                | 166,098 |                      |       |           | 158,343 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization |                          |                                                | 9,873   |                      |       |           | 10,002  |        
|                                     |                               |                          |                                                |         |                      |       |           |        
|                                     |                               | Total costs and expenses |                                                |         | 263,087              |       |           |         | 254,673 |      
|                                     |                               |                          |                                                |         |                      |       |           |        
|Operating income                     |                               |                          | 7,204                                          |         |                      |       | 3,098     |        
|                                    
|                                    
|                                    
|                                    
|Interest and other (income) expense:
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense              |                          |                                                | 7,058   |                      |       |           | 7,060   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest and other income     |                          |                                                | (1,287  | )                    |       |           | (950    | )      
|                                     |                               |                          |                                                |         |                      |       |           |        
|                                     |                               |                          | Total interest and other (income) expense, net |         |                      | 5,771 |           |         |         | 6,110 | 
|                                     |                               |                          |                                                |         |                      |       |           |        
|Income (loss) before income taxes    |                               |                          | 1,433                                          |         |                      |       | (3,012    | )      
|                                    
|                                    
|                                    
|                                    
|Income tax provision (benefit)       |                               |                          | 788                                            |         |                      |       | (1,656    | )      
|                                     |                               |                          |                                                |         |                      |       |           |        
|Net income (loss)                    |                               | $                        | 645                                            |         |                      | $     | (1,356    | )      
|                                     |                               |                          |                                                |         |                      |       |           |        
|Earnings (loss) per share:          
|                                    
|                                    
|                                    
|                                    
|                                     | Basic                         |                          | $                                              | 0.04    |                      |       | $         | (0.09   | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Diluted                       |                          | $                                              | 0.04    |                      |       | $         | (0.09   | )      

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

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COLE NATIONAL CORPORATION 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)                                                                        |                                                                                           | $                                                                | 645    |                      |        | $         | (1,356 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Depreciation and amortization                                                             |                                                                  |        | 9,873                |        |           |        | 10,002 |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Non-cash interest, net                                                                    |                                                                  |        | 172                  |        |           |        | (514   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | 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 |        |                      | 5,451  |           |        |        | 861     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Inventories                                                      |        |                      | (7,546 | )         |        |        | (3,615  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accounts payable, accrued liabilities and other liabilities      |        |                      | (6,703 | )         |        |        | (480    | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accrued interest                                                 |        |                      | 597    |           |        |        | 571     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                                           | Accrued, refundable and deferred income taxes                    |        |                      | 1,042  |           |        |        | (1,615  | )
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      |                                                                                          |                                                                                           | Net cash provided by operating activities                        |        |                      | 2,848  |           |        |        | 3,854   |  
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|Cash flows from investing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Purchases of property and equipment, net                                                 |                                                                                           |                                                                  | (5,933 | )                    |        |           | (9,099 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of fixed assets, net                                                  |                                                                                           |                                                                  | 4,712  |                      |        |           |       |       
|                                     
|                                     
|                                     
|                                     
|                                      | Systems development costs                                                                |                                                                                           |                                                                  | (2,107 | )                    |        |           | (1,823 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Investment in Pearle Europe, net                                                         |                                                                                           |                                                                  |       |                      |        |           | 496    |       
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                               |                                                                                           |                                                                  | (105   | )                    |        |           | 56     |       
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      |                                                                                          |                                                                                           | Net cash used for investing activities                           |        |                      | (3,433 | )         |        |        | (10,370 | )
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|Cash flows from financing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Repayment of long-term debt                                                              |                                                                                           |                                                                  | (154   | )                    |        |           | (419   | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Net proceeds from exercise of stock options                                              |                                                                                           |                                                                  | 43     |                      |        |           |       |       
|                                     
|                                     
|                                     
|                                     
|                                      | Net issuance of notes receivable  stock options and awards                              |                                                                                           |                                                                  | (345   | )                    |        |           | (1,128 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Payment of deferred financing fees                                                       |                                                                                           |                                                                  |       |                      |        |           | (188   | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                               |                                                                                           |                                                                  | (200   | )                    |        |           | (195   | )     
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|                                      |                                                                                          |                                                                                           | Net cash used for financing activities                           |        |                      | (656   | )         |        |        | (1,930  | )
|                                      |                                                                                          |                                                                                           |                                                                  |        |                      |        |           |       
|Cash and cash equivalents:           
|                                     
|                                     
|                                     
|                                     
|                                      | 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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##### Table of Contents



COLE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Cole
National Corporation and its wholly owned subsidiaries, including Cole National
Group, Inc. 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 accounting principles
generally accepted in the United States have been condensed or omitted, although
management believes that the disclosures herein are adequate to make the
information not misleading. Results for interim periods are not necessarily
indicative of the results to be expected for the full year. These statements
should be read in conjunction with the Companys consolidated financial
statements for the fiscal year ended February 3, 2001.

In the opinion of management, the accompanying financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly its 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 receipts
for income taxes and payments for interest of ($285,000) and $6,156,000,
respectively, for the 13 weeks ended May 5, 2001, and ($61,000) and $6,224,000,
respectively, for the 13 weeks ended April 29, 2000.

Earnings Per Share

Earnings per share for the 13 weeks ended May 5, 2001 and April 29,
2000 have been calculated based on the following weighted average number of
common shares and equivalents outstanding:

|        |  |      |            |      |  |  |            |  |  |  |  | 
|------- |  | ---- | ---------- | ---- |  |  | ---------- |  |  |  |  | 
|        |  | 2001 |            | 2000
|        |  |      |            |     
|Basic   |  |      | 15,694,224 |      |  |  | 15,518,812 | 
|       
|       
|       
|       
|Diluted |  |      | 15,796,732 |      |  |  | 15,518,812 | 

-4-



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Total Other Comprehensive Loss

Total other comprehensive 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)                |  | $              | 645  |           |  | $ | (1,356 | )
|                                
|                                
|                                
|                                
|Cumulative translation loss, net |  |                | (877 | )         |  |   | (1,813 | )
|                                 |  |                |      |           |  |   |        |  
|Total other comprehensive loss   |  | $              | (232 | )         |  | $ | (3,169 | )
|                                 |  |                |      |           |  |   |        |  

(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        |         |           | $ | 207,115 |        
|                        
|                        
|                        
|                        
|                         | Things Remembered                 |                                |   | 53,910         |         |           |   | 50,656  |        
|                         |                                   |                                |   |                |         |           |   |        
|                         |                                   | Consolidated net revenue       |   | $              | 270,291 |           |   | $       | 257,771 |  
|                         |                                   |                                |   |                |         |           |   |        
|Operating income (loss):
|                        
|                        
|                        
|                        
|                         | Cole Vision                       |                                | $ | 11,379         |         |           | $ | 9,443   |        
|                        
|                        
|                        
|                        
|                         | Things Remembered                 |                                |   | (1,068         | )       |           |   | (2,378  | )      
|                         |                                   |                                |   |                |         |           |   |        
|                         |                                   | Total segment operating income |   |                | 10,311  |           |   |         | 7,065   |  
|                        
|                        
|                        
|                        
|                         | Unallocated amounts:             
|                        
|                        
|                        
|                        
|                         |                                   | Corporate expenses             |   |                | (3,107  | )         |   |         | (3,967  | )
|                         |                                   |                                |   |                |         |           |   |        
|                         | Consolidated operating income     |                                |   | 7,204          |         |           |   | 3,098   |        
|                        
|                        
|                        
|                        
|                         | Interest and other income, net    |                                |   | (5,771         | )       |           |   | (6,110  | )      
|                         |                                   |                                |   |                |         |           |   |        
|                         | Income (loss) before income taxes |                                | $ | 1,433          |         |           | $ | (3,012  | )      
|                         |                                   |                                |   |                |         |           |   |        

(3) Reclassifications

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

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##### Table of Contents






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

The following is a discussion of certain factors affecting the
Companys results of operations for the 13 week periods ended May 5, 2001 and
April 29, 2000 (the Companys first quarter) and its liquidity and capital
resources. 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         |       |      | $     | 207.1  |       |   |      | 4.5  | %    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 53.9          |       |      |       | 50.7   |       |   |      | 6.4  |      
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Total net revenue   |       | $             | 270.3 |      |       | $      | 257.8 |   |      |      | 4.9   | %
|                                                    
|                                                    
|                                                    
|                                                    
|Gross margin                                         |                               | $                   | 183.2 |               |       | $    | 171.4 |        |       |   | 6.8  | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses                                   |                               |                     | 166.1 |               |       |      | 158.3 |        |       |   | 4.9  |     
|                                                    
|                                                    
|                                                    
|                                                    
|Depreciation and amortization                        |                               |                     | 9.9   |               |       |      | 10.0  |        |       |   | (1.3 | )   
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Operating income    |       | $             | 7.2   |      |       | $      | 3.1   |   |      |      | 132.5 | %
|                                                     |                               |                     |       |               |       |      |       |       
|Percentage of net revenue:                          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gross margin                  |                     |       | 67.8          | %     |      |       | 66.5   | %     |   |      | 1.3  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating expenses            |                     |       | 61.4          |       |      |       | 61.4   |       |   |      |     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization |                     |       | 3.7           |       |      |       | 3.9    |       |   |      | (0.2 | )    
|                                                     |                               |                     |       |               |       |      |       |       
|                                                     |                               | Operating income    |       |               | 2.7   | %    |       |        | 1.2   | % |      |      | 1.5   |  
|                                                     |                               |                     |       |               |       |      |       |       
|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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##### Table of Contents



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 1.1 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 rate of 55%.

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##### Table of Contents



Liquidity and Capital Resources

The Companys primary source of liquidity is funds provided from
operations of its operating subsidiaries. In addition, its wholly owned
subsidiary, Cole National Group, Inc., and its operating subsidiaries have a
working capital commitment ranging from $50.0 million to $75.0 million based on
Cole National Groups current debt leverage ratio as described in the credit
facility. As of May 5, 2001, the total commitment was $50.0 million and
availability under the credit facility totaled $39.5 million, after reduction
for commitments under outstanding letters of credit. The Company expects the
total commitment will be increased to $75.0 million in the second quarter. There
were no working capital borrowings outstanding at any time during the first
quarter of fiscal 2001 or the first quarter of fiscal 2000. Cole National Group
and its principal operating subsidiaries were in compliance with all credit
facility covenants at May 5, 2001.

Operations for the first quarter provided $2.8 million of cash in
fiscal 2001 compared to $3.9 million in fiscal 2000. The primary reasons for the
$1.1 million decrease in cash provided by operations were the changes in
operating assets and liabilities during the first quarter of fiscal 2001 as
compared to fiscal 2000. An increased use of funds for inventories, accounts
payable and accrued liabilities in fiscal 2001 was partially offset with funds
provided by a larger decrease in accounts and notes receivable in fiscal 2001
and the change in accrued, refundable and deferred income taxes versus a year
ago.

Cash used for investing activities included capital additions of $5.9
million and $9.1 million for the first quarter of fiscal 2001 and fiscal 2000,
respectively. The majority of capital expenditures were for store fixtures,
equipment and leasehold improvements for new stores including the Target Optical
expansion and the remodeling of existing stores. Net proceeds from the sale of
the Dallas facility provided $4.7 million of cash flow. Investments in systems
development costs totaled $2.1 million and $1.8 million in the first quarter of
fiscal 2001 and fiscal 2000, respectively.

The Company believes that funds provided from operations, along with
funds available under the credit facility, will provide adequate sources of
liquidity to allow its operating subsidiaries to continue to expand the number
of stores and to fund capital expenditures and systems development costs.

Forward-Looking Information

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






PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

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

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##### Table of Contents






SIGNATURE

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

|                          |  |                                                            |  |  |  | 
|------------------------- |  | ---------------------------------------------------------- |  |  |  | 
|                         
|COLE NATIONAL CORPORATION
|                         
|                         
|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                                      

-10-