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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(MARK ONE)

 X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 30, 1999, 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)

<TABLE>
<S>                                                                    <C>       
                   DELAWARE                                                           34-1744334
      (STATE OR OTHER JURISDICTION OF                                  (I.R.S. EMPLOYER IDENTIFICATION NO.)
       INCORPORATION OR ORGANIZATION)

5915 LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO                                        44124
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                          (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:       (440) 449-4100

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:  NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:  NONE

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K 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 MARCH 24, 1999, 1,100 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR
VALUE, WERE OUTSTANDING.

DOCUMENTS INCORPORATED BY REFERENCE: NONE


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<PAGE>   2



                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Cole National Group, Inc., a wholly owned subsidiary of Cole National
Corporation, was incorporated as a Delaware corporation in July 1993. Cole
National Group is a leading provider of eyewear products, optometric services
and personalized gifts with 2,884 retail locations in 50 states, Canada and the
Caribbean. References herein to the "Company" include Cole National Group, its
direct and indirect subsidiaries, and its predecessor companies. Cole National
Group's businesses are conducted through two principal operating units: Cole
Vision and Things Remembered. Cole Vision consists of Cole Licensed Brands, Cole
Managed Vision Care and Pearle, which was acquired on November 15, 1996. Cole
National Group believes that, based on industry data, Cole Vision is one of the
largest optical retail companies in the world. Things Remembered operates the
only nationwide chain of personalized gift stores. Cole National Group
differentiates itself from other specialty retailers by providing value-added
services at the point of sale at all of its retail locations.

COLE VISION

         Cole Vision contributed 77.3% of Cole National Group's net revenue in
fiscal 1998 with 2,066 company-owned and franchised locations throughout the
United States, Canada and the Caribbean as of January 30, 1999. Cole Licensed
Brands and Pearle share purchasing power and corporate support functions. The
Cole Managed Vision Care programs give participants access to a network of
company-owned, franchised and third-party optical locations.

COLE LICENSED BRANDS

         Cole Licensed Brands operates principally under the "Sears Optical",
"Ward's Optical", "Target Optical" and "BJ's Optical Department" names. As of
January 30, 1999, Cole Licensed Brands operated 1,186 locations in 47 states and
Canada, including 788 departments on the premises of Sears department stores,
179 departments in Montgomery Ward stores, 82 departments in BJ's Wholesale Club
stores, 12 departments in Target stores, 121 freestanding stores operated under
the name "Sears Optical" and four other locations. Retail locations are
generally operated under a lease or license arrangement through which the host
store collects the sales receipts, retains an agreed upon percentage of sales
and remits the remainder to Cole Licensed Brands on a weekly basis.

         Cole Licensed Brands' locations are, in most cases, full-service retail
eyecare stores offering brand name and private label prescription eyeglasses,
contact lenses and accessories, with an on-premises doctor of optometry who
performs complete eye examinations and prescribes eyeglasses and contact lenses.
Most optical departments, which are typically 1,000 square feet in size, operate
with a doctor of optometry, a department manager, and from one to seven
opticians depending on store sales volume. The majority of the doctors of
optometry are independent, as is often required by state law, with the remainder
being employed by Cole Licensed Brands. The independent doctors sublease space
and equipment from Cole Licensed Brands where permitted by law, or from the
host, and retain their examination fees.

         Each of the retail locations is computer linked to five centralized
manufacturing laboratories, which grind, cut and fit lenses to order and ship
them to the stores. Cole Licensed Brands provides next day delivery on most of
the eyewear it offers when requested by its customers. All of the frames and
lenses used in its eyeglasses are purchased from outside suppliers, both in the
United States and several foreign countries.

         A variety of marketing and promotional efforts, primarily newspaper,
direct mail, yellow pages and host advertising, are used to build and maintain
its customer base. Host advertising includes the placement of promotional
material within sales circulars or credit card billings sent out by the host
store to its customers.

  PEARLE

         At January 30, 1999, Pearle's operations consisted of 471 company-owned
and 409 franchised stores located in 45 states, Canada, and the Caribbean. Most
Pearle stores operate in either an "Express" or "Mainline" store format. Express
stores contain a full surfacing lab that can manufacture most glasses in
approximately one hour. Mainline stores can manufacture over 50% of
prescriptions on-site in approximately one hour. Other prescriptions are sent to
the main laboratory in Dallas. At January 30, 1999, 304 of the company-owned
stores and 118 of the franchised stores were Express, with the balance being
Mainline.



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         The Express stores typically are located in high traffic freestanding,
strip centers and mall locations with most stores averaging 3,000 square feet.
The Express stores are usually staffed with two managers and a support staff of
four to eight people. Mainline stores have an average size of 1,700 square feet
and are also located in freestanding buildings, or in smaller strip or regional
centers. Mainline stores generally carry a smaller assortment of inventory than
Express stores and are usually staffed with one manager and two to three
associates. Most Pearle stores have a doctor of optometry on site with
approximately 80% leasing space from Pearle on an independent basis and the
remaining being direct employees of Pearle.

         Pearle's marketing strategy employs a wide range of media at both the
national and local levels. The franchised and company-owned stores each
contribute a percentage of revenues to Pearle's marketing budget with
approximately half of Pearle's marketing expenditures devoted to television.
Pearle's brand positioning of high quality eyecare products and services has
been reinforced by an advertising and promotions program, which includes
Pearle's advertising slogans, Nobody Cares for Eyes Better Than Pearle and The
Doctor Is In.

         Pearle operates a warehouse facility in Dallas that inventories and
distributes a comprehensive product line, including frames, eyeglass lenses,
contact lenses, optical supplies and eyewear accessories to company-owned and
franchised locations.

         Pearle has maintained a franchise program since 1980. Most of the
franchised stores are single franchise operations, with no franchisee operating
more than ten stores. With the proper financial approvals, a franchise purchase
can be financed through Pearle. Currently, Pearle offers financing over periods
up to ten years at variable interest rates ranging from prime plus one point to
prime plus three points adjusted periodically.

         Each franchisee is required to enter into a franchise agreement
requiring payment of an initial franchise fee. The term of the typical franchise
agreement is equal to the earlier of ten years or the expiration or termination
of the underlying base lease. Royalty and advertising contributions typically
are based on a percentage of the franchisee's gross revenues from the retail
operation and/or non-surgical professional fee revenues. The total monthly
advertising contribution is distributed between Pearle's system-wide advertising
fund and the local co-op market advertising fund. Franchisees are generally
eligible to participate in Cole Vision's managed vision care programs.

COLE MANAGED VISION CARE

         In the last several years, Cole Vision has expanded its managed vision
care program that provides low cost, comprehensive eyecare benefits marketed
directly to large employers, HMO's and other organizations, primarily under the
name "Vision One." Vision One's basic program gives plan sponsors the
opportunity to offer their members a group discount at locations within the
managed vision care network with minimal direct cost to the plan sponsor. An
enhanced Vision One program allows plan sponsors to provide their members with
prepaid eye examinations, as well as pricing discounts or reimbursements.

         Cole Managed Vision Care's network has over 6,000 points of service,
including all Cole Vision company-owned retail locations, approximately 90% of
franchised locations, 700 locations in a nationwide chain store's optical
departments, and 3,000 independent ophthalmologists, making it the largest chain
provider of managed vision care in the United States. Cole Managed Vision Care
generated approximately 31% of Cole Vision's revenues in fiscal 1998.

THINGS REMEMBERED

         Things Remembered contributed 22.7% of Cole National Group's net
revenue in fiscal 1998. As of January 30, 1999, Things Remembered operated 818
stores and kiosks generally located in large, enclosed shopping malls located in
46 states. Each location carries a wide assortment of engravable items and
provides "while you shop" personalization services for any occasion including
holiday, business and special occasion gift events. Things Remembered offers
engraving for items purchased at the store as well as for items purchased
elsewhere.

         Merchandise sold at Things Remembered stores consists of a broad
assortment of gift categories and items at prices generally ranging from $10 to
$75. Things Remembered's offering of gifts includes writing instruments, clocks,
music boxes, picture frames and albums, executive desk sets and accessories, ID
bracelets, glassware, lighters, keys and key rings, door knockers and Christmas
ornaments. Things Remembered features brand name merchandise as well as higher
margin private label merchandise. At some locations, computer-controlled
embroidery equipment is utilized for the personalization of merchandise such as
throws, sweaters, bathrobes, jackets, baseball caps, towels and baby blankets.
 



                                      -2-
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These softgoods are also available in most of Things Remembered's other
locations with personalization services provided from a central fulfillment
facility.

         At January 30, 1999, Things Remembered locations consisted of 450
stores and 368 kiosks. The typical store consists of about 1,000 square feet,
while kiosks, which are units generally located in the center of the common mall
area, are typically 200 square feet in size.

         Things Remembered locations are usually operated by one or two
employees during non-peak periods and up to 15 employees during the peak
Christmas season. Locations typically employ a store manager on a full-time
basis and a full or part-time assistant manager, while the balance of the
employees is part-time sales associates.

         Nearly all locations are equipped with computerized engravers and key
duplicating machines. Many stores also have equipment for etching glassware
items. All locations are equipped with point-of-sale terminals.

         Most of Things Remembered's store merchandise is shipped through its
centralized warehouse and distribution facility located near Youngstown, Ohio.
The warehouse utilizes a computerized carousel system to automate the process of
locating merchandise needed to fill a store order.

HOST RELATIONSHIPS

         Cole National Group believes it has developed excellent relationships
with the host stores in which Cole Licensed Brands operates. Cole National Group
has maintained its relationships in the optical business with Sears and
Montgomery Ward for over 35 years. Approximately 90% of the Sears stores and all
of the BJ's Wholesale and Montgomery Ward stores that offer optometric services
are operated by Cole Licensed Brands. Although leases with major hosts are
terminable by either party upon relatively short notice, Cole Licensed Brands
has never had a lease terminated other than in connection with a store closing,
relocation or major remodeling.

PURCHASING

         The merchandise, supplies and component parts required for the various
products sold by Cole National Group are purchased from a large number of
suppliers and manufacturers and are generally readily available. In most cases,
such purchases are not made under long-term contracts. Cole National Group
believes that the loss of any one supplier or manufacturer should not have a
material adverse effect on its operations.

COMPETITION

         Cole National Group operates in highly competitive businesses. Cole
Vision competes with other optical companies, private ophthalmologists,
optometrists and opticians and a growing number of HMOs in a highly fragmented
marketplace on the basis of the patient service it provides, as well as price
and product quality. In addition, Pearle competes on the basis of its highly
recognized brand name and one-hour express service. Cole National Group believes
that, based on industry data, Cole Vision is one of the largest optical retail
companies in the world. Although Things Remembered operates the only nation-wide
chain of gift stores offering "while you shop" gift engraving, key duplicating,
glass etching and monogramming, as well as related merchandise, it competes with
many other retailers that sell gift items. Things Remembered competes with such
other retailers primarily on the basis of the value-added point of sale
services, as well as price and product quality. Some of Cole National Group's
competitors have greater financial resources than Cole National Group.

EMPLOYEES

         As of January 30, 1999, Cole National Group and its subsidiaries had
approximately 9,200 full-time and 3,900 part-time employees. During October,
November and December, Cole National Group employs additional full- and
part-time employees. In fiscal 1998, approximately 3,500 additional employees
were employed during such period. Approximately 150 employees at certain Pearle
locations are represented by labor unions. Cole National Group considers its
present labor relations to be satisfactory.




                                      -3-
<PAGE>   5



ITEM 2.  PROPERTIES

         Cole National Group leases an office in Highland Heights, Ohio, and
leases its executive offices and an office in Cleveland, Ohio.

         During fiscal 1998, Cole National Corporation purchased a building in
Twinsburg, Ohio, which comprises approximately 175,000 square feet of office
space. All of Cole Vision's home office functions moved to this facility during
fiscal 1998.

         All Cole Licensed Brands retail locations are leased or operated under
a license with the host store, and none of the individual retail locations is
material to operations. Leases for departments operated in Sears stores and
freestanding stores operated under the name "Sears Optical" are generally for
terms of 90 days and five years, respectively.

         Pearle leases most of its retail stores under non-cancelable operating
leases with terms generally ranging from five to ten years and which generally
contain renewal options for additional periods. Pearle is the principal lessee
on a majority of stores operated by franchisees who sublease the facilities from
Pearle.

         Cole Vision leases five optical laboratories, located in Knoxville,
Tennessee (two labs); Memphis, Tennessee; Salt Lake City, Utah; and Richmond,
Virginia, pursuant to leases expiring (including renewals at the option of Cole
Vision) in 2002, 2005, 2002, 2001 and 2013, respectively. Pearle owns its Dallas
Support Center, which comprises 88,721 square feet of office space and 147,336
square feet of laboratory and distribution facilities. Pearle also owns a small
headquarters and laboratory in Puerto Rico. Cole Vision also leases a home
office, lab and distribution center facility for its Canadian operations
pursuant to leases expiring in 2000.

         Leases for Things Remembered stores and kiosks are generally for terms
of ten and five years, respectively. During the first quarter of fiscal 1999,
Things Remembered moved its home office functions to the leased facility in
Highland Heights, Ohio. The office and warehouse facility that Things Remembered
owns and occupied during fiscal 1998 is expected to be sold in fiscal 1999. In
fiscal 1997, a 210,000 square foot warehouse and distribution facility was
constructed for Things Remembered. On December 31, 1998, Things Remembered
entered into an agreement with a third party for the sale and leaseback of its
distribution center that expires in 2013 and includes three options to renew the
lease for five-year terms.

         Cole National Group believes that its relationships with its lessors
are generally good.

ITEM 3.  LEGAL PROCEEDINGS

         While Cole National Group is not presently involved in any material
legal proceedings, from time to time during the ordinary course of business, it
is threatened with, or may become a party to legal actions and other proceedings
incidental to its business. Management believes that Cole National Group's
potential exposure to such legal actions is adequately covered by its general
liability insurance and reserves.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         Information required by this item has been omitted pursuant to General
Instruction I of Form 10-K.




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<PAGE>   6



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

           The Registrant is a wholly owned subsidiary of Cole National
Corporation and has no equity securities that trade.

           The covenants in certain debt instruments to which Cole National
Group and certain of its subsidiaries are parties restrict the ability of Cole
National Group and such subsidiaries to make distributions to Cole National
Corporation or Cole National Group, respectively. A credit facility to which
Cole National Group and its subsidiaries are parties permits payment of
dividends by Cole National Group's subsidiaries to Cole National Group annually
of up to $8.0 million plus 0.25% of the net annual sales of Cole National
Group's subsidiaries to meet expenses of Cole National Group or Cole National
Corporation, together with amounts necessary to pay principal and interest on
Cole National Group's 8-5/8% Senior Subordinated Notes due 2007 and 9-7/8%
Senior Subordinated Notes due 2006 and to meet tax obligations. In addition,
dividends of up to $20.0 million are permitted to repurchase the 8-5/8% Notes
and/or 9-7/8% Notes.

           So long as no default or event of default has occurred under the
indentures relating to the 8-5/8% Notes and/or the 9-7/8% Notes and Cole
National Group has met a specified fixed charge coverage ratio test, payments of
dividends to Cole National Corporation of amounts contributed by Cole National
Corporation to the equity of Cole National Group subsequent to September 30,
1993, plus up to one-half of the consolidated net income of Cole National Group
since October 31, 1993 are permitted. No dividends were paid during 1998 or
1997.

ITEM 6.  SELECTED FINANCIAL DATA

           Information required by this item has been omitted pursuant to
General Instruction I of Form 10-K.

ITEM 7.  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 I of Form 10-K.

           Fiscal years end on the Saturday closest to January 31. Fiscal years
are identified according to the calendar year in which they begin. For example,
the fiscal year ended January 30, 1999 is referred to as "fiscal 1998." Fiscal
1998, 1997 and 1996 each consisted of 52-week periods.

         Cole National Group has two reportable segments: Cole Vision, which
accounted for 77% of total revenue, and Things Remembered, which accounted for
23% of total revenue. Most of Cole Vision's revenue is provided by sales of
prescription eyewear, accessories and services through its Cole Licensed Brands
and Pearle retail locations. Cole Vision's revenue is also provided by sales of
merchandise to franchisees and other outside customers, by royalties based on
sales, interest income on notes receivable and initial franchise fees from
franchisees and by fees from managed vision care programs. Things Remembered's
revenue is provided by sales of engravable gift merchandise and personalization
and other services primarily through retail stores and kiosks. See Note 10 to
Consolidated Financial Statements for further discussion of reportable segments.

         On January 13, 1998, Cole National Group announced the closing of its
Cole Gift Centers business that included 445 key duplicating, greeting card and
gift departments on the premises of hosts' stores. Cole Gift Centers has been
accounted for as a discontinued operation in the accompanying financial
statements. Accordingly, the results of operations and loss on disposition of
Cole Gift Centers have been excluded from the results of continuing operations.
See Note 4 of the Notes to Consolidated Financial Statements for further
discussion of discontinued operations.

         On August 5, 1997, Cole National Corporation contributed to Cole
National Group all of the issued and outstanding common stock of American Vision
Centers, Inc. ("AVC"), which Cole National Corporation had acquired for
approximately $28.9 million in cash, including debt assumed. The acquisition was
accounted for using the purchase method of accounting. Accordingly, AVC's
results of operations, which included 80 company-owned optical stores and 75
franchised locations at January 31, 1998, have been included in the consolidated
statements of operations since the date of contribution. For the six-month
period ended January 31, 1998, AVC's net revenue was approximately $25.0
million. See Notes 2 and 3 of the Notes to Consolidated Financial Statements for
further discussion of this acquisition.



                                      -5-
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         On November 15, 1996, Cole National Group purchased from Cole National
Corporation the North American and Caribbean operations of Pearle, Inc. The
acquisition of Pearle has been accounted for under the purchase method of
accounting. Accordingly, Pearle's results of operations, which included 348
company owned stores and 338 franchised locations at February 1, 1997, have been
included in the consolidated statements of operations since the date of
acquisition. For the eleven-week period ended February 1, 1997, Pearle generated
net revenue of $58.3 million. See Notes 2 and 3 of the Notes to Consolidated
Financial Statements for further discussion of this acquisition.

RESULTS OF OPERATIONS

         The following is a discussion of the results of continuing operations
for the three fiscal years ended January 30, 1999. This discussion should be
read in conjunction with the consolidated financial statements and notes thereto
included in Item 8 of this Form 10-K.

FISCAL 1998 COMPARED TO FISCAL 1997

         Net revenue increased 6.8% to $1.1 billion in fiscal 1998 from $996.2
million in fiscal 1997. The increase in revenue was primarily attributable to
the inclusion in fiscal 1998 of additional Cole Vision units, including the AVC
stores acquired in August 1997, and a consolidated comparable store sales
increase of 3.1%. The consolidated comparable store sales increase in fiscal
1998 reflected a comparable store sales increase of 1.6% at Cole Vision and 7.4%
at Things Remembered. The Cole Vision comparable store sales increase resulted
from a 3.1% increase at Cole Licensed Brands partially offset by a 0.8% decrease
at Pearle. The Cole Vision sales increase reflected an increase in the number of
transactions due to more locations, as the average selling price was essentially
flat between years. The Pearle comparable store sales were impacted by a weaker
than expected reception to marketing and merchandising programs implemented in
the first quarter, as well as increased competitive pressures in the optical
business and what the Company perceives may be a general softening in the retail
optical market. At Things Remembered, the comparable store sales growth
reflected increased sales of additional personalization and new products
increasing the average transaction amount, while the number of transactions in
fiscal 1998 was similar to fiscal 1997. At January 30, 1999, the Company had
2,884 retail locations including 818 Things Remembered stores, 1,186 Licensed
Brands locations and 880 Pearle stores, of which 409 were franchised locations,
compared to 2,833 retail locations at January 31, 1998.

         Gross profit increased to $700.1 million in fiscal 1998 from $655.3
million in fiscal 1997. The gross profit increase was primarily attributable to
the increased revenue at both Cole Vision and Things Remembered, partially
offset by $5.2 million of inventory markdowns at Pearle in connection with
restructuring its operations. Excluding the inventory markdowns, gross margins
were 66.3% and 65.8% in fiscal 1998 and fiscal 1997, respectively. Gross margin
at Things Remembered improved to 71.0% in fiscal 1998 from 68.7% the prior year
with most of the improvement from increased personalization sales. At Cole
Vision, gross margins were 64.9% in both fiscal 1998 and fiscal 1997.

         Operating expenses increased 9.3% to $607.1 million in fiscal 1998 from
$555.2 million in fiscal 1997. As a percentage of revenue, operating expenses
were 57.0% in fiscal 1998 compared to 55.7% in fiscal 1997. The unfavorable
expense leverage was attributable to a 0.6 percentage point increase in managed
vision care expenses, a 0.6 percentage point increase in information service
costs including $2.4 million incurred in connection with the Company's Year 2000
Readiness Program (see Year 2000 below for additional information) and a 0.5
percentage point increase in advertising expenditures, partially offset by a 0.4
percentage point leverage gain on store occupancy costs. The increase in managed
vision care expenses was primarily the result of increased administrative costs
necessary to handle the growth in call and claims volume. The increase in
advertising expenditures as a percentage of revenue was mainly due to
inefficient advertising efforts at Cole Vision, a result of the optical market
conditions mentioned above and the unexpected weakness of Pearle's first quarter
marketing and merchandising programs. Store occupancy expenses increased as a
result of more locations and higher percentage rents caused by increased
comparable store sales but gained leverage from the strong comparable store
sales increase at Things Remembered. Payroll costs also increased primarily
because of more retail units open in 1998 and additional payroll to support
increased sales, maintaining leverage to last year. Fiscal 1998 depreciation and
amortization expense of $32.8 million was $3.7 million more than fiscal 1997
reflecting a $2.4 million increase in amortization of systems development costs
and the AVC acquisition in fiscal 1997.

         Fiscal 1998 included a $13.1 million pretax charge for restructuring
and other unusual items, including the inventory markdowns at Pearle, and fiscal
1997 included an $8.0 million pretax charge for non-recurring items related



                                      -6-
<PAGE>   8

to the integration of AVC into the Company's operations. See Restructuring,
Business Integration and Other Unusual Charges below.

         Operating income, excluding the charges for restructuring, business
integration and other unusual charges from each year, decreased 7.8% to $65.5
million in fiscal 1998 from $71.0 million the prior year, as improved sales and
earnings at Things Remembered and Cole Licensed Brands were more than offset by
the disappointing results at Pearle.

         Net interest expense and other income for fiscal 1998 of $21.1 million
decreased $7.4 million compared to fiscal 1997. The decrease was primarily
attributable to the recognition of $6.0 million of other income in the third
quarter of fiscal 1998 from cash received in the nontaxable settlement of
certain contingencies related to several claims against and indemnifications
from the former owner of Pearle, and lower interest expense following the
purchase and retirement of $150.9 million of 11-1/4% Senior Notes in connection
with a tender offer in September 1997, partially offset by additional interest
expense on $125.0 million of 8-5/8% Senior Subordinated Notes issued in August
1997.

         The income tax provisions for fiscal 1998 and 1997 include $3.9 million
and $3.4 million, respectively, of income tax benefits related to the charges
for restructuring and other unusual items. The effective tax rate on income
excluding these charges and the $6.0 million settlement included in other income
was 41.3% in fiscal 1998 and 43.2% in fiscal 1997. This rate reflects the
significant impact of non-deductible amortization of goodwill in both years. A
more complete discussion of income taxes is included in Note 8 of Notes to
Consolidated Financial Statements.

         Net income increased to $19.3 million in fiscal 1998 from a net loss of
$6.6 million the prior year. The net loss in fiscal 1997 included a $14.0
million loss, net of an income tax benefit of $8.5 million, related to the
operations and closing of Cole Gift Centers and a $12.2 million extraordinary
loss, net of an income tax benefit of $7.5 million, recorded in the third
quarter of fiscal 1997 in connection with the early extinguishment of debt. The
loss on early extinguishment of debt represented the tender premium, write-off
of related unamortized debt discount and other costs associated with redemption
of the 11-1/4% Senior Notes.

FISCAL 1997 COMPARED TO FISCAL 1996

         Net revenue increased 58.5% to $996.2 million in fiscal 1997 from
$628.5 million in fiscal 1996. The increase in revenue was primarily
attributable to the acquisitions of Pearle and AOCO Limited, which operated 73
Sears locations in Canada, in November 1996 and AVC in August 1997, which
accounted for $290.7 million of the increase for the fiscal year. See Notes 2
and 3 of the Notes to Consolidated Financial Statements for further discussion
of the acquisitions. Consolidated comparable store sales increased 3.6% in
fiscal 1997 with a 5.9% comparable store growth at Cole Vision and a 0.5%
comparable store sales decline at Things Remembered. The Cole Vision comparable
store sales increase resulted from a 6.1% increase at Cole Licensed Brands and a
2.5% increase at Pearle. The increase at Cole Vision was primarily a result of
successful eyewear promotions and growth in managed vision care sales. The net
revenue increase was also attributable to the classification of capitation and
other fees associated with its growing managed vision care business as revenue.
Prior to fiscal 1997, such fees were netted with operating expenses in the
financial statements. For fiscal 1997, these fees were approximately $40.7
million. The opening of additional Cole Vision and Things Remembered units also
contributed to the revenue increase. At January 31, 1998, the Company had 2,833
retail locations, including 831 Things Remembered stores, 1,157 Licensed Brand
locations and 845 Pearle stores, of which 401 were franchised locations,
compared to 2,657 retail locations at February 1, 1997.

         Gross profit increased to $655.3 million in fiscal 1997 from $427.3
million in fiscal 1996. The gross profit increase was primarily attributable to
the acquisitions and the growth of managed vision care fees now classified as
revenue. Gross margins for fiscal 1997 and fiscal 1996 were 65.8% and 68.0%,
respectively. The lower gross margin percentage in fiscal 1997 resulted
primarily from the addition of Pearle which operates at a lower gross margin
than the Company has historically experienced due to the higher costs of
in-store laboratories and lower margin wholesale sales to franchised stores.
This was partially offset by revenue generated by Pearle's franchise royalties
and fees, interest income on Pearle's franchise notes receivable and the managed
vision care fees, each of which has no corresponding cost of goods sold. As a
result, gross margin at Cole Vision was 64.9% in fiscal 1997 compared to 66.9%
in fiscal 1996. At Things Remembered, gross margin was 68.7% and 69.9% in fiscal
1997 and fiscal 1996, respectively. The lower margin at Things Remembered was
primarily attributable to increased sales of clearance and promotional
merchandise, partially offset by an increase in sales of additional
personalization.



                                      -7-
<PAGE>   9

         Operating expenses increased 54.5% to $555.2 million in fiscal 1997
from $359.4 million in fiscal 1996. As a percentage of revenue, operating
expenses decreased to 55.7% in fiscal 1997 from 57.2% in fiscal 1996. The
leverage improvement was primarily a result of the addition of Pearle, which has
lower operating expenses as a percentage of revenue than the rest of the
Company, along with leverage gains achieved by Cole Vision's comparable store
sales increase. This was offset in part by leverage losses at Things Remembered
resulting from the decline in comparable store sales. Operating expenses
increased primarily because of the acquisitions and the classification of
capitation and other fees as revenue. The expense increase reflected higher
advertising expenditures, payroll costs, and store occupancy expenses, as well
as expenses related to the growth of managed vision care. Advertising
expenditures at Cole Vision were increased for optical promotions and Pearle
name awareness. Payroll costs increased because of more higher-volume retail
units open in 1997 and additional payroll to support increased sales. Store
occupancy expenses increased primarily as a result of more locations and higher
percentage rents caused by increased comparable store sales. As a percentage of
revenue, payroll and store occupancy costs improved by 1.1 and 2.1 percentage
points, respectively, over fiscal 1996, partially offset by the leverage loss
from other operating expenses which were affected by the reclassification of
managed vision care fees. Fiscal 1997 depreciation and amortization expense of
$29.1 million was $10.8 million more than fiscal 1996 reflecting the
acquisitions and an increase in capital expenditures.

         The third and fourth quarter of fiscal 1997 included a total of $8.0
million of charges for non-recurring items related to integration of AVC into
the Company's operations. In the fourth quarter of fiscal 1996, a $61.1 million
pretax charge was recorded for certain unusual non-recurring items primarily
related to the integration and consolidation of Pearle. See Restructuring,
Business Integration and Other Unusual Charges below.

         Operating income, excluding charges for business integration and other
unusual items from each year, increased 43.2% to $71.0 million in fiscal 1997
from $49.6 million the prior year, primarily the result of the acquisitions and
comparable store sales growth at Cole Vision, offset in part by soft sales
performance at Things Remembered.

         Net interest expense for fiscal 1997 of $28.5 million increased $7.6
million compared to fiscal 1996. The increase was primarily attributable to the
additional interest expense on $150.0 million of 9-7/8% Notes issued in
connection with financing the Pearle acquisition and $125.0 million of 8-5/8%
Notes. This was partially offset by a decrease in interest expense due to the
purchase and subsequent retirement of $15.1 million of 11-1/4% Senior Notes in
the fourth quarter of fiscal 1996 and the purchase and retirement of an
additional $150.9 million of the 11-1/4% Senior Notes in conjunction with a
tender offer in September 1997.

         The income tax provisions for fiscal 1997 and 1996 include $3.4 million
and $20.0 million, respectively, of income tax benefits related to the charges
for business integration and other unusual items. The effective tax rate on
income excluding the charge for business integration and other unusual items was
43.2% in fiscal 1997 and 44.3% in fiscal 1996. This rate reflects the
significant impact of non-deductible amortization of goodwill in both years.

         The net loss in fiscal 1997 of $6.6 million included a $14.0 million
loss, net of an income tax benefit of $8.5 million, related to the operations
and closing of Cole Gift Centers and a $12.2 million extraordinary loss, net of
an income tax benefit of $7.5 million, recorded in the third quarter of fiscal
1997 in connection with the early extinguishment of debt.

RESTRUCTURING, BUSINESS INTEGRATION AND OTHER UNUSUAL CHARGES

         In the fourth quarter of fiscal 1996, the Company recorded a $61.1
million pretax charge primarily related to its acquisition of Pearle, which
included costs related to the integration and consolidation of Pearle into the
Company's operations, as well as other unusual charges. The charge included
$15.8 million for store closings, $1.8 million for other facility closings,
$21.6 million related to computer systems, which included the settlement costs
of terminating an outsourcing agreement, $6.1 million for the writeoff of
goodwill pursuant to Statement of Financial Accounting Standards (SFAS) No. 121
and $15.8 of other unusual charges. The other charges related to employee
matters, including severance and hiring costs, costs associated with developing
and implementing a new franchise agreement, and compensation costs associated
with accelerated vesting of a stock option grant to executives.

         In connection with the 1996 business integration charge, management
developed a plan, approved by the Board of Directors, that among other things
identified 29 Pearle stores that would be closed and 112 in-store labs that
would be taken out of stores. This plan consisted of a store-by-store analysis
of profitability, size, lease term and type of lab. In addition, the Company
decided to retain Pearle's distribution and central lab facilities, but close
the home office



                                      -8-
<PAGE>   10

facility in Dallas, Texas. The Company's intent was to close the stores, on
average, over a six month period and labs, on average, over an eighteen month
period following February 1, 1997. The estimated costs of closure, primarily
related to lease obligations and impairment of fixed assets, were determined
based upon management's and Pearle's past experience in closing stores and
represented a portion of the remaining noncancellable term of the operating
leases after the expected closing dates. The estimate assumed the Company would
be able to avoid certain lease penalty provisions through negotiations with
landlords. This resulted in an accrual of $12.9 million being recorded pursuant
to EITF No. 94-3 as part of the original charge discussed above.

         The Company, whose integration efforts were initially focused primarily
on the new franchise agreement, closed one store in each of the first and second
quarters of fiscal 1997. The Company then acquired AVC in August 1997, and
recorded an additional $8.0 million integration charge in fiscal 1997, which
included costs of closing an additional 12 stores, six in-store labs, the AVC
central lab and the AVC home office, transitional costs incurred to change the
brand identity to Pearle and duplicate costs incurred through fiscal year end in
connection with the consolidation of the AVC home office functions.

         The expected benefits of these business integration activities included
a stronger franchise network and reductions in (1) home office personnel and
occupancy costs, (2) purchasing costs for materials, (3) manufacturing costs
upon the completion of the removal of full in-store labs and closing of the AVC
lab, and (4) operating losses upon closure of certain unprofitable stores. The
consolidation of Pearle's home office and purchasing functions was substantially
completed in fiscal 1997, with the exception of lab systems, which are expected
to be completed in fiscal 1999. The consolidation of AVC functions, including
the shutdown of its central lab, was completed by the third quarter of fiscal
1998.

         Negotiations with various landlords throughout fiscal 1997 proved more
difficult than originally anticipated. Also, due to other priorities of
integrating Pearle and the acquisition of AVC in mid-fiscal 1997, the original
plan was not fully implemented by the end of fiscal 1997. At the end of fiscal
1997 management reaffirmed its intent to close the remaining 27 stores and
convert the 112 lab locations as soon as practicable. The estimated cost of
closure was revised to equal the remaining lease liability assuming, on average,
stores would be closed six months after January 31, 1998. This revised estimate
did not differ materially from the previously established accrual and therefore
no adjustment to the reserve was required. Had management's original plan
corresponded to only the actual stores closed prior to January 31, 1998, the
restructuring charges would have been reduced by $9.1 million and $1.6 million
for the fiscal years ended February 1, 1997 and January 31, 1998, respectively.

         Of the facilities originally identified for closing, five stores were
closed in the first quarter and one store was closed in the second quarter of
fiscal 1998, and 17 full service labs were closed in the third quarter of fiscal
1998.

          In the third quarter of fiscal 1998, several consultants were retained
to help assess various aspects of Cole National Group's optical operations. As a
result, in the fourth quarter of 1998, the original restructuring plan was
revised and a net pretax charge of $13.1 million was recorded, related to
further restructuring of its Pearle business along with other unusual charges.
The net pretax charge consisted of charges associated with the restructuring of
$13.9 million, a reversal of previously established restructuring accruals of
$12.3 million and other unusual charges totaling $11.5 million.

         The restructuring charge of $13.9 million relates to changes made to
the Pearle operating model and structure of the home office organization.
Consultants conducted market research and helped develop and implement changes
to Pearle's marketing message, merchandise offerings and presentation, store
locations, organizational structure and other operational opportunities. In
addition, home office facilities and personnel, including Cole Managed Vision
Care administration and systems were relocated and consolidated into one central
facility. The results of these efforts resulted in charges for inventory
writedowns related to products that will no longer be carried, severance and
hiring costs primarily related to home office organizational changes,
consolidation of the home office facilities, including the writeoff of fixed
assets at the old facilities, consultant fees and changing the Pearle brand
message through signing, production and other costs. The charge related to the
inventory writedown has been reflected in cost of sales in accordance with EITF
No. 96-9.

         As part of the revised plan, which was approved by the Board of
Directors in March 1999, it was determined that certain stores originally
identified for closure would either remain open or be closed at a much lower
cost than originally estimated. The plan is to close 26 stores, of which nine
were identified in the original store closing plan, over the next 12 months and
remove surfacing equipment from full service labs of 226 stores over the next
six to eighteen



                                      -9-
<PAGE>   11

months. As a result of the revised plan, the expected cost of closure is
estimated to approximate $1.0 million, requiring a reversal of $12.3 million of
the previous accrual. The primary reasons for the significant reduction in the
accrual were the passage of time of not closing stores earlier, many of the
stores now will be closed at the end of their lease terms, and the shift in
strategy in that only surfacing equipment would be removed from full-service
stores as opposed to the original plan of completely removing labs. Management
believes it will be able to implement its revised plan based on the current
status of lease termination negotiations and the expected installation of new
lab systems, along with a new central lab facility in 1999.

         For the restructuring charges recorded in 1996, 1997 and 1998,
approximately $29.4 million represented non-cash charges and $34.2 million
represented cash outlays through January 30, 1999, including a total of $10.6
million that had been incurred and paid during the respective periods that each
charge was initially recorded. At January 30, 1999, approximately $7.1 million
of restructuring reserves remained, all of which is expected to result in cash
outlays over the next twelve months for lease settlement, severance and other
costs incurred in fiscal 1998 but paid in fiscal 1999.

         The unusual charges in fiscal 1998 related to the writeoff of $8.8
million associated with the abandonment in the fourth quarter of previously
capitalized system development costs (including $1.9 million of incurred costs
that will be paid in the first half of fiscal 1999) and $2.7 million primarily
related to restricted stock issued to two senior executive officers.

         Refer to Note 3 of the Notes to Consolidated Financial Statements for
additional information regarding the restructuring, business integration and
other unusual charges.

YEAR 2000

         Cole National Group has been working with a consultant to assess and
resolve the potential impact of the Year 2000 on the ability of its computerized
information systems to accurately process information that may be date-sensitive
(the "Year 2000 Readiness Program"). Any of the programs that recognize a date
using "00" as the year 1900 rather than the year 2000 could result in errors or
system failures.

         During fiscal 1998, Cole National Group completed the assessment of its
internal critical and non-critical hardware and software. Included in the
assessment was the identification of all critical and non-critical computer
programs and hardware, including non-information technology systems such as
HVAC, telephone and others containing embedded microcontrollers, and an
evaluation of their Year 2000 readiness. Cole National Group utilizes over 500
separate computer information systems across its operations, many of which were
recently installed and are Year 2000 ready. In addition, modifications to many
other critical programs has been completed and testing of these programs is in
process. Management currently believes that all critical programs and hardware
will be year 2000 ready, including testing, by the end of the third quarter of
fiscal 1999.

         Concurrent with this internal assessment, Cole National Group
identified and contacted critical vendors, host stores and managed health care
partners with whom it does business regarding their Year 2000 readiness.
Although not all responses from third parties have been received, management is
not currently aware of any critical third party whose Year 2000 issues are
likely to have a material effect on the Company.

         Cole National Group has not yet developed contingency plans and such
plans will depend primarily on the responses from critical third parties in the
event that it or critical third parties should fail to become Year 2000 ready.
Cole National Group expects any necessary contingency plans to be completed by
the end of the third quarter of fiscal 1999.

         Notwithstanding that Cole National Group is proceeding diligently with
the implementation of its own Year 2000 Readiness Program, including
ascertaining Year 2000 readiness of critical third parties, the inability of it
or critical third parties to effectuate timely and cost effective solutions to
Year 2000 issues could have a material adverse effect on the Company.

         Management estimates the total cost of the Year 2000 Readiness Program
will be approximately $3.5 million, including approximately $0.3 million of new
hardware and software that will be capitalized. The remaining $3.2 million will
be expensed as incurred (approximately $2.4 million in fiscal 1998 and $0.8
million in fiscal 1999). These costs include only external costs as internal
costs, which consist primarily of payroll-related costs of employees, are not



                                      -10-
<PAGE>   12

tracked separately for the Year 2000 Readiness Program. The estimate of external
costs does not include costs associated with addressing and resolving issues as
a result of the failure of third parties to become Year 2000 ready.

NEW ACCOUNTING PRONOUNCEMENTS

         In fiscal 1998, SFAS No. 130 "Reporting Comprehensive Income," SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information," and
SFAS No. 132 "Employees Disclosures about Pensions and Other Postretirement
Benefits" were adopted. Adoption of these standards did not have a material
impact on the results of operations, financial position or cash flows.

RECENT DEVELOPMENTS AND FORWARD-LOOKING INFORMATION

         The Company expects results in the first quarter of fiscal 1999 to be
below last year from continuing softening of sales at Cole Vision.

         Certain sections of this Form 10-K Report, including this Management's
Discussion and Analysis, contain forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995. Actual results may differ
materially from those forecast due to a variety of factors that can affect
operating results, liquidity and financial condition, such as risks associated
with the timing and achievement of the restructuring of the optical business,
the timing and achievement of improvements in the operations of the optical
business, the integration of acquired operations, the ability of Cole National
Group and its suppliers, host stores, and managed care organization partners to
achieve Year 2000 readiness, the ability to select and stock merchandise
attractive to customers, the implementation of its store acquisition program,
economic and weather factors affecting consumer spending, operating factors
affecting customer satisfaction, including manufacturing quality of optical and
engraved goods, the relationships 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.
All forward-looking statements involve risk and uncertainty.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Cole National Group 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 Cole National Group'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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Information required by this Item appears on pages F-1 through F-27 of
this Form 10-K and is incorporated herein by reference. Other financial
statements and schedules are filed herewith as "Financial Statement Schedules"
pursuant to Item 14.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.


ITEM 11.  EXECUTIVE COMPENSATION

         Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.



                                      -11-
<PAGE>   13

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information required by this Item has been omitted pursuant to General
Instruction I of Form 10-K.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) and (2)    Financial Statements and Financial Statement Schedules

                  The financial statements and financial statement schedules
                  filed as part of this Form 10-K for Cole National Group and
                  its consolidated subsidiaries are located as set forth in the
                  index on page F-1.

(a)(3)            Exhibits

                  See Exhibit Index on pages X-1 through X-3.

(b)               Reports on Form 8-K

                  Report on Form 8-K dated January 12, 1999

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

           No annual report or proxy statement covering Cole National Group's
last fiscal year has been or will be circulated to security holders.



                                      -12-
<PAGE>   14





                                   SIGNATURES

         PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.

April 30, 1999                           By: /s/ Wayne L. Mosley             
                                             ---------------------------------
                                                     Wayne L. Mosley
                                              Vice President and Controller

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.


<TABLE>
<S>                                         <C>                                                  <C>
                *                           Chairman and Chief                                   April 30, 1999
---------------------------------           Executive Officer and
        Jeffrey A. Cole                     Director (Principal Executive Officer)


                *                
---------------------------------           President and Director                               April 30, 1999
         Brian B. Smith

                *                           Executive Vice President of Strategic Planning
---------------------------------           and Chief Financial Officer                          April 30, 1999
   George H. Bernstein, Jr.                 (Principal Financial Officer)


      /s/ Wayne L. Mosley                   Vice President and Controller                        April 30, 1999
---------------------------------           (Principal Accounting Officer)
        Wayne L. Mosley             

                *                           Director                                             April 30, 1999
---------------------------------
       Timothy F. Finley

                *                           Director                                             April 30, 1999
---------------------------------
        Irwin N. Gold

                *                           Director                                             April 30, 1999
---------------------------------
        Peter V. Handal

                *                           Director                                             April 30, 1999
---------------------------------
       Charles A. Ratner

                *                           Director                                             April 30, 1999
---------------------------------
       Walter J. Salmon
</TABLE>


*    The undersigned, by signing his name hereto, does sign and execute this
     report on Form 10-K pursuant to the Powers of Attorney executed by the
     above-named officers and directors of Cole National Group, Inc. and which
     are being filed herewith with the Securities and Exchange Commission on
     behalf of such officers and directors.



       /s/ Wayne L. Mosley                
---------------------------------
Wayne L. Mosley, Attorney-in-Fact



<PAGE>   15



            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----


<S>                                                                                                       <C>
    Report of Independent Public Accountants                                                              F-2

    Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998                               F-3

    Consolidated Statements of Operations for the 52 weeks ended January 30,
       1999, January 31, 1998, and February 1, 1997                                                       F-4

    Consolidated Statements of Cash Flows for the 52 weeks ended January 30,
       1999, January 31, 1998, and February 1, 1997                                                        F-5

    Consolidated Statements of Stockholder's Equity and Comprehensive Income for
       the 52 weeks ended January 30, 1999, January 31, 1998, and February 1,
       1997                                                                                               F-6

    Notes to Consolidated Financial Statements                                                            F-7


    FINANCIAL STATEMENT SCHEDULES:

    Report of Independent Public Accountants on the Financial Statement Schedules                         F-23

    Schedule I - Condensed Financial Information of Registrant                                            F-24

    Schedule II - Valuation and Qualifying Accounts                                                       F-27
</TABLE>



All financial statement schedules not included have been omitted because they
are not applicable or because the required information is otherwise furnished.

                                      F-1
<PAGE>   16



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



TO THE BOARD OF DIRECTORS OF COLE NATIONAL GROUP, INC.:

         We have audited the accompanying consolidated balance sheets of Cole
National Group, Inc. (a Delaware corporation) and subsidiaries as of January 30,
1999 and January 31, 1998, and the related consolidated statements of
operations, stockholder's equity (deficit) and comprehensive income and cash
flows for each of the three years in the period ended January 30, 1999. These
financial statements are the responsibility of Cole National Group's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cole
National Group, Inc. and subsidiaries as of January 30, 1999 and January 31,
1998, and the results of their operations and their cash flows for each of the
three years in the period ended January 30, 1999 in conformity with generally
accepted accounting principles.



ARTHUR ANDERSEN LLP



Cleveland, Ohio,
March 17, 1999.

                                      F-2
<PAGE>   17



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

<TABLE>
<CAPTION>
                                                                                  January 30,             January 31,
                                                                                     1999                    1998   
                                                                                     ----                    ----   
<S>                                                                                <C>                 <C>       
Assets
------
Current assets:
    Cash and temporary cash investments                                            $  51,057             $  67,989
    Accounts receivable, less allowance for doubtful accounts of $7,189
       in 1998 and $7,132 in 1997                                                     45,302                51,491
    Current portion of notes receivable                                                2,707                 4,177
    Refundable income taxes                                                            1,113                  --
    Inventories                                                                      119,881               119,970
    Prepaid expenses and other                                                         8,520                 9,099
    Deferred income tax benefits                                                      13,742                20,950
                                                                                   ---------             ---------
          Total current assets                                                       242,322               273,676

Property and equipment, at cost                                                      246,597               237,611
    Less - accumulated depreciation and amortization                                (133,595)             (113,954)
                                                                                   ---------             ---------
          Total property and equipment, net                                          113,002               123,657

Other assets:
    Notes receivable, excluding current portion                                       17,308                19,552
    Deferred income taxes and other                                                   51,555                52,373
    Intangible assets, net                                                           159,698               159,077
                                                                                   ---------             ---------
       Total assets                                                                $ 583,885             $ 628,335
                                                                                   =========             =========


Liabilities and Stockholder's Equity
------------------------------------

Current liabilities:
    Current portion of long-term debt                                              $     407             $  15,078
    Accounts payable                                                                  70,125                75,076
    Payable to affiliates                                                             69,060                88,776
    Accrued interest                                                                   6,216                 6,615
    Accrued liabilities                                                              101,040               108,616
    Accrued income taxes                                                                 131                   965
                                                                                   ---------             ---------
       Total current liabilities                                                     246,979               295,126

Long-term debt, net of discount and current portion                                  274,706               274,992

Other long-term liabilities                                                           13,954                30,664

Stockholder's equity:
    Common stock                                                                        --                    --
    Paid-in capital                                                                  195,139               193,560
    Accumulated other comprehensive loss                                                (657)                 (436)
    Accumulated deficit                                                             (146,236)             (165,571)
                                                                                   ---------             ---------
       Total stockholder's equity                                                     48,246                27,553
                                                                                   ---------             ---------
       Total liabilities and stockholder's equity                                  $ 583,885             $ 628,335
                                                                                   =========             =========
</TABLE>



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


                                      F-3
<PAGE>   18




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

<TABLE>
<CAPTION>
                                                                                          52 Weeks Ended                     
                                                                   --------------------------------------------------------- 
                                                                      January 30,           January 31,         February 1,
                                                                        1999                   1998                1997      
                                                                   --------------         --------------       -------------

<S>                                                                   <C>                   <C>                 <C>      
Net revenue                                                           $ 1,064,235           $ 996,164           $ 628,496

Costs and expenses:
   Cost of goods sold                                                     364,090             340,849             201,229
   Operating expenses                                                     607,103             555,246             359,430
   Depreciation and amortization                                           32,803              29,058              18,260
   Restructuring and other unusual charges                                  7,873               8,000              61,091
                                                                      -----------           ---------           ---------
          Total costs and expenses                                      1,011,869             933,153             640,010
                                                                      -----------           ---------           ---------

Operating income (loss)                                                    52,366              63,011             (11,514)

Interest and other (income) expense:
   Interest expense                                                        27,354              30,112              22,492
   Interest and other income                                               (6,283)             (1,605)             (1,613)
                                                                      -----------           ---------           ---------
      Total other expense                                                  21,071              28,507              20,879
                                                                      -----------           ---------           ---------

Income (loss) from continuing operations before income taxes               31,295              34,504             (32,393)

Income tax provision (benefit)                                             11,960              14,915              (7,286)
                                                                      -----------           ---------           ---------

Income (loss) from continuing operations                                   19,335              19,589             (25,107)

Discontinued operations:
   Operating loss, net of income tax provision (benefit) of
      $(39) and $180, respectively                                             --                 (67)             (2,935)

   Loss on disposal, net of income tax benefit of $8,500                       --             (13,900)                 --
                                                                      -----------           ---------           ---------

   Loss from discontinued operations                                           --             (13,967)             (2,935)
                                                                      -----------           ---------           ---------

Income (loss) before extraordinary item                                    19,335               5,622             (28,042)

Extraordinary loss on early extinguishment of debt, net of
   income tax benefit of $7,467                                                --             (12,183)                 --
                                                                      -----------           ---------           ---------

Net income (loss)                                                     $    19,335           $  (6,561)          $ (28,042)
                                                                      ===========           =========           =========
</TABLE>



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


                                      F-4
<PAGE>   19




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

<TABLE>
<CAPTION>
                                                                                                      52 Weeks Ended     
                                                                                   -------------------------------------------------
                                                                                   January 30,      January 31,          February 1,
                                                                                      1999             1998                 1997 
                                                                                   -----------      -----------          -----------
<S>                                                                                 <C>               <C>                <C>       
Cash flows from operating activities:                                                
    Net income (loss)                                                               $ 19,335          $  (6,561)         $ (28,042)
    Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
         Extraordinary loss on early extinguishment of debt                               --             12,183                 --
         Depreciation and amortization                                                32,803             29,058             18,260
         Restructuring and other unusual charges                                       1,786                546             19,983
         Non-cash interest, net                                                        1,054                961                519
         Deferred income tax provision (benefit)                                      16,221             12,966            (16,575)
         Change in assets and liabilities net of effects from acquisitions:
             Decrease (increase) in accounts and notes receivable, prepaid
                 expenses and other assets                                            10,912             (9,015)            (4,319)
             Increase in inventories                                                  (4,404)           (11,222)            (3,935)
             Decrease in net assets of discontinued operations                            --             19,926              4,002
             Increase (decrease) in accounts payable, accrued liabilities
                 and other liabilities                                               (17,767)           (11,944)            73,215
             Increase (decrease) in accrued interest                                    (399)            (3,015)             2,586
             Increase (decrease) in accrued, refundable and deferred
                 income taxes                                                            895               (749)             1,305
                                                                                    --------          ---------          ---------
                    Net cash provided by operating activities                         60,436             33,134             66,999
                                                                                    --------          ---------          ---------

Cash flows from investing activities:
    Purchases of property and equipment, net                                         (27,914)           (32,634)           (24,925)
    Proceeds from sale-leaseback, net                                                  8,835                 --                 --
    Acquisition of businesses, net of cash acquired                                   (7,231)                --           (157,426)
    Systems development costs                                                        (16,802)           (17,922)            (2,933)
    Other, net                                                                           312               (894)               (20)
                                                                                    --------          ---------          ---------
                   Net cash used by investing activities                             (42,800)           (51,450)          (185,304)
                                                                                    --------          ---------          ---------
Cash flows from financing activities:
    Repayment of long-term debt                                                      (15,095)          (169,839)           (15,511)
    Payment of deferred financing fees                                                    --             (3,191)            (6,066)
    Advances from (to) affiliates, net                                               (19,246)            61,614             34,888
    Proceeds from long-term debt, net                                                     --            125,000            148,875
    Other, net                                                                          (227)              (420)                --
                                                                                    --------          ---------          ---------
                    Net cash provided (used) by financing activities                 (34,568)            13,164            162,186
                                                                                    --------          ---------          ---------

Cash and temporary cash investments:
    Net increase (decrease) during the period                                        (16,932)            (5,152)            43,881
    Balance, beginning of the period                                                  67,989             73,141             29,260
                                                                                    --------          ---------          ---------
    Balance, end of the period                                                      $ 51,057          $  67,989          $  73,141
                                                                                    ========          =========          =========
</TABLE>



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


                                      F-5
<PAGE>   20


                   COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                              January 30,      January 31,          February 1,
                                                                 1999             1998                 1997
                                                              -----------      -----------          -----------

<S>                                                            <C>                <C>                <C>      
Common Stock:
     Balance at beginning of period                            $      --          $      --          $      --
     Net proceeds from sale of common stock                           --                 --                 --
     Exercise of stock options                                        --                 --                 --
                                                               ---------          ---------          ---------
     Balance at end of period                                         --                 --                 --
                                                               ---------          ---------          ---------

Paid In Capital:
     Balance at beginning of period                              193,560            122,681            118,065
     Tax benefit of stock option exercises                         1,579                755                463
     Capital contribution by Cole National Corporation                --             70,124                 --
     Stock options granted                                            --                 --              4,153
                                                               ---------          ---------          ---------
     Balance at end of period                                    195,139            193,560            122,681
                                                               ---------          ---------          ---------

Accumulated Deficit:
     Balance at beginning of period                             (165,571)          (159,010)          (115,568)
     Net income (loss)                                            19,335             (6,561)           (28,042)
     Dividend to Cole National Corporation                            --                 --            (15,400)
                                                               ---------          ---------          ---------
     Balance at end of period                                   (146,236)          (165,571)          (159,010)
                                                               ---------          ---------          ---------

Accumulated Other Comprehensive Loss:
     Balance at beginning of period                                 (436)               (26)                --
     Other comprehensive loss                                       (221)              (410)               (26)
                                                               ---------          ---------          ---------
     Balance at end of period                                       (657)              (436)               (26)
                                                               ---------          ---------          ---------

Total Stockholder's Equity (Deficit)                           $  48,246          $  27,553          $ (36,355)
                                                               =========          =========          =========

Comprehensive Income:
     Net income (loss)                                         $  19,335          $  (6,561)         $ (28,042)
     Cumulative translation adjustment                              (221)              (410)               (26)
                                                               ---------          ---------          ---------
     Total comprehensive income (loss)                         $  19,114          $  (6,971)         $ (28,068)
                                                               =========          =========          =========
</TABLE>


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


                                      F-6
<PAGE>   21





                   COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(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). Cole National Group's subsidiaries include
         Pearle, Inc., which was acquired on November 15, 1996 (see Note 2). All
         significant intercompany transactions have been eliminated in
         consolidation.

                Fiscal years end on the Saturday closest to January 31 and are
         identified according to the calendar year in which they begin. Fiscal
         years 1998, 1997 and 1996 each consisted of 52-week periods.

         Nature of Operations -

                Cole National Group is a specialty service retailer, operating
         in both host and non-host environments, whose primary lines of business
         are eyewear products and services and personalized gifts. Cole National
         Group sells its products through 2,475 company-owned retail locations
         and 409 franchised locations in 50 states, Canada, and the Caribbean,
         and differentiates itself from other specialty retailers by providing
         value-added services at the point of sale at all of its retail
         locations. Cole National Group has two reportable segments: Cole Vision
         and Things Remembered (see Note 10).

         Inventories -

                Inventories are valued at the lower of first-in, first-out
         (FIFO) cost or market.

         Property and Depreciation -

                The policy is to provide depreciation using the straight-line
         method over a period which is sufficient to amortize the cost of the
         asset over its useful life or lease term.


                The estimated useful lives for depreciation purposes are:

                  Buildings and improvements                  5 to 40 years
                  Equipment                                   3 to 10 years
                  Furniture and fixtures                      2 to 10 years
                  Leasehold improvements                      2 to 20 years



                Property and equipment, at cost, consist of the following at
         January 30, 1999 and January 31, 1998 (000's omitted):


<TABLE>
<CAPTION>
                                                      1999             1998      
                                                 --------------     ------------

         <S>                                     <C>               <C>          
          Land and buildings                     $       14,164    $      22,782
          Furniture, fixtures and equipment             151,602          144,450
          Leasehold improvements                         80,831           70,379
                                                 --------------    -------------
            Total property and equipment         $      246,597    $     237,611
                                                 ==============    =============
</TABLE>

         Store Opening Expenses -

                Store opening expenses are charged to operations in the year the
         store is opened, which is generally the year the expense is incurred.


                                      F-7
<PAGE>   22
         Notes Receivable -

                Cole National Group's notes receivable are primarily from
         Pearle's franchisees throughout the U.S. The franchise notes are
         collateralized by inventory, equipment, and leasehold improvements at
         each location, generally bear interest at the prime rate plus 3%, and
         require monthly payments of principal and interest over periods of up
         to ten years.

         Intangible Assets -

                Intangible assets, net, consist of the following at January 30,
         1999 and January 31, 1998 (000's omitted):

<TABLE>
<CAPTION>
                                        1999             1998    
                                     ---------        ---------
        
         <S>                        <C>              <C>      
          Tradenames                $  46,725        $  47,962
          Goodwill                    112,973          111,115
                                     ---------        ---------
                                     $ 159,698        $ 159,077
                                     =========        =========
</TABLE>

                Tradenames acquired in connection with the Pearle acquisition
         are being amortized on a straight-line basis over 40 years and are
         presented net of accumulated amortization of $2,735,000 and $1,498,500
         at January 30, 1999 and January 31, 1998, respectively.

                Goodwill generally is being amortized on a straight-line basis
         over 40 years and is presented net of accumulated amortization of
         $37,880,000 and $34,008,000 at January 30, 1999 and January 31, 1998,
         respectively. Management regularly evaluates its accounting for
         goodwill considering primarily such factors as historical
         profitability, current operating profits and cash flows. Cole National
         Group believes that, at January 30, 1999, the asset is realizable and
         the amortization period is still appropriate.

         Other Assets -

                Financing costs incurred in connection with obtaining long-term
         debt are capitalized in other assets and amortized over the life of the
         related debt using the effective interest method.

                In March 1998 the Accounting Standards Executive Committee
         issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
         Computer Software Developed or Obtained for Internal Use." This SOP
         provides that direct costs to develop or obtain internal use software,
         including internal costs, should be capitalized and amortized over the
         estimated useful life of the software.

                Such costs incurred have been capitalized and are included in
         other assets. These costs are being amortized on a straight-line basis
         over periods ranging from two to seven years, beginning when the
         software is placed in service. At January 30, 1999 and January 31,
         1998, these costs, net of accumulated amortization, were $34,267,000
         and $23,963,000, respectively.

         Valuation of Long-Lived Assets -

                Long-lived assets, such as property, plant and equipment,
         goodwill and other intangibles, are reviewed for impairment whenever
         events or changes in circumstances indicate that the carrying amount
         may not be recoverable. If the total of the expected future
         undiscounted cash flows is less than the carrying amount of the asset,
         a loss is recognized for the difference between the fair value and the
         carrying value of the asset.

         Other Long-Term Liabilities -

                Other long-term liabilities consist primarily of certain
         employee benefit obligations, deferred lease credits and other
         lease-related obligations and other obligations not expected to be paid
         within 12 months. Deferred lease credits are amortized on a
         straight-line basis over the life of the applicable lease.


                                      F-8
<PAGE>   23

         Capital Stock -

                At January 30, 1999 and January 31, 1998, there were 1,100
         shares of common stock, par value $.01 per share, authorized, issued
         and outstanding.

         Foreign Currency Translation -

                The assets and liabilities of Cole National Group's foreign
         subsidiaries are translated to United States dollars at the rates of
         exchange on the balance sheet date. Income and expense items are
         translated at average monthly rates of exchange. Translation
         adjustments are presented as a component of accumulated other
         comprehensive income within stockholder's equity.

         Revenues -

                Revenues include sales of goods and services to retail customers
         at company-operated stores, sales of merchandise inventory to
         franchisees and other outside customers, other revenues from
         franchisees such as royalties based on sales, interest income on notes
         receivable and initial franchise fees, and capitation and other fees
         associated with its growing managed vision care business.

                Franchise revenues based on sales by franchisees are accrued as
         earned. Initial franchise fees are recorded as income when all material
         services or conditions relating to the sale of the franchises have been
         substantially performed or satisfied by Cole National Group and when
         the related store begins operations.

         Advertising -

                Advertising production costs and other advertising costs are
         expensed as incurred, a portion of which are reimbursed by franchisees
         based on a percentage of their sales. Advertising expense is summarized
         as follows (000's omitted):

<TABLE>
<CAPTION>
                                                        1998           1997           1996  
                                                      --------       --------       --------

<S>                                                  <C>           <C>             <C>      
                Gross advertising expense            $  82,492     $  74,553       $  37,427
                Less:  Franchisee contribution         (20,244)      (19,656)         (4,230)
                                                     ---------     ---------       ---------
                Net advertising expense              $  62,248     $  54,897       $  33,197
                                                     =========     =========       =========
</TABLE>

         Earnings Per Share -

                Earnings per share and weighted average number of common shares
         outstanding data for 1998, 1997 and 1996 have been omitted as the
         presentation of such information, considering Cole National Group is a
         wholly owned subsidiary of Cole National Corporation, is not
         meaningful.

         Cash Flows -

                For purposes of reporting cash flows, Cole National Group
         considers all temporary cash investments, which have original
         maturities of three months or less, to be cash equivalents. The
         carrying amounts of cash and cash equivalents approximate fair value
         due to the short maturity of those instruments.

                Net cash flows from operating activities reflect cash payments
         for income taxes and interest as follows (000's omitted):

<TABLE>
<CAPTION>
                                                        1998             1997           1996    
                                                   --------------------------------------------

<S>                                                <C>             <C>              <C>        
                       Income taxes                $     1,644     $     4,889      $     5,300
                       Interest                    $    25,900     $    33,429      $    21,275
</TABLE>


                                      F-9
<PAGE>   24

                During 1998 and 1997, non-cash financing activities included
         incurring $77,000 and $622,000, respectively, in capital lease
         obligations.

                During 1997, in connection with the tender offer described in
         Note 5, Cole National Corporation made a capital contribution to Cole
         National Group in the amount of $42,347,000. This contribution was
         recorded as a decrease to payable to affiliates.

                No dividends were declared during fiscal 1998 or 1997.

         Use of Estimates -

                The preparation of financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and disclosure of contingent assets and liabilities at
         the date of the financial statements, and the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

         Reclassifications -

                Certain prior year amounts have been reclassified to conform
         with the 1998 presentation.

 (2)     Acquisitions of Businesses

                On November 15, 1996, Cole National Group purchased from Cole
         National Corporation, for an aggregate purchase price of $157.7
         million, including the costs of acquisition, certain assets and all of
         the issued and outstanding common stock of Pearle. Pearle consisted of
         346 company-operated optical stores and 340 franchised locations in the
         United States, Canada and the Caribbean.

                The Pearle acquisition was accounted for under the purchase
         method of accounting. The results of operations of Pearle have been
         included in the consolidated financial statements since the date of
         acquisition. The purchase price was allocated to the assets acquired
         and liabilities assumed based upon their relative fair values as of the
         closing date. This resulted in an excess of purchase price over net
         assets acquired of $24.5 million, including final adjustments of $4.3
         million. The relative fair values of the assets acquired and
         liabilities assumed were based upon valuations and other studies and
         included tradenames of $49.5 million, unfavorable leasehold interests
         of $7.5 million, accruals for involuntary severance and termination
         benefits of $4.4 million and deferred tax assets of $16.7 million.

                On a pro forma basis, if the Pearle acquisition had taken place
         at the beginning of fiscal 1996, the unaudited consolidated net
         revenues would have been $878.3 million for fiscal 1996. After giving
         effect to certain pro forma adjustments, including adjustments to
         reflect the amortization of tradenames and goodwill, the elimination of
         transactions between Pearle and its former parent, the elimination of
         Pearle's provision for impairment of intangible assets and related
         costs which resulted from the acquisition, increased interest expense
         and reduced interest income associated with acquisition funding and the
         estimated related income tax effects, pro forma net loss in fiscal 1996
         would have improved by $1.5 million. The unaudited pro forma results
         have been prepared for informational purposes only and should not be
         considered indicative of the actual results of operations which would
         have occurred had the acquisition been in effect at the beginning of
         fiscal 1996, and do not purport to be indicative of results of
         operations which may occur in the future.

                The 1998 results include the recognition of $6.0 million of
         income from cash received in a nontaxable settlement of certain
         contingencies related to several claims against and indemnifications
         from the former owner of Pearle. In connection with this settlement,
         Cole National Group assumed secondary liability for approximately $10.0
         million of loans to certain franchisees held by a third party. Cole
         National Group is contingently liable should any of these franchisees
         default, and also for prepayment penalties of up to $1.1 million. Cole
         National Group has established reserves for potential losses on the
         loans, which


                                      F-10
<PAGE>   25

         mature through 2001. The settlement also included a release of the
         former owner of Pearle from certain future non-tax claims related to
         Pearle.

                Cole National Group also made the following acquisitions, each
         of which has been accounted for under the purchase method of
         accounting. Pro forma financial results have not been presented for
         these acquisitions, as they did not have a material effect on results
         of operations.

                In fiscal 1998, Cole National Group acquired ten Buckeye Optical
         stores in Columbus, Ohio, and all of the issued and outstanding common
         stock of Management Associates, Inc., whose operations consisted of
         four 20/20 Eyecare stores located in Las Vegas, Nevada. The total
         purchase price for these acquisitions was $7.2 million.

                On August 5, 1997, Cole National Corporation contributed to Cole
         National Group all of the issued and outstanding common stock of
         American Vision Centers, Inc. (AVC), whose operations consisted of 79
         company-owned and 85 franchised optical stores, which Cole National
         Corporation had acquired for an aggregate purchase price of
         approximately $28.9 million, including debt assumed. The purchase price
         was allocated to the assets acquired and liabilities assumed based upon
         their relative fair values as of the closing date. This resulted in an
         excess of purchase price over net assets acquired of $20.0 million. The
         relative fair values of the assets acquired and liabilities assumed
         included unfavorable leasehold interests of $3.4 million, accruals for
         involuntary severance and termination benefits of $0.5 million,
         write-off of deferred assets of $1.4 million and deferred tax assets of
         $7.5 million.

                In November 1996, Cole National Group acquired all of the issued
         and outstanding stock of AOCO Limited, which operated 73 Sears Optical
         Departments and two freestanding Vision Club stores in Canada, for a
         purchase price of $2.6 million.

(3)      Restructuring and Other Unusual Charges

                In the fourth quarter of fiscal 1998, Cole National Group began
         implementation of a restructuring plan and recorded a net pretax charge
         of $13.1 million, related to restructuring its Pearle business along
         with other unusual charges. The net pretax charge consisted of charges
         associated with the restructuring of $13.9 million, a reversal of
         previously established restructuring accruals of $12.3 million and
         other unusual charges totaling $11.5 million. The restructuring charge
         of $13.9 million relates to changes made to the Pearle operating model
         and structure of the home office organization. These changes resulted
         in charges for inventory write-downs related to products that will no
         longer be carried, severance and hiring costs primarily related to home
         office organizational changes, consolidation of the home office
         facilities, including the write-off of fixed assets at the old
         facilities, consultant fees and changing the Pearle brand message
         through signing, production and other costs. The charge related to the
         inventory write-down ($5.2 million) has been included in cost of sales
         in fiscal 1998.

                Additionally, Cole National Group had recorded restructuring and
         other non-recurring charges of $8.0 million and $61.1 million in fiscal
         1997 and 1996, respectively. These charges consisted primarily of costs
         of integrating and consolidating the recent acquisitions of both AVC
         and Pearle, including costs of store and other facility closings, a
         computer system termination fee and related asset impairment costs. The
         accrual established in fiscal 1996 was based in part upon the closure
         of certain stores and in-store labs. As part of the revised
         restructuring plan discussed above, it was determined that certain
         stores originally planned to be closed would either remain open or be
         closed at a much lower cost than originally estimated. In addition,
         management determined that, while it still plans to reduce the number
         of full service labs, the lease costs and equipment to be removed from
         the stores would be less than originally anticipated. Cole National
         Group plans to close 26 stores over the next twelve months and remove
         surfacing equipment from the full service labs of 226 stores over the
         next six to eighteen months. As a result, $12.3 million of previously
         established accruals have been reversed into income as a restructuring
         credit.

                During fiscal 1997, an $8.0 million pretax business integration
         charge associated with the AVC acquisition was recorded. Such charge
         included costs incurred related to the integration and consolidation of
         AVC into Cole National Group's operations, including costs of store and
         other facility closings,


                                      F-11
<PAGE>   26

         transitional costs incurred to change the brand identity to Pearle and
         duplicate costs incurred through fiscal year end in connection with the
         consolidation of the AVC home office functions. The charge consisted of
         $4.3 million of costs incurred in fiscal 1997, $0.7 million of asset
         write-downs and $3.0 million of costs accrued in accordance with EITF
         No. 94-3.

                The fiscal 1996 pretax charge of $61.1 million is primarily
         related to the integration and consolidation of Pearle into Cole
         National Group's operations, as well as certain other non-recurring
         charges, including store and other facility closings, computer systems
         and asset impairments. The charge consisted of $29.4 million of costs
         incurred in fiscal 1996, $17.4 million of asset write-downs and $14.3
         million of costs accrued in accordance with EITF No. 94-3. Cole
         National Group had identified 29 unprofitable Pearle stores which it
         intended to close along with 112 other retail locations at which it
         intended to close the in-store labs and supply these locations from
         other facilities. In addition, Cole National Group decided to retain
         Pearle's distribution and central lab facilities, but to close Pearle's
         home office facility in Dallas, Texas. The charge in fiscal 1996 for
         store and other facility closings consists primarily of the remaining
         noncancellable term of operating leases and other obligations remaining
         on these facilities subsequent to their estimated date of closing,
         along with the loss on fixed assets. The charge for computer systems
         was primarily for settlement costs of prematurely terminating an
         outsourcing agreement that was providing systems integrations and data
         processing services. The asset impairment charge related to goodwill
         associated with portions of its optical business that would not be
         recoverable as the carrying values of these businesses exceeded fair
         value, as measured by projected future discounted cash flows, in
         accordance with SFAS No. 121.

                Other charges in fiscal 1996 include costs related to employee
         matters, including duplicate costs incurred through the end of fiscal
         1996 and costs related to hiring employees in connection with the
         consolidation of the Pearle home office functions, and other costs of
         management realignment. In addition, the other charges include
         incremental travel and professional fees incurred in connection with
         the integration of Pearle, along with costs of developing and
         implementing a new franchise agreement. Also, in February 1996, the
         Board of Directors granted stock options to executive officers at a
         share price equal to the market price of the common stock on the date
         of grant, which were subject to stockholder approval. The increase in
         the price of the common stock between the grant date and the date of
         stockholder approval resulted in $4.2 million of compensation expense.


                                      F-12
<PAGE>   27



                The following summarizes the major components of the
         restructuring charges recorded in fiscal 1996, 1997 and 1998, along
         with cash and non-cash charges against the reserves (in millions):

<TABLE>
<CAPTION>
                                     Charges to Reserve                  Charges to Reserve                  
                                           1996                                 1997                         
                                   ----------------------    Remaining ----------------------     Remaining  
                          Original                 Non-       Reserve                   Non-       Reserve   
                          Charge       Cash        Cash       at 2/1/97      Cash       Cash      at 1/31/98 
                       -----------  ---------  -----------   -----------  ---------  --------- ------------  
1996 Charge
-----------------------
<S>                     <C>        <C>          <C>         <C>         <C>         <C>         <C>          
Store and other
     facilities closing     $ 17.6     $(0.2)       $ -         $ 17.4      $ (0.6)     $(0.2)      $ 16.6   
Computer systems              21.6      (0.5)        (4.0)        17.1       (12.6)       -            4.5   
Asset impairment               6.1       0.0         (6.1)         -           0.0        -            -     
Other                         15.8      (4.8)        (6.8)         4.2        (3.5)       -            0.7   
                            ------     -----      -------       ------     -------      -----       ------   
Total                       $ 61.1     $(5.5)     $ (16.9)      $ 38.7     $ (16.7)     $(0.2)      $ 21.8   
                            ======     =====      =======       ======     =======      =====       ======   

1997 Charge
-----------------------

Store and other
     facilities closing      $ 2.5                                           $ -        $ -          $ 2.5   
Severance                      0.9                                            (0.1)       -            0.8 
Operating costs and
     losses                    1.7                                            (1.6)      (0.1)         -   
Marketing and brand
     conversion                1.5                                            (0.6)       -            0.9 
Other                          1.4                                            (0.8)       -            0.6 
                       -----------                                     -----------  --------- ------------ 

Total                        $ 8.0                                          $ (3.1)     $(0.1)       $ 4.8 
                       ===========                                     ===========  ========= ============ 

1998 Charge
-----------------------

Facilities relocations       $ 2.6                                                                         
Inventory                      5.2                                                                         
Marketing and brand
     conversion                2.3                                                                         
Professional fees              1.9                                                                         
Severance/hiring               1.9                                                                         
                       -----------                                                                         

Total                       $ 13.9                                                                         
                       ===========                                                                         

<CAPTION>
                         Charges to Reserve
                                 1998
                         -------------------------------------- Remaining
                                      Non-                     Reserve
                            Cash      Cash        Reversal     at 1/30/99
                        ---------    ---------    -----------  -----------
1996 Charge
-----------------------
<S>                      <C>       <C>               <C>          <C>  
Store and other
     facilities closing   $(0.4)    $ (5.7)           $ (9.5)      $ 1.0
Computer systems           (4.0)      (0.5)              -           -
Asset impairment            0.0        0.0               -           -
Other                      (0.2)       0.0              (0.5)        -
                          -----     ------           -------       -----
Total                     $(4.6)    $ (6.2)          $ (10.0)      $ 1.0
                          =====     ======           =======       =====

1997 Charge
-----------------------

Store and other
     facilities closing   $(0.4)     $ -              $ (2.1)      $ -
Severance                  (1.0)       -                 0.2         -
Operating costs and
     losses                 -          -                 -           -
Marketing and brand
     conversion            (0.7)       -                (0.2)        -
Other                      (0.2)      (0.2)             (0.2)        -
                       -------- -----------      ----------- -----------

Total                     $(2.3)    $ (0.2)           $ (2.3)      $ -
                       ======== ===========      =========== ===========

1998 Charge
-----------------------

Facilities relocations    $(0.5)    $ (0.5)            $ -         $ 1.6
Inventory                   -         (5.2)              -           -
Marketing and brand
     conversion            (0.2)       -                 -           2.1
Professional fees          (0.8)      (0.1)              -           1.0
Severance/hiring           (0.5)       -                 -           1.4
                       -------- -----------      ----------- -----------

Total                     $(2.0)    $ (5.8)            $ -         $ 6.1
                       ======== ===========      =========== ===========
</TABLE>


            The reserves remaining at January 30, 1999 equal the amount of
     future expected cash outlays, which for the 1996 charge are for lease
     settlement costs for stores to be closed and are expected to be
     incurred over the next twelve months. Of the remaining cash outlays
     related to the 1998 charge, approximately $4.0 million had been
     incurred in fiscal 1998 and is expected to be paid in the first quarter
     of fiscal 1999. The remainder related primarily to severance
     arrangements and operating costs of idle facilities that will be paid
     through the fourth quarter of fiscal 1999.

           The unusual charges in fiscal 1998 related to the write-off of
     $8.8 million associated with the abandonment in the fourth quarter of 
     previously capitalized system development costs (including $1.9 million
     of incurred costs that will be paid in the first half of fiscal 1999)
     and $2.7 million primarily related to restricted stock issued to two
     senior executive officers. See Note 7 for further discussions of the
     restricted stock grants.

(4)  Discontinued Operations

           On January 13, 1998, Cole National Group announced the closing
     of its Cole Gift Centers chain of personalized gift and greeting card
     departments located in host stores. The decision to close Cole Gift
     Centers was based on declining sales and profitability trends in recent
     years and management's desire to focus its gift retailing efforts on
     Things Remembered. For financial statement purposes, the assets,
     liabilities, results of operations and cash flows of Cole Gift Centers
     are included in the consolidated financial statements as discontinued
     operations. The estimated loss on disposal of $13.9 million (net of an
     applicable income tax benefit of $8.5 million) includes provisions for
     severance and other closing costs,

                                     F-13
<PAGE>   28

         inventory and other asset write-offs and estimated operating losses for
         the period from January 13, 1998 through February 1998 when all
         locations were closed.

                Cole Gift Centers' net revenue was $50.9 million and $55.5
         million in 1997 and 1996, respectively. Consolidated interest expense
         that was not directly attributable to other operations of Cole National
         Group was allocated to discontinued operations based on the ratio of
         the net assets of discontinued operations to total net assets of Cole
         National Group plus consolidated debt of Cole National Group not
         directly attributable to other operations. As a result, the operating
         loss from discontinued operations includes allocated interest expense
         of $1.3 million and $1.9 million in fiscal 1997 and 1996, respectively.
         The net loss of discontinued operations also includes a non-recurring
         charge of $3.3 million in fiscal 1996, primarily related to the
         write-off of goodwill at Cole Gift Centers, in accordance with SFAS No.
         121.

 (5)     Long-Term Debt

                Long-term debt at January 30, 1999 and January 31, 1998 is
         summarized as follows (000's omitted):

<TABLE>
<CAPTION>
                                                                         1999               1998  
                                                                         ----               ----  
         <S>                                                                   <C>                <C>  
         7-1/2% Obligation in connection with Industrial Revenue Bonds         $      --          $     168

         11-1/4% Senior Notes                                                         --             14,476

         9-7/8% Senior Subordinated Notes:
           Face value                                                            150,000            150,000
           Unamortized discount                                                     (964)            (1,041)
                                                                               ---------          ---------
             Total 9-7/8% Senior Subordinated Notes                              149,036            148,959

         8-5/8% Senior Subordinated Notes                                        125,000            125,000

         Capital lease obligations (see Note 11)                                   1,077              1,467
                                                                               ---------          ---------
                                                                                 275,113            290,070
         Less current portion                                                       (407)           (15,078)
                                                                               ---------          ---------
         Net long-term debt                                                    $ 274,706            274,992
                                                                               =========          =========
</TABLE>

                On August 15, 1997, Cole National Group announced a tender offer
         to purchase up to all of its 11-1/4% Senior Notes at a price of
         $1,105.61 per $1,000 of principal, plus accrued interest. The tender
         offer expired on September 12, 1997, at which time a total of $151.3
         million principal amount of the 11-1/4% Senior Notes were tendered,
         leaving $14.5 million outstanding. As a result of the tender offer, in
         the third quarter of fiscal 1997 Cole National Group recorded an
         extraordinary charge of $12.2 million, net of an income tax benefit of
         $7.5 million, representing the tender premium, the write-off of the
         related unamortized debt discount and other costs associated with
         redeeming the debt. The remaining 11-1/4% Senior Notes not tendered in
         1997 were called and retired in October 1998.

                On August 22, 1997, Cole National Group issued $125.0 million of
         8-5/8% Senior Subordinated Notes that mature in 2007 with no earlier
         scheduled redemption or sinking fund payments. Proceeds from this debt
         issuance of approximately $121.8 million, along with cash on hand, were
         used to fund the above-described tender offer. Interest on the 8-5/8%
         Notes is payable semi-annually on February 15 and August 15.

                On November 15, 1996, Cole National Group issued $150 million of
         9-7/8% Senior Subordinated Notes that mature in 2006 with no earlier
         scheduled redemption or sinking fund payments. The 9-7/8% Notes were
         used to finance a portion of the Pearle acquisition (see Note 2).
         Interest on the 9-7/8% Notes is payable semi-annually on June 30 and
         December 31.

                The 8-5/8% Notes and the 9-7/8% Notes are general unsecured
         obligations of Cole National Group, subordinated in right of payment to
         senior indebtedness of Cole National Group and senior in right of
         payment to any current or future subordinated indebtedness of Cole
         National Group.


                                      F-14
<PAGE>   29

                The indentures pursuant to which the 8-5/8% Notes and the 9-7/8%
         Notes were issued restrict dividend payments to Cole National
         Corporation to 50% of Cole National Group's net income after October
         31, 1993, plus amounts due to Cole National Corporation under a tax
         sharing agreement and for administrative expenses of Cole National
         Corporation not to exceed 0.25% of Cole National Group's net revenue.
         The indentures also contain certain optional and mandatory redemption
         features and other financial covenants. Cole National Group was in
         compliance with these covenants at January 30, 1999.

                  During the second quarter of 1997, Cole National Corporation
         completed a public offering of 2,587,500 shares of its common stock at
         a price of $47.00 per share. Net proceeds from the offering were
         approximately $116.0 million. A portion of the net proceeds from the
         offering were used for the purchase of AVC and Cole National Group's
         tender offer to purchase up to all of its $165.8 million outstanding
         11-1/4% Senior Notes.

                At January 30, 1999, the fair value of long-term debt was
         approximately $279.4 million compared to a carrying value of $275.1
         million. The fair value was estimated primarily by using quoted market
         prices. There are no significant principal payment obligations under
         its outstanding indebtedness until the 9-7/8% Notes mature in 2006.

 (6)     Credit Facility

                Concurrent with the Pearle acquisition, the principal operating
         subsidiaries of Cole National Group entered into a credit facility. The
         credit facility replaced the existing revolving credit facility.

                The credit facility provides the principal operating
         subsidiaries of Cole National Group with a four-year revolving line of
         credit of up to the lesser of a "borrowing base" or $75 million. Up to
         $30 million of the credit facility is available for the issuance of
         letters of credit. Borrowings under the credit facility initially bear
         interest at a rate equal to, at the option of the principal operating
         subsidiaries of Cole National Group, either (a) the Eurodollar Rate
         plus 1.25% or (b) 0.25% plus the highest of (i) the prime rate, (ii)
         the three-week moving average of the secondary market rates for
         three-month certificates of deposit plus 1% and (iii) the federal funds
         rate plus 0.5%. Cole National Group pays a commitment fee of 0.375% per
         annum on the total unused portion of the facility. Additionally, the
         credit facility requires the principal operating subsidiaries of Cole
         National Group to comply with various operating covenants that restrict
         corporate activities, including covenants restricting the ability of
         the subsidiaries to incur additional indebtedness, pay dividends,
         prepay subordinated indebtedness, dispose of certain investments or
         make acquisitions. The credit facility also requires the subsidiaries
         to comply with certain financial covenants, including covenants
         regarding minimum interest coverage, maximum leverage and consolidated
         net worth. The principal operating subsidiaries of Cole National Group
         were in compliance with these covenants at January 30, 1999.

                The credit facility restricts dividend payments to Cole National
         Group to amounts needed to pay interest on the 9-7/8% Notes and the
         8-5/8% Notes, and certain amounts related to taxes, along with up to
         $8.0 million plus 0.25% of Cole National Group's consolidated net
         revenue annually for other direct expenses of Cole National Corporation
         or Cole National Group. In addition, dividends of up to $20.0 million
         are permitted to repurchase the 8-5/8% Notes and/or the 9-7/8% Notes.

                No borrowings under the credit facility were outstanding as of
         January 30, 1999, and the maximum amount of borrowings during fiscal
         1998 was $13.6 million. No borrowings under the credit facility were
         outstanding as of January 31, 1998, or at any time during fiscal 1997.

 (7)     Stock Compensation and Warrants

                Cole National Corporation has various stock-based compensation
         plans in which key employees of Cole National Group are eligible to
         participate.

                Cole National Group applies APB Opinion 25 and related
         Interpretations in accounting for Cole National Corporation's
         stock-based compensation plans. Compensation cost that has been charged
         against


                                      F-15
<PAGE>   30

         income for Cole National Corporation's stock-based plans in fiscal 1998
         and fiscal 1996 was $2.3 million and $4.2 million, respectively, as
         discussed further in Note 3. Deferred compensation cost of $2.6 million
         is expected to be amortized over future vesting periods. No
         compensation cost has been recognized for Cole National Corporation's
         stock -based plans in fiscal 1997. Had compensation cost for Cole
         National Corporation's stock-based compensation plans been determined
         based on the fair value at the dates of awards under those plans
         consistent with the method of SFAS No. 123, Cole National Group's net
         income would have been decreased to $18,647,000 in fiscal 1998 and its
         net loss would have been increased to $7,075,000 in fiscal 1997 and
         $29,961,000 in fiscal 1996.

                The fair value of each option granted by Cole National
         Corporation was estimated on the date of grant using the Black-Scholes
         option-pricing model with the following assumptions: risk-free interest
         rates of 4.7 %, 5.7% and 6.2% for grants in fiscal 1998, 1997 and 1996,
         respectively, volatility of 35-39% in fiscal 1998, 35% in fiscal 1997
         and 33% in fiscal 1996 and expected lives of six years for options
         granted in all fiscal years. Because the SFAS No. 123 method of
         accounting has not been applied to options granted prior to January 29,
         1995, the resulting pro forma expense may not be representative of that
         to be expected in the future.

(8)      Income Taxes

                Cole National Group is included in the consolidated federal
         income tax returns to Cole National Corporation and has been charged
         (credited) an amount equal to the taxes that would have been payable by
         it if it were a corporation filing separate returns.

                The income tax provisions (benefits) for continuing operations
         reflected in the accompanying consolidated statements of operations for
         fiscal 1998, 1997 and 1996 are detailed below (000's omitted):

<TABLE>
<CAPTION>
                                          1998             1997              1996 
                                         ------           ------            ------
<S>                                    <C>               <C>               <C>     
Currently payable -
  Federal                              $ (6,528)         $   (536)         $  7,281
  State and local                         1,486             1,704             2,008
  Foreign                                   781               781                --
                                       --------          --------          --------
                                         (4,261)            1,949             9,289
Deferred -
  Federal                                16,765            12,961           (16,575)
Foreign                                    (544)                5                --
                                       --------          --------          --------
                                         16,221            12,966           (16,575)
                                       --------          --------          --------

Income tax provision (benefit)         $ 11,960          $ 14,915          $ (7,286)
                                       ========          ========          ========
</TABLE>

                The income tax provision (benefit) for continuing operations
         differs from the federal statutory rate as follows (000's omitted):

<TABLE>
<CAPTION>
                                                    1998              1997            1996 
                                                   ------            ------          ------
<S>                                               <C>               <C>             <C>      
Tax provision (benefit) at statutory rate         $ 10,954          $12,077         $(11,338)
  Tax effect of -
    Amortization of goodwill                         1,234            1,176              897
    State income taxes, net of federal
       tax benefit                                     966            1,215            1,305
    Nontaxable settlement                           (2,100)              --               --
    Non-recurring charges                              537               --            1,496
    Other, net                                         369              447              354
                                                  --------          -------         --------
     Tax provision (benefit)                      $ 11,960          $14,915         $ (7,286)
                                                  ========          =======         ========
</TABLE>




                                      F-16
<PAGE>   31



                The tax effects of temporary differences that give rise to
         significant portions of Cole National Group's deferred tax assets and
         deferred tax liabilities at January 30, 1999 and January 31, 1998 are
         as follows (000's omitted):

<TABLE>
<CAPTION>
                                                               1999               1998     
                                                               ----               ----     
<S>                                                          <C>               <C>     
                  Deferred tax assets:
                    Employee benefit accruals                $  3,540          $  3,836
                    Restructure accruals                        2,730             8,530
                    Other non-deductible accruals              11,700            19,248
                    State and local taxes                       1,758             1,324
                    Net operating loss carryforwards            3,267             2,918
                    Intangibles                                 5,506             5,939
                    Inventory reserves                          2,348             2,633
                    Bad debt  reserves                            878             1,235
                    Other                                         910               928
                                                             --------          --------
                    Total deferred tax assets                  32,637            46,591
                    Valuation allowance                        (1,141)           (1,141)
                                                             --------          --------
                      Net deferred tax assets                  31,496            45,450
                                                             --------          --------

                  Deferred tax liabilities:
                    Depreciation and amortization              (7,388)           (3,992)
                    Other                                      (2,019)           (1,964)
                                                             --------          --------
                      Total deferred tax liabilities           (9,407)           (5,956)
                                                             --------          --------

                  Net deferred taxes                         $ 22,089          $ 39,494
                                                             ========          ========
</TABLE>

                At January 30, 1999, Cole National Group has approximately $8.3
         million of tax net operating loss carryforwards acquired in connection
         with the acquisition of American Vision Centers, which expire between
         2005 and 2010. Due to the change in ownership requirements of the
         Internal Revenue Code, utilization of the American Vision Centers net
         operating loss is limited to approximately $338,000 per year. A
         valuation allowance of $1.1 million has been established to reduce the
         deferred tax asset related to the net operating loss to the amount that
         will likely be realized.

                No provision for U.S. federal and state income taxes has been
         provided for the undistributed earnings of Cole National Group's
         foreign subsidiaries because those earnings are considered to be
         indefinitely invested. Upon distribution of those earnings in the form
         of dividends or otherwise, Cole National Group would be subject to both
         U.S. income taxes (subject to an adjustment for foreign tax credits)
         and withholding taxes payable.

 (9)     Retirement Plans

                Cole National Group maintains a noncontributory defined benefit
         pension plan that covers employees who have met eligibility service
         requirements and are not members of certain collective bargaining
         units. The pension plan calls for benefits to be paid to eligible
         employees at retirement based primarily upon years of service and their
         compensation levels near retirement.

                Cole National Group's policy is to fund amounts necessary to
         keep the pension plan in full force and effect, in accordance with the
         Internal Revenue Code and the Employee Retirement Income Security Act
         of 1974. Actuarial present values of benefit obligations are determined
         using the projected unit credit method.


                                      F-17
<PAGE>   32



                Pension expense for fiscal 1998, 1997 and 1996 includes the
         following components (000's omitted):

<TABLE>
<CAPTION>
                                                                              1998             1997              1996   
                                                                              ----             ----              ----   
<S>                                                                         <C>              <C>              <C>    
                  Service cost - benefits earned during the period          $ 1,446          $   637          $   646

                  Interest cost on the projected benefit obligation           1,582            1,490            1,467

                  Less:
                    Return on plan assets -
                      Actual                                                 (2,494)          (2,424)          (1,669)
                      Deferred                                                  690              893              477
                                                                            -------          -------          -------
                                                                             (1,804)          (1,531)          (1,192)
                  Amortization of transition asset over 17.9 years             (179)            (179)            (179)
                                                                            -------          -------          -------
                       Net pension expense                                  $ 1,045          $   417          $   742
                                                                            =======          =======          =======
</TABLE>


                The following sets forth changes in the benefit obligation and
         the plan assets during the year and reconciles the funded status of the
         pension plan with the amounts recognized in the consolidated balance
         sheets (000's omitted):

<TABLE>
<CAPTION>
                                                                                 1998              1997    
                                                                                 ----              ----    
                   Change in Benefit Obligation:
                 <S>                                                          <C>               <C>     
                       Benefit obligation at begining of period                $ 21,272          $ 19,046
                       Service cost                                               1,446               637
                       Interest cost                                              1,582             1,490
                       Actuarial gain                                             1,509             1,200
                       Benefits paid                                               (917)             (836)
                       Expenses paid                                               (293)             (265)
                                                                               --------          --------
                          Benefit obligation at end of period                  $ 24,599          $ 21,272
                                                                               ========          ========

                  Change in Plan Assets:
                      Fair value of plan assets at beginning of year           $ 19,751          $ 16,774
                      Actual return on plan assets                                2,494             2,808
                      Employer contributions                                      2,181             1,270
                      Benefits paid                                                (917)             (836)
                      Expenses paid                                                (293)             (265)
                                                                               --------          --------
                         Fair value of plan assets at end of year              $ 23,216          $ 19,751
                                                                               ========          ========

                  Reconciliation of Funded Status:
                      Benefit obligation at end of period                      $ 24,599          $ 21,272
                      Fair value of plan assets, primarily money
                         market and equity
                       mutual funds                                              23,216            19,751
                                                                               --------          --------   
                      Funded status                                              (1,383)           (1,521)
                      Unrecognized prior service cost                                81               111
                      Net unrecognized loss                                       2,052             1,204
                      Unamortized transition asset                               (1,057)           (1,236)
                                                                               --------          --------

                     Pension liability included in accrued liabilities         $   (307)         $ (1,442)
                                                                               ========          ========
</TABLE>

                The weighted average discount rate used to measure the projected
         benefit obligation was 7.25% in 1998 and 7.5% in 1997. For both years,
         the rate of increase in future compensation levels was 5.0% and the
         expected long-term rate of return on plan assets was 9.5%.

                Cole National Group has a defined contribution plan, including
         features under Section 401(k) of the Internal Revenue Code, which
         provides retirement benefits to its employees. Eligible employees may
         contribute up to 17% of their compensation to the plan. Prior to
         January 1, 1998, there was no mandatory matching of employee
         contributions by Cole National Group; effective January 1, 1998, the
         plan was amended to, among other things, provide for a mandatory
         company match of 10% of employee contributions. Total company matches
         of $757,000, $374,000 and $327,000 were recorded as expense for 1998,
         1997 and 1996, respectively.

                Prior to January 1, 1998, Cole National Group had separate
         contributory profit-sharing plans for Pearle and American Vision
         Centers employees meeting certain service requirements as defined in
         the plans. Company contributions to the Pearle plan consisted of a
         minimum matching contribution of


                                      F-18
<PAGE>   33


         $861,000 and $229,000 in 1997 and 1996, respectively. There were no
         company contributions required or made in connection with the American
         Vision Centers plan in 1997. Effective January 1, 1998, eligible
         employees of Pearle and American Vision Centers became eligible to
         participate in Cole National Group's defined contribution plan. The
         Pearle and American Vision Centers plans will be merged into Cole
         National Group's plan.

                Cole National Group has two Supplemental Executive Retirement
         Plans that provide for the payment of retirement benefits to
         participating executives supplementing amounts payable under Cole
         National Group's noncontributory defined benefit pension plan. The
         first plan is an excess benefit plan designed to replace benefits that
         would otherwise have been payable under the pension plan but that were
         limited as a result of certain tax law changes. The second plan is a
         defined contribution plan under which participants receive an annual
         credit based on a percentage of base salary, subject to vesting
         requirements. Expenses for these plans for fiscal 1998, 1997 and 1996
         were $651,000, $541,000 and $468,000, respectively.

(10)     Segment Information

                Cole National Group has two reportable segments: Cole Vision and
         Things Remembered. Most of Cole Vision's revenue is provided by sales
         of prescription eyewear, accessories and services through its Cole
         Licensed Brands and Pearle retail locations. Cole Vision's revenue is
         also provided by sales of merchandise to franchisees and other outside
         customers, by royalties based on sales, interest income on notes
         receivable and initial franchise fees from franchisees and by fees from
         managed vision care programs. The Cole Licensed Brands and Pearle
         segments have been aggregated in accordance with SFAS No. 131 based on
         the similarity of their economic characteristics, nature of products,
         services and production processes, types of customers, distribution
         methods and regulatory environment. Things Remembered's revenue is
         provided by sales of engravable gift merchandise, personalization and
         other services primarily through retail stores and kiosks.

                The accounting policies of the segments are the same as those
         described in the Summary of Significant Accounting Policies (see Note
         1). Performance is evaluated based on operating income from operations
         before interest, income taxes, and non-recurring or unusual charges.

                The reportable segments are strategic business units that offer
         different products and services. They are managed separately because
         each business requires different technology and marketing strategies.
         Cole Vision is subject to various state regulations related to the
         dispensing of prescription eyewear and its relationship with the
         doctors of optometry.


                                      F-19

<PAGE>   34



                Reported segment revenue, depreciation and amortization, income
         or loss, with reconciliations to consolidated amounts are as follows
         (000's omitted):

<TABLE>
<CAPTION>
                                                                                   1998               1997               1996  
                                                                                   ----               ----               ----
<S>                                                                            <C>                  <C>                <C>      
                  Net revenue:
                      Cole Vision                                              $   822,288          $ 770,454          $ 407,504
                      Things Remembered                                            241,947            225,710            220,992
                                                                               -----------          ---------          ---------
                           Consolidated net revenue                            $ 1,064,235          $ 996,164          $ 628,496
                                                                               ===========          =========          =========

                  Depreciation and amortization:
                      Cole Vision                                              $    21,712          $  19,473          $   9,398
                      Things Remembered                                             10,485              8,947              8,509
                                                                               -----------          ---------          ---------
                           Total segment depreciation and amortization              32,197             28,420             17,907
                      Corporate                                                        606                638                353
                                                                               -----------          ---------          ---------
                           Consolidated depreciation and amortization          $    32,803          $  29,058          $  18,260
                                                                               ===========          =========          =========

                  Income or loss:
                      Cole Vision                                              $    54,287          $  65,790          $  37,782
                      Things Remembered                                             17,647             11,504             18,480
                                                                               -----------          ---------          ---------
                           Total segment profit                                     71,934             77,294             56,262
                      Unallocated amounts:
                           Unusual and non-recurring items                         (13,120)            (8,000)           (61,091)
                           Corporate expenses                                       (6,448)            (6,283)            (6,685)
                                                                               -----------          ---------          ---------
                      Consolidated operating income (loss)                          52,366             63,011            (11,514)
                      Interest and other expense, net                              (21,071)           (28,507)           (20,879)
                                                                               -----------          ---------          ---------
                      Income (loss) from continuing operations
                           before income taxes                                 $    31,295          $  34,504          $ (32,393)
                                                                               ===========          =========          =========
</TABLE>


                Reported segment assets, expenditures for capital additions
         and systems developments costs and acquistions of businesses, with
         reconciliations to consolidated amounts, are as follows (000's
         omitted):

<TABLE>
<CAPTION>
                                                                                        1998               1997             1996
                                                                                        ----               ----             ----
<S>                                                                                  <C>                <C>               <C>      
                  Segment assets:
                      Cole Vision                                                    $ 442,482          $ 439,423         $ 363,674
                      Things Remembered                                                132,832            131,105           121,432
                                                                                     ---------          ---------         ---------
                           Total segment assets                                        575,314            570,528           485,106
                      Elimination of intercompany receivables                          (36,189)           (12,085)          (14,490)
                      Corporate cash and temporary cash investments                     34,506             54,872            64,453
                      Other corporate assets                                            10,254             15,020            16,918
                      Net assets of discontinued operations                                 --                 --            16,451
                                                                                     ---------          ---------         ---------
                           Consolidated assets                                       $ 583,885          $ 628,335         $ 568,438
                                                                                     =========          =========         =========

                  Expenditures for capital additions and systems development
                     costs:
                      Cole Vision                                                    $  35,796          $  34,831         $  12,065
                      Things Remembered                                                  8,228             20,496            13,392
                                                                                     ---------          ---------         ---------
                           Total segment expenditures                                   44,024             55,327            25,457
                      Elimination of intercompany transfers                                 --             (5,300)               --
                      Corporate                                                            692                529             2,401
                                                                                     ---------          ---------         ---------
                           Consolidated expenditures                                 $  44,716          $  50,556         $  27,858
                                                                                     =========          =========         =========

                  Expenditures for acquisitions of businesses, net of cash
                    acquired:
                      Cole Vision                                                    $   7,231          $      --         $ 157,426
                                                                                     =========          =========         =========
</TABLE>


                                      F-20
<PAGE>   35



                  Revenue from external customers of each group of similar
         products and services is as follows (000's omitted):

<TABLE>
<CAPTION>
                                                                            1998             1997             1996
                                                                            ----             ----             ----
<S>                                                                     <C>                <C>              <C>     
                  Sales of optical products and services                $  759,232         $712,923         $403,496
                  Royalties, interest income and initial fees
                      from franchisees                                      21,518           19,743            4,008
                  Fees from managed vision care programs                    41,538           37,788               --
                                                                        ----------         --------         --------
                           Total Cole Vision net revenue                   822,288          770,454          407,504
                  Retail sales of gift merchandise and services            241,947          225,710          220,992
                                                                        ----------         --------         --------
                           Consolidated net revenue                     $1,064,235         $996,164         $628,496
                                                                        ==========         ========         ========
</TABLE>

                Prior to fiscal 1997, fees from managed vision care programs
         were not captured separately, but were netted against operating
         expenses.

                Cole National Group operates primarily in the United States. Net
         revenue attributable to Cole Vision's Canadian operations was $27.5
         million, $27.2 million and $5.6 million in fiscal 1998, 1997 and 1996,
         respectively. Long-lived assets located in Canada totaled $2.2 million,
         $2.1 million and $2.2 million in fiscal 1998, 1997 and 1996,
         respectively.

 (11)    Commitments

                Cole National Group leases a substantial portion of its
         facilities including laboratories, office and warehouse space, and
         retail store locations. These leases generally have initial terms of up
         to 10 years and often contain renewal options. Certain of the store
         locations have been sublet to franchisees. In most leases covering
         retail store locations, additional rents are payable based on store
         sales. In addition, Cole Vision operates departments in various host
         stores paying occupancy costs solely as a percentage of sales under
         agreements containing short-term cancellation clauses. Generally, Cole
         National Group is required to pay taxes and normal expenses of
         operating the premises for laboratory, office, warehouse and retail
         store leases; the host stores pay these expenses for departments
         operated on a percentage-of-sales basis. The following amounts
         represent rental expense for fiscal 1998, 1997 and 1996 (000's
         omitted):

<TABLE>
<CAPTION>
                                                             1998              1997               1996  
                                                             ----              ----               ----  
                <S>                                      <C>                <C>                <C>     
                  Occupancy costs based on sales         $  54,563          $  52,300          $ 46,058
                  All other rental expense                  92,043             87,691            45,199
                  Sublease rental income                   (22,606)           (21,725)           (5,936)
                                                         ---------          ---------          --------

                                                         $ 124,000          $ 118,266          $ 85,321
                                                         =========          =========          ========
</TABLE>

                At January 30, 1999 and January 31, 1998, property under capital
         leases consisted of $2,018,000 and $1,967,000 in equipment with
         accumulated amortization of $851,000 and $469,000, respectively.


                                      F-21
<PAGE>   36



                At January 30, 1999, future minimum lease payments and sublease
         income receipts under noncancellable leases, and the present value of
         future minimum lease payments for capital leases are as follows (000's
         omitted):

<TABLE>
<CAPTION>
                                                                                    Operating Leases 
                                                                    Capital         ----------------
                                                                    Leases       Payments      Receipts
                                                                    ------       --------      --------
                 <S>                                             <C>           <C>          <C>     
                  1999                                             $   500       $ 74,894     $ 12,941
                  2000                                                 619         60,248        9,474
                  2001                                                  48         48,048        7,031
                  2002                                                  55         39,597        5,252
                  2003                                                  --         31,433        3,481
                  2004 and thereafter                                   --         71,873        5,601
                                                                   -------       --------     ---------
                  Total future minimum lease payments                1,222       $326,093     $ 43,780
                                                                                 ========     ========
                  Amounts representing interest                       (145)
                                                                   -------       
                  Present value of future minimum lease payments   $ 1,077
                                                                   -------                             
</TABLE>

                Certain assets utilized by Cole National Group in its data
         processing operations are owned or leased by Cole National Corporation.
         Cole National Corporation charges Cole National Group an amount equal
         to the expenses associated with these assets. The charges to Cole
         National Group for these assets were $2,126,000, $1,694,000 and
         $370,000 for fiscal 1998, 1997 and 1996, respectively.


                                      F-22
<PAGE>   37



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                      ON THE FINANCIAL STATEMENT SCHEDULES


TO COLE NATIONAL GROUP, INC.:

         We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Cole National Group, Inc.
and Subsidiaries included in this Form 10-K and have issued our report thereon
dated March 17, 1999. Our audit was made for the purpose of forming an opinion
on those statements taken as a whole. The financial statement schedules are the
responsibility of Cole National Group's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the consolidated
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the
consolidated financial statements taken as a whole.





ARTHUR ANDERSEN LLP

Cleveland, Ohio,
March 17, 1999.


                                      F-23
<PAGE>   38



                                                                      SCHEDULE I


                   COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

================================================================================


COLE NATIONAL GROUP, INC.
CONDENSED BALANCE SHEETS
JANUARY 30, 1999 AND JANUARY 31, 1998
(Dollars in millions)

<TABLE>
<CAPTION>
                                                           1999           1998     
                                                           ----           ----     
<S>                                                     <C>            <C>     
Assets:

Cash                                                    $   34.7       $   54.9
Accounts receivable                                           --             .4
Deferred income tax benefits                                  .2             --
Investment in subsidiaries                                 397.0          367.0
Property and equipment, net                                  4.3            4.3
Other                                                        8.7           10.3
                                                        --------       --------

     Total assets                                       $  444.9       $  436.9
                                                        ========       ========

Liabilities and Stockholder's Equity:

Accounts payable and accrued expenses                   $   26.3       $   27.9
Payable to affiliates                                       95.2           90.6
Long-term debt                                             274.9          289.6
Other liabilities                                             .3            1.2
Stockholder's equity                                        48.2           27.6
                                                        --------       --------

     Total liabilities and stockholder's equity         $  444.9       $  436.9
                                                        ========       ========
</TABLE>


                                      F-24
<PAGE>   39



                                                                     SCHEDULE I
                                                                     (CONTINUED)

COLE NATIONAL GROUP, INC.                                            
CONDENSED STATEMENTS OF OPERATIONS AND CASH FLOWS
52 WEEKS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997 
(Dollars in millions)

<TABLE>
<CAPTION>
                                                                   Jan. 30,       Jan. 31,        Feb. 1,
                                                                     1999           1998            1997   
<S>                                                               <C>             <C>            <C>  
  Revenue:
     Dividends from subsidiaries                                   $    --        $     --        $     --
     Services to affiliates                                            8.6             8.4             8.4
                                                                   -------        --------        --------

           Total revenue                                               8.6             8.4             8.4
     Operating expenses                                              (11.8)           (8.4)           (8.4)
     Non-recurring charge                                               --              --           (28.9)
     Interest expense                                                 (2.4)           (6.6)           (8.9)
                                                                   -------        --------        --------
     Pre-tax loss                                                     (5.6)           (6.6)          (37.8)
     Income tax benefit                                                1.4             2.5            11.9
                                                                   -------        --------        --------
  Loss before equity in
    undistributed earnings (loss) of
    subsidiaries and extraordinary item                               (4.2)           (4.1)          (25.9)
  Equity in undistributed earnings (loss)
    of subsidiaries                                                   23.5             9.7            (2.1)
                                                                   -------        --------        --------
  Income (loss) before extraordinary item                             19.3             5.6           (28.0)
  Extraordinary loss                                                    --           (12.2)             --
                                                                   -------        --------        --------
          Net income (loss)                                           19.3            (6.6)          (28.0)
                                                                   -------        --------        --------
  Adjustments to reconcile net income (loss)
    to cash provided (used) by operations                            (22.3)          (17.0)           29.0
                                                                   -------        --------        --------
          Net cash provided (used) by operating activities            (3.0)          (23.6)            1.0
  Financing activities:
     Repayment of long-term debt                                     (14.8)         (167.5)          (15.3)
     Advances from (to) affiliates                                    (2.1)           59.8            67.3
     Proceeds from long-term debt                                       --           125.0           148.9
     Payment of financing fees                                          --            (3.2)           (6.1)
                                                                   -------        --------        --------
          Net cash provided (used) by financing activities           (16.9)           14.1           194.8
  Investing activities:
     Acquisition of business, net of cash acquired                      --              --          (157.6)
     Other                                                            (0.3)           (0.1)             -- 
                                                                   -------        --------        --------
          Net cash used by investing activities                       (0.3)           (0.1)         (157.6)

  Net increase (decrease) in cash                                    (20.2)           (9.6)           38.2
  Cash, beginning of period                                           54.9            64.5            26.3
                                                                   -------        --------        --------
  Cash, end of period                                              $  34.7        $   54.9        $   64.5
                                                                   ===--==        ========        ========
</TABLE>



                                      F-25



<PAGE>   40



                                                                    SCHEDULE I
                                                                    (CONTINUED)

              NOTE TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT


================================================================================

The accompanying financial information of Cole National Group, Inc., a
wholly-owned subsidiary of Cole National Corporation, is as of January 30, 1999
and January 31, 1998 and for the fiscal years ended January 30, 1999, January
31, 1998 and February 1, 1997. Cole National Group is a holding company for its
wholly-owned subsidiaries, Things Remembered, Inc., Cole Vision Corporation and
Pearle, Inc., except for expenses associated with Cole National Group's
corporate offices, consisted of no other operations.

This financial information should be read in connection with the Notes to
Consolidated Financial Statements of Cole National Group, Inc. and Subsidiaries
contained elsewhere in this Form 10-K.


                                      F-26
<PAGE>   41


                                                                    SCHEDULE II

Cole National Group, Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
52 Weeks Ended January 30, 1999, January 31, 1998 and February 1, 1997 
(Dollars in millions)

<TABLE>
<CAPTION>
                                                               Additions
                                                      ----------------------------
                                        Balance at     Charged to       Charged to                            Balance at
                                        Beginning      Costs and          Other                                End of
            Description                 of Period      Expenses         Accounts           Deductions          Period
            -----------                 ---------      --------         --------           ----------          ------
<S>                                        <C>             <C>             <C>                 <C>               <C>
JANUARY 30, 1999

Allowance for Doubtful Accounts         $  7.1          $  0.9            $ --               $ 0.8  (A)         $ 7.2
 
Franchise Repurchase Reserve               6.7              --              --                 1.5 (A)            5.2

Discontinued Operation Reserve             1.3              --              --                 1.3 (B)             --


JANUARY 31, 1998

Allowance for Doubtful Accounts            6.6             1.1             1.8 (C)             2.4 (A)            7.1

Franchise Repurchase Reserve               5.5             0.6             1.5 (C)             0.9 (A)            6.7

Discontinued Operation Reserve              --             1.3              --                  --                1.3


FEBRUARY 1, 1997

Allowance for Doubtful Accounts            0.8             0.2             5.7 (D)             0.1 (A)            6.6

Franchise Repurchase Reserve                --              --             5.5 (D)              --                5.5
</TABLE>



(A)      Receivable balances written off, net of recoveries.

(B)      Discontinued operation charges taken against the reserve.

(C)      Purchase price accounting reserves created as a result of the
         acquisition of AVC.

(D)      Purchase price accounting reserves created as a result of the
         acquisition of Pearle.


Reserve balances presented in the Notes to Consolidated Financial Statements are
not represented in this schedule.


                                      F-27
<PAGE>   42





                                  EXHIBIT INDEX



EXHIBIT
NUMBER   DESCRIPTION
------   -----------


 3.1(i)  Certificate of Incorporation of Cole National Group, incorporated by
         reference to Exhibit 3.1(i) to Cole National Group's Registration
         Statement on Form S-1 (Registration No. 33-66342).

 3.2(ii) By-Laws of Cole National Group, incorporated by reference to Exhibit
         3.2(ii) to Cole National Group's Registration Statement on Form S-1
         (Registration No. 33-66342).

 4.1     Indenture dated November 15, 1996, by and among Cole National Group and
         Norwest Bank Minnesota, National Association, as trustee, relating to
         the 9 7/8% Senior Subordinated Notes due 2006 (the form of which Senior
         Subordinated Note is included in such Indenture), incorporated by
         reference to Exhibit 4.1 of Cole National Corporation's Report on Form
         8-K, filed with the Commission on December 2, 1996 (File No. 1-12814).

 4.2     Indenture, dated August 22, 1997, between Cole National Group, Inc. and
         Norwest Bank Minnesota, National Association, as Trustee, relating to
         the 8-5/8% Senior Subordinated Notes Due 2007, incorporated by
         reference to Exhibit 4.4 of Cole National Group, Inc.'s Registration
         Statement on Form S-1 (Registration No. 333-34963).

 4.3     Cole National Group by this filing agrees, upon request, to file with
         the Commission the instruments defining the rights of holders of
         long-term debt of Cole National Group and its subsidiaries where the
         total amount of securities authorized thereunder does not exceed 10% of
         the total assets of Cole National Group and its subsidiaries on a
         consolidated basis.

10.1     Lease Agreement (Knoxville) dated as of November 28, 1979 by and
         between Tommy Hensley, as agent for the real property of Mrs. Don
         Siegel and Cole Vision Corporation, as amended and supplemented,
         incorporated by reference to Exhibit 10.15 to Cole National Group's
         Registration Statement on Form S-1 (Registration No. 33-66342).

10.2     Lease Agreement (Memphis) dated as of October 2, 1991 by and between
         Shelby Distribution Park and Cole Vision Corporation, incorporated by
         reference to Exhibit 10.16 to Cole National Group's Registration
         Statement on Form S-1 (Registration No. 33-66342).

10.3     Lease Agreement (Richmond) dated as of April 23, 1982 by and between
         Daniel, Daniel & Daniel and Cole Vision Corporation, as amended and
         supplemented, incorporated by reference to Exhibit 10.17 to Cole
         National Group's Registration Statement on Form S-1 (Registration No.
         33-66342).

10.4     Lease for Multi-Tenancy Space (Salt Lake) dated as of October 30, 1981
         by and between East Centennial Joint Venture and Cole Vision
         Corporation, as amended and supplemented, incorporated by reference to
         Exhibit 10.18 to Cole National Group's Registration Statement on Form
         S-1 (Registration No. 33-66342).

10.5     Form of Lease Agreement Finite 19518 dated as of December 29, 1988
         between Sears, Roebuck and Co. and Cole Vision Corporation,
         incorporated by reference to Exhibit 10.23 to Cole National Group's
         Registration Statement on Form S-1 (Registration No. 33-66342).

10.6     Lease Agreement (Knoxville) dated as of April 11, 1995 by and between
         Richard T. Fox and Cole Vision Corporation, incorporated by reference
         to Exhibit 10.29 to Cole National Corporation's Annual Report on Form
         10-K for the period ended February 3, 1996 (File No. 1-12814).


                                      X-1
<PAGE>   43



EXHIBIT
NUMBER   DESCRIPTION
------   -----------

10.7     Form of Indemnification Agreement for Directors of Cole National
         Corporation, incorporated by Reference to Exhibit 10.19 to Cole
         National Group's Registration Statement on Form S-1 (Registration No.
         33-66342).

10.8     Form of Indemnification Agreement for Officers of Cole National
         Corporation, incorporated by reference to Exhibit 10.20 to Cole
         National Group's Registration Statement on Form S-1 (Registration No.
         33-66342).

10.9     Master License Agreement dated as of October 2, 1986, between
         Montgomery Ward & Co., Incorporated and Cole Vision Corporation, as
         amended, incorporated by reference to Exhibit 10.21 to Cole National
         Group's Registration Statement on Form S-1 (Registration No. 33-66342).

10.10    Master License Agreement dated as of June 12, 1986, between Montgomery
         Ward & Co., Incorporated and Bay Cities Optical Company, as amended,
         incorporated by reference to Exhibit 10.22 to Cole National Group's
         Registration Statement on Form S-1 (Registration No. 33-66342).

10.11    Form of License Agreement (Optical), incorporated by reference to
         Exhibit 10.24 to Cole National Group's Registration Statement on Form
         S-1 (Registration No. 33-66342).

10.12    Form of License/Lease Agreement (Optical), incorporated by reference to
         Exhibit 10.25 to Cole National Group's Registration Statement on Form
         S-1 (Registration No. 33-66342).

10.13    Agreement for the Allocation of Federal Income Tax Liability and
         Benefits among Members of the Parent Group dated August 23, 1985, as
         amended, incorporated by reference to Exhibit 10.26 to Cole National
         Group's Registration Statement on Form S-1 (Registration No. 33-66342).

10.14    Assignment and Assumption Agreement dated as of September 30, 1993
         between Cole National Corporation and Cole National Group, incorporated
         by reference to Exhibit 10.24 to Cole National Corporation's Annual
         Report on Form 10-K for the period ended February 3, 1996 (File No.
         1-12814).

10.15    Lease agreement (Salt Lake) dated as of November 1, 1996 by and between
         Gibbons Realty Company and Cole Vision Corporation, incorporated by
         reference to Exhibit 10.01 of Cole National Corporation's quarterly
         report of Form 10-Q for the period ended November 2, 1996 (File No.
         1-12814).

10.16    Credit Agreement, dated as of November 15, 1996, among Cole Vision
         Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle,
         Inc. and Pearle Service Corporation and Canadian Imperial Bank of
         Commerce, incorporated by reference to Exhibit 99.1 of Cole National
         Corporation's Report on Form 8-K, filed with the Commission on December
         2, 1996 (File No. 1-12814).

10.17    Cole National Group Guarantee and Cash Collateral Agreement, dated as
         of November 15, 1996, by Cole National Group and Cole National
         Corporation, incorporated by reference to Exhibit 99.3 of Cole National
         Corporation's Report on Form 8-K, filed with the Commission on December
         2, 1996 (File No. 1-12814).


                                      X-2
<PAGE>   44



EXHIBIT
NUMBER   DESCRIPTION
------   -----------

10.18    Guarantee and Collateral Agreement, dated as of November 15, 1996, by
         Cole Vision Corporation, Things Remembered, Inc., Cole Gift Centers,
         Inc., Pearle, Inc. and Pearle Service Corporation and Canadian Imperial
         Bank of Commerce, incorporated by reference to Exhibit 99.4 of Cole
         National Corporation's Report on Form 8-K, field with the Commission on
         December 2, 1996 (File No. 1-12814).

10.19    First Amendment to the Credit Agreement, dated as of January 13, 1997,
         among Cole Vision Corporation, Things Remembered, Inc., Cole Gift
         Centers, Inc., Pearle, Inc., and Pearle Service Corporation and
         Canadian Imperial Bank of Commerce, incorporated by reference to
         Exhibit 10.33 of Cole National Group, Inc.'s Registration Statement on
         Form S-1 (Registration No. 333-34963).

10.20    Second Amendment to Credit Agreement, dated as of August 8, 1997, among
         Cole Vision Corporation, Things Remembered, Inc., Cole Gift Centers,
         Inc., Pearle, Inc. and Pearle Service Corporation and Canadian Imperial
         Bank of Commerce, incorporated by reference to Exhibit 10.34 of the
         Cole National Group, Inc.'s Registration Statement on Form S-1
         (Registration No. 333-34963).

10.21    Third Amendment to the Credit Agreement, dated as of May 15, 1998,
         among Cole Vision Corporation and Canadian Imperial Bank of Commerce,
         incorporated by reference to Exhibit 10.1 of Cole National
         Corporation's Quarterly Report on Form 10-Q for the period ended May 2,
         1998 (File No. 1-12814).

10.22    Fourth Amendment to the Credit Agreement, dated as of March 5, 1999,
         among Cole Vision Corporation, Things Remembered, Inc. and Pearle,
         Inc., and Canadian Imperial Bank of Commerce, incorporated by reference
         to Exhibit 10.45 to Cole National Corporation's Annual Report on Form
         10-K for the period ended January 30, 1999 (File No. 1-12814).

10.23    Cole National Group, Inc. 1999 Supplemental Retirement Benefit Plan
         dated as of December 17, 1998, incorporated by reference to Exhibit
         10.51 to Cole National Corporation's Annual Report on Form 10-K for the
         period ended January 30, 1999 (File No. 1-12814).

10.24    Instrument Designating Participants of the Cole National Group, Inc.
         1999 Supplemental Retirement Benefit Plan dated December 17, 1998,
         incorporated by reference to Exhibit 10.52 to Cole National
         Corporation's Annual Report on Form 10-K for the period ended January
         30, 1999 (File No. 1-12814).

10.25    Cole National Group, Inc. Deferred Compensation Plan effective as of
         February 1, 1999, incorporated by reference to Exhibit 10.53 to Cole
         National Corporation's Annual Report on Form 10-K for the period ended
         January 30, 1999 (File No. 1-12814).

10.26    Amendment No. 1, dated as of December 17, 1998, to the Cole National 
         Group, Inc. Supplemental Pension Plan, incorporated by reference to
         Exhibit 10.54 to Cole National Corporation's Annual Report on Form 10-K
         for the period ended January 30, 1999 (File No. 1-12814).

10.27    Employment Agreement entered into as of December 17, 1998 by and
         among Cole National Corporation, Cole National Group, Inc., Cole
         Vision Corporation, Pearle, Inc., Things Remembered, Inc. and
         Jeffrey A. Cole, incorporated by reference to Cole National 
         Corporation's Annual Report on Form 10-K for the period ended January
         30, 1999 (File No. 1-12814). 

21       Subsidiaries of the Registrant -- This exhibit has been omitted
         pursuant to Instruction I of Form 10-I.

24       Power(s) of Attorney.

27       Financial Data Schedule.


                                      X-3