TABLE OF CONTENTS




|                                                         |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                  
|                                                         | Item 1. Business                                                                             
|                                                         | Item 2. Properties                                                                           
|                                                         | Item 3. Legal Proceedings                                                                    
|                                                         | Item 4. Submission of Matters to a Vote of Security-Holders                                  
|PART II                                                 
|                                                         | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                         | Item 6. Selected Financial Data                                                              
|                                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                         | Item 8. Financial Statements and Supplementary Data                                          
|                                                         | Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 
|PART III                                                
|                                                         | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                         | Item 11. Executive Compensation                                                              
|                                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                         | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                 
|                                                         | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                              
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
|                                                         | Report of Independent Public Accountants                                                     
|                                                         | Consolidated Balance Sheets                                                                  
|                                                         | Consolidated Statements of Operations                                                        
|                                                         | Consolidated Statements of Cash Flows                                                        
|                                                         | Consolidated Statements of Stockholder's Equity and Comprehensive Income (Loss)              
|                                                         | Notes to Consolidated Financial Statements                                                   
|                                                         | Financial Statement Schedules                                                                
|                                                         | Report of Independent Public Accountants on the Financial Statement Schedules                
|                                                         | Schedule I - Condensed Financial Information of Registrant                                   
|                                                         | Schedule II - Valuation and Qualifying Accounts                                              
|EXHIBIT INDEX                                           



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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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|[X]  | Annual report pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934 for the fiscal year ended
        January 29, 2000, or                           
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|[  ] | Transition report pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934 for the transition period from
                         to                  .

Commission file number 33-66342

COLE NATIONAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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, 2000, 1,100 shares of the registrants common
stock, $.01 par value, were outstanding.

Documents incorporated by reference: None





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##### Table of Contents









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, optometry services
and personalized gifts with 2,722 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. 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 76% of Cole National Groups net revenue in fiscal
1999 with 1,926 company-owned and franchised locations throughout the United
States, Canada and the Caribbean as of January 29, 2000. The Cole Managed
Vision Care programs provide vision care services giving 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,
Target Optical and BJs Optical Department names. As of January 29, 2000,
Cole Licensed Brands operated 1,056 locations in 46 states and Canada, including
802 departments on the premises of Sears department stores, 93 departments in
BJs Wholesale Club stores, 25 departments in Target stores, 134 freestanding
stores operated under the name Sears Optical and two 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. The Canadian retail locations have manufacturing done at a
centralized distribution center. 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 29, 2000, Pearles operations consisted of 454 company-owned
and 416 franchised stores located in 44 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 laboratory in
Dallas. At January 29, 2000, 290 of the company-owned stores and 148 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 More for Eyes More Than Pearleand
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, excluding non-surgical professional fees and 3rd party 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

Cole Visions managed vision care programs provide comprehensive eyecare
benefits marketed directly to large employers, HMOs and other organizations.
Its Vision One discount program gives plan sponsors the opportunity to offer
their members a group discount at locations within Coles managed vision care
network with minimal direct cost to the plan sponsor. It also offers enhanced
programs to plan sponsors to provide their members with prepaid eye
examinations, as well as pricing discounts or funded materials benefits.

Cole Managed Vision Cares network has over 4,700 points of service,
including virtually all Cole Vision company-owned retail locations,
approximately 92% of franchised locations, 650 locations in a nationwide chain
stores optical departments, 640 independent full service providers, and 1,600
exam-only providers. Cole Managed Vision Care generated approximately 35% of
Cole Visions revenues in fiscal 1999.

Things Remembered

Things Remembered contributed 24% of Cole National Groups net revenue in
fiscal 1999. As of January 29, 2000, Things Remembered operated 796 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. These

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

At January 29, 2000, Things Remembered locations consisted of 437 stores
and 359 kiosks. The typical store consists of about 1,300 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, an assistant store manager on a full or part-time basis and
the balance of employees as
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 for over 35
years. Approximately 90% of the Sears stores and all of the BJs Wholesale and
Target 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 29, 2000, Cole National Group and its subsidiaries had
approximately 9,000 full-time and 3,800 part-time employees. During October,
November and December, Cole National Group employs additional full- and
part-time employees. In fiscal 1999, approximately 3,500 additional employees
were employed during such period.
Approximately 130 employees at certain Pearle locations are represented by
labor unions. Cole National Group considers its present labor relations to be
satisfactory.

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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. In 1999, Cole Vision
entered into an agreement to lease a facility in Columbus, Ohio, which
comprises approximately 43,000 square feet of space. This facility consists of
an optical laboratory, a distribution center and a general office space. Cole
Vision also leases a home office, lab and distribution center facility for its
Canadian operations pursuant to leases expiring in 2000.

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.

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. 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 this distribution center that expires in 2013 and
includes three options to renew the lease for five-year terms.







Item 3. Legal Proceedings

From time to time during the ordinary course of business, the Company is
threatened with, or may become a party to a variety of legal actions and other
proceedings incidental to its business.







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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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 1999 or 1998.







Item 6. Selected Financial Data

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

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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 29, 2000 is referred to as fiscal 1999. Fiscal
1999, 1998, and 1997 each consisted of 52-week periods.

Cole National Group has two reportable segments: Cole Vision, which
accounted for 76% of total revenue, and Things Remembered, which accounted for
24% 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.

In December 1999, Cole National Group closed 150 optical departments in
Montgomery Ward stores. Charges related to the write-off of inventory, fixed
assets and other closing costs totaling $2.0 million are included in cost of
sales and operating expenses in fiscal 1999.

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.

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Results of Operations

The following is a discussion of the results of continuing operations for
the three fiscal years ended January 29, 2000. This discussion should be read
in conjunction with the consolidated financial statements and notes thereto
included in Item 8 of this Form 10-K. The following table
sets forth certain operating information for each period (dollars in
millions):

|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |       |       |       |        |      |          |          |      |      |       |    | 
|---------------------------------------------------- | ------------------------------------- | --------------------------- | ------------------- | ----- | ------- | ----- | ----- | ----- | ------- | ----- | ----- | ----- | ----- | ----- | ------ | ---- | -------- | -------- | ---- | ---- | ----- | -- | 
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |       |       |       |        |      | Change  
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |       |       |       |        |      |         
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |       |       |       |        |      | 1999 vs. | 1998 vs.
|                                                     |                                       |                             |                     |       | 1999    |       | 1998  |       | 1997    |       | 1998  |       | 1997 
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |       |      
|Net Revenue-                                        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Vision                           |                             | $                   | 805.0 |         |       | $     | 822.3 |         |       | $     | 770.5 |       |       |        | (2.1 | %)       |          |      | 6.7  | %    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered                     |                             |                     | 258.6 |         |       |       | 241.9 |         |       |       | 225.7 |       |       |        | 6.9  | %        |          |      | 7.2  | %    
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|                                                     |                                       | Total net revenue           |                     | $     | 1,063.6 |       |       | $     | 1,064.2 |       |       | $     | 996.2 |       |        |      | (0.1     | %)       |      |      | 6.8   | % 
|                                                    
|                                                    
|                                                    
|                                                    
|Gross profit                                         |                                       | $                           | 703.9               |       |         | $     | 700.1 |       |         | $     | 655.3 |       |       |       | 0.5    | %    |          |          | 6.8  | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses                                   |                                       |                             | 630.8               |       |         |       | 607.0 |       |         |       | 555.2 |       |       |       | 3.9    | %    |          |          | 9.4  | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Depreciation & amortization                          |                                       |                             | 38.5                |       |         |       | 32.8  |       |         |       | 29.1  |       |       |       | 18.3   | %    |          |          | 12.7 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Restructuring & other unusual charges                |                                       |                             |                    |       |         |       | 7.9   |       |         |       | 8.0   |       |       |       | (100.0 | %)   |          |          | (1.3 | %)  
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|                                                     |                                       | Operating income            |                     | $     | 34.6    |       |       | $     | 52.4    |       |       | $     | 63.0  |       |        |      | (34.0    | %)       |      |      | (16.8 | %)
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|Percentage of Net Revenue-                          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gross margin                          |                             |                     | 66.2  | %       |       |       | 65.8  | %       |       |       | 65.8  | %     |       |        | 0.4  |          |          |      | 0.0  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating expenses                    |                             |                     | 59.3  |         |       |       | 57.1  |         |       |       | 55.8  |       |       |        | 2.2  |          |          |      | 1.3  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation & amortization           |                             |                     | 3.7   |         |       |       | 3.1   |         |       |       | 2.9   |       |       |        | 0.6  |          |          |      | 0.2  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Restructuring & other unusual charges |                             |                     |      |         |       |       | 0.7   |         |       |       | 0.8   |       |       |        | (0.7 | )        |          |      | (0.1 | )    
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|                                                     |                                       | Operating income            |                     |       | 3.2     | %     |       |       | 4.9     | %     |       |       | 6.3   | %     |        |      | (1.7     | )        |      |      | (1.4  | ) 
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|Number of Retail Locations
at the End of the Period-
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Cole Licensed Brands        |                     |       | 1,056   |       |       |       | 1,186   |       |       |       | 1,157 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Pearle company-owned        |                     |       | 454     |       |       |       | 471     |       |       |       | 444   |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Pearle franchised           |                     |       | 416     |       |       |       | 409     |       |       |       | 401   |      
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|                                                     |                                       |                             | Total Cole Vision   |       |         | 1,926 |       |       |         | 2,066 |       |       |       | 2,002 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Things Remembered           |                     |       | 796     |       |       |       | 818     |       |       |       | 831   |      
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|                                                     |                                       |                             | Total Cole National |       |         | 2,722 |       |       |         | 2,884 |       |       |       | 2,833 |       
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      
|Comparable Store Sales Growth-                      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Cole Licensed Brands (U.S.) |                     |       | (2.7    | )%    |       |       | 2.9     | %     |       |       | 6.1   | %    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Pearle company-owned (U.S.) |                     |       | (5.5    | )     |       |       | (1.5    | )     |       |       | 2.5   |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       |                             | Total Cole Vision   |       |         | (3.5  | )     |       |         | 1.6   |       |       |       | 5.9   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       | Things Remembered           |                     |       | 7.2     |       |       |       | 7.4     |       |       |       | (0.5  | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                       |                             | Total Cole National |       |         | (0.8  | )%    |       |         | 3.1   | %     |       |       | 3.6   | %     
|                                                     |                                       |                             |                     |       |         |       |       |       |         |       |       |      

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##### Table of Contents



Fiscal 1999 Compared to Fiscal 1998

The softness in consolidated net revenue for fiscal 1999 was primarily
attributable to the decrease in consolidated comparable store sales at Cole
Vision. Sales at Cole Licensed Brands have been negatively impacted by a
competitive promotional environment. Licensed Brands response, which began at
the end of the second quarter, produced an improvement in the second half sales
trend as comparable store sales were nearly flat to last year. Sales this year
at Pearle have also been impacted by the competitive promotional environment
and Pearles focus, earlier in the year, on long-term, brand-building in its
advertising campaign, as well as operating and systems issues that the Company
is addressing. Pearle refocused its marketing efforts to become more
promotional beginning in the second quarter. Pearle achieved some improvement
in comparable store sales trends during the fourth quarter. Pearle comparable
store sales for the fourth quarter of fiscal 1999 were a negative 3.0% as
compared to a full-year comparable store sales of negative 5.5%. The sales
decrease at Cole Vision reflected a lower average selling price for spectacles
and contact lenses due primarily to more promotional pricing. At Things
Remembered, the comparable store sales increase reflected increased sales of
additional personalization and new merchandise at higher average unit retails,
along with the benefits from marketing directly to its existing customer base.
The total number of transactions at Things Remembered was slightly behind a
year ago. During the fiscal year, the Company (including franchised locations)
opened a total of 115 new locations and closed 277 locations, including 150
optical departments at Montgomery Ward stores.

The gross profit improvement in fiscal 1999 compared to fiscal 1998 was
primarily attributable to increased revenue at Things Remembered and inventory
markdowns at Pearle in 1998, partially offset by lower revenue at Cole Vision.
Excluding the 1998 inventory markdowns at Pearle, gross margin at Cole Vision
declined 0.5 percentage points to 64.6% in fiscal 1999 and consolidated margins
were 66.2% and 66.3% in fiscal 1999 and 1998, respectively. The lower gross
margin at Cole Vision was primarily due to the impact of more promotional
pricing and lower margins on contact lenses. In addition, the integration of
new manufacturing and merchandise/inventory management systems with Pearles
existing warehouse management system resulted in manufacturing and distribution
inefficiencies that led to increased costs and lost sales in the third and
fourth quarters of fiscal 1999. Progress has been made to date in bringing the
system up to pre-installation expectations, however some continuing
inefficiencies are expected to have a negative impact on fiscal 2000. Gross
margin at Things Remembered improved 0.4 percentage points to
71.4% in fiscal 1999,
benefiting from increased sales of additional personalization and higher
margins from new products.

The unfavorable leverage in operating expenses for the fiscal year was
primarily attributable to a 0.8 percentage point increase in payroll costs, a
1.4 percentage point increase in managed vision care costs and a 0.4 percentage
point increase in net advertising expenditures. The unfavorable payroll
leverage was primarily due to the comparable store sales decrease at Cole
Vision and staffing increases in managed vision care, partly offset by payroll
leverage gains on the sales increase at Things Remembered. The increase in
managed vision care expenses was primarily attributable to growth in call and
claims volumes associated with increases in sponsor-funded programs. The
unfavorable advertising leverage was due to increased advertising at Cole
Licensed Brands in response to the competitive pricing environment, partly
offset by reduced spending at Pearle. Depreciation and amortization expense
increases were attributable to increases in amortization of systems development
and software plus certain charges to recognize asset impairments in accordance
with Statement of Financial Accounting Standards (SFAS) No. 121.

The decrease in income from operations was primarily the result of the
decrease in net revenue and the increases in operating expenses and
depreciation and amortization. Interest and other income includes the
recognition of $6.0 million of income in the third quarter of fiscal 1998 from
a nontaxable cash settlement with the former owner of Pearle. Excluding the
Pearle settlement, net interest and other expense in fiscal 1999 decreased
slightly from fiscal 1998.

Net interest expense and other income for fiscal 1999 of $26.7 million
increased $5.6 million compared to fiscal 1998. The increase 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 non-taxable settlement of
certain contingencies related to several claims against and indemnifications
from the former owner of Pearle. Excluding this settlement, interest and other
income increased by $0.4 million, offset by a slight increase in interest
expense.

The effective income tax rate was 47.4% in fiscal 1999. The income tax
provision for fiscal 1998 includes $7.4 million of income tax benefits related
to the charges for restructuring and other unusual items. The effective rate on
income excluding these charges and the $6.0 million settlement included in
other income was 41.0% in fiscal 1998. The

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effective income tax rates reflect 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 the Notes to Consolidated Financial Statements.

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 2.9% increase at Cole Licensed Brands partially offset by a
1.5% 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 $607.0 million in fiscal 1998 from
$555.2 million in fiscal 1997. As a percentage of revenue, operating expenses
were 57.1% in fiscal 1998 compared to 55.8% 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 of 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.

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 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

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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 included $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.

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 write-off 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 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 were 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

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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 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 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 was 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 months. As a result of the revised plan, the expected cost of
closure was 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.

In the fourth quarter of fiscal 1999, the Company determined that it no
longer planned to remove any labs from Pearle stores. Since there were no
costs accrued at January 30, 1999 related to closing of any in-store labs, this
revision had no effect on the restructuring reserves in fiscal 1999. At the
end of fiscal 1999, $0.1 million of the reserve relating to facilities
relocations was reserved into income.

For the restructuring charges recorded in 1996, 1997 and 1998 and 2000
approximately $29.4 million represented non-cash charges and $41.2 million
represented cash outlays through January 29, 2000, 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 29, 2000, there were no balances
remaining in the restructure reserves.

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.

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Year 2000

During fiscal 1999, Cole National Group completed the implementation of
its Year 2000 Readiness Program. As a result, no significant systems
interruptions or business losses were experienced in fiscal 1999 or to date in
fiscal 2000.

Management estimates the total cost of the Year 2000 Readiness Program was
$4.2 million, including approximately $1.0 million of new hardware and software
that has been capitalized. The remaining $3.2 million was 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, were not tracked separately
for the Year 2000 Readiness Program.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities (as amended by SFAS No. 137).
SFAS No. 133 must first be applied in the first quarter of fiscal years that
begin after June 15, 2000 (the first quarter of fiscal 2001 for the Company)
and in general requires that entities recognize all derivative financial
instruments as assets or liabilities, measured at fair value, and include in
earnings the changes in the fair value of such assets and liabilities in either
operations or comprehensive income (loss). The Company does not presently
utilize derivative instruments, either for hedging or other purposes, and
therefore it is expected that the adoption of the requirements of SFAS No. 133
will not impact the Companys financial statements.

Recent Developments and Forward-Looking Information

In March 2000, the Company launched the reorganization of the operating
structure of its optical business. It is believed that an essential ingredient
to improved sales and profitability of the Companys vision segment is the
creation of distinct organizations that are dedicated to serving the needs of
their respective customers. Pearle and Licensed Brands will be managed as
independent business units, each of which has been strengthened by the addition
of merchandising, manufacturing, distribution and finance responsibilities.

The Company expects results in the first two quarters of fiscal 2000 to be
below last year from continuing softness of sales at Pearle as well as start up
expenses associated with the opening of an increased number of Target Optical
stores. The first quarter of fiscal 2000 will also be impacted by severance
costs incurred as a result of a personnel reduction at Cole Vision in March
2000. On a full year basis, it is expected that the severance costs incurred
will be offset by savings due to the headcount reductions.

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 continuing restructuring and
improvements in the operations of the integration of acquired operations, the
ability to select stock merchandise attractive to customers, competition in the
optical industry, 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.

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Item 8. Financial Statements and Supplementary Data

Information required by this Item appears on pages F-1 through F-24 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.







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-4.                                                                                                                                                                                                          
|              
|(b)            |  | Reports on Form 8-K
Report on Form 8-K dated November 24, 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.

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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 28, 2000 |  | By: /s/ William P. Lahiff, Jr.                      
|               |  |                                                     
|               |  | William P. Lahiff, Jr.
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.

|                                                  |  |                                                                                    |  |               
|------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|*
Jeffrey A. Cole                                 |  | Chairman and Chief Executive Officer
and Director (Principal Executive Officer)    |  | April 28, 2000
|                                                 
|*
Larry Pollock                                   |  | President and Chief Operating Officer
and Director                                 |  | April 28, 2000
|                                                 
|*
Thomas T.S. Kaung                               |  | Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |  | April 28, 2000
|                                                 
|/s/ William P. Lahiff, Jr.
William P. Lahiff, Jr. |  | Vice President and Controller
(Principal Accounting Officer)                       |  | April 28, 2000
|                                                 
|*
Timothy F. Finley                               |  | Director                                                                           |  | April 28, 2000
|                                                 
|*
Irwin N. Gold                                   |  | Director                                                                           |  | April 28, 2000
|                                                 
|*
Peter V. Handal                                 |  | Director                                                                           |  | April 28, 2000
|                                                 
|*
Charles A. Ratner                               |  | Director                                                                           |  | April 28, 2000
|                                                 
|*
Walter J. Salmon                                |  | Director                                                                           |  | April 28, 2000



| |  | 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/ William P. Lahiff, Jr.
William P. Lahiff , Jr., Attorney-in-Fact

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

|                                                                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                |  | Page
|                                                                                                                                                                |  |     
|Report of Independent Public Accountants                                                                                                                        |  | F-2 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999                                                                                         |  | F-3 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Consolidated Statements of
Operations for the 52 weeks ended January 29, 2000,
January 30, 1999, and January 31, 1998                                           |  | F-4 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Consolidated Statements of Cash Flows for the 52 weeks ended January 29, 2000,
January 30, 1999, and January 31, 1998                                           |  | F-5 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Consolidated Statements of Stockholders Equity and Comprehensive Income
(Loss) for the 52 weeks ended January 29, 2000, January 30, 1999, and
January 31, 1998 |  | F-6 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Notes to Consolidated Financial Statements                                                                                                                      |  | F-7 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Financial Statement Schedules:                                                                                                                                 
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Report of Independent Public Accountants on the Financial Statement Schedules                                                                                   |  | F-20
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Schedule I  Condensed Financial Information of Registrant                                                                                                      |  | F-21
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|                                                                                                                                                               
|Schedule II  Valuation and Qualifying Accounts F- 27                                                                                                           |  | F-24

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

F-1



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##### Table of Contents









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
29, 2000 and January 30, 1999, and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss) and cash flows
for each of the three years in the period ended January 29, 2000. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 29, 2000 and January 30,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended January 29, 2000 in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Cleveland, Ohio
March 23, 2000.

F-2



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##### Table of Contents









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

|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |          |        |         | 
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------ | -------- | ----------- | ------- | ----------- | -------- | ------ | ------- | 
|                                                    |                                                                                                |                                                            |                                            |          | January 29, |         | January 30,
|                                                    |                                                                                                |                                                            |                                            |          | 2000        |         | 1999       
|                                                    |                                                                                                |                                                            |                                            |          |             |         |            
|Assets                                             
|Current assets:                                    
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Cash and temporary cash investments                                                            |                                                            | $                                          | 28,953   |             |         | $           | 51,057   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts receivable, less allowance for doubtful accounts of
$7,557 in 1999 and $7,189 in 1998 |                                                            |                                            | 41,650   |             |         |             | 45,302   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Current portion of notes receivable                                                            |                                                            |                                            | 4,917    |             |         |             | 2,707    |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Refundable income taxes                                                                        |                                                            |                                            |         |             |         |             | 1,113    |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Inventories                                                                                    |                                                            |                                            | 116,514  |             |         |             | 119,881  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Prepaid expenses and other                                                                     |                                                            |                                            | 6,942    |             |         |             | 8,520    |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred income tax benefits                                                                   |                                                            |                                            | 4,594    |             |         |             | 13,742   |       
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|                                                    |                                                                                                |                                                            | Total current assets                       |          |             | 203,570 |             |          |        | 242,322 | 
|                                                   
|Property and equipment, at cost                     |                                                                                                |                                                            | 252,625                                    |          |             |         | 246,597     |         
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Less  accumulated depreciation and amortization                                               |                                                            |                                            | (140,791 | )           |         |             | (134,195 | )     
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|                                                    |                                                                                                |                                                            | Total property and equipment, net          |          |             | 111,834 |             |          |        | 112,402 | 
|                                                   
|                                                    | Notes receivable, excluding current portion and less reserves for                             
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                                | uncollectible amounts of $4,196 in 1999 and $5,181 in 1998 |                                            |          | 10,550      |         |             |          | 12,728 |        
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Deferred income taxes and other assets                                                         |                                                            |                                            | 60,175   |             |         |             | 51,555   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Intangible assets, net                                                                         |                                                            |                                            | 157,399  |             |         |             | 159,698  |       
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|                                                    |                                                                                                |                                                            | Total assets                               |          | $           | 543,528 |             |          | $      | 578,705 | 
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|Liabilities and
Stockholders Equity               
|Current liabilities:                               
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Current portion of long-term debt                                                              |                                                            | $                                          | 585      |             |         | $           | 407      |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accounts payable                                                                               |                                                            |                                            | 58,514   |             |         |             | 70,125   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Payable to affiliates, net                                                                     |                                                            |                                            | 63,589   |             |         |             | 69,060   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued interest                                                                               |                                                            |                                            | 6,090    |             |         |             | 6,216    |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued liabilities                                                                            |                                                            |                                            | 70,802   |             |         |             | 93,003   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accrued income taxes                                                                           |                                                            |                                            | 178      |             |         |             | 131      |       
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|                                                    |                                                                                                |                                                            | Total current liabilities                  |          |             | 199,758 |             |          |        | 238,942 | 
|                                                   
|Long-term debt, net of discount and current portion |                                                                                                |                                                            | 274,210                                    |          |             |         | 274,706     |         
|                                                   
|Other long-term liabilities                         |                                                                                                |                                                            | 16,611                                     |          |             |         | 16,811      |         
|                                                   
|Stockholders equity:                              
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Common stock                                                                                   |                                                            |                                            |         |             |         |             |         |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Paid-in capital                                                                                |                                                            |                                            | 195,162  |             |         |             | 195,139  |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accumulated other comprehensive loss                                                           |                                                            |                                            | (117     | )           |         |             | (657     | )     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Accumulated deficit                                                                            |                                                            |                                            | (142,096 | )           |         |             | (146,236 | )     
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|                                                    |                                                                                                |                                                            | Total stockholders equity                 |          |             | 52,949  |             |          |        | 48,246  | 
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         
|                                                    |                                                                                                |                                                            | Total liabilities and stockholders equity |          | $           | 543,528 |             |          | $      | 578,705 | 
|                                                    |                                                                                                |                                                            |                                            |          |             |         |             |         

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

F-3



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##### Table of Contents









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

|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |         |         | 
|--------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------- | --------- | -------------- | --------- | ----------- | --------- | ----------- | --------- | - | ------- | ------- | ------- | 
|                                                                                        |                                                       |                                           |           | 52 Weeks Ended
|                                                                                        |                                                       |                                           |           |               
|                                                                                        |                                                       |                                           |           | January 29,    |           | January 30, |           | January 31,
|                                                                                        |                                                       |                                           |           | 2000           |           | 1999        |           | 1998       
|                                                                                        |                                                       |                                           |           |                |           |             |           |            
|Net revenue                                                                             |                                                       | $                                         | 1,063,577 |                |           | $           | 1,064,235 |             |           | $ | 996,164 |        
|                                                                                       
|Costs of goods sold                                                                     |                                                       |                                           | 359,703   |                |           |             | 364,090   |             |           |   | 340,849 |        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Operating expenses                                                                      |                                                       |                                           | 630,829   |                |           |             | 607,103   |             |           |   | 555,246 |        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Depreciation and amortization                                                           |                                                       |                                           | 38,485    |                |           |             | 32,803    |             |           |   | 29,058  |        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Restructuring and other unusual charges                                                 |                                                       |                                           |          |                |           |             | 7,873     |             |           |   | 8,000   |        
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|                                                                                        |                                                       | Total costs and expenses                  |           |                | 1,029,017 |             |           |             | 1,011,869 |   |         |         | 933,153 | 
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|                                                                                       
|Operating income                                                                        |                                                       |                                           | 34,560    |                |           |             | 52,366    |             |           |   | 63,011  |        
|                                                                                       
|Interest and other (income) expense:                                                   
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Interest expense                                      |                                           |           | 27,405         |           |             |           | 27,354      |           |   |         | 30,112  |        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Interest and other income                             |                                           |           | (722           | )         |             |           | (6,283      | )         |   |         | (1,605  | )      
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|                                                                                        |                                                       | Total interest and other (income) expense |           |                | 26,683    |             |           |             | 21,071    |   |         |         | 28,507  | 
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|                                                                                       
|                                                                                        | Income from continuing operations before income taxes |                                           |           | 7,877          |           |             |           | 31,295      |           |   |         | 34,504  |        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Income tax provision                                                                    |                                                       |                                           | 3,737     |                |           |             | 11,960    |             |           |   | 14,915  |        
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|Income from continuing operations                                                       |                                                       |                                           | 4,140     |                |           |             | 19,335    |             |           |   | 19,589  |        
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|                                                                                       
|Discontinued operations:                                                               
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Operating loss, net of income tax benefit of $39      |                                           |           |               |           |             |           |            |           |   |         | (67     | )      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Loss on disposal, net of income tax benefit of $8,500 |                                           |           |               |           |             |           |            |           |   |         | (13,900 | )      
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|                                                                                        | Loss from discontinued operations                     |                                           |           |               |           |             |           |            |           |   |         | (13,967 | )      
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|Income before extraordinary item                                                        |                                                       |                                           | 4,140     |                |           |             | 19,335    |             |           |   | 5,622   |        
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Extraordinary loss on early extinguishment of debt, net of
income tax benefit of $7,467 |                                                       |                                           |          |                |           |             |          |             |           |   | (12,183 | )      
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        
|Net income (loss)                                                                       |                                                       | $                                         | 4,140     |                |           | $           | 19,335    |             |           | $ | (6,561  | )      
|                                                                                        |                                                       |                                           |           |                |           |             |           |             |           |   |         |        

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

F-4



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##### Table of Contents









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

|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |   |          |         |  
|------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | - | -------------- | ------- | ----------- | - | ----------- | ------- | - | - | -------- | ------- | -
|                                      |                                                                                          |                                                                     |                                                                                         |   | 52 Weeks Ended
|                                      |                                                                                          |                                                                     |                                                                                         |   |               
|                                      |                                                                                          |                                                                     |                                                                                         |   | January 29,    |         | January 30, |   | January 31,
|                                      |                                                                                          |                                                                     |                                                                                         |   | 2000           |         | 1999        |   | 1998       
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |            
|Cash flows from operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Net income (loss)                                                   |                                                                                         | $ | 4,140          |         |             | $ | 19,335      |         |   | $ | (6,561   | )      
|                                     
|                                     
|                                     
|                                     
|                                      | 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                                       |                                                                                         |   | 38,485         |         |             |   | 32,803      |         |   |   | 29,058   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Restructuring and other unusual charges                             |                                                                                         |   |               |         |             |   | 4,778       |         |   |   | 546      |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Non-cash interest, net                                              |                                                                                         |   | 1,050          |         |             |   | 1,054       |         |   |   | 961      |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Deferred income tax provision                                       |                                                                                         |   | 3,239          |         |             |   | 16,221      |         |   |   | 12,966   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Change in assets and liabilities, net of effects from
acquisitions:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                     | Decrease (increase) in accounts and notes receivable,
prepaid expenses and other assets |   |                | 4,871   |             |   |             | 11,809  |   |   |          | (11,399 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                     | Decrease (increase) in inventories                                                      |   |                | 3,367   |             |   |             | (4,404  | ) |   |          | (11,222 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                     | Decrease in net assets of discontinued operations                                       |   |                |        |             |   |             |        |   |   |          | 19,926  |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                     | Decrease in accounts payable, accrued liabilities
and other liabilities                 |   |                | (32,481 | )           |   |             | (21,656 | ) |   |          | (9,560  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                     | Decrease in accrued interest                                                            |   |                | (126    | )           |   |             | (399    | ) |   |          | (3,015  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          |                                                                     | Increase (decrease) in accrued, refundable and
deferred income taxes                    |   |                | 1,559   |             |   |             | 895     |   |   |          | (749    | )
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                      |                                                                                          |                                                                     | Net cash provided by operating activities                                               |   |                | 24,104  |             |   |             | 60,436  |   |   |          | 33,134  |  
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                     
|Cash flows from investing activities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Purchase of property and equipment, net                             |                                                                                         |   | (25,877        | )       |             |   | (27,914     | )       |   |   | (32,634  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Proceeds from sale/leaseback, net                                   |                                                                                         |   |               |         |             |   | 8,835       |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Acquisitions of businesses, net                                     |                                                                                         |   | (2,956         | )       |             |   | (7,231      | )       |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Systems development costs                                           |                                                                                         |   | (13,639        | )       |             |   | (16,802     | )       |   |   | (17,922  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Other, net                                                          |                                                                                         |   | 338            |         |             |   | 312         |         |   |   | (894     | )      
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                      |                                                                                          |                                                                     | Net cash used by investing activities                                                   |   |                | (42,134 | )           |   |             | (42,800 | ) |   |          | (51,450 | )
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                     
|Cash flows from financing activities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Repayment of long-term debt                                         |                                                                                         |   | (409           | )       |             |   | (15,095     | )       |   |   | (169,839 | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Payment of deferred financing fees                                  |                                                                                         |   |               |         |             |   |            |         |   |   | (3,191   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Advances from (to) affiliates, net                                  |                                                                                         |   | (3,848         | )       |             |   | (19,246     | )       |   |   | 61,614   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Proceeds from long-term debt, net                                   |                                                                                         |   |               |         |             |   |            |         |   |   | 125,000  |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Other, net                                                          |                                                                                         |   | 183            |         |             |   | (227        | )       |   |   | (420     | )      
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                      |                                                                                          |                                                                     | Net cash provided (used) by financing activities                                        |   |                | (4,074  | )           |   |             | (34,568 | ) |   |          | 13,164  |  
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                     
|Cash and temporary cash investments: 
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Net decrease during the period                                      |                                                                                         |   | (22,104        | )       |             |   | (16,932     | )       |   |   | (5,152   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                          | Balance, beginning of the period                                    |                                                                                         |   | 51,057         |         |             |   | 67,989      |         |   |   | 73,141   |        
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  
|                                      |                                                                                          | Balance, end of the period                                          |                                                                                         | $ | 28,953         |         |             | $ | 51,057      |         |   | $ | 67,989   |        
|                                      |                                                                                          |                                                                     |                                                                                         |   |                |         |             |   |             |         |   |  

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

F-5



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##### Table of Contents









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

|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |          |  
|---------------------------------------------- | ------------------------------------------------- | - | ----------- | -------- | ----------- | - | ----------- | -------- | - | - | ------ | -------- | -
|                                               |                                                   |   | January 29, |          | January 30, |   | January 31,
|                                               |                                                   |   | 2000        |          | 1999        |   | 1998       
|                                               |                                                   |   |             |          |             |   |            
|Common Stock:                                 
|                                              
|                                              
|                                              
|                                              
|                                               | Balance at beginning of period                    |   | $           |         |             |   | $           |         |   |   | $      |         |  
|                                              
|                                              
|                                              
|                                              
|                                               | Balance at end of period                          |   |             |         |             |   |             |         |   |   |        |         |  
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                              
|Paid In Capital:                              
|                                              
|                                              
|                                              
|                                              
|                                               | Balance at beginning of period                    |   |             | 195,139  |             |   |             | 193,560  |   |   |        | 122,681  |  
|                                              
|                                              
|                                              
|                                              
|                                               | Tax benefit of stock option exercises             |   |             | 23       |             |   |             | 1,579    |   |   |        | 755      |  
|                                              
|                                              
|                                              
|                                              
|                                               | Capital contribution by Cole National Corporation |   |             |         |             |   |             |         |   |   |        | 70,124   |  
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                               | Balance at end of period                          |   |             | 195,162  |             |   |             | 195,139  |   |   |        | 193,560  |  
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                              
|Accumulated Deficit:                          
|                                              
|                                              
|                                              
|                                              
|                                               | Balance at beginning of period                    |   |             | (146,236 | )           |   |             | (165,571 | ) |   |        | (159,010 | )
|                                              
|                                              
|                                              
|                                              
|                                               | Net income (loss)                                 |   |             | 4,140    |             |   |             | 19,335   |   |   |        | (6,561   | )
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                               | Balance at end of period                          |   |             | (142,096 | )           |   |             | (146,236 | ) |   |        | (165,571 | )
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                              
|Accumulated Other Comprehensive Income (Loss):
|                                              
|                                              
|                                              
|                                              
|                                               | Balance at beginning of period                    |   |             | (657     | )           |   |             | (436     | ) |   |        | (26      | )
|                                              
|                                              
|                                              
|                                              
|                                               | Other comprehensive income (loss)                 |   |             | 540      |             |   |             | (221     | ) |   |        | (410     | )
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                               | Balance at end of period                          |   |             | (117     | )           |   |             | (657     | ) |   |        | (436     | )
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                              
|Total Stockholders Equity                     |                                                   | $ | 52,949      |          |             | $ | 48,246      |          |   | $ | 27,553 |         
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|Comprehensive Income (Loss):                  
|                                              
|                                              
|                                              
|                                              
|                                               | Net income (loss)                                 |   | $           | 4,140    |             |   | $           | 19,335   |   |   | $      | (6,561   | )
|                                              
|                                              
|                                              
|                                              
|                                               | Cumulative translation adjustment                 |   |             | 540      |             |   |             | (221     | ) |   |        | (410     | )
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         
|                                               | Total comprehensive income (loss)                 |   | $           | 4,680    |             |   | $           | 19,114   |   |   | $      | (6,971   | )
|                                               |                                                   |   |             |          |             |   |             |          |   |   |        |         

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

F-6



---



##### Table of Contents









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). 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 1999, 1998 and 1997 each consisted of 52-week periods.                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Nature of Operations -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | The Company 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 2,306 company-owned retail locations and 416
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. The Company 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
Equipment
Furniture and fixtures
Leasehold improvements |  | 5 to 40 years
3 to 10 years
2 to 10 years
2 to 20 years



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Property and equipment, at cost, consist of the following at January
29, 2000 and January 30, 1999 (000s omitted):

|                                  |                              |   |         |         |      |   |         |         | 
|--------------------------------- | ---------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | 
|                                  |                              |   | 2000    |         | 1999
|                                  |                              |   |         |         |     
|Land and buildings                |                              | $ | 13,691  |         |      | $ | 14,164  |        
|                                 
|                                 
|                                 
|                                 
|Furniture, fixtures and equipment |                              |   | 153,294 |         |      |   | 151,602 |        
|                                 
|                                 
|                                 
|                                 
|Leasehold improvements            |                              |   | 85,640  |         |      |   | 80,831  |        
|                                  |                              |   |         |         |      |   |         |        
|                                  | Total property and equipment |   | $       | 252,625 |      |   | $       | 246,597 | 
|                                  |                              |   |         |         |      |   |         |        



| |                         
| | ------------------------
| | Store Opening Expenses -



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Store opening expenses are charged to operations in the period the
expenses are incurred.



| |                   
| | ------------------
| | Notes Receivable -



| |                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys notes receivable are primarily from Pearles
franchisees throughout the United States. 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.

F-7



---



##### Table of Contents





| |                    
| | -------------------
| | Intangible Assets -



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Intangible assets, net, consist of the following at January 29,
2000 and January 30, 1999 (000s omitted):

|           |  |      |         |      |  |   |         | 
|---------- |  | ---- | ------- | ---- |  | - | ------- | 
|           |  | 2000 |         | 1999
|           |  |      |         |     
|Tradenames |  | $    | 45,489  |      |  | $ | 46,725  | 
|          
|          
|          
|          
|Goodwill   |  |      | 111,910 |      |  |   | 112,973 | 
|           |  |      |         |      |  |   |         | 
|           |  | $    | 157,399 |      |  | $ | 159,698 | 
|           |  |      |         |      |  |   |         | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 $3,972,000 and $2,735,000
at January 29, 2000 and January 30, 1999, respectively.                                                                                                                                                                                                                                                                                                                                 
|
| | Goodwill is being amortized on a straight-line basis over periods
from 10 to 40 years, based on managements assessment of the estimated
useful life, and is presented net of accumulated amortization of
$41,615,000 and $37,880,000 at January 29, 2000 and January 30, 1999,
respectively. Management regularly evaluates its accounting for
goodwill considering primarily such factors as historical
profitability, current operating profits and cash flows. The Company
believes that, at January 29, 2000, the assets are realizable and the
amortization periods are 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.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Direct costs to develop or obtain internal use software, including
internal costs, are capitalized in other assets and amortized over the
estimated useful life of the software using a straight-line method.
Amortization periods range from two to seven years, and begin when the
software is placed in service. At January 29, 2000 and January 30,
1999, these costs, net of accumulated amortization, were $38,127,000
and $34,267,000, 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.                                                                                                                                                                                                                                                                          
|
| | Capital Stock -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | At January 29, 2000 and January 30, 1999, 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 the Company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.                                                                                                                                                                                                                          

F-8



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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 the Company 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):                                                                                                                                                  

|                              |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                              |  | 1999 |         | 1998 |  | 1997
|                              |  |      |         |      |  |     
|Gross advertising expense     |  | $    | 88,525  |      |  | $    | 82,492  |   |  | $ | 74,553  |  
|                             
|                             
|                             
|                             
|Less: Franchisee contribution |  |      | (19,930 | )    |  |      | (20,244 | ) |  |   | (19,656 | )
|                              |  |      |         |      |  |      |         |   |  |   |         |  
|Net advertising expense       |  | $    | 68,595  |      |  | $    | 62,248  |   |  | $ | 54,897  |  
|                              |  |      |         |      |  |      |         |   |  |   |         |  



| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Earnings Per Share -                                                                                                                                                                                                                                                                                        
|
| | Earnings per share and weighted average number of common shares
outstanding data for 1999, 1998 and 1997 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):                                                                                                                                                                                    

|             |  |      |        |      |  |      |        |  |  |   |        | 
|------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|             |  | 1999 |        | 1998 |  | 1997
|             |  |      |        |      |  |     
|Income taxes |  | $    | 623    |      |  | $    | 1,644  |  |  | $ | 4,889  | 
|            
|            
|            
|            
|Interest     |  |      | 26,229 |      |  |      | 25,900 |  |  |   | 33,429 | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During fiscal 1999, 1998 and 1997, non-cash financing activities
included incurring $- 0 -, $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 1999 or 1998.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Use of Estimates -                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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.

F-9



---



##### Table of Contents





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



|(2) |  | Acquisitions and Dispositions of Businesses
|--- |  | -------------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company made the following acquisitions, each of which has
been accounted for under the purchase method of accounting, including
any contingent payments that may be made in the future. Pro forma
financial results have not been presented for these acquisitions, as
they did not have a material effect on results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | During the third quarter of fiscal 1999, the Company acquired
MetLifes managed vision care benefits business. The business
consists of vision care contracts with approximately 250
institutional customers and generates approximately $15.0 million
of revenue annually. The initial purchase price totaled $2.0
million, with additional amounts contingently due upon certain
conditions being met over the next four years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | In fiscal 1998, the Company 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 the fourth quarter of fiscal 1999, the Company announced its
plan to close the 150 optical departments in Montgomery Ward stores.
The closings, which were completed by the end of fiscal 1999, resulted
in a pretax loss of $2.0 million, consisting primarily of inventory and
fixed asset write-offs. The after tax cash cost of the closings was
not significant. Annual revenues in fiscal 1999 for the Wards Optical
Departments were $21.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



|(3) |  | Restructuring and Other Unusual Items
|--- |  | -------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the fourth quarter of fiscal 1998, the Company 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 planned 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. The 1998 plan
identified 26 stores to be closed and 226 stores from which surfacing
equipment would be
removed. As a result, $12.3 million of previously established accruals
have been reversed into income as a restructuring credit.

F-10



---



##### Table of Contents





| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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):

|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |      |  
|---------------------------------- | ------------------------------ | - | -------- | --- | --------- | - | --------- |  | ---- | - | ------------------ | ---- | ------- | - | ---- | - | ------------------ | - | ---- | --- |  | - | ---- | ---- | - | - | ---- | - |  | - | ----- | ---- | -
|                                   |                                |   |          |     |           |   |           |  |      |   | Charges to Reserve |      |         |   |      |   | Charges to Reserve
|                                   |                                |   |          |     |           |   | Remaining |  | 1997 |   | Remaining          |      | 1998   
|                                   |                                |   | Original |     | Reserve   |   |           |  |      |   | Non-               |      | Reserve |   |      |   |                    |   | Non-
|                                   |                                |   | Charge   |     | at 2/1/97 |   | Cash      |  | Cash |   | at 1/31/98         |      | Cash    |   | Cash |   | Reversal          
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                   
|1996 Charge                       
|                                  
|                                  
|                                  
|                                  
|Store and other
facilities closing |                                | $ | 17.6     |     |           | $ | 17.4      |  |      | $ | (0.6               | )    |         | $ | (0.2 | ) |                    | $ | 16.6 |     |  | $ | (0.4 | )    |   | $ | (5.7 | ) |  | $ | (9.5  | )   
|                                  
|                                  
|                                  
|                                  
|Computer systems                   |                                |   | 21.6     |     |           |   | 17.1      |  |      |   | (12.6              | )    |         |   |     |   |                    |   | 4.5  |     |  |   | (4.0 | )    |   |   | (0.5 | ) |  |   |      |     
|                                  
|                                  
|                                  
|                                  
|Asset impairment                   |                                |   | 6.1      |     |           |   |          |  |      |   |                   |      |         |   |     |   |                    |   |     |     |  |   |     |      |   |   |     |   |  |   |      |     
|                                  
|                                  
|                                  
|                                  
|Other                              |                                |   | 15.8     |     |           |   | 4.2       |  |      |   | (3.5               | )    |         |   |     |   |                    |   | 0.7  |     |  |   | (0.2 | )    |   |   |     |   |  |   | (0.5  | )   
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |     
|Total                              |                                | $ | 61.1     |     |           | $ | 38.7      |  |      | $ | (16.7              | )    |         | $ | (0.2 | ) |                    | $ | 21.8 |     |  | $ | (4.6 | )    |   | $ | (6.2 | ) |  | $ | (10.0 | )   
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |     
|1997 Charge                       
|                                  
|                                  
|                                  
|                                  
|Store and other
facilities closing |                                | $ | 2.5      |     |           |   |           |  |      | $ |                   |      |         | $ |     |   |                    | $ | 2.5  |     |  | $ | (0.4 | )    |   | $ |     |   |  | $ | (2.1  | )   
|                                  
|                                  
|                                  
|                                  
|Severance                          |                                |   | 0.9      |     |           |   |           |  |      |   | (0.1               | )    |         |   |     |   |                    |   | 0.8  |     |  |   | (1.0 | )    |   |   |     |   |  |   | 0.2   |     
|                                  
|                                  
|                                  
|                                  
|Operating costs and
losses         |                                |   | 1.7      |     |           |   |           |  |      |   | (1.6               | )    |         |   | (0.1 | ) |                    |   |     |     |  |   |     |      |   |   |     |   |  |   |      |     
|                                  
|                                  
|                                  
|                                  
|                                   | Marketing and brand conversion |   |          | 1.5 |           |   |           |  |      |   |                    | (0.6 | )       |   |      |  |                    |   |      | 0.9 |  |   |      | (0.7 | ) |   |      |  |  |   |       | (0.2 | )
|                                  
|                                  
|                                  
|                                  
|Other                              |                                |   | 1.4      |     |           |   |           |  |      |   | (0.8               | )    |         |   |     |   |                    |   | 0.6  |     |  |   | (0.2 | )    |   |   | (0.2 | ) |  |   | (0.2  | )   
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |     
|Total                              |                                | $ | 8.0      |     |           |   |           |  |      | $ | (3.1               | )    |         | $ | (0.1 | ) |                    | $ | 4.8  |     |  | $ | (2.3 | )    |   | $ | (0.2 | ) |  | $ | (2.3  | )   
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |     
|1998 Charge                       
|                                  
|                                  
|                                  
|                                  
|Facilities relocations             |                                | $ | 2.6      |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  | $ | (0.5 | )    |   | $ | (0.5 | ) |  | $ |      |     
|                                  
|                                  
|                                  
|                                  
|Inventory                          |                                |   | 5.2      |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |     |      |   |   | (5.2 | ) |  |   |      |     
|                                  
|                                  
|                                  
|                                  
|Marketing and brand
conversion     |                                |   | 2.3      |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   | (0.2 | )    |   |   |     |   |  |   |      |     
|                                  
|                                  
|                                  
|                                  
|Professional fees                  |                                |   | 1.9      |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   | (0.8 | )    |   |   | (0.1 | ) |  |   |      |     
|                                  
|                                  
|                                  
|                                  
|Severance/hiring                   |                                |   | 1.9      |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   | (0.5 | )    |   |   |     |   |  |   |      |     
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |     
|Total                              |                                | $ | 13.9     |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  | $ | (2.0 | )    |   | $ | (5.8 | ) |  | $ |      |     
|                                   |                                |   |          |     |           |   |           |  |      |   |                    |      |         |   |      |   |                    |   |      |     |  |   |      |      |   |   |      |   |  |   |       |     

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |   | 
|---------------------------------- | ------------------------------ | - | ---------- | - | ---- | - | ------------------ | - | ---------- | - | ---- | - |  | - | - | - | 
|                                   |                                |   |            |   |      |   | Charges to Reserve
|                                   |                                |   | Remaining  |   | 1999 |   | Remaining         
|                                   |                                |   | Reserve    |   |      |   | Reserve           
|                                   |                                |   | at 1/30/99 |   | Cash |   | Reversal           |   | at 1/29/00
|                                   |                                |   |            |   |      |   |                    |   |           
|1996 Charge                       
|                                  
|                                  
|                                  
|                                  
|Store and other
facilities closing |                                | $ | 1.0        |   |      | $ | (1.0               | ) |            | $ |     |   |  | $ |  |  
|                                  
|                                  
|                                  
|                                  
|Computer systems                   |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|Asset impairment                   |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|Other                              |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |  
|Total                              |                                | $ | 1.0        |   |      | $ | (1.0               | ) |            | $ |     |   |  | $ |  |  
|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |  
|1997 Charge                       
|                                  
|                                  
|                                  
|                                  
|Store and other
facilities closing |                                | $ |           |   |      | $ |                   |   |            | $ |     |   |  | $ |  |  
|                                  
|                                  
|                                  
|                                  
|Severance                          |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|Operating costs and
losses         |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|                                   | Marketing and brand conversion |   |            |  |      |   |                    |  |            |   |      |  |  |   |   |  | 
|                                  
|                                  
|                                  
|                                  
|Other                              |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |  
|Total                              |                                | $ |           |   |      | $ |                   |   |            | $ |     |   |  | $ |  |  
|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |  
|1998 Charge                       
|                                  
|                                  
|                                  
|                                  
|Facilities relocations             |                                | $ | 1.6        |   |      | $ | (1.5               | ) |            | $ | (0.1 | ) |  | $ |  |  
|                                  
|                                  
|                                  
|                                  
|Inventory                          |                                |   |           |   |      |   |                   |   |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|Marketing and brand
conversion     |                                |   | 2.1        |   |      |   | (2.1               | ) |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|Professional fees                  |                                |   | 1.0        |   |      |   | (1.0               | ) |            |   |     |   |  |   |  |  
|                                  
|                                  
|                                  
|                                  
|Severance/hiring                   |                                |   | 1.4        |   |      |   | (1.4               | ) |            |   |     |   |  |   |  |  
|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |  
|Total                              |                                | $ | 6.1        |   |      | $ | (6.0               | ) |            | $ | (0.1 | ) |  | $ |  |  
|                                   |                                |   |            |   |      |   |                    |   |            |   |      |   |  |   |   |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The costs of the 1998 restructuring approximated the original
estimates. A remaining balance of approximately $0.1 million for the
facilities relocations was reversed into income in fiscal 1999. During
fiscal 1999, the Company closed a total of 25 Pearle stores, including 10
stores that were not part of the 1998 restructuring plan and, thus, were
not charged to the reserve. In the fourth quarter of fiscal 1999, the
Company determined that it no longer planned to remove any labs from
Pearle stores. Since there were no costs accrued at January 30, 1999
related to closing of any in-store labs, this revision to the original
plan had no effect on the restructuring reserves in fiscal 1999. As of
January 29, 2000, there were no balances remaining for the 1996, 1997 or
1998 restructure reserves.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 were 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 discussion of the restricted
stock grants.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, which was acquired by the Company in fiscal 1996. In
connection with this settlement, the Company assumed secondary
liability for loans to certain franchisees held by a third party which
totaled $3.6 million at January 29, 2000. The Company is contingently
liable should any of these franchisees default, and also for prepayment
penalties of up to $0.5 million at January 29, 2000. The Company has
established reserves for potential losses on the loans, which mature
through 2001. The settlement also included a release of the former
owner of Pearle from certain future non-tax claims related to Pearle.

F-11



---



##### Table of Contents





|(4) |  | Discontinued Operations
|--- |  | -----------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 13, 1998, the Company 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, 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, 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 in 1997.
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 in
fiscal 1997.                                                                                                                                                                                                                                                                                                                           



|(5) |  | Long-Term Debt
|--- |  | --------------



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Long-term debt at January 29, 2000 and January 30, 1999 is
summarized as follows (000s omitted):

|                                        |                      |                                        |         |         |         |      |         |         |         | 
|--------------------------------------- | -------------------- | -------------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | 
|                                        |                      |                                        |         | 2000    |         | 1999
|                                        |                      |                                        |         |         |         |     
|9-7/8% Senior subordinated Notes:      
|                                       
|                                       
|                                       
|                                       
|                                        | Face Value           |                                        | $       | 150,000 |         |      | $       | 150,000 |        
|                                       
|                                       
|                                       
|                                       
|                                        | Unamortized discount |                                        |         | (880    | )       |      |         | (964    | )      
|                                        |                      |                                        |         |         |         |      |         |        
|                                        |                      | Total 9-7/8% Senior Subordinated Notes |         |         | 149,120 |      |         |         | 149,036 | 
|                                       
|                                       
|                                       
|                                       
|8-5/8% Senior Subordinated Notes        |                      |                                        | 125,000 |         |         |      | 125,000 |        
|                                       
|                                       
|                                       
|                                       
|Capital lease obligations (See Note 11) |                      |                                        | 675     |         |         |      | 1,077   |        
|                                        |                      |                                        |         |         |         |      |         |        
|                                        |                      |                                        | 274,795 |         |         |      | 275,113 |        
|                                       
|                                       
|                                       
|                                       
|Less current portion                    |                      |                                        | (585    | )       |         |      | (407    | )      
|                                        |                      |                                        |         |         |         |      |         |        
|Net long-term debt                      |                      | $                                      | 274,210 |         |         | $    | 274,706 |        
|                                        |                      |                                        |         |         |         |      |         |        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On August 22, 1997, the Company issued $125.0 million of 8-5/8%
Senior Subordinated Notes that mature in 2007 with no earlier scheduled
redemption or sinking fund payments. Interest on the 8-5/8% Notes is
payable semi-annually on February 15 and August 15. Proceeds from this
debt issuance of approximately $121.8 million, along with cash on hand,
were used to fund a tender offer to retire the Companys then
outstanding 11-1/4% Senior Notes. As a result of the tender offer, in
the third quarter of 1997 the Company recorded an extraordinary charge
of $12.2 million, representing the tender premium, the write-off of the
unamortized debt discount and other costs associated with redeeming the
debt.
|
| | On November 15, 1996, the Company 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. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | 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 29, 2000.                                                                                                              

F-12



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At January 29, 2000 the fair value of long-term debt was
approximately $196.2 million compared to a carrying value of $274.8
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The operating subsidiaries of Cole National Group, Inc. have a
working capital line of credit of $75.0 million, reduced by
commitments under letters of credit. In August 1999, this credit
facility was amended and extended until January 31, 2003.
Borrowings under the credit facility initially bear interest based
on leverage ratios at a rate equal to, at the option of the
principal operating subsidiaries of Cole National Group, either (a)
the Eurodollar Rate plus 2% or (b) 1% 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 .5%. Cole National Group pays a
commitment fee of between .375% and .75% per annum on the total
unused portion of the facility based on the percentage of revolving
credit commitments used.
|   
|    |  | 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 29, 2000.                                                                                                                                                                             
|   
|    |  | The credit facility was amended in March 2000 such that
borrowings under the credit facility initially bear interest based
on leverage ratios at a rate equal to, at the option of the
principal operating subsidiaries of Cole National Group, either (a)
the Eurodollar Rate plus 2.5% or (b) 1.5% 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 .5%. By amendment, the working
capital commitment has been reduced to $50.0 million (less
commitments under letters of credit) for the period January 30,
2000 to June 29, 2000. Cole National Corporation, the parent of the
principal operating subsidiaries of Cole National Group, guarantees
this credit facility.                                                               
|   
|    |  | 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 the
Company or Cole National Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | No borrowings under the credit facility were outstanding as of
January 29, 2000, or at any time during fiscal 1999. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(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 of $1.2 million and
$2.3 million, has been charged against income for Cole National
Corporations stock-based plans in fiscal 1999 and 1998, respectively,
and unamortized restricted stock awards of $5.1 million are expected
to be amortized over future vesting periods. No compensation cost was
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 $2,583,000 and
$18,647,000 in fiscal 1999 and 1998, respectively, and its net loss
would have been increased to $7,075,000 in fiscal 1997.

F-13



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 5.9%, 4.7% and 5.7% for grants in fiscal 1999, 1998 and 1997,
respectively, volatility of 39-45%, 35-39% and 35% in fiscal 1999, 1998
and 1997, respectively, 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 of Cole National Corporation and has been charged 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 for continuing operations reflected in
the accompanying consolidated statements of operations for fiscal 1999,
1998 and 1997 are detailed below (000s omitted):                                                        

|                   |                                                  |  |       |        |      |  |        |        |   |  |        |        |  
|------------------ | ------------------------------------------------ |  | ----- | ------ | ---- |  | ------ | ------ | - |  | ------ | ------ | -
|                   |                                                  |  | 1999  |        | 1998 |  | 1997  
|                   |                                                  |  |       |        |      |  |       
|Currently payable-
|                  
|                  
|                  
|                  
|                   | Federal                                          |  | $     |       |      |  | $      | (6,528 | ) |  | $      | (536   | )
|                  
|                  
|                  
|                  
|                   | State and local                                  |  |       | 824    |      |  |        | 1,486  |   |  |        | 1,704  |  
|                  
|                  
|                  
|                  
|                   | Foreign                                          |  |       | 339    |      |  |        | 781    |   |  |        | 781    |  
|                   |                                                  |  |       |        |      |  |        |        |   |  |        |       
|                   |                                                  |  | 1,163 |        |      |  | (4,261 | )      |   |  | 1,949  |       
|                   |                                                  |  |       |        |      |  |        |        |   |  |        |       
|Deferred-         
|                  
|                  
|                  
|                  
|                   | Federal                                          |  |       | 8,199  |      |  |        | 16,765 |   |  |        | 12,961 |  
|                  
|                  
|                  
|                  
|                   | Foreign                                          |  |       | (179   | )    |  |        | (544   | ) |  |        | 5      |  
|                  
|                  
|                  
|                  
|                   | Tax benefits of net operating
loss carry forward |  |       | (5,446 | )    |  |        |       |   |  |        |       |  
|                   |                                                  |  |       |        |      |  |        |        |   |  |        |       
|                   |                                                  |  | 2,574 |        |      |  | 16,221 |        |   |  | 12,966 |       
|                   |                                                  |  |       |        |      |  |        |        |   |  |        |       
|                   | Income tax provision                             |  | $     | 3,737  |      |  | $      | 11,960 |   |  | $      | 14,915 |  
|                   |                                                  |  |       |        |      |  |        |        |   |  |        |       

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

|                                       |                |                                                |                      |  |       |       |        |  |        |        |        |  |       |        | 
|-------------------------------------- | -------------- | ---------------------------------------------- | -------------------- |  | ----- | ----- | ------ |  | ------ | ------ | ------ |  | ----- | ------ | 
|                                       |                |                                                |                      |  | 1999  |       | 1998   |  | 1997  
|                                       |                |                                                |                      |  |       |       |        |  |       
|Income tax provision at statutory rate |                | $                                              | 2,757                |  |       | $     | 10,954 |  |        | $      | 12,077 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Tax effect of-
|                                      
|                                      
|                                      
|                                      
|                                       |                | Amortization of goodwill                       |                      |  | 1,230 |       |        |  | 1,234  |        |        |  | 1,176 |       
|                                      
|                                      
|                                      
|                                      
|                                       |                | State income taxes, net of federal
tax benefit |                      |  | 536   |       |        |  | 966    |        |        |  | 1,215 |       
|                                      
|                                      
|                                      
|                                      
|                                       |                | Nontaxable settlement                          |                      |  |      |       |        |  | (2,100 | )      |        |  |      |       
|                                      
|                                      
|                                      
|                                      
|                                       |                | Non-recurring charges                          |                      |  |      |       |        |  | 537    |        |        |  |      |       
|                                      
|                                      
|                                      
|                                      
|                                       |                | Decrease in valuation allowance                |                      |  | (669  | )     |        |  |       |        |        |  |      |       
|                                      
|                                      
|                                      
|                                      
|                                       |                | Other, net                                     |                      |  | (117  | )     |        |  | 369    |        |        |  | 447   |       
|                                       |                |                                                |                      |  |       |       |        |  |        |        |        | 
|                                       |                |                                                | Income tax provision |  | $     | 3,737 |        |  | $      | 11,960 |        |  | $     | 14,915 | 
|                                       |                |                                                |                      |  |       |       |        |  |        |        |        | 

F-14



---



##### Table of Contents



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 29, 2000 and January 30, 1999 are as follows (000s omitted):

|                          |                                  |                                |        |        |        |      |        |        |        |  
|------------------------- | -------------------------------- | ------------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | -
|                          |                                  |                                |        | 2000   |        | 1999
|                          |                                  |                                |        |        |        |     
|Deferred tax assets:     
|                         
|                         
|                         
|                         
|                          | Employee benefit accruals        |                                | $      | 2,821  |        |      | $      | 3,540  |       
|                         
|                         
|                         
|                         
|                          | Restructure accruals             |                                |        |       |        |      |        | 2,730  |       
|                         
|                         
|                         
|                         
|                          | Other non-deductible accruals    |                                |        | 9,040  |        |      |        | 11,700 |       
|                         
|                         
|                         
|                         
|                          | State and local taxes            |                                |        | 1,192  |        |      |        | 1,758  |       
|                         
|                         
|                         
|                         
|                          | Net operating loss carryforwards |                                |        | 3,576  |        |      |        | 3,936  |       
|                         
|                         
|                         
|                         
|                          | Intangibles                      |                                |        | 4,471  |        |      |        | 5,506  |       
|                         
|                         
|                         
|                         
|                          | Inventory reserves               |                                |        | 3,518  |        |      |        | 2,348  |       
|                         
|                         
|                         
|                         
|                          | Bad debt reserves                |                                |        | 185    |        |      |        | 878    |       
|                         
|                         
|                         
|                         
|                          | Other                            |                                |        | 2,427  |        |      |        | 910    |       
|                          |                                  |                                |        |        |        |      |        |       
|                          | Total deferred tax assets        |                                |        | 27,230 |        |      |        | 33,306 |       
|                         
|                         
|                         
|                         
|                          | Valuation allowance              |                                |        | (1,141 | )      |      |        | (1,810 | )     
|                          |                                  |                                |        |        |        |      |        |       
|                          |                                  | Net deferred tax assets        |        |        | 26,089 |      |        |        | 31,496 |  
|                          |                                  |                                |        |        |        |      |        |       
|Deferred tax liabilities:
|                         
|                         
|                         
|                         
|                          | Depreciation and amortization    |                                |        | (5,582 | )      |      |        | (7,388 | )     
|                         
|                         
|                         
|                         
|                          | Other                            |                                |        | (2,905 | )      |      |        | (2,019 | )     
|                          |                                  |                                |        |        |        |      |        |       
|                          |                                  | Total deferred tax liabilities |        |        | (8,487 | )    |        |        | (9,407 | )
|                          |                                  |                                |        |        |        |      |        |       
|Net deferred taxes        |                                  | $                              | 17,602 |        |        | $    | 22,089 |       
|                          |                                  |                                |        |        |        |      |        |       



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At January 29, 2000, Cole National Group has approximately $28.5
million of tax net operating loss carryforwards, $8.3 million of
which was 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 reinvested. 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
|--- |  | ----------------



| |                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company 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.
|
| | The Company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-15



---



##### Table of Contents





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Pension expense for fiscal 1999, 1998 and 1997 includes the
following components (000s omitted):

|                                                  |                       |                     |        |        |       |      |        |        |       |   |        |        |     | 
|------------------------------------------------- | --------------------- | ------------------- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | - | ------ | ------ | --- | 
|                                                  |                       |                     |        | 1999   |       | 1998 |        | 1997  
|                                                  |                       |                     |        |        |       |      |        |       
|Service cost  benefits earned during the period  |                       | $                   | 1,636  |        |       | $    | 1,446  |        |       | $ | 637    |       
|                                                 
|                                                 
|                                                 
|                                                 
|Interest cost on the projected benefit obligation |                       |                     | 1,733  |        |       |      | 1,582  |        |       |   | 1,490  |       
|                                                 
|                                                 
|                                                 
|                                                 
|Less:                                            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Return on plan assets |                     |        | (2,205 | )     |      |        | (2,494 | )     |   |        | (2,424 | )  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                       | Actual Deferred     |        |        | 19    |      |        |        | 690   |   |        |        | 893 | 
|                                                  |                       |                     |        |        |       |      |        |        |       |   |        |       
|                                                  |                       |                     | (2,186 | )      |       |      | (1,804 | )      |       |   | (1,531 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Amortization of transition asset over 17.9 years  |                       |                     | (179   | )      |       |      | (179   | )      |       |   | (179   | )     
|                                                  |                       |                     |        |        |       |      |        |        |       |   |        |       
|                                                  |                       | Net pension expense |        | $      | 1,004 |      |        | $      | 1,045 |   |        | $      | 417 | 
|                                                  |                       |                     |        |        |       |      |        |        |       |   |        |       

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):

|                                 |                                                                           |  |                                                   |        |      |        |        |        |      |        | 
|-------------------------------- | ------------------------------------------------------------------------- |  | ------------------------------------------------- | ------ | ---- | ------ | ------ | ------ | ---- | ------ | 
|                                 |                                                                           |  |                                                   |        | 1999 |        | 1998  
|                                 |                                                                           |  |                                                   |        |      |        |       
|Change in Benefit Obligation:   
|                                
|                                
|                                
|                                
|                                 | Benefit obligation at beginning of period                                 |  | $                                                 | 24,599 |      |        | $      | 21,272 |     
|                                
|                                
|                                
|                                
|                                 | Service cost                                                              |  |                                                   | 1,636  |      |        |        | 1,446  |     
|                                
|                                
|                                
|                                
|                                 | Interest cost                                                             |  |                                                   | 1,733  |      |        |        | 1,582  |     
|                                
|                                
|                                
|                                
|                                 | Actuarial (gain) loss                                                     |  |                                                   | (4,017 | )    |        |        | 1,509  |     
|                                
|                                
|                                
|                                
|                                 | Benefits paid                                                             |  |                                                   | (956   | )    |        |        | (917   | )   
|                                
|                                
|                                
|                                
|                                 | Expenses paid                                                             |  |                                                   | (335   | )    |        |        | (293   | )   
|                                 |                                                                           |  |                                                   |        |      |        |        |       
|                                 |                                                                           |  | Benefit obligation at end of period               |        | $    | 22,660 |        |        | $    | 24,599 | 
|                                 |                                                                           |  |                                                   |        |      |        |        |       
|Change in Plan Assets:          
|                                
|                                
|                                
|                                
|                                 | Fair value of plan assets at beginning of year                            |  | $                                                 | 23,216 |      |        | $      | 19,751 |     
|                                
|                                
|                                
|                                
|                                 | Actual return on plan assets                                              |  |                                                   | 2,205  |      |        |        | 2,494  |     
|                                
|                                
|                                
|                                
|                                 | Employer contributions                                                    |  |                                                   | 1,280  |      |        |        | 2,181  |     
|                                
|                                
|                                
|                                
|                                 | Benefits paid                                                             |  |                                                   | (956   | )    |        |        | (917   | )   
|                                
|                                
|                                
|                                
|                                 | Expenses paid                                                             |  |                                                   | (335   | )    |        |        | (293   | )   
|                                 |                                                                           |  |                                                   |        |      |        |        |       
|                                 |                                                                           |  | Fair value of plan assets at end of year          |        | $    | 25,410 |        |        | $    | 23,216 | 
|                                 |                                                                           |  |                                                   |        |      |        |        |       
|Reconciliation of Funded Status:
|                                
|                                
|                                
|                                
|                                 | Benefit obligation at end of period                                       |  | $                                                 | 22,660 |      |        | $      | 24,599 |     
|                                
|                                
|                                
|                                
|                                 | Fair value of plan assets, primarily money market and equity mutual funds |  | 25,410                                            |        |      |        | 23,216 |       
|                                 |                                                                           |  |                                                   |        |      |        |        |       
|                                
|                                
|                                
|                                
|                                 | Funded status                                                             |  |                                                   | 2,750  |      |        |        | (1,383 | )   
|                                
|                                
|                                
|                                
|                                 | Unrecognized prior service cost                                           |  |                                                   | 54     |      |        |        | 81     |     
|                                
|                                
|                                
|                                
|                                 | Net unrecognized (gain) loss                                              |  |                                                   | (1,957 | )    |        |        | 2,052  |     
|                                
|                                
|                                
|                                
|                                 | Unamortized transition (asset) obligation                                 |  |                                                   | (878   | )    |        |        | (1,057 | )   
|                                 |                                                                           |  |                                                   |        |      |        |        |       
|                                 |                                                                           |  | Pension liability included in accrued liabilities | $      | (31  | )      |        | $      | (307 | )     
|                                 |                                                                           |  |                                                   |        |      |        |        |       



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The weighted average discount rate used to measure the projected
benefit obligation was 7.25% in both 1999 and 1998. 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%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Company 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. The Company may also make a discretionary
matching contribution for each plan year equal to such dollar amount or
percentage of employee contributions as determined by the Companys
Board of Directors. Total company matches of $534,000, $757,000 and
$374,000 were recorded as expense for 1999, 1998 and 1997,
respectively.

F-16



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to January 1, 1998, the Company had separate contributory
profit-sharing plans for Pearle and AVC employees meeting certain
service requirements as defined in the plans. Company contributions to
the Pearle plan consisted of a minimum matching contribution of
$861,000 in 1997. There were no company contributions required or made
in connection with the AVC plan in 1997. Effective January 1, 1998,
eligible employees of Pearle and AVC became eligible to participate in
Cole National Groups defined contribution plan. The Pearle and AVCs
plans will be merged into the Companys plan.                                                                                                                                                                                                                                                                                    
|
| | Cole National Group has several Supplemental Executive Retirement
Plans that provide for the payment of retirement benefits to
participating executives supplementing amounts payable under the
Company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. The third plan is a defined benefit plan designed to
provide additional retirement benefits for certain management and
highly compensated employees. Expenses for these plans for fiscal
1999, 1998 and 1997 were $696,000, $651,000 and $541,000, respectively.



|(10) |  | Segment Information
|---- |  | -------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company 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-17



---



##### Table of Contents





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

|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |         |         |  
|------------------------------ | ------------------------------------------------------------ | ------------------------------------------- | - | ------- | --------- | ---- | - | ------- | --------- | - | - | ------- | ------- | -
|                               |                                                              |                                             |   | 1999    |           | 1998 |   | 1997   
|                               |                                                              |                                             |   |         |           |      |   |        
|Net revenue:                  
|                              
|                              
|                              
|                              
|                               | Cole Vision                                                  |                                             | $ | 804,991 |           |      | $ | 822,288 |           |   | $ | 770,454 |        
|                              
|                              
|                              
|                              
|                               | Things Remembered                                            |                                             |   | 258,586 |           |      |   | 241,947 |           |   |   | 225,710 |        
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|                               |                                                              | Consolidated net revenue                    |   | $       | 1,063,577 |      |   | $       | 1,064,235 |   |   | $       | 996,164 |  
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|Depreciation and amortization:
|                              
|                              
|                              
|                              
|                               | Cole Vision                                                  |                                             | $ | 26,266  |           |      | $ | 21,712  |           |   | $ | 19,473  |        
|                              
|                              
|                              
|                              
|                               | Things Remembered                                            |                                             |   | 10,916  |           |      |   | 10,485  |           |   |   | 8,947   |        
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|                               |                                                              | Total segment depreciation and amortization |   |         | 37,182    |      |   |         | 32,197    |   |   |         | 28,420  |  
|                              
|                              
|                              
|                              
|                               | Corporate                                                    |                                             |   | 1,303   |           |      |   | 606     |           |   |   | 638     |        
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|                               |                                                              | Consolidated depreciation and amortization  |   | $       | 38,485    |      |   | $       | 32,803    |   |   | $       | 29,058  |  
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|Income or loss:               
|                              
|                              
|                              
|                              
|                               | Cole Vision                                                  |                                             | $ | 17,915  |           |      | $ | 54,287  |           |   | $ | 65,790  |        
|                              
|                              
|                              
|                              
|                               | Things Remembered                                            |                                             |   | 22,706  |           |      |   | 17,647  |           |   |   | 11,504  |        
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|                               |                                                              | Total segment profit                        |   |         | 40,621    |      |   |         | 71,934    |   |   |         | 77,294  |  
|                              
|                              
|                              
|                              
|                               | Unallocated amounts:                                        
|                              
|                              
|                              
|                              
|                               |                                                              | Unusual and non-recurring items             |   |         |          |      |   |         | (13,120   | ) |   |         | (8,000  | )
|                              
|                              
|                              
|                              
|                               |                                                              | Corporate expenses                          |   |         | (6,061    | )    |   |         | (6,448    | ) |   |         | (6,283  | )
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|                               | Consolidated operating income (loss)                         |                                             |   | 34,560  |           |      |   | 52,366  |           |   |   | 63,011  |        
|                              
|                              
|                              
|                              
|                               | Interest and other expense, net                              |                                             |   | (26,683 | )         |      |   | (21,071 | )         |   |   | (28,507 | )      
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        
|                               | Income (loss) from continuing operations
before income taxes |                                             | $ | 7,877   |           |      | $ | 31,295  |           |   | $ | 34,504  |        
|                               |                                                              |                                             |   |         |           |      |   |         |           |   |   |        

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

|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |         |         | 
|------------------------------------------------------------------ | --------------------------------------------- | -------------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                   |                                               |                            |   | 1999    |         | 1998 |   | 1997   
|                                                                   |                                               |                            |   |         |         |      |   |        
|Segment assets:                                                   
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Cole Vision                                   |                            | $ | 418,282 |         |      | $ | 442,482 |         |  | $ | 439,423 |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Things Remembered                             |                            |   | 141,101 |         |      |   | 132,832 |         |  |   | 131,105 |        
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        
|                                                                   |                                               | Total segment assets       |   |         | 559,383 |      |   |         | 575,314 |  |   |         | 570,528 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Elimination of intercompany receivables       |                            |   | (52,545 | )       |      |   | (36,189 | )       |  |   | (12,085 | )      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Corporate cash and temporary cash investments |                            |   | 21,024  |         |      |   | 34,506  |         |  |   | 54,872  |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Other corporate assets                        |                            |   | 15,666  |         |      |   | 10,254  |         |  |   | 15,020  |        
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        
|                                                                   |                                               | Consolidated assets        |   | $       | 543,528 |      |   | $       | 583,885 |  |   | $       | 628,335 | 
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        
|Expenditures for capital additions
and systems development costs: 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Cole Vision                                   |                            | $ | 33,728  |         |      | $ | 35,796  |         |  | $ | 34,831  |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Things Remembered                             |                            |   | 5,709   |         |      |   | 8,228   |         |  |   | 20,496  |        
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        
|                                                                   |                                               | Total segment expenditures |   |         | 39,437  |      |   |         | 44,024  |  |   |         | 55,327  | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Elimination of intercompany transfers         |                            |   |        |         |      |   |        |         |  |   | (5,300  | )      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Corporate                                     |                            |   | 79      |         |      |   | 692     |         |  |   | 529     |        
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        
|                                                                   |                                               | Consolidated expenditures  |   | $       | 39,516  |      |   | $       | 44,716  |  |   | $       | 50,556  | 
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        
|Expenditures for acquisitions of
businesses, net of cash acquired:
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Cole Vision                                   |                            | $ | 2,956   |         |      | $ | 7,231   |         |  | $ |        |        
|                                                                   |                                               |                            |   |         |         |      |   |         |         |  |   |        

F-18



---



##### Table of Contents



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

|                                                             |                               |   |         |           |      |   |         |           |  |   |         |         | 
|------------------------------------------------------------ | ----------------------------- | - | ------- | --------- | ---- | - | ------- | --------- |  | - | ------- | ------- | 
|                                                             |                               |   | 1999    |           | 1998 |   | 1997   
|                                                             |                               |   |         |           |      |   |        
|Sales of optical products and services                       |                               | $ | 725,421 |           |      | $ | 759,232 |           |  | $ | 712,923 |        
|                                                            
|                                                            
|                                                            
|                                                            
|Royalties, interest income and initial fees
from franchisees |                               |   | 23,611  |           |      |   | 21,518  |           |  |   | 19,743  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Fees from managed vision care programs                       |                               |   | 55,959  |           |      |   | 41,538  |           |  |   | 37,788  |        
|                                                             |                               |   |         |           |      |   |         |           |  |   |         |        
|                                                             | Total Cole Vision net revenue |   |         | 804,991   |      |   |         | 822,288   |  |   |         | 770,454 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Retail sales of gift merchandise and services                |                               |   | 258,586 |           |      |   | 241,947 |           |  |   | 225,710 |        
|                                                             |                               |   |         |           |      |   |         |           |  |   |         |        
|                                                             | Consolidated net revenue      |   | $       | 1,063,577 |      |   | $       | 1,064,235 |  |   | $       | 996,164 | 
|                                                             |                               |   |         |           |      |   |         |           |  |   |         |        



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company operates primarily in the United States. Net revenue
attributable to Cole Visions Canadian operations was $28.6 million,
$27.5 million and $27.2 million in fiscal 1999, 1998 and 1997,
respectively. Long-lived assets located in Canada totaled $3.1 million,
$2.2 million and $2.1 million in fiscal 1999, 1998 and 1997,
respectively.



|(11) |  | Commitments
|---- |  | -----------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company 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 1999, 1998 and 1997 (000s omitted):
|
| | At January 29, 2000 and January 30, 1999, property under capital
leases consisted of $1,251,000 and $2,018,000 in equipment with
accumulated amortization of $2,044,000 and $851,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                               |  |      |         |      |  |      |         |   |  |   |         |  
|------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                               |  | 1999 |         | 1998 |  | 1997
|                               |  |      |         |      |  |     
|Occupancy costs based on sales |  | $    | 52,623  |      |  | $    | 54,563  |   |  | $ | 52,300  |  
|                              
|                              
|                              
|                              
|All other rental expense       |  |      | 96,084  |      |  |      | 92,043  |   |  |   | 87,691  |  
|                              
|                              
|                              
|                              
|Sublease rental income         |  |      | (21,672 | )    |  |      | (22,606 | ) |  |   | (21,725 | )
|                               |  |      |         |      |  |      |         |   |  |   |         |  
|                               |  | $    | 127,035 |      |  | $    | 124,000 |   |  | $ | 118,266 |  
|                               |  |      |         |      |  |      |         |   |  |   |         |  

At January 29, 2000, 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):

|                                               |  |         |     |          |  |                  |         |  |  |   |        | 
|---------------------------------------------- |  | ------- | --- | -------- |  | ---------------- | ------- |  |  | - | ------ | 
|                                               |  |         |     |          |  | Operating Leases
|                                               |  | Capital |     |         
|                                               |  | Leases  |     | Payments |  | Receipts        
|                                               |  |         |     |          |  |                 
|2000                                           |  | $       | 624 |          |  | $                | 71,666  |  |  | $ | 12,010 | 
|                                              
|                                              
|                                              
|                                              
|2001                                           |  |         | 48  |          |  |                  | 59,310  |  |  |   | 8,902  | 
|                                              
|                                              
|                                              
|                                              
|2002                                           |  |         | 55  |          |  |                  | 50,174  |  |  |   | 6,908  | 
|                                              
|                                              
|                                              
|                                              
|2003                                           |  |         |    |          |  |                  | 42,492  |  |  |   | 4,957  | 
|                                              
|                                              
|                                              
|                                              
|2004                                           |  |         |    |          |  |                  | 35,847  |  |  |   | 3,431  | 
|                                              
|                                              
|                                              
|                                              
|2005 and thereafter                            |  |         |    |          |  |                  | 71,113  |  |  |   | 5,379  | 
|                                               |  |         |     |          |  |                  |         |  |  |   |        | 
|Total future minimum lease payments            |  |         | 727 |          |  | $                | 330,602 |  |  | $ | 41,587 | 
|                                               |  |         |     |          |  |                  |         |  |  |   |        | 
|Amounts representing interest                  |  |         | (52 | )       
|                                               |  |         |     |         
|Present value of future minimum lease payments |  | $       | 675 |         
|                                               |  |         |     |         

F-19



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##### Table of Contents















REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES

TO COLE NATIONAL GROUP, INC.:

We have audited in accordance with auditing standards generally accepted
in the United States, 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 23, 2000. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The financial
statement schedules are the responsibility of the Company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
audits 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 23, 2000.

F-20



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##### Table of Contents









Schedule I

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

Cole National Group, Inc.
Condensed Balance Sheets
January 29, 2000 and January 30, 1999
(Dollars in millions)

|                                      |                                            |   |       |       |      |   |       |       | 
|------------------------------------- | ------------------------------------------ | - | ----- | ----- | ---- | - | ----- | ----- | 
|                                      |                                            |   | 2000  |       | 1999
|                                      |                                            |   |       |       |     
|Assets:                              
|                                     
|                                     
|                                     
|                                     
|Cash                                  |                                            | $ | 21.0  |       |      | $ | 34.7  |      
|                                     
|                                     
|                                     
|                                     
|Accounts receivable                   |                                            |   |      |       |      |   |      |      
|                                     
|                                     
|                                     
|                                     
|Deferred income tax benefits          |                                            |   | 0.9   |       |      |   | 0.2   |      
|                                     
|                                     
|                                     
|                                     
|Investment in subsidiaries            |                                            |   | 401.2 |       |      |   | 397.0 |      
|                                     
|                                     
|                                     
|                                     
|Property and equipment, net           |                                            |   | 3.9   |       |      |   | 4.3   |      
|                                     
|                                     
|                                     
|                                     
|Other                                 |                                            |   | 11.7  |       |      |   | 8.7   |      
|                                      |                                            |   |       |       |      |   |       |      
|                                      | Total assets                               |   | $     | 438.7 |      |   | $     | 444.9 | 
|                                      |                                            |   |       |       |      |   |       |      
|Liabilities and Stockholders Equity:
|                                     
|                                     
|                                     
|                                     
|Accounts payable and accrued expenses |                                            | $ | 19.9  |       |      | $ | 26.3  |      
|                                     
|                                     
|                                     
|                                     
|Payable to affiliates                 |                                            |   | 86.7  |       |      |   | 95.2  |      
|                                     
|                                     
|                                     
|                                     
|Long-term debt                        |                                            |   | 274.7 |       |      |   | 274.9 |      
|                                     
|                                     
|                                     
|                                     
|Other liabilities                     |                                            |   | 4.1   |       |      |   | 0.3   |      
|                                     
|                                     
|                                     
|                                     
|Stockholders equity                  |                                            |   | 53.3  |       |      |   | 48.2  |      
|                                      |                                            |   |       |       |      |   |       |      
|                                      | Total liabilities and stockholders equity |   | $     | 438.7 |      |   | $     | 444.9 | 
|                                      |                                            |   |       |       |      |   |       |      

F-21



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##### Table of Contents



Schedule I
(continued)

Cole National Group, Inc.
Condensed Statements of Operations and Cash Flows
52 Weeks Ended January 29, 2000, January 30, 1999 and January 31, 1998
(Dollars in millions)

|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |   |  | 
|--------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------------ | ----- | - | ---- | -------- | ----- | -------- | ---- | -------- | ------ | - | ---- | - |  | 
|                                                                                                    |                               |                                                  |       |   |      | Jan. 29, |       | Jan. 30, |      | Jan. 31,
|                                                                                                    |                               |                                                  |       |   |      | 2000     |       | 1999     |      | 1998    
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |         
|Revenue:                                                                                           
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Services to affiliates        | $                                                | 10.4  |   |      | $        | 8.6   |          |      | $        | 8.4    |  
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|                                                                                                    |                               | Total revenue                                    |       |   | 10.4 |          |       |          | 8.6  |          |        |   | 8.4 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Operating expenses                                                                                  |                               |                                                  | (10.4 | ) |      |          | (11.8 | )        |      |          | (8.4   | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Interest expense                                                                                    |                               |                                                  | (0.1  | ) |      |          | (2.4  | )        |      |          | (6.6   | )
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|Pre-tax loss                                                                                        |                               |                                                  | (0.1  | ) |      |          | (5.6  | )        |      |          | (6.6   | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Income tax benefit                                                                                  |                               |                                                  | 0.9   |   |      |          | 1.4   |          |      |          | 2.5    |  
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|Income (Loss) before equity in undistributed earnings (loss) of
subsidiaries and extraordinary item |                               |                                                  | 0.8   |   |      |          | (4.2  | )        |      |          | (4.1   | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Equity in undistributed earnings (loss) of subsidiaries                                             |                               |                                                  | 3.7   |   |      |          | 23.5  |          |      |          | 9.7    |  
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|Income before extraordinary
item                                                                    |                               |                                                  | 4.5   |   |      |          | 19.3  |          |      |          | 5.6    |  
|Extraordinary loss                                                                                  |                               |                                                  |      |   |      |          |      |          |      |          | (12.2  | )
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|Net income (loss)                                                                                   |                               |                                                  | 4.5   |   |      |          | 19.3  |          |      |          | (6.6   | )
|Adjustments to reconcile net income (loss)
to cash provided (used) by operations                    |                               |                                                  | (7.1  | ) |      |          | (22.3 | )        |      |          | (17.0  | )
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|                                                                                                    |                               | Net cash provided (used) by operating activities | (2.6  | ) |      |          | (3.0  | )        |      |          | (23.6  | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Financing activities:                                                                              
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Repayment of long-term debt   |                                                  | (0.3  | ) |      |          | (14.8 | )        |      |          | (167.5 | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Advances from (to) affiliates |                                                  | (9.0  | ) |      |          | (2.1  | )        |      |          | 59.8   |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Proceeds from long-term debt  |                                                  |      |   |      |          |      |          |      |          | 125.0  |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Payment of financing fees     |                                                  | (0.3) |   |      |          |      |          |      |          | (3.2   | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Other                         |                                                  |       |   | 0.6  |          |       |          |     |          |        |   |     |  
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|                                                                                                    |                               | Net cash provided (used) by financing activities | (9.0  | ) |      |          | (16.9 | )        |      |          | 14.1   |  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Investing activities:                                                                              
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Other                         |                                                  |       |   | (2.1 | )        |       |          | (0.3 | )        |        |   | (0.1 | )
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|                                                                                                    |                               | Net cash used by investing activities            | (2.1  | ) |      |          | (0.3  | )        |      |          | (0.1   | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net change in cash                                                                                  |                               |                                                  | (13.7 | ) |      |          | (20.2 | )        |      |          | (9.6   | )
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Cash, beginning of period                                                                           |                               |                                                  | 34.7  |   |      |          | 54.9  |          |      |          | 64.5   |  
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  
|Cash, end of period                                                                                 |                               | $                                                | 21.0  |   |      | $        | 34.7  |          |      | $        | 54.9   |  
|                                                                                                    |                               |                                                  |       |   |      |          |       |          |      |          |        |   |      |  

F-22



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##### Table of Contents



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 29, 2000
and January 30, 1999 and for the fiscal years ended January 29, 2000, January
30, 1999 and January 31, 1998. 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-23



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##### Table of Contents









Schedule II

Cole National Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
52 Weeks Ended January 29, 2000, January 30, 1999 and January 31, 1998
(Dollars in millions)

|                                |  |            |     |            |  |            |     |            |  |        |     |            |  |   |     |     |  |   |     | 
|------------------------------- |  | ---------- | --- | ---------- |  | ---------- | --- | ---------- |  | ------ | --- | ---------- |  | - | --- | --- |  | - | --- | 
|                                |  |            |     |            |  | Additions 
|                                |  |            |     |            |  |           
|                                |  | Balance at |     | Charged to |  | Charged to |     |            |  |        |     | Balance at
|                                |  | Beginning  |     | Costs and  |  | Other      |     |            |  |        |     | End of    
|Description                     |  | of Period  |     | Expenses   |  | Accounts   |     | Deductions |  | Period
|                                |  |            |     |            |  |            |     |            |  |       
|January 29, 2000               
|                               
|                               
|                               
|                               
|Allowance for Doubtful Accounts |  | $          | 7.2 |            |  | $          | 4.3 |            |  | $      |    |            |  | $ | 3.9 | (A) |  | $ | 7.6 | 
|                               
|                               
|                               
|                               
|Franchise Repurchase Reserve    |  |            | 5.2 |            |  |            | 0.3 |            |  |        |    |            |  |   | 1.3 | (A) |  |   | 4.2 | 
|                               
|                               
|                               
|                               
|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 | 

(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.

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

F-24



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##### Table of Contents









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).                                                                                                                                                     
|       
|       
|       
|       
|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).                                                                                                                                                                                                                     

X-1



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##### Table of Contents



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.9    |  | 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).                                                                                                                                                                                                                           
|       
|       
|       
|       
|10.10   |  | 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).                                                                                                                                                                                                                     
|       
|       
|       
|       
|10.11   |  | 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).                                                                                                                 
|       
|       
|       
|       
|10.12   |  | 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).                                                                                                       
|       
|       
|       
|       
|10.13   |  | 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).                                                                                                      
|       
|       
|       
|       
|10.14   |  | 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).               
|       
|       
|       
|       
|10.15   |  | 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).                                                                                   
|       
|       
|       
|       
|10.16   |  | 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).
|       
|       
|       
|       
|10.17   |  | 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).            
|       
|       
|       
|       
|10.18   |  | 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).              
|       
|       
|       
|       
|10.19   |  | 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).                                                                                               

X-2



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##### Table of Contents



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                               
|10.20   |  | 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).          
|       
|       
|       
|       
|10.21*  |  | 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).                                                                                             
|       
|       
|       
|       
|10.22*  |  | 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).                                                        
|       
|       
|       
|       
|10.23*  |  | 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).                                                                                                         
|       
|       
|       
|       
|10.24*  |  | 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).                                                                                    
|       
|       
|       
|       
|10.25*  |  | 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 in the period ended January 30, 1999 (File No. 1-12814)   
|       
|       
|       
|       
|10.26   |  | Fifth Amendment to the Credit Agreement, dated as of August 20, 1999,
among Cole Vision Corporation, Things Remembered, Inc. and Pearle,
Inc., and Canadian Imperial Bank of Commerce, incorporated by
reference to Exhibit 10.1 to Cole National Corporations Quarterly
Report on Form 10-Q for the period ended July 31, 1999 (File No.
1-12814).          
|       
|       
|       
|       
|10.27   |  | Sixth Amendment and Waiver to the Credit Agreement, dated as of March
7, 2000, among Cole Vision Corporation, Things Remembered, Inc. and
Pearle, Inc., and Canadian Imperial Bank of Commerce, incorporated by
reference to Exhibit 10.50 to Cole National Corporations Annual
Report on Form 10-K for the period ended January 29, 2000 (File No.
1-12814).

X-3



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##### Table of Contents



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                     
|       
|       
|       
|       
|10.28*  |  | Instrument Designating Participant of the Cole National Group, Inc.
1999 Supplemental Retirement Benefit Plan dated January 1, 2000,
incorporated by reference to Exhibit 10.66 to Cole National
Corporations Annual Report on Form 10-K for the period ended January
29, 2000 (File No. 1-12814).                                 
|       
|       
|       
|       
|10.29*  |  | Addendum to Employment Agreement dated June 4, 1999 among Jeffrey A.
Cole, Cole National Corporation and certain of its subsidiaries,
incorporated by reference to Exhibit 10.67 to Cole National
Corporations Annual Report on Form 10-K for the period ended January
29, 2000 (File No. 1-12814).                                
|       
|       
|       
|       
|10.30   |  | Seventh Amendment to the Credit Agreement, dated as of April 21, 2000
among Cole Vision Corporation, Things Remembered, Inc., and Canadian
Imperial Bank of Commerce, incorporated by reference to Exhibit 10.69
to Cole National Corporations Annual Report on Form 10-K for the
period ended January 29, 2000 (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                                                                                                                                                                                                                                                                                                             

|  |  |                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|* |  | Reflects management contract or other compensatory
arrangement required to be filed as an exhibit pursuant to Item 14(c)
of this Form 10-K

X-4