TABLE OF CONTENTS




|             |                                                                                               |  |  |  |  |  |  | 
|------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|             | Item 1. Financial Statements                                                                 
|             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|             | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|             | Item 6. Exhibits and Reports on Form 8-K                                                     
|Exhibit 10.1
|Exhibit 27  



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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|   |  |                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|X  |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 29, 2000, or
|  
|__ |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from  to .           

Commission file number 1-12814

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

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 34-1453189
(I.R.S. employer
identification no.)

|                                                                                       |  |                 
|-------------------------------------------------------------------------------------- |  | ----------------
|5915 Landerbrook Drive
Mayfield Heights, Ohio
(Address of principal executive offices) |  | 44124
(Zip code)

|                                                                   
|-------------------------------------------------------------------
|(440) 449-4100
(Registrants telephone number, including area code)

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

As of August 24, 2000, 15,621,426 shares of the registrants common
stock were outstanding.

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##### Table of Contents



COLE NATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JULY 29, 2000
INDEX

|                              |  |                                                                                                     |          |  |    | 
|----------------------------- |  | --------------------------------------------------------------------------------------------------- | -------- |  | -- | 
|                              |  |                                                                                                     | Page No.
|PART I. FINANCIAL INFORMATION
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|Item 1.                       |  | Financial Statements                                                                               
|                             
|                             
|                             
|                             
|                              |  | Consolidated Balance Sheets as of July 29, 2000 and January 29, 2000                                |          |  | 1  | 
|                             
|                             
|                             
|                             
|                              |  | Consolidated Statements of Operations for the 13 and 26 weeks
ended July 29, 2000 and July 31, 1999 |          |  | 2  | 
|                             
|                             
|                             
|                             
|                              |  | Consolidated Statements of Cash Flows for the 26 weeks ended
July 29, 2000 and July 31, 1999        |          |  | 3  | 
|                             
|                             
|                             
|                             
|                              |  | Notes to Consolidated Financial Statements                                                          |          |  | 4  | 
|                             
|                             
|                             
|                             
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations               |          |  | 7  | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                          |          |  | 11 | 
|                             
|                             
|                             
|                             
|PART II. OTHER INFORMATION   
|                             
|                             
|                             
|                             
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                 |          |  | 12 | 
|                             
|                             
|                             
|                             
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                    |          |  | 13 | 





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##### Table of Contents



PART I  FINANCIAL INFORMATION




Item 1. Financial Statements

COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)

|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |          |         | 
|-------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ----------- | ------- | -------- | ------- | 
|                                                                                                                           |                                                                                              |                                            |         | July 29, |         | January 29,
|                                                                                                                           |                                                                                              |                                            |         | 2000     |         | 2000       
|                                                                                                                           |                                                                                              |                                            |         |          |         |            
|Assets                                                                                                                    
|Current assets:                                                                                                           
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Cash and temporary cash investments                                                          |                                            | $       | 18,295   |         |             | $       | 28,953   |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Accounts receivable, less allowance for doubtful accounts
of $8,378 and $7,557, respectively |                                            |         | 41,520   |         |             |         | 41,682   |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Current portion of notes receivable                                                          |                                            |         | 4,965    |         |             |         | 4,917    |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Inventories                                                                                  |                                            |         | 132,868  |         |             |         | 116,514  |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Refundable income taxes                                                                      |                                            |         | 1,546    |         |             |         | 1,546    |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Prepaid expenses and other                                                                   |                                            |         | 7,059    |         |             |         | 6,947    |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Deferred income tax benefits                                                                 |                                            |         | 4,272    |         |             |         | 3,901    |        
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                           |                                                                                              | Total current assets                       |         |          | 210,525 |             |         |          | 204,460 | 
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Property and equipment, at cost                                                                                            |                                                                                              |                                            | 280,049 |          |         |             | 267,633 |         
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Less  accumulated depreciation and amortization                                             |                                            |         | (151,657 | )       |             |         | (144,249 | )      
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                           |                                                                                              | Total property and equipment, net          |         |          | 128,392 |             |         |          | 123,384 | 
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Notes receivable, excluding current portion and less reserves for
uncollectible amounts of $4,863 and $4,196, respectively |                                                                                              |                                            | 23,927  |          |         |             | 25,948  |         
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Deferred income taxes and other assets                                                                                     |                                                                                              |                                            | 75,881  |          |         |             | 77,080  |         
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Intangible assets, net                                                                                                     |                                                                                              |                                            | 154,566 |          |         |             | 157,399 |         
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                           |                                                                                              | Total assets                               |         | $        | 593,291 |             |         | $        | 588,271 | 
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         
|Liabilities and Stockholders Equity                                                                                      
|Current liabilities:                                                                                                      
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Current portion of long-term debt                                                            |                                            | $       | 1,074    |         |             | $       | 1,515    |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Accounts payable                                                                             |                                            |         | 62,485   |         |             |         | 60,388   |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Accrued interest                                                                             |                                            |         | 6,113    |         |             |         | 6,482    |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Accrued liabilities                                                                          |                                            |         | 78,984   |         |             |         | 71,998   |        
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           | Accrued income taxes                                                                         |                                            |         |         |         |             |         | 178      |        
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                           |                                                                                              | Total current liabilities                  |         |          | 148,656 |             |         |          | 140,561 | 
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Long-term debt, net of discount and current portion                                                                        |                                                                                              |                                            | 284,299 |          |         |             | 284,584 |         
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Other long-term liabilities                                                                                                |                                                                                              |                                            | 15,310  |          |         |             | 16,610  |         
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|Stockholders equity                                                                                                       |                                                                                              |                                            | 145,026 |          |         |             | 146,516 |         
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         
|                                                                                                                           |                                                                                              | Total liabilities and stockholders equity |         | $        | 593,291 |             |         | $        | 588,271 | 
|                                                                                                                           |                                                                                              |                                            |         |          |         |             |         |         

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

1



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##### Table of Contents



COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)

|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |         |         | 
|------------------------------------ | ----------------------------- | ------------------------------------- | ------- | -------------------- | ------- | ---------------------- | ------- | -------- | ------- | -------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                     |                               |                                       |         | Thirteen Weeks Ended |         | Twenty-Six Weeks Ended
|                                     |                               |                                       |         |                      |         |                       
|                                     |                               |                                       |         | July 29,             |         | July 31,               |         | July 29, |         | July 31,
|                                     |                               |                                       |         | 2000                 |         | 1999                   |         | 2000     |         | 1999    
|                                     |                               |                                       |         |                      |         |                        |         |          |         |         
|Net revenue                          |                               | $                                     | 264,663 |                      |         | $                      | 260,918 |          |         | $        | 522,434 |         |         | $ | 521,401 |        
|                                    
|                                    
|                                    
|                                    
|Costs and expenses:                 
|                                    
|                                    
|                                    
|                                    
|                                     | Cost of goods sold            |                                       |         | 87,981               |         |                        |         | 90,882   |         |          |         | 174,309 |         |   |         | 179,000 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Operating expenses            |                                       |         | 159,624              |         |                        |         | 148,428  |         |          |         | 317,967 |         |   |         | 300,287 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation and amortization |                                       |         | 9,960                |         |                        |         | 8,936    |         |          |         | 19,962  |         |   |         | 18,202  |        
|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|                                     |                               | Total costs and expenses              |         |                      | 257,565 |                        |         |          | 248,246 |          |         |         | 512,238 |   |         |         | 497,489 | 
|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|Operating income                     |                               |                                       | 7,098   |                      |         |                        | 12,672  |          |         |          | 10,196  |         |         |   | 23,912  |        
|                                    
|                                    
|                                    
|                                    
|Interest and other (income) expense:
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense              |                                       |         | 7,028                |         |                        |         | 6,975    |         |          |         | 14,088  |         |   |         | 13,803  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Interest and other income     |                                       |         | (934                 | )       |                        |         | (1,080   | )       |          |         | (1,884  | )       |   |         | (1,819  | )      
|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|                                     |                               | Total interest and other expense, net |         |                      | 6,094   |                        |         |          | 5,895   |          |         |         | 12,204  |   |         |         | 11,984  | 
|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|Income (loss) before income taxes    |                               |                                       | 1,004   |                      |         |                        | 6,777   |          |         |          | (2,008  | )       |         |   | 11,928  |        
|                                    
|                                    
|                                    
|                                    
|Income tax provision (benefit)       |                               |                                       | 552     |                      |         |                        | 2,779   |          |         |          | (1,104  | )       |         |   | 4,891   |        
|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|Net income (loss)                    |                               | $                                     | 452     |                      |         | $                      | 3,998   |          |         | $        | (904    | )       |         | $ | 7,037   |        
|                                     |                               |                                       |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|Earnings (loss) per common share:   
|                                    
|                                    
|                                    
|                                    
|                                     | Basic                         |                                       | $       | .03                  |         |                        | $       | .27      |         |          | $       | (.06    | )       |   | $       | .47     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Diluted                       |                                       | $       | .03                  |         |                        | $       | .27      |         |          | $       | (.06    | )       |   | $       | .47     |        

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

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##### Table of Contents



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

|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |         |        |         |  
|------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------- | ---------------------- | ------- | -------- | ------- | ------ | ------- | -
|                                      |                                                                                                 |                                                                                 |                                                                  |         | Twenty-six Weeks Ended
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                       
|                                      |                                                                                                 |                                                                                 |                                                                  |         | July 29,               |         | July 31,
|                                      |                                                                                                 |                                                                                 |                                                                  |         | 2000                   |         | 1999    
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |         
|Cash flows from operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss)                                                                               |                                                                                 | $                                                                | (904    | )                      |         | $        | 7,037   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 | Depreciation and amortization                                                   |                                                                  |         | 19,962                 |         |          |         | 18,202 |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 | Non-cash interest, net                                                          |                                                                  |         | (711                   | )       |          |         | (854   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 | Increases (decreases) in cash resulting from changes in
assets and liabilities:
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 |                                                                                 | Accounts and notes receivable, prepaid expenses
and other assets |         |                        | 2,981   |          |         |        | 173     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 |                                                                                 | Inventories                                                      |         |                        | (16,354 | )        |         |        | (6,971  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 |                                                                                 | Accounts payable, accrued liabilities and other liabilities      |         |                        | 9,274   |          |         |        | (24,951 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 |                                                                                 | Accrued interest                                                 |         |                        | (369    | )        |         |        | 64      |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                                 |                                                                                 | Accrued, refundable and deferred income taxes                    |         |                        | (549    | )        |         |        | 4,354   |  
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|                                      |                                                                                                 |                                                                                 | Net cash provided (used) by operating activities                 |         |                        | 13,330  |          |         |        | (2,946  | )
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|Cash flows from investing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Purchases of property and equipment, net                                                        |                                                                                 |                                                                  | (17,598 | )                      |         |          | (13,501 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Systems development costs                                                                       |                                                                                 |                                                                  | (3,851  | )                      |         |          | (6,500  | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Investment in Pearle Europe, net                                                                |                                                                                 |                                                                  | (553    | )                      |         |          | (1,360  | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                                      |                                                                                 |                                                                  | (10     | )                      |         |          | (582    | )     
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|                                      |                                                                                                 |                                                                                 | Net cash used by investing activities                            |         |                        | (22,012 | )        |         |        | (21,943 | )
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|Cash flows from financing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Repayment of long-term debt                                                                     |                                                                                 |                                                                  | (770    | )                      |         |          | (710    | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from exercise of stock options                                                         |                                                                                 |                                                                  | 472     |                        |         |          | 153     |       
|                                     
|                                     
|                                     
|                                     
|                                      | Common stock repurchased                                                                        |                                                                                 |                                                                  |        |                        |         |          | (564    | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Issuance of stock option notes receivable                                                       |                                                                                 |                                                                  | (1,128  | )                      |         |          |        |       
|                                     
|                                     
|                                     
|                                     
|                                      | Payment of deferred financing fees                                                              |                                                                                 |                                                                  | (375    | )                      |         |          |        |       
|                                     
|                                     
|                                     
|                                     
|                                      | Other, net                                                                                      |                                                                                 |                                                                  | (175    | )                      |         |          | 207     |       
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|                                      |                                                                                                 |                                                                                 | Net cash used by financing activities                            |         |                        | (1,976  | )        |         |        | (914    | )
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|Cash and temporary cash investments: 
|                                     
|                                     
|                                     
|                                     
|                                      | Net decrease during the period                                                                  |                                                                                 |                                                                  | (10,658 | )                      |         |          | (25,803 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Balance, beginning of the period                                                                |                                                                                 |                                                                  | 28,953  |                        |         |          | 51,057  |       
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        
|                                      | Balance, end of the period                                                                      |                                                                                 | $                                                                | 18,295  |                        |         | $        | 25,254  |       
|                                      |                                                                                                 |                                                                                 |                                                                  |         |                        |         |          |        

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

3



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##### Table of Contents



COLE NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(1) Basis of Presentation and Accounting Policies

The consolidated financial statements include the accounts of Cole
National Corporation and its wholly owned subsidiaries, including Cole National
Group, Inc. and its wholly owned subsidiaries (collectively, the Company). All
significant intercompany transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared
without audit and certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although management
believes that the disclosures herein are adequate to make the information not
misleading. Results for interim periods are not necessarily indicative of the
results to be expected for the full year. These statements should be read in
conjunction with Cole National Corporations consolidated financial statements
for the fiscal year ended January 29, 2000.

In the opinion of management, the accompanying financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly its financial position as of July 29, 2000 and the results of
operations and cash flows for the 26 weeks ended July 29, 2000 and July 31,
1999.

Inventories

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

Cash Flows

Net cash flows from operating activities reflect cash payments for income
taxes and interest of $176,000 and $13,915,000 respectively, for the 26 weeks
ended July 29, 2000, and $283,000 and $13,331,000, respectively, for the 26
weeks ended July 31, 1999.

Earnings Per Share

Earnings per share for the 13 and 26 weeks ended July 29, 2000 and July
31, 1999 have been calculated based on the following weighted average number of
common shares and equivalents outstanding:

|        |  |                |            |                  |  |      |            |      |  |  |            |  |  |  |            | 
|------- |  | -------------- | ---------- | ---------------- |  | ---- | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|        |  | Thirteen Weeks |            | Twenty-six Weeks
|        |  |                |            |                 
|        |  | 2000           |            | 1999             |  | 2000 |            | 1999
|        |  |                |            |                  |  |      |            |     
|Basic   |  |                | 15,552,558 |                  |  |      | 14,855,657 |      |  |  | 15,535,685 |  |  |  | 14,862,827 | 
|       
|       
|       
|       
|Diluted |  |                | 15,594,889 |                  |  |      | 14,874,604 |      |  |  | 15,556,856 |  |  |  | 14,971,526 | 

4



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##### Table of Contents



COLE NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(1) Basis of Presentation and Accounting Policies (continued)

Total Other Comprehensive Income (Loss)

Total other comprehensive income (loss) for the 13 and 26 weeks ended
July 29, 2000 and July 31, 1999 is as follows (000s omitted):

|                                     |  |                |       |                  |  |      |       |      |  |   |        |   |  |   |       |  
|------------------------------------ |  | -------------- | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                     |  | Thirteen Weeks |       | Twenty-six Weeks
|                                     |  |                |       |                 
|                                     |  | 2000           |       | 1999             |  | 2000 |       | 1999
|                                     |  |                |       |                  |  |      |       |     
|Net income (loss)                    |  | $              | 452   |                  |  | $    | 3,998 |      |  | $ | (904   | ) |  | $ | 7,037 |  
|                                    
|                                    
|                                    
|                                    
|Cumulative translation income (loss) |  |                | 1,141 |                  |  |      | (32   | )    |  |   | (672   | ) |  |   | (886  | )
|                                     |  |                |       |                  |  |      |       |      |  |   |        |   |  |   |       |  
|Total comprehensive income (loss)    |  | $              | 1,593 |                  |  | $    | 3,966 |      |  | $ | (1,576 | ) |  | $ | 6,151 |  
|                                     |  |                |       |                  |  |      |       |      |  |   |        |   |  |   |       |  

(2) Credit Facility

In June 2000, the credit facility was amended providing availability
under the working capital commitment of from $50.0 million to 75.0 million based
on Cole National Groups current debt leverage ratio described in the credit
facility. As of July 29, 2000 total availability under the credit facility was
$50.0 million (less commitments under outstanding letters of credit). The
amendment also modified certain covenants, as well as the permitted levels on
indebtedness, dividends, investments, and capital expenditures.

5



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##### Table of Contents



COLE NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(3) Segment Information

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

|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |         |         | 
|-------------------- | ------------------ | ------------------------------- | - | -------------- | ------- | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | 
|                     |                    |                                 |   | Thirteen Weeks |         | Twenty-six Weeks
|                     |                    |                                 |   |                |         |                 
|                     |                    |                                 |   | 2000           |         | 1999             |   | 2000    |         | 1999
|                     |                    |                                 |   |                |         |                  |   |         |         |     
|Net revenue:        
|                    
|                    
|                    
|                    
|                     | Cole Vision        |                                 | $ | 190,548        |         |                  | $ | 192,050 |         |      | $ | 397,663 |         |   | $ | 404,132 |        
|                    
|                    
|                    
|                    
|                     | Things Remembered  |                                 |   | 74,115         |         |                  |   | 68,868  |         |      |   | 124,771 |         |   |   | 117,269 |        
|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |        
|                     |                    | Consolidated net revenue        |   | $              | 264,663 |                  |   | $       | 260,918 |      |   | $       | 522,434 |   |   | $       | 521,401 | 
|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |        
|Income or (loss):   
|                    
|                    
|                    
|                    
|                     | Cole Vision        |                                 | $ | (969           | )       |                  | $ | 4,077   |         |      | $ | 8,474   |         |   | $ | 18,404  |        
|                    
|                    
|                    
|                    
|                     | Things Remembered  |                                 |   | 11,887         |         |                  |   | 10,479  |         |      |   | 9,509   |         |   |   | 9,138   |        
|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |        
|                     |                    | Total segment profit            |   |                | 10,918  |                  |   |         | 14,556  |      |   |         | 17,983  |   |   |         | 27,542  | 
|                    
|                    
|                    
|                    
|Unallocated amounts:
|                    
|                    
|                    
|                    
|                     | Corporate expenses |                                 |   | 3,820          |         |                  |   | 1,884   |         |      |   | 7,787   |         |   |   | 3,630   |        
|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |        
|                     |                    | Consolidated operating income   |   |                | 7,098   |                  |   |         | 12,672  |      |   |         | 10,196  |   |   |         | 23,912  | 
|                    
|                    
|                    
|                    
|                     |                    | Interest and other expense, net |   |                | 6,094   |                  |   |         | 5,895   |      |   |         | 12,204  |   |   |         | 11,984  | 
|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |        
|                     |                    | Income before income taxes      |   | $              | 1,004   |                  |   | $       | 6,777   |      |   | $       | (2,008  | ) |   | $       | 11,928  | 
|                     |                    |                                 |   |                |         |                  |   |         |         |      |   |         |         |   |   |        

(4) Reclassifications

Certain fiscal 1999 amounts have been reclassified to conform with the
fiscal 2000 presentation.

6



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##### Table of Contents






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

The following is a discussion of certain factors affecting Cole
National Corporations results of operations for the 13 and 26 week periods
ended July 29, 2000 and July 31, 1999 (the Companys second quarter and first
six months, respectively) and its liquidity and capital resources. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this filing and the audited
financial statements for the fiscal year ended January 29, 2000 included in the
annual report on Form 10-K.

Fiscal years end on the Saturday closest to January 31 and are
identified according to the calendar year in which they begin. For example, the
fiscal year ended January 29, 2000 is referred to as fiscal 1999. The current
fiscal year, which will end February 3, 2001, is referred to as fiscal 2000.

Results of Operations

The following table sets forth certain operating information for the
second quarter and first six months of fiscal 2000 and fiscal 1999 (dollars in
millions):

|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |        |       |       |       |   |       |       |       |   |     |      |       |   
|---------------------------------------------------- | ----------------------------- | ------------------- | ----- | -------------- | ----- | ---------------- | ----- | ------ | ----- | ---- | ---- | ---- | ----- | ------ | ----- | ----- | ----- | - | ----- | ----- | ----- | - | --- | ---- | ----- | --
|                                                     |                               |                     |       | Second Quarter |       | First Six Months
|                                                     |                               |                     |       |                |       |                 
|                                                     |                               |                     |       | 2000           |       | 1999             |       | Change |       | 2000 |      | 1999 |       | Change
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |       
|Net Revenue:                                        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Vision                   |                     | $     | 190.6          |       |                  | $     | 192.0  |       |      |      | (0.8 | )%    |        | $     | 397.6 |       |   | $     | 404.1 |       |   |     | (1.6 | )%   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 74.1           |       |                  |       | 68.9   |       |      |      | 7.6  |       |        |       | 124.8 |       |   |       | 117.3 |       |   |     | 6.4  |      
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |        |       |       |       |   |       |      
|                                                     |                               | Total net revenue   |       | $              | 264.7 |                  |       | $      | 260.9 |      |      |      | 1.4   | %      |       | $     | 522.4 |   |       | $     | 521.4 |   |     |      | 0.2   | % 
|                                                    
|                                                    
|                                                    
|                                                    
|Gross margin                                         |                               | $                   | 176.7 |                |       | $                | 170.0 |        |       |      | 3.9  | %    |       | $      | 348.1 |       |       | $ | 342.4 |       |       |   | 1.7 | %   
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses                                   |                               |                     | 159.6 |                |       |                  | 148.4 |        |       |      | 7.5  |      |       |        | 317.9 |       |       |   | 300.3 |       |       |   | 5.9 |     
|                                                    
|                                                    
|                                                    
|                                                    
|Depreciation and amortization                        |                               |                     | 10.0  |                |       |                  | 8.9   |        |       |      | 11.5 |      |       |        | 20.0  |       |       |   | 18.2  |       |       |   | 9.7 |     
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |        |       |       |       |   |       |      
|                                                     |                               | Operating income    |       | $              | 7.1   |                  |       | $      | 12.7  |      |      |      | (44.0 | )%     |       | $     | 10.2  |   |       | $     | 23.9  |   |     |      | (57.4 | )%
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |        |       |       |       |   |       |      
|Percentage of Net Revenue:                          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Gross margin                  |                     |       | 66.8           | %     |                  |       | 65.2   | %     |      |      | 1.6  |       |        |       | 66.6  | %     |   |       | 65.7  | %     |   |     | 0.9  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Operating expenses            |                     |       | 60.3           | %     |                  |       | 56.9   | %     |      |      | 3.4  |       |        |       | 60.8  | %     |   |       | 57.6  | %     |   |     | 3.2  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization |                     |       | 3.8            | %     |                  |       | 3.4    | %     |      |      | 0.4  |       |        |       | 3.8   | %     |   |       | 3.5   | %     |   |     | 0.3  |      
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |        |       |       |       |   |       |      
|                                                     |                               | Operating income    |       |                | 2.7   | %                |       |        | 4.9   | %    |      |      | (2.2  | )      |       |       | 2.0   | % |       |       | 4.6   | % |     |      | (2.6  | ) 
|                                                     |                               |                     |       |                |       |                  |       |        |       |      |      |      |       |        |       |       |       |   |       |      
|Number of Retail Locations
at the End of the Period:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cole Licensed Brands          |                     |       | 1,106          |       |                  |       | 1,176  |       |      |      | (6.0 | )%   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Pearle company-owned          |                     |       | 446            |       |                  |       | 462    |       |      |      | (3.5 | )%   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Pearle franchised             |                     |       | 425            |       |                  |       | 418    |       |      |      | 1.7  | %    
|                                                     |                               |                     |       |                |       |                  |       |       
|                                                     |                               | Total Cole Vision   |       |                | 1,977 |                  |       |        | 2,056 |      |      |      | (3.8  | )%    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Things Remembered             |                     |       | 788            |       |                  |       | 810    |       |      |      | (2.7 | )%   
|                                                     |                               |                     |       |                |       |                  |       |       
|                                                     |                               | Total Cole National |       |                | 2,765 |                  |       |        | 2,866 |      |      |      | (3.5  | )%    
|                                                     |                               |                     |       |                |       |                  |       |       

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The increase in net revenue for the second quarter and first six months
of fiscal 2000 was primarily attributable to increases in consolidated
comparable store sales and revenue associated with the MetLife vision care
business acquired in October 1999, offset by a reduction in the number of
locations, including the closing of all optical departments at Montgomery Ward
in December 1999. Changes in comparable store sales by business were:

|                             |                     |  |                |     |                  |  |      |     |  
|---------------------------- | ------------------- |  | -------------- | --- | ---------------- |  | ---- | --- | -
|                             |                     |  | Second Quarter |     | First Six Months
|                             |                     |  |                |     |                 
|Cole Licensed Brands         |                     |  | 5.5            | %   |                  |  | 5.2  | %  
|                            
|                            
|                            
|                            
|Pearle U.S. company-owned    |                     |  | (2.8           | %)  |                  |  | (2.0 | %) 
|                            
|                            
|                            
|                            
|                             | Total Cole Vision   |  |                | 2.5 | %                |  |      | 2.4 | %
|                            
|                            
|                            
|                            
|Things Remembered            |                     |  | 8.5            | %   |                  |  | 7.4  | %  
|                            
|                            
|                            
|                            
|                             | Total Cole National |  |                | 4.2 | %                |  |      | 3.7 | %
|                            
|                            
|                            
|                            
|Pearle U.S. franchise stores |                     |  | 0.9            | %   |                  |  | 2.3  | %  
|                            
|                            
|                            
|                            
|Pearle U.S. chain-wide       |                     |  | (0.8           | )%  |                  |  | 0.3  | %  

Sales at Cole Licensed Brands increased despite the closing of the
Montgomery Ward departments. The average selling price at Cole Licensed Brands
for the second quarter and first six months was slightly above last year, while
the number of transactions was also up slightly even though there were fewer
locations. Sales results for the second quarter and first six months at Pearle
company-owned stores reflected a decrease in the number of transactions due, in
part, to fewer locations. The average transaction increased slightly in the
second quarter and first six months. At Things Remembered, the comparable store
sales increases for the second quarter and first six months reflected an
increase in sales of new merchandise at higher average unit retails and an
increase in the number of transactions compared to a year ago.

The gross margin increase was primarily attributable to the revenue
increase at Things Remembered. Gross margin as a percentage of net revenue at
Cole Vision improved 1.9 and 1.4 percentage points in fiscal 2000 compared to
the second quarter and first six months of last year, respectively. The primary
cause for the improvement was the additional revenue associated with the MetLife
vision care business. Gross margin as a percentage of net revenue at Things
Remembered was flat to last year in the second quarter and decreased 0.9
percentage points compared to the first six months in fiscal 1999 reflecting the
impact of an aggressive merchandise clearance promotion in the first quarter of
this year.

The unfavorable leverage in operating expenses for the second quarter
was primarily attributable to a 1.8 percentage point increase in payroll costs,
and a 1.0 percentage point increase in managed vision care costs. The
unfavorable leverage for the first six months was primarily attributable to a
2.0 percentage point increase in payroll costs, including a 0.3 percentage point
increase from first quarter severance costs, and a 0.5 percentage point increase
in managed vision care costs primarily associated with the MetLife vision care
business. The leverage loss resulted primarily from the decline in comparable
store sales at Pearle company-owned stores, a $1.8 million first quarter charge
for severance costs recorded in connection with a personnel reduction at Cole
Vision, and increased expenses associated with the Target Optical expansion. The
increase in depreciation and amortization was primarily attributable to
amortization of systems development costs related to the Pearle manufacturing
and merchandise/inventory management system implemented in the third quarter
last year and amortization of restricted stock awarded in January 2000.

The decreases in operating income for the second quarter and first six
months compared to the same periods a year earlier were primarily the result of
the increases in operating expenses and depreciation and amortization as noted
above.

8



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Net interest and other expense increased slightly for the second
quarter and first six months compared to the same periods a year ago. Income tax
provisions were recorded in the first six months of fiscal 2000 and fiscal 1999
using the Companys estimated annual effective tax rates of 55% and 41%,
respectively. The higher rate for fiscal 2000 approximates the full year
effective rate realized in fiscal 1999.

Net income for the second quarter decreased to $0.5 million from $4.0
million for the same period last year. For the first six months of fiscal 2000,
net income decreased to a loss of $0.9 million from a profit of $7.0 million for
the first six months of fiscal 1999. The decrease was primarily due to the
decrease in income from operations, offset in part by the higher effective tax
rate on the fiscal 2000 loss.

Liquidity and Capital Resources

The Companys primary source of liquidity is funds provided from
operations of its operating subsidiaries. In addition, its wholly-owned
subsidiary, Cole National Group, Inc., and its operating subsidiaries have a
working capital line of credit of $75.0 million. By amendment, availability
under the working capital commitment ranges from $50.0 million to $75.0 million
based on Cole National Groups current debt leverage ratio described in the
credit facility. As of July 29, 2000, total availability under the credit
facility was $50.0 million and availability after reduction for commitment under
outstanding letters of credit totaled $40.4 million. There were no working
capital borrowings outstanding at any time during the first six months of fiscal
2000 and fiscal 1999. However, the Company expects to supplement its seasonal
cash needs with working capital borrowings in the third and fourth quarters this
year.

Operations for the first six months provided $13.3 million of cash in
fiscal 2000 compared to a use of $2.9 million for the same period in fiscal
1999. The primary reason for the additional $16.3 million in cash provided by
operations was an increase in accounts payable and accrued liabilities in the
first six months of fiscal 2000 due, in large part, to accounts payable in
connection with the remerchandising of the Pearle stores and the opening of the
Target departments compared to a significant decrease in accounts payable and
accrued liabilities for the same period in fiscal 1999. This favorable
comparison was partially offset by a larger increase in inventories this year
than last year and a decrease in net income compared to last year.

Cash used by investing activities included capital additions of $17.6
million and $13.5 million for the first six months of fiscal 2000 and fiscal
1999, respectively. The majority of capital expenditures were for store
fixtures, equipment and leasehold improvements for new stores and the remodeling
of existing stores. Investments in systems development costs totaled $3.9
million and $6.5 million in the first six months of fiscal 2000 and fiscal 1999,
respectively. The Companys net investment in Pearle Europe was increased by
$0.6 million and $1.4 million in the first six months of fiscal 2000 and fiscal
1999, respectively.

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

Recent Developments and Forward-Looking Information

Primarily as a result of the costs associated with the rapid expansion
of Target Optical, the Company expects that third quarter operating results will
be below last years level (before the severance charges of $4.7 million in the
third quarter of fiscal 1999).

Certain sections of this Form 10-Q, including this Managements
Discussion and Analysis, contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Actual results may
differ materially from those forecasted due to a variety of factors that can
adversely affect the Companys operating results, liquidity and financial
condition such as risks associated with the timing and achievement of the
continuing restructuring and improvements in the operations of the optical
business, the

9



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##### Table of Contents



Companys ability to select, stock and price merchandise attractive to customers,
success of systems integration, competition in the optical industry, integration
of acquired businesses, economic and weather factors affecting consumer
spending, operating factors affecting customer satisfaction, including
manufacturing quality of optical and engraved goods, the Companys relationships
with host stores and franchisees, the mix of goods sold, pricing and other
competitive factors, and the seasonality of the Companys business.
Forward-looking statements are made based upon managements expectations and
beliefs concerning future events impacting the Company. All
forward-looking statements involve risk and uncertainty.

10



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##### Table of Contents






Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

11



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##### Table of Contents



PART II  OTHER INFORMATION




Item 4. Submission of Matters to a Vote of Security Holders

On June 15, 2000 the Company held its annual meeting of stockholders.
At that meeting, the stockholders elected seven directors to serve until the
next annual meeting of stockholders and confirmed the appointment of Arthur
Andersen LLP as independent auditors of the Company for the fiscal year ending
February 3, 2001.

Of the total eligible votes of 15,518,812, stockholders cast votes of
14,345,290 or 92.44% of the total eligible votes. The votes cast for the
aforementioned matters were as follows:

1) Election of Directors

|                  |  |     |            |          |  |           |           |  |  |               |   | 
|----------------- |  | --- | ---------- | -------- |  | --------- | --------- |  |  | ------------- | - | 
|                  |  |     |            |          |  |           |           |  |  | Abstentions  
|                  |  |     |            |          |  |           |           |  |  | And/or Broker
|                  |  | For |            | Withheld |  | Non-votes
|                  |  |     |            |          |  |          
|Jeffrey A. Cole   |  |     | 13,272,831 |          |  |           | 1,072,459 |  |  |               | 0 | 
|                 
|                 
|                 
|                 
|Timothy F. Finley |  |     | 13,272,110 |          |  |           | 1,073,180 |  |  |               | 0 | 
|                 
|                 
|                 
|                 
|Irwin W. Gold     |  |     | 13,272,110 |          |  |           | 1,073,180 |  |  |               | 0 | 
|                 
|                 
|                 
|                 
|Peter V. Handal   |  |     | 13,272,010 |          |  |           | 1,073,280 |  |  |               | 0 | 
|                 
|                 
|                 
|                 
|Larry Pollock     |  |     | 13,274,930 |          |  |           | 1,070,360 |  |  |               | 0 | 
|                 
|                 
|                 
|                 
|Charles A. Ratner |  |     | 13,271,075 |          |  |           | 1,074,215 |  |  |               | 0 | 
|                 
|                 
|                 
|                 
|Walter J. Salmon  |  |     | 13,274,885 |          |  |           | 1,070,405 |  |  |               | 0 | 

2) Confirmation of Independent Auditors

|                    |  |     |            |          |  |           |        |  |  |               |        | 
|------------------- |  | --- | ---------- | -------- |  | --------- | ------ |  |  | ------------- | ------ | 
|                    |  |     |            |          |  |           |        |  |  | Abstentions  
|                    |  |     |            |          |  |           |        |  |  | And/or Broker
|                    |  | For |            | Withheld |  | Non-votes
|                    |  |     |            |          |  |          
|Arthur Andersen LLP |  |     | 14,292,762 |          |  |           | 34,698 |  |  |               | 17,830 | 

12



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##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits. The following Exhibits are filed herewith and made a part hereof:

|     |  |                                                                                                                                                                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Eighth Amendment to the Credit Agreement, dated as of June 9, 2000,
among Cole Vision Corporation, Things Remembered, Inc., and Pearle
Inc. and Canadian Imperial Bank of Commerce.
|    
|    
|    
|    
|27   |  | Financial Data Schedule                                                                                                                                                            

(b)    Reports on Form 8-K

|     |  | 
|---- |  | 
|None | 

13



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##### Table of Contents



SIGNATURE

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

|                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------
|COLE NATIONAL CORPORATION                                                                                          
|                                                                                                                   
|By:   /s/ William P. Lahiff, Jr.                                                                                   
|                                                                                                                   
|William P. Lahiff, Jr.
Vice President and Controller
(Duly  Authorized   Officer  and Principal
Accounting Officer)

Date: September 11, 2000

14



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##### Table of Contents



COLE NATIONAL CORPORATION
FORM 10-Q
QUARTER ENDED JULY 29, 2000

EXHIBIT INDEX

|        |  |                                                                                                                                                                                     |  |  |  | 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit
|Number  |  | Description                                                                                                                                                                        
|        |  |                                                                                                                                                                                    
|10.1    |  | Eighth Amendment to the Credit Agreement, dated as of June 9, 2000,
among Cole Vision Corporation, Things Remembered, Inc., and Pearle Inc.
and Canadian Imperial Bank of Commerce.
|       
|       
|       
|       
|27      |  | Financial Data Schedule                                                                                                                                                            

15