COLE NATIONAL GROUP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)

|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended February 1, 1997, or

|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to
_______.

Commission file number 33-66342

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

Delaware 34-1744334
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)

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

Registrant's telephone number, including area code: (216) 449-4100

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act: None

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

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

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

As of March 27, 1997, 1,100 shares of the registrant's Common Stock, $.01 par
value, were outstanding.

Documents incorporated by reference: None

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PART I

Item 1. Business

General

Cole National Group, Inc. ("CNG"), a wholly owned subsidiary of Cole
National Corporation, ("CNC"), was incorporated as a Delaware corporation in
July 1993. The Company is a leading provider of eyewear products, optometric
services and personalized gifts with over 3,100 retail locations in 50 states,
Canada and the Caribbean. References herein to the "Company" include CNG and its
direct and indirect subsidiaries and include its predecessor companies, which
have operated for more than 50 years, where applicable. The Company's businesses
are conducted through two principal operating units: (i) Cole Optical,
consisting of Cole Vision Corporation ("Cole Vision") and Pearle, Inc.
("Pearle"), which was acquired on November 15, 1996; and (ii) Cole Gift,
consisting of Things Remembered Inc. ("Things Remembered") and Cole Gift
Centers, Inc. ("CGC"). Cole Optical is the largest optical retail company in the
United States in terms of number of locations and is the second largest optical
retailer in terms of sales volume. Cole Gift operates the only two nationwide
chains of gift stores offering "while you shop" gift personalization, key
duplicating, and related merchandise. The Company differentiates itself from
other specialty retailers by providing value-added services at the point of sale
at all of its retail locations.

Cole Optical

Pro forma for the Pearle acquisition, Cole Optical contributed 70% of
the Company's net revenue in fiscal 1996 with over 2,100 company-owned and
franchised locations throughout the United States, Canada and the Caribbean as
of February 1, 1997. When the integration and consolidation of Pearle is
complete, Cole Vision and Pearle will share management leadership, purchasing
power and corporate support functions and Cole Vision's managed vision care
programs will give participants access to a network of company-owned, franchised
and third-party optical locations.

Cole Vision

Cole Vision operates principally under the "Sears Optical",
"Montgomery Ward Vision Center" and "BJ's Optical Department" names. As of
February 1, 1997, Cole Vision operated 1,063 departments in 46 states, including
675 departments on the premises of Sears department stores, 213 departments in
Montgomery Ward stores, 75 departments in BJ's Wholesale Club stores, 19
departments located in three other retailers and 81 freestanding stores operated
under the name "Sears Optical." In November 1996, Cole Vision acquired 73 Sears
Optical departments and two freestanding Vision Club stores in Canada. Cole
Vision departments are generally operated under a lease or license arrangement
through which the host store collects the sales receipts, retains an agreed upon
percentage of sales and remits the remainder to Cole Vision on a weekly basis.

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

Each of Cole Vision's optical departments is computer linked to Cole
Vision's five centralized manufacturing laboratories, which grind, cut and fit
lenses to order and ship them to the stores. Cole Vision provides next day
delivery on most of the eyewear it offers when requested by its customers. Cole
Vision purchases all of the frames and lenses used in its eyeglasses from
outside suppliers, both in the United States and several foreign countries.

Cole Vision conducts a variety of marketing and promotional efforts
to build and maintain its customer base. Cole Vision primarily uses newspaper,
direct mail, yellow pages and host advertising. Host advertising includes the
placement of promotional material within sales circulars or credit card billings
sent out by the host store to its customers. Cole Vision also promotes its next
day service as "Eyewear Express."

Managed Vision Care

In the last several years, Cole Vision has expanded its managed
vision care program that provides low cost, comprehensive eyecare benefits
marketed directly to employers, other employee benefit plan sponsors and
insurance companies, primarily under the name "Vision One." Vision One's basic
program gives employers the opportunity to offer their employees a group
discount at the managed vision care network with minimal direct cost to the
employer. An enhanced Vision One program allows employers to provide their
employees with prepaid eye examinations as well as pricing discounts or
reimbursements. Cole Vision expects to add the Pearle company-owned and
franchise locations to its managed vision care programs in fiscal 1997.

Pearle

At February 1, 1997, Pearle's operations consisted of 348
company-owned and 338 franchised stores located in 43 states, Canada, and the
Caribbean. All Pearle stores operate in either an "Express" or "Mainline" store
format. Express stores contain a full surfacing lab that can manufacture most
glasses in approximately one hour. Mainline stores can manufacture over 50% of
prescriptions on-site in approximately one hour. Other prescriptions are sent to
a nearby Express location or to the main laboratory in Dallas. The main

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laboratory generally is able to complete orders for next day delivery if
requested. At February 1, 1997, 268 of the company-owned stores and 121 of the
franchised stores were Express, with the balance being Mainline.

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

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

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

Franchise Operations

Pearle has maintained a franchise program since 1980. Most of the
franchised stores are single franchise operations, with no franchisee operating
more than five stores. With the proper financial approvals, a franchise purchase
can be financed through Pearle. Currently, Pearle offers financing over seven to
ten years at a rate of prime plus three points adjusted quarterly.

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

Pearle has recently presented a new form of the Franchise Agreement
to all franchisees which would reduce the royalty and advertising fees they pay
and would, among other things, provide for

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the franchisee's participation in Cole Vision's managed vision care programs.

Cole Gift

Cole Gift, pro forma for the Pearle acquisition, contributed
approximately 30% of the Company's net revenue in fiscal 1996. As of February 1,
1997, Cole Gift operated nearly 1,300 locations throughout the United States.
Things Remembered and CGC share management expertise, purchasing power,
warehousing, distribution systems and corporate support functions.

Things Remembered

As of February 1, 1997, Things Remembered operated 790 stores and
kiosks generally located in large, enclosed shopping malls located in 45 states.
Each location carries a wide assortment of engravable items and provides "while
you shop" personalization and engraving services for any occasion including
holiday, business and special occasion gift events. Things Remembered offers
engraving for items purchased at the store as well as for items purchased
elsewhere.

Merchandise sold at Things Remembered stores consists of a broad
assortment of gift categories and items at prices generally ranging from $10 to
$75. Things Remembered's offering of gifts includes writing instruments, clocks,
music boxes, picture frames and albums, executive desk sets and accessories, ID
bracelets, glassware, lighters, keys and key rings, door knockers and Christmas
ornaments. Things Remembered features brand name merchandise as well as higher
margin private label merchandise.

At February 1, 1997, Things Remembered locations consisted of 447
stores and 343 kiosks. The typical store consists of about 1,000 square feet,
while kiosks, which are units located in the center of the common mall area, are
typically 200 square feet in size.

In fiscal 1993, Things Remembered began a new retail concept by
opening five "personalization superstores" that combine engraved gifts with
personalized soft goods in a large store format. The Company utilizes
computer-controlled embroidery equipment for the personalization of merchandise
such as throws, sweaters, bathrobes, jackets, baseball caps, towels and baby
blankets. At February 1, 1997, a total of 83 personalization superstores were
open averaging approximately 2,200 square feet in size.

In fiscal 1995, Cole Gift established a central fulfillment facility
with computer-controlled embroidery equipment. In fiscal 1996, the Company added
soft goods to most of Things Remembered's other locations providing these stores
with personalization services from the central facility.

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CGC

As of February 1, 1997, CGC operated 501 leased locations in 44
states including 455, 36 and nine locations in Sears, Venture and Montgomery
Ward stores, respectively, and one location in the store of another national
retailer. CGC stores are generally operated under a lease or license arrangement
under which the host store collects the sales receipts, retains an agreed upon
percentage of sales and remits the remainder to CGC on a weekly basis.

CGC locations sell gifts and gift engraving and other services
similar to those offered by Things Remembered, in addition to key duplicating
and watch repair services. As of February 1, 1997, 96 of the CGC locations in
operation were standard format shops occupying approximately 150 square feet.
Since 1989, CGC has also operated greeting card locations in Sears stores and
combined them with the CGC operations in such stores. Locations in this enhanced
format, which numbered 67 as of February 1, 1997, average approximately 1,000
square feet in size. Over the last four years, 286 CGC locations have been
converted to gift centers. Gift centers, which occupy approximately 1,200 square
feet of space, typically carry a substantially expanded line of engravable and
non-engravable gifts along with greeting cards. In the fourth quarter of fiscal
1995, gift centers began offering selected soft goods supported by the Cole Gift
central fulfillment operation. CGC also operates 52 key kiosks, of approximately
80 square feet in size, that provide key duplicating and key related products
only.

In fiscal 1995, CGC opened the first "Personally Yours" department
within Sears. Personally Yours is a concept designed to generate additional
customer traffic and increase sales by offering personalization for hard and
soft line products for both CGC and Sears merchandise. In the first half of
fiscal 1996, CGC expanded this test by opening seven stores located in one
metropolitan area.

General

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

Nearly all Cole Gift locations are equipped with gift engravers and
key duplicating machines. Cole Gift has computerized engraving equipment in most
Things Remembered stores and kiosks. Many Things Remembered stores also have
equipment for etching glassware items. All Cole Gift locations are equipped with
point of sale terminals.

The Company ships most of Cole Gift's store merchandise, other than
greeting cards, through its centralized distribution system at its warehouse in
Highland Heights, Ohio. The warehouse, which services both Things Remembered and
CGC, utilizes a computerized carousel system to automate the process of locating
merchandise needed to fill a store order.

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Host Relationships

The Company believes it has developed excellent relationships with
the host stores in which CGC and Cole Vision operate. The Company has maintained
its relationships with Sears and Montgomery Ward for over 40 years in the gift
and key business and over 35 years in the optical business. Of the Sears and
Montgomery Ward stores that offer optometric services, virtually all are
operated by Cole Vision. Although CGC's and Cole Vision's leases with their
major hosts are terminable by either party upon relatively short notice, neither
has ever had a lease terminated other than in connection with a store closing,
relocation or major remodeling.

Seasonality

The Company's business historically has been seasonal, with, on
average, approximately 30% of its net revenue and approximately 50% of its
income from operations generated in the fourth fiscal quarter because of the
importance of gift sales during the important Christmas retailing season.
Although the Pearle acquisition will moderate the seasonality of the Company due
to relatively lower levels of optical product sales during the Christmas holiday
season, the Company's business will remain seasonal.

Purchasing

The merchandise, supplies and component parts required for the
various products sold by the Company are purchased from a large number of
suppliers and manufacturers and are generally readily available. In most cases,
such purchases are not made under long-term contracts. In fiscal 1996, no single
supplier or manufacturer accounted for as much as 10% of total purchases.

Competition

The Company operates in highly competitive businesses. Cole Optical
competes with other optical companies, private ophthalmologists, optometrists
and opticians and a growing number of HMO's in a highly fragmented marketplace.
Pearle competes on the basis of its highly recognized brand name, one-hour
express service and by offering quality eyecare products. Cole Vision competes
primarily on the basis of the service it provides as well as price and product
quality, and the reputation of its host stores. The Company believes that Pearle
and Cole Vision, based on sales, rank second and third, respectively in United
States optical retailing sales. Although Cole Gift operates the only two
nationwide chains of gift stores offering "while you shop" gift engraving, key
duplicating, glass etching and monogramming, as well as related merchandise, it
competes with many other retailers that sell gift items. Cole Gift competes with
such other retailers primarily on the basis of the value-added point of sale
services that it provides as well as price and product quality. Some of the
Company's competitors have greater financial resources than the Company.

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Employees

As of February 1, 1997, the Company and its subsidiaries had
approximately 8,600 full-time and 5,100 part-time employees. During October,
November and December, the Company employs additional full- and part-time
employees. In fiscal 1996, approximately 5,000 additional employees were
employed during such period. The hourly employees at Cole Gift's distribution
center (approximately 80 employees in the aggregate) and approximately 140
employees at certain Pearle store locations are represented by labor unions. The
Company considers its present labor relations to be satisfactory.

Item 2. Properties

The Company owns an office and warehouse in Highland Heights, Ohio
that is subject to a mortgage and leases its executive offices and another
office in Cleveland, Ohio. All of Cole Vision's and Cole Gift's retail locations
are leased or operated under a license with the host store, and none of the
individual retail locations is material to the Company's operations. Leases for
stores operated in Sears stores and freestanding stores operated under the name
"Sears Optical" are generally for terms of 90 days and five years, respectively.
Leases for Things Remembered stores and kiosks are generally for terms of ten
and five years, respectively. The Company believes that its relationships with
its lessors are generally good. The Company leases its five Cole Vision optical
laboratories, two of which are located in Knoxville, Tennessee; Memphis,
Tennessee; Salt Lake City, Utah; and Richmond, Virginia, pursuant to leases
expiring (including renewals at the option of the Company) in 1999, 2005, 2002,
2006 and 2002, respectively.

Pearle has 635 stores based in forty-three states. Pearle also has
eighteen stores in Canada and thirty-three stores in the Caribbean. Stores are
located in malls, strip centers and freestanding locations. Pearle leases most
of its retail stores under noncancellable operating leases with terms generally
ranging from five to ten years and which generally contain renewal options for
additional periods. Pearle also is the principal lessee on a majority of stores
operated by franchisees, who sublease the facilities from Pearle. Pearle owns
its Dallas Support Center, which comprises approximately 88,721 square feet of
office space and 147,336 square feet of laboratory and distribution facilities.
Pearle also owns a small headquarters and laboratory in Puerto Rico.

The Company has acquired the land to construct a new warehouse and
distribution facility for Cole Gift that is expected to improve distribution
efficiencies. The facility, which the Company expects will be completed in
fiscal 1997, will most likely be financed through a sale and lease-back
transaction or through conventional secured real estate financing. The Company
estimates the cost for this facility to be approximately $10 million.

Item 3. Legal Proceedings

The Company is subject to a variety of routine legal proceedings.

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

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

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

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

The covenants in certain debt instruments to which CNG and certain of
its subsidiaries are parties restrict the ability of CNG and such subsidiaries
to make distributions to CNC or CNG, respectively. A credit facility to which
CNG and its subsidiaries are parties permits payment of dividends by CNG's
subsidiaries to CNG annually of up to $15.0 million plus 0.25% of the net annual
sales of CNG's subsidiaries to meet expenses of CNG or CNC, together with
amounts necessary to pay principal and interest on the CNG Notes and to meet tax
obligations. CNG's operating subsidiaries paid dividends in 1995 to CNG of $14.0
million. No dividends were paid during 1996.

So long as no default or event of default has occurred under the
indenture relating to the CNG Notes and CNG has met a specified fixed charge
coverage ratio test, payments of dividends to CNC of amounts contributed by CNC
to the equity of CNG subsequent to September 30, 1993, plus up to one-half of
the consolidated net income of CNG since October 31, 1993 are permitted. During
1996, CNG paid dividends to CNC in the amount of $15.4 million.

Item 6. Selected Financial Data

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

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

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

The following is a discussion of certain factors affecting the
Company's results of operations for the fiscal years ended February 1, 1997 and
February 3, 1996. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 8 of this
Form 10-K.

The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they begin.
For example, the fiscal year ended February 1, 1997 is referred to as "fiscal
1996." Fiscal 1996

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consisted of a 52-week period. Fiscal 1995 and fiscal 1994 consisted of 53- and
52-week periods, respectively.

Fiscal 1996 Compared to Fiscal 1995

On November 15, 1996, the Company acquired certain assets and all of
the issued and outstanding common stock of Pearle, Inc. ("Pearle"). A
significant portion of the purchase price was financed by the issuance of $150.0
million of 9.875% Senior Subordinated Notes due 2006 (the "Notes"). The
acquisition of Pearle has been accounted for under the purchase method of
accounting. Accordingly, Pearle's results of operations have been included in
the Company's consolidated statement of operations since the date of
acquisition. For the eleven-week period, Pearle operated at approximately a
break-even level with net revenue of $58.3 million reflecting the relatively
lower level of optical retail sales during the holiday season. At February 1,
1997, the Pearle system included 348 company-operated optical stores and 338
franchised locations in the United States, Canada and the Caribbean. See Notes 2
and 3 of the Notes to Consolidated Financial Statements for further discussion
of the Pearle acquisition. Except as otherwise indicated, the following
discussion of net revenue, gross profit and operating expenses relates to the
Company on an historical basis without giving effect to the Pearle acquisition.

Net revenue increased 8.4% to $625.7 million in fiscal 1996 from
$577.1 million in fiscal 1995. The increase in consolidated revenue was due to a
comparable store sales increase of 6.3% and to the opening of additional Cole
Gift and Cole Vision units including 75 optical locations in Canada as a result
of the acquisition of AOCO Limited in November 1996. This was partially offset
by one less week of sales in fiscal 1996 compared to fiscal 1995 and the closing
of 95 low-volume Cole Gift departments. Comparable store sales increased 10.7%
at Cole Vision primarily as a result of successful eyewear promotions and growth
in the managed vision care program. Comparable store sales increased 1.4% at
Cole Gift benefiting from the roll-out of monogrammed softgoods and the
introduction of new merchandise. At February 1, 1997, the Company had 3,115
specialty service retail locations including the Pearle company-operated stores
and 338 franchised locations, versus 2,378 at the end of the prior year.

Gross profit increased to $429.4 million in fiscal 1996 from $394.2
million in fiscal 1995. Gross margins for fiscal 1996 and fiscal 1995 were 68.6%
and 68.3%, respectively. The increase in gross margin percentage was the result
of lower product costs, improved optical lab productivity and a higher level of
personalization in the sales mix at Things Remembered. In fiscal 1997, the
Company's consolidated gross margin is expected to decline from its historical
levels as Pearle has a lower gross margin than the Company due to the higher
costs of in-store laboratories and lower margin wholesale sales to franchised
stores partially offset by franchise royalties, fees and interest income

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on franchise notes receivable which have no corresponding cost of goods sold.

Operating expenses increased 8.3% to $360.2 million in fiscal 1996
from $332.5 million the prior year. As a percentage of revenue, operating
expenses were 57.6% in fiscal 1996 and 1995. Operating expenses increased
primarily due to higher advertising expenditures, payroll costs and store
occupancy expenses, partly offset by one less week in fiscal 1996. Advertising
expenditures at Cole Vision were increased for optical promotions to encourage
continued sales growth above last year's successful promotions. Payroll costs
increased because of more higher-volume retail units open in 1996, including an
increased number of Things Remembered personalization superstores, and
additional payroll to support increased sales. Store occupancy expenses
increased primarily as a result of the increased number of Things Remembered
personalization superstores and higher percentage rents caused by increased
comparable store sales. Fiscal 1996 depreciation and amortization expense of
$17.3 million was $1.6 million more than fiscal 1995 reflecting an increase in
capital expenditures.

In the fourth quarter of fiscal 1996, the Company recorded a $64.4
million pre-tax charge for certain unusual and non-recurring items. Such charge
was primarily related to the acquisition of Pearle and included costs incurred
related to the integration and consolidation of Pearle into the Company's
operations, as well as certain other non-recurring charges. See Note 3 of the
Notes to Consolidated Financial Statements for further discussion of the
business integration and other non-recurring charges.

Income from operations excluding the charge for non-recurring items
increased 13.0% to $51.9 million in fiscal 1996 from $45.9 million the prior
year. The increase was primarily attributable to increased revenue and higher
gross margin.

Net interest expense for fiscal 1996 of $22.8 million was $1.4
million more than that of the prior year. This increase was primarily due to
$3.4 million of additional interest expense related to the financing of the
Pearle acquisition offset by decreases in interest expense due to the retirement
of $5.0 million of 11.25% Senior Notes due 2001 (the "Senior Notes") in November
1995, the purchase and subsequent retirement of $15.1 million of Senior Notes in
November 1996, the elimination of working capital borrowings and increased
interest income from an increase in temporary cash investments.

The income tax benefit of $7.1 million for fiscal 1996 includes a
$20.0 million income tax benefit related to the charge for business integration
and other non-recurring items. The effective income tax rate on income excluding
the charge for business integration and other non-recurring items was 44.0% in
fiscal 1996 and 1995. This rate reflects the significant impact of
non-deductible amortization of goodwill in both years. A more complete
discussion of income taxes is included in Note 7 of the Notes to Consolidated
Financial Statements.

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Fiscal 1995 Compared to Fiscal 1994

Net sales increased 9.3% to $577.1 million in fiscal 1995 from $528.0
million in fiscal 1994. The increase in consolidated sales was due to a
comparable store sales increase of 3.4%, sales for the 53rd week of
approximately $9.3 million and additional Things Remembered and Cole Vision
units open in fiscal 1995. Comparable store sales increased primarily as a
result of successful eyewear promotions and growth in the managed vision care
program at Cole Vision and expanded gift and softgoods merchandise at Things
Remembered locations. Fourth quarter comparable store sales were even with last
year as the retail industry in general experienced a very difficult Christmas
season and severe weather conditions in many major markets. At February 3, 1996,
the Company operated 2,378 specialty service retail locations versus 2,287 at
the end of the prior year. The net increase in retail units includes the
acquisition by Cole Vision on May 21, 1995, of 59 optical departments located in
BJ's Wholesale Club stores and the sale of the Company's 39 Sunspot fashion
sunglass kiosks as of April 29, 1995.

Gross profit increased to $394.2 million in fiscal 1995 from $363.3
million in fiscal 1994. Gross margins for fiscal 1995 and fiscal 1994 were 68.3%
and 68.8%, respectively. The decrease in gross margin percentage was primarily
due to an increase in the sales of lower margin optical products, including
disposable contact lenses, and a lower mix of higher margin merchandise,
primarily keys, at CGC. Gross margin in the fourth quarter of fiscal 1995,
however, improved to 67.1% from 66.9% in fiscal 1994, benefiting from fiscal
1994 and 1995 investments aimed at increasing optical laboratory capacity and
production efficiency and from reduced material costs for spectacles. The
Company expects the fourth quarter gross margin trend to continue into fiscal
1996.

Operating expenses increased 8.9% to $332.5 million in fiscal 1995
from $305.5 million the prior year. As a percentage of sales, operating expenses
decreased to 57.6% in fiscal 1995 from 57.8% in fiscal 1994. Operating expenses
increased primarily because of higher payroll costs, store occupancy expenses
and advertising expense due, in part, to the 53rd week. The higher payroll costs
were also the result of more retail units in fiscal 1995 and additional payroll
to support the higher level of sales. Partially offsetting the payroll increases
were savings from outsourcing the Company's data processing operations in fiscal
1995. Store occupancy expense increased because of the increased number of
retail units and higher percentage rents due to increased comparable store
sales. Advertising costs increased primarily as a result of additional efforts
to support eyewear promotions. Also included in operating expense in fiscal 1995
was a $0.2 million provision for the closing of approximately 90 low volume
leased key and gift departments in the first quarter of fiscal 1996. The
closings are expected to improve the Company's operating results during the
first nine months of the fiscal year. Fiscal 1995 depreciation and amortization
expense of $15.7 million was $0.8 million more than fiscal 1994 reflecting an

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increase in capital expenditures that began in the latter part of fiscal 1993.

Income from operations increased 6.9% to $45.9 million in fiscal 1995
from $43.0 million the prior year. The increase was primarily attributable to
the increased sales. The lower gross margin percentage was partially offset by
improved leveraging of operating expenses.

Net interest expense for fiscal 1995 of $21.4 million was $0.4
million less than that of the prior year. This decrease was primarily due to an
increase in interest income and lower borrowings on the 11.25% Senior Notes.

The income tax provision of $10.8 million for fiscal 1995 represents
an effective tax rate of 44.0%. This rate reflects the significant impact of
non-deductible amortization of goodwill. The income tax benefit of $3.7 million
in fiscal 1994 included the effects of utilizing all of the Company's net
operating loss carryforwards and the reversal of a valuation allowance on net
deferred tax assets in the fourth quarter of fiscal 1994. A more complete
discussion of income taxes is included in Note 7 of Notes to Consolidated
Financial Statements.

Net income in fiscal 1994 of $24.7 million included a loss on early
extinguishment of debt of $0.1 million to reflect the payment of premiums, the
write-off of unamortized debt discount and other costs associated with retiring
the debt in connection with CNC's initial public offering.

Forward-Looking Information

Certain sections of this report contain forward-looking statements.
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.

The Company operates in a highly competitive environment, and its
future liquidity, financial condition and operating results may be materially
affected by a variety of factors, some of which may be beyond the control of
the Company, including risks associated with the integration of Pearle, the
Company's ability to select and stock merchandise attractive to customers,
economic and weather factors affecting consumer spending, operating factors,
including manufacturing quality of optical and engraved goods, affecting
customer satisfaction, 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.

Item 8. Financial Statements and Supplementary Data

Information required by this Item appears on pages F-1 through F-20
of this Form 10-K and is incorporated herein by reference.

-12-
14
Other financial statements and schedules are filed herewith as "Financial
Statement Schedules" pursuant to Item 14.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and
Management

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

Item 13. Certain Relationships and Related Transactions

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

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K

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

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

(a)(3) Exhibits

See Exhibit Index on pages X-1 through X-5.

-13-
15
(b) Reports on Form 8-K

The following reports were filed by the Company during the last
quarter of the fiscal year ended February 1, 1997:

On December 2, 1996, the Company filed a report on Form 8-K reporting
the Pearle transaction including the filing of Exhibits.

On December 19, 1996, the Company filed a report on Form 8-K/A to
include (i) audited financial statements for Pearle, Inc. for the years ended
September 30, 1996, 1995 and 1994 and (ii) pro forma financial information for
Cole National Group, Inc. and Subsidiaries for the fiscal year ended February 3,
1996 and 39 weeks ended November 2, 1996.

Supplemental information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrants which have not registered securities pursuant to
Section 12 of the Act.

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

-14-

16

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Page
----

Audited Financial Statements:

Report of Independent Public Accountants F-2
Consolidated Balance Sheets at February 1, 1997 and
February 3, 1996 F-3
Consolidated Statements of Operations for the 52 weeks
ended February 1, 1997, the 53 weeks ended
February 3, 1996, and the 52 weeks ended
January 28, 1995 F-4
Consolidated Statements of Stockholder's Equity (Deficit)
for the 52 weeks ended February 1, 1997, the 53 weeks ended
February 3, 1996 and the 52 weeks ended January 28, 1995 F-5
Consolidated Statements of Cash Flows for the 52 weeks
ended February 1, 1997, the 53 weeks ended February 3,
1996 and the 52 weeks ended January 28, 1995 F-6
Notes to Consolidated Financial Statements F-7

Financial Statement Schedules:

Report of Independent Public Accountants on the Financial
Statement Schedule F-21
Schedule I - Condensed Financial Information of
Registrant F-22

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

F-1
17

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Cole
National Group, Inc. (a Delaware corporation) and Subsidiaries (the Company) as
of February 1, 1997 and February 3, 1996, and the related consolidated
statements of operations, stockholder's equity (deficit) and cash flows for each
of the three years in the period ended February 1, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cole
National Group, Inc. and Subsidiaries as of February 1, 1997 and February 3,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended February 1, 1997, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
March 19, 1997.

F-2
18

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

February 1, February 3,
1997 1996

Assets
Current assets:
Cash and temporary cash investments $ 73,141 $ 29,260
Accounts receivable, less allowance for
doubtful accounts of $3,068 in 1996
and $-0- in 1995 39,539 18,544
Current portion of notes receivable 6,060 --
Inventories 119,236 84,794
Prepaid expenses and other 7,362 5,869
Deferred income tax benefits 24,925 9,813
--------- ---------
Total current assets 270,263 148,280

Property and equipment, at cost 211,408 154,589
Less - accumulated depreciation and
amortization (100,598) (90,883)
--------- ---------
Total property and equipment, net 110,810 63,706

Other assets:
Notes receivable, excluding current portion 24,387 --
Deferred income taxes and other 28,057 5,038
Intangible assets, net 139,308 81,163
--------- ---------
Total assets $ 572,825 $ 298,187
========= =========

Liabilities and Stockholder's Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 477 $ 292
Accounts payable 62,145 29,082
Payable to affiliates 65,590 1,255
Accrued interest 9,630 7,044
Dividend payable -- 13,500
Accrued liabilities 123,001 51,381
Accrued income taxes 6,978 5,970
--------- ---------
Total current liabilities 267,821 108,524

Long-term debt, net of discount and current portion 314,359 180,218

Other long-term liabilities 27,000 6,948

Stockholder's equity (deficit):
Common stock -- --
Paid-in capital 122,681 118,065
Foreign currency translation adjustment (26) --
Accumulated deficit (159,010) (115,568)
--------- ---------
Total stockholder's equity (deficit) (36,355) 2,497
--------- ---------
Total liabilities and stockholder's
equity $ 572,825 $ 298,187
========= =========

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

F-3
19

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

52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------

Net revenue $ 683,990 $577,091 $ 528,049

Costs and expenses:
Cost of goods sold 221,304 182,934 164,723
Operating expenses 390,863 332,540 305,470
Depreciation and amortization 19,812 15,686 14,892
Business integration and other
non-recurring charges 64,400 -- --
--------- -------- ---------
Total costs and expenses 696,379 531,160 485,085
--------- -------- ---------

Income (loss) from operations (12,389) 45,931 42,964

Interest expense, net 22,759 21,382 21,823
--------- -------- ---------

Income (loss) before income taxes and
extraordinary item (35,148) 24,549 21,141

Income tax provision (benefit) (7,106) 10,799 (3,703)
--------- -------- ---------

Income (loss) before extraordinary item (28,042) 13,750 24,844

Extraordinary loss on early
extinguishment of debt -- -- (134)
--------- -------- ---------

Net income (loss) $ (28,042) $ 13,750 $ 24,710
========= ======== =========

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

F-4
20

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

Foreign
Currency Notes
Trans- Receivable Total
lation Stock Accum- Stock-
Common Paid-In Adjust Option ulated holders'
Stock Capital ment Exercise Deficit Equity
------ -------- ---- ------- --------- --------

Balance, January 29, 1994 $ -- $111,865 $-- $(1,130) $(140,528) $(29,793)
------ -------- ---- ------- --------- --------

Net income -- -- -- -- 24,710 24,710

Capital contribution by
parent -- 6,200 -- -- -- 6,200

Repayment of notes
receivable -- -- -- 22 -- 22
------ -------- ---- ------- --------- --------

Balance, January 28, 1995 -- 118,065 -- (1,108) (115,818) 1,139
------ -------- ---- ------- --------- --------

Net income -- -- -- -- 13,750 13,750

Transfer of notes receivable -- -- -- 1,108 -- 1,108

Dividend to parent -- -- -- -- (13,500) (13,500)
------ -------- ---- ------- --------- --------

Balance, February 3, 1996 -- 118,065 -- -- (115,568) 2,497
------ -------- ---- ------- --------- --------

Net loss -- -- -- -- (28,042) (28,042)

Stock options granted -- 4,153 -- -- -- 4,153

Effect of foreign currency
translation -- -- (26) -- -- (26)

Tax benefit of stock option
exercises -- 463 -- -- -- 463

Dividend to parent -- -- -- -- (15,400) (15,400)
------ -------- ---- ------- --------- --------

Balance, February 1, 1997 $ -- $122,681 $(26) $ -- $(159,010) $(36,355)
====== ======== ==== ======= ========= ========

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

F-5
21

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

52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------

Cash flows from operating activities:
Net income (loss) $ (28,042) $ 13,750 $ 24,710
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Extraordinary loss on early
extinguishment of debt -- -- 134
Depreciation and amortization 19,812 15,686 14,892
Non-recurring charges 23,292 -- --
Non-cash interest expense 519 454 469
Deferred income taxes (16,575) 4,394 (10,153)
Change in assets and liabilities:
Increase in accounts and notes
receivable, prepaid expenses
and other assets (3,896) (4,894) (4,596)
Decrease (increase) in inventories (3,582) 2,452 (8,723)
Increase in accounts payable, accrued
liabilities and other liabilities 73,491 2,812 211
Increase (decrease) in accrued
interest 2,586 109 (272)
Increase in accrued income taxes 1,305 1,419 2,386
--------- -------- --------
Net cash provided by
operating activities 68,910 36,182 19,058
--------- -------- --------
Cash flows from financing activities:
Repayment of long-term debt (15,511) (5,200) (5,667)
Payment of deferred financing fees (6,066) -- (100)
Advances from affiliates, net 34,888 -- --
Proceeds from long-term debt, net 148,875 -- --
Other -- -- 22
--------- -------- --------
Net cash provided (used) by
financing activities 162,186 (5,200) (5,745)
--------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (23,269) (19,675) (18,527)
Acquisition of businesses, net of cash
acquired (157,426) (800) (4,675)
Systems development costs (3,820) (706) (1,295)
Other, net (2,700) (271) 10
--------- -------- --------
Net cash used by
investing activities (187,215) (21,452) (24,487)
--------- -------- --------
Cash and temporary cash investments:
Net increase (decrease) during the period 43,881 9,530 (11,174)
Balance, beginning of the period 29,260 19,730 30,904
--------- -------- --------
Balance, end of the period $ 73,141 $ 29,260 $ 19,730
========= ======== ========

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

F-6
22

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

(1) Summary of Significant Accounting Policies

Basis of Presentation -

Cole National Group, Inc. (CNG) is a wholly owned subsidiary of
Cole National Corporation (the Parent). The consolidated financial
statements include the accounts of CNG and its wholly owned
subsidiaries (collectively, the Company). CNG's subsidiaries include
Pearle, Inc. (Pearle) which was acquired on November 15, 1996 (see Note
2). All significant intercompany transactions have been eliminated in
consolidation.

The Company is a specialty service retailer operating in both
host and non-host environments. The Company's primary lines of business
are eyewear products and services and personalized gifts. Eyewear
products and services and personalized gifts represented approximately
60% and 40%, respectively, of sales in 1996 and 50% of sales each in
1995 and 1994. With the acquisition of Pearle, eyewear products and
services are expected to comprise over 70% of the Company's net revenue
in 1997.

The Company sells its products through over 2,777 company-owned
retail locations and 338 franchised locations in all 50 states, Canada,
and the Caribbean, and differentiates itself from other specialty
retailers by providing value-added services at the point of sale at all
of its retail locations. The Company considers its operations to be in
one business segment.

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

The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years are identified according to the calendar year
in which they begin. Fiscal years 1996 and 1994 consisted of 52 weeks
while fiscal year 1995 consisted of 53 weeks.

Inventories -

The Company's inventories are valued at the lower of first-in,
first-out (FIFO) cost or market.

Property and Depreciation -

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

F-7
23

The estimated useful lives for depreciation purposes are:

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

Property and equipment, at cost, consists of the following as of
February 1, 1997 and February 3, 1996 (000's omitted):

1997 1996
-------- ------

Land and buildings $ 10,604 $ 3,615
Furniture, fixtures and equipment 142,958 114,802
Leasehold improvements 57,846 36,172
-------- --------
Total property and equipment $211,408 $154,589
======== ========

Store Opening Expenses -

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

Notes Receivable -

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

Intangible Assets -

Intangible assets, net consist of the following at February 1,
1997 and February 3, 1996 (000's omitted):

1997 1996
------ -----

Tradenames $ 49,198 $ -
Goodwill 90,110 81,163
-------- -------
$139,308 $81,163
======== =======

Tradenames acquired in connection with the Pearle acquisition
are being amortized on a straight-line basis over 40 years and are
presented net of accumulated amortization of $262,000 at February 1,
1997.

Goodwill is being amortized on a straight-line basis over 40
years and is presented net of accumulated amortization of $30,609,000
and $29,640,000 at February 1, 1997 and February 3, 1996, respectively.
Management regularly evaluates its accounting for goodwill considering
primarily such factors as historical profitability, current operating
profits and cash flows. The Company believes that, at February 1, 1997,
the asset is realizable and the amortization period is still
appropriate.

F-8
24

Other Assets -

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

Other Long-Term Liabilities -

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

Cash Flows -

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

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

1996 1995 1994
-------- -------- ------

Income taxes $ 5,300 $ 4,264 $ 2,250
Interest $21,275 $21,580 $22,069

During 1994, the Parent contributed $6.2 million of its
receivable from the Company to the Company's paid in capital in
exchange for 100 additional shares of the Company's common stock.

During 1995, non-cash financing activities included incurring
$887,000 in capital lease obligations.

During 1995, a dividend in the amount of $13.5 million was
declared and was payable to the Parent at February 3, 1996. During
1996, a dividend in the amount of $15.4 million was declared and paid
to the Parent. Payment of the dividends was recorded as an increase to
payable to affiliates.

Revenues -

Revenues include sales of goods and services to retail customers
at company-operated stores, sales of merchandise inventory to
franchisees and other outside customers, and other revenues from
franchisees such as royalties based on sales, interest income on notes
receivable and initial franchise fees. Other revenues from franchisees
totaled $4.0 million in fiscal 1996.

F-9
25

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

Advertising -

The Company expenses advertising production costs and
advertising costs as incurred. Advertising expense was approximately
$33,630,000; $23,560,000 and $20,370,000 for 1996, 1995 and 1994,
respectively. The Company has certain commitments to purchase
advertising in fiscal 1997 approximating $8,000,000.

Foreign Currency Translation -

The assets and liabilities of the Company's foreign subsidiaries
are translated to United States dollars at the rates of exchange on the
balance sheet date. Income and expense items of these subsidiaries are
translated at average monthly rates of exchange. Translation gains or
losses are included in the foreign currency translation adjustment
component of stockholder's equity.

Capital Stock -

At February 1, 1997 and February 3, 1996, there were 1,100
shares of common stock, par value $.01 per share, authorized, issued
and outstanding.

Earnings Per Share -

Earnings per share and weighted average number of common shares
outstanding data for 1996, 1995 and 1994 have been omitted as the
presentation of such information, considering the Company is a wholly
owned subsidiary of the Parent, is not meaningful.

Asset Impairment -

In the first quarter of 1996 the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Adoption of this standard did not have a
material impact on the Company's results of operations, financial
position or cash flows. During the fourth quarter of 1996, the Company
recorded a provision for impairment (see Note 3).

Reclassifications -

Certain 1995 and 1994 amounts have been reclassified to conform
with the 1996 presentation.

(2) Acquisitions of Businesses

On November 15, 1996, the Company purchased from the Parent, for
an aggregate purchase price of $157.7 million including the costs of

F-10
26

acquisition, certain assets and all of the issued and outstanding
common stock of Pearle, Inc. (Pearle). Pearle consisted of 346
company-operated optical stores and 340 franchised locations in the
United States, Canada and the Caribbean. For its most recent fiscal
year ended September 30, 1996, Pearle had annual net revenue of $302.2
million.

The Pearle acquisition was accounted for under the purchase
method of accounting. The results of operations of Pearle have been
included in the consolidated financial statements since the date of
acquisition. The purchase price was allocated to the assets acquired
and liabilities assumed based upon their relative fair values as of the
closing date. This resulted in an excess of purchase price over net
assets acquired of $20.2 million. The relative fair values of the
assets acquired and liabilities assumed were based upon valuations and
other studies and included tradenames of $49.5 million, unfavorable
leasehold interests of $7.5 million, accruals for involuntary severance
and termination benefits of $4.4 million and other purchase price
adjustments. As of February 1, 1997, approximately $175,000 of
severance and termination benefits were paid and charged against these
liabilities.

The purchase price allocation is substantially complete but is
subject to adjustment, should actual costs differ from the recorded
amounts. Such adjustments, if made within one year from the date of
acquisition, will be recorded as adjustments to goodwill. Thereafter,
any cost incurred in excess of the liability recorded will be included
in the determination of net income.

On a pro forma basis, if the Pearle acquisition had taken
place at the beginning of the respective periods, unaudited
consolidated net revenues would have been $933.8 million for fiscal
1996 and $873.7 million for fiscal 1995. After giving effect to
certain pro forma adjustments, including adjustments to reflect the
amortization of tradenames and goodwill, the elimination of
transactions between Pearle and its former parent, the elimination of
Pearle's provision for impairment of intangible assets and related
costs which resulted from the acquisition, increased interest expense
and reduced interest income associated with acquisition funding and
the estimated related income tax effects, pro forma net loss in fiscal
1996 would have improved by $2.3 million and pro forma net income in
1995 would have decreased by $10.6 million. Anticipated efficiencies
from the consolidation of the Company and Pearle have not been
reflected in these amounts because their realization cannot be assured.

The unaudited pro forma results have been prepared for
informational purposes only and should not be considered indicative of
the actual results of operations which would have occurred had the
acquisition been in effect at the beginning of the periods indicated,
and do not purport to be indicative of results of operations which may
occur in the future.

The Company also made the following acquisitions, each of
which has been accounted for under the purchase method of accounting.
In November 1996, the Company acquired all of the issued and
outstanding stock of AOCO Limited, which operates 73 Sears Optical
Departments and

F-11
27

two freestanding Vision Club stores in Canada, for a purchase price of
$2.6 million. In May 1995, the Company acquired the assets of 59
optical departments located in BJ's Wholesale Clubs for a purchase
price of $1.1 million. In January 1994, the Company acquired the assets
of 107 leased optical departments within Montgomery Ward stores for a
purchase price of $4.7 million. Pro forma financial results have not
been presented for these acquisitions as they did not have a material
effect on the Company's results of operations.

(3) Business Integration and Other Non-recurring Charges

In the fourth quarter of fiscal 1996, the Company recorded a
$64.4 million pre-tax charge for certain unusual and non-recurring
items. Such charge was primarily related to the acquisition of Pearle
and included costs incurred related to the integration and
consolidation of Pearle into the Company's operations, as well as
certain other non-recurring charges. The charge included $17.6 million
for store and other facility closings, $21.6 million related to
computer systems, $9.4 million for asset impairment and $15.8 million
of other charges. Total cash outlay related to these charges is
approximately $41.1 million, of which $2.9 million has been paid as of
February 1, 1997. The remaining amount is expected to be incurred
within the next 12 to 18 months, except for certain lease costs which
may be incurred over the remaining life of the leases. Although the
Company currently does not anticipate that there will be additional
non-recurring charges in the future, as the integration and
consolidation of Pearle is completed, additional costs may be incurred
that will be charged against operating income at that time.

Subsequent to the effective date of the Pearle acquisition, the
Company identified certain unprofitable Pearle stores which it intends
to close in fiscal 1997. At certain other on-going retail locations, a
decision was made to close the in-store labs and supply these locations
from other facilities. In addition, the Company decided to retain
Pearle's distribution and central lab facilities, but to close Pearle's
home office facility in Dallas, Texas. The charge for store and other
facilities closings consists primarily of the remaining noncancellable
term of operating leases and other obligations remaining on these
facilities subsequent to their estimated date of closing along with the
loss on fixed assets.

In fiscal 1995, the Company entered into a ten-year agreement to
outsource its systems integration needs and data processing operations.
Due to the Pearle Acquisition, the Company has reassessed its system
requirements and decided to terminate its outsourcing agreement and
install new systems utilizing the resources of internal and external
systems integrators. The Company and the outsourcing entity have agreed
in principle to the terms of the termination arrangement. The
settlement cost of terminating the outsourcing agreement, as well as
other related costs, have been accrued as of February 1, 1997. Hardware
and software costs directly related to the development and installation
of new systems which will benefit future operations have been and will
be capitalized as incurred.

F-12
28

Following the Pearle acquisition and in light of current year
operating results, the Company reviewed the strategic direction of
certain other operations. In accordance with SFAS No. 121, the Company
determined that the goodwill associated with portions of its gift and
optical businesses would not be recoverable as the carrying values of
these businesses exceeded fair value, as measured by projected future
discounted cash flows.

The other charges include costs related to employee matters,
including duplicate costs incurred through fiscal year-end and costs
related to hiring employees in connection with the consolidation of the
Pearle home office functions and other costs of management realignment.
In addition, the other charges include incremental travel and
professional fees incurred in connection with the integration of
Pearle, along with costs of developing and implementing a new franchise
agreement. Also, in February 1996, the Board of Directors of the Parent
granted stock options to executive officers at a share price equal to
the market price of the Parent's common stock on the date of grant,
which were subject to stockholder approval. The increase in the price
of the common stock between the grant date and the date of stockholder
approval resulted in $4.2 million of compensation expense. The options
as approved contained accelerated vesting provisions if the common
stock price rose to certain levels, which were reached in the fourth
quarter of fiscal 1996. Because future periods will not benefit by this
plan, the Company recognized the full costs of the plan as expense.

(4) Long-Term Debt

Long-term debt at February 1, 1997 and February 3, 1996 is
summarized as follows (000's omitted):

1997 1996
--------- ---------
7.5% Obligation in connection
with Industrial Revenue Bonds $ 338 $ 506

11.25% Senior Notes:
Face value 165,838 181,000
Unamortized discount (1,455) (1,834)
--------- ---------
Total 11.25% Senior Notes 164,383 179,166

9.875% Senior Subordinated Notes:
Face value 150,000 --
Unamortized discount (1,111) --
--------- ---------
Total 9.875% Senior Subordinated Notes 148,889 --

Capital lease obligations (see Note 9) 1,226 838
--------- ---------
314,836 180,510
Less current portion (477) (292)
--------- ---------

Net long-term debt $ 314,359 $ 180,218
========= =========

The 11.25% Senior Notes (the Senior Notes) mature October 1,
2001 with no earlier scheduled redemption or sinking fund payments.
Interest on the Senior Notes is payable semi-annually on each April 1
and October 1.

F-13
29

On November 15, 1996, CNG issued $150 million of 9.875% Senior
Subordinated Notes (the Notes) due in 2006. The Notes were used by the
Company to finance a portion of the Pearle acquisition (see Note 2).
Interest on the Notes is payable semi-annually in arrears on December
31 and June 30 commencing June 30, 1997.

The Senior Notes and the Notes are general unsecured obligations
of CNG, subordinated in right of payment to senior indebtedness of CNG
and senior in right of payment to any current or future subordinated
indebtedness of CNG.

The indentures pursuant to which the Senior Notes and the Notes
were issued restrict dividend payments to the Company to 50% of CNG's
net income after October 31, 1993, plus amounts due to the Parent under
a tax sharing agreement and for administrative expenses of the Parent
not to exceed 0.25% of CNG's net revenue. The indentures also contain
certain optional and mandatory redemption features and other financial
covenants. The Company was in compliance with these covenants at
February 1, 1997.

During the first quarter of 1994, the Parent completed an
initial public offering (IPO) of the Parent's Common Stock. A portion
of the net proceeds from the IPO was advanced to the Company by the
Parent and used to retire $4.0 million of the Senior Notes. The Company
recorded an extraordinary loss of $134,000 representing the payment of
a premium, the write-off of unamortized discount and other costs
associated with retiring this debt. The loss is net of an income tax
benefit of $72,000.

During the second quarter of fiscal 1996, the Parent used a
portion of the net proceeds from its public stock offering to purchase
approximately $15.1 million of the Senior Notes in the open market. In
connection with the acquisition of Pearle, the Company purchased and
retired the $15.1 million of Senior Notes held by the Parent at a price
equal to net book value.

The agreement in connection with the Industrial Revenue Bonds
provides for repayment of the obligation in annual installments of
$168,750 through 1998. The Industrial Revenue Bonds are secured by
office and distribution facilities with a net book value of $1,646,000
at February 1, 1997.

At February 1, 1997, the fair value of the Company's long-term
debt was approximately $342.7 million compared to a carrying value of
$314.8 million. The fair value was estimated primarily by using quoted
market prices.

(5) Credit Facility

Concurrent with the Pearle acquisition, the principal operating
subsidiaries of CNG (the Borrowers) entered into a Credit Facility. The
Credit Facility replaced, concurrent with the issuance of the Notes,
the existing revolving credit facility.

F-14
30

The Credit Facility provides the Borrowers with a four-year
revolving line of credit of up to the lesser of a "borrowing base" and
$75 million. Up to $30 million of the Credit Facility is available for
the issuance of letters of credit. Borrowings under the Credit Facility
initially bear interest at a rate equal to, at the option of the
Borrowers, either (a) the Eurodollar Rate plus 1.25% or (b) 0.25% plus
the highest of (i) the prime rate, (ii) the three-week moving average
of the secondary market rates for three-month certificates of deposit
plus 1% and (iii) the federal funds rate plus 0.5%. The Company pays a
commitment fee of 0.375% per annum on the total unused portion of the
facility. Additionally, the Credit Facility requires the Borrowers to
comply with various operating covenants that restrict corporate
activities, including covenants restricting the Borrowers' ability to
incur additional indebtedness, pay dividends, prepay subordinated
indebtedness, dispose of certain investments or make acquisitions. The
Credit Facility also requires the Borrowers to comply with certain
financial covenants, including covenants regarding minimum interest
coverage, maximum leverage and consolidated net worth. The Borrowers
were in compliance with these covenants at February 1, 1997.

The Credit Facility restricts dividend payments to CNG to
amounts needed to pay interest on the Senior Notes and the Notes, and
certain amounts related to taxes, along with up to $8.0 million plus
0.25% of the Company's net revenue annually for other direct expenses
of the Parent or CNG. In addition, dividends of up to $20.0 million are
permitted to repurchase the Senior Notes and/or the Notes.

The maximum amount of short term borrowings outstanding during
1995 was $3.5 million. No amounts were outstanding as of February 1,
1997 or February 3, 1996, or at any time during fiscal 1996.

(6) Stock Options

The Parent has various stock option plans in which key
employees of the Company are eligible to participate.

The Company applies APB Opinion 25 and related Interpretations in
accounting for the Parent's stock-based compensation plans.
Accordingly, no compensation cost has been recognized for the Parent's
stock option plans in fiscal 1994 and fiscal 1995. Compensation cost
that has been charged against income for the Parent's stock-based plans
in fiscal 1996 was $4.2 million as discussed in Note 3. Had
compensation cost for the Parent's stock-based compensation plans been
determined based on the fair value at the dates of awards under those
plans consistent with the method of SFAS No. 123, the Company's net
loss in fiscal 1996 would have been increased to $29,961,000 and its
net income in fiscal 1995 would have been reduced to $13,609,000.

The fair value of each option grant by the Parent in fiscal
1995 and 1996 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
risk-free interest rates of 6.4 and 6.2 percent for grants in fiscal
1995 and 1996, respectively, and expected lives of six years and
volatility of 33

F-15
31

percent for options granted in both fiscal years. Because the SFAS No.
123 method of accounting has not been applied to options prior to
January 29, 1995, the resulting pro forma expense may not be
representative of that to be expected in the future.

(7) Income Taxes

Income tax provision (benefit) for fiscal 1996, 1995 and 1994
is detailed below (000's omitted):

1996 1995 1994
-------- -------- --------

Currently payable - $ 7,442 $ 4,615 $ 4,434
Federal 2,027 1,790 2,016
State and local -------- -------- --------
9,469 6,405 6,450
-------- -------- --------

Deferred - (16,575) 3,260 (1,494)
Federal
Utilization of net operating -- 1,134 4,169
loss carryforwards -- -- (12,828)
Change in valuation allowance -------- -------- --------
(16,575) 4,394 (10,153)
-------- -------- --------

$ (7,106) $ 10,799 $ (3,703)
Income tax provision (benefit) ======== ======== ========

The income tax provision (benefit) reflected in the accompanying
consolidated statements of operations differs from the federal
statutory rate as follows (000's omitted):

1996 1995 1994
-------- ------- --------

Tax provision (benefit) at statutory
rate $(12,301) $ 8,592 $ 7,399
Tax effect of -
State income taxes, net of
federal tax benefit 1,317 1,164 1,310
Amortization of cost in excess
of net assets of purchased
businesses 936 900 901
Non-recurring charges 2,584 -- --
Change in valuation allowance -- -- (12,828)
Other, net 358 143 (485)
-------- ------- --------
Tax provision (benefit) $ (7,106) $10,799 $ (3,703)
======== ======= ========

F-16
32

The tax effects of temporary differences that give rise to
significant portions of the Company's deferred tax assets and deferred
tax liabilities at February 1, 1997 and February 3, 1996 are as follows
(000's omitted):

1997 1996
-------- --------

Deferred tax assets:
Employee benefit accruals $ 6,137 $ 3,375
Business integration accruals 13,373 --
Other non-deductible accruals 15,066 3,922
State and local taxes 1,254 1,086
Tax credit and net operating
loss carryforwards -- 1,990
Intangibles 6,148 --
Other 8,569 1,252
-------- --------
Total deferred tax assets 50,547 11,625
-------- --------

Deferred tax liabilities:
Depreciation and amortization (5,043) (5,070)
Other (5,535) (836)
-------- --------
Total deferred tax liabilities (10,578) (5,906)
-------- --------

Net deferred taxes $ 39,969 $ 5,719
======== ========

(8) Retirement Plans

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

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

F-17
33

Pension expense for fiscal 1996, 1995 and 1994 includes the
following components (000's omitted):

1996 1995 1994
------- ------- -------

Service cost - benefits earned
during the period $ 646 $ 528 $ 581

Interest cost on the projected
benefit obligation 1,467 1,369 1,292

Less:
Return on plan assets -
Actual (1,669) (1,138) 178
Deferred 477 11 (1,294)
------- ------- -------
(1,192) (1,127) (1,116)
Amortization of transition
asset over 17.9 years (179) (179) (179)
------- ------- -------
Net pension expense $ 742 $ 591 $ 578
======= ======= =======

The following sets forth the funded status of the Retirement Plan
at December 31, 1996 and 1995 based upon the actuarial present values
of benefit obligations (000's omitted):

1996 1995
-------- --------
Accumulated benefit obligations:
Vested $ 17,605 $ 17,147
Nonvested 238 291
-------- --------
Total $ 17,843 $ 17,438
======== ========

Projected benefit obligation
for service rendered to date $ 19,046 $ 19,030
Fair value of plan assets,
primarily money market and
equity mutual funds 16,774 13,849
-------- --------
Plan assets less than projected
benefit obligation (2,272) (5,181)
Unrecognized prior service cost 140 168
Net unrecognized loss 1,252 2,983
Unamortized transition asset (1,416) (1,595)
-------- --------
Pension liability included
in accrued liabilities $ (2,296) $ (3,625)
======== ========

The weighted average discount rate used to measure the projected
benefit obligation was 8.0% in 1996 and 7.75% in 1995. For both years,
the rate of increase in future compensation levels was 5.0% and the
expected long-term rate of return on plan assets was 9.5%.

The Company has a defined contribution plan, including features
under Section 401(k) of the Internal Revenue Code, which provides
retirement benefits to its employees. Eligible employees may contribute
up to 15% of their compensation to the plan. There is no mandatory
matching of employee contributions by the Company, but discretionary

F-18
34

matches of $327,000, $164,000 and $164,000 were recorded for 1996, 1995
and 1994, respectively.

The Company also has a contributory profit sharing plan for
Pearle employees meeting certain service requirements as defined in the
plan. The Company's contribution to the plan consists of a minimum
matching contribution plus an additional performance contribution.
Profit sharing expense amounted to $229,000 in 1996.

During fiscal 1994, the Company established two Supplemental
Executive Retirement Plans which will provide for the payment of
retirement benefits to participating executives supplementing amounts
payable under the Company's Retirement Plan. The first plan is an
excess benefit plan designed to replace benefits that would otherwise
have been payable under the Retirement Plan but that were limited as a
result of certain tax law changes. The second plan is a defined
contribution plan under which participants will receive an annual
credit based on a percentage of base salary, subject to vesting
requirements. Expense for these plans for fiscal 1996, 1995 and 1994
was $468,000, $447,000 and $413,000, respectively.

(9) Commitments

The Company leases a substantial portion of its facilities
including laboratories, office and warehouse space, and retail store
locations. These leases generally have initial terms of up to 10 years
and often contain renewal options. Certain of the store locations
have been sublet to franchisees. In most leases covering retail store
locations, additional rents are payable based on store sales. In
addition, the Company operates departments in various host stores
paying occupancy costs solely as a percentage of sales under
agreements containing short-term cancellation clauses. Generally, the
Company is required to pay taxes and normal expenses of operating the
premises for laboratory, office, warehouse and retail store leases;
the host stores pay these expenses for departments operated on a
percentage-of-sales basis. The following amounts represent rental
expense for fiscal 1996, 1995 and 1994 (000's omitted):

1996 1995 1994
-------- -------- --------

Occupancy costs based on sales $ 53,152 $ 50,218 $ 47,198
All other rental expense 45,365 32,697 30,003
Sublease rental income (5,935) (1,510) (1,455)
-------- -------- --------

$ 92,582 $ 81,405 $ 75,746
======== ======== ========

During 1995, the Company entered into leases for equipment which
have been accounted for as capital leases. At February 1, 1997 and
February 3, 1996, property under capital leases consisted of $887,000
in equipment with accumulated amortization of $111,000 and $22,000,
respectively.

F-19
35

At February 1, 1997, future minimum lease payments and sublease
income receipts under noncancellable leases, and the present value of
future minimum lease payments for capital leases are as follows (000's
omitted):

Capital Operating Leases
Leases Payments Receipts
------- -------- -------
1997 $ 385 $ 66,887 $13,528
1998 382 58,641 11,503
1999 300 50,277 9,202
2000 385 37,386 6,655
2001 - 26,797 4,112
2002 and thereafter - 65,157 6,152
------- -------- -------
Total future minimum
lease payments 1,452 $305,145 $51,152
======== =======
Amount representing interest (226)
-------
Present value of future
minimum lease payments $ 1,226
=======

F-20
36

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE

TO COLE NATIONAL GROUP, INC.:

We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Cole National Group, Inc.
and Subsidiaries included in this Form 10-K and have issued our report thereon
dated March 19, 1997. Our audit was made for the purpose of forming an opinion
on those statements taken as a whole. The financial statement schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the consolidated financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the consolidated financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
March 19, 1997.

F-21
37

Schedule I

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

- --------------------------------------------------------------------------------

Cole National Group, Inc.
Condensed Balance Sheets
February 1, 1997 and February 3, 1996
(Dollars in millions)
1997 1996
------ ------

Assets:

Cash $ 64.5 $ 26.3
Accounts receivable 0.1 --
Receivable from subsidiaries -- 22.4
Deferred income tax benefits 6.6 5.8
Investment in subsidiaries 329.9 174.4
Property and equipment, net 3.8 4.1
Other 6.7 1.0
------ ------

Total assets $411.6 $234.0
====== ======

Liabilities and Stockholder's Equity:

Accounts payable and accrued expenses $ 58.1 $ 34.5
Dividend payable -- 13.5
Payable to affiliates 73.9 1.3
Long-term debt 314.0 180.0
Other 2.0 2.2
Stockholder's equity (deficit) (36.4) 2.5
------ ------

Total liabilities and stockholder's
equity $411.6 $234.0
====== ======

F-22
38

Schedule I
Cole National Group, Inc. (continued)
Condensed Statements of Operations and Cash Flows
(Dollars in millions)

52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
------ ------ -----
Revenue:
Dividends from subsidiaries $ -- $ 14.0 $ 19.2
Services to affiliates 8.4 6.9 6.8
------ ------ ------
Total revenue 8.4 20.9 26.0
Operating expenses (8.4) (6.9) (6.8)
Non-recurring charge (28.9) -- --
Interest expense (8.9) (7.8) (14.2)
------ ------ ------
Pre-tax income (loss) (37.8) 6.2 5.0
Income tax benefit 11.9 2.9 18.8
------ ------ ------
Income (loss) before equity in
undistributed earnings (loss) of
subsidiaries and extraordinary
item (25.9) 9.1 23.8
Equity in undistributed earnings
(loss) of subsidiaries (2.1) 4.6 1.0
------ ------ ------
Income (loss) before extraordinary
item (28.0) 13.7 24.8
Extraordinary loss -- -- (.1)
------ ------ ------
Net income (loss) (28.0) 13.7 24.7
------ ------ ------
Adjustments to reconcile net income
(loss) to cash provided by
operations 29.0 16.9 (20.2)
------ ------ ------
Net cash provided by operating
activities 1.0 30.6 4.5
Financing activities:
Repayment of long-term debt (15.3) (5.0) (4.2)
Advances from affiliates 67.3 -- --
Proceeds from long-term debt 148.9 -- --
Payment of financing fees (6.1) -- --
------ ------ ------
Net cash provided (used) by
financing activities 194.8 (5.0) (4.2)
Investing activities:
Acquisition of business, net
of cash acquired (157.6) -- --
Other -- .7 (.3)
------ ------ ------
Net cash provided (used) by
investing activities (157.6) .7 (.3)
Net increase in cash 38.2 26.3 --
Cash, beginning of period 26.3 -- --
------ ------ ------
Cash, end of period $ 64.5 $ 26.3 $ --
====== ====== ======

F-23
39

Schedule I
(continued)

Note to Condensed Financial Information of Registrant

- --------------------------------------------------------------------------------

The accompanying financial information of Cole National Group, Inc. (CNG), a
wholly-owned subsidiary of Cole National Corporation, is as of February 1, 1997
and February 3, 1996 and for the fiscal years ended February 1, 1997, February
3, 1996 and January 28, 1995. CNG is a holding company for its wholly-owned
subsidiaries, Things Remembered, Inc., Cole Vision Corporation, Pearle, Inc.,
Pearle Service Corporation and Cole Gift Centers, Inc. and except for expenses
associated with CNG's corporate offices, consisted of no other operations.

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

F-24
40

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

COLE NATIONAL GROUP, INC.

May 1, 1997 By: /s/ Wayne L. Mosley
----------------------------------------
Wayne L. Mosley
Vice President and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

* Chairman and Chief May 1, 1997
- ----------------------------- Executive Officer and
Jeffrey A. Cole Director (Principal
Executive Officer and
Principal Financial
Officer)

* President and Director May 1, 1997
- -----------------------------
Brian B. Smith

/s/ Wayne L. Mosley Vice President and May 1, 1997
- ----------------------------- Controller (Principal
Wayne L. Mosley Accounting Officer)

* Director May 1, 1997
- -----------------------------
Timothy F. Finley

* Director May 1, 1997
- -----------------------------
Irwin N. Gold

* Director May 1, 1997
- -----------------------------
Peter V. Handal

* Director May 1, 1997
- -----------------------------
Charles A. Ratner

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

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

S-1
41

EXHIBIT INDEX

Exhibit
Number Description
- ------ -----------

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

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

4.1 Indenture dated as of September 30, 1993 between
the Company and Norwest Bank Minnesota, N.A., as
trustee, relating to the 11 1/4% Senior Notes due
2001 (the form of which Senior Note is included in
such Indenture), incorporated by reference to
Exhibit 4.1 to Cole National Corporation's Annual
Report on Form 10-K for the period ended February
3, 1996 (File No. 1-12814).

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

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

X-1
42

Exhibit
Number Description
- ------ -----------

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

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

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

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

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

X-2
43

Exhibit
Number Description
- ------ -----------

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

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

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

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

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

10.19 Form of License Agreement (Optical), incorporated
by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1 (Registration
No. 33-66342).

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

X-3
44

Exhibit
Number Description
- ------ -----------

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

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

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

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

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

X-4
45

Exhibit
Number Description
- ------ -----------

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

10.29* License agreement (Gift Centers and Key
Departments) dated as of March 16, 1995, between
Sears, Roebuck and Co. and Cole Gift Centers,
Inc., as amended, incorporated by reference to
Exhibit 10.49 of Cole National Corporation's Report
on Form 10-K for the period ended February 1, 1997
(File No. 1-12814).

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

24 Power(s) of Attorney.

27 Financial Data Schedule

* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF
THIS EXHIBIT, AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

X-5