================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(MARK ONE)

[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED JANUARY 29, 2000

                                       OR

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

           FOR THE TRANSITION PERIOD FROM __________ TO ____________.

                           COMMISSION FILE NO. 0-21690

                        SUNGLASS HUT INTERNATIONAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           FLORIDA                                65-0667471
(STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

                255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 461-6100

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

    TITLE OF EACH CLASS        NAME OF EACH EXCHANGE ON WHICH REGISTERED
           NONE                                   NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                     COMMON STOCK (PAR VALUE $.01 PER SHARE)
                                (TITLE OF CLASS)

                   5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
                                (TITLE OF CLASS)

         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. Yes [X]  No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of Common Stock held by non-affiliates of
the Registrant on April 14, 2000 was $309,404,135, based on a $7.78 average of
the high and low sales prices for the Common Stock on such date. For purposes of
this computation, all executive officers and directors have been deemed to be
affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the Registrant. The
number of shares outstanding of the Registrant's Common Stock on April 14, 2000
was 42,800,165 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the Proxy
Statement for the Annual Meeting of Shareholders of the Company, definitive
copies of which will be mailed on or before May 5, 2000.

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<PAGE>

                        SUNGLASS HUT INTERNATIONAL, INC.

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
                                     PART I

Item 1.  BUSINESS.........................................................    5

Item 2.  PROPERTIES.......................................................    7

Item 3.  LEGAL PROCEEDINGS................................................    7

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............    9

                                     PART II

Item 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
             STOCKHOLDER MATTERS..........................................   11

Item 6.  SELECTED FINANCIAL DATA..........................................   12

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS..........................   14

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
             MARKET RISK..................................................   19

Item 8.  FINANCIAL STATEMENTS.............................................   20

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE..........................   42

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ..................   42

Item 11. EXECUTIVE COMPENSATION...........................................   42

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT...............................................   42

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................   42

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
             ON FORM 8-K..................................................   42

<PAGE>

                                     PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

         In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), Sunglass Hut International,
Inc. (the "Company") is hereby providing cautionary statements identifying
important factors that could cause the Company's actual results to differ
materially from those projected in forward-looking statements (as such term is
defined in the Reform Act) of the Company made by or on behalf of the Company
herein or which are made orally, whether in presentations, in response to
questions or otherwise. Any statements that express, or involve discussions as
to expectations, beliefs, plans, objectives assumptions of future events or
performance (often, but not always, through the use of words or phrases such as
"will result," "are expected to," "will continue," "is anticipated," "plans,"
"intends," "estimated," "projection" and "outlook") are not historical facts and
may be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among others, the following factors:

         MERCHANDISING, CONCENTRATION OF SUPPLIERS AND POTENTIAL IMPACT OF
CONSOLIDATION OF SUNGLASS/WATCH MANUFACTURING INDUSTRY. The Company's success
depends to a large degree on its ability to provide a merchandise selection that
appeals to customers' changing desires and that appropriately reflects
geographical or other demographic differences in brand and style preferences. A
failure by the Company to identify or take advantage of emerging fashion trends
could have a material adverse effect on its results of operations. Moreover, the
Company has no long-term purchase contracts or other contractual assurance of
continued supply, pricing or access to new products. The inability to obtain
merchandise from one or more key vendors on a timely basis, or a material change
in the Company's current purchase terms, could have a material adverse effect on
its results of operations. In fiscal 1999, Luxottica (including RayBan, Revo,
Killer Loop, Arnette, Giorgio Armani and other brands) and Oakley, the Company's
largest suppliers, accounted for approximately 24.6% and 23.9%, respectively, of
the Company's total merchandise purchases. On June 28, 1999, Luxottica Group SpA
completed the purchase of the assets and liabilities of Bausch & Lomb's eyewear
business (which included Ray Ban, Revo, Killer Loop, Arnette and other brands).
There can be no assurance that this transaction or other vendor consolidation or
other changes in the sunglass or watch manufacturing industry will not
materially impact the Company's purchase terms, continued supply, pricing,
access to new products or otherwise negatively impact its future results of
operations. The market for the Company's products is also increasingly subject
to the risk of changing fashion trends, and the demand for certain styles can
change. Accordingly, there can be no assurance that the Company will not be
subject to increasing limitations on product returns in the future.

         RISKS OF DEVELOPING EXCLUSIVE BRAND PRODUCTS. The Company's efforts to
develop exclusive brands of products will increase the Company's exposure to
risks of inventory obsolescence and other exposures normally associated with
manufacturers. Accordingly, in the event that a particular style of product does
not achieve widespread consumer acceptance, the Company may be required to take
significant markdowns, which could have a material adverse effect on its gross
profit margin and other operating results. Additionally, there can be no
assurance that the Company's efforts to develop exclusive brand products will
not negatively impact its relationship with its existing vendors of branded
merchandise. The Company's efforts to develop exclusive brands may also involve
other risks that could have a material adverse effect on the Company, including
diversion of management's attention from the Company's core business and
difficulties with the hiring, retention and training of key personnel. Moreover,
the Company's exclusive brand development plans may include entry into joint
venture and/or licensing/distribution arrangements, which may limit the
Company's control of these operations.

         RISKS OF NEW SPECIALTY STORE CONCEPTS, DISTRIBUTION CHANNELS AND
INTERNATIONAL OPERATIONS. The Company's growth plans include expansion of
recently developed specialty store concepts and may include the future
development of additional concepts. The Company opened its first Watch Station
store, a watch specialty store, in fiscal 1996 and during fiscal 1998 initiated
a test and subsequent roll-out (in fiscal 1999) of combination sunglass and
watch stores ("Combo stores"). In fiscal 1999, the Company converted and/or
opened 169 Combo store locations. Accordingly, these operations will be subject
to the numerous risks of establishing new business enterprises, including
unanticipated operating problems, ability to secure suitable new store sites on
a timely basis and on satisfactory terms, ability to obtain suitable use clause
changes on a timely basis and on satisfactory terms, lack of experience and
customer acceptance, inventory obsolescence risks, significant competition from
existing and new retailers and related retail channels of distribution, and the
extent of existing relationships between such retailers and
manufacturers/distributors. Although the Company has generally experienced
favorable sales results in Combo store conversions to date, these results are
based on a limited time period and may vary significantly in the future. There
can be no assurance that the Company's recently developed specialty store
concepts will be able to duplicate the growth of the Company's Sunglass Hut
stores or that they will achieve sales and profitability levels that justify the
Company's investment therein. Additionally, the Company's growth plans may
include the development and expansion of additional specialty store concepts,
and there can be no assurance that any newly developed specialty store concepts
will achieve sales and profitability levels that justify the investment therein.

                                       3
<PAGE>

         The Company's planned expansion of its e-commerce activity subjects the
Company to numerous risks of entering new distribution channels, including
unanticipated operating problems and start-up costs, lack of experience and
customer acceptance and significant competition from existing and new retailers.
In addition, the use of the Internet to sell goods and services has developed
only recently, and there can be no assurance that a sufficiently large number of
consumers will begin to use the Internet as a medium of commerce. Moreover there
can be no assurance that Internet sales will not cannibalize sales from the
Company's store locations. Lastly, there can be no assurance that the Company's
e-commerce activities will achieve sales and profitability levels that justify
the Company's investment therein.

         Expansion of any of the previously mentioned concepts or any other
related concepts, and the entry into any new distribution channels also involve
other risks that could have a material adverse effect on the Company, including
(i) diversion of management's attention from the Company's core business, (ii)
difficulties with the hiring, retention and training of key personnel, (iii)
risks associated with higher dependence on holiday season sales, (iv) lower
gross margin, and (v) risks associated with unanticipated problems or legal
liabilities.

         There can be no assurance that the Company will be able to successfully
execute other components of its growth strategies. The Company's current
international operations and any future international expansion subject the
Company to certain risks and limitations not associated with its current U.S.
operations, including (i) the uncertainty of market acceptance of specialty
retailers and/or the Company's product offerings, (ii) the Company's ability to
hire and train local personnel, (iii) the Company's dependence on local business
conditions and practices, (iv) foreign currency losses, (v) the impact of
foreign taxes, and (vi) foreign investment restrictions and limitations.
Moreover, the Company's international expansion may include entry into joint
venture and/or franchise arrangements, which may limit the Company's control of
operations.

         IMPACT OF DISPOSAL OF DISCONTINUED OPERATIONS. In January 1998, the
Company adopted a plan to discontinue its EyeX optical segment and substantially
completed the disposition in fiscal 1998. During fiscal 1999, the Company
recorded $1.2 million ($738,000, net of taxes ) of additional exit costs
associated with this segment. The Company's consolidated financial statements
include an allowance for estimated loss from disposition of this segment. As the
Company completes its disposal of EyeX, certain matters may arise which could
result in additional gains or losses to be recognized by the Company.

         UNCERTAINTIES OF LITIGATION. In October 1999, a class action lawsuit
was filed against the Company in the United States District Court in the Eastern
District of Missouri. The lawsuit alleges, among other things, that the Company
violated state and Federal wage and overtime laws. The Company is in the process
of investigating and responding to the charges. The outcome or effect of this
litigation on the Company's operating results cannot be predicted at this time.
However, there can be no assurance that an unfavorable outcome will not have an
adverse effect on the Company's operating results.

         ABILITY TO MANAGE GROWTH. The Company has opened a significant number
of new locations in the past several years. However, there is no assurance that
the Company will sustain the growth in the number of stores and revenues that it
has achieved historically. Moreover, there can be no assurance that the
Company's management and financial controls, executive personnel and other
corporate support systems will be adequate to manage the increase in the size
and scope of the Company's business in future periods. The continued growth of
the Company is dependent, in large part, upon the Company's ability to open and
operate new stores and convert selected existing stores into a new Combo store
format on a profitable basis, which in turn is subject to, among other things,
the Company's ability to secure suitable store sites and/or obtain suitable use
clause changes on a timely basis and on satisfactory terms, the Company's
ability to hire, train and retain qualified management and other personnel, the
availability of adequate capital resources and the successful integration of new
stores into existing operations. There can be no assurance that, because of
demographic or other reasons, the Company's new/converted stores will achieve
sales and profitability comparable to the Company's existing stores. In
addition, there can be no assurance that the opening of new/converted locations
or concepts will not cannibalize sales at existing locations.

         Although the Company has acquired competitors in the past and considers
acquiring additional smaller chains of specialty retailers on an ongoing basis,
there can be no assurance that the Company will be able to consummate
acquisitions on satisfactory terms or that any acquired operations will be
successfully integrated.

         DEPENDENCE ON KEY PERSONNEL. The Company's success and ability to
properly manage its growth depends to a significant extent both upon the
performance of its current senior management team and its ability to attract,
hire, motivate and retain additional qualified management personnel in the
future. The inability to recruit and retain such additional personnel, or the
loss of service of any of the Company's current executive officers, could have a
material adverse impact on the Company.

                                       4
<PAGE>

         SEASONALITY. The Company has historically experienced and expects to
continue to experience seasonal fluctuations in its net sales and results of
operations. The Company has generally experienced lower net sales and operating
results during the third quarter of each fiscal year (and to a lesser extent,
during the first and fourth quarters of each year) and the Company expects this
trend may continue for the foreseeable future. The Company's quarterly results
of operations may also fluctuate significantly as a result of a variety of
factors, including the timing of store openings and closings, and the timing of
sales contributed by new stores and new concepts such as Combo stores and new
distribution channels, such as the Internet.

         POSSIBLE VOLATILITY OF STOCK AND NOTE PRICES. The market prices of the
Company's common stock and convertible subordinated notes are subject to
significant volatility caused by factors such as quarterly fluctuations in the
financial results of the Company, monthly comparable store sales results,
changes in financial estimates by securities analysts, shortfalls in earnings or
sales below analysts' expectations, the overall economy and the financial
markets. In addition, the common stock is quoted on the NASDAQ National Market
and the notes are traded on the NASDAQ SmallCap Market, which stock markets have
experienced, and are likely to experience in the future, significant price and
volume fluctuations which could adversely affect the market price of the common
stock and the notes without regard to the operating performance of the Company.

         ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS. Certain provisions of the Company's Articles of
Incorporation and Bylaws may be deemed to have anti-takeover effects and may
delay, defer or prevent a takeover attempt that a stockholder might consider in
its best interest. These provisions (i) classify the Company's Board of
Directors into three classes, each of which will serve for different three-year
periods, (ii) provide that only the Board of Directors or Chief Executive
Officer may call special meetings of the stockholders, and (iii) establish
certain advance notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at stockholders'
meetings. The Company is also subject to certain provisions of the Florida
Business Corporation Act, which may deter or frustrate takeovers of Florida
corporations.

                                    *********

         The Company cautions that the risk factors described above could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrences of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.

ITEM 1.  BUSINESS

COMPANY PROFILE

         Sunglass Hut International, Inc. ("Sunglass Hut" or the "Company") is
the world's largest specialty retailer of sunglasses and one of the world's
largest specialty retailer of popular price ($50 - $500) watches with
approximately 1,900 locations worldwide. The Company's stores operate under the
Sunglass Hut International and Watch Station International tradenames.
Additionally, during fiscal 1998, the Company initiated a test and subsequent
rollout of a new store concept that combines sunglasses and watches in a unified
format ("Combo stores").

         During fiscal 1999, the Company opened 14 Sunglass Hut stores, 3
licensed departments and 8 Watch Station stores. Additionally, the Company
opened and/or converted 169 Combo stores. The Company also closed 175
unprofitable or marginal locations. As a result, the Company had 1,586 specialty
sunglass, 111 Watch Station and 195 Combo stores as of fiscal yearend 1999.

                                       5
<PAGE>

         The following table shows the historical composition of the Company's
locations:

<TABLE>
<CAPTION>
                                                                          FISCAL
                                             -----------------------------------------------------------------
STORE LOCATION                                  1999          1998          1997         1996          1995
--------------                               -----------    ----------    ---------    ----------    ---------
<S>                                             <C>            <C>          <C>          <C>           <C>
Sunglass Hut stores                             1,487          1,729        1,876        1,881         1,686
Licensed sunglass departments                      99            130          213          155            38
                                             -----------    ----------    ---------    ---------- -- ---------
     Sunglass specialty subtotal                1,586          1,859        2,089        2,036         1,724
Watch Station stores                              111            118           77           51            --
Combo stores                                      195             28           --           --            --
                                             -----------    ----------    ---------    ----------    ---------
     Total                                      1,892          2,005        2,166        2,087         1,724
                                             ===========    ==========    =========    ==========    =========
</TABLE>

         At January 29, 2000, the Company operated 1,214 stores and 97 licensed
departments throughout the United States as well as 105 stores and two licensed
departments in Canada, 107 stores in Australia, seven stores in New Zealand,
three stores in Singapore, 32 locations throughout seven countries in Europe, 12
stores in Puerto Rico, four stores in the U.S. Virgin Islands and three stores
in other Caribbean locations for a total of 1,586 specialty sunglass locations.
At yearend, the Company also operated 111 Watch Station stores (in the United
States) and 195 Combo stores (118 in the United States, 49 in Europe and 28 in
the Pacific).

         The Company believes that the flexibility of its specialty store
formats and its attractive unit level economics provide it with access to a wide
range of leasing opportunities which will facilitate its continued expansion.
The Company is pursuing opportunities to continue to expand sunglass, watch and
Combo store specialty locations both domestically and internationally and plans
to open approximately 80 locations and convert approximately 200 locations to
Combo stores in fiscal 2000.

RECENT DEVELOPMENTS

         During fiscal 1999, the Company initiated a roll-out of its Combo store
format, opening and/or converting 169 Combo store locations. Currently, the
Company has 195 Combo stores in operation and plans to open approximately 50 new
Combo store locations and convert approximately 200 existing stores to the Combo
store format in fiscal 2000.

         The Company commenced its e-commerce efforts during fiscal 1999 through
the re-launch of its flagship website, www.sunglasshut.com and the development
of Shades.com and SwissArmyDepot.com. The Company plans to leverage its
leadership position in the "bricks and mortar" sale of sunglasses and watches by
establishing a leading on-line website that attracts and satisfies new on-line
customers as well as meets the needs of its traditional customers.

         During fiscal 1999, the Company closed 175 unprofitable or marginal
store locations and substantially completed store closures under restructuring
plans adopted in prior years.

         During fiscal 1999, the Company continued to exercise its Board
approved authority to repurchase shares of stock in the open market. During the
fiscal year, the Company repurchased 4.5 million shares of common stock at a
cost of $44.9 million, and since the inception of the program in March 1998, the
Company has repurchased a total of 12.8 million shares at a cost of $95.1
million. In March 2000, the Company's Board of Directors approved and authorized
the repurchase of an additional 8.0 million shares of common stock beyond the
purchases to date, bringing the total authorization under the plan to 20.8
million shares.

         On March 30, 2000, the Company received a commitment from Fleet
National Bank to provide a three year senior secured revolving credit facility
that provides for borrowings of up to $150 million. The Company expects to
finalize this credit facility during the second quarter of fiscal 2000.

COMPETITION

         The Company is the largest specialty retailer of sunglasses and one of
the largest specialty retailer of popular price ($50 - $500) watches in the
world. However, both the retail sunglass and watch businesses are highly
competitive and the Company competes with many different types of retail stores
and "e-tailers". Since retail stores generally serve individual or local
markets, competition is fragmented and varies substantially from one location or
geographic area to another. Competitors in the over $30 sunglass market include
chain and individual sunglass specialty stores, department stores, optical
chains and sporting goods specialty stores. Catalog showrooms, warehouse clubs,
discount stores, drug stores and other mass merchandisers that currently compete
primarily in the under $30 segment of the retail sunglass industry also have a
significant market share in the over $30 segment and could increase competitive
pressure in this segment in the future. Competitors in the retail watch market
include chain and individual watch specialty stores, department stores, catalog
showrooms and jewelry stores. Certain of these competitors may have greater
industry experience or financial and other resources than the Company.
Management believes that the primary elements of

                                       6
<PAGE>

competition in specialty stores are breadth, quality and in-stock availability
of merchandise selection, price, level of customer service and convenience of
store location, and that its specialty store concepts compete successfully on
the basis of such factors.

EMPLOYEES

         At January 29, 2000, the Company employed 9,174 persons, of whom 3,689
were full-time employees and 5,485 were part-time employees. The number of
part-time associates employed by the Company fluctuates depending on seasonal
needs. None of the Company's domestic employees are covered by collective
bargaining agreements, and management believes that the Company's relations with
its employees are good.

SERVICEMARKS AND TRADEMARKS

         The names "Sunglass Hut International", "Watch Station" and "Sungear"
are servicemarks registered in the United States Patent and Trademark Office. As
of fiscal yearend 1999, the "Sunglass Hut International" servicemark and its
logo were registered with approximately 34 legal jurisdictions worldwide. The
Company has also taken active steps to register its "Watch Station", "SunGear",
"Code" and "Torque" servicemarks on a worldwide basis. Management believes that
these servicemarks are an integral element of the Company's marketing strategy.
Although the Company has a number of other registered servicemarks, management
does not believe that these are material to the Company's operations.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

         Management operates and organizes itself according to business units,
which consist of the Company's different specialty store concepts, across
geographic locations. Accordingly, the North America segment (comprised of the
United States, Canada and the Caribbean) includes sunglass, watch and Combo
retail operations in this geographic market. The Other segment includes the
sunglass, watch and Combo retail operations in other geographic locations,
primarily Europe and Australia. In fiscal year 1999, the Company opened six and
15 new stores in Europe and Australia, respectively. See Note 14 of Notes to
Consolidated Financial Statements for additional information with respect to
foreign and domestic operations.

ITEM 2. PROPERTIES

         The Company currently leases all of its existing store locations and
expects that its policy of leasing rather than owning will continue. The
Company's leases generally provide for initial lease terms ranging up to seven
years for kiosks and up to 10 years for in-line stores. Management believes that
the use of short-term leases enhances the Company's flexibility to pursue
various expansion opportunities resulting from changing market conditions. Rent
generally includes a percentage of the store's sales volume and/or a fixed
minimum base rent. The majority of lease rental payments are also subject to
annual increases for taxes, common area maintenance and insurance.

         As current leases expire, the Company believes that it will be able
either to obtain lease renewals, if desired, for present store locations, or to
obtain leases for equivalent or better locations in the same general area. To
date, the Company has not experienced significant difficulty in either renewing
leases for existing locations or securing leases for suitable locations for new
stores.

         The Company leases its corporate headquarters in Coral Gables, Florida.
The main lease has a ten-year term expiring in 2004 and the Company has entered
into several additional leases with varying expiration dates. The Company has a
five-year lease (expiring in 2001) with two renewable options of five years each
at its 92,000 square foot Atlanta distribution center.

         See Note 11 of Notes to Consolidated Financial Statements for
additional information with respect to the Company's operating leases.

ITEM 3. LEGAL PROCEEDINGS

         In September 1999, a class action lawsuit was filed against the Company
in the United States District Court in the Eastern District of Missouri. The
lawsuit alleges, among other things, that the Company violated state and Federal
wage and overtime laws. The Company is in the process of investigating and
responding to the charges. The outcome or effect of this litigation on the
Company's operating results cannot be predicted at this time.

         In January 1997, a class action securities lawsuit was filed against
the Company and certain of its current and former executive officers in the U.S.
District Court of the Southern District of Florida. The lawsuit alleges, among
other things, that the Company and certain of its officers made materially false
and misleading statements regarding the Company's business performance and
prospects. The Company believes that the lawsuit has no basis, and intends to
vigorously defend the action. Although the ultimate outcome of the lawsuit
cannot be predicted, management does not believe the lawsuit will have a
material adverse effect on

                                       7
<PAGE>

the financial position, results of operations or cash flows of the Company.
However, there can be no assurance as to the ultimate resolution of this matter.

         There are no other significant legal proceedings pending against the
Company.

                                       8
<PAGE>

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the Company's 1999 fiscal year.

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
                                                                                             YEAR FIRST
NAME(1)                                          PRESENT POSITION(2)                   ELECTED AS AN OFFICER     AGE
-------                                          -------------------                   ---------------------     ---
<S>                         <C>                                                                 <C>               <C>
John X. Watson*(3)          President, Chief Executive Officer                                  1998              46

Eric J. Schumann*(4)        Executive Vice President, General Merchandising Manager             1997              51

Enrique M. Arrata*(5)       Senior Vice President, International and MIS                        1998              53

Roger L. Kehm*(6)           Senior Vice President, Real Estate and Construction                 1999              52

Stephen P. Lundeen*(7)      Senior Vice President, Human Resources                              1998              52

Larry G. Petersen*          Senior Vice President, Chief Financial Officer                      1994              52

Terry G. Pritikin*(8)       Senior Vice President, Stores, North America                        1998              51

Robert J. Anthony*(9)       Vice President, Electronic Commerce                                 1999              39

Thomas J. Carey*(10)        Vice President, Marketing                                           1999              42

Pedro E. Carreras(11)       Vice President, Distribution                                        2000              45

Pamela J. Garrett(12)       Vice President, Store Administration                                2000              41

James P. Gould*(13)         Vice President, International Planning and Development              1998              40

Paul E. Jones(14)           Vice President, Field Service Center Operations                     1999              31

Carol A. Montgomery*(15)    Vice President, Exclusive Brands                                    1998              45

Richard W. Mueller(16)      Vice President, Merchandising, Planning and Control                 1999              44

David J. Naitove(17)        Vice President, Total Compensation                                  1999              49

George L. Pita*             Vice President, Finance                                             1994              38

Jill Witter*(18)            Vice President, General Counsel                                     1999              45
<FN>
---------------------------
(1)  Officers designated as Executive Officers for purposes of Section 16(a) of
     the Securities Exchange Act of 1934 are designated by *.
(2)  All officers serve at the pleasure of the Board of Directors.
(3)  Mr. Watson was appointed President, Chief Executive Officer and a Director
     of the Company in January 1998. From July 1995 until his appointment, Mr.
     Watson was employed by Reebok International, Ltd. where he served as Senior
     Vice President--Apparel and Senior Vice President--Strategic
     Marketing/Planning. From 1992 to 1995, Mr. Watson was employed by Esprit de
     Corp GmbH where he served as President and Chief Operating Officer in
     Dusseldorf, Germany.
(4)  Mr. Schumann was appointed Executive Vice President, General Merchandising
     Manager, in September 1997. Prior to joining the Company, Mr. Schumann was
     employed by Petrie Stores as Senior Vice President and General
     Merchandising Manager from December 1994 to December 1996. From July 1992
     to December 1994, he was employed by Liz Claiborne where he served as
     President of the Jewelry Division.
(5)  Mr. Arrata was Chief Financial Officer, Chief Information Officer, and
     Managing Director of Esprit GmbH from March 1992 to October 1995. From
     October 1995 to March 1998, Mr. Arrata was Chief Operating Officer and
     Managing Director, President of all subsidiaries of Esprit holdings. Mr.
     Arrata served as a consultant to the Company from March 1998 until
     appointment of his current position in October 1998.
(6)  Mr. Kehm was Executive Vice President of The Athlete's Foot Group, Inc.
     from February 1985 until appointment of his current position in June 1999.
(7)  Mr. Lundeen was Senior Vice President, Human Resources, of Eddie Bauer,
     from January 1994 until appointment of his current position in August 1998.
(8)  Mr. Pritikin was Vice President, Stores for Charming Shoppes, Inc. from
     November 1994 to December 1998 and joined the Company in December 1998.
     From March 1994 to November 1994, Mr. Pritikin served as President,
     Specialty Stores of Tommy Hilfiger U.S.A. Prior to that time, Mr. Pritikin
     was Executive Vice President, Stores, Lerner Division, Limited, Inc.

                                       9
<PAGE>

(9)  Mr. Anthony was Senior Director of Market Development from May 1993 to July
     1995, Director, Media and Technology from July 1995 to March 1998, and Vice
     President, New Venture Development at Electronic Data Systems from March
     1998 until his current appointment.
(10) From December 1994 to January 1996, Mr. Carey was Senior Vice President and
     Group Director of Fogerty Klein & Partners. From January 1996 to September
     1998, Mr. Carey was Vice President-Marketing for Builders Square, Inc. From
     September 1998 until appointment to his current position in December 1999,
     Mr. Carey was Vice President of Marketing at Bloomingdale's Department
     Stores.
(11) Mr. Carreras has been employed by the Company since November 1992. He
     served as Director of Distribution for the Company until his appointment to
     his current position in April 2000.
(12) Since February 1992, Ms. Garrett has served in various capacities for the
     Company, the most recent of which was Director of Operations for the North
     American store group from February 1999 until her appointment to her
     current position in April 2000.
(13) Prior to joining the Company, Mr. Gould was Group Treasurer, Sola
     International, Inc. from August 1994 to May 1998. From May 1991 to July
     1994, Mr. Gould was Director of Strategic Planning of Esprit de Corp GmbH.
(14) From October 1992 until February 1997, Mr. Jones was Regional Manager Asset
     Protector of Mervyn's, a division of Dayton Hudson Stores. From February
     1997 to September 1999, Mr. Jones was Director, Loss Prevention. He assumed
     his current position in September 1999.
(15) Between October 1996 and October 1998, Ms. Montgomery was engaged in
     consulting and advisory work in the eyewear and skin care industry. In that
     capacity, Ms. Montgomery was a consultant for the Company from June 1998
     until October 1998 when she joined the Company. Prior to that Ms.
     Montgomery was Chairman and Chief Executive Officer of Revo Incorporated, a
     division of Bausch and Lomb.
(16) Mr. Mueller was Vice President-MPC of the Sharper Image from August 1984 to
     July 1998. Mr. Mueller served as Senior Manager and Director of MPC from
     July 1998 to March 1999 when he assumed his current position.
(17) Mr. Naitove was engaged as a Compensation and Benefits consultant with
     McDaniel & Associates, Inc. from November 1993 until his appointment to his
     current position.
(18) Prior to joining the Company in February 1999, Ms. Witter served as Vice
     President, General Counsel and Secretary of Angelica Corporation from May
     1985 to January 1999.
</FN>
</TABLE>

                                       10
<PAGE>

                                     PART II

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

         The Company's common stock is traded on the NASDAQ National Market
under the symbol "RAYS." The following table sets forth, for the periods
indicated, the high and low sale prices of shares of the common stock as
reported on the NASDAQ National Market.

Fiscal 1999:                                                HIGH         LOW
                                                        ----------    ---------
     First Fiscal Quarter (January 31 to May 1)         $  12 5/8     $ 9 7/32
     Second Fiscal Quarter (May 2 to July 31)              17 3/16     13
     Third Fiscal Quarter (August 1 to October 30)         13           9 9/16
     Fourth Fiscal Quarter (October 31 to January 29)      14           8 3/16

Fiscal 1998:                                                HIGH         LOW
                                                        ----------    ---------
     First Fiscal Quarter (February 1 to May 2)         $  10 9/16    $ 6 15/16
     Second Fiscal Quarter (May 3 to August 1)             12 3/4       8
     Third Fiscal Quarter (August 2 to October 31)          8 3/4       3 3/4
     Fourth Fiscal Quarter (November 1 to January 30)      10 1/8       4 13/32

         On April 14, 2000 the last reported sale price for the Company's common
stock on the NASDAQ National Market was $7.66 per share. As of April 14, 2000
the Company had 280 stockholders of record (including brokerage firms and other
nominees).

         In January 1999, the Company issued $1.2 million of convertible
subordinated notes in connection with an acquisition (the "Notes") with a
conversion feature into Company common stock at $6.00 per share. On January 17,
2000, the Company redeemed all of the Notes and issued 208,057 shares of common
stock upon conversion (see Note 10 of Notes to Consolidated Financial
Statements).

         The Company intends to retain its earnings to finance the growth and
development of its business and does not anticipate paying cash dividends on its
capital stock in the foreseeable future. Future dividends, if any, will depend,
among other things, on the future earnings, capital requirements and financial
condition of the Company, and on such other factors as the Company's Board of
Directors may consider relevant. In addition, the Company's revolving credit
facility prohibits the payment of cash dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

                                       11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

         The selected financial data presented below should be read in
conjunction with the consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial information included elsewhere in this Form
10-K. The data as of January 29, 2000 and January 30, 1999 and for each of
fiscal 1999, 1998 and 1997 are derived from the Company's audited consolidated
financial statements included elsewhere in this Form 10-K. The data as of
January 31, 1998, February 1, 1997 and February 3, 1996 and for the fiscal 1996
and 1995 periods are derived from audited financial statements not included in
this Form 10-K.

<TABLE>
<CAPTION>
                                                                                               FISCAL (1)
                                                                          (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
                                                                   -----------------------------------------------------------------
                                                                      1999          1998         1997          1996         1995
                                                                   -----------   -----------  ------------  ------------  ----------
<S>                                                                <C>           <C>          <C>            <C>          <C>
 INCOME STATEMENT DATA:
 Net sales                                                         $ 635,603     $ 601,954    $ 573,840      $522,297     $418,050
 Cost of goods sold, occupancy and buying expenses                   368,860       356,523      366,774       312,694      235,163
                                                                   -----------   -----------  ------------  ------------  ----------
    Gross profit                                                     266,743       245,431      207,066       209,603      182,887
                                                                   -----------   -----------  ------------  ------------  ----------
 Selling, general and administrative expenses:
    Operating expenses                                               186,609       179,633      186,954       150,148      113,973
    Depreciation and leasehold amortization                           25,698        23,652       28,327        23,291       16,598
    Amortization of cost in excess of net assets of acquired           2,017         1,752        2,407         2,323        1,746
      businesses
    Restructuring expenses (reversals) and asset impairment
      charges                                                           (399)         (371)      54,660        17,528           --
    Expenses related to acquisitions                                       -            --           --            --       10,100
                                                                   -----------   -----------  ------------  ------------  ----------
                                                                     213,925       204,666      272,348       193,290      142,417
                                                                   -----------   -----------  ------------  ------------  ----------
       Earnings (loss) from continuing operations before
         interest, income taxes, and cumulative effect of
         change in accounting principle                               52,818        40,765      (65,282)       16,313       40,470
 Interest expense                                                      8,122         7,319        8,364         7,969        3,292
                                                                   -----------   -----------  ------------  ------------  ----------
       Earnings (loss) from continuing operations before income
         taxes, and cumulative effect of change in accounting
         principle                                                    44,696        33,446      (73,646)        8,344       37,178
 Provision (benefit) for income taxes                                 17,208        13,625      (15,312)        7,350       15,523
                                                                   -----------   -----------  ------------  ------------  ----------
       Earnings (loss) from continuing operations before
         cumulative effect of change in accounting principle          27,488        19,821      (58,334)          994       21,655
 Discontinued operations:
   Loss from discontinued operations net of tax benefits of
      $1,400 in 1997, $824 in 1996 and $11 in 1995(2)                      -             -       (1,813)        (1,219)        (18)
   Estimated loss from disposal of discontinued operations, net
      of income tax benefit of $462 in 1999 and $5,200 in 1997 (2)      (738)            -       (8,089)            -     -
                                                                   -----------   -----------  ------------  ------------  ----------
   Earnings (loss) before cumulative effect of change in
      accounting principle                                            26,750        19,821      (68,236)         (225)      21,637
 Cumulative effect of change in accounting principle, net of
    income tax benefit of $851(3)                                          -             -       (1,449)            -            -
                                                                   -----------   -----------  ------------  ------------  ----------
       Net income (loss)                                              26,750        19,821      (69,685)          (225)     21,637
 Pro forma adjustment for income taxes(4)                                  -             -            -             -         (775)
                                                                   -----------   -----------  ------------  ------------  ----------
       Pro forma net income (loss)                                 $  26,750     $  19,821    $ (69,685)    $     (225)   $ 20,862
                                                                   ===========   ===========  ============  ============  ==========
 Pro forma net income (loss) per share
    Basic--
       From continuing operations                                  $    0.60     $    0.38    $   (1.07)    $     0.02    $   0.41
       From discontinued operations                                    (0.02)            -        (0.18)         (0.02)         -
       Cumulative effect of change in accounting principle                 -             -        (0.02)            -           -
       Proforma adjustment for income taxes                                -             -            -             -        (0.01)
                                                                   -----------   -----------  ------------  ------------  ----------
         Net income (loss)                                         $    0.58     $    0.38    $   (1.27)    $     0.00    $   0.40
                                                                   ===========   ===========  ============  ============  ==========
    Diluted--
       From continuing operations                                  $    0.58     $    0.38    $   (1.07)    $     0.02    $   0.39
       From discontinued operations                                    (0.01)            -        (0.18)         (0.02)          -
       Cumulative effect of change in accounting principle                 -             -        (0.02)            -            -
       Proforma adjustment for income taxes                                -             -            -             -        (0.01)
                                                                   -----------   -----------  ------------  ------------  ----------
         Net income (loss)                                         $    0.57     $    0.38    $   (1.27)    $     0.00    $   0.38
                                                                   ===========   ===========  ============  ============  ==========
 Weighted average shares outstanding:
    Basic                                                             45,838        51,524       54,670         54,213      52,796
                                                                   ===========   ===========  ============  ============  ==========
    Diluted                                                           47,218        52,226       54,670         55,088      54,188
                                                                   ===========   ===========  ============  ============  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                       1999          1998         1997          1996         1995
                                                                   -----------   -----------  ------------  ------------  ----------
<S>                                                                    <C>           <C>          <C>            <C>         <C>
 SELECTED OPERATING DATA:
 Number of stores open at end of period (continuing operations)        1,892         2,005        2,166          2,087       1,724
 Comparable store net sales increase                                     6.8%          3.0%         0.0%           2.5%       10.3%
</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                      AS OF
                               ------------------------------------------------------------------------------------
                                JANUARY 29,       JANUARY 30,      JANUARY 31,       FEBRUARY 1,      FEBRUARY 3,
                                   2000              1999              1998             1997              1996
                               --------------    --------------    -------------    --------------    -------------
<S>                            <C>               <C>               <C>              <C>               <C>
BALANCE SHEET DATA:
Working capital                $  59,343         $  57,367         $     62,276     $  140,148        $   89,153
Total assets                     283,503           258,354              299,153        362,513           266,197
Long-term debt                   166,196           133,121              125,378        163,279            69,561
Stockholders' equity              44,147            55,189               86,732        157,792           152,824

<FN>
--------------------------
(1)  In June 1995, the Company acquired Sunsations through the exchange of
     7,411,764 shares of the Company's common stock for all of the outstanding
     common stock of Sunsations. The acquisition was accounted for as a pooling
     of interests, and, accordingly, the accompanying selected financial data
     has been retroactively adjusted to include the operations of Sunsations for
     all periods prior to the acquisition. Prior to the acquisition, Sunsations
     used a calendar yearend. Accordingly, the selected financial data for
     fiscal 1995 combine Sunsations' historical selected financial data on a
     calendar yearend basis with the Company's historical selected financial
     data on a fiscal yearend basis. As a result of the acquisition, effective
     January 29, 1995 (the first day of the Company's fiscal 1995 year),
     Sunsations' yearend was changed to conform to the Company's fiscal yearend.

(2)  The Company adopted a plan to discontinue its EyeX segment in January 1998
     (see Note 4 of Notes to Consolidated Financial Statements for additional
     details).

(3)  The Company adopted Emerging Issues Task Force Issue No. 97-13, "Accounting
     for Costs Incurred in Connection with a Consulting Contract that Combines
     Business Process Reengineering and Information Technology Transformation"
     in the fourth quarter of fiscal 1997 (see Note 3 of Notes to Consolidated
     Financial Statements for additional details).

(4)  The pro forma adjustment for income taxes reflects the additional tax
     provision that would have been recorded at the corporation level had
     Sunsations not been an S corporation during fiscal 1995.
</FN>
</TABLE>

                                       13
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
selected income statement data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                                               FISCAL
                                                                              ------------------------------------------
                                                                                  1999             1998          1997
                                                                              -----------      -----------    ----------
<S>                                                                              <C>              <C>            <C>
Net sales                                                                        100.0%           100.0%         100.0%
Cost of goods sold, occupancy and buying expenses                                 58.0             59.2           63.9
                                                                              -----------      -----------    ----------
   Gross profit                                                                   42.0             40.8           36.1
                                                                              -----------      -----------    ----------
Selling, general and administrative expenses:
   Operating expenses                                                             29.4             29.8           32.6
   Depreciation and leasehold amortization                                         4.0              3.9            4.9
   Amortization of cost in excess of net assets of acquired businesses             0.3              0.3            0.4
   Restructuring expenses (reversals) and asset impairment charges                (0.1)            (0.1)           9.5
                                                                              -----------      -----------    ----------
                                                                                  33.7             34.0           47.4
                                                                              -----------      -----------    ----------
     Earnings (loss) from continuing operations before interest, income
       taxes and cumulative effect of change in accounting principle               8.3              6.8          (11.3)
Interest expense                                                                   1.3              1.2            1.5
                                                                              -----------      -----------    ----------
     Earnings (loss) from continuing operations before income taxes
       and cumulative effect of change in accounting principle                     7.0              5.6          (12.8)
Provision (benefit) for income taxes                                               2.7              2.3           (2.7)
                                                                              -----------      -----------    ----------
     Earnings (loss) from continuing operations before cumulative
       effect of change in accounting principle                                    4.3              3.3          (10.1)
Discontinued operations:
   Loss from discontinued operations, net of income tax benefits                     -                -           (0.3)
   Estimated loss from disposal of discontinued operations, net of
     income tax benefit                                                            (0.1)              -           (1.4)
Cumulative effect of change in accounting principle, net of
   income tax benefit                                                                -                -           (0.3)
                                                                              -----------      -----------    ----------
     Net income (loss)                                                              4.2%             3.3%        (12.1%)
                                                                              ===========      ===========    ==========
</TABLE>

OVERVIEW

         During fiscal years 1997 and 1998, the Company adopted formal
restructuring plans for the closure of store locations, and as of fiscal year
end 1999, store closures for these restructuring plans have been substantially
completed.

         During fiscal 1997, the Company's North America operations were
negatively affected by a slowdown in comparable store sales, and certain
international and licensed department operations performed below expectations.
In response to these performance issues, management performed an assessment of
the Company's asset base, and determined (1) that approximately 250 marginal or
unprofitable locations should be closed, (2) asset impairments should be
recognized with respect to certain international and licensed department
locations, certain store locations and other fixed assets, (3) merchandise
assortments should be focused and the Company's vendor base should be reduced,
and (4) the Company's EyeX segment should be discontinued.

         The evaluation of the Company's asset base, the related decision to
reduce vendor and total unit presentation, the adoption of two new accounting
principles and other responses to the current sunglass specialty environment
resulted in $102.6 million of costs ($75.8 million net of tax), or $1.39 per
share, during the fourth quarter of fiscal 1997 as follows: (1) $31.1 million of
long-lived and intangible asset impairments recognized in the Company's
international operations, licensed department operations, selected store
locations (which will continue to be operated), as well as certain other fixed
assets, (2) $23.5 million of costs (write-off of fixed assets, lease exit and
other incremental exit costs) related to the elimination of approximately 250
marginal or unprofitable sites through closure (which was substantially
completed during fiscal 1999) (3) $13.3 million of costs associated with the
discontinuation and disposal of the Company's EyeX optical segment, (4) $13.0
million of inventory disposition costs in connection with the Company's decision
to improve merchandise clarity and focus through the reduction of its vendor and
total unit presentation (which reduction was completed in fiscal 1998 through
bulk sales of this product), (5) $4.6 million of costs related to the impact of
the adoption of new accounting principles during fiscal 1997 related to internal
use software, including the cumulative effect of a change in accounting
principle related to costs incurred in connection with the Company's information
technology transformation projects,

                                       14
<PAGE>

and (6) $17.1 million of other unusual costs and expenses attributable to, among
other things, efforts to restructure the Company's organizational infrastructure
(including litigation reserves, management retention and severance costs
associated with the reorganization of international operations and other items),
which costs have been substantially utilized as of fiscal yearend 1999.

         The fiscal 1997 charges discussed previously are reflected in the
accompanying consolidated statements of operations as follows:

<TABLE>
<CAPTION>
                                                                                     FISCAL 1997
                                                                                   -----------------
                                                                                    (IN THOUSANDS)
<S>                                                                                 <C>
Inventory disposition costs (reflected in cost of goods sold, occupancy
  and buying expenses)                                                              $    13,015
                                                                                   -----------------
Costs attributable to restructuring of organizational infrastructure:
  Reflected in cost of goods sold, occupancy and buying expenses                          2,620
  Reflected in operating expenses                                                        13,236
  Reflected in depreciation and leasehold amortization                                    1,220
                                                                                   -----------------
                                                                                         17,076
                                                                                   -----------------
Restructuring expenses and asset impairment charges:
  Impairment of long-lived and intangible assets                                         31,125
  Restructuring costs                                                                    23,535
                                                                                   -----------------
                                                                                         54,660
                                                                                   -----------------
Discontinuation of EyeX segment ($8,089 net of tax)                                      13,260
                                                                                   -----------------
Costs related to the impact of adoption of new accounting principles:
  Costs attributable to adoption of new accounting principle for
     internal use software (reflected in operating expenses)                              2,314
  Cumulative effect of change in accounting principle for costs
     incurred in information technology transformation projects
     ($1,449 net of tax)                                                                  2,300
                                                                                   -----------------
                                                                                          4,614
                                                                                   -----------------
       Total charges                                                                $   102,625
                                                                                   =================
</TABLE>

         During fiscal 1998, the Company recorded a net reversal of
restructuring expenses of $371,000. This amount reflected (a) reversal of $5.1
million of restructuring store closing costs recorded in fiscal 1997, primarily
as a result of favorable experience in store closing costs, and (b) $4.7 million
of costs related to the adoption of a plan in fiscal 1998 for the closure of
approximately 175 additional locations ("175 store plan"). During fiscal 1998,
the Company's operations continued to be negatively affected by the performance
of certain licensed department operations and selected other domestic and
international locations. In response to these performance issues, management
adopted a formal plan for the closure of approximately 175 additional locations.
Costs associated with this plan consisted of $3.2 million of fixed asset
write-offs and $1.5 million of lease exit and other incremental exit costs. The
net cash impact of this plan in fiscal 1999 was minimal, as cash restructuring
costs were offset by inventory reduction and operating loss reduction associated
with the store closings.

         During fiscal 1999, as the Company substantially completed its
restructuring plans, it was determined that a net reversal of previously accrued
expenses of $399,000 was required. Accrued restructuring expenses of $1.2
million as of fiscal yearend 1999 are primarily comprised of liabilities for
remaining lease exit costs related to stores closed during the completion of the
restructuring plans.

         See Note 2 of Notes to Consolidated Financial Statements for further
information regarding the Company's restructuring plans and Note 4 for further
information regarding discontinued operations.

                                       15
<PAGE>

FISCAL 1999 COMPARED TO FISCAL 1998

         Net sales increased $33.6 million, or 5.6%, to $635.6 million in fiscal
1999 compared to $602.0 million in fiscal 1998. This increase reflects sales
from new stores opened in fiscal 1999 (and fiscal 1998 to the extent not
reflected in comparable store sales) of $26.1 million, an increase in comparable
store sales of 6.8% (accounting for $38.1 million of the increase), partially
offset by a decrease of $30.6 million for sales lost due to store closures
during fiscal 1998 and 1999.

         Gross profit increased $21.3 million, or 8.7%, to $266.7 million in
fiscal 1999 compared to $245.4 million in fiscal 1998, primarily due to the
increase in net sales. As a percentage of net sales, gross profit increased 1.2
percentage points to 42.0% in fiscal 1999 from 40.8% in fiscal 1998, primarily
due to lower occupancy expense resulting from the closure of underperforming
locations as well as higher merchandise gross margins. The Company anticipates
that gross profit, as a percentage of sales will improve slightly in fiscal 2000
primarily due to lower occupancy expense resulting from the closure of
underperforming locations in fiscal 1999. In addition, although the Company
anticipates gross merchandise margins will decline slightly as watch sales
become a higher percentage of net sales (which sales typically have lower
margins than sunglasses) and changes in vendor terms, management expects that
these declines will be largely offset by improved margins due to the Company's
expansion of exclusive brands and other exclusive product offerings.

         Operating expenses increased $7.0 million, or 3.9% to $186.6 million in
fiscal 1999 compared to $179.6 million in fiscal 1998. As a percentage of net
sales, operating expenses decreased 0.4 percentage points to 29.4% in fiscal
1999 compared to 29.8% for the same period in 1998, due to the leverage impact
of comparable store sales and the closure of underperforming locations in fiscal
1998 and 1999.

         Depreciation and leasehold amortization expense increased $2.0 million,
or 8.7% to $25.7 million in fiscal 1999 compared to $23.7 million in fiscal
1998, due to new store growth, the renovation of existing stores and
expenditures for required systems enhancements.

         Amortization of cost in excess of net assets of acquired business
increased $265,000, or 15.1%, to $2.0 million in fiscal 1999 compared to $1.8
million in fiscal 1998 due to the amortization of goodwill related to the
acquisition of shades.com and SwissArmyDepot.com at the end of fiscal 1998.

         Interest expense increased $803,000 to $8.1 million in fiscal 1999,
compared to $7.3 million for the same period last year due to an increase in
average outstanding borrowings during the period. The increase in average
outstanding borrowings was substantially related to the Company's repurchase of
shares during the year.

         The Company's effective tax rate for fiscal 1999 and 1998 was 38.5% and
40.7%, respectively. The variation in the effective rate for the tax provision
between 1999 and 1998 is primarily due to the utilization of foreign net
operating loss carryforwards.

         As a result of the foregoing, the Company had net income from
continuing operations of $0.58 per diluted share, or $27.5 million, in fiscal
1999 compared to net income from continuing operations of $0.38 per diluted
share, or $19.8 million in fiscal 1998.

         The estimated loss from disposal of discontinued operations in fiscal
1999 of $738,000, net of taxes, represents additional provision for liabilities
related to the disposal of EyeX, the Company's optical segment which was
discontinued in January 1998.

         The Company reported net income of $0.57 per diluted share, or $26.8
million in 1999 compared to net income of $0.38 per diluted share, or $19.8
million in fiscal 1998

FISCAL 1998 COMPARED TO FISCAL 1997

         Net sales increased $28.2 million, or 4.9%, to $602.0 million in fiscal
1998 from $573.8 million in fiscal 1997. The increase reflects sales from new
stores opened during fiscal 1998 (and fiscal 1997 to the extent not reflected in
comparable store sales) of $31.6 million, an increase in comparable store sales
of 3.0% (accounting for $14.5 million of the increase), partially offset by a
decrease of $17.9 million for sales lost due to store closures during fiscal
1997 and 1998.

         Gross profit increased $38.3 million, or 18.5%, to $245.4 million in
fiscal 1998 from $207.1 million in fiscal 1997 as a result of increased net
sales and an increased gross profit percentage. As a percentage of net sales,
gross profit increased 4.7 percentage points to 40.8% in fiscal 1998 from 36.1%
in fiscal 1997 due to (1) non-recurrence of $15.6 million of charges recorded in
fiscal 1997, primarily for vendor and unit discontinuation costs, (2) improved
gross merchandise margins as a result of reduced inventory

                                       16
<PAGE>

reduction activity and improved vendor terms, and (3) occupancy expense leverage
due to a comparable store increase of 3.0% and the closure of marginal store
locations.

         Operating expenses decreased $7.4 million, or 4.0%, to $179.6 million
in fiscal 1998 from $187.0 million in fiscal 1997. The decrease was due to the
non-recurrence of $15.6 million in charges related to the restructuring of the
Company's organizational infrastructure included in fiscal 1997 operating
expenses. This decrease was partially offset by increased costs associated with
the operations and management of new stores opened in fiscal 1998 and 1997. As a
percentage of net sales, operating expenses decreased 2.8 percentage points to
29.8% in fiscal 1998 from 32.6% in fiscal 1997.

         Depreciation and leasehold amortization expense decreased $4.7 million,
or 16.5%, in fiscal 1998 reflecting the positive impact of the Company's lower
asset base due to asset impairment charges recognized in fiscal 1997 and store
closures under the restructuring plans during fiscal 1998 and 1997.

         Amortization of cost in excess of net assets of acquired businesses
decreased $655,000, or 27.2%, in fiscal 1998 reflecting the impact of the
Company's lower asset base due to asset impairment charges recognized in fiscal
1997.

         Interest expense decreased $1.1 million, or 12.5%, in fiscal 1998 due
to a decrease in average outstanding borrowings during the period, which was
attributable to increased cash provided by operating activities.

         The Company's effective tax rate for fiscal 1998 and 1997 was 40.7% and
20.8%, respectively. The variation in the effective rate rate for the tax
provision in 1998 and the tax benefit in 1997 is primarily due to the recording
of a valuation allowance for certain international deferred tax assets.

         As a result of the foregoing, the Company had net income of $0.38 per
diluted share or $19.8 million in fiscal 1998 compared to a net loss from
continuing operations of $1.07 per diluted share or $58.3 million in fiscal 1997
(net loss of $1.27 per diluted share or $69.7 million including discontinued
operations).

LIQUIDITY AND CAPITAL RESOURCES

         The Company's short-term cash needs are primarily for (i) working
capital to support its inventory requirements (ii) capital expenditure
requirements for new store additions/conversions, e-commerce and other systems
requirements and (iii) common stock repurchases, as authorized by the Company's
Board of Directors. The Company's long-term liquidity requirements relate
principally to the maturity of its revolving credit facility in November 2001,
the maturity of its $115 million convertible subordinated Notes in June 2003,
operating lease commitments and continued store expansion/conversion. The
Company has a revolving credit facility with BankBoston Retail Finance, Inc.
("BankBoston"). The revolving credit facility includes a borrowing availability
of up to $65 million depending on inventory levels, and a supplemental borrowing
component, amounts of which vary depending on the period the borrowings are
outstanding. As of March 25, 2000, the Company's borrowing base was
approximately $57.9 million and the Company was entitled to borrow up to an
additional $11.3 million under the supplemental component of its facility. The
credit facility includes up to $10.0 million in letters of credit. Borrowings
under the credit facility generally bear interest at a floating rate equal to,
at the Company's option, (a) the prime rate or (b) LIBOR plus 2.0%. The facility
is secured with a first priority lien and security interest in substantially all
assets. Borrowings under the BankBoston facility can be used for working capital
and other general corporate purposes, including stock repurchases (which
purchases are subject to a minimum remaining borrowing availability of $12.5
million).

         On March 30, 2000, the Company received a commitment from Fleet
National Bank ("Fleet Bank") to provide a three year senior secured revolving
credit facility that provides for borrowings of up to $150 million. Proceeds
from this facility will be used to refinance the existing BankBoston facility,
as well as to support working capital needs for current and new stores and for
common stock repurchases, as authorized by the Company's Board of Directors.
Borrowings under the proposed Fleet Bank facility are expected to bear interest
at a floating rate ranging from (a) prime plus 0 - 1.0% or (b) LIBOR plus 2.0 -
3.0%, depending on a ratio of debt to EBITDA. The Company expects to finalize
this credit facility during the second quarter of fiscal 2000. As the proceeds
of the Fleet Bank facility will be used to refinance the existing BankBoston
facility, the Company expects to write-off approximately $600,000 of unamortized
debt issue costs related to the existing BankBoston facility when the Fleet Bank
facility is finalized.

         Due to the seasonal nature of the Company's business, outstanding
borrowings typically peak during the first and third fiscal quarters as the
Company finances inventory purchases in advance of the Company's highest sales
periods. See "Seasonality and Quarterly Results." At January 29, 2000, the
Company had outstanding borrowings under its credit facility of $52.7 million
and $1.0 million in letters of credit outstanding, which were maintained as
security for performance under the Company's executive office lease and for
purchases of certain merchandise.

                                       17
<PAGE>

         Net cash provided by operating activities was $50.6 million during
fiscal 1999 compared to $79.0 million in fiscal 1998. The difference between the
Company's net income and operating cash flow in fiscal 1999 was primarily
attributable to depreciation and amortization of $27.7 million, an increase in
accounts payable of $8.9 million, partially offset by an increase of $10.4
million in inventory and a decrease of $4.6 million in accrued expenses.

         Net cash used in investing activities was $38.8 million during fiscal
1999 compared to $31.3 million during fiscal 1998. Investing cash flows reflect
capital expenditures related to new store expansion, the renovation of existing
stores and required systems enhancements.

         Net cash used in financing activities was $7.4 million for fiscal 1999
compared to $44.9 million for fiscal 1998. Financing cash flows for 1999 reflect
a 34.1 million net increase in the amounts outstanding under the Company's
revolving credit facility as well as approximately $3.5 million of proceeds
received from stock option exercises, partially offset by $44.9 million of stock
repurchase payments.

         At January 29, 2000, the Company's commitments for capital expenditures
totaled $1.7 million and are related primarily to capital costs for new store
construction and existing store renovations. In addition, the Company's share
repurchase program currently authorizes the future repurchase of 8.0 million
shares of common stock. Management believes that net cash provided by
operations, together with borrowing availability under the Company's proposed
Fleet Bank credit facility, will be sufficient to fund estimated capital
expenditures associated with the Company's planned opening of approximately 80
store locations and conversion of approximately 200 locations to Combo stores in
fiscal 2000, amounts associated with the Company's common stock repurchase
program and other working capital requirements through at least fiscal 2000.

SEASONALITY AND QUARTERLY RESULTS

         Historically, the Company's operations have been seasonal, with highest
net sales and net income occurring in the second fiscal quarter (reflecting
increased demand for sunglasses during the spring and summer months).

         The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of sales contributed by new stores,
the integration of new stores into the operations of the Company and the timing
of Combo conversions and store closures, as well as other factors. The addition
of a large number of new stores can affect results of operations on a
quarter-to-quarter basis. See Note 15 of Notes to Consolidated Financial
Statements for additional information regarding quarterly financial data.

YEAR 2000 COMPLIANCE

         The Company successfully transitioned into the Year 2000 (Y2K) without
any major disruption of systems or business operations. No significant Y2K
issues were experienced relative to the Company's merchandise and other third
party vendors. Accordingly, it was not necessary to invoke any of the company's
contingency plans, which were developed for use in the event of supplier
delivery delay or failure, or critical system or support equipment interruption
or failure.

         During fiscal years 1998 and 1999, the Company expensed $905,000 on Y2K
efforts of which approximately $370,000 was expensed in fiscal 1999. The cost of
the project approximated estimates previously reported. These amounts were
funded through operating cash flows. Operating costs related to Y2K compliance
projects were incurred over several quarters and expensed as incurred. Costs
associated with business system solutions for improved business processes are
not included in these amounts. These amounts did not have a material adverse
effect on the Company's financial condition or operating results. The Y2K issue
does not present a materially adverse risk to the Company's future consolidated
results of operations, liquidity, or capital resources.

EUROPEAN MONETARY UNION

         On January 1, 1999 eleven of the existing members of the European Union
(the "EU") joined the European Monetary Union (the "EMU"). This will lead to,
among many other things, fundamental changes in the way participating EU states
implement their monetary policies and manage local currency exchange rates.
Ultimately, there will be a single currency within certain countries of the EU,
known as the Euro and one organization, the European Central Bank, responsible
for setting European monetary policy. While some believe that the change will
bring a higher level of competition within Europe and a greater sense of
economic stability within that region, there is no certainty that the Company's
activity in this region will necessarily realize any benefits as a result of
such changes. The Company has reviewed the impact the Euro will have on its
business and whether this will give rise to a need for significant changes in
its commercial operations or treasury management functions. While it is
uncertain whether there will be any

                                       18
<PAGE>

immediate direct benefits from the planned conversion, the Company believes it
is properly prepared to accommodate any changes deemed necessary without any
significant changes to its current commercial operations, treasury management
and management information systems.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         On a limited basis, the Company selectively uses foreign currency swap
agreements to hedge the effect of changes in currency exchange rates on certain
short-term intercompany transactions. No derivative contracts are entered into
for trading or speculative purposes. The use of derivatives did not have a
material impact on the Company's financial position, results of operations or
cash flows in fiscal 1999, 1998 or 1997. See Note 1 of Notes to Consolidated
Financial Statements for further information.

                                       19
<PAGE>

ITEM 8. FINANCIAL STATEMENTS                                                PAGE
                                                                            ----
Report of Independent Certified Public Accountants......................     21

Consolidated Balance Sheets ............................................     22

Consolidated Statements of Operations ..................................     23

Consolidated Statements of Stockholders' Equity and Comprehensive
   Income (Loss)........................................................     24

Consolidated Statements of Cash Flows ..................................     25

Notes to Consolidated Financial Statements .............................     27

                                       20
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders
   of Sunglass Hut International, Inc.:

         We have audited the accompanying consolidated balance sheets of
Sunglass Hut International, Inc. (a Florida corporation) and subsidiaries as of
January 29, 2000 and January 30, 1999, and the related consolidated statements
of operations, stockholders' equity and comprehensive income (loss) and cash
flows for each of the three fiscal years in the period ended January 29, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sunglass Hut
International, Inc. and subsidiaries as of January 29, 2000 and January 30,
1999, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended January 29, 2000 in conformity with
generally accepted accounting principles in the United States.

         As discussed in Note 3 to the consolidated financial statements, the
Company adopted the provisions of Emerging Issues Task Force Issue No. 97-13 and
American Institute of Certified Public Accountants Statement of Position No.
98-1 in the fourth quarter of fiscal 1997.

ARTHUR ANDERSEN LLP

Miami, Florida,
   March 22, 2000.

                                       21
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      FISCAL
                                                         ----------------------------------
                                                              1999               1998
                                                         ---------------     --------------
<S>                                                      <C>                 <C>
                         ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                             $     9,732         $     5,007
   Accounts receivable                                         4,696               3,547
   Inventory                                                  99,212              88,834
   Prepaid rent                                                7,366               7,978
   Other current assets                                       11,497              22,045
                                                         ---------------     --------------
         Total current assets                                132,503             127,411
                                                         ---------------     --------------

PROPERTY AND EQUIPMENT, net                                  108,187              90,987
COST IN EXCESS OF NET ASSETS OF
   ACQUIRED BUSINESSES, net                                   24,842              26,486
OTHER ASSETS                                                  17,971              13,470
                                                         ---------------     --------------
         Total assets                                    $   283,503         $   258,354
                                                         ===============     ==============

           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                      $    33,981         $    25,113
   Accrued expenses                                           37,998              41,327
   Accrued restructuring expenses                              1,181               3,604
                                                         ---------------     --------------
         Total current liabilities                            73,160              70,044
LONG-TERM DEBT, net of current portion                       166,196             133,121
                                                         ---------------     --------------
         Total liabilities                                   239,356             203,165
                                                         ---------------     --------------

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS' EQUITY:
   Preferred stock                                                --                  --
   Common stock                                                  427                 464
   Additional paid-in capital                                 78,179             116,420
   Accumulated deficit                                       (29,965)            (56,715)
   Accumulated other comprehensive loss                       (4,494)             (4,980)
                                                         ---------------     --------------
         Total stockholders' equity                           44,147              55,189
                                                         ---------------     --------------
         Total liabilities and stockholders' equity      $   283,503         $   258,354
                                                         ===============     ==============
</TABLE>

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

                                       22
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                    FISCAL
                                                                                -----------------------------------------------
                                                                                   1999             1998              1997
                                                                                ------------     ------------     -------------
<S>                                                                             <C>              <C>              <C>
Net sales                                                                       $   635,603      $   601,954      $   573,840
Cost of goods sold, occupancy and buying expenses                                   368,860          356,523          366,774
                                                                                ------------     ------------     -------------
       Gross profit                                                                 266,743          245,431          207,066
                                                                                ------------     ------------     -------------
Selling, general and administrative expenses:
   Operating expenses                                                               186,609          179,633          186,954
   Depreciation and leasehold amortization                                           25,698           23,652           28,327
   Amortization of cost in excess of net assets of acquired businesses                2,017            1,752            2,407
   Restructuring expenses (reversals) and asset impairment charges                     (399)            (371)          54,660
                                                                                ------------     ------------     -------------
                                                                                    213,925          204,666          272,348
                                                                                ------------     ------------     -------------
       Earnings (loss) from continuing operations before interest, income
         taxes and cumulative effect of change in accounting principle               52,818           40,765          (65,282)
Interest expense                                                                      8,122            7,319            8,364
                                                                                ------------     ------------     -------------
       Earnings (loss)  from continuing operations before income taxes
         and cumulative effect of change in accounting principle                     44,696           33,446          (73,646)
Provision (benefit) for income taxes                                                 17,208           13,625          (15,312)
                                                                                ------------     ------------     -------------
       Earnings (loss) from continuing operations before cumulative
         effect of change in accounting principle                                    27,488           19,821          (58,334)
                                                                                ------------     ------------     -------------
Discontinued operations:
  Loss from discontinued operations, net of income tax benefits of
    $1,400 in 1997                                                                       --               --           (1,813)
  Estimated loss from disposal of discontinued operations, net of
    income tax benefit of $462 in 1999 and $5,200 in 1997                              (738)              --           (8,089)
                                                                                ------------     ------------     -------------
                                                                                       (738)              --           (9,902)
                                                                                ------------     ------------     -------------
       Earnings (loss) before cumulative effect of change in accounting
         principle                                                                   26,750           19,821          (68,236)
Cumulative effect of change in accounting principle, net of income tax
  benefit of $851 in 1997                                                                --               --           (1,449)
                                                                                ------------     ------------     -------------
         Net income (loss)                                                      $    26,750      $    19,821      $   (69,685)
                                                                                ============     ============     =============
Net income (loss) per share:
  Basic--
       From continuing operations                                               $      0.60      $      0.38      $     (1.07)
       From discontinued operations                                                   (0.02)              --            (0.18)
       Cumulative effect of change in accounting principle                               --               --            (0.02)
                                                                                ------------     ------------     -------------
          Net income (loss)                                                     $      0.58      $      0.38      $     (1.27)
                                                                                ============     ============     =============
  Diluted--
       From continuing operations                                               $      0.58      $      0.38      $     (1.07)
       From discontinued operations                                                   (0.01)              --            (0.18)
       Cumulative effect of change in accounting principle                               --               --            (0.02)
                                                                                ------------     ------------     -------------
          Net income (loss)                                                     $      0.57      $      0.38      $     (1.27)
                                                                                ============     ============     =============
Weighted average shares outstanding:
  Basic                                                                              45,838           51,524           54,670
                                                                                ============     ============     =============
  Diluted                                                                            47,218           52,226           54,670
                                                                                ============     ============     =============
</TABLE>

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

                                       23
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                               COMMON STOCK                      COMPREHENSIVE LOSS
                                         -------------------------             ------------------------
                                                                                            ACCUMULATED
                                                                   ADDITIONAL                  OTHER                  COMPREHENSIVE
                                          NUMBER OF                 PAID-IN    ACCUMULATED COMPREHENSIVE              INCOME (LOSS)
                                           SHARES       AMOUNT      CAPITAL      DEFICIT       LOSS         TOTAL     FOR THE PERIOD
                                         ------------  ---------- ------------ ----------  ------------- ----------   --------------
<S>                                      <C>           <C>        <C>          <C>         <C>           <C>          <C>
BALANCE, FISCAL 1996                     54,448,546    $    544   $ 164,326    $ (6,851)   $   (227)     $157,792     $       --
Stock and restricted stock awards           225,000           2       1,573          --          --         1,575             --
Exercise of stock options, including
   tax benefit                               31,100           1         109          --          --           110             --
Net loss for fiscal 1997                         --          --          --     (69,685)         --       (69,685)       (69,685)
Foreign currency translation
  adjustment                                     --          --          --          --      (3,060)       (3,060)        (3,060)
                                                                                                                      ------------
     Total comprehensive loss                    --          --          --          --          --            --     $  (72,745)
                                         ------------  ---------- ------------ ----------  ------------  ----------   ============
BALANCE, FISCAL 1997                     54,704,646         547     166,008     (76,536)     (3,287)       86,732     $       --
Exercise of stock options, including
   tax benefit                               77,604           1         544          --          --           545             --
Stock repurchases and retirements        (8,351,800)        (84)    (50,132)         --          --       (50,216)            --
Net income for fiscal 1998                       --          --          --      19,821          --        19,821         19,821
Foreign currency translation
  adjustment                                     --          --          --          --      (1,693)       (1,693)        (1,693)
                                                                                                                      ------------
     Total comprehensive income                  --          --          --          --          --            --     $   18,128
                                         ------------  ---------- ------------ ----------  ------------  ----------   ============
BALANCE, FISCAL 1998                     46,430,450    $    464   $ 116,420    $(56,715)   $ (4,980)     $ 55,189     $       --
Exercise of stock options, including
   tax benefit                              653,658           6       5,388          --          --         5,394             --
Stock repurchases and retirements        (4,492,000)        (45)    (44,875)         --          --       (44,920)            --
Conversion of convertible subordinated
   notes                                    208,057           2       1,246          --          --         1,248             --
Net income for fiscal 1999                       --          --          --      26,750          --        26,750         26,750
Foreign currency translation
  adjustment                                     --          --          --          --         486           486            486
                                                                                                                      ------------
     Total comprehensive income                  --          --          --          --          --            --     $   27,236
                                         ------------  ---------- ------------ ----------  ------------  ----------   ============
BALANCE, FISCAL 1999                     42,800,165    $    427   $  78,179    $(29,965)   $ (4,494)     $ 44,147
                                         ============  ========== ============ ==========  ============  ==========
</TABLE>

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

                                       24
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      FISCAL
                                                                                  -----------------------------------------------
                                                                                     1999              1998              1997
                                                                                  ------------     --------------    ------------
<S>                                                                               <C>              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                               $   26,750       $   19,821        $   (69,685)
                                                                                  ------------     --------------    ------------
  Adjustments to reconcile net income (loss) to net cash provided by continuing
     operations:
     Depreciation and amortization                                                    27,715           25,404             30,734
     Provision for discontinued merchandise                                               --               --             13,015
     Restructuring expenses (reversals) and asset impairment charges                    (399)            (371)            54,660
     Loss from discontinued operations, net of tax benefits                               --               --              1,813
     Estimated loss from disposal of discontinued operations, net of
       tax benefit                                                                       738               --              8,089
     Cumulative effect of change in accounting principle, net of
       tax benefit                                                                        --               --              1,449
     Write-off of deferred software development costs, net of                                                              1,459
       tax benefit                                                                        --               --                 --
     Stock-based compensation                                                             --               --              1,575
     Accretion of debt discount                                                          378              359                340
     Changes in operating assets and liabilities, net of effect of acquisitions--
       Changes in assets:
         Accounts receivable                                                          (1,149)              65               (651)
         Inventory                                                                   (10,378)          13,131             28,781
         Prepaid rent                                                                    612             (271)              (295)
         Other current assets                                                          1,806           12,950            (14,940)
         Other assets                                                                    357              853             (1,465)
         Deferred income taxes                                                         3,245           10,660            (13,514)
       Changes in liabilities:
         Accounts payable                                                              8,868            7,034              5,953
         Accrued expenses                                                             (4,588)          (3,572)            28,116
         Accrued restructuring expenses                                               (2,509)          (4,777)            (7,509)
                                                                                  ------------     --------------    ------------
                                                                                      24,696           61,465            137,610
                                                                                  ------------     --------------    ------------
       Net cash provided by continuing operations                                     51,446           81,286             67,925
       Net cash used in discontinued operations                                         (876)          (2,254)            (1,374)
                                                                                  ------------     --------------    ------------
       Net cash provided by operating activities                                      50,570           79,032             66,551
                                                                                  ------------     --------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                               (38,832)         (28,507)           (29,059)
  Capital expenditures-discontinued operations                                            --              (31)              (648)
  Acquisitions of businesses                                                              --           (2,769)            (1,396)
                                                                                  ------------     --------------    ------------
       Net cash used in investing activities                                         (38,832)         (31,307)           (31,103)
                                                                                  ------------     --------------    ------------
</TABLE>

                            (CONTINUED ON NEXT PAGE)

                                       25
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      FISCAL
                                                                                  -----------------------------------------------
                                                                                     1999              1998              1997
                                                                                  ------------     --------------    ------------
<S>                                                                               <C>              <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on long-term debt                                                  (125)             (50)             (316)
  Proceeds from borrowings under revolving credit facilities                         250,069          104,236           104,900
  Principal payments on revolving credit facilities                                 (215,997)         (98,051)         (143,000)
  Payments for stock repurchases and retirements                                     (44,920)         (50,216)               --
  Payment of deferred financing costs                                                     --           (1,178)             (288)
  Proceeds from exercise of stock options                                              3,539              392                49
                                                                                  ------------     --------------    ------------
       Net cash used in financing  activities                                         (7,434)         (44,867)          (38,655)
                                                                                  ------------     --------------    ------------

                                                                                  ------------     --------------    ------------
Effect of exchange rate changes on cash and cash equivalents                             421           (1,223)              990
                                                                                  ------------     --------------    ------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                                     4,725            1,635            (2,217)
CASH AND CASH EQUIVALENTS, beginning of year                                           5,007            3,372             5,589
                                                                                  ------------     --------------    ------------
CASH AND CASH EQUIVALENTS, end of year                                            $    9,732       $    5,007        $    3,372
                                                                                  ============     ==============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid (received) during the year for:
         Interest                                                                 $    7,650       $    7,021        $    7,925
                                                                                  =============    =============     ============
         Income taxes                                                             $   10,856       $  (15,597)       $    3,293
                                                                                  =============    =============     ============
     Non-cash activities:
         Write-off (reversal) of property and equipment against accrued
              restructuring expenses                                              $     (693)      $   15,387        $   25,421
         Write-off of other assets against accrued restructuring expenses                208            1,650            11,037
         Impact on stockholders' equity from tax benefit related to the
           exercise of stock options                                                   1,855              153                61
         Issuance of convertible subordinated notes payable in connection
           with the acquisition of shades.com and SwissArmy Depot.com                     --            1,248                --
         Conversion of convertible subordinated notes payable
              into common stock                                                        1,248               --                --
                                                                                  -------------    -------------     ------------
                                                                                  $    2,618       $   18,438        $   36,519
                                                                                  =============    =============     ============
</TABLE>

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

                                       26
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

         Sunglass Hut International, Inc., a Florida corporation, and
subsidiaries (collectively, the "Company"), are engaged in retail sunglass and
watch sales. The Company operates stores located throughout the United States,
Canada, the Caribbean, Europe, Australia, New Zealand, and Singapore.

PRINCIPLES OF CONSOLIDATION/FISCAL YEAR

         The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. EyeX, the Company's
optical segment, has been recorded as a discontinued operation, and,
accordingly, is accounted for using the equity method. The Company's yearend is
the Saturday nearest January 31. Consequently, the Company's fiscal 1999, 1998
and 1997 years encompass the periods of January 31, 1999 through January 29,
2000, February 1, 1998 through January 30, 1999 and February 2, 1997 through
January 31, 1998, respectively.

RECLASSIFICATIONS

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

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         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. Significant estimates made by management include but are not
limited to the realizability of the Company's deferred tax assets, the possible
outcome of outstanding litigation, inventory shrinkage and obsolescence
accruals, self-insurance accruals for employee medical benefits, recognition of
supplier incentives and support, and future obligations and costs associated
with the Company's restructuring plans and strategic initiatives. Actual results
in subsequent periods could differ from those estimates.

EARNINGS PER SHARE

         Basic earnings per common share calculations are determined by dividing
earnings available to common stockholders by the weighted average number of
shares of common stock. Diluted earnings per share are determined by dividing
earnings available to common shareholders by the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding
(related to outstanding stock options discussed in Note 13 and the convertible
debt discussed in Notes 5 and 10).

                                       27
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

         Basic and diluted earnings per share for income (loss) from continuing
operations before cumulative effect of accounting change is computed as follows:

<TABLE>
<CAPTION>
                                                                                                     FISCAL
                                                                              ------------------------------------------------------
                                                                                   1999               1998                1997
                                                                              ---------------    ----------------    ---------------
                                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                           <C>                <C>                 <C>
     Numerator:
       Earnings (loss) from continuing operations before
          cumulative effect of accounting change                              $     27,488       $     19,821        $    (58,334)
       Effect of dilutive securities:
          Interest expense on convertible debt issued
            in January 1999, net of tax benefit                                         39                 --                 --
                                                                              ---------------    ----------------    ---------------
          Numerator for diluted earnings per share                            $     27,527       $     19,821        $    (58,334)
                                                                              ===============    ================    ===============
     Denominator:
       Denominator for basic earnings (loss) per share                              45,838             51,524              54,670
       Effect of dilutive securities:
          Options to purchase common stock                                           1,189                685                  --
          Convertible debt issued in January 1999                                      191                 17                  --
                                                                              ---------------    ----------------    ---------------
     Denominator for diluted earnings (loss) per share                              47,218             52,226              54,670
                                                                              ===============    ================    ===============
     Earnings (loss) per share from continuing operations
       before cumulative effect of accounting change:
          Basic                                                               $       0.60       $       0.38        $      (1.07)
                                                                              ===============    ================    ===============
          Diluted                                                             $       0.58       $       0.38        $      (1.07)
                                                                              ===============    ================    ===============
     Antidilutive securities not included in the diluted earnings
       (loss) per share computation:
          Options to purchase common stock                                             489                438               3,139
          Exercise price                                                      $      11.13       $       7.00        $       0.25
                                                                                        to                 to                  to
                                                                              $      30.81       $      30.81        $      30.81

         Convertible subordinated debt                                        $    115,000       $    115,000        $    115,000
         Conversion price                                                     $      30.25       $      30.25        $      30.25
</TABLE>

CONCENTRATION OF SUPPLIERS

         In fiscal 1999, Luxottica (including Ray-Ban, Revo, Killer Loop,
Arnette, Giorgio Armani and other brands) and Oakley, the Company's largest
suppliers, accounted for approximately 24.6% and 23.9%, respectively, of the
Company's total merchandise purchases. The Company has no long-term purchase
contracts or other contractual assurance of continued supply, pricing or access
to new products. On June 28, 1999, Luxottica Group, SpA completed the purchase
of the assets and liabilities of Bausch & Lomb's eyewear business (which
included Ray-Ban, Revo, Killer Loop, Arnette and other brands). The inability to
obtain merchandise from one or more key vendors on a timely basis, or a material
change in the Company's current purchase terms, could have a material adverse
effect on its results of operations.

INVENTORY

         Inventory, which consists of retail merchandise, is stated at the lower
of cost (computed using the average cost method which approximates the first-in,
first-out method) or market. Provision, when necessary, has been made to reduce
inventory to its net realizable value.

                                       28
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost less accumulated depreciation
and leasehold amortization. Depreciation and leasehold amortization are
calculated using the straight-line method over the expected useful lives of the
related assets. Useful lives generally range from 5 to 10 years. Upon the sale
or disposition of property and equipment, the asset cost and related accumulated
depreciation and leasehold amortization are removed from the accounts and any
resulting gain or loss is included in income. Maintenance and repairs are
expensed as incurred. The Company capitalizes interest incurred on funds used to
develop software for internal use. Interest capitalized during 1999, 1998 and
1997 was minimal.

COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES

         The unamortized cost in excess of net assets of acquired businesses is
being amortized on a straight-line basis over periods ranging primarily from 15
to 25 years. Accumulated amortization at January 29, 2000 and January 30, 1999
was $30.7 million and $28.9 million, respectively. The Company continually
evaluates whether events and circumstances have occurred subsequent to
acquisitions that indicate the remaining estimated useful life of cost in excess
of net assets of acquired businesses may warrant revision or that the remaining
balance of cost in excess of net assets of acquired businesses may not be
recoverable. When factors indicate that cost in excess of net assets of acquired
businesses should be evaluated for possible impairment, the Company uses an
estimate of the related business' undiscounted projected net operating cash
flows over the remaining life of the cost in excess of net assets of acquired
businesses in measuring whether the remaining unamortized cost and the net book
value of the related fixed and other assets are recoverable. If the cost in
excess of net assets of acquired businesses is determined to be impaired, such
assets are reduced to management's best estimate of fair value using the
discounted projected net operating cash flows over the remaining life.

REVENUE RECOGNITION

         Revenues from retail sales are recorded upon customer purchase.

STORE OPENING COSTS

         Salaries, training and travel costs relating to opening new retail
locations are expensed as incurred.

CATALOG AND ADVERTISING COSTS

         Catalog costs, primarily consisting of catalog production and mailing
costs, are amortized over the expected future revenue stream, which is
principally from three to six months from the date catalogs are mailed. A
significant amount of these costs is funded by vendors and, as such, the expense
incurred by the Company is not material. All other advertising costs are not
material and are expensed as incurred.

INCOME TAXES

         Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Deferred income tax provisions and
benefits are based on the changes to the asset or liability from period to
period. A valuation allowance is recognized to reduce net deferred tax assets to
amounts that management believes are more likely than not to be realized. The
Company files a consolidated tax return with its domestic subsidiaries in the
United States.

TRANSLATION OF FOREIGN CURRENCIES

         Assets and liabilities of foreign subsidiaries are translated at the
rate of exchange in effect at the balance sheet date; income and expenses are
translated at the average rates of exchange prevailing during the year. The
related translation adjustments are reflected in the accumulated other
comprehensive loss section of the consolidated statements of stockholders'
equity and comprehensive loss. Foreign currency gains and losses resulting from
transactions denominated in foreign currencies, including intercompany
transactions, except for intercompany loans of a long-term investment nature,
are included in results of operations.

                                       29
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

FORWARD CURRENCY SWAP AGREEMENTS

         The Company enters into forward currency swap agreements from time to
time to hedge the effect of changes in currency exchange rates on certain
short-term intercompany transactions. Forward currency swap agreements obligate
the Company to exchange, at future dates, various currencies at agreed upon
exchange rates. Gains and losses on these agreements resulting from changes in
currency exchange rates, if any, are offset against corresponding gains and
losses on the short-term intercompany transactions, if any. Premiums paid or
discounts received on these agreements are amortized over the term of the
agreement. For reporting purposes, the assets and liabilities resulting from
these agreements are offset because there is a legal right of offset. At January
29, 2000, no foreign currency swap agreements were outstanding.

CASH AND CASH EQUIVALENTS/FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company classifies as cash and cash equivalents all
interest-bearing deposits with original maturities of three months or less. The
fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore cannot be determined with
precision. The assumptions used have a significant effect on the estimated
amounts reported.

         The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and borrowings under the revolving credit facility approximate
fair value as of January 29, 2000 and January 30, 1999. The fair value of
convertible subordinated debentures approximates $91.4 million based on the
quoted market price as of January 29, 2000.

NEW ACCOUNTING STANDARDS

     Derivative Instruments and Hedging Activities

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". As issued, SFAS No. 133 is
effective for all quarters of fiscal years beginning after June 15, 1999.
However, in June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," deferring the effective date of SFAS No. 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company will adopt SFAS No. 133 when required and is in the
process of reviewing the impact of such adoption on its financial position and
results of operations.

     Start-Up Costs

         In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires that costs incurred during the
organization, pre-opening and start up phases of a project be expensed as
incurred, unless they are appropriately capitalizable under other existing
accounting pronouncements. The Company adopted the SOP in the first quarter of
fiscal 1999 and the adoption did not have a material effect on its financial
position and results of operations.

                                       30
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--RESTRUCTURING EXPENSES AND ASSET IMPAIRMENT CHARGES

         During fiscal 1997, management performed an assessment of the
recoverability of the Company's asset base and, as a result, recorded $54.6
million ($34.8 million net of tax benefits) for restructuring expenses and asset
impairment charges (the "250 Store Restructuring"). Pre-tax restructuring
charges of $23.5 million related to the closing of approximately 250 marginal or
unprofitable locations in the Company's North American, European and Australian
segments and consisted of non-cash charges of $12.9 million for fixed and other
asset write-downs and cash charges of $10.6 million for lease exit and other
incremental exit costs. Additionally, asset impairment charges of $31.1 million
($20.1 million net of tax) were determined based on an analysis of projected
estimated cash flows for underperforming operations which will continue to be
operated and consisted of write-downs of fixed and other assets of European
operations of $6.5 million, Australian operations of $10.3 million (including
$7.9 million of cost in excess of net assets of acquired businesses), licensed
departments of $4.0 million, certain underperforming domestic acquisitions of
$2.5 million, and other underperforming assets of $7.8 million. The after-tax
charge also reflects the probability that certain net operating loss
carry-forwards will not provide future tax benefits to the Company.

         Additionally, during fiscal 1997, the Company recorded charges of (a)
$13.0 million (reflected in cost of goods sold, occupancy and buying expenses)
for inventory disposition costs in connection with the Company's decision to
improve merchandise clarity and focus through the reduction of its vendor and
total unit presentation and (b) $17.1 million ($13.3 million in operating
expenses, $2.6 million in cost of goods sold, occupancy and buying expenses and
$1.2 million in depreciation and leasehold amortization) of other unusual costs
and expenses attributable to, among other things, efforts to restructure the
Company's organizational infrastructure (including litigation reserves,
management retention and severance costs associated with the reorganization of
international operations and other items). During fiscal 1998, the Company
substantially completed these programs.

         During fiscal 1998, the Company assessed the amounts recorded with its
250 Store Restructuring plan and determined that as a result of favorable
experience in store closing costs, a reversal of previously accrued expenses of
$5.1 million was required. Additionally, during fiscal 1998, as management
continued the evaluation of its asset base, a formal plan was adopted for the
closure of approximately 175 additional store locations and restructuring
expenses of $4.7 million were recorded. The charges to be incurred in connection
with the 175-store plan consisted of $3.2 million of non-cash charges for fixed
and other asset write-downs and cash charges of $1.5 million for lease exit and
other incremental costs.

         During fiscal 1999, as the Company substantially completed its
restructuring plans, it was determined that a net reversal of previously accrued
expenses of $399,000 was required. Accrued restructuring expenses of $1.2
million as of fiscal yearend 1999 are primarily comprised of liabilities for
remaining lease exit costs related to stores closed during the completion of the
restructuring plans.

         Store locations held for disposal under the plans remained in operation
up until the date of closure. For fiscal years 1999, 1998 and 1997, the net
sales for these stores were $9.6 million, $48.2 million and $63.5 million,
respectively. Additionally, results of operations of these stores generated
negative EBITDA (earnings before interest, taxes, depreciation and amortization)
of $1.4 million, $4.1 million, and $5.1 million in fiscal years 1999, 1998 and
1997, respectively. Store assets were written down to fair value at the time the
plans were approved and depreciation expense for these locations was suspended.
The effect of suspending depreciation on assets held for disposal through the
dates of disposition (assuming no writedown in value) was $584,000, $1,594,000
and $751,000 in fiscal years 1999, 1998 and 1997, respectively.

         The following summarizes the activity in accrued restructuring expenses
during fiscal years 1999, 1998 and 1997 (amounts are in thousands):

<TABLE>
<CAPTION>

                                     PROVISION FOR       CASH PAYMENTS
                                     RESTRUCTURING       FOR LEASE EXIT       FIXED AND OTHER ASSET       REVERSAL OF
                       BEGINNING     EXPENSES/ASSET        AND OTHER         (WRITEDOWNS) REVERSALS/     RESTRUCTURING     ENDING
                        ACCRUAL        IMPAIRMENT      INCREMENTAL COSTS           IMPAIRMENTS             EXPENSES       ACCRUAL
                     -------------- ----------------- --------------------- --------------------------- ----------------  ---------
<S>                  <C>            <C>               <C>                   <C>                         <C>               <C>
Fiscal Year 1999     $    3,604     $         --      $       (2,509)       $         485               $      (399)      $  1,181
Fiscal Year 1998         25,789            4,727              (4,777)             (17,037)                   (5,098)         3,604
Fiscal Year 1997         15,096           54,660              (7,509)             (36,458)                       --         25,789
</TABLE>

                                       31
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3--ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS REGARDING ACCOUNTING FOR
        INTERNAL USE SOFTWARE

         During fiscal 1997, as required, the Company adopted Emerging Issues
Task Force ("EITF") Issue No. 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract that Combines Business Process
Reengineering and Information Technology Transformation", which requires that
reengineering costs incurred as part of an acquisition, installation or
development of software be separated from other software project costs and
expensed as incurred. In accordance with EITF Issue No. 97-13, the cumulative
effect of the change in accounting principle of $2.3 million ($1.4 million net
of tax) was recognized in the fourth quarter of fiscal 1997 in the accompanying
consolidated statements of operations to reflect reengineering costs previously
capitalized as part of the consulting costs incurred for the Company's human
resources and financial software implementation projects.

         As of fiscal yearend 1997, the Company adopted AICPA SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 requires, in general, that all costs in the preliminary
project stage of a software installation or development project (prior to
software selection) and all costs in the post-implementation stage (once the
software is operational), as well as costs incurred to convert data (other than
coding), should be expensed as incurred. In accordance with this pronouncement,
the provisions of SOP 98-1 were retroactively adopted as of the beginning of
fiscal year 1997, and, as a result, the Company recorded charges of $2.3 million
in operating expenses in the accompanying consolidated statements of operations
for the period.

NOTE 4-- DISCONTINUED OPERATIONS

         In January 1998, as part of the Company's evaluation of its asset base,
the Company adopted a plan to discontinue its EyeX segment. The Company
substantially completed the disposition of EyeX during fiscal 1998. Summarized
results of EyeX for fiscal 1997 are as follows:

                                                             FISCAL 1997
                                                          ------------------
                                                           (IN THOUSANDS,
                                                          EXCEPT PER SHARE
                                                                DATA)
Net sales                                                 $      7,819
                                                          ==================
Loss before tax benefit                                         (3,163)
Income tax benefit                                               1,350
                                                          ------------------
Net loss from operations                                        (1,813)
Estimated loss from disposition, net of tax                     (8,089)
                                                          ------------------
Net loss from discontinued operations                      $    (9,902)
                                                          ==================
Basic and diluted net loss per share                       $     (0.18)
                                                          ==================

         During fiscal 1999, the Company recorded an additional provision for
liabilities of $1.2 million ($738,000 net of tax) for additional lease exit and
other incremental costs associated with the disposition of this segment. The net
liabilities of discontinued operations at fiscal yearend are summarized as
follows:

                                                          FISCAL
                                                ----------------------------
                                                   1999            1998
                                                ------------    ------------
                                                      (IN THOUSANDS)

Current assets                                  $    712        $    675
Allowance for estimated loss
  from disposition                                (1,295)         (1,396)
                                                ------------    ------------
Net liabilities                                 $   (583)       $   (721)
                                                ============    ============

         The allowance for estimated loss from disposition represents provision
for lease exit costs and other incremental costs. The net liabilities at January
29, 2000 and January 30, 1999 are included in accrued expenses in the
accompanying consolidated balance sheet.

                                       32
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--DISCONTINUED OPERATIONS (CONTINUED)

         The Company remains contingently liable under operating leases of
certain store locations that were assigned to third parties as part of the
disposal of EyeX. The present value of these lease obligations (discounted at
8.0%) as of fiscal yearend 1999 is approximately $6.6 million. The possibility
of the Company having to honor its contingent obligations is dependent upon the
future operating results of the parties to which the leases were assigned.
Should a reserve be required, it would be recorded at the time the obligation
was determined to be both probable and estimable.

NOTE 5--ACQUISITIONS

         In January 1999, the Company acquired substantially all of the assets
of shades.com and SwissArmyDepot.com, businesses engaged in selling sunglasses,
watches and accessories primarily through Internet websites. The purchase price
paid for the acquisition was $4.1 million consisting of $2.9 million in cash and
$1.2 million in convertible subordinated notes. The acquisition was accounted
for as a purchase, with the excess of purchase price over the fair value of net
assets acquired of approximately $4.1 million being recorded as cost in excess
of net assets of acquired businesses.

NOTE 6--OTHER CURRENT ASSETS

         Other current assets consist of the following at fiscal yearend:

                                                          FISCAL
                                            -----------------------------------
                                                 1999                1998
                                            ----------------     --------------
                                                      (IN THOUSANDS)
Current deferred tax assets                 $     4,099          $    12,755
Tax refund receivable                                --                4,271
Other                                             7,398                5,019
                                            ----------------     --------------
                                            $    11,497          $    22,045
                                            ================     ==============

NOTE 7--PROPERTY AND EQUIPMENT

        Property and equipment consists of the following at fiscal yearend:

                                                               FISCAL
                                                   -----------------------------
                                                        1999           1998
                                                   -------------   -------------
                                                          (IN THOUSANDS)
Leasehold improvements                             $     85,065    $     84,583
Furniture and fixtures                                  116,660          96,299
Construction in progress                                  5,665           3,291
                                                   -------------   -------------
                                                        207,390         184,173
Less--Accumulated depreciation and amortization         (99,203)        (93,186)
                                                   -------------   -------------
                                                   $    108,187    $     90,987
                                                   =============   =============

NOTE 8--ACCRUED EXPENSES

         Accrued expenses consist of the following at fiscal yearend:

                                                       FISCAL
                                          -----------------------------------
                                               1999                1998
                                          ----------------     --------------
                                                    (IN THOUSANDS)

Accrued payroll and related taxes         $     10,035         $      9,015
Accrued rent                                     8,181                8,450
Other accrued expenses                          19,782               23,862
                                          ----------------     --------------
                                          $     37,998         $     41,327
                                          ================     ==============

                                       33
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9--INCOME TAXES

         Income tax expense (benefit) attributable to income (loss) from
continuing operations before cumulative effect of accounting change consists of:

<TABLE>
<CAPTION>
                                                   FISCAL
                        -------------------------------------------------------------
                              1999                   1998                  1997
                        -----------------      -----------------      ---------------
                                                (IN THOUSANDS)
<S>                     <C>                    <C>                    <C>
Current:
     Federal            $      10,331          $      (4,271)         $     (10,208)
     State                      1,821                    456                  1,701
     Foreign                    1,528                    733                    571
                        -----------------      -----------------      ---------------
                               13,680                 (3,082)                (7,936)
                        -----------------      -----------------      ---------------
Deferred:
     Federal                    1,932                 13,380                 (6,106)
     State                         95                  2,325                 (4,316)
     Foreign                    1,501                  1,002                  3,046
                        -----------------      -----------------      ---------------
                                3,528                 16,707                 (7,376)
                        -----------------      -----------------      ---------------
                        $      17,208          $      13,625          $     (15,312)
                        =================      =================      ===============
</TABLE>

         Income tax expense (benefit) attributable to income (loss) from
continuing operations before cumulative effect of accounting change differed
from the amounts computed by applying the U.S. federal income tax rate of 35% to
pretax income (loss) from continuing operations before cumulative effect of
accounting change as a result of the following:

<TABLE>
<CAPTION>
                                                                                              FISCAL
                                                                        ---------------------------------------------------
                                                                             1999              1998              1997
                                                                        ---------------    --------------    --------------
                                                                                           (IN THOUSANDS)
<S>                                                                     <C>                <C>               <C>
Income tax provision (benefit) at the statutory rate                    $    15,643        $    11,706       $   (25,776)
State and local income taxes, net of federal income tax benefit               1,245              1,950            (1,711)
Non-deductible amortization of cost in excess of net assets of
     acquired businesses                                                        240                234               237
Foreign net operating loss utilization                                         (779)                 -                 -
Valuation allowance and contingencies                                           429                201            12,180
Other, net                                                                      430               (466)             (242)
                                                                        ---------------    --------------    --------------
                                                                        $    17,208        $    13,625       $   (15,312)
                                                                        ===============    ==============    ==============
</TABLE>

         The components of the current and non-current deferred tax assets are
summarized as follows at fiscal yearend:

<TABLE>
<CAPTION>
                                                                                                  FISCAL
                                                                                    -----------------------------------
                                                                                          1999              1998
                                                                                    -----------------  ----------------
<S>                                                                                 <C>                <C>
  Current deferred tax assets:                                                                (IN THOUSANDS)
       Inventory, principally due to additional costs capitalized for tax
          purposes                                                                  $         928      $         848
       Reserves, principally due to accruals for financial reporting purposes               3,065             11,835
       Other                                                                                  106                 72
                                                                                    -----------------  ----------------
             Current deferred tax assets (included in other current assets)                 4,099             12,755
                                                                                    -----------------  ----------------
  Non-current deferred tax assets:
       Property and equipment, principally due to differences in depreciation               7,999              3,231
       Accrued rents, principally due to the equalization of expenses for
           financial reporting purposes                                                     1,505              1,468
       Net operating loss carryforwards                                                     6,019              6,129
       Alternative minimum tax credit                                                         854                845
       Other                                                                                  122                104
                                                                                    -----------------  ----------------
             Non-current deferred tax assets                                               16,499             11,777
  Valuation allowance                                                                      (3,738)            (4,427)
                                                                                    -----------------  ----------------
             Non-current deferred tax assets (included in other assets)                    12,761              7,350
                                                                                    -----------------  ----------------
  Net deferred tax assets                                                           $      16,860      $      20,105
                                                                                    =================  ================
</TABLE>

                                       34
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9--INCOME TAXES--(CONTINUED)

         A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset may not be realized. The net change in
the total valuation allowance for the year ended January 29, 2000 was a decrease
of $689,000.

         The Company has not recognized a deferred tax liability for the
undistributed earnings of its wholly owned foreign subsidiaries because the
Company currently does not expect those unremitted earnings to reverse and
become taxable to the Company in the foreseeable future. A current or deferred
tax provision net of foreign tax credits, as applicable, will be recognized when
the Company expects that it will recover those undistributed earnings in a
taxable manner. At January 29, 2000, the undistributed earnings of these
subsidiaries (not including subsidiaries with foreign net operating losses) were
approximately $14.4 million.

NOTE 10--LONG-TERM DEBT

         Long-term debt consists of the following at fiscal yearend:

<TABLE>
<CAPTION>
                                                                                                               FISCAL
                                                                                                    -----------------------------
                                                                                                        1999             1998
                                                                                                    -------------    ------------
                                                                                                            (IN THOUSANDS)
<S>                                                                                  <C>            <C>              <C>
     5 1/4% convertible subordinated notes, net of unamortized discount of $1,460,000 and
        $1,838,000, respectively, interest payable semi-annually, principal due June 2003.          $  113,540       $  113,162
     Borrowings under the Company's revolving credit facility with BankBoston at the Company's
        option of (a) the prime rate (8.5% as of January 29, 2000) or (b) LIBOR (5.8% as of
        January 29, 2000) plus 2%, due November 2001.                                                   52,656           18,584
     5 1/4% convertible subordinated notes, interest payable semi-annually, principal due
        January 2001                                                                                        --            1,248
     Other                                                                                                  --              127
                                                                                                    -------------    ------------
                                                                                                       166,196          133,121
     Less--Current portion of long-term debt                                                                --               --
                                                                                                    -------------    ------------
                                                                                                    $  166,196       $  133,121
                                                                                                    =============    ============
</TABLE>

         In April 1998, the Company entered into a revolving credit facility
with BankBoston Retail Finance Inc. ("BankBoston") that provides for a
commitment through November 2001. The revolving credit facility includes a
borrowing availability of up to $65 million, depending on inventory levels, and
a supplemental borrowing component, amounts of which vary depending on the
period the borrowings are outstanding. At January 29, 2000, the Company was
entitled to borrow up to $11.3 million under the supplemental component of its
facility. The credit facility includes up to $10.0 million in letters of credit.
At January 29, 2000 the Company had $1.0 million in unsecured letters of credit
outstanding which are being maintained as security for performance under the
Company's executive office lease and for certain purchases of merchandise.
Borrowings under the credit facility generally bear interest at a floating rate
equal to, at the Company's option, (a) the prime rate or (b) LIBOR plus 2.0%.
The facility is secured with a first priority lien and security interest in
substantially all assets. Borrowings under the BankBoston facility can be used
for working capital and other general corporate purposes, including stock
repurchases (which purchases are subject to minimum remaining availability of
$12.5 million). The Company's revolving credit facility prohibits the payment of
cash dividends. The supplemental component of the BankBoston facility has
certain financial covenant requirements that are effective when borrowings occur
against this facility. At January 29, 2000, no borrowings were outstanding on
this supplemental facility.

         In June 1996, the Company issued $115 million principal amount of
convertible subordinated notes (the "Notes Due 2003") to certain qualified
institutional investors. The resale of the Notes Due 2003 was later registered
with the Securities and Exchange Commission in October 1996. The notes bear
interest at 5 1/4%, payable semi-annually, and mature June 2003. The Notes are
subordinated to all existing and future indebtedness of the Company, and are
convertible into Company common stock at $30.25 per share.

         In January 1999, the Company issued $1.2 million of convertible
subordinated notes (the "Notes Due 2001") in connection with an acquisition (see
Note 5). The notes bear interest at 5 1/4%, payable semi-annually, and mature in
January 2001. The Notes Due 2001 are unsecured and subordinate and junior to the
Notes Due 2003, and are convertible into Company common stock at $6.00 per
share. On January 17, 2000, the Notes Due 2001 were converted into 208,057
shares of the Company's common Stock.

                                       35
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--LONG-TERM DEBT--(CONTINUED)

         Maturities of long-term debt are as follows at January 29, 2000:

      FISCAL YEAR                  AMOUNT
------------------------    ---------------------
                               (IN THOUSANDS)

         2000                             -
         2001                        52,656
         2002                             -
         2003                       115,000
                            ---------------------
                            $       167,656
                            =====================

NOTE 11--COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

         The Company leases all of its retail stores and its office and
warehouse facilities under operating leases. Store rent expense generally
includes a percentage of the retail store's sales volume and/or a fixed minimum
base rent. In addition, the majority of leases are subject to an annual
adjustment for increases in real estate taxes, maintenance and insurance costs.

         The Company was obligated for the following minimum annual base rentals
under operating leases at January 29, 2000:

     FISCAL YEAR                AMOUNT

 ---------------------    -------------------
                            (IN THOUSANDS)

 2000                     $       70,953
 2001                             62,486
 2002                             55,757
 2003                             47,360
 2004                             38,955
 Thereafter                       90,919
                          -------------------
                          $      366,430
                          ===================

         Base rent expense totaled $85.2 million, $83.1 million and $85.4
million for fiscal years 1999, 1998 and 1997, respectively. Percentage of sales
over a fixed minimum base rent totaled $4.5 million, $5.9 million and $6.2
million for fiscal years 1999, 1998 and 1997, respectively.

SELF-INSURED GROUP HEALTH

         The Company is self-insured for employee medical benefits under the
Company's group health plan. The Company maintains stop loss coverage for
individual medical claims in excess of $150,000 and for annual Company medical
claims which exceed approximately $4.1 million in the aggregate. While the
ultimate amount of claims incurred is dependent on future developments, in
management's opinion, recorded reserves are adequate to cover the future payment
of claims. However, it is reasonably possible that recorded reserves may not be
adequate to cover the future payment of claims. Adjustments, if any, to
estimates recorded resulting from ultimate claim payments will be reflected in
operations in the periods in which such adjustments are known.

                                       36
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

CONSTRUCTION COMMITMENTS

         In the normal course of business, the Company enters into commitments
for the construction of both new stores and existing store renovations. At
January 29, 2000, the amount outstanding under these construction commitments
totaled approximately $1.7 million.

LITIGATION, CLAIMS AND ASSESSMENTS

         In October 1999, a class action lawsuit was filed against the Company
in the United States District Court in the Eastern District of Missouri. The
lawsuit alleges, among other things, that the Company violated state and Federal
wage and overtime laws. The Company is in the process of investigating and
responding to the charges. The outcome or effect of this litigation on the
Company's operating results cannot be predicted at this time.

         In January 1997, a class action securities lawsuit was filed against
the Company and certain of its executive officers in the U.S. District Court of
the Southern District of Florida. The lawsuit alleges, among other things, that
the Company and certain of its officers made materially false and misleading
statements regarding the Company's business performance and prospects. The
Company believes that the lawsuit has no basis, and intends to vigorously defend
the action. Although the ultimate outcome of the lawsuit cannot be predicted,
management does not believe the outcome of the lawsuit will have a material
adverse effect on the financial position, results of operations or cash flows of
the Company. However, there can be no assurance as to the ultimate resolution of
this matter.

         In October 1997, two class action lawsuits were filed against the
Company in the State of California in the Superior Court of California. The
lawsuits allege, among other things, that the Company violated California wage,
overtime and vacation pay laws. In April 1999 the Company reached a settlement
on these actions which did not have a material adverse effect on the results of
operations of the Company.

         There are no other significant legal proceedings pending against the
Company.

NOTE 12--STOCKHOLDERS' EQUITY

PREFERRED AND COMMON STOCK

         The Company is authorized to issue 1,000,000 shares of preferred stock,
$.01 par value per share. The Company's Board of Directors has the authority to
fix the voting powers, dividend rates, liquidation preferences, conversion and
other rights. No preferred stock is outstanding.

         At January 29, 2000 and January 30, 1999 the Company was authorized to
issue 100,000,000 shares of common stock, $.01 par value per share.

         During fiscal year 1998, the Board of Directors authorized the
repurchase of up to 15.5 million shares of Sunglass Hut's outstanding common
stock and in March 2000, the Board of Directors increased the purchase
authorization to 20.8 million shares. The repurchase program authorizes
management, at its discretion, to make purchases from time to time on the open
market or in privately negotiated transactions, as well as to sell put options.
Stock repurchases and sales of put options would be based on management's
assessment of the Company's capital structure and liquidity, the market price of
the Company's common stock compared to management's assessment of its underlying
value, as well as regulatory, accounting and other factors. During fiscal year
1999, the Company repurchased and retired 4.5 million shares under these
authorizations at a cost of $44.9 million, and since the inception of the stock
repurchase program, the Company has repurchased 12.8 million shares at a cost of
$95.1 million.

                                       37
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13--EMPLOYEE BENEFIT PLANS

STOCK-BASED COMPENSATION PLAN

         Effective March 31, 1996, the Company adopted the Sunglass Hut
International, Inc. 1996 Executive Incentive Compensation Plan (the "1996 Plan")
for key employees, officers, non-employee directors and independent contractors,
which superseded the Company's previous stock-based compensation plan. The 1996
Plan provides for grants of stock options, stock appreciation rights, restricted
common stock and other related awards that may be settled in cash, stock or
other property. The total number of common shares subject to grant under the
1996 Plan is limited to 6,000,000, as adjusted, based on the 1996 Plan's
formula, for issuances, redemptions, forfeitures and certain outstanding awards
plan. As of fiscal year end 1999, 1,008,986 common shares remained available for
grant under the 1996 Plan. Options granted generally have a ten-year term, an
exercise price equal to the fair market value of the Company's stock on the date
of grant and vest equally over three or four years.

         In December 1998, the Company's Board of Directors approved the
exchange of certain stock options outstanding which were granted during 1995 and
1996. Options granted during 1995 and 1996, which had exercise prices of $13.94
and $30.50, respectively, were exchanged for fewer options at an exercise price
of $6.00. The exchange ratio between the original options and the new options,
based on an option valuation formula, resulted in the cancellation of
approximately 279,000 options and the issuance of 106,000 options. The exchange
was made available to all employees who held outstanding options that were
granted during 1995 or 1996 on a voluntary basis. The exchanged options were
issued with the same vesting and expiration schedule as the original options.

         A summary of the status of the Company's stock-based compensation plans
as of the end of fiscal years 1999, 1998 and 1997, and changes during the fiscal
years then ended is presented below:

<TABLE>
<CAPTION>
                                                                               FISCAL
                                  --------------------------------------------------------------------------------------------------
                                               1999                            1998                             1997
                                  ------------------------------- ------------------------------- ----------------------------------
                                                    WEIGHTED                        WEIGHTED                          WEIGHTED
                                                     AVERAGE                         AVERAGE                           AVERAGE
         FIXED OPTIONS               SHARES      EXERCISE PRICE      SHARES      EXERCISE PRICE       SHARES       EXERCISE PRICE
--------------------------------  -------------  ---------------- -------------  ----------------  ------------- -------------------
                                      (IN                           (IN                                (IN
                                   THOUSANDS)                     THOUSANDS)                        THOUSANDS)
<S>                                  <C>         <C>                 <C>         <C>                   <C>       <C>
Outstanding, beginning of year       4,381       $      6.47         3,139       $      7.83           2,073     $       9.55
Granted                              1,379             10.97         2,213              7.17           1,562             7.06
Exercised                             (653)             5.48           (78)             5.05             (31)            1.58
Forfeited                             (649)             9.52          (893)            13.25            (465)           13.35
                                  -------------                   -------------                    -------------
Outstanding, end of year             4,458              7.60         4,381              6.47           3,139             7.83
                                  =============                   =============                    =============
Options exercisable                  2,072                           1,899                             1,376
                                  =============                   =============                    =============
</TABLE>

         The following table summarizes information about stock options
outstanding at fiscal 1999 yearend:

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                           -----------------------------------------------------    --------------------------------------
                                                  WEIGHTED
                                                  AVERAGE           WEIGHTED-           OPTIONS              WEIGHTED
                               OPTIONS           REMAINING           AVERAGE          EXERCISABLE            AVERAGE
 RANGE OF EXERCISE         OUTSTANDING AT       CONTRACTUAL         EXERCISE               AT                EXERCISE
       PRICES                  1/29/00              LIFE              PRICE             1/29/00               PRICE
---------------------      ----------------    ---------------    --------------    -----------------    -----------------
                           (IN THOUSANDS)         (YEARS)                            (IN THOUSANDS)
<S>                              <C>                 <C>          <C>                      <C>           <C>
$   0.25 to  $3.75                 667               1.8          $       1.02               634         $        0.88
    5.44 to   9.75               2,521               7.5                  7.15             1,303                  7.16
   10.00 to  15.25               1,179               8.6                 10.95                85                 13.44
   15.30 to  18.00                  41               9.4                 17.08                --                 --
   30.81                            50               0.6                 30.81                50                 30.81
---------------------      ----------------                                         -----------------
$   0.25 to $30.81               4,458                                                     2,072
=====================      ================                                         =================
</TABLE>

                                       38
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13-- EMPLOYEE BENEFIT PLANS--(CONTINUED)

         As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company accounts for stock-based employee compensation
arrangements in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", whereby no compensation cost is
deducted in determining net income (loss). Had the Company recorded stock-based
compensation cost for options granted in fiscal 1999, 1998 and 1997 pursuant to
SFAS No. 123 (using the Black-Scholes options pricing model) net income (loss)
and diluted net income (loss) per share, including the assumptions used in these
calculations, would have been as follows:

<TABLE>
<CAPTION>
                                                                                   FISCAL
                                                     -------------------------------------------------------------------
                                                             1999                    1998                   1997
                                                     ---------------------    -------------------    -------------------
<S>                                                  <C>                      <C>                    <C>
Pro forma net income (loss)                          $      22,329,000        $      16,346,000      $   (71,501,000)
Pro forma diluted net income (loss) per share        $            0.48        $            0.32      $         (1.31)
Pro forma weighted average fair value of
    options granted                                  $            5.63        $            4.12      $          3.90
Risk free interest rates                                4.75% to 6.41%           4.46% to 5.75%       5.49% to 6.95%
Expected lives                                               4.1 years                6.0 years            6.0 years
Expected volatility                                                60%                      54%                  48%
Expected dividends                                   $              --        $              --      $            --
</TABLE>

SAVINGS PLAN

         The Company has an employee savings plan (the "Savings Plan") pursuant
to Section 401(k) of the Internal Revenue Code. All employees who are age 21 or
older and who have been credited with at least 1,000 hours of service within 12
consecutive months are eligible to participate in the Savings Plan. Employees
may elect to contribute to the Savings Plan through payroll deductions in an
amount not to exceed the amount permitted under the Internal Revenue Code. The
Company makes matching contributions equal to 50% of the participant's eligible
tax deferred contribution to a maximum of 5% of their compensation on behalf of
the participants. Employees are fully vested in their contributions. Company
contributions vest at a rate of 20% on February 1 of each year, provided that
the participant has completed one full year of employment with the Company as of
such date.

         During fiscal years 1999, 1998 and 1997, the Company's contributions to
the Savings Plan aggregated $413,000, $324,000, and $250,000, respectively.

STOCK PURCHASE PLAN

         In February 1996, the Company implemented an employee stock purchase
plan (the "Stock Purchase Plan"). The Stock Purchase Plan enables qualified
employees of the Company to subscribe to shares of the Company's common stock on
periodic offering dates at a purchase price equal to the fair market value of
the shares on such dates.

NOTE 14--SEGMENT AND GEOGRAPHIC INFORMATION

         The Company operates in the retail sunglass and watch industries and in
markets throughout the world. The basis for determining the Company's operating
segments is the manner in which financial information is used by the Company in
its operations. Management operates and organizes itself according to business
units, which consist of the Company's different specialty store concepts across
geographic locations. Accordingly, the North America segment (comprised of the
United States, Canada and the Caribbean) includes sunglass, watch and Combo
retail operations in this geographic market. Over ninety percent of the North
America segment's net sales are derived from sales of sunglasses. The Other
segment reported herein includes the sunglass, watch and Combo retail operations
in other geographic locations, primarily Europe and Australia. The Company
evaluates performance and allocates resources based on profit or loss from
operations. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies. All
intercompany revenues and expenses are eliminated in computing revenues and
earnings (loss) before interest and taxes.

                                       39
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--SEGMENT AND GEOGRAPHIC INFORMATION--(CONTINUED)

BUSINESS SEGMENTS

<TABLE>
<CAPTION>
                                                                              EARNINGS (LOSS)        DEPRECIATION
                                                                              BEFORE INTEREST            AND
                                                             NET SALES         AND TAXES (1)         AMORTIZATION         ASSETS
                                                           ---------------    -----------------    -----------------   -------------
                                                                                        (IN THOUSANDS)
<S>                                                        <C>                <C>                  <C>                 <C>
1999
   North America                                           $    552,811       $      48,471        $         25,381    $    248,019
   Other                                                         82,792               3,948                   2,334          35,484
                                                           ---------------    -----------------    -----------------   -------------
                                                                635,603              52,419                  27,715         283,503
   Restructuring expense reversal                                    --                 399                      --              --
                                                           ---------------    -----------------    -----------------   -------------
         Total                                             $    635,603       $      52,818        $         27,715    $    283,503
                                                           ===============    =================    =================   =============
1998
   North America                                           $    528,023       $      41,575        $         23,617    $    233,310
   Other                                                         73,931              (1,181)                  1,787          25,044
                                                           ---------------    -----------------    -----------------   -------------
                                                                601,954              40,394                  25,404         258,354
   Restructuring expense reversal                                    --                 371                      --              --
                                                           ---------------    -----------------    -----------------   -------------
         Total                                             $    601,954       $      40,765        $         25,404    $    258,354
                                                           ===============    =================    =================   =============
1997
   North America                                           $    497,997       $      28,590        $         24,940    $    261,827
   Other                                                         75,843              (6,807)                  4,574          34,865
                                                           ---------------    -----------------    -----------------   -------------
                                                                573,840              21,783                  29,514         296,692
   Restructuring expenses/asset impairment charges
     and other expenses(2)                                           --             (87,065)                  1,220              --
                                                           ---------------    -----------------    -----------------   -------------
                                                                573,840             (65,282)                 30,734         296,692
   Discontinued operations(3)                                        --                 --                       --           2,461
                                                           ---------------    -----------------    -----------------   -------------
         Total                                             $    573,840       $     (65,282)       $         30,734    $    299,153
                                                           ===============    =================    =================   =============

<FN>
(1)      Represents earnings (loss) from continuing operations before interest,
         income taxes and cumulative effect of accounting change.
(2)      Represents (a) $54.6 million of restructuring expenses and asset
         impairment charges, (b) $13.0 million of inventory disposition costs,
         (c) $2.3 million of costs related to the adoption of a new accounting
         principle for internal use software and (d) $17.1 million of other
         costs and expenses (see Notes 2, 3 and "Overview - Management
         Discussion and Analysis of Financial Condition and Results of
         Operations" for further information).
(3)      Represents net assets of discontinued operations (see Note 4 for
         further information).
</FN>
</TABLE>

                                       40
<PAGE>

                SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14--SEGMENT AND GEOGRAPHIC INFORMATION--(CONTINUED)

GEOGRAPHIC INFORMATION

         The following represents net sales and long-lived assets by geographic
location:

                                                  FISCAL
                            ----------------------------------------------------
                                  1999              1998               1997
                            ---------------     --------------    --------------
                                                (IN THOUSANDS)
Net sales:
   United States            $     515,511       $     490,026      $   461,495
   Other Countries                120,092             111,928          112,345
                            ---------------     --------------     -------------
       Total                $     635,603       $     601,954      $   573,840
                            ===============     ==============     =============

Long-lived assets:
  United States             $     119,931       $     101,116      $   107,002
  Other Countries                  13,098              16,357           17,930
                            ---------------     --------------     -------------
       Total                $     133,029       $     117,473      $   124,932
                            ===============     ==============     =============

NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)

         Unaudited summarized financial data by quarter for fiscal 1999 and 1998
is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                  FISCAL 1999
                                             ---------------------------------------------------------------------------------------
                                                 FIRST             SECOND             THIRD             FOURTH             TOTAL
                                             --------------    ---------------     -------------    ----------------    ------------
<S>                                          <C>               <C>                 <C>              <C>                 <C>
Net sales                                    $   152,581       $   199,620         $  132,288       $   151,114         $   635,603
Gross profit                                      63,569            89,669             51,431            62,074             266,743

Net income (loss):                           $     6,046       $    20,543         $   (1,564)      $     1,725         $    26,750
                                             ==============    ===============     =============    ================    ============
Net income  (loss) per share:
  Basic--
     Continuing operations                   $      0.13       $      0.44         $    (0.03)      $      0.06         $      0.60
     Discontinued operations                          -                 -                   -             (0.02)              (0.02)
                                             --------------    ---------------     -------------    ----------------    ------------
       Net income (loss)                     $      0.13       $      0.44         $    (0.03)      $      0.04         $      0.58
                                             ==============    ===============     =============    ================    ============
  Diluted
     Continuing operations                   $      0.13       $      0.42         $    (0.03)      $      0.05         $      0.58
     Discontinued operations                           -                -                   -             (0.01)              (0.01)
                                             --------------    ---------------     -------------    ----------------    ------------
       Net income (loss)                     $      0.13       $      0.42         $    (0.03)      $      0.04         $      0.57
                                             ==============    ===============     =============    ================    ============

<CAPTION>
                                                                                  FISCAL 1998
                                             ---------------------------------------------------------------------------------------
                                                 FIRST             SECOND             THIRD             FOURTH             TOTAL
                                             --------------    ---------------     -------------    ----------------    ------------
<S>                                          <C>               <C>                 <C>              <C>                 <C>
Net sales                                    $   146,646       $   193,141         $  122,832       $   139,335         $   601,954
Gross profit                                      59,129            86,487             45,040            54,775             245,431

Net income (loss):                           $     3,846       $    18,690         $   (4,005)      $     1,290         $    19,821
                                             ==============    ===============     =============    ================    ============
Basic and diluted earnings (loss) per share  $      0.07       $      0.34         $    (0.08)      $      0.03         $      0.38
                                             ==============    ===============     =============    ================    ============
</TABLE>

                                       41
<PAGE>

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

         None.
                                    PART III

         The Proxy Statement for the Annual Meeting of Stockholders to be held
June 7, 2000 which, when filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, will be incorporated by reference in this Annual Report on
Form 10-K pursuant to General Instruction G(3) of Form 10-K, will provide the
information required under Part III (Items 10, 11, 12, and 13). Information with
respect to executive officers of the company appears under the caption
"Executive Officers of the Company" on pages 9 and 10 of Part I of this Form
10-K.

                                     PART IV

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

     (a)   1.   FINANCIAL STATEMENTS. Reference is made to the Index set forth
                on page 20 of this Annual Report on Form 10-K.

           2.   FINANCIAL STATEMENTS SCHEDULE. Reference is made to Schedule
                II-Valuation And Qualifying Accounts on page 46 of this Annual
                Report on Form 10-K. All other schedules for which provision is
                made in the applicable accounting regulations of the Commission
                are not required under the related instructions or are not
                applicable, and therefore have been omitted.

                The report of Independent Certified Public Accountants with
                respect to Schedule II is also filed as part of this report.

           3.   EXHIBITS.      * Indicates exhibits filed herewith.
                              ** Management contract or compensatory plan
                                 incorporated by reference from the document
                                 listed.

   EXHIBIT                              DESCRIPTION
 ------------                           -----------
     3.1       Registrant's Articles of Incorporation. Said Articles were last
                    filed as and are incorporated herein by reference to Exhibit
                    3.1 to Registrant's Registration Statement on Form S-1 (File
                    No. 33-77792).
     3.2       Registrant's Amended and Restated Bylaws. Said Bylaws were last
                    filed as and are incorporated herein by reference to Exhibit
                    3.2 to Registrant's Registration Statement on Form S-1 (File
                    No. 33-77792).
     4.1       Registration Rights Agreement, dated June 26, 1996, between
                    the Registrant and the initial purchasers of the 5 1/4%
                    Convertible Subordinated Notes due 2003. Filed as and
                    incorporated herein by reference to Exhibit 4.7 to
                    Registrant's Registration Statement on Form S-1 (File No.
                    33-77792).
     4.2       Indenture, dated as of June 26, 1996, among the Registrant and
                    the Bank of New York for Convertible Subordinated Notes.
                    Filed as and incorporated herein by reference to Exhibit 4.8
                    to Registrant's Registration Statement on Form S-1 (File No.
                    33-77792).
    10.1**     Registrant's Amended and Restated Stock Option Plan, as amended.
                    Filed as and incorporated herein by reference to Exhibit
                    10.1 to the Form 10-K for the fiscal year ended January 31,
                    1998.
    10.2**     Sunglass Hut International, Inc. 1996 Executive Incentive
                    Compensation Plan. Filed as and incorporated herein by
                    reference to Exhibit 10.1 to Registrant's Registration
                    Statement on Form S-8 (File No. 333-20107).
    10.3* **   Form of Indemnification Agreement between the Registrant and
                    each of its directors and certain executive officers.
    10.4       Office Space Lease Agreement, dated as of October 28, 1993,
                    between The Travelers Insurance Company and the Registrant.
                    Filed as and incorporated herein by reference to Exhibit
                    10.2 to Registrant's Registration Statement on Form S-1
                    (File No. 33-59872).
    10.5*      Amendments to the main Office Space Lease Agreement, dated as of
                    November 23, 1994, July 30, 1996 and September 30, 1999
                    between Blumberg/Alhambra Partners, successor in interest to
                    The Travelers Insurance Company, and the Registrant.
    10.6**     Consulting and Management Services Agreement between Sunglass Hut
                    International, Inc. and Hauslein & Company, Inc. dated
                    February 24, 1997 (incorporated by reference to Exhibit
                    10.11 of the Registrant's Company's Report on form 10-Q for
                    the fiscal quarter ended May 3, 1997).
    10.7       Stock Option Agreement between the Registrant and James N.
                    Hauslein (incorporated by reference to Exhibit 10.17 of the
                    Registrant's Company's Report on Form 10-Q for the fiscal
                    quarter ended November 1, 1997).
    10.8       Revolving Credit Notes to BankBoston Retail Finance, Inc. dated
                    April 28, 1998 together with Loan and Security Agreement.
                    Filed as and incorporated herein by reference to Exhibit
                    10.11 of the Registrant's Report on Form 10-K for the fiscal
                    year ended January 31, 1998.

                                       42
<PAGE>

  EXHIBIT
-------------
   10.9        First Amendment dated November 30, 1998 to Loan and Security
                    Agreement dated April 28, 1998 with BankBoston Retail
                    Finance Inc. Filed as and incorporated herein by reference
                    to Exhibit 10.8 of the Registrant's Report on Form 10-K for
                    the fiscal year ended January 30, 1999.
   10.10       Second Amendment dated January 13, 1999 to Loan and Security
                    Agreement dated April 28, 1998 with BankBoston Retail
                    Finance, Inc., together with First Amendment to Stock Pledge
                    Agreement, Guaranty of Shadescom, Inc., and Security
                    Agreement between BankBoston Retail Finance, Inc. and
                    Shadescom, Inc. Filed as and incorporated herein by
                    reference to Exhibit 10.9 of the Registrant's Report on Form
                    10-K for the fiscal year ended January 30, 1999.
   21.1*       Subsidiaries of the Registrant
   23.1*       Consent of Arthur Andersen LLP
   27*         Financial Data Schedule

The Company will furnish to any record or beneficial shareholder requesting a
copy of this Annual Report on Form 10-K a copy of any exhibit indicated in the
above list as filed with this Annual Report on Form 10-K upon payment to it of
its expenses in furnishing such exhibit.

(b)      Reports on Form 8-K

       No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

(c)      Exhibits Required by Item 601 of Regulation S-K.

       The index to exhibits that are listed in Item 14(a)(3) of this report and
not incorporated by reference follows the "Signatures" section hereto and is
incorporated herein by reference.

(d)      Financial Statement Schedules Required by Regulation S-X

       Reference is made to Item 14(a)2.

                                       43
<PAGE>

                                   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 on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                        SUNGLASS HUT INTERNATIONAL, INC.

                               By: /s/            LARRY G. PETERSEN
                               -------------------------------------------------
                                       Larry G. Petersen, Senior Vice President,
                                       Finance and Chief Financial Officer

Dated: April 18, 2000

         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
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              SIGNATURES                                      TITLE                         DATE
              ----------                                      -----                         ----
<S>                                             <C>                                    <C>
  /s/       JOHN X. WATSON                          President, Chief Executive         April 18, 2000
---------------------------------------------          Officer and Director
            John X. Watson                        (principal executive officer)

  /s/      LARRY G. PETERSEN                    Senior Vice President, Finance and     April 18, 2000
---------------------------------------------        Chief Financial Officer
           Larry G. Petersen                      (principal financial officer)

  /s/       GEORGE L. PITA                           Vice President, Finance           April 18, 2000
---------------------------------------------     (principal accounting officer)
            George L. Pita

  /s/      JAMES N. HAUSLEIN                          Chairman of the Board            April 18, 2000
---------------------------------------------
           James N. Hauslein

  /s/       ROHIT M. DESAI                                   Director                  April 18, 2000
---------------------------------------------
            Rohit M. Desai

  /s/       JOHN H. DUERDEN                                  Director                  April 18, 2000
---------------------------------------------
            John H. Duerden

  /s/      WILLIAM S. FIELD                                  Director                  April 18, 2000
---------------------------------------------
           William S. Field

  /s/      ROBERT C. GRAYSON                                 Director                  April 18, 2000
---------------------------------------------
           Robert C. Grayson

  /s/     WILLIAM E. PHILLIPS                                Director                  April 18, 2000
---------------------------------------------
          William E. Phillips
</TABLE>

                                       44
<PAGE>

         REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE

To the Stockholders
    of Sunglass Hut International, Inc.:

         We have audited in accordance with generally accepted auditing
standards, the financial statements included in Sunglass Hut International,
Inc.'s annual report included in this Form 10-K, and have issued our report
thereon dated March 22, 2000. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The Financial Statement Schedule
II listed in Item 14 is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This financial statement schedule has been subjected to the auditing
procedures applied in the audit of the basic 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 basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Miami, Florida,
   March 22, 2000.

                                       45
<PAGE>

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS

                        FISCAL YEARS 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                      ADDITIONS                       NON-CASH                      ENDING
                                        BEGINNING     CHARGED TO         CASH        REDUCTIONS                    ACCRUAL
 DESCRIPTION                             ACCRUAL        INCOME        REDUCTIONS    (ADDITIONS)     REVERSAL       BALANCE
 -----------------------------------   ------------  -------------   -------------  -------------  ------------  -------------
<S>                                    <C>           <C>             <C>            <C>            <C>           <C>
 Restructuring accrual
    1999                               $   3,604     $       --      $    2,509     $     (485)    $     399     $   1,181
    1998                                  25,789          4,727           4,777         17,037         5,098         3,604
    1997                                  15,096         54,660           7,509         36,458             -        25,789
 Accrual for estimated loss from
    disposition of discontinued
    operations (EyeX)
    1999                               $   1,396     $    1,200      $    1,226     $       75     $       --    $   1,295
    1998                                  13,260             --           3,106          8,758             --        1,396
    1997                                      --         13,260              --             --             --       13,260
</TABLE>

                                       46
<PAGE>

                                 EXHIBIT INDEX

  EXHIBIT                            DESCRIPTION
  -------                            -----------
   10.3        Form of Indemnification Agreement between the Registrant and
                    each of its directors and certain executive officers.
   10.5        Amendments to the main Office Space Lease Agreement, dated as of
                    November 23, 1994, July 30, 1996 and September 30, 1999
                    between Blumberg/Alhambra Partners, successor in interest to
                    The Travelers Insurance Company, and the Registrant.
   21.1        Subsidiaries of the Registrant
   23.1        Consent of Arthur Andersen LLP
   27          Financial Data Schedule