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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 3, 2009Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                to


Commission File Number: 001-33760

FGX INTERNATIONAL HOLDINGS LIMITED(Exact name of registrant as specified in its charter)

British Virgin Islands(State or other jurisdiction of incorporation)

98-0475043(IRS Employer Identification No.)


500 George Washington Highway
Smithfield, RI 02917(Address of principal executive offices) (zip code)

(401) 231-3800(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classOrdinary shares, no par value

Name of each exchange on which registeredThe NASDAQ Global Market


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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

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.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer ýNon-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No ý

As of the last business day of our most recently completed second fiscal quarter, the aggregate market value of the voting shares held by
non-affiliates was $116.5 million, based on the number of shares held by non-affiliates of the registrant as of June 28, 2008 and the reported last sale price of
ordinary shares on June 27, 2008.

Number
of the registrant's ordinary shares, no par value, outstanding as of March 11, 2009: 22,122,900.

Documents incorporated by reference:

Portions of the definitive Proxy Statement for FGX International Holdings Limited's Annual Meeting of Shareholders to be held on
May 20, 2009 are incorporated by reference into Part III of this Form 10-K.



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TABLE OF CONTENTS



PagePART I

4Item 1

Business.

4Item 1A

Risk Factors.

11Item 1B

Unresolved Staff Comments.

21Item 2

Properties.

21Item 3

Legal Proceedings.

21Item 4

Submission of Matters to a Vote of Security Holders.

21PART II

22Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.

22Item 6

Selected Financial Data.

23Item 7

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

26Item 7A

Quantitative and Qualitative Disclosures about Market Risk.

38Item 8

Financial Statements and Supplementary Data.

39Item 9

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

39Item 9A

Controls and Procedures.

39Item 9B

Other Information.

41PART III

42Item 10

Directors, Executive Officers and Corporate Governance.

42Item 11

Executive Compensation.

44Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

44Item 13

Certain Relationships and Related Transactions, and Director Independence.

44Item 14

Principal Accounting Fees and Services

44PART IV

F-1Item 15

Exhibits, Financial Statement Schedules.

F-1SIGNATURESExhibit Index


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Forward Looking Statements

This report and the information incorporated by reference in it include forward-looking statements. These include, but are not limited
to, statements about our expectations, hopes, beliefs, intentions or strategies regarding the future, as well as statements that refer to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions. They may refer, without limitation, to retail and brand initiatives, upcoming product releases, operational improvements, market growth
or acceptance of our products, and future revenue, costs, results of operations, or profitability. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may,"
"might," "plan," "possible," "potential," "predict," "project," "should," "would" and similar expressions may, but are not necessary to, identify forward-looking statements.

The
forward-looking statements contained or incorporated by reference in this report are based on our current expectations, beliefs and assumptions concerning future developments and
their potential effects on us and speak only as of the date of this report. There can be no assurance that future developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other factors that may cause actual results or performance to be materially different from
those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those
factors described or referred to under the heading "Risk Factors" below. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable law.

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PART I

Item 1 Business.

The Company

FGX International Holdings Limited is a business company incorporated under the laws of the British Virgin Islands ("BVI"). We conduct
business through our subsidiary, FGX International Inc., and its operating subsidiaries.

Our
largest shareholder, Berggruen Holdings North America Ltd. (together with its predecessors, "BHNA"), acquired AAi.FosterGrant, Inc. in a series of transactions between
2000 and 2003. We were incorporated on September 22, 2004 to hold the stock of AAi.FosterGrant, Inc. and, in October 2004, we acquired Magnivision, Inc. On October 24,
2007, we undertook an initial public offering in which we sold 6,666,667 of our ordinary shares at a price to the public of $16.00 per share and certain shareholders sold 7,133,333 shares. We received
approximately $97.2 million in net proceeds (after deducting underwriting discounts, commissions and expenses of approximately $9.5 million), which we used to repay indebtedness and
related costs.

On
November 26, 2008, we acquired all of the outstanding common shares of Dioptics Medical Products, Inc., a designer and marketer of sunglasses and optical accessories.

Our
registered office is located at Midocean Chambers, P.O. Box 805, Road Town, Tortola, British Virgin Islands. Our principal executive offices are located at 500 George
Washington Highway, Smithfield, Rhode Island 02917; telephone: (401) 231-3800. Our web site is www.fgxi.com. We make available free of charge on our web site the following reports
as soon as reasonably practicable after electronically filing them with, or furnishing them to, the SEC: our Annual Reports on Form 10-K; our Quarterly Reports on
Form 10-Q; our Current Reports on Form 8-K; and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934. (We have included our web site address in this document as an inactive textual reference only and you should not consider information contained on our web site or that can be
accessed through our web site to be a part of this Annual Report on Form 10-K.)

Overview

We are a leading designer and marketer of non-prescription reading glasses, sunglasses and costume jewelry with a portfolio
of established, highly recognized eyewear brands includingFoster Grant(1) andMagnivision.We and our
predecessors have worked to build a strong reputation for providing consumers a broad selection of products that deliver style and quality at affordable prices. This is exemplified by the Foster Grantbrand, which has been one of the most recognizable sunglasses brands since the 1960s "Who's That
Behind ThoseFoster Grants?" advertising campaign, which used high profile celebrities to promote the brand. We have recently revived this campaign.

We
sell ourFoster Grantbrand in the popular priced sunglasses market (less than $30) and both ourFoster
GrantandMagnivisionbrands in the non-prescription reading glasses market. Our products are sourced through
low-cost Asian manufacturers and sold primarily through mass channels, which include mass merchandisers, chain drug stores, chain grocery stores and variety stores. Some of our products
are sold to ophthalmic retailers, mid-tier department stores and other specialty retailers. We also sell costume jewelry principally to major mass merchandisers, thereby extending our
general product penetration with key customers.

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On
November 26, 2008, we acquired Dioptics Medical Products, Inc. of San Luis Obispo, CA, a designer and marketer of sunglasses and optical accessories. With the
acquisition, we added a portfolio of proprietary brands of sunglasses and associated eye care products and accessories, includingSolarShieldand PolarEyes. These products and accessories are primarily sold through mass merchandisers and chain drug stores, as well as medical supply stores and
ophthalmic retailers.

Our
company-owned portfolio also includes theAnarchy, AngelandGargoylesbrands, which
target different demographic groups and distribution channels at a premium price point (generally $50-$170). We believe our premium brands have a strong niche consumer appeal. We
promote these brands through endorsements from well recognized action sports athletes and sponsorship of professional surfing contests and similar sporting events.

To
complement our proprietary brands, we market both popular priced and premium eyewear under nationally-recognized licensed brands includingIronman Triathlon,
Levi Strauss Signature, Body Glove, C9 by ChampionandField & Stream.In addition, we sell a line of prescription
frames, which we introduced in 2004.

We
will seek to continue to add to our domestic and international customer base as well as consider selective acquisitions that fit strategically into our business model.

Our Markets

Non-prescription reading glasses are designed to provide magnification for near-vision tasks associated with
the normal aging process, which is marked by the decreased ability to focus on nearby objects, or presbyopia. We believe the general aging of the population is a key growth factor in the U.S.
non-prescription reading glasses market. In addition, we believe that growth in this market will be driven by product innovations, the appeal of more fashionable designs and enhancement in
alternative eyesight correction technologies, which typically correct nearsightedness, or myopia, but not presbyopia.

We
sell our sunglasses primarily in the popular priced sunglasses market and believe the market is supported by a number of long-term growth drivers. These include changing
fashion trends, consumers' desire for multiple, activity-specific sunglasses, the growing desire for UVA/ UVB eye protection and product innovation.

We
believe that changing fashion trends and creative designs are the key growth factors in the U.S. costume jewelry market where we primarily compete in the mass merchandise segment.

Our
sales into the international market are principally generated in the United Kingdom, Canada and Mexico and have averaged approximately 14% of our net sales during the past three
fiscal years. We primarily sell sunglasses and non-prescription reading glasses products in these markets.

See
Note 19 to our consolidated financial statements in this Form 10-K for an analysis of our sales by segment and Note 18 for additional information
relating to our international operations.

Our Customers

We sell our products in over 60,000 retail locations worldwide. Our core customer base spans a range of mass channels, and primarily
consists of mass merchandisers, chain drug stores, chain grocery stores, specialty retailers, variety stores, ophthalmic retailers and mid-tier department stores.



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We
have established strong and long-standing relationships with many leading national retailers. Nine of our top ten customer relationships, ranked by 2008 revenues, span ten
years or more each, and our relationship with Wal-Mart spans more than 20 years. Approximately 74% of our sales are to 10 large retail customers with approximately 32,000 locations
worldwide. In fiscal 2008, our five largest customers represented approximately 62% of our sales. Net sales to each of Wal-Mart, Walgreens and CVS accounted for more than 10% of our net
sales, and sales to Wal-Mart accounted for more than 10% of our net sales in each segment in which we operate.

Sales and Marketing

Our domestic and international sales teams are organized by distribution channel, product line and customer. We also have dedicated
sales, marketing and merchant personnel exclusively responsible for maintaining and growing our presence within certain larger customers.

We
believe that relationships with our retail customers are dependent upon the efficient use of allocated floor space and the generation of profits by our customers. To this end, we
strive to deliver competitively priced products and service programs that consistently provide retailers with attractive gross margins and inventory turnover rates. We have a history of customer
retention from year to year, and customer loss has generally been attributable to consolidation in the various retail channels we serve.

Our
marketing organization is responsible for increasing brand awareness and helping to propel retail sales of our brands by identifying and subsequently utilizing consumer insights to
develop targeted advertising, public relations and in-store campaigns. Marketing expense, which is approximately 3-5% of net sales, has increased every year since 2006 and is
expected to do so again in 2009 due to the costs associated with a new television advertising campaign for reading glasses. We have recently worked with an outside advertising agency to develop the
first-ever national television advertising effort behindMagnivisionandFoster Grantreading glasses which commenced in February 2009. TheMagnivisioncampaign reinforces the quality and efficacy of the product. The Foster Grantreading
glasses campaign includes a strong fashion component featuring the return of the "Who's That Behind Those Foster Grants?" campaign.

In
addition, a newFoster Grantsunglasses campaign is expected to be launched in the second quarter of 2009. Our marketing department is
also focused on increasing the awareness of our premium brands,Anarchy, AngelandGargoyles,with a
print and digital media campaign.

We
maintain showrooms and sales offices at our Smithfield, Rhode Island corporate office, and in New York, NY, San Luis Obispo, CA, Bentonville, AR, Toronto, Canada,
Stoke-on-Trent, England and Mexico City, Mexico.

We
conduct our operations in Mexico through a joint venture established in 1996, AAi/Joske's S. de R.L. de C.V., of which we own 50%. AAi/Joske's develops, sources and distributes
customized Mexican collections of accessories utilizing our product development personnel and supplier relationships, as well as the distribution expertise of our joint venture partner, Joske's de
Mexico, S.A. de C.V. ("Joske's"), an established Mexican jewelry company with strong local retail relationships.

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Our
operating results fluctuate from quarter to quarter as a result of seasonal demand for some of our product lines, changes in demand for our products, our effectiveness in managing
our inventories and costs, the timing of the introduction of new products and weather patterns. Orders for our more fashion-oriented sunglasses in the United States and Canada are usually shipped
initially in December while in the United Kingdom, they are usually shipped initially in February and March. Replenishment sunglasses orders in the United States, Canada and the United Kingdom are
primarily shipped during the first half of the fiscal year as retailers build inventories for the spring and summer selling seasons. Sales of non-prescription reading glasses and
sunglasses designed for use with ophthalmic products are generally uniform throughout the year. Although sales of our non-prescription reading glasses and fits over products have, in part,
offset the seasonality of sales of sunglasses, our financial condition and results of operations are largely dependent on the shipping of product during the second half of the fiscal year.

Customer Contracts

A majority of our eyewear sales, particularly in the chain drug store channel, are made pursuant to customer contracts. Our
relationships are generally based on multi-year sales and/or dollar volume agreements. Some customers, including Wal-Mart, operate via purchase orders, which set forth their
terms and conditions related to purchases. Our customer contracts may be exclusive or non-exclusive and may specify inventory and service levels, anticipated inventory sales rates, sales
volumes and the amount of any fixed obligation due to the customer in connection with the establishment of the relationship. A significant portion of our costume jewelry sales are made pursuant to
purchase orders.

Upon
commencement of a new customer contract or renewal of an existing customer contract, we may incur costs associated with providing new display fixtures and payments of product
placement allowances. Upon commencement or renewal, we also experience a significant increase in revenue from the sale of eyewear to that customer to stock the new display fixtures. After initial
stocking, we generate sales by reorders for product replenishment, which are typically at lower levels than at the commencement of the contract. In the case of a new contract, we may be required to
issue credits to the customer equal to the customer's cost of the existing eyewear inventory of the incumbent supplier at the customer's retail locations and warehouses. Conversely, in the event that
we are replaced as the eyewear supplier of a customer, the new supplier could be required to provide similar allowances for our customer's inventory.

Product
returns, markdowns and contractual allowances (which include product placement fees, cooperative advertising, volume rebates and other discounts) are a key component of our
profitability, which we continually assess based on information and reports regarding products sold by our customers to consumers. Before entering into a new customer contract or renewing an existing
customer contract, we engage in extensive analysis to determine the appropriate level of contractual allowances to be offered based on the projected profitability of the program. As a percentage of
our gross product shipments, our product returns, markdowns and contractual allowances have averaged approximately 27% over the last three fiscal years. We continuously strive to reduce product
returns, markdowns and contractual allowances and manage factors that impact these types of allowances.

Customer Support

Our customers typically demand a high level of merchandising support and national distribution capability. Accordingly, our business is
supported by an integrated infrastructure of sales and service, design and outsourcing functions. Our domestic and Canadian sales teams are supported by our merchant and field service organizations.



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Our
U.K. and Mexican sales teams are each supported locally by similar merchant organizations and third-party field service organizations.

We
believe our merchant and field service organizations represent a critical differentiating competitive advantage in the marketplace. These distinctive service features enable us to
better serve our customers and enhance our ability to control the content and appearance of our in-store product displays, which we believe increases our sales volume.

Working Capital

We need working capital to support seasonal variations in our business, primarily inventory fluctuations due to the seasonal demands
for our sunglasses. We typically experience peak seasonal working capital needs from approximately mid-March through July in connection with these changes in demand. We use borrowings
under our revolving credit facility to satisfy normal operating costs during these periods.

Product Development and Sourcing

We believe our reputation for style, quality and value distinguishes our products from those of our competitors and provides us with
significant competitive advantages. Our product development objective is to provide stylish products that represent a strong price-to-value relationship for our end consumer.
We employ a team of experienced designers, product development specialists and support staff. The design team focuses on the development of new product styles or enhancements to reflect constantly
evolving consumer preferences. The design team works closely with:



We
outsource the manufacturing of our products to contract manufacturers principally in China. We have successfully executed our Asian sourcing strategy since the 1980s. We are not
dependent on any single supplier for the manufacture of any product category as we source from multiple suppliers across each such category and our largest supplier represented 16% of all our
purchases in fiscal 2008. We buy our products from our suppliers on a purchase order basis with generally favorable trade terms and no obligation to any long-term contractual supply
agreements. All purchase orders are fixed price and denominated in U.S. dollars.

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In 2005, we opened an office in Shenzhen, China to enhance the management of our supplier relationships, and in 2008 we added a quality control laboratory to test
the safety and product specification compliance of our products. We seek to ensure the quality of our manufacturers' products by using our quality control laboratory, as well as a third-party
inspection company managed by our Shenzhen office, to inspect all of our product orders prior to shipment from China. In addition, subsequent sample inspections are conducted at our facilities to
verify product quality and order accuracy. We also maintain a quality control department at our Smithfield, Rhode Island facility and use an independent laboratory for material testing of our
products.

Warehousing and Distribution

We own and operate a 187,000 square-foot distribution center and corporate headquarters in Smithfield, Rhode Island. We
also lease a 105,000 square-foot office, warehouse and distribution center in San Luis Obispo, California. These facilities are configured to enhance supply chain operations, rapidly distribute
products, improve customer service and decrease operational costs. We receive sales and inventory data from retailers via electronic data interchange, or EDI, and generate purchase orders using vendor
managed inventory, or VMI. We manage product distribution in the United States through our Smithfield and San Luis Obispo facilities and an independent third-party contract warehouse near Long Beach,
California. We ship our products to our customers by contract carriers.

Products
are typically shipped in containers by ocean or air freight, depending on our requirements and cost efficiencies, from the ports of Hong Kong, Shanghai and Quingdao in China to
Los Angeles/Long Beach, California or Boston, Massachusetts for our products that we sell domestically and in Canada, or Stoke-on-Trent, United Kingdom or Mexico City, Mexico
for our products that we sell internationally. The domestic containers are then shipped either directly to our Smithfield, Rhode Island or San Luis Obispo, California distribution facility or,
depending on cost and logistical considerations, to an independent third-party contract warehouse near Long Beach, California.

Our
international products are warehoused and distributed by a facility we lease in the United Kingdom for our European customers, a facility owned by our joint venture partner, Joske's,
in Mexico City for our customers in Mexico and South America, and our Smithfield and San Luis Obispo facilities for our customers in Canada.

Competition

There is intense competition in each of the markets in which we compete. Generally, the bases of competition in our markets are brand
recognition, fashion, service, merchandising, quality and price. We believe that our established relationships with large retail customers, brand recognition, efficient, low-cost sourcing
strategy and ability to deliver stylish products to consumers at a competitive price are important factors in our ability to compete. Several of our competitors may enjoy substantial competitive
advantages, including less outstanding indebtedness and greater financial resources that can be devoted to competitive activities, such as sales and marketing, product development and strategic
acquisitions.

In
the sunglasses market, we compete against a variety of companies across multiple channels of trade. The major competitive factors include fashion trends, brand recognition and
distribution channels. The majority of our sunglasses sales are in mass channels, where we primarily compete against companies such as StyleMark, Inc., Navajo and various direct import
companies. In specialty retailers, where we sell our premium products, we compete with companies in various niches, including Oakley, Orange 21 and VonZipper.

In
the non-prescription reading glasses market, our primary competitors are StyleMark, Inc., Forrester & Vos and Zoom Eyeworks. The majority of retail outlets
for non-prescription reading glasses are mass channels. To establish and maintain product placement in these retail outlets, we

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compete
primarily on retail support, point-of-sale performance, price and terms. Along with value, fashion is a differentiator in this market, and our ability to incorporate
fashion into our Magnivision and Foster Grant product lines will be a key factor in retaining our market-leading position.

The
prescription frames market is intensely competitive, as frame styles are marketed under multiple brand names. To obtain space at an optical retailer, we compete against many
companies, foreign and domestic, including Luxottica Group S.p.A., Safilo Group S.p.A., Signature Eyewear, Inc. and StyleMark, Inc. Distributors also frequently carry many
lines of eyewear, and we must compete with other suppliers for attention from sales representatives. Frames are generally sold under licensed brands such asLevi Strauss
Signature,Body GloveandJeff Banks. At major retail chains, we compete not
only against other eyewear suppliers but often against private labels of the chains themselves. To best leverage our strengths in this market, we have introduced our prescription frames into optical
centers within our existing large retail customers, such as Wal-Mart. We believe successful relationships with these retailers will establish our brands in the prescription frames market
and give us the experience we need to expand into other retail channels.

Our
costume jewelry products are distributed to mass merchandisers. We primarily compete against other costume jewelry manufacturers, including FAF, K&M, Tanya Creations and Crimzon
Rose, for the ability to distribute our products under desirable branded and private label brands for large retail customers. The primary bases of competition are price and our ability to interpret
fashion trends and retail support.

Intellectual Property

Our intellectual property portfolio, including our product designs, trademarks and licenses, are of material importance to our
business.

Trademarks.We have numerous trademarks registered in the United States and in many foreign countries. We have registered our principal
trademarks Foster Grant, Magnivision, Anarchy, Gargoyles, SolarShield and PolarEyesand have an application pending for the Angeltrademark for use on our
products in the United States. We have also registered or applied for the registration of certain other marks used by us in conjunction with the sale and marketing of our products.

Patents.We seek patent protection generally for those inventions and improvements likely to be incorporated into our products and
displays or where
patent protection will improve our competitive position. We do not have any patents that we believe are, individually or in the aggregate, material to our results of operations or financial condition.

Licenses.We have exclusive license agreements to manufacture, market, distribute and sell products under theIronman
Triathlon, Levi Strauss Signature, Body Glove, C9 by ChampionandField & Streambrands in the United States and/or
numerous countries around the world. These agreements typically require us to guarantee certain minimum net sales requirements or make minimum royalty payments. They will expire by their terms at
intervals over the next one to three years but in some cases may be renewed by us if we have complied with their terms.

We
primarily protect our intellectual property rights through patent, trade secret, trade dress, trademark, copyright and unfair competition law, in addition to nondisclosure,
confidentiality and other contractual restrictions. From time to time, we bring claims against third parties who, in our opinion, infringe upon these rights. While we cannot guarantee that our efforts
to protect our intellectual property rights are adequate or effective, we intend to assert our intellectual property rights against infringers.

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Governmental Regulation

Our operations are subject to a variety of federal, state and local quality control standards and regulatory requirements relating to
health and safety matters. In particular, we are subject to regulations promulgated by the Occupational Safety and Health Administration, pertaining to health and safety in the workplace and the
regulation of corresponding state agencies, and the Food and Drug Administration, or FDA, pertaining to safety of "medical devices." Our international businesses are subject to similar regulations in
the countries where they operate, and are subject to various international trade agreements and regulations.

Because
our products are manufactured overseas, our operations are, or may become, subject to international trade agreements and regulations. We are also subject to other restrictions
imposed by the United States that include prohibitions set forth in the regulations issued by the U.S. Department of Commerce, the U.S. Department of State and the U.S. Department of the Treasury
(Office of Foreign Asset Controls) with regard to "specially designated" or blocked persons or entities with which we are prohibited from doing business, as well as import/trade restrictions imposed
by the countries in which our products are manufactured and sold. Modification and imposition of trade restrictions is based upon relationships between nations that we are unable to control, and we
cannot predict the effect, if any, these events would have on our operations, especially in light of our concentrated product sourcing in Asia.

Backlog

Our customers expect quick response times on standard orders, and we do not typically have a material order backlog.

Employees

As of January 3, 2009, we employed approximately 500 full-time employees and approximately 2,700
part-time employees worldwide. Most of our part-time employees are members of our field service organization, providing re-stocking and support services for our
customers. We also employ temporary employees on an as-needed basis in the Smithfield, Rhode Island facility to meet seasonal needs and fulfill orders. None of our employees are
represented by a collective bargaining agreement.

Item 1A    Risk Factors.

Our business and, accordingly, an investment in our securities, involves significant risks, including but not limited to those
described below. If any of those risks actually materializes, our business, financial condition and results of operations could be seriously harmed and the trading price of our shares could decline.

We operate in highly competitive markets and the size and resources of some of our competitors may allow them to compete more successfully, which could result in a loss of
market share and as a result, a decrease in our net sales and gross profit.

The sunglasses, non-prescription reading glasses, prescription frames and costume jewelry markets in which we compete are
intensely competitive. Fashion is a differentiator in our markets, and our ability to continue to incorporate current fashions into our product lines and to generate marketing programs, product design
and brand image that
influence consumer purchases will be key factors in our ability to compete. Several of our competitors may enjoy substantial competitive advantages, including greater financial resources that can be
devoted to competitive activities, such as sales and marketing, product development and strategic acquisitions. As a result, these competitors may be able to:



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We
might not be able to compete successfully with these competitors in the future. If we fail to compete successfully, our market share and gross profit would be materially adversely
affected.

We rely on a few customers for a significant portion of our sales. The leverage exerted by those customers or the loss of or significant decrease in business from one or
more of them may materially adversely affect us.

A few customers represent material portions of our business and results of operations. Our business and results of operations could be
adversely affected by further consolidation in the mass channels or any deterioration in the financial condition of, or other adverse developments affecting, one or more of our top customers. Our
large customers are also able to exert pricing and other influence on us, requiring us to market, deliver and promote our products in a manner of their choosing, which frequently is more costly to us.
Moreover, we do not have long-term contracts with several of our customers, including our largest customer, Wal-Mart. As a result, Wal-Mart and other customers
generally purchase our products on an order-by-order basis, and our relationship, as well as particular orders, can be terminated at any time. The loss of or significant
decrease in business from any of our major customers would materially adversely affect our business, results of operations and cash flow. Moreover, if we are successful in our strategy of broadening
the range of products we sell to existing customers, the impact of any of the risks described in this risk factor would be increased.

Any interruption or termination of our relationships with our manufacturers could adversely affect our business, result in increased cost of goods sold or lead to an
inability to deliver our products to our customers.

We rely on third-party manufacturers to supply all of our products. Our principal manufacturers are located in China. We do not have
long-term supply agreements with any of our manufacturers, and products are generally supplied on a purchase order basis. We cannot be certain that we will not experience difficulties with
our manufacturers, such as reductions in the availability of production capacity, failures to comply with product specifications, failures to comply with applicable law, insufficient quality control,
failures to meet production deadlines, increases in raw materials, labor and manufacturing costs or failures to comply with our requirements for the proper utilization of our intellectual property. If
our relationship with any of our manufacturers is interrupted or terminated for any reason, we would need to locate alternative manufacturing sources. Potential events that could adversely affect our
foreign supply chain include the following:



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These
and other events could interrupt production by our third party manufacturers, increase our cost of goods sold or shipping costs, impair our ability to timely ship orders of our
products, delay receipt of products into the United States, the United Kingdom or Mexico, cause us to miss the delivery requirements of our customers or prevent us from sourcing products at all. As a
result, we could experience lost sales, cancellation of orders, refusal to accept deliveries, increased product costs or a reduction in purchase prices, any of which could adversely affect our net
sales, results of operations, reputation and relationships with our customers. The establishment of new manufacturing relationships involves numerous uncertainties, and we cannot be certain that we
would be able to obtain alternative manufacturing sources in a manner that would enable us to meet our customer orders on a timely basis or on satisfactory commercial terms. If we are required to
change any of our major manufacturers, we may experience increased costs, substantial disruptions in the manufacture and shipment of our products and a loss of net sales.

We may be subject to product liability claims, or we may be required to recall our products.

Any of our products may be defective for a number of reasons, including but not limited to our suppliers' errors, failure to comply
with applicable law or failure to comply with our specifications. We may be required to pay for losses or injuries caused by our products. We have been and may again be subjected to various product
liability claims, including claims for serious personal injury. Successful assertion against us of one or a series of large claims could materially harm our business. Also, if one of our products is
found to be defective, we may be required to recall it, which may result in substantial expense and adverse publicity and negatively impact our sales, operating results and reputation. Potential
product liability claims may exceed the amount of insurance coverage or potential product liability claims may be excluded under the terms of the policy, which would hurt our financial condition. In
addition, we may also be required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage in the future.

Economic conditions in general, and the recent disruptions in the economy and the financial markets, may adversely impact our business.

The recent disruptions in the national and international economies and financial markets, and the related reductions in the
availability of credit and increases in the unemployment rate, may result in a decline in consumer confidence and spending and may make it more difficult for businesses to obtain financing. If such
conditions persist, there could be a significant decline in consumer spending. There can be no assurance that government responses to the disruptions in the financial markets will restore consumer
confidence, stabilize the markets or increase liquidity and the availability of credit. If our customers are unable to obtain borrowed funds on acceptable terms, or if conditions in the economy and
the financial markets do not improve, our revenues, results of operations, business and financial condition could be adversely affected as a result.

Some
of our customers have experienced declining financial performance, which could affect their ability to pay amounts payable to us on a timely basis or at all. Our suppliers may also
be impacted by the disruptions in the economy, which may impact our ability to obtain the products we sell. The bankruptcy, receivership or closure of one or more of our significant retail customers
or suppliers could materially adversely impact our revenues and bad debt expense and could result in charges related to fixed assets and competitive buybacks or placements. Continued economic decline
that adversely affects our suppliers and customers could adversely affect our operations and sales.

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The
banking system and financial markets have experienced severe disruption, including, among other things, bank failures and consolidations, severely diminished liquidity and credit
availability, rating downgrades, declines in asset valuations, and fluctuations in foreign currency exchange rates. We are dependent on the continued financial viability of the financial institutions
that participate in the syndicate that is obligated to fund our $75 million revolving credit facility. In addition, our credit facility includes an "accordion" feature that enables us to
request from the participating financial institutions an increase in the principal amount of the revolving facility by $50 million. If one or more participating institutions is unable to honor,
or unwilling to increase, their funding commitments, the cash availability under our revolving credit facility may be curtailed and/or funding of the accordion feature may not occur. We have not been
notified of any circumstances that would prevent any participating financial institution from funding our revolving credit facility. However, under current or future circumstances, such constraints
may exist. Although we believe that our operating cash flows, together with our access to the credit markets, provide us with significant discretionary funding capacity, the inability or unwillingness
of one or more institutions to fund the credit facilities could have a material adverse effect on our liquidity and operations.

We face business, political, operational, financial and economic risks because a material portion of our operations is outside the United States, a material portion of our
sales is to customers outside the United States and all of our manufacturers are outside the United States.

We outsource the manufacture of all our products to Asian contract manufacturers that maintain factories principally in China. In
addition, we have foreign sales offices in the United Kingdom, Canada and Mexico and, in recent years, have made approximately 14% of our net sales to customers outside the United States. We are
subject to risks inherent in international business, many of which are beyond our control, including:



Any
of these events could reduce our net sales, decrease our gross margins or increase our expenses.

Fluctuations in foreign currency exchange rates could harm our results of operations.

We are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported
results in our consolidated financial statements due to the translation of the operating results and financial position of our U.K., Canadian and Mexican subsidiaries. The reported results of our
foreign operations will be influenced by their translation into U.S. dollars and by foreign currency movements against the U.S. dollar. The strengthening in the value of the U.S. dollar in 2008
relative to each of the currencies in which our foreign revenues and expenses are denominated has resulted in a decrease in revenues and net income. Additionally, we outsource the manufacture of our
products to Asian contract manufacturers. While we pay these suppliers in U.S. dollars, their costs are typically based upon the local currency of the country in which they operate.

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Any
decrease in the value of the U.S. dollar against these foreign currencies could result in a corresponding increase in our future cost of goods sold and decrease in our gross profit, which would
materially adversely affect our financial condition and operating results.

We have indebtedness which may restrict our business and operations, adversely affect our cash flow and restrict our future access to sufficient funding to finance desired
growth.

At January 3, 2009, we had outstanding indebtedness of approximately $130.0 million under our credit facility.

This
amount of indebtedness (i) makes us more vulnerable to adverse changes in general economic, industry and competitive conditions, (ii) limits our ability to borrow
money to fund working capital, capital expenditures, acquisitions, debt service requirements and other financing needs and (iii) places us at a disadvantage compared to any of our competitors
that may have less debt. Furthermore, our interest expense would increase if interest rates rise because a portion of our debt bears interest at floating rates. We dedicate a substantial portion of
our cash flow to pay interest on our debt. If we do not have sufficient earnings to service our debt, we would need to refinance all or part of that debt, sell assets, borrow more money or sell
securities, which we may not be able to do on commercially reasonable terms, or at all.

The
terms of our credit facility include customary events of default and covenants that limit us from taking certain actions without obtaining the consent of the lenders. In addition,
our credit facility requires us to maintain certain financial ratios and restricts our ability to incur additional indebtedness. These restrictions and covenants may limit our ability to respond to
changing business and economic conditions and may prevent us from engaging in transactions that might otherwise be considered beneficial to us, including strategic acquisitions.

A
breach of the provisions of our credit facility, including any inability to comply with the required financial ratios, could result in an event of default under our credit facility. If
an event of default occurs under our credit facility (after any applicable notice and cure periods), our lenders would be entitled to accelerate the repayment of amounts outstanding, plus accrued and
unpaid interest. Moreover, these lenders would have the option to terminate any obligation to make further extensions of credit under our credit facility. In the event of a default under our credit
facility, the lenders could also foreclose against the assets securing such obligations. In the event of a foreclosure on all or substantially all of our assets, we may not be able to continue to
operate as a going concern.

Due to the uncertainty of the interpretation and application of existing U.S. federal income tax laws there is a risk that FGX International Holdings Limited could be
treated as a U.S. corporation for U.S. federal income tax purposes, in which case we would be subject to higher taxes, which could materially adversely affect our results of operations and cash flows.

U.S. federal income tax laws provide that if a foreign corporation acquires substantially all of the properties of a U.S. corporation
and, after the acquisition, the former
shareholders of the U.S. corporation own 80% or more of the stock of the foreign corporation by virtue of their ownership of the U.S. corporation's stock, the foreign corporation may be treated as a
U.S. corporation for U.S. federal income tax purposes. Although we believe that these anti-inversion rules do not apply to us, these rules have not been the subject of any judicial
decisions or administrative rulings, are subject to change at any time and any such change may be retroactive. Moreover, regulations or interpretations adversely affecting our position under the
anti-inversion rules could be issued at any time, potentially with retroactive effect. If the Internal Revenue Service ("IRS") was to take successfully the contrary position that FGX
International Holdings Limited should be treated as a U.S. corporation, we could be subject to substantially higher U.S. federal income taxes and such changes could materially adversely affect our
results of operations and cash flows.

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If in the future we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and
potential shareholders could lose confidence in our financial reporting, which would harm our business.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial
reports, our operating results could be misstated, our reputation may be harmed and the trading price of our shares could be negatively affected. There can be no assurance that our controls over
financial processes and reporting will be effective in the future.

If we are unable to implement our business strategy successfully to expand our product offerings, our business may suffer.

We intend to continue to expand our product offerings, particularly focusing on prescription frames, more fashionable
non-prescription reading glasses, our premium brands(Anarchy, AngelandGargoyles)and
higher-end licensed brands. We also plan to introduce new products within the eyewear market. However, we may not be successful in
gaining market acceptance for any new products that we offer. In addition, introduction of new product offerings will require us to incur additional sales and marketing expenses, and these expenses
may be material. The execution of our business strategy could strain our management, financial and operational resources, which could materially adversely affect our performance and results of
operations. If our new products are not received favorably by consumers, our reputation and the value of our brands could be damaged. The lack of market acceptance of new products we may develop or
our inability to generate satisfactory net sales from any new products to offset their cost could harm our business.

If we do not continue to negotiate and maintain favorable license arrangements, our growth prospects, sales and operating results could be adversely affected.

We have entered into license agreements that enable us to sell eyewear under certain nationally recognized brands, including Ironman Triathlon, Levi Strauss
Signature, Body Glove, C9 by ChampionandField & Stream.We
believe that our ability to maintain and negotiate favorable license agreements enables us to increase our access to additional distribution channels. Accordingly, if we are unable to negotiate and
maintain satisfactory license arrangements, our growth prospects, sales and operating results could be adversely affected.

Our business could be harmed if we fail to maintain proper inventory levels or if we misjudge the market for a particular product.

The sunglasses, non-prescription reading glasses and costume jewelry markets are subject to changing consumer preferences
based on fashion and performance trends. Our success depends largely on our ability to continue to anticipate and respond to changing fashion and performance trends and consumer preferences in a
timely manner. If we misjudge the market for a particular product or are unable to respond quickly to fashion trends, we may be unable to sell the products we have ordered from manufacturers or that
we have in our inventory. Excess inventory levels may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and harm our
operating results and financial condition. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality products that we require at the time we
need them, we may experience inventory shortages. Inventory shortages might delay shipments to our customers, negatively impact retailer relationships, diminish brand loyalty, or increase our costs.

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If we fail to secure or protect our intellectual property rights, competitors may be able to use our intellectual property, which could weaken our competitive position,
reduce our net sales and increase our costs.

We attempt to protect our intellectual property rights through the enforcement of patent, trade secret, trade dress, trademark,
copyright and unfair competition laws, in addition to nondisclosure, confidentiality and other contractual restrictions. Despite our efforts, third parties may have violated and may in the future
violate our intellectual property rights. In addition, other parties, including our competitors, may independently develop similar, competing or superior products, technologies or designs that do not
infringe on our intellectual property rights. If we fail to protect our intellectual property rights adequately, our competitors could obtain our proprietary information and imitate our products using
processes or technologies developed by us and thereby harm our competitive position and financial condition. Parallel trade (i.e., gray markets) and counterfeiting of our products could harm
our reputation for producing high-quality products.

Since
we sell our products internationally and outsource the manufacture of our products to Asian contract manufacturers that maintain factories in China, we also are dependent on the
laws of foreign countries to protect our intellectual property. These laws may not enforce or protect our intellectual property rights to the same extent or in the same manner as the laws of the
United States. There can be no assurance that our efforts to protect our intellectual property will be adequate, effective or will not be challenged by third parties or that the costs associated with
protecting our rights abroad will not be extensive. If we are unable to protect adequately our intellectual property rights, our results of operations would be adversely affected.

We may be involved in intellectual property litigation or subject to claims by third parties for alleged infringement of their intellectual property rights, which are costly
to defend, could require us to pay damages and could limit our ability to use certain technologies in the future.

From time to time in the course of our business we are involved in litigation to protect and enforce our intellectual property rights
and receive notices of claims of infringement, misappropriation or misuse of other parties' proprietary rights. Some of these claims lead to litigation. Our intellectual property rights may not have
the value we believe them to have and our products may be found to infringe upon the intellectual property rights of others. Any intellectual property claim, whether or not determined in our favor or
settled, could be costly, could harm our reputation and could divert our management from normal business operations. Adverse determinations in litigation could subject us to significant liability and
force us to terminate sales of infringing products or to develop redesigned products or brands or could subject us to the loss of our rights to a particular patent, trademark, copyright or trade
secret. In addition, we could be required to seek a license from the holder of the intellectual property, and it is possible that we may not be able to obtain a license on reasonable terms, or at all.
Even if we obtain a license, the cost of potential royalty payments could negatively affect our margins. If we are unable to redesign our products or obtain a license, we may have to discontinue a
particular product offering. If we fail to develop a non-infringing
technology or product on a timely basis or to license the infringed technology on acceptable terms, our business, financial condition and results of operations could be harmed.

Fluctuations in our operating results on a quarterly and annual basis could cause the market price of our ordinary shares to decline.

Our operating results fluctuate from quarter to quarter as a result of seasonal demand for some of our product lines, changes in demand
for our products, our effectiveness in managing our suppliers and costs, our spending patterns, the timing of the introduction of new products and weather patterns, and are likely to continue to do
so. Our expense levels in the future will be based, in large part, on our expectations regarding net sales. Many of our expenses are fixed in the short term or are incurred in

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advance
of anticipated sales. We may not be able to decrease our expenses in a timely manner to offset any seasonal shortfall of sales. These fluctuations could cause the market price of our ordinary
shares to decline. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance.

An increase in product returns could negatively impact our operating results.

Sales are recognized when revenue is realized or realizable and has been earned. We recognize revenue when title to the product,
ownership and risk of loss transfer to the customer, which generally is on the date of shipment, but is sometimes on the date of receipt by the customer. In addition, prior to revenue recognition, we
require persuasive evidence of the business arrangement, that the price is fixed or determinable, and that collectibility is reasonably assured. Accordingly, we provide allowances for the estimated
amounts of these returns at the time of revenue recognition based on historical experience. Any significant increase in product damages or defects or product returns could materially adversely affect
our operating results for the period or periods in which such events materialize.

Disruption in our distribution centers could significantly lower our net sales and gross profit.

Our distribution centers in Smithfield, Rhode Island and San Luis Obispo, California, and our third party warehouse near Long Beach,
California, are essential to the efficient operation of our distribution network. Any serious disruption to these distribution centers due to fire, snowstorms, earthquake, flooding, acts of terrorism
or any other cause could damage a significant portion of our inventory and could materially impair our ability to receive products from our suppliers and distribute products to our customers. In
addition, we could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time that it takes for us to reopen or replace the
centers. As a result, any such disruption could significantly lower our net sales and gross profit.

We are heavily dependent on our current executive officers and management and the loss of any of them could adversely affect our ability to operate our business and to
develop and market our products successfully.

We believe that our future success is heavily dependent on the continuing contributions of our current executive officers and other
members of management, as well as on our ability to attract and retain additional qualified management, design and sales and marketing personnel. We cannot be certain that any of them will not be
recruited by our competitors or otherwise terminate their relationship with us. We do not carry key man life insurance. The loss of any key employee or the inability to attract or retain qualified
personnel, including product design and sales and marketing personnel, could delay the development and introduction of, and harm our ability to sell, our products and damage our brands.

A shift by one or more of our significant customers to "pay-on-scan" payment programs could materially reduce our net sales, gross profit and cash
flows.

Some of our customers are considering ways to shift their inventory risks and costs of working capital by adopting
"pay-on-scan" payment programs. Under these pay-on-scan arrangements, our inventory would not transfer to the customer until the customer has sold the
product to a consumer. Accordingly, we would not be able to recognize sales until the customer notifies us that the product has been sold to a consumer. Historically, we have declined to participate
in most pay-on-scan inventory programs because of their adverse effect on our inventory management, net sales and cash flows. Recently, however, we have selectively chosen to
participate in pay-on-scan inventory programs with a small percentage of our customers because pay-on-scan arrangements are the preferred method for
certain retail channels, such as grocery and office superstores, to conduct business with suppliers who

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sell
products of the type we sell. Our competitors may be more willing to participate in pay-on-scan payment programs than we are. Our decision not to participate in
pay-on-scan may result in our loss of certain customers, which would reduce our net sales and cash flows. If one or more of our customers terminates its relationship with us as
a result of our decision not to participate in such pay-on-scan programs, our net sales, gross profit and cash flows may be materially adversely affected. Furthermore, if we
agree to participate in such programs, it may be more difficult for us to manage effectively our inventory and our net sales and cash flows may be materially adversely affected as well.

If we fail to comply with federal regulations imposed by the Food and Drug Administration or various state regulations, we could be subject to fines and penalties and our
products could be suspended or removed from the market, each of which would cause our net sales and results of operations to decline.

Our non-prescription reading glasses and sunglasses are considered to be medical devices by the FDA, which can modify how
these products are classified or could, through appropriate rulemaking, withdraw the exemption from pre-market notification. If this were to occur, it could have an adverse impact on our
ability to continue to market these products and would likely increase our costs of compliance.

If
the FDA were to conclude, following such an inspection of our facilities or otherwise, that we are not in compliance with applicable laws or regulations, or that any of our medical
devices are ineffective
or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices,
and require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to public health. The FDA may also impose operating restrictions either through
consent decrees or otherwise, enjoin and restrain certain violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers, employees or us. The
FDA may also recommend prosecution to the Department of Justice. Any of these adverse governmental actions could negatively affect our gross profit with respect to our non-prescription
reading glasses and sunglasses.

We may suffer negative publicity, be sued or have one or more of our license agreements or business relationships terminated if the manufacturers of our products violate
labor or other laws or engage in practices that are viewed as unethical.

We cannot control whether our manufacturers comply with legal and ethical labor practices. If one of these manufacturers violates, or
is accused of violating, labor laws or other applicable laws or regulations, or if such a manufacturer engages in labor or other practices that would be viewed as unethical if such practices occurred
in the United States, one or more of our license agreements could be terminated by our licensors or our business relationships with our customers could be terminated. We also could suffer negative
publicity or be sued. In addition, if such negative publicity affected one of our customers, it could result in the loss of business for us and materially adversely affect our business.

If our trade customers discontinue or reduce distribution of our products or increase private label products, our sales may decline, adversely affecting our financial
performance.

The economic crisis has caused many of our trade customers to more critically analyze their financial performance and the number of
products they offer for sale, which may result in the reduction or discontinuance of certain of our product lines, the number of SKUs carried in the customer's stores or the amount of inventory of our
products such customers maintain in their stores and warehouses. If this occurs, and we are unable to improve distribution for those products at other trade customers, our results could be adversely
affected.

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In
addition, some of our trade customers sell products under their own private label brands, which compete with products that we sell. As consumers look for opportunities to decrease
discretionary spending during these difficult economic times, our trade customers may discontinue or reduce distribution of our products to encourage those consumers to purchase their less expensive
private label products. Our results could be materially adversely affected if our customers increase their efforts to sell private label products that compete with the products we sell.

If the reputation of one or more of our leading brands erodes, our financial results could suffer.

Our financial success is directly dependent on the success of our brands, particularly theFoster
Grant,MagnivisionandSolarShieldbrands. The success of these brands can
suffer if our marketing and advertising plans or product initiatives do not have the desired favorable impact on a brand's image or fail to attract consumers. Further, our Company's results could be
adversely affected if one of our leading brands suffers damage to its reputation due to real or perceived quality issues.

As a result of our ongoing strategic review of our jewelry segment, we may take action which could result in returns, asset write-offs, loss on sale of assets
and/or shutdown costs.

We are conducting a strategic review of our jewelry segment. Depending on the actions we take as a result of that review, we may
experience returns from customers, asset write-offs, loss on sale of assets, and/or shutdown costs, any of which may result in charges which may be material and could adversely affect our
financial condition and operating results.

We may not be able to integrate and realize the benefits of the Dioptics Medical Products, Inc. acquisition.

We may not be able to successfully integrate the business and operations of Dioptics Medical Products, Inc., which we acquired
on November 26, 2008. If we are unable to effectively manage their operations or are unable to retain their key employees, we may not realize the value that we believe the business holds. An
inability to achieve the full extent, or any, of the anticipated synergies or cross-selling opportunities, could have an adverse effect on our business, financial position and results of operations,
which may affect the value of our ordinary shares.

We may make acquisitions that result in dilution of our current shareholders or increase our indebtedness, or both. In addition, acquisition targets that are not properly
integrated or are otherwise unsuccessful could strain or divert our resources.

We recently acquired Dioptics Medical Products, Inc., and may make additional acquisitions or substantial investments in
complementary businesses or products in the future. Any future acquisitions or investments would entail various risks, including the difficulty of assimilating the operations and personnel of the
acquired businesses or products, the potential disruption of our ongoing business and, generally, our potential inability to obtain the desired financial and strategic benefits from the acquisition or
investment. The risks associated with assimilation are increased to the extent we acquire businesses that have operations or sources of supply outside of the United States and Canada. These factors
could harm our financial condition and operating results. Any future acquisitions or investments could result in substantial cash expenditures, the issuance of new equity by us and/or the incurrence
of additional debt and contingent liabilities. In addition, any potential acquisitions or investments, whether or not ultimately completed, could divert the attention of management and divert other
resources from other matters that are critical to our operations.

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If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered when determining if the carrying
value of our goodwill or amortizable intangible assets may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our share price and
market capitalization. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance. We operate in
highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results. As a result, we may incur substantial impairment charges to
earnings in our financial statements should an impairment of our goodwill or amortizable intangible assets be determined resulting in an adverse impact on our results of operations.

Item 1B    Unresolved Staff Comments.

None.

Item 2    Properties.

Our corporate headquarters is located on 32 acres in Smithfield, Rhode Island, and both the facility and the land are wholly owned by
us. Originally constructed in 1976 and expanded by 125,000 square feet in 1998, this facility houses a 150,000 square-foot warehouse and distribution center and 37,000 square feet of office space. We
lease a 105,000 square-foot warehouse and distribution center in San Luis Obispo, California. We maintain showrooms and sales offices at our Smithfield, Rhode Island corporate offices, and in New
York, NY, San Luis Obispo, CA, Bentonville, AR, Toronto, Canada, Stoke-on-Trent, England and Mexico City, Mexico. We believe our current space is adequate for our current
operations and when necessary, suitable replacement or additional space will be available on commercially reasonable terms.

We
also hold a lease to a 200,000 square-foot facility in Miramar, Florida where we ceased operations in March 2005. We have subleased approximately 50% of this facility through the end
of the lease term.

Item 3    Legal Proceedings.

From time to time we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our
business. We do not believe that we are subject to any proceedings that, individually or in the aggregate, would be expected to materially adversely affect our results of operations or financial
condition.

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

None.

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PART II

Item 5    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our ordinary shares trade on the NASDAQ Global Market under the symbol FGXI. The following table sets forth the high and low closing
sale prices as reported by NASDAQ for the periods indicated, beginning October 25, 2007, when our shares began trading.

High

LowFiscal 2008First Quarter

$
13.77

$
8.26Second Quarter

$
13.94

$
8.11Third Quarter

$
14.03

$
7.87Fourth Quarter

$
13.95

$
8.47Fiscal 2007Fourth quarter

$
17.48

$
9.92


As
of March 11, 2009, we had six shareholders of record; however, we believe the number of beneficial owners to be much larger.

We
have not paid any cash dividends since our initial public offering and do not anticipate paying cash dividends in the future. Furthermore, our ability to pay dividends is restricted
by the terms of our credit facility.

Stock Performance Graph

The following graph compares our cumulative total stockholder return since October 25, 2007, the date of our initial public
offering, the Peer Group Index described below and the Russell 2000 Index. The graph assumes that the value of the investment in the Company's ordinary shares and each index was $100.00 on
October 25, 2007. The graph was prepared based on the assumption that all dividends paid, if any, were reinvested.

GRAPHIC

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10/25/07

12/29/07

3/31/08

6/30/08

9/30/08

1/3/09FGX International Holdings(1)


100.00


65.98


70.15


47.16


64.93


78.30Russell 2000


100.00


96.02


85.87


86.37


85.41


63.91Peer Group(2)


100.00


91.08


80.15


71.39


77.51


54.53


---

This
performance graph is furnished and shall not be deemed "filed" with the SEC nor subject to Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed
incorporated by reference into any of our filings under the Securities Act of 1933.

Item 6    Selected Financial Data.

The following table sets forth selected financial information for fiscal 2008, 2007, 2006, 2005, and 2004. Our fiscal year is a 52 or
53 week period ending on the Saturday closest to December 31. Fiscal 2008, which ended on January 3, 2009, and fiscal 2004, which ended on January 1, 2005, included
53 weeks. Fiscal 2007, which ended on December 29, 2007, fiscal 2006, which ended on December 30, 2006, and fiscal 2005, which ended on December 31, 2005, each included
52 weeks. We have derived the consolidated statement of operations data for fiscal 2008, 2007, and 2006 and the consolidated balance sheet data as of January 3, 2009 and
December 29, 2007 from our audited financial statements contained in Item 15 of Part IV of this Form 10-K. The selected consolidated balance sheet data as of
December 30, 2006 and the consolidated statement of operations data for the year ended December 31, 2005 have been derived from the audited financial statements included in our
Form 10-K filed with the SEC on March 14, 2008. The selected consolidated balance sheet data as of December 31, 2005 and January 1, 2005 and the consolidated
statement of operations data for the year ended December 31, 2005 have been derived from the audited financial statements included in our prospectus filed with the SEC on October 25,
2007.

The
historical financial information set forth below may not be indicative of our future performance and should be read together with "Management's Discussion and Analysis of Financial

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Condition
and Results of Operations" and our historical consolidated financial statements and notes to those statements included in Item 7 of Part II and Item 15 of
Part IV, respectively, of this Form 10-K.

Fiscal Year EndedJanuary 3,
2009

December 29,
2007

December 30,
2006

December 31,
2005

January 1,
2005(in thousands except per share amounts)Consolidated Statement of Operations Data:Net sales

$
256,100

$
240,463

$
209,208

$
189,881

$
136,691Cost of goods sold


115,870


110,032


104,932


90,567


74,800Gross profit


140,230


130,431


104,276


99,314


61,891Operating expenses:Selling expenses


75,797


68,727


55,466


47,179


36,384General and administrative expenses


24,856


21,183


17,918


28,205


21,038Amortization of acquired intangibles


5,312


6,172


7,597


9,276


1,285Legal settlement(1)














3,000Abandoned lease charge(2)





4,407








Operating income


34,265


29,942


23,295


14,654


184Other income (expense)Interest expense


(6,356
)

(24,710
)

(21,951
)

(12,472
)

(3,784
)Other income (expense), net


(91
)

117


154


(72
)

28Income (loss) before income taxes


27,818


5,349


1,498


2,110


(3,572
)Income tax expense


10,273


294


4,245


4,031


2,960Income (loss) before minority interest


17,545


5,055


(2,747
)

(1,921
)

(6,532
)Minority interest expense


527


347


233


351


179Net income (loss)

$
17,018

$
4,708

$
(2,980
)
$
(2,272
)
$
(6,711
)Basic earnings (loss) per share(3)

$
0.80

$
0.30

$
(0.20
)
$
(0.16
)
$
(0.46
)Basic weighted average shares outstanding


21,311


15,941


14,838


14,376


14,497Diluted earnings (loss) per share(4)

$
0.79

$
0.29

$
(0.20
)
$
(0.16
)
$
(0.46
)Diluted weighted averages shares outstanding


21,437


16,010


14,838


14,376


14,497Other Data:Net cash provided by (used in):Operating activities

$
34,313

$
10,913

$
(903
)
$
18,804

$
18,239Investing activities


(48,906
)

(15,472
)

(13,948
)

(8,801
)

(89,554
)Financing activities


8,639


(504
)

11,105


(2,478
)

73,079Capital expenditures

$
14,583

$
15,472

$
10,948

$
8,969

$
7,385


24

---



Table of Contents



As ofJanuary 3,
2009

December 29,
2007

December 30,
2006

December 31,
2005

January 1,
2005(in thousands)Consolidated Balance Sheet Data:Current assets

$
124,413

$
112,636

$
119,053

$
92,498

$
71,251Current liabilities


118,358


82,148


93,286


63,828


48,011Property, plant and equipment, net


21,011


21,349


18,467


18,770


19,176Total assets


273,015


211,855


221,038


201,158


188,160Total debt, including current maturities


130,000


120,000


213,583


202,340


99,741Total shareholders' equity (deficit)


41,665


17,333


(82,229
)

(81,264
)

20,834


---

25

---





Table of Contents

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

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our
financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.

Our
MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this
Form 10-K.

Our
fiscal year ends on the Saturday closest to December 31. The 2008 fiscal year reflects a 53-week period, and the 2007 and 2006 fiscal years each reflect a
52-week period.

On
October 18, 2007, the Company effected a 242,717 to one stock split of its ordinary shares. All share data has been retroactively restated to reflect the split.

Recent Developments

Share Repurchase Program

In February 2009, the $12.0 million ordinary share repurchase program, originally authorized by our Board of Directors in
February 2008 for a period of one year or until earlier terminated by our Board, was extended to February 2010. During the fiscal year ended January 3, 2009, we repurchased a total of 133,788
ordinary shares for an aggregate purchase price of approximately $1.5 million. All of these purchases were made in the open market and repurchased shares were returned to the status of
authorized and unissued. At January 3, 2009, we had approximately $10.5 million of remaining availability under the $12.0 million share repurchase program.

Acquisition

On November 26, 2008, we acquired all of the outstanding common shares of Dioptics Medical Products, Inc. of San Luis
Obispo, CA, a designer and marketer of sunglasses and optical accessories, in exchange for 952,380 of the Company's ordinary shares and $34.3 million in cash, subject to a working capital
adjustment. The cash consideration includes $1.5 million of direct acquisition costs and is net of $2.2 million cash acquired. We funded the cash portion of the transaction with
borrowings from our existing revolving credit facility. On March 10, 2009, the working capital adjustment was finalized and resulted in a $0.1 million addition to the purchase price.
Dioptics' sales will be reported in the sunglasses and prescription frames segment.

Overview



26

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Table of Contents



Results of Operations

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

Fiscal Year EndedJanuary 3,
2009

December 29,
2007

December 30,
2006Net sales


100.0
%

100.0
%

100.0
%Cost of goods sold


45.2


45.8


50.2Gross profit


54.8


54.2


49.8Operating expenses:Selling expenses


29.6


28.6


26.5General and administrative expenses


9.7


8.8


8.6Amortization of acquired intangibles


2.1


2.6


3.6Abandoned lease charge





1.8


Operating income


13.4


12.4


11.1Other income (expense):Interest expense


(2.5
)

(10.3
)

(10.5
)Other income (expense), net





0.1


0.1Income before income taxes and minority interest


10.9


2.2


0.7Income tax expense


4.0


0.1


2.0Income (loss) before minority interest


6.9


2.1


(1.3
)Minority interest expense


0.2


0.1


0.1Net income (loss)


6.7
%

2.0
%

(1.4
)%


The
following table sets forth, for the periods indicated, selected segment data as a percentage of net sales.

Fiscal Year EndedSegment Net Sales

January 3,
2009

December 29,
2007

December 30,
2006Non-prescription reading glasses

$
126,761


49.5
%
$
117,862


49.0
%
$
95,327


45.6
%Sunglasses and prescription frames


78,991


30.8


61,717


25.6


56,725


27.1Costume jewelry


16,530


6.5


24,933


10.4


28,207


13.5International


33,818


13.2


35,951


15.0


28,949


13.8Net sales

$
256,100


100.0
%
$
240,463


100.0
%
$
209,208


100.0
%


27

---



Table of Contents

The
following table sets forth, for the periods indicated, selected operating results by segment.

Fiscal Year EndedSegment

January 3,
2009

December 29,
2007

December 30,
2006(dollars in thousands)Non-prescription reading glassesNet sales

$
126,761


100.0
%
$
117,862


100.0
%
$
95,327


100.0
%Cost of goods sold


49,631


39.2


46,759


39.7


40,011


42.0Gross profit

$
77,130


60.8
%
$
71,103


60.3
%
$
55,316


58.0
%Sunglasses and prescription framesNet sales

$
78,991


100.0
%
$
61,717


100.0
%
$
56,725


100.0
%Cost of goods sold


43,458


55.0


35,376


57.3


33,873


59.7Gross profit

$
35,533


45.0
%
$
26,341


42.7
%
$
22,852


40.3
%Costume jewelryNet sales

$
16,530


100.0
%
$
24,933


100.0
%
$
28,207


100.0
%Cost of goods sold


10,677


64.6


14,570


58.4


18,585


65.9Gross profit

$
5,853


35.4
%
$
10,363


41.6
%
$
9,622


34.1
%InternationalNet sales

$
33,818


100.0
%
$
35,951


100.0
%
$
28,949


100.0
%Cost of goods sold


12,104


35.8


13,327


37.1


12,463


43.1Gross profit

$
21,714


64.2
%
$
22,624


62.9
%
$
16,486


56.9
%


Fiscal 2008 Compared to Fiscal 2007

Net Sales.Net sales increased by $15.6 million, or 6.5%, from $240.5 million in fiscal 2007 to $256.1 million in fiscal
2008.

In
the non-prescription reading glasses segment, net sales increased by $8.9 million, or 7.6%, from $117.9 million in fiscal 2007 to $126.8 million in
fiscal 2008. This increase was due to the full year impact of a new program launched at a major customer at the end of 2007 which contributed $5.5 million of incremental sales in 2008, a new
customer that contributed $3.7 million of sales, a reset at a major customer that generated $3.4 million of additional revenue, partially offset by a loss of an opening price point
program at a major customer.

In
the sunglasses and prescription frames segment, net sales increased by $17.3 million, or 28.0%, from $61.7 million in fiscal 2007 to $79.0 million in fiscal 2008.
This increase was due to a new program launched at a major customer which contributed $11.1 million in sales, an expanded promotional program that generated an additional $3.4 million in
sales at a major customer, sales from our Dioptics acquisition (that closed on November 26, 2008), that generated $2.1 million of sales, as well as promotional roll-outs and
organic sales growth at other existing customers.

In
the costume jewelry segment, net sales decreased by $8.4 million, or 33.7%, from $24.9 million in fiscal 2007 to $16.5 million fiscal 2008. This decrease was due
to loss of business at a major customer.

In
the international segment, net sales decreased by $2.1 million, or 5.9%, from $36.0 million in fiscal 2007 to $33.8 million fiscal 2008. This decrease was due to
a non-anniversaried reading glass rollout in the U.K. in the first quarter of 2007 combined with approximately $1.0 million unfavorable foreign exchange difference caused by the
strengthening U.S. dollar.

28

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Table of Contents

Gross Profit.Gross profit increased by $9.8 million, or 7.5%, from $130.4 million in fiscal 2007 to $140.2 million in
fiscal
2008. As a percentage of net sales, gross profit increased from 54.2% to 54.8% in the corresponding periods.

In
the non-prescription reading glasses segment, gross profit increased by $6.0 million, or 8.5%, from $71.1 million in fiscal 2007 to $77.1 million in
fiscal 2008. As a percentage of net sales, gross profit increased from 60.3% to 60.8% during the corresponding periods. The dollar increase in gross profit was due to the increase in net sales. The
increase in gross profit as a percentage of net sales was the result of favorable product mix and lower product costs from our suppliers.

In
the sunglasses and prescription frames segment, gross profit increased by $9.2 million, or 34.9%, from $26.4 million in fiscal 2007 to $35.5 million in fiscal
2008. As a percentage of net sales, gross profit increased from 42.7% to 45.0% in the corresponding periods. The dollar increase in gross profit was due to the increase in net sales combined with our
Dioptics acquisition, which contributed $1.0 million of gross profit. The increase in gross profit as a percentage of net sales was the result of increased sales to a major retailer that
carried higher gross margins, partially offset by increased sales of a promotional program to a different major retailer that carried lower gross margins.

In
the costume jewelry segment, gross profit decreased by $4.5 million, or 43.5%, from $10.4 million in fiscal 2007 to $5.9 million in the fiscal 2008. As a
percentage of net sales, gross profit decreased from 41.6% to 35.4% in the corresponding periods. The dollar decrease in gross profit was due to a loss of business at a major customer. The decrease in
gross profit as a percentage of net sales was the result of lower sales to a major retailer that carried higher gross margin than the balance of the retailer portfolio.

In
the international segment, gross profit decreased by $0.9 million, or 4.0%, from $22.6 million in fiscal 2007 to $21.7 million in fiscal 2008. As a percentage of
net sales, gross profit increased from 62.9% to 64.2% in the corresponding periods. The dollar decrease in gross profit was due to the decreases in net
sales. The increase in gross profit as a percentage of net sales resulted from higher sales of more profitable reading glasses in Canada, partially offset by higher product returns in the U.K.

Selling Expenses.Selling expenses increased by $7.1 million, or 10.3%, from $68.7 million in fiscal 2007 to
$75.8 million in
fiscal 2008. As a percentage of net sales, selling expenses increased from 28.6% to 29.6% in the corresponding periods. The increase in selling expenses was due to higher depreciation expenses of
$2.2 million related to increased number of display fixtures placed in service, increased field service costs of $1.6 million due to the increased number of customer store locations,
increased variable selling costs resulting from higher sales volume, incremental selling expenses from our Dioptics acquisition of $0.5 million, and increased personnel, costs including stock
compensation charges.

General and Administrative Expenses.General and administrative expenses increased by $3.7 million, or 17.5%, from
$21.2 million in
fiscal 2007 to $24.9 million in fiscal 2008. As a percentage of net sales, general and administrative expenses increased from 8.8% to 9.7% in the corresponding periods. The dollar increase was
the result of incremental costs associated with being a public company, which include Sarbanes-Oxley implementation and related costs, incremental compensation costs, including stock compensation
charges, to support our growth, and $0.3 million of incremental expenses from our Dioptics acquisition.

Amortization of Acquired Intangibles.Amortization of acquired intangibles decreased by $0.9 million, or 13.9%, from
$6.2 million in
fiscal 2007 to $5.3 million in fiscal 2008. This decrease was due to certain intangible assets associated with the acquisition of Magnivision being amortized on an accelerated basis over their
economic lives, partially offset by $0.1 million of amortization of acquired Dioptics intangible assets.

29

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Table of Contents

Abandoned Lease Charge.During fiscal 2007, the Company recorded a total of $4.4 million in abandoned lease charges as a result of
the
continued vacancy of our Miramar, Florida facility. This charge assumed that the remaining space of this facility will remain vacant through the end of the lease term in April 2011.

Interest Expense.Interest expense decreased $18.3 million, or 74.3%, from $24.7 million in fiscal 2007 to $6.4 million
in
fiscal 2008. This decrease was primarily due to lower average indebtedness and lower borrowing costs along with the elimination of a $2.8 million charge related to the early extinguishment of
debt recognized in 2007 as a result of payment from initial public offering proceeds.

Income Taxes.Provision for income taxes increased from $0.3 million, or 5.5% of pre-tax income, in fiscal 2007 to
$10.3 million, or 36.9% of pre-tax income in fiscal 2008. This increase was related to the 2007 release of a portion of the $4.5 million valuation allowance we had previously
recorded against U.S. deferred tax assets. We recorded that allowance in prior periods based on our determination at the time that it was more likely than not that our U.S. deferred tax assets would
not be realized (primarily due to cumulative losses in the periods preceding recording of the
allowance). As a result of improved operating results in the U.S. and our assessment of expected future results in the U.S., we determined that it was more likely than not that a substantial portion
of our U.S. deferred tax assets would be realized and released most of our valuation allowance, recognizing an income tax benefit of $3.4 million.

Net Income.For the reasons described above, our net income increased by $12.3 million, or 261.5%, from $4.7 million in fiscal
2007 to
$17.0 million in fiscal 2008.

Strategic Review of Jewelry Segment.As previously announced, we are conducting a strategic review of our jewelry segment. Depending on
the actions
we take as a result of that review, we may experience returns from customers, asset write-offs, loss on sale of assets and/or shutdown costs, any of which may result in material charges
and could adversely impact our financial condition and operating results.

Fiscal 2007 Compared to Fiscal 2006

Net Sales.Net sales increased by $31.3 million, or 14.9%, from $209.2 million in fiscal 2006 to $240.5 million in
fiscal 2007.

In
the non-prescription reading glasses segment, net sales increased by $22.5 million, or 23.6%, from $95.3 million in fiscal 2006 to $117.9 million in
fiscal 2007. This increase was due to product display enhancements at two major customers, which contributed $9.6 million of incremental sales in fiscal 2007, and $5.2 million of
additional sales as a result of a non-prescription reading glasses contract with a major customer that was awarded to us in the fourth quarter of fiscal 2006. The remaining increase was
primarily due to higher sales volume at major customers.

In
the sunglasses and prescription frames segment, net sales increased by $5.0 million, or 8.8%, from $56.7 million in fiscal 2006 to $61.7 million in fiscal 2007.
Of this increase, $4.3 million was the result of a new promotional program launched at a major customer during fiscal 2007 as well as promotional roll-outs and organic sales growth
at other existing customers.

In
the costume jewelry segment, net sales decreased by $3.3 million, or 11.6%, from $28.2 million in fiscal 2006 to $24.9 million in fiscal 2007. This decrease was
primarily due to the strategic decision to reduce participation in promotional programs and the reduction of retail space allocated for our product at a major customer.

In
the international segment, net sales increased by $7.0 million, or 24.2%, from $28.9 million in fiscal 2006 to $36.0 million in fiscal 2007. This increase was
primarily driven by strong sales across all segments in Canada as well as a non-prescription reading glasses roll-out launched in the U.K.

30

---



Table of Contents

Gross Profit.Gross profit increased by $26.2 million, or 25.1%, from $104.3 million in fiscal 2006 to $130.4 million in
fiscal
2007. As a percentage of net sales, gross profit increased from 49.8% to 54.2% in the corresponding periods.

In
the non-prescription reading glasses segment, gross profit increased by $15.8 million, or 28.5%, from $55.3 million in fiscal 2006 to $71.1 million in
fiscal 2007. As a percentage of net sales, gross profit increased from 58.0% to 60.3% during the corresponding periods. The dollar increase in gross profit was primarily due to increased sales volume.
The increase in gross profit as a percentage of net sales was primarily the result of favorable product mix and lower product costs.

In
the sunglasses and prescription frames segment, gross profit increased by $3.5 million, or 15.3%, from $22.9 million in fiscal 2006 to $26.4 million in fiscal
2007. As a percentage of net sales, gross profit increased from 40.3% to 42.7% in the corresponding periods. The dollar increase in gross profit was primarily due to the increase in net sales. The
increase in gross profit as a percentage of net sales was primarily the result of favorable product mix and lower product costs from our suppliers.

In
the costume jewelry segment, gross profit increased by $0.7 million, or 7.7%, from $9.6 million in fiscal 2006 to $10.4 million in fiscal 2007. As a percentage of
net sales, gross profit increased from 34.1% to 41.6% in the corresponding periods. The dollar increase in gross profit and increase in gross profit as a percentage of net sales were primarily due to
a strategic change to forgo lower margin promotional programs at a major customer.

In
the international segment, gross profit increased by $6.1 million, or 37.2%, from $16.5 million in the fiscal 2006 to $22.6 million in fiscal 2007. As a
percentage of net sales, gross profit increased from 56.9% to 62.9% in the corresponding periods. The dollar increase in gross profit was primarily due to the increase in net sales in Canada and the
United Kingdom. The increase in gross profit as a percentage of net sales resulted from favorable sales mix in the United Kingdom of non-prescription reading glasses.

Selling Expenses.Selling expenses increased by $13.3 million, or 23.9%, from $55.5 million in fiscal 2006 to
$68.7 million
fiscal 2007. As a percentage of net sales, selling expenses increased from 26.5% to 28.6% in the corresponding periods. The increase in selling expenses was due to $4.9 million of expenses in
connection with ourFoster Granttelevision andMagnivisionprint advertising campaign launched in 2007;
higher field service costs of $2.5 million as a result of increased volume and a dedicated investment towards our field service management; higher freight charges of $1.8 million due to
higher fuel costs and an increased volume of direct-to-store shipments; higher personnel costs of $1.7 million as a result of increased headcount to support expansion of
business.

General and Administrative Expenses.General and administrative expenses increased by $3.3 million, or 18.2%, from
$17.9 million in
fiscal 2006 to $21.2 million in fiscal 2007. As a percentage of net sales, general and administrative expenses increased from 8.6% to 8.8% in the corresponding periods. The dollar increase was
primarily the result of incremental personnel costs and higher audit fees associated with becoming a public company and legal settlement costs.

Amortization of Acquired Intangibles.Amortization of acquired intangibles decreased by $1.4 million, or 18.8%, from
$7.6 million in
fiscal 2006 to $6.2 million in fiscal 2007. This decrease was primarily due to certain intangible assets associated with the acquisition of Magnivision being amortized on an accelerated basis
over their economic lives.

Abandoned Lease Charge.During fiscal 2007, the Company recorded a total of $4.4 million in abandoned lease charges as a result of
the
continued vacancy of our Miramar, Florida facility. This charge assumes that the remaining space of this facility will remain vacant through the end of the lease term in April 2011.

31

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Table of Contents

Interest Expense.Interest expense increased $2.8 million, or 12.6%, from $22.0 million in fiscal 2006 to $24.7 million
in
fiscal 2007. This increase was due to a $2.8 million charge related to the early extinguishment of debt under our old credit facility.

Income Taxes.Provision for income taxes decreased from $4.2 million in fiscal 2006 to $0.3 million in fiscal 2007. This
decrease was
primarily related to the release of a portion of the $4.5 million valuation allowance we had previously recorded against U.S. deferred tax assets. We recorded that allowance in prior periods
based on our determination at the time that it was more likely than not that our U.S. deferred tax assets would not be realized (primarily due to cumulative losses in the periods preceding recording
of the allowance). As a result of improved operating results in the U.S. and our assessment of expected future results in the U.S., we determined that it was more likely than not that a substantial
portion of our U.S. deferred tax assets would be realized and released most of our valuation allowance, recognizing an income tax benefit of $3.4 million. This benefit was offset by a
$1.5 million charge to establish a deferred tax liability related to the future recognition of certain foreign deferred tax assets in the U.S.

Net Income (Loss).For the reasons described above, our net income increased by $7.7 million, or 258.0%, from a loss of
$3.0 million in
fiscal 2006 to income of $4.7 million in fiscal 2007.

Liquidity and Capital Resources

Our primary liquidity needs are for working capital, capital expenditures (specifically, display fixtures), debt service and to fund
possible future acquisitions. Our primary sources of cash have been cash flow from operations, net proceeds from our initial public offering and borrowings under our credit facility. As of
January 3, 2009, we had $2.1 million of cash and $37.2 million available under our revolving credit facility. As of December 29, 2007, we had $4.6 million of cash
and $54.7 million available under our revolving credit facility.

As
a result of our current capital structure and credit facility, we believe that our cash flow from operations, available cash and borrowings available under our credit facility will be
adequate to meet our liquidity needs through at least fiscal 2009. However, our ability to make scheduled payments of principal, pay the interest on or refinance our indebtedness or fund planned
capital expenditures will depend on our future performance, which is subject to general economic, financial, competitive and other factors that are beyond our control. In addition, current worldwide
economic conditions, including without limitation the reduction in available credit to businesses and consumers, the destruction of value in investment portfolios, and the deepening unemployment and
corresponding reductions in consumer spending, may substantially reduce demand for our products, which could have a materially adverse effect on our liquidity and results of operations.

To
the extent we decide to pursue one or more strategic acquisitions, we may need to incur additional indebtedness or sell additional equity to finance those acquisitions.

32

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Table of Contents

Cash Flows

The following table summarizes our cash flow activities for the periods indicated:

Fiscal Year EndedJanuary 3,
2009

December 29,
2007

December 30,
2006(in thousands)Net cash provided by (used in):Operating activities

$
34,313

$
10,913

$
(903
)Investing activities


(48,906
)

(15,472
)

(13,948
)Financing activities


8,639


(504
)

11,105Effect of exchange rates on cash balances


3,484


(33
)

841Decrease in cash

$
(2,470
)
$
(5,096
)
$
(2,905
)


We
purchase finished goods from our contract manufacturers in Asia and take title upon delivery to the freight consolidator. Transit times range from ten to 30 days. Our payment
terms with our eyewear suppliers range from 45 to 120 days and provide discounts to us for timely payments, while payment terms with our costume jewelry suppliers average 30 days. As a
result of increases in our overall sales volume, we have used cash to fund our receivables and inventories. In general, these increases are only partially offset by increases in accounts payable to
our suppliers.

Operating Activities.During fiscal 2008, the Company generated $34.3 million in cash from operating activities compared to
$10.9 million in fiscal 2007. The increase in operating cash flow was due to net income that was higher by $12.3 million and increases in accounts payable. The decrease in cash used to
pay accounts payable was primarily the result of increased payments in 2007 for purchases to support new business at a major customer at the end of fiscal 2006.

Net
cash provided by operating activities increased by $11.8 million to $10.9 million in fiscal 2007 from a use of $0.9 million in fiscal 2006. The increase in
operating cash flow was due to higher net income of $7.7 and decreases in accounts receivable and accounts payable. The decrease in accounts receivable was a result of timing of cash collections in
fiscal 2007 as compared to fiscal 2006. The decrease in accounts payable was the result of increased purchases to support new business at a major customer at the end of fiscal 2006.

Investing Activities.Net cash used in investing activities increased from $15.5 million in fiscal 2007 to $48.9 million in
fiscal
2008. The increase in net cash used in investing activities was due to the acquisition of Dioptics Medical Products, Inc.

Net
cash used in investing activities increased from $13.9 million in fiscal 2006 to $15.5 million in fiscal 2007. The increase in net cash used in investing activities was
primarily due to incremental display fixture costs associated with the addition of new customers and a $3.0 million purchase price adjustment recorded in 2006 related to the Magnivisionacquisition.

Financing Activities.Net cash provided by financing activities increased by $9.1 million to $8.6 million in fiscal 2008 from
a use of
$0.5 million in fiscal 2007. The increase in net cash provided by financing activities was due to additional borrowings under our revolving debt facility to finance our acquisition of Dioptics
partially offset by scheduled payments on our term debt.

Net
cash used in financing activities decreased by $11.6 million from $11.1 million in fiscal 2006 to a use of $0.5 million in fiscal 2007. The decrease in net cash
used in financing activities was due to the $93.8 million of cash proceeds we received in connection with our initial public offering; $120.0 million of borrowings under our new credit
facility and a $5.0 million decrease in our net borrowings under our revolving line of credit. These proceeds were offset by long-term debt payments of $220.7 million to

33

---



Table of Contents

extinguish
our old credit facility and $1.1 million of financing fee payments in connection with our refinancing.

Capital Expenditures

Our capital expenditures were $14.6 million and $15.5 million for fiscal 2008 and 2007, respectively. The majority of our
capital expenditures related to permanent display fixtures, which we provide in our customers' retail locations. We typically depreciate our fixtures using an estimated useful life of two to three
years. The future timing and volume of such capital expenditures will be affected by new business, customer contract renewals and replacements of existing fixtures at existing retail customers.

At
January 3, 2009, we had outstanding commitments for capital expenditures of $3.1 million relating to permanent display fixtures. We intend to fund these expenditures
primarily from operating cash flow and borrowings under our revolving credit facility.

Credit Facility

On December 19, 2007, we refinanced our then-existing credit facility. The facility is comprised of (a) a
$75.0 revolving credit facility, which may be increased by up to an additional $50.0 million with the consent of our existing or additional lenders; and (b) a $100.0 million term
loan facility. Interest rates for borrowings under the new facility are determined based upon our leverage ratio. Interest rates were initially priced at 1.75% above LIBOR and then may range from
1.00% to 2.25% above the LIBOR for Eurodollar-based borrowings, and from 0.00% to 1.25% above the defined base rate for base rate borrowings. The term loan facility is due in 20 consecutive quarterly
graduating installments ranging from $1.9 million to $8.1 million commencing on March 31, 2008. The term loan facility will mature on December 19, 2012. Amounts due under
the new facility are collateralized by a pledge of 100% of the Company's tangible and intangible assets. The Company will also pay commitment fees and other customary fees. These commitment fees will
range from 0.20% to 0.50% per annum depending on the Company's leverage ratio.

As
of January 3, 2009, we had outstanding indebtedness of $92.5 million under our term loan facility, $37.5 million outstanding under our revolving credit facility
and $0.3 million committed under standby letters of credit. Our borrowing availability thereunder was $37.2 million. The interest rate on the term loan facility is at the three-month
LIBOR rate plus 1.75% (3.21% as of January 3, 2009). The interest rate on $30.0 million of the revolving credit facility is at the one-month LIBOR rate plus 1.75% (2.22% as
of January 3, 2009). The remaining balance of the revolving credit facility is subject to an interest rate of prime plus 0.75% (4.00% as of January 3, 2009).

Our
credit facility contains covenants limiting, among other things, mergers, consolidations, liquidations and dissolutions; sales of assets; investments and acquisitions; indebtedness;
liens and other encumbrances; dividends and other restricted payments; payment and modification of material subordinated debt instruments; transactions with affiliates; changes in fiscal year;
negative pledge clauses; restrictions on subsidiary distributions; sale and leaseback transactions; factoring arrangements and changes in lines of business; and capital expenditures. Our credit
facility also requires that we comply with a leverage ratio and fixed charge coverage ratio covenants. Our acquisition of Dioptics Medical Products, Inc. was executed in accordance with the
terms and conditions of our credit facility. As of January 3, 2009, the Company was in compliance with these covenants. For a description of risks associated with our credit facility, see "Risk
Factors."

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Table of Contents

Contractual Obligations and Other Commitments

As of January 3, 2009, our contractual obligations and other commitments were as follows:

Payments Due by PeriodTotal

Less than
1 Year

1-3 Years

3-5 Years

More than
5 Years(in thousands)Long-term debt obligations(1)

$
92,866

$
15,199

$
45,167

$
32,500

$
Interest payment obligations(2)


9,316


3,560


4,927


829


Operating lease obligations(3)


7,118


3,049


3,871


198


Minimum royalty obligations(4)


1,894


711


1,183





Purchase obligations(5)


35,034


35,034








Total(6)

$
146,228

$
57,553

$
55,148

$
33,527

$



---

Off-Balance Sheet Arrangements

As of January 3, 2009, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii)
of SEC Regulation S-K.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. As
such, management is required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses for the periods presented. Management believes that the estimates and judgments reflected in the financial statements included in this Form 10-K
were reasonable based on the information available at the respective times. Actual circumstances could differ from those estimates, and any such differences may materially affect our reported results.
The estimates and assumptions that management believes are the most significant in preparing our financial statements are described below.

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Revenue Recognition

Sales are recognized when revenue is realized or realizable and has been earned. We recognize revenue when title to the product,
ownership and risk of loss transfer to the customer, which generally is on the date of shipment. We also maintain destination-based terms with a limited number of customers in the United States and
with all our customers in the United Kingdom and Mexico pursuant to which we recognize revenue upon confirmation of receipt by the customer. In addition, prior to revenue recognition, we require
persuasive evidence of an arrangement, that the price is fixed or determinable, and that collection is reasonably assured. A provision for anticipated returns is recorded as a reduction in sales in
the same period as the revenue in accordance with FASB Statement No. 48,Revenue Recognition When Right of Return Exists. We account for certain
customer promotional payments, volume rebates, cooperative advertising, product placement fees and other discounts as a reduction of revenue under the guidance issued by the FASB's Emerging Issues
Task Force (EITF) in Issue No. 00-25,Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's
Products, Issue No. 00-14,Accounting for Certain Sales Incentives, and Issue
No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). We also
enter into multi-year supply agreements with many of our customers, some of which have minimum purchase requirements. Upfront payments and credits to customers are recorded as a reduction
of revenue when the customer has earned the credits based on the purchase order or sales contract and are provided for based on our estimates.

Product Returns, Markdowns and Contractual Allowances

Net sales, as reported in our consolidated statements of operations, represent gross shipments to our customers less provisions and
charges for product returns, markdowns, damages and contractual allowances. We regularly review and revise our estimates of returns, markdowns and contractual allowances, which are recorded at the
time of sale based upon our historical experience in light of actual returns, planned product discontinuances and promotional sales and our estimates and judgments regarding future product sales to
our customers. We record returns and markdowns as a reduction to sales and as a reserve against accounts receivable on our consolidated balance sheet. Actual product returns, markdowns and contractual
allowances, as well as realized value on product returns, may differ significantly, either favorably or unfavorably, from our estimates.

Contractual
allowances include product placement fees, cooperative advertising, volume rebates and other discounts that are agreed upon as a component of our program terms with our
customers. These allowances are specific to a customer contract and are recognized at the time of shipment. We record contractual allowances as a reduction of gross sales but not as a reduction of
accounts receivable. Instead, we record contractual allowances as an accrued expense on our consolidated balance sheet.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist of finished goods. We
provide inventory allowances for excess, slow moving and obsolete inventories determined primarily by estimates of future demand. The allowance is measured as the difference between the cost of the
inventory and estimated market value and charged to the provision for inventory, which is a component of our cost of goods sold. Assumptions about future demand are among the primary factors used to
estimate market value. At the time of the loss recognition, which is recorded to cost of goods sold, a newer, lower-cost basis for that inventory is established and subsequent changes in
facts and circumstances do not result in the restoration or increase in the newly established cost basis. Inventory management is a primary management focus as we balance the need to maintain adequate
inventory levels to ensure timely customer order fulfillment against the risk of obsolescence because of changing fashion trends and customer requirements.

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Impairment of Long-Lived Assets

We test for impairment whenever events or changes in circumstances indicate that the carrying value of the asset might not be
recoverable from estimated future cash flows. We account for long-lived assets, excluding goodwill and non-amortized trademarks, in accordance with the provisions of SFAS
No. 144,Accounting for Impairment or Disposal of Long-Lived Assets("SFAS 144"). SFAS 144 requires recognition of an
impairment loss only if the carrying amount of a long-lived asset or asset group is not recoverable from its estimated undiscounted cash flows. An impairment loss is measured as the
difference between the carrying amount and fair value of the asset or asset group.

Valuation of Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over the fair value of the net tangible assets and identifiable intangible assets of businesses
acquired. The fair value of identified intangible asset is based upon an estimate of the future economic benefits expected to result from ownership, which represents the amount at which the assets
could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. In accordance with SFAS No. 142,Goodwill
and Other Intangible Assets, we test our goodwill and indefinite-lived intangibles for impairment annually or more frequently if events or circumstances indicate impairment may
exist. We generally complete our annual analysis of goodwill during our fourth fiscal quarter or more frequently if impairment indicators arise. We apply a two-step fair value-based test
to assess goodwill impairment. The first step compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair
value, the second step is then performed. The second step compares the carrying amount of the reporting unit's goodwill to the fair value of the goodwill. If the fair value of the goodwill is less
than the carrying amount, an impairment loss would be recorded in our income from operations. Intangible assets with definite lives are amortized over their estimated useful lives and are also
reviewed for impairment if events or changes in circumstances indicate that their carrying value may not be realizable.

We
make certain estimates and assumptions in order to determine the fair value of net assets and liabilities, including, among other things, an assessment of market conditions, projected
cash flows, cost of capital and growth rates which could significantly impact the reported value of goodwill and other intangible assets. Estimating future cash flows requires significant judgment,
and our projections may vary from cash flows eventually realized. When necessary, we engage third-party specialists to assist us with our valuations. The valuations employ a combination of present
value techniques to measure fair value, corroborated by comparisons to estimated market multiples. These valuations are based on a discount rate determined by us to be consistent with industry
discount rates and the risks inherent in our current business model.

We
cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and other intangible assets that totaled $115.6 million and
$70.2 million at January 3, 2009 and December 29, 2007, respectively. Such events include strategic decisions made in response to economic and competitive conditions, the impact
of the economic environment on our customer base or material negative changes in our relationships with material customers.

Stock-Based Compensation

We have a stock-based compensation plan for employees and non-employee members of our board of directors. Under this plan,
we grant restricted stock units and options to purchase our shares at or above the fair market value of our shares. On January 1, 2006, we adopted Statement of Financial Accounting Standards
No. 123 (revised 2004),Share-Based Payment("SFAS 123R"), which requires us to measure all stock-based compensation awards using a fair
value method and record such expense in our consolidated financial statements. We use the Black-Scholes option pricing model to value the

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options
that are granted under these plans. The Black-Scholes method includes four significant assumptions: (1) expected term of the option, (2) risk-free interest rate,
(3) expected dividend yield and (4) expected stock price volatility.

Concentration of Credit Risk

We must estimate the collectibility of our accounts receivable. Management specifically analyzes accounts receivable balances in view
of customer credit worthiness, customer concentrations, historical bad debts, current economic trends, and changes in our customer payment terms when evaluating the adequacy of the allowance for
doubtful accounts. Three customers together accounted for 67% and 55% of our accounts receivable at January 3, 2009 and December 29, 2007, respectively. To reduce credit risk, we
purchase credit insurance, as we deem appropriate. Historical write-offs, as a result of uncollectibility, have been less than 1% of net sales annually.

Income Taxes

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any
valuation allowance. Our effective tax rates differ from the statutory rate due to the impact of acquisition-related costs, state taxes, and the tax impact of non-U.S. operations. Our
future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates, and vice versa. Changes in the valuation of our
deferred tax assets or liabilities, or changes in tax laws or interpretations thereof may also adversely affect our future effective tax rate. In addition, we are subject to the continuous examination
of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for
income taxes.

At
January 3, 2009 and December 29, 2007, our total valuation allowance was $2.9 million and $2.6 million, respectively, due to foreign net operating loss
carry forwards and foreign tax credits. The valuation allowance is based on estimates of taxable income in each of the jurisdictions in which we operate and the period over which our deferred tax
assets will be recoverable. If market conditions improve and future results of operations exceed our current expectations, our existing tax valuation allowances may be adjusted, resulting in future
tax benefits. Alternatively, if market conditions deteriorate further or future results of operations are less than expected, future assessments may result in a determination that some or all of the
deferred tax assets are not realizable. As a result, we may need to establish additional tax valuation allowances for all or a portion of the gross deferred tax assets, which may have a material
adverse effect on our business, results of operations and financial condition.

Item 7A    Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adversely affect our
results of operations and financial condition.

Our
exposure to interest rate risk currently relates to amounts outstanding under our revolving and term loan credit facility. This facility is comprised of a $100.0 million term
loan facility and a $75.0 million revolving credit facility. As of January 3, 2009, we had $92.5 million outstanding under the term loan facility and $37.5 million
outstanding under the revolving credit facility. The term loan facility bore interest of 1.75% above three-month LIBOR, or 3.21% at January 3, 2009. $30.0 million of the revolving credit
facility bore interest of 1.75% above one-month LIBOR, or 2.22% at January 3, 2009. The remaining balance of the revolving credit facility bore interest of 0.75% above prime or
4.00% at January 3, 2009. A hypothetical change in the interest rate of 100 basis points would have an effect on our annual results of operations and cash flows of approximately
$0.8 million.

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On March 10, 2008, we entered into an interest rate swap agreement (the "Swap") to manage our exposure to floating interest rate risk on our credit
facility. The Swap has an initial notional amount of approximately $49.1 million and is scheduled to decline to reflect certain scheduled principal payments under the term loan portion of our
credit facility. Currently, we are borrowing under the Term Loan Facility at a floating interest rate based on 3-month LIBOR (plus 1.75% under the terms of our Term Loan Facility) and will
pay under the Swap a fixed interest rate of 3.22% (plus 1.75% under the terms of our Term Loan Facility) through December 19, 2012.

The
Swap has been designated as a cash flow hedge under SFAS No. 133 and we record the effective portion of any change in the fair value as other comprehensive income (loss), net
of tax, and reclassify the gains and losses to interest expense during the hedged interest payment period.

We
are subject to risk from changes in the foreign exchange rates relating to our Canadian and U.K. subsidiaries, and our Mexico joint venture. Assets and liabilities of these entities
are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Translation adjustments are
accumulated as a separate component of shareholders' equity. Gains and losses, which result from foreign currency transactions, are included as other income (expense) in the accompanying consolidated
statements of operations. The potential loss resulting from a hypothetical 10.0% adverse change in the quoted foreign currency exchange rate amounts would not have a material impact on our annual
results of operations and cash flows.

Item 8    Financial Statements and Supplementary Data.

The response to this Item is included as a separate section of this report immediately following Item 15.

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

None.

Item 9A    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Annual Report on Form 10-K (the "Evaluation Date"). Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.

Management's Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Our
management assessed the effectiveness of our internal control over financial reporting as of January 3, 2009, the last day of our most recent fiscal year. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in "Internal Control-Integrated Framework."

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Management
excluded from its assessment of the effectiveness of our internal control over financial reporting as of January 3, 2009, the internal control over financial reporting
of Dioptics Medical Products, Inc. ("DMP"), which we acquired on November 26, 2008. Due to the short time between the acquisition and the end of the fiscal year, it was not possible for
management to conduct an assessment of DMP's internal controls. At year-end, our DMP subsidiary had assets of $68.2 million (of which $50.6 million represents goodwill and
intangible assets included within the scope of the assessment), constituting 25% of our total assets. DMP generated total revenue of $2.1 million (or less than 1% of our total 2008 revenue)
that was included in our consolidated financial statements as of and for the year ended January 3, 2009.

Based
on its assessment, our management concluded that, as of January 3, 2009, our internal control over financial reporting was effective based on those criteria.

The
effectiveness of our internal control over financial reporting as of January 3, 2009 has been audited by KPMG LLP, an independent registered public accounting firm, as
stated in its report which is below.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. One should not project any evaluation of effectiveness to
future periods because
controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
FGX International Holdings Limited:

We
have audited FGX International Holdings Limited's internal control over financial reporting as of January 3, 2009, based on criteria established in Internal ControlIntegrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). FGX
International Holdings Limited's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control
over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide

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reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, FGX International Holdings Limited maintained, in all material respects, effective internal control over financial reporting as of January 3, 2009, based on
criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission.

Management
excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of January 3, 2009, the internal control over financial
reporting of Dioptics Medical Products, Inc. ("DMP"), which was acquired on November 26, 2008. Due to the short time between the acquisition and the end of the fiscal year, it was not
possible for management to conduct an assessment of DMP's internal controls. At year-end, the DMP subsidiary had assets of $68.2 million (of which $50.6 million represents
goodwill and intangible assets included within the scope of the assessment), constituting 25% of the Company's total assets. DMP generated total revenue of $2.1 million (or less than 1% of the
Company's total 2008 revenue) that was included in the Company's consolidated financial statements as of and for the year ended January 3, 2009. Our audit of internal control over financial
reporting of the Company also excluded an evaluation of the internal control over financial reporting of DMP.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FGX International Holdings
Limited and subsidiaries as of January 3, 2009 and December 29, 2007, and the related consolidated statements of operations, shareholders' equity (deficit) and comprehensive income
(loss), and cash flows for the fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006, and our report dated March 11, 2009 expressed an unqualified
opinion on those consolidated financial statements.

/s/ KPMG LLPProvidence, Rhode Island
March 11, 2009


Changes in Internal Controls over Financial Reporting

No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f))
occurred during the fiscal quarter ended January 3, 2009 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B    Other Information.

As of March 12, 2009, the Company entered into a Director and Officer Indemnification Agreement, in the form filed as
Exhibit 10.20 to Form S-1/A (Registration No. 33-139525) on June 28, 2007, with Alfred J. Verrecchia, a newly appointed director.

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PART III

Item 10    Directors, Executive Officers and Corporate Governance.

Executive Officers

Set forth below is a list of our executive officers, their ages and positions, and a brief description of the recent business
experience of each one.

Name

Age

PositionAlec Taylor


55

Chief Executive Officer and DirectorJohn H. Flynn, Jr.


58

PresidentAnthony Di Paola


42

Executive Vice President, Chief Financial Officer and TreasurerSteven Crellin


48

Executive Vice President, Sales and President, Dioptics Medical Products, Inc.Jeffrey J. Giguere


48

Executive Vice President, General Counsel and SecretaryGerald Kitchen


60

Executive Vice President, OperationsRichard Kornhauser


54

Executive Vice President, Chief Marketing OfficerRobert Grow


51

Executive Vice President, Product DevelopmentRichard Christy


46

Vice President, Supply Chain Management and Customer and Field ServiceThomas Fernandes


36

Vice President, North American SalesTimothy Swartz


45

Vice President, Licensing and Quantum OpticsMark A. Williams


37

Vice President, Corporate Controller


Alec Taylor, Chief Executive Officer and DirectorMr. Taylor has been our Chief Executive Officer since October 2005. Before joining us, he was
President and Chief Operating Officer of Chattem, Inc., a publicly traded manufacturer and marketer of health and beauty products, toiletries and dietary supplements, from January 1998 to
September 2005 and a director of Chattem from 1993 to 2005. Mr. Taylor was previously an attorney with Miller and Martin in Chattanooga, Tennessee, from 1978 to January 1998. Mr. Taylor
is also a director of Constar International Inc.

John H. Flynn, Jr., PresidentMr. Flynn has served as our President since December 2004. Mr. Flynn was the Executive Vice President,
Sales of AAi.FosterGrant, Inc. from 1998 to December 2004, President and CEO of the predecessor of AAi.FosterGrant, Inc. from 1985 to 1998, and Vice President of
AAi.FosterGrant, Inc. (then known as Accessories Associates Inc.) from 1982 to 1985. Mr. Flynn is a director of the Sunglass Association of America Inc.

Anthony Di Paola, Executive Vice President, Chief Financial Officer and TreasurerMr. Di Paola has served as our Executive Vice President,
Chief Financial Officer and Treasurer since July 2007. Prior to that, Mr. Di Paola held various finance positions at General Electric, including Americas Controller for GE Water &
Process Technologies, from February 2005 to July 2007. Mr. Di Paola previously served as Vice President and Corporate Controller of Ionics, Inc., a publicly traded supplier of water
purification and wastewater treatment equipment and services, from May 2000 to February 2005, when Ionics was acquired by General Electric Company.

Steven Crellin, Executive Vice President, SalesMr. Crellin has served as President of Dioptics Medical Products, Inc. since January
2009 and as our Executive Vice President, Domestic Sales since January 2006. Prior to that Mr. Crellin was our Executive Vice President, Magnivision from October 2004 to December 2005 and the
Vice President, Sales of Magnivision from February 1998 to October 2004. Mr. Crellin sits on the advisory board of the National Association of Chain Drug Stores and is a director of the
Sunglass Association of America Inc.

Jeffrey J. Giguere, Executive Vice President, General Counsel and SecretaryMr. Giguere has served as our Executive Vice President, General
Counsel and Secretary since April 2007. Mr. Giguere was

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Vice
President, General Counsel and Secretary of American Power Conversion Corporation, a publicly traded provider of back-up power products and services, from June 2001 to March 2007, and
General Counsel from April 2000 to June 2001.

Gerald Kitchen, Executive Vice President, OperationsMr. Kitchen has served as our Executive Vice President, Operations since January 2007, and
was our Vice President, Operations since September 2004 and the Vice President, Operations of our subsidiary, AAi.FosterGrant, Inc., since January 2004. Before that, Mr. Kitchen served
as President of Blue Mountain Industries, Inc., a textile manufacturer, during 2003, Vice President of Global Sourcing for Roam International Limited, a luggage importer, from April 2000 to
December 2002.

Richard Kornhauser, Executive Vice President, MarketingMr. Kornhauser has served as Executive Vice President and Chief Marketing Officer since
January, 2008. Prior to that, Mr. Kornhauser was the Vice President of Marketing for Chattem, Inc., a leading marketer and manufacturer of branded consumer products, from May 2000 to
October 2007.

Robert Grow, Executive Vice President, Product DevelopmentMr. Grow has served as Executive Vice President, Product Development since January
2008. Prior to that, Mr. Grow was our Vice President, Product Development from April 2004 to January 2008. From January 2000 to April 2004, Mr. Grow was the National Sales Manager.

Richard Christy, Vice President, Supply Chain Management and Customer and Field ServiceMr. Christy has served as our Vice President, Supply
Chain Management and Customer and Field Service since January 2007. Prior to that, Mr. Christy served as our Director of Supply Chain Management from February 2004 to January 2007 and Director
of Supply Planning from April 2000 to February 2004.

Thomas Fernandes, Vice President, North American SalesMr. Fernandes has been with us since July 2001, serving as Vice President, North
American Sales since March 2009. Prior to that, Mr. Fernandes was our Vice President, Merchandising from January 2007 to February 2009, a Senior Merchandise Manager from May 2006 to December
2006 and Merchandise Manager from July 2001 to May 2006.

Timothy Swartz, Vice President, Licensing and Quantum OpticsMr. Swartz has served as Vice President of Licensing and Quantum Optics since
November 2005. Prior to that, Mr. Swartz served as our Vice President of the Premium Eyewear Divisions/Quantum Optics from June 2002 through November 2005. In addition, Mr. Swartz served
in numerous positions at Lantis Eyewear Corp., a designer and distributor of eyewear, including Vice President of the Ophthalmic Division from 1998 through June 2002.

Mark A. Williams, Vice President, Corporate ControllerMr. Williams has served as our Vice President and Corporate Controller since January
2006. Prior to that, Mr. Williams served as Corporate Controller from January 2004 to January 2006 and Assistant Controller from January 2003 to January 2004. In addition, Mr. Williams
served as Director of Internal Audit for A.T. Cross Company, a designer and distributor of fine writing instruments, eyewear and personal accessories, from March 1999 to January 2003.
Mr. Williams is a Certified Public Accountant in the state of Rhode Island.

Code of Ethics

We have adopted a code of ethics that applies to our Directors and senior financial officers, including our Chief Executive Officer and
Chief Financial Officer. This code sets forth written standards that are designed to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the
Securities and Exchange Commission and in our other public

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communications;
compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the code to an appropriate person or persons; and accountability for
adherence to the code. The code of ethics is available without charge upon request from our Corporate
Secretary, FGX International Holdings Limited, 500 George Washington Highway, Smithfield, RI 02917. If we make any substantive amendment to this code of ethics or grant any waiver from any of its
provisions, we will disclose the nature of such amendment or waiver in a report on Form 8-K.

Directors; Corporate Governance

The remaining information required by this item is incorporated by reference from the information responsive thereto in the sections in
the Proxy Statement for our Annual Meeting of Shareholders to be held on May 20, 2009 (the "Proxy Statement") captioned "Proposal 1: Election of Directors," "Corporate
GovernanceAudit Committee," and "Other MattersSection 16(a) Beneficial Ownership Reporting Compliance."

Item 11    Executive Compensation.

The information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy
Statement captioned "Executive Compensation."

Item 12    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy
Statement captioned "Shares Held by Principal Shareholders and Management."

The
following table sets forth information regarding our equity compensation plans as of January 3, 2009:

Plan category

Number of shares to be
issued upon exercise of
outstanding options or
vesting of restricted
stock units (a)

Weighted-average
exercise price of
outstanding options
and restricted stock
units (b)

Number of shares remaining
available for future issuance
under equity compensation
plans (excluding shares
reflected in column (a)) (c)Equity compensation plans approved by stockholders


2,736,136

$
11.22


1,295,140Equity compensation plans not approved by stockholders


N/A


N/A


N/ATotal


2,736,136

$
11.22


1,295,140


Item 13    Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference from the information responsive thereto in the sections in the Proxy
Statement captioned "Executive CompensationExecutive Employment Agreements" and "Potential Payments upon Termination of Employment or
Change-in-Control," "Certain Relationships and Related Person Transactions" and "Corporate GovernanceBoard of Directors Independence and Meetings."

Item 14    Principal Accounting Fees and Services

The information required by this item is incorporated by reference from the information responsive thereto in the section in the Proxy
Statement captioned "Proposal 2: Ratification of the Appointment of Our Independent Registered Public Accounting Firm."

44

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Table of Contents

PART IV

Item 15    Exhibits, Financial Statement Schedules.



Report of Independent Registered Public Accounting Firm

F-2Consolidated Balance SheetsJanuary 3, 2009 and
December 29, 2007

F-3Consolidated Statements of OperationsFor the fiscal years
ended January 3, 2009, December 29, 2007 and December 30, 2006

F-4Consolidated Statements of Shareholders' Equity (Deficit) and
Comprehensive Income (Loss)For the fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006

F-5Consolidated Statements of Cash FlowsFor the fiscal years
ended January 3, 2009, December 29, 2007 and December 30, 2006

F-6Notes to Consolidated Financial Statements

F-7




The
exhibits listed in the Exhibit Index following the signature page are filed herewith, which Exhibit Index is incorporated herein by reference.



See
(a)2 above.

F-1

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Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
    FGX International Holdings Limited:

We
have audited the accompanying consolidated balance sheets of FGX International Holdings Limited and subsidiaries as of January 3, 2009 and December 29, 2007, and the
related consolidated statements of operations, shareholders' equity (deficit) and comprehensive income (loss), and cash flows for the fiscal years ended January 3, 2009, December 29,
2007 and December 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FGX International Holdings Limited and
subsidiaries as of January 3, 2009 and December 29, 2007, and the results of their operations and their cash flows for the fiscal years ended January 3, 2009, December 29,
2007 and December 30, 2006, in conformity with U.S. generally accepted accounting principles.

As
discussed in Note 11 to the consolidated financial statements, effective December 31, 2006, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109,Accounting for Income
Taxes.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FGX International Holdings Limited's internal control over
financial reporting as of January 3, 2009, based on criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2009 expressed an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.



Providence,
Rhode Island
March 11, 2009

F-2

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED        Consolidated Balance Sheets        January 3, 2009 and December 29, 2007        (in thousands)

January 3,
2009

December 29,
2007ASSETSCurrent assets:Cash

$
2,097

$
4,567Accounts receivable, less allowances of $26,144 and $15,839 at January 3, 2009 and December 29, 2007, respectively


52,263


53,001Inventories


38,223


33,226Prepaid expenses and other current assets


15,817


11,001Deferred tax assets


16,013


10,841Total current assets


124,413


112,636Property, plant and equipment, net


21,011


21,349Other assets:Goodwill


46,747


25,357Intangible assets, net of accumulated amortization of $29,642 and $24,330 at January 3, 2009 and December 29, 2007, respectively


68,856


44,868Other assets


11,988


7,645Total assets

$
273,015

$
211,855LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Revolving line of credit

$
37,500

$
20,000Current maturities of long-term obligations


15,199


7,661Accounts payable


31,964


27,364Accrued expenses


27,690


26,167Accrued income taxes


6,005


956Total current liabilities


118,358


82,148Long-term obligations, less current maturities


77,863


92,778Deferred tax liabilities


18,156


9,260Other long term liabilities


15,284


9,174Minority interest


1,689


1,162Commitments and contingencies (note 14)Shareholders' equity:Common stock, no par value. Authorized 101,000 shares; issued 22,886 shares at January 3, 2009 and issued 21,934 shares at December 29, 2007;
outstanding 22,123 shares at January 3, 2009 and outstanding 21,304 shares at December 29, 2007





Additional paid-in capital


107,048


96,180Accumulated other comprehensive income


(2,611
)

943Accumulated deficit


(60,259
)

(77,277
)Treasury stock, at cost, 630 shares at January 3, 2009 and December 29, 2007


(2,513
)

(2,513
)Total shareholders' equity


41,665


17,333Total liabilities and shareholders' equity

$
273,015

$
211,855


See
accompanying notes to consolidated financial statements.

F-3

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED        Consolidated Statements of Operations        Fiscal years ended January 3, 2009, December 29, 2007 and
December 30, 2006        (in thousands, except per share amounts)

Fiscal Year EndedJanuary 3,
2009

December 29,
2007

December 30,
2006Net sales

$
256,100

$
240,463

$
209,208Cost of goods sold


115,870


110,032


104,932Gross profit


140,230


130,431


104,276Operating expenses:Selling expenses


75,797


68,727


55,466General and administrative expenses


24,856


21,183


17,918Amortization of acquired intangibles


5,312


6,172


7,597Abandoned lease charge





4,407


Operating income


34,265


29,942


23,295Other income (expense):Interest expense


(6,356
)

(24,710
)

(21,951
)Other income (expense), net


(91
)

117


154Income before income taxes


27,818


5,349


1,498Income tax expense


10,273


294


4,245Income (loss) before minority interest


17,545


5,055


(2,747
)Minority interest expense


527


347


233Net income (loss)

$
17,018

$
4,708

$
(2,980
)Basic earnings (loss) per share

$
0.80

$
0.30

$
(0.20
)Basic weighted average shares outstanding


21,311


15,941


14,838Diluted earnings (loss) per share

$
0.79

$
0.29

$
(0.20
)Diluted weighted average shares outstanding


21,437


16,010


14,838


See
accompanying notes to consolidated financial statements.

F-4

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED        Consolidated Statements of Shareholders'        Equity (Deficit) and Comprehensive Income (Loss)        Years
ended January 3, 2009, December 29, 2007 and  December 30, 2006        (in thousands)

Common stock



Accumulated
other
comprehensive
income (loss)





Total
shareholders'
equity
(deficit)Additional
paid-in
capital

Accumulated
deficit

Treasury
stock

Comprehensive
income (loss)Shares

Par valueBalance, December 31, 2005


14,837

$


$


$
178

$
(79,005
)
$
(2,437
)
$
(81,264
)Stock-based compensation expense for vesting of stock options








1,499











1,499


Foreign currency translation adjustment











516








516


516Net loss














(2,980
)




(2,980
)

(2,980
)Comprehensive loss for the year ended December 30, 2006






















$
(2,464
)Balance, December 30, 2006


14,837





1,499


694


(81,985
)

(2,437
)

(82,229
)Net proceeds from issuance of common stock


6,667





93,817











93,817


Redemption of common shares


(200
)













(76
)

(76
)

Stock-based compensation expense for vesting of stock options








864











864


Foreign currency translation adjustment











249








249


249Net income














4,708





4,708


4,708Comprehensive income for the year ended December 29, 2007






















$
4,957Balance, December 29, 2007


21,304





96,180


943


(77,277
)

(2,513
)

17,333Shares issued for purchase of acquired business


952





9,909











9,909


Redemption of common shares


(133
)




(1,484
)










(1,484
)

Stock-based compensation expense for vesting of stock options








2,443











2,443


Revaluation of financial instrument (net of tax of $599)











(898
)







(898
)

(898
)Foreign currency translation adjustment (net of tax of $185)











(2,656
)







(2,656
)

(2,656
)Net income














17,018





17,018


17,018Comprehensive income for the year ended January 3, 2009






















$
13,464Balance, January 3, 2009


22,123

$


$
107,048

$
(2,611
)
$
(60,259
)
$
(2,513
)
$
41,665


See accompanying notes to consolidated financial statements.

F-5

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED        Consolidated Statements of Cash Flows        Fiscal Years Ended January 3, 2009, December 29, 2007 and
December 30, 2006        (in thousands)

Fiscal Year EndedJanuary 3,
2009

December 29,
2007

December 30,
2006Cash flows from operating activities:Net income (loss)

$
17,018

$
4,708

$
(2,980
)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization


20,296


18,871


18,416Abandoned lease charge





4,407


Non-cash stock option compensation


2,443


864


1,499Minority interest


527


347


233Deferred income taxes


(7,429
)

(7,824
)

559Loss on disposal of property, plant and equipment


242





543Changes in assets and liabilities:Accounts receivable


(1,065
)

6,532


(22,486
)Inventories


(3,067
)

1,430


(6,181
)Prepaid expenses and other current assets


(2,975
)

(3,822
)

(3,202
)Other assets


2,299


637


(1,854
)Accounts payable


2,996


(16,781
)

15,629Accrued expenses and other long-term liabilities


(1,859
)

2,358


(1,486
)Accrued income taxes


4,887


(814
)

407Net cash provided by (used in) operating activities


34,313


10,913


(903
)Cash flows from investing activities:Purchases of property, plant, and equipment


(14,583
)

(15,472
)

(10,948
)Purchase of acquired business, net of cash acquired


(34,323
)




(3,000
)Net cash used in investing activities


(48,906
)

(15,472
)

(13,948
)Cash flows from financing activities:Net borrowings under revolving note payable


17,500


7,500


12,500Proceeds from issuance of long term debt





120,000


Payments on long-term obligations


(7,377
)

(220,650
)

(1,268
)Net proceeds from initial public offering





93,817


Payment of financing fees





(1,095
)

Purchase of financial instrument








(127
)Redemption of common stock


(1,484
)

(76
)

Net cash provided by (used in) financing activities


8,639


(504
)

11,105Effect of exchange rate changes on cash


3,484


(33
)

841Net increase (decrease) in cash


(2,470
)

(5,096
)

(2,905
)Cash, beginning of period


4,567


9,663


12,568Cash, end of period

$
2,097

$
4,567

$
9,663


See accompanying notes to consolidated financial statements.

F-6

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED        Notes to Consolidated Financial Statements

(1) Reporting Entity and Nature of Business

FGX International Holdings Limited (the "Company") is a leading designer and marketer of non-prescription reading glasses, sunglasses and costume jewelry with distribution
primarily in the mass merchandise, chain drug store and chain grocery store channels in North America and the United Kingdom. The Company is incorporated under the laws of the British Virgin Islands.

(2) Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities("SFAS
No. 159"). SFAS 159 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure certain financial instruments at fair
value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No 159 did not have a material impact on our condensed consolidated balance sheet
and result of operations.

Effective
at the beginning of 2009, the Company is required to prospectively adopt the provisions of Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests
in Consolidated Financial Statements", ("SFAS 160") which requires noncontrolling (minority) interests in subsidiaries to be initially measured at fair value and presented as a separate
component of shareholders' equity. Current practice is to present noncontrolling interests as a liability or other item outside of equity. The presentation and disclosure provisions of SFAS 160
are required to be applied on a retrospective basis. The Company does not expect the adoption of SFAS 160 to have an impact on its consolidated balance sheet or results of operations.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133("SFAS 161"), which requires enhanced disclosures about the Company's derivative and hedging activities. SFAS 161 will be effective as of the
beginning of the Company's 2009 fiscal year. The Company does not expect the adoption of SFAS No. 161 to have a material impact on its consolidated balance sheet or results of operations.

Effective
at the beginning of 2009, the Company is required to prospectively adopt the provisions of Statement of Financial Accounting Standards No. 141 (Revised 2007), "Business
Combinations", ("SFAS 141R"), which makes certain modifications to the accounting for business combinations. These changes include (1) the requirement for an acquirer to recognize all
assets acquired and liabilities assumed at their fair value on the acquisition date; (2) the requirement for an acquirer to recognize assets or liabilities arising from contingencies at fair
value as of that acquisition date; and (3) the requirement that an acquirer expense all acquisition related costs. SFAS 141R is required to be applied prospectively to business
combinations for which the acquisition date is on or after the beginning of fiscal 2009.

In
2009 the Company will adopt the remaining provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements", ("SFAS 157") for
non-financial assets. The adoption of these provisions will not have an impact on the Company's statements of operations or statement of financial position.

F-7

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(3) Significant Accounting Policies



The consolidated financial statements include the results of operations of the Company as well as those companies in which the Company has majority ownership or
control. All significant intercompany balances and transactions have been eliminated in consolidation. Minority interest payable represents the minority partners' accumulated earnings in our joint
venture in Mexico.



The Company's fiscal year ends on the Saturday closest to December 31. Fiscal 2008 reflects a 53-week period, and fiscal 2007 and 2006 each
reflect a 52-week period.



On October 18, 2007, the Company (i) amended its Memorandum and Articles of Association to increase its authorized shares to 101,000,000 and
(ii) effected a 242,717 to one stock split of its ordinary shares. All share data shown in the accompanying consolidated financial statements have been retroactively restated to reflect the
split.



The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company
held no cash equivalents at January 3, 2009 or December 29, 2007.



Inventories are stated at the lower of cost (first-in, first-out) or market and consist of finished goods. Inventory reserve adjustments
are considered permanent decreases to the cost basis of the inventory and are recorded in cost of goods sold in the Company's Consolidated Statements of Operations.



Advertising costs, which are included in selling expenses, are expensed when the advertisement first takes place. Advertising expense was approximately
$6.1 million, $6.6 million and $1.4 million for fiscal 2008, 2007 and 2006, respectively.



Property, plant and equipment are stated at cost. Depreciation is recognized over the estimated useful lives indicated below on a straight-line or
accelerated basis. Leasehold improvements are

F-8

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(3) Significant Accounting Policies (Continued)

amortized
over the shorter of the lease term or estimated useful life of the asset. Fully depreciated displays are written off to the respective accumulated depreciation account each year.

Asset classification

Estimated useful lifeBuilding and improvements

10-20 yearsDisplay fixtures

Up to 3 yearsFurniture, fixtures and equipment

3-5 yearsLeasehold improvements

Shorter of useful life or lease term




Goodwill represents the excess of cost over the fair value of the net tangible assets and identifiable intangible assets of businesses acquired. Goodwill and
intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested annually in accordance with the provisions of FASB
Statement No. 142,Goodwill and Other Intangible Assets.Intangible assets with estimable useful lives are amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with the provisions of FASB Statement No. 144,Accounting for the
Impairment or Disposal of Long-Lived Assets.SFAS No. 144 requires recognition of an impairment loss only if the carrying amount of a long-lived
asset or asset group is not recoverable from its undiscounted cash flows. An impairment loss is measured as the difference between the carrying amount and fair value of the asset or asset group. The
Company evaluates its long-lived assets if impairment indicators arise. The Company evaluates each of its reporting units with goodwill and indefinite-lived intangibles during the fourth
quarter of each fiscal year or more frequently if impairment indicators arise.

Intangible
assets consist of trademarks, customer relationships and patents. Trademarks, customer relationships and patents, acquired in business combinations, are recorded at their
estimated fair value at the date of the combination. The Company has determined that currently owned trademarks have indefinite useful lives, customer relationships have a weighted average estimated
useful life of 15 years and patents have a weighted average estimated useful life of 7 years. The Company is amortizing the recorded amount of the customer relationships on an
accelerated basis and the patents on a straight-line basis over their estimated useful lives. The amortization method of the customer relationships is accelerated based on a projected
economic value of the asset over its useful life.



Sales are recognized when revenue is realized or realizable and has been earned. The Company's policy is to recognize revenue when title to the product, ownership
and risk of loss transfer to the customer, which generally is on the date of shipment. The Company also maintains destination-based terms with a limited number of customers in the United States and
Canada and with substantially all of its customers in the United Kingdom and Mexico under which it recognizes revenue upon confirmation of receipt by the customer. In addition, prior to revenue
recognition, the Company requires persuasive evidence of the arrangement, that the price is fixed or determinable, and that collectibility is reasonably assured. A provision for anticipated returns is
recorded as a reduction of sales in the same period that the revenue is recognized in accordance with FASB Statement No. 48,Revenue Recognition When Right of Return
Exists.

F-9

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(3) Significant Accounting Policies (Continued)

The
Company accounts for certain customer promotional payments, volume rebates, cooperative advertising, product placement fees and other discounts as a reduction of revenue under the
guidance issued by the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) in Issue No. 00-25,Vendor Income Statement Characterization
of Consideration Paid to a Reseller of the Vendor's Products, Issue No. 00-14,Accounting for Certain Sales
Incentives, and Issue No. 01-09,Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's
Products). The Company also enters into multi-year supply agreements with many of its customers that often have minimum purchase requirements. Upfront payments and
credits to our customers associated with these multi-year agreements are recorded to "Other assets" in our Consolidated Balance Sheets and are recorded net of accumulated amortization.
Amortization of these payments and credits is recorded as earned by our customers over the contract term and are recorded as a reduction of revenue. When the payment or credit has been fully
amortized, the asset and related amortization are written off. Amortization estimated to be earned by our customers and charged to operations during the next twelve months is classified as "Prepaid
expenses and other current assets" in the Consolidated Balance Sheets.



Shipping and handling costs are recorded as a component of selling expenses. Any shipping and handling billed to customers is recognized as a component of net
sales. Shipping and handling billed to customers is not significant for any of the periods presented.



The Company calculates net income (loss) per share in accordance with SFAS No. 128,Earnings Per Share.
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding and potentially dilutive securities outstanding during the period. Potentially dilutive securities include restricted stock
units and stock options using the treasury stock method. Securities are excluded from the computations of diluted net income (loss) per share if their effect would be antidilutive.

Fiscal Year EndedJanuary 3,
2009

December 29,
2007

December 30,
2006(in thousands)Net income (loss)

$
17,018

$
4,708

$
(2,980
)Shares used in computing basic net income (loss) per share


21,311


15,941


14,838Effect of dilutive securities


126


69


Shares used in computing diluted net income (loss) per share


21,437


16,010


14,838Net income (loss) per sharebasic

$
0.80

$
0.30

$
(0.20
)Net income (loss) per sharediluted

$
0.79

$
0.29

$
(0.20
)Antidilutive potential common shares excluded from the computation above


1,148


1,285


1,065


F-10

---



Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(3) Significant Accounting Policies (Continued)



The Company's other comprehensive earnings (loss) for the years 2008, 2007 and 2006 consist of the following:

2008

2007

2006(in thousands)Revaluation of financial instrument

$
(898
)
$


$
Foreign currency translation adjustments


(2,656
)

249


516Other comprehensive earnings (loss)

$
(3,554
)
$
249

$
516




Financial instruments that potentially subject the Company to concentrations of credit risk are principally accounts receivable. A significant portion of the
Company's business activity is with domestic mass merchandisers whose ability to meet their financial obligations is dependent on economic conditions germane to the retail industry. At its discretion,
the Company sells products to certain customers in bankruptcy. To reduce credit risk, the Company routinely assesses the financial strength of its customers and maintains credit insurance on
substantially all of its domestic and Canadian accounts receivable.



The Company's financial instruments include cash, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At
January 3, 2009, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at January 3, 2009 also include long-term
borrowings (see note 10 for carrying cost and related fair values).



The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of
intangibles and goodwill, and valuation allowances for receivables, inventories and deferred income tax assets. Actual results could differ from those estimates.



Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

F-11

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(3) Significant Accounting Policies (Continued)

Deferred
income taxes have not been provided for the undistributed earnings of the Company's foreign subsidiaries as such undistributed earnings are considered to be indefinitely
reinvested.



FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities(SFAS No. 133),
requires companies to recognize all derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and
qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in an
international operation.

On
March 10, 2008, the Company entered into an interest rate swap agreement (the "Swap") to manage its exposure to floating interest rate risk on its term loan facility. The Swap
has been designated as a cash flow hedge under SFAS No. 133 and the Company will record the effective portion of any change in the fair value as other comprehensive income (loss), and
reclassify the gains and losses to interest expense during the hedged interest payment period.



Cash paid during fiscal years 2008, 2007 and 2006 for interest and income taxes is as follows:

Fiscal2008

2007

2006(in thousands)Interest

$
6,234

$
21,862

$
21,437Income taxes


9,592


4,307


3,017


The
Company had the following noncash activities related to acquired equipment financed with capital lease obligations for fiscal years 2008, 2007 and 2006:

(in thousands)Fiscal Year:2008

$
2582007


2342006





In
2006, the Company also concluded a settlement of the working capital adjustment related to the Magnivision acquisition and accordingly reduced goodwill by approximately
$0.8 million (see note 14).

F-12

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(4) Acquisition

On November 26, 2008, the Company, through a subsidiary, acquired all of the outstanding common shares of Dioptics Medical Products, Inc.("DMP"), a designer and marketer of
sunglasses and optical accessories, in exchange for 952,380 of the Company's ordinary shares and $34.3 million in cash (net of cash acquired), subject to a working capital adjustment. The
Company's shares have been valued at $9.9 million, which was recorded as part of the purchase price and to Additional Paid-in Capital. This value was determined by calculating the
average closing price of the shares two days before, the day of, and two days after the closing. The cash consideration includes $1.5 million of direct
acquisition costs and is net of $2.2 million cash acquired. FGX funded the cash portion of the transaction with borrowings from its existing revolving credit facility. On March 10, 2009,
the working capital adjustment was finalized and resulted in a $0.1 million addition to the purchase price, which is not reflected in the preliminary purchase price below. Results of Dioptics
operations from November 26, 2008, the closing date, through January 3, 2009 have been included in the Company's consolidated statements of operations. These results are reported in the
sunglasses and prescription frames segment.

The
following is a presentation reflecting the preliminary purchase price allocation of the assets acquired and liabilities assumed in connection with the purchase of the common stock of
DMP, which includes transactions, as of November 26, 2008:

Assets Acquired and Liabilities Assumed as of November 26, 2008
(in thousands)

Cash and cash equivalents

$
2,174Accounts receivable


2,748Inventories


3,676Deferred tax assets


1,106Other current assets


1,817Total current assets


11,521Property and equipment


917Trademark


21,600Patents


2,700Customer relationships


5,000Goodwill


21,392Other assets


4,101Total assets acquired


67,231Accounts payable


1,982Accrued expenses


2,889Total current liabilities


4,871Deferred tax liabilities


11,954Other liabilities


4,000Total liabilities


20,825Net assets acquired

$
46,406


F-13

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(4) Acquisition (Continued)

As
part of the acquisition, the Company entered into a two year lease for a facility in San Luis Obispo, California with annual lease payments amounting to $0.8 million. The
Company is in the process of evaluating certain potential tax exposures that have not yet been considered in the preliminary purchase price allocation.

Both
patents and customer relationships have been deemed to have definite lives, and accordingly the value attributed to these assets will be amortized. The weighted average lives of
patents, and customer relationships acquired is 11 and 14 years, respectively. The combined weighted average life of these assets is 13 years. Trademarks have been deemed to have an
indefinite life and accordingly will not be amortized. The goodwill recorded for this acquisition will not be deductible for income tax purposes.

(5) Property, Plant and Equipment

January 3,
2009

December 29,
2007(in thousands)Property, plant and equipment:Land

$
1,233

$
1,233Building and improvements


6,963


6,067Display fixtures


27,216


26,486Furniture, fixtures and equipment


17,587


15,857Leasehold improvements


2,898


2,893Equipment under capital lease


3,812


3,55359,709


56,089Less accumulated depreciation


38,698


34,740$
21,011

$
21,349


(6) Goodwill and Other Intangible Assets

At January 3, 2009 and December 29, 2007, goodwill totaled $46.7 million and $25.4 million, respectively. At January 3, 2009 and December 29,
2007, $1.8 million, $23.4 million and $0.2 million of goodwill is related to the costume jewelry, non-prescription reading glass and international segments,

F-14

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(6) Goodwill and Other Intangible Assets (Continued)

respectively.
At January 3, 2009, $21.4 million of goodwill is related to the sunglasses and prescription frames segment. Other intangible assets were as follows:

January 3, 2009

December 29, 2007Weighted
Average
Amortization
PeriodGross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization(in thousands)Patents

7 years

$
5,600

$
2,935

$
2,900

$
2,175Customer relationships

15 years


48,531


26,707


43,531


22,155Total amortizable intangible assets

14 years


54,131


29,642


46,431


24,330Trademarks




44,367





22,767


Total intangible assets



$
98,498

$
29,642

$
69,198

$
24,330


The
Company has recorded amortization expense of $5.3 million, $6.2 million and $7.6 million for its customer relationships and patents during fiscal 2008, 2007 and
2006, respectively.

Goodwill
and trademarks are not being amortized as they have been determined to have indefinite lives.

Estimated
annual amortization expense for the next five years and thereafter is as follows, and there are no expected residual values related to these amortizable intangible assets:

(in thousands)Years:2009

$
4,6872010


3,9002011


3,2992012


2,7452013


2,261Thereafter


7,597$
24,489


(7) Accrued Expense

Accrued expenses are comprised of the following as of January 3, 2009 and December 29, 2007:

January 3,
2009

December 29,
2007(in thousands)Accrued customer allowances


13,198


13,538Accrued lease obligation (Note 14)


1,510


1,485Accrued bonuses


2,772


2,717Other


10,210


8,427$
27,690

$
26,167


F-15

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(8) Credit Agreements

The Company has a senior secured credit facility ("December 2007 Credit Agreement") that is comprised of (a) a $75.0 million revolving credit facility, which may be
increased with the consent of our existing or additional lenders by up to an additional $50.0 million; and (b) a $100.0 million term loan facility . Interest rates for borrowings
under the credit facility are determined based upon the Company's leverage ratio. Interest rates were initially priced at 1.75% above the London interbank offered rate (LIBOR) and then range from
1.00% to 2.25% above the LIBOR for Eurodollar-based borrowings, and from 0.00% to 1.25% above the defined base rate for base rate borrowings. Amounts due under both facilities are collateralized by a
pledge of 100% of the Company's tangible and intangible assets. The Company will also pay commitment fees and other customary fees. These commitment fees will range from 0.20% to 0.50% per annum
depending on the Company's leverage ratio.

As
of January 3, 2009, the term loan facility bears interest at LIBOR (1.46% as of January 3, 2009) plus 1.75%. The term loan facility is due in 20 consecutive quarterly
graduating installments ranging from
$1,875 to $8,125 which commenced on March 31, 2008. The term loan facility and the revolving credit facility will mature on December 19, 2012. As of January 3, 2009, the Company
had outstanding indebtedness of $92.5 million under the term loan facility, $37.5 million outstanding under the revolving credit facility and $0.3 million committed under standby
letters of credit. The Company's borrowing availability under the revolving credit facility was $37.2 million.

The
December 2007 Credit Agreement requires that the Company comply with a leverage ratio covenant and a fixed charge ratio covenant. The credit facility contains customary affirmative
and negative covenants that, among other things, limit the ability of the Company and its subsidiaries to pay certain dividends; incur additional indebtedness or liens; make certain investments,
restricted payments, or acquisitions and dispositions; and enter into certain transactions with affiliates. The Company must also comply with certain administrative covenants, including furnishing
audited financial statements to the lenders within 90 days of fiscal year end. As of January 3, 2009, the Company is in compliance with the required restrictive covenants.

(9) Swap Agreement

On March 10, 2008, the Company entered into an interest rate swap agreement (the "Swap") to manage the Company's exposure to floating interest rate risk on our term loan facility.
The Swap had an initial notional amount of approximately $49.1 million and is scheduled to decline to reflect certain scheduled principal payments under the term loan facility. Currently, the
Company is borrowing under the term loan facility at a floating interest rate based on 3-month LIBOR (plus 1.75% under the terms of our term loan facility) and will pay under the Swap a
fixed interest rate of 3.22% (plus 1.75% under the terms of our term loan facility) through December 19, 2012.

F-16

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(10) Long-Term Obligations

Long-term obligations consist of the following as of January 3, 2009 and December 29, 2007:

January 3, 2009

December 29, 2007(in thousands)Term loan facility under the December 2007 Credit Agreement due December 19, 2012, 20 consecutive quarterly graduating installments beginning
March 31, 2008 with payments ranging from $1,875 to $8,125, interest based on LIBOR of 1.46% (January 3, 2009) plus 1.75%

$
92,500

$
100,000Capital lease obligation of computer equipment, payable in monthly installments of principal and interest of $8 through August 2011,
interest at 5.99% per annum


225


Capital lease obligation of computer equipment, payable in monthly installments of principal and interest of $12 through February 2008,
interest at 5.66% per annum





61Capital lease obligations of office equipment, payable in monthly installments of principal and interest of $6 and $4 through April 2010,
interest rates ranging from 6.22% to 6.80% per annum


141


250Deferred compensation plan (Note 13)


196


12893,062


100,439Less current maturities


15,199


7,661$
77,863

$
92,778


At
January 3, 2009, the fair value of the term loan facility was approximately $89.3 million.

Future
minimum payments under these agreements are as follows as of January 3, 2009:

(in thousands)Years:2009

$
15,1992010


17,6132011


27,5542012


32,5002013


Thereafter


$
92,866


F-17

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes

Income before income taxes and minority interest consisted of the following for fiscal years 2008, 2007 and 2006:

Fiscal2008

2007

2006(in thousands)Domestic

$
16,872

$
948

$
717Foreign


10,946


4,401


781Income before income taxes and minority interest

$
27,818

$
5,349

$
1,498


The
components of income tax expense for fiscal years 2008, 2007 and 2006 are as follows:

Fiscal2008

2007

2006(in thousands)Income from continuing operations

$
10,273

$
294

$
4,245Other comprehensive income (loss)


(784
)




Total income tax expense

$
9,489

$
294

$
4,245


Total
federal, state, and foreign income tax expense for fiscal years 2008, 2007 and 2006 are as follows:

Fiscal2008

2007

2006(in thousands)Current:Federal

$
10,371

$
4,663

$
155State


3,224


1,320


1,317Foreign


3,046


2,255


2,21416,641


8,238


3,686Deferred:Federal


(5,297
)

(4,897
)

374State


(1,411
)

(1,038
)

(318
)Foreign


109


1,399


(1,004
)(6,599
)

(4,536
)

(948
)Change in valuation allowance


231


(3,408
)

1,507(6,368
)

(7,944
)

559$
10,273

$
294

$
4,245


F-18

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

The
actual expense for fiscal years 2008, 2007 and 2006 differs from the "expected" tax expense (computed by applying the U.S. statutory federal corporate tax rate to income before
income taxes and minority interest) as follows:

Fiscal2008

2007

2006(in thousands)Computed "expected" tax expense

$
9,736

$
1,872

$
509State income taxes, net of federal income tax benefit


1,178


184


660Foreign tax differential


598


1,884


1,100Foreign tax credit


(1,088
)

(3,506
)

Deemed foreign dividend





3,293


Nondeductible expense


38


158


133Nondeductible compensation


70


219


509Charitable donation


(599
)

(283
)

Change in valuation allowance


231


(3,408
)

1,507Other, net


109


(119
)

(173
)$
10,273

$
294

$
4,245


F-19

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

Deferred
income taxes relate to the following temporary differences as of January 3, 2009 and December 29, 2007:

January 3,
2009

December 29,
2007(in thousands)Deferred tax assets:Nondeductible reserves

$
8,462

$
2,448Nondeductible accruals


6,847


8,753Other comprehensive income


729


Other


185


512Gross current deferred tax assets


16,223


11,713Less valuation allowance


(210
)

(872
)Net current deferred tax assets


16,013


10,841Net operating loss carryforwards


2,199


2,314Tax basis of property, plant and equipment


1,822


1,984Foreign tax credits


1,702


1,375Other comprehensive income


599


Other


4,479


2,681Gross long-term deferred tax assets


10,801


8,354Less valuation allowance


(2,663
)

(1,770
)Net long-term deferred tax assets


8,138


6,584Deferred tax liabilities:Intangible assets


(26,294
)

(15,844
)Net long-term deferred tax liability


(26,294
)

(15,844
)Net deferred tax asset (liability)

$
(2,143
)
$
1,581


A
valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be recognized. The Company has approximately
$4.0 million of available net
operating loss carryforwards in the U.S., which may be utilized and expire at various dates through 2023. The utilization of a portion of the net operating loss will be limited on an annual basis to
$0.3 million as a result of the equity restructuring during 2003. The Company has approximately $1.7 million of available foreign tax credits, which may be utilized and expire at various
dates through 2017. The Company has approximately $2.0 million of net operating loss carryforward in the U.K. This net operating loss does not have an expiration date.

During
fiscal 2007, the Company determined that a substantial portion of the U.S. deferred tax assets in respect of which it had established valuation allowances would more likely than
not be realized in the foreseeable future. This determination was based upon the Company's improved U.S. operating results, primarily from growth in revenues, and expected future results taking into
account the Company's U.S. taxable income in fiscal 2005, 2006 and fiscal 2007. The Company believed that its expectations of future operating results are reliable and are expected to produce taxable
income. The Company expected that these positive factors would be sufficient to support the realization of a substantial portion of the U.S. deferred tax assets. Accordingly, $3.4 million of
the valuation allowance

F-20

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

was
released during fiscal 2007 and was recognized as a discrete income tax benefit in our consolidated statement of operations for fiscal 2007. The Company continued to record a full valuation
allowance against all of its U.K. deferred tax assets due to the lack of positive historical operating results and projected future expected losses in the U.K.

In
addition, the calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in multiple jurisdictions. The Company
records liabilities for estimated tax obligations in the United States and other tax jurisdictions.

The
Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. The Company's major tax jurisdiction is the United
States. As of January 3, 2009, the tax years that remain subject to examination in the United States for federal and state purposes are 2005 through 2008.

As
a result of the Company's fiscal 2008 and 2007 taxable income and the anticipation of sufficient taxable income in years when the temporary differences are expected to become tax
deductions, the Company believes it will realize the benefit of deferred tax assets, net of existing valuation allowance.

The
Company adopted the provisions of FIN No. 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109, Accounting for Income Taxes("FIN 48") on December 31, 2006, the first day of the 2007 fiscal year. The Interpretation addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
settlement.

The
Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense, which is consistent with the recognition of these items in
prior reporting periods. As of January 3, 2009, the Company has accrued approximately $1.8 million of interest and penalties related to our uncertain tax positions.

The
Company does not anticipate significant changes to the total amount of unrecognized tax benefits within the next 12 months.

F-21

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(11) Income Taxes (Continued)

A
tabular reconciliation of the gross amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:

Fiscal2008

2007(in thousands)Balance at the beginning of the year

$
4,421

$
2,443Gross increases in prior period position





469Gross decreases in prior period position


(3,456
)

(34
)Gross increases in current period position (including $3.2 million recorded in purchase accounting in 2008)


8,720


1,543Lapse of applicable statute of limitations


(176
)

Balance at the end of the year

$
9,509

$
4,421


If
the unrecognized tax benefit of $9.5 million at January 3, 2009 is recognized, approximately $4.9 million ($1.5 million in 2007) would decrease the
effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by the reversal of related deferred tax assets.

(12) Incentive Stock Plan

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based
Payment("SFAS 123R"), which amends Statement of Financial Accounting Standards No. 123, as amended by No. 148, and Statement of Financial Accounting
Standards No. 95,Statement of Cash Flow.

The
Company currently provides stock-based compensation under its 2007 Incentive Compensation Plan ("2007 Plan") that was approved by our shareholders prior to our initial public
offering. The 2007 Plan provides for the issuance of up to 3,000,000 ordinary shares to key employees. Nonqualified stock options and restricted stock units have been granted under the 2007 Plan. Each
of the grants vests over a three-year period from the date of the grant, and each option grant has an expiration date of ten years from the grant date.

As
of January 3, 2009, 1,601,660 stock options and 103,200 restricted stock units were outstanding and 1,295,140 shares were available for grant under the 2007 Plan. As of
January 3, 2009, 1,031,276 stock options were outstanding under the Amended and Restated 2004 Key Executive Stock Option Plan ("2004 Plan"), and no further awards will be made under the 2004
Plan. Upon exercise of stock options or vesting of restricted stock units, shares will be issued from the Company's authorized and unissued ordinary shares.

Stock
options outstanding under the 2004 Plan include 320,385 event-based vesting options. 160,192 of these options will become exercisable upon the Company having a market
capitalization for 30 consecutive trading days equal to or greater than $1.0 billion, and 160,193 options will become exercisable upon the Company having a market capitalization for
30 consecutive trading days equal to or greater than $1.5 billion.

During
fiscal 2008, the Company recognized stock compensation expense of $2.4 million, of which $1.2 million was recognized in selling expenses and $1.2 million was
recognized in general and administrative expenses.

F-22

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(12) Incentive Stock Plan (Continued)

During
fiscal 2007, the Company recognized stock compensation expense of $0.9 million, of which $0.3 million was recognized in selling expenses and $0.6 million was
recognized in general and administrative expenses.

During
fiscal 2006, no options were granted or exercised. During fiscal 2006, the Company recognized stock compensation expense of $1.5 million, of which $0.4 million was
recognized in selling expenses and $1.1 million was recognized in general and administrative expenses.

The
Company uses the Black-Scholes valuation model in determining fair value of stock-based awards. The weighted average grant-date fair value of share options granted during
fiscal 2008
and fiscal 2007 were $3.89 and $6.02, respectively. No options were granted in fiscal 2006. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in the fiscal years 2008 and 2007:

Fiscal2008

2007Expected volatility


32.8
%

30.0
%Dividend yield





Risk-free interest rate


2.4
%

4.1
%Expected life (years)


6.0


6.0


A
summary of the changes in the Company's stockbased compensation plan for fiscal years 2008, 2007, 2006 are as follows:

2008

2007

2006Stock options

Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Exercise
PriceOutstanding at beginning of year


1,813,536

$
12.00


1,064,748

$
9.08


1,064,748

$
9.08Granted


864,400


10.67


782,260


15.98





Exercised

















Terminated


(45,000
)

15.39


(33,472
)

0.38





Outstanding at year end


2,632,936


11.66


1,813,536


12.00


1,064,748


9.08Exercisable at end of year


958,300

$
10.83


508,187

$
8.72


305,010

$
7.31


With
respect to the 2,632,936 outstanding options and 958,300 options exercisable at January 3, 2009, the weighted average remaining contractual life of these options was
8.28 years and 7.31 years, respectively. The aggregate intrinsic value of the options outstanding and options exercisable at January 3, 2009 was $6.4 million and
$3.1 million, respectively.

During
fiscal 2008, the Company granted 103,200 restricted stock units, all of which were outstanding at January 3, 2009. With respect to the outstanding restricted stock units,
the weighted average remaining contractual life was 2.92 years. The aggregate intrinsic value of the restricted stock units outstanding at January 3, 2009 was $1.4 million. The
weighted average grant-date fair value of restricted stock units granted during fiscal 2008 was $10.72. No restricted stock units were granted in fiscal 2007 or 2006.

F-23

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(12) Incentive Stock Plan (Continued)

As
of January 3, 2009 there was $7.1 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements. This cost is expected to
be recognized over a weighted-average period of 2.2 years.

(13) Employee Benefit Plans

The Company has a defined contribution profit sharing plan covering substantially all employees. The profit sharing plan allows eligible participants to make contributions in accordance
with Internal Revenue Code Section 401(k). The Company makes a matching contribution of 100% of the first 3% and 50% of the next 2% of compensation that an employee contributes. These matching
contributions totaled approximately $0.2 million, $0.1 million and $0.0 million for fiscal years 2008, 2007 and 2006, respectively. Under the terms of the profit sharing plan,
voluntary Company contributions are made at the discretion of the Company. No profit sharing contributions were made for fiscal years 2008, 2007 and 2006.

Effective
January 1, 2007, the Company adopted a non-qualified deferred compensation plan to permit selected key employees to elect to defer a percentage of their base
salary, discretionary bonuses and other performance-based compensation during any calendar year into the plan. The Company makes a matching contribution of 25% of the first 6% of an employee's
enrollment-date base salary. The fair value of the plan assets and related liability was $0.2 million and $0.1 million as of January 3, 2009 and December 29,
2007, respectively, and has been recorded as other assets and as a long-term obligation in the consolidated balance sheet.

(14) Commitments and Contingencies



The Company has operating leases for certain facilities and equipment. Future minimum rental payments under these agreements are as
follows as of January 3, 2009:

(in thousands)Years:2009

$
3,0492010


2,9472011


9242012


1592013


39Thereafter


$
7,118


The
Company incurred rental expense for certain facilities and equipment of $2.0 million, $1.7 million and $0.9 million, for fiscal years 2008, 2007 and 2006,
respectively.

On
October 1, 2004, the Company, through a subsidiary, acquired all of the outstanding common shares of Magnivision, Inc., a leading domestic designer and marketer of
non-prescription reading glasses, for cash consideration of approximately $81.5 million. In connection with this acquisition, the Company assumed the lease of a distribution
facility in Miramar, Florida that expires in April 2011. The initial calculation and subsequent evaluations of the lease liability are uncertain since the Company must use judgment to estimate the
timing and duration of future vacancy periods and the amount and

F-24

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(14) Commitments and Contingencies (Continued)

timing
of potential future sublease income. When estimating these costs and their related timing, the Company considered a number of factors, which include, but are not limited to, the location and
condition of the property, the specific marketplace demand and general economic conditions. The liability as of January 1, 2005, which was based on an initial estimate, was $3.3 million.
During fiscal 2005, the Company revised the estimate to increase the liability by $3.0 million due to a revision of sublease assumptions and made rent payments of $1.6 million. In
January 2007, the Company executed a sublease agreement for approximately one-half of the facility. During fiscal 2007, the Company reevaluated the leasing market due to the deteriorating
real estate market conditions in the Miramar, Florida area. This resulted in a $4.4 million abandoned lease charge in connection with the continued vacancy at this facility. This charge assumes
that the remaining space of this facility will remain vacant through the end of the lease term. The liability as of January 3, 2009 and December 29, 2007 is $4.0 million and
$5.5 million, respectively, of which $1.5 million is included in accrued expenses and $2.5 million is included on other long-term liabilities in the consolidated
balance sheets.

Included
in the future minimum rental payments as of January 3, 2009 is $4.1 million for rent related to the operating lease for the facility that was assumed in connection
with the purchase of Magnivision, Inc. This amount assumes a sublease for approximately one-half of the closed Miramar, Florida facility for the remaining contractual term of the
Company's underlying lease until April 2011.



The Company has several agreements that require royalty payments to brand licensors based on a percentage of certain net product sales,
subject to specified minimum payments.

Future
minimum royalty obligations relating to these agreements are as follows as of January 3, 2009:

(in thousands)Years:2009

$
7112010


6092011


5742012


2013


Thereafter


$
1,894


In
addition, certain agreements require that the Company pay additional fees based on a percentage of net product sales. These fees are not subject to minimum payment obligations. In the
event the Company transfers its rights under certain agreements, a transfer fee would be payable.



In the ordinary course of business, the Company is party to various types of litigation. The Company maintains insurance to mitigate
certain of these risks. The Company believes it has meritorious defenses to all litigation currently pending or threatened, and, in its opinion, none will have a material effect on the Company's
financial position or results of operations.

F-25

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(15) Share Repurchase Program

In February 2008, the Board of Directors of the Company authorized a $12.0 million ordinary share repurchase program for a one-year period or until earlier terminated
by the Board. During the fiscal year ended January 3, 2009, the Company repurchased a total of 133,788 ordinary shares for an aggregate purchase price of approximately $1.5 million. All
of these purchases were made in the open market and repurchased shares were returned to the status of authorized and unissued. At January 3, 2009, the Company had approximately
$10.5 million of remaining availability under the
$12.0 million share repurchase program. In February 2009, the share repurchase program was extended to February 2010.

During
fiscal 2007, the Company repurchased 200,005 ordinary shares owned by a former member of management for $0.1 million. The cost was recorded as Treasury Stock.

(16) Initial Public Offering

On October 24, 2007, the Company sold a total of 13,800,000 ordinary shares in an initial public offering at a price to the public of $16.00 per share for an aggregate of
$220.8 million. 6,666,667 ordinary shares were sold by the Company and 7,133,333 ordinary shares were sold by the Company's shareholders (including 1,800,000 ordinary shares sold by one of the
Company's shareholders pursuant to the underwriters' exercise of their over-allotment option). The selling shareholders received approximately $106.1 million after deducting
underwriting discounts and commissions of $8.0 million. The Company did not receive any proceeds from ordinary shares sold by the selling shareholders. The Company received approximately
$97.2 million in net proceeds after deducting underwriting discounts and commissions of $7.5 million and estimated underwriters' and other offering expenses of $2.0 million. The
Company used the net proceeds received from the initial public offering to pay down then-outstanding debt.

(17) Related Party Transactions

Through the date of its initial public offering, the Company was paying a quarterly fixed management fee to its largest shareholder, Berggruen Holdings North America Ltd.
("BHNA"). The amount incurred was $0.4 million and $0.5 million for fiscal years 2007 and 2006, respectively. The fee incurred is included in General and Administrative expenses in the
accompanying consolidated statements of operations. The Company reimbursed BHNA approximately $19,000 during fiscal 2007 for their fees incurred in connection with their guarantee of the working
capital adjustment dispute related to the Magnivision acquisition. The Company also reimbursed BHNA approximately $80,000 during fiscal 2007 for fees BHNA paid for services provided by an interim
managing director for the Company's U.K. subsidiary. The Company also reimbursed BHNA approximately $65,000 in connection with the use of BHNA's private aircraft during fiscal 2007.

As
of January 3, 2009 and December 29, 2007, there were no amounts due to BHNA.

(18) Enterprise-Wide Disclosures

The Company markets its products primarily to customers in the mass merchandise retail channel.
Although the Company closely monitors the creditworthiness of its customers, a substantial portion of its customers' ability to meet their financial obligations is dependent on economic conditions
germane to the retail industry. At its discretion, the Company sells product to certain customers in bankruptcy. The Company maintains a credit insurance policy on its primary customers.

F-26

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(18) Enterprise-Wide Disclosures (Continued)

Net
sales to each of the Company's three largest customers, Wal-Mart Stores, Inc., Walgreen's and CVS Corporation for each segment and in total for fiscal years 2008,
2007 and 2006, respectively, as a percentage of total net sales, are indicated in the table below:

Fiscal2008

2007

2006Wal-Mart Stores, Inc.:Non-prescription Reading Glasses


24
%

30
%

26
%Sunglasses


29


32


27Costume Jewelry


18


48


70International Operations


21


21


26Consolidated net sales


24


31


32Walgreens:Non-prescription Reading Glasses


16
%

17
%

15
%Sunglasses


18


5


23Consolidated net sales


14


10


13CVS Corporation:Non-prescription Reading Glasses


23
%

21
%

22
%Consolidated net sales


11


10


10


These
customers' accounts receivable balances represent approximately 67% and 55% of gross accounts receivable as of January 3, 2009 and December 29, 2007, respectively. No
other customer accounted for 10% or more of the Company's net sales.

The
Company currently purchases a significant portion of its inventory from certain suppliers in Asia. There are other suppliers of the inventory items purchased and management believes
that these suppliers could provide similar inventory at fairly comparable terms. However, a change in suppliers could cause a delay in the Company's distribution process and a possible loss of sales,
which would adversely affect operating results.

Summary
geographic information for net sales is as follows:

Fiscal2008

2007

2006(in thousands)Net sales:United States

$
222,282

$
204,512

$
180,259Foreign


33,818


35,951


28,949Total

$
256,100

$
240,463

$
209,208


No
individual foreign country net sales were greater than 10% of total net sales. Substantially all long-lived assets are located in the United States.

(19) Segments

The Company operates primarily in the eyewear and costume jewelry markets. The Company's four reportable segments are Non-Prescription Reading Glasses, Sunglasses and
Prescription Frames,

F-27

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(19) Segments (Continued)

Costume
Jewelry and International. These segments have been determined based upon the nature of the products offered and availability of discrete financial information, and are consistent with the way
the Company organizes and evaluates financial information internally for the purposes of making operating decisions and assessing performance.

The
Non-Prescription Reading Glasses, Sunglasses and Prescription Frames and Costume Jewelry segments represent sales of these product lines in the United States. The
International segment sells similar product lines outside the United States. The results of Dioptics Medical Products, Inc., acquired November 26, 2008, are reported in the Sunglasses
and Prescription Frames segment. The Company measures profitability of its segments based on gross profit.

Expenditures
for additions to long-lived assets are not tracked or reported by the operating segments, except for display fixtures. Depreciation expense on display fixtures
is specific to each segment. Non-display fixture depreciation is not allocable to a specific segment and is included in corporate and unallocated. Amortization of intangible assets that
relate to acquired businesses is included in the specific segment to which they relate. The identifiable assets of the international segment consist of assets of our international subsidiaries. For
the other reportable segments the identifiable assets include inventories and intangible assets. The Company does not segregate other assets on a product line basis for internal management reporting
and therefore, such information is not

F-28

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(19) Segments (Continued)

presented.
Assets included in corporate and unallocated principally are cash, accounts receivable, prepaid expenses, deferred income taxes, other assets, and property, plant and equipment.

Fiscal2008

2007

2006(in thousands)Segment Net SalesNon-prescription Reading Glasses

$
126,761

$
117,862

$
95,327Sunglasses and Prescription Frames


78,991


61,717


56,725Costume Jewelry


16,530


24,933


28,207International


33,818


35,951


28,949Total Net Sales

$
256,100

$
240,463

$
209,208Gross ProfitNon-prescription Reading Glasses

$
77,130

$
71,103

$
55,316Sunglasses and Prescription Frames


35,533


26,341


22,852Costume Jewelry


5,853


10,363


9,622International


21,714


22,624


16,486Total Gross Profit

$
140,230

$
130,431

$
104,276Segment Profits (Losses)Non-prescription Reading Glasses

$
54,781

$
49,907

$
34,656Sunglasses and Prescription Frames


21,272


15,429


12,709Costume Jewelry


2,489


6,388


6,370International


6,714


7,607


4,108Corporate/ Unallocated expenses


(50,991
)

(49,389
)

(34,548
)Income from Operations

$
34,265

$
29,942

$
23,295DepreciationNon-prescription Reading Glasses

$
6,731

$
5,600

$
4,606Sunglasses and Prescription Frames


4,576


3,901


3,446Costume Jewelry


254


100


189International


2,361


2,138


1,608Corporate/ Unallocated


1,062


960


970Total Depreciation

$
14,984

$
12,699

$
10,819Amortization of IntangiblesNon-prescription Reading Glasses

$
5,182

$
6,172

$
7,597Sunglasses and Prescription Frames


130





Total Amortization of Intangibles

$
5,312

$
6,172

$
7,597Identifiable AssetsNon-prescription Reading Glasses

$
71,282

$
75,075


82,398Sunglasses and Prescription Frames


72,672


16,909


19,581Costume Jewelry


4,498


4,454


4,891International


16,108


21,598


19,811Corporate/ Unallocated


108,455


93,819


94,357Total Identifiable Assets

$
273,015

$
211,855

$
221,038


F-29

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Table of Contents

FGX INTERNATIONAL HOLDINGS LIMITED

Notes to Consolidated Financial Statements (Continued)

(20) Quarterly Results (unaudited)

QuarterYear to
dateFirst

Second

Third

Fourth(in thousands, except per share amounts)2008Net sales

$
59,223

$
71,565

$
59,103

$
66,209

$
256,100Gross profit


31,877


37,547


33,223


37,583


140,230Income before income taxes


3,802


6,700


5,919


11,397


27,818Net income


2,184


4,090


3,907


6,837


17,018Per ordinary shareNet incomeBasic

$
0.10

$
0.19

$
0.18

$
0.32

$
0.80Diluted

$
0.10

$
0.19

$
0.18

$
0.31

$
0.792007Net sales

$
61,149

$
62,614

$
53,919

$
62,781

$
240,463Gross profit


31,837


33,801


29,157


35,636


130,431Income before income taxes


2,582


194


501


2,072


5,349Net income (loss)


1,918


1,499


(18
)

1,309


4,708Per ordinary shareNet income (loss)Basic

$
0.13

$
0.10

$


$
0.07

$
0.30Diluted

$
0.13

$
0.10

$


$
0.07

$
0.29


F-30

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Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders
FGX International Holdings Limited:

Under
date of March 11, 2009, we reported on the consolidated balance sheets of FGX International Holdings Limited and subsidiaries as of January 3, 2009 and
December 29, 2007, and the related consolidated statements of operations, shareholders' equity (deficit) and comprehensive income (loss), and cash flows for the fiscal years ended
January 3, 2009, December 29, 2007 and December 30, 2006, which are included on Form 10-K for the year ended January 3, 2009. Our report refers to a
change in accounting for uncertain tax positions in 2007. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement
schedule of Valuation and Qualifying Accounts and Reserves in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our audits.

In
our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

Providence, Rhode Island
March 11, 2009

/s/ KPMG LLP


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Table of Contents

SCHEDULE II

FGX International Holdings Limited        Valuation and Qualifying Accounts and Reserves  Fiscal years ended January 3, 2009, December 29, 2007 and December 30,
2006  (in thousands)

Balance at
Beginning
of Year

Provision
Charged to
Costs and
Expenses

Charged to
Other
Accounts

Balance
at End of
YearValuation accounts deducted from assets to which they applyfor returns, markdowns and doubtful accounts receivable:2008

$
15,839

$
44,356
(1)
$
(34,051
)(2)
$
26,1442007

$
19,752

$
37,241

$
(41,154
)(2)
$
15,8392006

$
16,037

$
32,903

$
(29,188
)(2)
$
19,752


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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized on the 12th day of March, 2009.

FGX INTERNATIONAL HOLDINGS LIMITEDBy:

/s/ ALEC TAYLOR Alec Taylor Chief Executive Officer


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

Signature

Title

Date/s/ ALEC TAYLOR Alec Taylor

Chief Executive Officer (Principal Executive Officer), Director and authorized representative in the United States

March 12, 2009/s/ ANTHONY DI PAOLA Anthony Di Paola

Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

March 12, 2009/s/ JARED BLUESTEIN Jared Bluestein

Director

March 12, 2009/s/ ZVI EIREF Zvi Eiref

Director

March 12, 2009/s/ ROBERT L. MCDOWELL Robert L. McDowell

Director

March 12, 2009/s/ JENNIFER D. STEWART Jennifer D. Stewart

Director

March 12, 2009/s/ CHARLES HINKATY Charles Hinkaty

Director

March 12, 2009


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Table of Contents

EXHIBIT INDEX

Number

Description

References2.1

Stock Purchase Agreement, dated November 26, 2008, by and among Dioptics Medical Products, Inc., FGX International Inc., FGX International Holdings Limited and the shareholders of Dioptics Medical
Products, Inc.

(5)3.1

Form of Amended and Restated Memorandum of Association of the Registrant.

(6)3.2

Form of Amended and Restated Articles of Association of the Registrant.

(2)4.1

Form of Specimen Ordinary Share Certificate.

(2)*10.1

Amended and Restated Employment Agreement between FGX International Inc. and Alec Taylor, dated as of December 19, 2006.

(1)*10.2

Amended and Restated Employment Agreement by and among FGX International Inc. and Steve Crellin, dated as of February 18, 2008.

(3)*10.3

Amended and Restated Employment Agreement by and among FGX International Inc. and John H. Flynn, Jr., dated as of February 18, 2008.

(3)*10.4

Amended and Restated 2004 Key Executive Stock Option Plan dated as of September 29, 2004.

(1)*10.5

Form of Time-Based Vesting Incentive Stock Option Agreement under the Amended and Restated 2004 Key Employee Stock Option Plan.

(1)*10.6

Time-Based Stock Option Agreement between FGX International Holdings Limited and Alec Taylor dated as of December 15, 2005.

(1)*10.7

Amendment to Time-Based Stock Option Agreement between FGX International Holdings Limited and Alec Taylor, dated as of December 20, 2006.

(1)*10.8

Incentive Stock Option Agreement between FGX International Holdings Limited (f/k/a Envision Worldwide Holdings Limited) and Steven Crellin, dated as of October 2, 2004.

(1)*10.9

Time-Based Stock Option Agreement between FGX International Holdings Limited and Steven Crellin, dated as of December 15, 2005.

(1)*10.10

Amendment to Incentive Stock Option Agreement between FGX International Holdings Limited and Steven Crellin, dated December 20, 2006.

(1)*10.11

Amendment to Time-Based Stock Option Agreement between FGX International Holdings Limited and Steven Crellin, dated as of December 20, 2006.

(1)*10.12

Event-Based Stock Option Agreement between FGX International Holdings Limited and Alec Taylor, dated as of December 15, 2005.

(1)*10.13

Amendment to Event-Based Vesting Incentive Stock Option Agreement between FGX International Holdings Limited and Alec Taylor, dated as of November 16, 2006.

(1)*10.14

2007 Incentive Compensation Plan.

(1)*10.15

Form of Nonqualified Stock Option Agreement under 2007 Incentive Compensation Plan

(2)10.16

Registration Rights Agreement between FGX International Holdings Limited and Berggruen Holdings North America Ltd., dated as of November 17, 2006.

(1)


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Table of Contents

Number

Description

References*10.17

Form of Director and Officer Indemnification Agreement executed by Alec Taylor, John H. Flynn, Jr., Jared Bluestein, Jennifer D. Stewart, Zvi Eiref, Charles J. Hinkaty, Robert L. McDowell,
Alfred J. Verrecchia, Anthony Di Paola, Steven Crellin, Jeffrey J. Giguere, Gerald Kitchen, Robert Grow, Richard Christy, Thomas Fernandes, Timothy Swartz and Mark A. Williams.

(1)*10.18

Redemption Letter and Release Agreement between FGX International Holdings Limited and Brian Lagarto dated as of June 22, 2007.

(1)*10.19

FGX International Inc. Single Employer Welfare Benefit Plan, effective as of January 1, 2007.

(1)*10.20

Employment Agreement by and between FGX International Inc. and Jeffrey J. Giguere, dated as of April 9, 2007.

(1)*10.21

Employment Agreement by and between FGX International Inc. and Anthony Di Paola, dated as of July 23, 2007.

(1)*10.22

Indemnification Obligation Confirmation Letter (cost-sharing agreement) dated June 6, 2005.

(1)*10.23

Employment Agreement by and between FGX International Inc. and Gerald Kitchen, dated as of August 27, 2007.

(1)*10.24

Severance Agreement by and between FGX International Inc. and Mark Williams, dated as of May 2, 2007.

(1)*10.25

Employment Agreement by and among FGX International Inc. and Richard W. Kornhauser, dated as of January 31, 2008.

(7)10.26

Revolving Credit and Term Loan Agreement among FGX International Holdings Limited, a BVI business company, FGX International Limited, a BVI business company, FGX International Inc., the
Borrower, SunTrust Bank, as Administrative Agent, as issuing bank and as swingline lender, and a syndicate of banks and other financial institutions, dated as of December 19, 2007.

(3)*10.27

Summary of 2008 Cash Bonus Plan

(4)*10.28

Amendment to the Amended and Restated Employment Agreement between FGX International Inc., Alec Taylor and FGX International Holdings Limited, dated as of December 5, 2008.*10.29

Amendment to the Amended and Restated Employment Agreement between FGX International Inc. and Steven Crellin, dated as of December 5, 2008.*10.30

Amendment to the Employment Agreement between FGX International Inc. and Anthony Di Paola, dated as of December 5, 2008.*10.31

Amendment to the Amended and Restated Employment Agreement between FGX International Inc. and John H Flynn, Jr., dated as of December 5, 2008.*10.32

Amendment to the Employment Agreement between FGX International Inc. and Jeffrey J. Giguere, dated as of December 5, 2008.*10.33

Amendment to the Employment Agreement between FGX International Inc. and Gerald Kitchen, dated as of December 5, 2008.*10.34

Amendment to the Employment Agreement between FGX International Inc. and Richard W. Kornhauser, dated as of December 5, 2008.*10.35

Amendment to the Severance Agreement between FGX International Inc. and Mark Williams, dated as of December 5, 2008.


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Table of Contents

Number

Description

References*10.36

Amended and Restated Deferred Compensation Plan, dated as of January 1, 2008.*10.37

Form of Restricted Stock Unit Certificate under 2007 Incentive Compensation Plan21.1

Subsidiaries of the Registrant.23.1

Consent of Independent Registered Public Accounting Firm.31.1

Section 302 Certification of CEO31.2

Section 302 Certification of CFO32.1

Section 906 Certification of CEO32.2

Section 906 Certification of CFO


---

---