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

FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 4, 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 Number)


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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes o    No 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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer ý

Non-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 by Rule 12b-2 of the
Act). Yes o    No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The
number of ordinary shares outstanding as of August 6, 2009 was 22,122,900.



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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 and beliefs 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: adverse economic conditions
and low levels of consumer confidence and the resulting adverse impact on consumer discretionary spending, which could reduce our sales; adverse changes in our customers' inventory and working capital
policies; the bankruptcy or other lack of commercial success of one or more of our significant customers; the actual charges incurred for product returns and markdowns related to the divestiture of
the costume jewelry business may be greater than expected; we or others may discover that our products must be recalled because of defects; consumers, retailers, shareholders and/or others may bring
litigation or other claims against us related to our products that may cause us to incur substantial costs to resolve; the concentration of manufacturing of the our products in China, which increases
our vulnerability to disruption in that region; interruptions of supply from our Asian product manufacturers; political instability or changing conditions in manufacturing or transportation services
in foreign countries; other risks associated with our international operations, including foreign currency exchange rate fluctuations and the impact of quotas, tariffs, or other restrictions on the
importation or exportation of our products; a material reduction, cessation, or postponement of purchases by our customers; failure to comply with federal or state regulation of the distribution or
sale of our products; the expense and uncertainty of the litigation process including the risk of an unfavorable result in current or future litigation; adverse interest rate fluctuations; our credit
insurance does not cover all of our outstanding accounts receivable; our advertising strategy may not have the anticipated impact; unknown potential effects of outbreaks of communicable diseases,
including the swine flu, on our business; and disruption due to weather, fire or other unforeseen circumstances in our principal distribution center, as well as 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.

2

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FGX International Holdings Limited  Form 10-Q  Index



PART IFINANCIAL INFORMATION

4ITEM 1.

Financial Statements

4Condensed Consolidated Balance Sheets at July 4, 2009 and January 3, 2009 (unaudited)

4Condensed Consolidated Statements of Operations for the three and six months ended July 4, 2009 and
June 28, 2008 (unaudited)

5Condensed Consolidated Statements of Cash Flows for the six months ended July 4, 2009
and June 28, 2008 (unaudited)

6Notes to Condensed Consolidated Financial Statements

7ITEM 2.

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

15ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

24ITEM 4.

Controls and Procedures

25PART IIOTHER INFORMATION

25ITEM 1.

Legal Proceedings

25ITEM 1A.

Risk Factors

25ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25ITEM 3.

Defaults Upon Senior Securities

25ITEM 4.

Submission of Matters to a Vote of Security Holders

25ITEM 5.

Other Information

26ITEM 6.

Exhibits

26SIGNATURES

27Exhibit List

28


3

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PART IFINANCIAL INFORMATION

ITEM 1.    Financial Statements.



FGX INTERNATIONAL HOLDINGS LIMITED        Condensed Consolidated Balance Sheets        July 4, 2009 and January 3, 2009        (unaudited, in
thousands)

July 4, 2009

January 3, 2009ASSETSCurrent assets:Cash

$
4,685

$
2,097Accounts receivable, less allowances of $29,865 and $23,854 at July 4, 2009 and January 3, 2009, respectively


46,611


50,746Inventories


33,535


35,543Prepaid expenses and other current assets


15,569


15,761Deferred tax assets


16,058


16,013Current assets of discontinued operations


1,000


4,253Total current assets


117,458


124,413Property, plant and equipment, net


17,366


20,543Other assets:Goodwill


45,761


44,928Intangible assets, net of accumulated amortization of $31,998 and $29,642 at July 4, 2009 and January 3, 2009, respectively


66,500


68,856Other assets


12,109


11,905Noncurrent assets of discontinued operations





2,370Total assets

$
259,194

$
273,015LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Revolving line of credit

$
38,000

$
37,500Current maturities of long-term obligations


16,419


15,199Accounts payable


28,559


30,324Accrued expenses


22,617


26,836Accrued income taxes





6,005Current liabilities of discontinued operations


3,544


2,494Total current liabilities


109,139


118,358Long-term obligations, less current maturities


69,136


77,863Deferred tax liabilities


18,238


18,156Other long term liabilities


15,094


15,284Commitments and contingencies (note 10)Shareholders' equity:FGX International Holdings Limited shareholders' equityCommon stock, no par value. Authorized 101,000 shares; issued 22,886 shares and outstanding 22,123 shares at July 4, 2009 and January 3,
2009





Additional paid-in capital


108,565


107,048Accumulated other comprehensive loss


(2,311
)

(2,611
)Accumulated deficit


(57,976
)

(60,259
)Treasury stock, at cost, 630 shares at July 4, 2009 and January 3, 2009


(2,513
)

(2,513
)Total FGX International Holdings Limited shareholders' equity


45,765


41,665Noncontrolling interest


1,822


1,689Total shareholders' equity


47,587


43,354Total liabilities and shareholders' equity

$
259,194

$
273,015


See accompanying notes to condensed consolidated financial statements.

4

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FGX INTERNATIONAL HOLDINGS LIMITED        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        Three and six months ended July 4, 2009 and June 28, 2008
    (unaudited, in thousands, except per share amounts)

Three months ended

Six months endedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008Net sales

$
75,071

$
66,750

$
133,961

$
122,034Cost of goods sold


34,395


31,273


61,406


55,812Gross profit


40,676


35,477


72,555


66,222Operating expenses:Selling expenses


21,242


20,195


42,325


37,268General and administrative expenses


7,052


6,392


14,044


12,827Amortization of acquired intangibles


1,178


1,296


2,356


2,591Operating income


11,204


7,594


13,830


13,536Other income (expense):Interest expense


(1,278
)

(1,450
)

(2,594
)

(3,222
)Other income, net


21


46


88


54Income from continuing operations before income taxes


9,947


6,190


11,324


10,368Income tax expense


3,780


2,179


4,343


3,881Income from continuing operations


6,167


4,011


6,981


6,487Discontinued operations, net of tax


(3,164
)

159


(4,566
)

57Net income


3,003


4,170


2,415


6,544Less: Net income attributable to noncontrolling interest


82


80


131


267Net income attributable to FGX International Holdings Limited

$
2,921

$
4,090

$
2,284

$
6,277Income from continuing operations attributable to FGX International Holdings Limited:Income from continuing operations

$
6,167

$
4,011

$
6,981

$
6,487Less: Net income attributable to noncontrolling interest


82


80


131


267Income from continuing operations attributable to FGX International Holdings Limited

$
6,085

$
3,931

$
6,850

$
6,220Basic earnings per share:Income from continuing operations attributable to FGX International Holdings Limited

$
0.27

$
0.18

$
0.31

$
0.29Discontinued operations, net of tax


(0.14
)

0.01


(0.21
)

0.01Basic earnings per share attributable to FGX International Holdings Limited shareholders

$
0.13

$
0.19

$
0.10

$
0.30Diluted earnings per share:Income from continuing operations attributable to FGX International Holdings Limited

$
0.27

$
0.18

$
0.31

$
0.29Discontinued operations, net of tax


(0.14
)
$
0.01


(0.21
)

Diluted earnings per share attributable to FGX International Holdings Limited shareholders

$
0.13

$
0.19

$
0.10

$
0.29Basic weighted average shares outstanding


22,123


21,218


22,123


21,254Diluted weighted average shares outstanding


22,321


21,358


22,305


21,404


See accompanying notes to condensed consolidated financial statements.

5

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FGX INTERNATIONAL HOLDINGS LIMITED        Condensed Consolidated Statements of Cash Flows        Six months ended July 4, 2009 and June 28, 2008        (unaudited, in thousands)



Six months endedJuly 4, 2009

June 28, 2008Cash flows from operating activities:Net income

$
2,415

$
6,544Less: discontinued operations, net of tax


(4,566
)

57Income from continuing operations


6,981


6,487Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


9,462


10,062Stock-based compensation


1,518


1,118Deferred income taxes


95


(292
)Loss on disposal of property, plant, and equipment


256


368Changes in assets and liabilities:Accounts receivable


7,561


1,533Inventories


2,485


(3,684
)Prepaid expenses and other current assets


(2,080
)

(2,213
)Other assets


(652
)

(167
)Accounts payable


(1,883
)

7,953Accrued expenses and other long-term liabilities


(6,278
)

(2,074
)Accrued income taxes


(5,971
)

1,217Net cash provided by (used in) operating activities of discontinued operations


2,131


(1,998
)Net cash provided by operating activities


13,625


18,310Cash flows from investing activities:Purchases of property, plant and equipment


(4,014
)

(6,484
)Net cash used in investing activities of discontinued operations


(27
)

(418
)Net cash used in investing activities


(4,041
)

(6,902
)Cash flows from financing activities:Net borrowings (repayments) under revolving line of credit


500


(8,500
)Payments on long-term obligations


(7,506
)

(1,926
)Share repurchase





(1,484
)Net cash used in financing activities


(7,006
)

(11,910
)Effect of exchange rate changes on cash


10


(73
)Net increase (decrease) in cash


2,588


(575
)Cash, beginning of period


2,097


4,567Cash, end of period

$
4,685

$
3,992


See
accompanying notes to condensed consolidated financial statements.

6

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FGX International Holdings Limited        Notes to Condensed Consolidated Financial Statements        (unaudited)



(1) Reporting Entity and Nature of Business

FGX International Holdings Limited (the "Company") is a leading designer and marketer of non-prescription reading glasses and sunglasses with distribution primarily through
mass retail channels, which include mass merchandisers, chain drug stores, chain grocery stores and variety stores in North America and the United Kingdom. The Company is incorporated as a business
company under the laws of the British Virgin Islands.

The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for
interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP
for complete financial statements. In the opinion of management, all adjustments (including only adjustments which are normal and recurring) considered necessary for a fair presentation of the interim
financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three and six
months ended July 4,
2009 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending January 2, 2010.

The
accompanying unaudited condensed consolidated financial statements reflect the reclassification of the Company's costume jewelry business as discontinued operations as a result of
the decision in the second quarter of 2009 to divest that business.

The
Company has evaluated subsequent events through August 7, 2009, the date the accompanying financial statements were issued.

The
Company's accounting policies are the same as those described in Note 3 to the financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 3, 2009.

The
accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

(2) Recent Accounting Pronouncements

In April 2009, the FASB issued three FASB Staff Positions ("FSPs") intended to provide additional application guidance and enhance disclosures regarding fair value measurements and
impairments of securities. FSP FAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in FASB
Statement No. 157,Fair Value Measurements. FSP FAS 107-1 and APB 28-1,Interim
Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FSP
FAS 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments,
provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. These FSPs do not have an impact on the Company at the
present time.

7

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FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(2) Recent Accounting Pronouncements (Continued)

In
May 2009, the FASB issued SFAS No. 165,Subsequent Events("SFAS No. 165"), to establish general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 became effective June 15, 2009 for all subsequent reporting
periods. The adoption of SFAS No. 165 did not have an impact on the Company's financial position or results of operation.

In
June 2009, the FASB issued SFAS No. 166,Accounting for Transfers of Financial Assets("SFAS No. 166"), which revises
SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.SFAS No. 166 will require
entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets, and eliminates the concept of a
qualifying special-purpose entity, changes the requirements for the de-recognition of financial assets, and calls upon sellers of the assets to make additional disclosures about them. SFAS
No. 166 will be effective at the start of the first fiscal year beginning after November 15, 2009. The Company does not expect the adoption of this standard to have an impact on its
financial position or results of operations.

In
June 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretation No. 46(R)("SFAS No. 167"). SFAS
No. 167 amends FASB Interpretation (FIN) No. 46(R),Consolidation of Variable Interest Entities, by altering how a company determines when
an entity that is insufficiently capitalized or not controlled through voting should be consolidated. A company must determine whether it should provide consolidated reporting of an entity based upon
the entity's purpose and design and the parent company's ability to direct the entity's actions. SFAS No. 167 will be effective at the start of the first fiscal year beginning after
November 15, 2009. The Company does not expect the adoption of this standard to have an impact on its financial position or results of operations.

In
June 2009, the FASB issued SFAS No. 168,The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles("SFAS No. 168"), which replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles,as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in
conformity with generally accepted accounting principles in the United States. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The Company does
not expect the adoption of this standard to have an impact on its financial position or results of operations.

(3) Discontinued Operations

In the second quarter of 2009, the Company's Board of Directors voted to divest the costume jewelry business to better position the Company to focus on its core optical business
segments. The costume jewelry business qualified for held for sale treatment in the second quarter of 2009. The Company recorded pre-tax charges totaling $5.0 million, including
estimated future product returns of $3.6 million, inventory write-downs of $0.8 million, display fixture write-offs of $0.3 million and other costs of
$0.3 million related to the divestiture. The Company has presented the results of operations and financial position of this business in discontinued operations in the Consolidated Statements of
Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows for all periods presented. The Company subsequently completed the sale of assets related to its costume jewelry

8

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FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(3) Discontinued Operations (Continued)

business
on July 23, 2009 for consideration of approximately $1.3 million, and no significant gain or loss on the disposal is expected in future periods.

Summarized
results of the Company's discontinued operations are as follows:

Three Months Ended

Six Months EndedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(in thousands)Net sales

$
2,353

$
4,815

$
4,597

$
8,754Income (loss) from operations before tax

$
(4,996
)
$
510

$
(7,345
)
$
136Provision (benefit) for income taxes


(1,832
)

351


(2,779
)

79Income (loss) from discontinued operations

$
(3,164
)
$
159

$
(4,566
)
$
57


The
major classes of assets and liabilities of operations held for sale are as follows:

As of
July 4, 2009

As of
January 3, 2009(in thousands)Accounts receivable

$


$
1,517Inventories


1,000


2,680Prepaid expenses and other current assets





56Current assets of discontinued operations


1,000


4,253Property, plant and equipment, net





468Goodwill





1,819Other assets





83Noncurrent assets of discontinued operations





2,370Total assets of discontinued operations

$
1,000

$
6,623Accounts payable

$
334

$
1,640Accrued expenses


3,210


854Current liabilities of discontinued operations

$
3,544

$
2,494


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FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(4) Comprehensive Income

Comprehensive income for the three and six months ended July 4, 2009 and June 28, 2008 consist of the following:

Three Months Ended

Six Months EndedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(in thousands)Net income

$
3,003

$
4,170

$
2,415

$
6,544Other comprehensive income, net of tax
Foreign currency translation adjustments


233


136


226


66Gain on cash flow hedging activities


59


1,302


73


787Total comprehensive income, net of tax


3,295


5,608


2,714


7,397Less: Comprehensive income attributable to noncontrolling interest


82


80


131


267Comprehensive income attributable to the Company

$
3,213

$
5,528

$
2,583

$
7,130


(5) Net Income Per Share

The Company calculates net income per share in accordance with SFAS No. 128,Earnings Per Share. Basic net income per share is
computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share is computed by dividing net income 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 per share if their effect would be antidilutive.

Three Months Ended

Six Months EndedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(in thousands, except per share amounts)Net income attributable to the Company

$
2,921

$
4,090

$
2,284

$
6,277Shares used in computing basic net income per share


22,123


21,218


22,123


21,254Effect of dilutive securities


198


140


182


150Shares used in computing diluted net income per share


22,321


21,358


22,305


21,404Basic earnings per share attributable to the Company's shareholders

$
0.13

$
0.19

$
0.10

$
0.30Diluted earnings per share attributable to the Company's shareholders

$
0.13

$
0.19

$
0.10

$
0.29Antidilutive potential common shares excluded from the computation above


1,610


791


1,606


782


10

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FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(6) 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 Company's Board of Directors. In February 2009, the share repurchase program was extended to February 2010. During the three months and six months ended July 4, 2009, the Company did not
repurchase any shares. At July 4, 2009, the Company had approximately $10.5 million of remaining availability under the $12.0 million share repurchase program.

(7) Credit Agreement

The Company is party to 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 defined 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 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 also is required to pay commitment and other customary fees.
These commitment fees will range from 0.20% to 0.50% per annum depending upon the Company's leverage ratio.

As
of July 4, 2009, the term loan facility bore interest at LIBOR plus 1.75% (2.35% in aggregate as of July 4, 2009). The term loan facility is due in 20 consecutive
quarterly graduating installments ranging from $1.9 million to $8.1 million, which commenced on March 31, 2008. The term loan facility and the revolving credit facility will
mature on December 19, 2012. As of July 4, 2009, the Company had outstanding indebtedness of $85.0 million under the term loan facility, $38.0 million outstanding under the
revolving credit facility and $0.3 million committed under standby letters of credit. Our borrowing availability under the revolving credit facility was $36.7 million.

The
December 2007 Credit Agreement requires the Company to comply with a leverage ratio covenant and a fixed charge ratio covenant. This 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 July 4, 2009, the Company was in compliance with the required covenants.

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FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(8) Swap Agreement

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 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.

The
Swap has been designated as a cash flow hedge under SFAS No. 133 and the Company records the effective portion of any change in the fair value as other comprehensive income
(loss), net of tax.

The
following table summarizes the balance of the Swap, the Company's only derivative instrument, based on fair value:

As of July 4, 2009

As of January 3, 2009Balance sheet
classification

Fair
value

Balance sheet
classification

Fair
value(in thousands)Derivatives designated as hedging instruments under SFAS No. 133:Interest rate swap agreement

Other long-term
liabilities

$
1,378

Other long-term
liabilities

$
1,497Total



$
1,378



$
1,497


The
following table summarizes the effects of the Swap:

Amount of gains recognized in other comprehensive incomeThree months ended

Six months endedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(in thousands)Derivatives designated as cash flow hedges under SFAS No. 133:Interest rate swap agreement, net of tax

$
59

$
1,302

$
73

$
787Total

$
59

$
1,302

$
73

$
787


(9) Income Taxes

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 July 4, 2009, the federal tax years that remain subject to examination in the United States were 2005 through 2008. The Company believes it is reasonably likely that approximately
$1.7 million of unrecognized tax benefits with respect to utilization of net operating losses by an acquired entity and related interest and penalties will reverse within the next twelve
months. Such reversal would be offset by the reversal of an indemnification receivable from the seller.

12

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Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(10) Commitments and Contingencies



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.

(11) Segments

The Company operates primarily in the eyewear market. The Company's three reportable segments are Non-Prescription Reading Glasses, Sunglasses and Prescription Frames, 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 and Sunglasses and Prescription Frames segments represent sales of these product lines in the United States. The International segment
sells similar product lines outside the United States. 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 the Company's 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 presented. Assets included in corporate and unallocated principally are cash,

13

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Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(11) Segments (Continued)

accounts
receivable, prepaid expenses, deferred income taxes, other assets, and property, plant and equipment.

Three Months Ended

Six Months EndedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(in thousands)Segment Net SalesNon-prescription Reading Glasses

$
33,215

$
31,266

$
59,389

$
58,553Sunglasses and Prescription Frames


35,213


25,675


61,446


43,794International


6,643


9,809


13,126


19,687Total Net Sales

$
75,071

$
66,750

$
133,961

$
122,034Gross ProfitNon-prescription Reading Glasses

$
20,418

$
18,819

$
36,225

$
34,616Sunglasses and Prescription Frames


16,196


10,523


28,534


19,102International


4,062


6,135


7,796


12,504Total Gross Profit

$
40,676

$
35,477

$
72,555

$
66,222Segment Profits (Losses)Non-prescription Reading Glasses

$
16,401

$
12,980

$
27,316

$
23,730Sunglasses and Prescription Frames


10,683


7,648


17,179


12,924International


1,157


2,108


1,961


4,501Corporate / Unallocated expenses


(17,037
)

(15,142
)

(32,626
)

(27,619
)Operating Income

$
11,204

$
7,594

$
13,830

$
13,536DepreciationNon-prescription Reading Glasses

$
1,248

$
1,717

$
2,550

$
3,299Sunglasses and Prescription Frames


1,226


985


2,631


2,082International


516


738


1,318


1,606Corporate / Unallocated


310


254


607


495Total Depreciation

$
3,300

$
3,694

$
7,106

$
7,482Amortization of IntangiblesNon-prescription Reading Glasses

$
908

$
1,296

$
1,816

$
2,591Sunglasses and Prescription Frames


270





540


Total Amortization of Intangibles

$
1,178

$
1,296

$
2,356

$
2,591




As of July 4, 2009

As of January 3, 2009(in thousands)Identifiable AssetsNon-prescription Reading Glasses

$
67,937

$
71,282Sunglasses and Prescription Frames


72,360


72,672International


17,624


16,095Corporate / Unallocated


101,273


112,966Total Identfiable Assets

$
259,194

$
273,015


14

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Table of Contents

ITEM 2.    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.

We
are a leading designer and marketer of non-prescription reading glasses and sunglasses with a portfolio of established, highly recognized eyewear brands including Foster Grant(1) andMagnivision. We sell ourFoster
Grantbrand in the U.S. popular priced sunglasses market and both ourFoster Grantand Magnivisionbrands in the domestic
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.

With
the acquisition of Dioptics Medical Products in November 2008, we added a portfolio of proprietary brands of sunglasses and associated eye care products and accessories, including
theSolarShieldandPolarEyesbrands. 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,Angeland Gargoylesbrands, 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 action sports
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 GloveandC9 by Champion.We also sell a line of prescription frames.

We
believe that we have the capital structure in place that will enable us to enhance our market leadership positions through the continued investment in our core brands. 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 future results may be negatively affected
by risks and trends, including without limitation those referred to in Part II, Item 1A., "Risk Factors" and elsewhere in this report.

Recent Developments

In the second quarter of 2009, we decided to divest the costume jewelry business to focus on the core optical business segments. The
costume jewelry business qualified for held for sale treatment in the second quarter of 2009. We recorded pre-tax charges in the second quarter of 2009 totaling $5.0 million,
including estimated future product returns of $3.6 million, inventory write-downs of $0.8 million, display fixture write-offs of $0.3 million and other costs of
$0.3 million related to the divestiture. The Company has presented the results of operations and financial position of this business in discontinued operations in the Consolidated Statements of
Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows for all periods presented. We subsequently completed the sale of assets related to the costume jewelry business on
July 23, 2009 for consideration of approximately $1.3 million, and no significant gain or loss on the disposal is expected in future periods.

---

15

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Table of Contents

Overview

The following is a summary of the Company's operating results for the three and six months ended July 4,
2009:



16

---



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:

Three Months Ended

Six Months EndedJuly 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of goods sold


45.8


46.9


45.8


45.7Gross profit


54.2


53.1


54.2


54.3Operating expenses:Selling expenses


28.3


30.2


31.6


30.6General and administrative expenses


9.4


9.6


10.5


10.5Amortization of acquired intangibles


1.6


1.9


1.8


2.1Operating income


14.9


11.4


10.3


11.1Other income (expense):Interest expense


(1.7
)

(2.2
)

(1.9
)

(2.6
)Other income, net





0.1





Income from continuing operations before income taxes


13.2


9.3


8.4


8.5Income tax expense


5.0


3.3


3.2


3.2Income from continuing operations


8.2


6.0


5.2


5.3Discontinued operations, net of tax


(4.2
)

0.2


(3.4
)

Net income


4.0


6.2


1.8


5.3Less: Net income attributable to noncontrolling interest


0.1


0.1


0.1


0.2Net income attributable to the Company


3.9
%

6.1
%

1.7
%

5.1
%


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

Three Months Ended

Six Months EndedSegment

July 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(unaudited, dollars in thousands)Non-prescription reading glasses

$
33,215


44.2
%
$
31,266


46.8
%
$
59,389


44.3
%
$
58,553


48.0
%Sunglasses and prescription frames


35,213


46.9


25,675


38.5


61,446


45.9


43,794


35.9International


6,643


8.9


9,809


14.7


13,126


9.8


19,687


16.1Net sales

$
75,071


100.0
%
$
66,750


100.0
%
$
133,961


100.0
%
$
122,034


100.0
%


17

---



Table of Contents

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

Three Months Ended

Six Months EndedSegment

July 4, 2009

June 28, 2008

July 4, 2009

June 28, 2008(unaudited, dollars in thousands)Non-prescription reading glassesNet sales

$
33,215


100.0
%
$
31,266


100.0
%
$
59,389


100.0
%
$
58,553


100.0
%Cost of goods sold


12,797


38.5


12,447


39.8


23,164


39.0


23,937


40.9Gross profit

$
20,418


61.5
%
$
18,819


60.2
%
$
36,225


61.0
%
$
34,616


59.1
%Sunglasses and prescription framesNet sales

$
35,213


100.0
%
$
25,675


100.0
%
$
61,446


100.0
%
$
43,794


100.0
%Cost of goods sold


19,017


54.0


15,152


59.0


32,912


53.6


24,692


56.4Gross profit

$
16,196


46.0
%
$
10,523


41.0
%
$
28,534


46.4
%
$
19,102


43.6
%InternationalNet sales

$
6,643


100.0
%
$
9,809


100.0
%
$
13,126


100.0
%
$
19,687


100.0
%Cost of goods sold


2,581


38.9


3,674


37.5


5,330


40.6


7,183


36.5Gross profit

$
4,062


61.1
%
$
6,135


62.5
%
$
7,796


59.4
%
$
12,504


63.5
%


Three Months Ended July 4, 2009 Compared to Three Months Ended June 28, 2008

Net Sales.Net sales increased by $8.3 million, or 12.5%, from $66.8 million in the three months ended June 28, 2008 to
$75.1 million in the three months ended July 4, 2009.

In
the non-prescription reading glasses segment, net sales increased by $1.9 million, or 6.2%, from $31.3 million in the three months ended June 28, 2008
to $33.2 million in the three months ended July 4, 2009. This increase in net sales was due to a program roll-out at a major customer in the second quarter of 2009 that
contributed $3.4 million of net sales as well as organic growth at existing customers. These increases were partially offset by the $2.3 million impact of the loss of an opening price
point program at a major customer and a new program rolled out at a national retailer that contributed $1.3 million of net sales in the second quarter of 2008 that did not anniversary in the
current period.

In
the sunglasses and prescription frames segment, net sales increased by $9.5 million, or 37.1%, from $25.7 million in the three months ended June 28, 2008 to
$35.2 million in the three months ended July 4, 2009. This increase was due to $11.6 million in sales by Dioptics Medical Products, which was acquired in November 2008, partially
offset by the reduction of a promotional program at a major retailer along with a decline due to adverse weather.

In
the international segment, net sales decreased by $3.2 million, or 32.3%, from $9.8 million in the three months ended June 28, 2008 to $6.6 million in the
three months ended July 4, 2009. This decrease in net sales was attributed to the approximately $1.5 million impact of unfavorable foreign exchange rates as well as a $2.1 million
non-anniversaried reading glasses roll-out to major U.K. customers in the second quarter of 2008, partially offset by improved sunglasses sales in the U.K.

Gross Profit.Gross profit increased $5.2 million, or 14.7%, from $35.5 million in the three months ended June 28, 2008
to
$40.7 million in the three months ended July 4, 2009. As a percentage of net sales, gross profit increased from 53.1% to 54.2% during the corresponding periods.

In
the non-prescription reading glasses segment, gross profit increased by $1.6 million, or 8.5%, from $18.8 million in the three months ended June 28,
2008 to $20.4 million in the three months ended July 4, 2009. As a percentage of net sales, gross profit increased from 60.2% in the second quarter of 2008 to 61.5% during the current
quarter. The increase in gross profit as a percentage of net sales was

18

---



Table of Contents

due
to lower product costs and a change in pricing structure at a major customer, partially offset by the discontinuation of a high gross margin opening price point program at a major retailer.

In
the sunglasses and prescription frames segment, gross profit increased by $5.7 million, or 53.9%, from $10.5 million in the three months ended June 28, 2008 to
$16.2 million in the three months ended July 4, 2009. As a percentage of net sales, gross profit increased from 41.0% to 46.0% during the corresponding periods. The increase in gross
profit as a percentage of net sales was due to sales of the higher gross margin Dioptics products and the reduction of a lower margin seasonal program at a major retailer.

In
the international segment, gross profit decreased by $2.0 million, or 33.8%, from $6.1 million in the three months ended June 28, 2008 to $4.1 million in
the three months ended July 4, 2009. As a percentage of net sales, gross profit decreased from 62.5% to 61.1% in the corresponding periods. The decrease in gross profit as a percentage of net
sales was due to unfavorable foreign exchange rates, as all inventory is purchased in US dollars, a shift in sales mix in the U.K. to more sunglasses sales, which carry lower margins than reading
glasses, as well as a lower-margin reading glasses program rolled out to a new customer in 2009.

Selling Expenses.Selling expenses increased by $1.0 million, or 5.2%, from $20.2 million in the three months ended
June 28,
2008 to $21.2 million in the three months ended July 4, 2009. As a percentage of net sales, selling expenses decreased from 30.3% to 28.3% in the corresponding periods. The dollar
increase in selling expenses includes $1.8 million associated with the operations of Dioptics, which we acquired in November 2008, and a $0.8 million increase in marketing costs driven
by the television advertising campaigns that concluded at the end of the second quarter, partially offset by a $0.8 million decrease in freight costs, a $0.6 million decrease in
depreciation and other expense reductions.

General and Administrative Expenses.General and administrative expenses increased by $0.7 million, or 10.3%, from
$6.4 million in the
three months ended June 28, 2008 to $7.1 million in the three months ended July 4, 2009. As a percentage of net sales, general and administrative expenses decreased from 9.6% to
9.4% in the corresponding periods. The dollar increase included $0.9 million in expenses
associated with the Dioptics business, partially offset by a decrease in Sarbanes-Oxley implementation costs and other new public company related costs.

Amortization of Acquired Intangibles.Amortization of acquired intangibles decreased by $0.1 million, or 9.1%, from
$1.3 million in the
three months ended June 28, 2008 to $1.2 million in the three months ended July 4, 2009. This decrease was due to certain intangible assets associated with the 2004 acquisition of
Magnivision being amortized on an accelerated basis over their economic lives, partially offset by amortization of the newly acquired Dioptics intangibles.

Interest Expense.Interest expense decreased $0.2 million, or 11.9%, from $1.5 million in the three months ended June 28,
 2008
to $1.3 million in the three months ended July 4, 2009. The decrease was the result of lower interest rates.

Income Taxes.Provision for income taxes was $3.8 million, or 38.0% of income from continuing operations before income taxes in
the three
months ended July 4, 2009, compared to $2.2 million, or 35.2%, in the three months ended June 28, 2008. The change in income tax rate resulted from discrete tax events that
benefited the tax rate in the second quarter of 2008.

Income from Continuing Operations.For the reasons described above, income from continuing operations increased by $2.2 million,
or 53.8%,
from $4.0 million during the three months ended June 28, 2008 to $6.2 million for the three months ended July 4, 2009.

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---



Table of Contents

Discontinued Operations, Net of Tax.Discontinued operations decreased $3.4 million from income of $0.2 million in the second
quarter
of 2008 to a loss of $3.2 million in the second quarter of 2009. We recorded pre-tax charges totaling $5.0 million in the second quarter of 2009, including estimated future
product returns of $3.6 million, inventory write-downs of $0.8 million, display fixture
write-offs of $0.3 million and other costs of $0.3 million related to the divestiture of the costume jewelry business.

Net Income.For the reasons described above, net income attributable to our shareholders decreased by $1.2 million, from
$4.1 million
during the three months ended June 28, 2008 to $2.9 million for the three months ended July 4, 2009.

Six Months Ended July 4, 2009 Compared to Six Months Ended June 28, 2008

Net Sales.Net sales increased by $11.9 million, or 9.8%, from $122.0 million in the six months ended June 28, 2008 to
$134.0 million in the six months ended July 4, 2009.

In
the non-prescription reading glasses segment, net sales increased by $0.8 million, or 1.4%, from $58.6 million in the six months ended June 28, 2008
to $59.4 million in the six months ended July 4, 2009. This increase in net sales was due to a program roll-out at a major customer in the second quarter of 2009 that
contributed $3.4 million of net sales as well as organic growth at existing customers. These increases were partially offset by the $4.4 million impact of the loss of an opening price
point program at a major customer and new programs rolled out at two national retailers that contributed an incremental $2.4 million of net sales in the first half of 2008 that did not
anniversary in the current period.

In
the sunglasses and prescription frames segment, net sales increased by $17.6 million, or 40.3%, from $43.8 million in the six months ended June 28, 2008 to
$61.4 million in the six months ended July 4, 2009. This increase was due to $19.7 million in sales by Dioptics Medical Products, which was acquired in November 2008, partially
offset by the reduction of a promotional program at a major retailer along with a decline due to adverse weather.

In
the international segment, net sales decreased by $6.6 million, or 33.3%, from $19.7 million in the six months ended June 28, 2008 to $13.1 million in the
six months ended July 4, 2009. This decrease in net sales was attributed to the approximately $3.5 million impact of unfavorable foreign exchange rates, a $2.1 million
non-anniversaried reading glasses roll-out to major U.K.
customers in the second quarter of 2008 and a $1.0 million non-anniversaried sunglasses roll-out to a major customer in the first quarter of 2008.

Gross Profit.Gross profit increased $6.4 million, or 9.6%, from $66.2 million in the six months ended June 28, 2008 to
$72.6 million in the six months ended July 4, 2009. As a percentage of net sales, gross profit decreased from 54.3% to 54.2% during the corresponding periods.

In
the non-prescription reading glasses segment, gross profit increased by $1.6 million, or 4.6%, from $34.6 million in the six months ended June 28,
2008 to $36.2 million in the six months ended July 4, 2009. As a percentage of net sales, gross profit increased from 59.1% to 61.0% during the corresponding periods. The increase in
gross profit as a percentage of net sales was due to lower product costs and a change in pricing structure at a major customer, partially offset by the discontinuation of a high gross margin opening
price point program at a major retailer.

In
the sunglasses and prescription frames segment, gross profit increased by $9.4 million, or 49.4%, from $19.1 million in the six months ended June 28, 2008 to
$28.5 million in the six months ended July 4, 2009. As a percentage of net sales, gross profit increased from 43.6% to 46.4% during the corresponding periods. The increase in gross
profit as a percentage of net sales was due to sales of the higher gross margin Dioptics products and the reduction of a lower margin seasonal program at a major retailer.

20

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Table of Contents

In the international segment, gross profit decreased by $4.7 million, or 37.7%, from $12.5 million in the six months ended June 28, 2008 to
$7.8 million in the six months ended July 4, 2009. As a percentage of net sales, gross profit decreased from 63.5% to 59.4% in the corresponding periods. The dollar decrease in gross
profit and the decrease in gross profit as a percentage of net sales were due to unfavorable foreign exchange rates, as all inventory is purchased in US dollars, a shift in sales mix in the U.K. to
more sunglasses sales, which carry lower margins than reading glasses, and a lower-margin reading glasses program rolled out to a new customer in 2009.

Selling Expenses.Selling expenses increased by $5.0 million, or 13.6%, from $37.3 million in the six months ended
June 28, 2008
to $42.3 million in the six months ended July 4, 2009. As a percentage of net sales, selling expenses increased from 30.6% to 31.6% in the corresponding periods. The dollar increase in
selling expenses includes $3.4 million associated with the operations of Dioptics, which we acquired in November 2008, a $3.5 million increase in marketing costs driven by the television
advertising campaigns that concluded at the end of the second quarter and increased field service costs of $2.4 million due to a higher number of serviced customer store locations, partially
offset by a $2.1 million decrease in freight costs, a $0.7 million decrease in depreciation and other expense reductions.

General and Administrative Expenses.General and administrative expenses increased by $1.2 million, or 9.5%, from
$12.8 million in the
six months ended June 28, 2008 to $14.0 million in the six months ended July 4, 2009. As a percentage of net sales, general and administrative expenses were 10.5% in both periods.
The dollar increase included $1.7 million in expenses associated with the Dioptics business, partially offset by a decrease in Sarbanes-Oxley implementation costs and other new public company
related costs.

Amortization of Acquired Intangibles.Amortization of acquired intangibles decreased by $0.2 million, or 9.1%, from
$2.6 million in the
six months ended June 28, 2008 to $2.4 million in the six months ended July 4, 2009. This decrease was due to certain intangible assets associated with the 2004 acquisition of
Magnivision being amortized on an accelerated basis over their economic lives, partially offset by amortization of the newly acquired Dioptics intangibles.

Interest Expense.Interest expense decreased $0.6 million, or 19.5%, from $3.2 million in the six months ended June 28,
2008 to
$2.6 million in the six months ended July 4, 2009. The decrease was the result of lower interest rates.

Income Taxes.Provision for income taxes was $4.3 million, or 38.4% of income from continuing operations before income taxes in
the six months
ended July 4, 2009, compared to $3.9 million, or 37.4%, in the six months ended June 28, 2008. The change in income tax rate resulted from discrete tax events that benefited the
tax rate in the first six months of 2008.

Income from Continuing Operations.For the reasons described above, income from continuing operations increased by $0.5 million,
or 7.6%, from
$6.5 million during the six months ended June 28, 2008 to $7.0 million for the six months ended July 4, 2009.

Discontinued Operations, Net of Tax.Discontinued operations decreased $4.7 million from income of $0.1 million in the first
six months
of 2008 to a loss of $4.6 million in the first six months of 2009. We recorded pre-tax charges totaling $5.0 million, including estimated future product returns of
$3.6 million, inventory write-downs of $0.8 million, display fixture write-offs of $0.3 million and other costs of $0.3 million in the second quarter of 2009
related to the divestiture of the costume jewelry business, and a $1.8 million pre-tax goodwill impairment in the first quarter of 2009.

Net Income.For the reasons described above, net income attributable to our shareholders decreased by $4.0 million from
$6.3 million
during the six months ended June 28, 2008 to $2.3 million for the six months ended July 4, 2009.

21

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Table of Contents

Liquidity and Capital Resources

Our primary liquidity needs are for working capital, capital expenditures (specifically display fixtures) and debt service. Our primary
sources of cash have been cash flow from operations and borrowings under our credit facility. As of July 4, 2009, we had $4.7 million of cash and $36.7 million available under our
revolving 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 the next
twelve months. 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, to a certain extent, 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 credit available to businesses and consumers, and the deepening unemployment and corresponding reductions in consumer spending, may substantially reduce
demand for our products, which could have a material adverse effect on our liquidity and results of operations.

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

Cash Flows

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

Six Months EndedJuly 4, 2009

June 28, 2008(unaudited, in thousands)Net cash provided by (used in):Operating activities

$
13,625

$
18,310Investing activities


(4,041
)

(6,902
)Financing activities


(7,006
)

(11,910
)Effect of exchange rates on cash balances


10


(73
)Net increase (decrease) in cash

$
2,588

$
(575
)


We
purchase finished goods from our contract manufacturers in Asia and typically take title upon delivery to the freight consolidator. Transit times range from 10 to 30 days. Our
payment terms with our eyewear suppliers range from 45 to 120 days.

Operating Activities.Net cash provided by operating activities decreased by $4.7 million from $18.3 million in the six
months ended
June 28, 2008 to $13.6 million in the six months ended July 4, 2009. The decrease in operating cash flow was due to a $7.2 million increase in cash used in activities
related to accrued income taxes and a $9.8 million increase in cash used in activities related to accounts payable, partially offset by a $6.2 million increase in cash provided by
activities related to inventory and a $6.0 million increase in cash provided by the activities related to accounts receivable. The change in accounts payable activities was partially a result
of timing of shipments, corresponding to an offsetting change in cash from inventory activities, and partially due to timing of payments to suppliers. The change in accrued income taxes was the result
of tax payments related to the 2008 tax year. The change in accounts receivable activities is the result of timing of customer collections.

Investing Activities.Net cash used in investing activities decreased from $6.9 million in the six months ended June 28, 2008
to
$4.0 million in the six months ended July 4, 2009. The decrease relates to display
fixtures purchased and placed at retailers in the first half of 2008 that did not anniversary in the current period.

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Financing Activities.Net cash used in financing activities decreased by $4.9 million from $11.9 million in the six months
ended
June 28, 2008 to $7.0 million in the six months ended July 4, 2009. The decrease in net cash used in financing activities was due to $0.5 million of proceeds under the
revolving line of credit compared to net repayments of $8.5 million in 2008 and $1.5 million used in stock repurchases in 2008, partially offset by a $5.6 million increase in
payments on long-term obligations.

Capital Expenditures

Our capital expenditures were $4.0 million and $6.5 million for the six months ended July 4, 2009 and
June 28, 2008, respectively. The decrease relates to display fixtures placed at retailers in the first half of 2008 that did not anniversary in the current period. The majority of our capital
expenditures in both periods related to permanent display fixtures, which we provide in our customers' retail locations. We 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
July 4, 2009, we had outstanding commitments for capital expenditures of $2.2 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 Agreement

Our credit facility 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 new
facility are determined based upon our defined leverage ratio. Interest rates were initially
priced at 1.75% above LIBOR and then range from 1.00% to 2.25% above LIBOR for Eurodollar-based borrowings, and from 0.00% to 1.25% above the defined base rate for base rate borrowings, depending upon
our leverage ratio. The term loan facility is due in 20 consecutive quarterly graduating installments ranging from $1.9 million to $8.1 million. Payment of these installments commenced
on March 31, 2008. The term loan facility and the revolving credit facility will mature on December 19, 2012. Amounts due under both facilities are collateralized by a pledge of 100% of
our tangible and intangible assets. We are also required to pay commitment and other customary fees. These commitment fees will range from 0.20% to 0.50% per annum depending upon our leverage ratio.

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 leverage ratio and fixed charge coverage ratio covenants. As of July 4, 2009, we were in compliance with these covenants.

As
of July 4, 2009, we had outstanding indebtedness of $85.0 million under our term loan facility, $38.0 million outstanding under the revolving credit facility and
$0.3 million committed under standby letters of credit. Our borrowing availability under the revolving credit facility was $36.7 million. Principal payments of $16.3 million under
the term loan facility are scheduled in the next twelve months. The interest rate on the term loan facility is at the three-month LIBOR rate plus 1.75% (2.35% in aggregate as of July 4, 2009).
The interest rate on $35.0 million of the revolving credit facility is at the one-month LIBOR rate plus 1.75% (2.06% in aggregate as of July 4, 2009). The

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remaining
balance of the revolving credit facility is subject to an interest rate of prime plus 0.75% (4.0% in aggregate as of July 4, 2009).

Interest Rate Swap Agreement

On March 10, 2008, we entered into an interest rate swap as described in Item 3 below.

Critical Accounting Estimates

We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America. As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information available. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of net sales and expenses for the periods
presented. These critical accounting policies are the same as those detailed in the Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

Off-Balance Sheet Arrangements

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

ITEM 3.    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 July 4, 2009, we had $85.0 million outstanding under the term loan facility and $38.0 million outstanding
under the revolving credit facility. The term loan facility bore interest of 1.75% above three-month LIBOR, or 2.35% in aggregate, at July 4, 2009. $35.0 million of the revolving credit
facility bore interest of 1.75% above one-month LIBOR, or 2.06% in aggregate, at July 4, 2009. The remaining balance of the revolving credit facility bore interest of 0.75% above
prime, or 4.0% in aggregate, at July 4, 2009. A hypothetical change in the interest rate of 100 basis points would have an effect on our results of operations and cash flows of approximately
$0.8 million over the next four quarters.

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 $49.1 million and is scheduled to decline to reflect certain scheduled principal payments under the term loan facility. Currently, we are borrowing under the term
loan facility at a floating interest rate based on three-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.

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 period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. 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 condensed
consolidated statements of

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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 4.    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 last day of the period covered by this report, July 4, 2009 (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 were effective.

Our
management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial
reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes during the fiscal quarter ended July 4, 2009 in our internal control over financial reporting (as such
term is defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART IIOTHER INFORMATION

ITEM 1.    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 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 1A.    Risk Factors.

There have been no material changes in our Risk Factors from those disclosed in our Annual Report on Form 10-K for
the fiscal year ended January 3, 2009.

ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

None.

ITEM 3.    Defaults Upon Senior Securities.

None.

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



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Jared Bluestein

For


15,547,690Against


478,523Abstain


0Zvi Eiref

For


15,471,210Against


83,312Abstain


471,691Charles J. Hinkaty

For


15,523,304Against


31,218Abstain


471,691Robert L. McDowell

For


15,523,304Against


31,218Abstain


471,691Jennifer D. Stewart

For


15,547,690Against


478,523Abstain


0Alec Taylor

For


15,543,253Against


482,960Abstain


0Alfred J. Verrecchia

For


15,994,995Against


31,218Abstain


0


Ratification
of the appointment of KPMG LLP as independent registered public accounting firm for the 2009 fiscal year:

For


16,023,345Against


2,868Abstain


0


ITEM 5.    Other Information.

None.

ITEM 6.    Exhibits.

The exhibits listed in the Exhibit Index following the signature page are filed herewith.

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SIGNATURES

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

August 7, 2009

FGX INTERNATIONAL HOLDINGS LIMITEDBy:

/s/ ANTHONY DI PAOLA Anthony Di PaolaTitle:

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


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Exhibit List

Exhibit Number

Exhibit Description2.1

Asset Purchase Agreement, dated July 23, 2009, by and between FGX International Inc. and Crimzon Rose International, LLC2.2

Purchase Order, dated July 23, 2009, issued by Head Link One Co., Limited to FGX International Inc.2.3

Customer Support Agreement, dated July 23, 2009, by and between FGX International Inc. and Crimzon Rose International, LLC3.1

Amended and Restated Memorandum of Association(1)3.2

Amended and Restated Articles of Association(2)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


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