Use these links to rapidly review the documentTABLE OF CONTENTS

Table of Contents



UNITED STATESSECURITIES 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 October 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 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. ý Yes    o No

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). o Yes    o No

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). o Yes    ý No

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 November 5, 2009 was 22,124,566.



---





Table of Contents

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: the effect of current 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 Company's ability to successfully integrate acquired businesses
including Corinne McCormack, Inc. and Eye-Bar Inc.; 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; unexpected product returns and related claims pertaining to current or prior periods; the concentration of
manufacturing of our products in China, which increases our vulnerability to disruptions 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; 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

---





Table of Contents



FGX International Holdings Limited  Form 10-Q  Index



PART IFINANCIAL INFORMATION

4ITEM 1.

Financial Statements

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

4Condensed Consolidated Statements of Operations for the three and nine months ended October 3, 2009 and
October 4, 2008 (unaudited)

5Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2009 and October 4, 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

26ITEM 5.

Other Information

26ITEM 6.

Exhibits

26SIGNATURES

27Exhibit List

28


3

---





Table of Contents



PART IFINANCIAL INFORMATION



ITEM 1.    Financial Statements.



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

October 3, 2009

January 3, 2009ASSETSCurrent assets:Cash

$
6,561

$
2,097Accounts receivable, less allowances of $26,781 and $23,854 at October 3, 2009 and January 3, 2009, respectively


33,434


50,746Inventories


28,125


35,543Prepaid expenses and other current assets


17,311


15,761Deferred tax assets


16,678


16,013Current assets of discontinued operations





4,253Total current assets


102,109


124,413Property, plant and equipment, net


16,481


20,543Other assets:Goodwill


45,684


44,928Intangible assets, net of accumulated amortization of $33,176 and $29,642 at October 3, 2009 and January 3, 2009, respectively


65,322


68,856Other assets


13,293


11,905Noncurrent assets of discontinued operations





2,370Total assets

$
242,889

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

$
28,000

$
37,500Current maturities of long-term obligations


17,016


15,199Accounts payable


14,160


30,324Accrued expenses


25,790


26,836Accrued income taxes





6,005Current liabilities of discontinued operations


4,617


2,494Total current liabilities


89,583


118,358Long-term obligations, less current maturities


64,815


77,863Deferred tax liabilities


18,668


18,156Other long term liabilities


14,766


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





Additional paid-in capital


109,311


107,048Accumulated other comprehensive loss


(2,417
)

(2,611
)Accumulated deficit


(51,276
)

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


(2,513
)

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


53,105


41,665Noncontrolling interest


1,952


1,689Total shareholders' equity


55,057


43,354Total liabilities and shareholders' equity

$
242,889

$
273,015


See accompanying notes to condensed consolidated financial statements.

4

---





Table of Contents



FGX INTERNATIONAL HOLDINGS LIMITED        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        Three and nine months ended October 3, 2009 and October 4,
2008        (unaudited, in thousands, except per share amounts)

Three months ended

Nine months endedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008Net sales

$
60,580

$
53,295

$
194,541

$
175,329Cost of goods sold


24,646


22,395


86,052


78,207Gross profit


35,934


30,900


108,489


97,122Operating expenses:Selling expenses


15,708


17,312


58,033


54,580General and administrative expenses


6,910


5,879


20,954


18,706Amortization of acquired intangibles


1,178


1,295


3,534


3,886Operating income


12,138


6,414


25,968


19,950Other income (expense):Interest expense


(1,086
)

(1,478
)

(3,680
)

(4,700
)Other income (expense), net


91


(198
)

179


(144
)Income from continuing operations before income taxes


11,143


4,738


22,467


15,106Income tax expense


4,234


1,460


8,577


5,341Income from continuing operations


6,909


3,278


13,890


9,765Discontinued operations, net of tax


(78
)

732


(4,644
)

788Net income


6,831


4,010


9,246


10,553Less: Net income attributable to noncontrolling interest


131


103


262


370Net income attributable to FGX International Holdings Limited

$
6,700

$
3,907

$
8,984

$
10,183Income from continuing operations attributable to FGX International Holdings Limited:Income from continuing operations

$
6,909

$
3,278

$
13,890

$
9,765Less: Net income attributable to noncontrolling interest


131


103


262


370Income from continuing operations attributable to FGX International Holdings Limited

$
6,778

$
3,175

$
13,628

$
9,395Basic earnings per share:Income from continuing operations attributable to FGX International Holdings Limited

$
0.30

$
0.15

$
0.62

$
0.44Discontinued operations, net of tax





0.03


(0.21
)

0.04Basic earnings per share attributable to FGX International Holdings Limited shareholders

$
0.30

$
0.18

$
0.41

$
0.48Diluted earnings per share:Income from continuing operations attributable to FGX International Holdings Limited

$
0.30

$
0.15

$
0.61

$
0.44Discontinued operations, net of tax




$
0.03


(0.21
)
$
0.04Diluted earnings per share attributable to FGX International Holdings Limited shareholders

$
0.30

$
0.18

$
0.40

$
0.48Basic weighted average shares outstanding


22,123


21,171


22,123


21,225Diluted weighted average shares outstanding


22,418


21,316


22,337


21,361


See accompanying notes to condensed consolidated financial statements.

5

---





Table of Contents



FGX INTERNATIONAL HOLDINGS LIMITED        Condensed Consolidated Statements of Cash Flows        Nine months ended October 3, 2009 and October 4, 2008
    (unaudited, in thousands)

Nine months endedOctober 3, 2009

October 4, 2008Cash flows from operating activities:Net income

$
9,246

$
10,553Less: discontinued operations, net of tax


(4,644
)

788Income from continuing operations


13,890


9,765Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


13,654


14,918Stock-based compensation


2,263


1,709Deferred income taxes


(148
)

(286
)Loss on disposal of property, plant, and equipment


296


368Changes in assets and liabilities:Accounts receivable, net


20,603


17,472Inventories


7,752


(1,788
)Prepaid expenses and other current assets


(4,622
)

(3,091
)Other assets


(880
)

444Accounts payable


(16,195
)

(6,389
)Accrued expenses and other long-term liabilities


(3,304
)

(6,268
)Accrued income taxes


(5,891
)

(999
)Net cash provided by (used in) operating activities of discontinued operations


4,058


(990
)Net cash provided by operating activities


31,476


24,865Cash flows from investing activities:Purchases of property, plant and equipment


(6,175
)

(10,070
)Net cash provided by (used in) investing activities of discontinued operations





(441
)Net cash used in investing activities


(6,175
)

(10,511
)Cash flows from financing activities:Net repayments under revolving line of credit


(9,500
)

(10,000
)Payments on long-term obligations


(11,230
)

(5,468
)Share repurchases





(1,484
)Net cash used in financing activities


(20,730
)

(16,952
)Effect of exchange rate changes on cash


(107
)

Net increase (decrease) in cash


4,464


(2,598
)Cash, beginning of period


2,097


4,567Cash, end of period

$
6,561

$
1,969


See
accompanying notes to condensed consolidated financial statements.

6

---





Table of Contents



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
nine months ended October 3, 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 November 6, 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
Company's third quarter of 2009 included 13 weeks while the third quarter of 2008 included 14 weeks. Accordingly, the nine month period of 2009 included 39 weeks
while the nine month period of 2008 included 40 weeks.

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 June 2009, the FASB issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the "ASC"). The ASC became the single
official source of authoritative, nongovernmental U.S. GAAP. The ASC did not change GAAP but reorganizes the literature. The ASC is effective for interim and annual periods ending after
September 15, 2009, and the Company adopted the ASC during the three months ended October 3, 2009.

In
August 2009, the FASB issued authoritative guidance regarding accounting and disclosures related to the fair value measurement of liabilities. The new guidance establishes valuation
techniques

7

---



Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(2) Recent Accounting Pronouncements (Continued)

in
circumstances in which a quoted price in an active market for the identical liability is not available. Additionally, it clarifies appropriate valuation techniques when restrictions exist that
prevent the transfer of liabilities measured at fair value. Finally, it provides further guidance on the classification of liabilities measured at fair value within the fair value hierarchy. The new
guidance is effective for interim periods ending after August 26, 2009. The adoption of the guidance did not have a material impact on the Company's results of operations or financial position.

(3) Discontinued Operations

In the second quarter of 2009, the Company's Board of Directors voted to divest the costume jewelry business. 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. On July 23, 2009, the Company completed a sale of assets related to its costume jewelry business for consideration of approximately $1.3 million, and no
significant costs are expected to be incurred in future periods.

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

Three Months Ended

Nine Months EndedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(in thousands)Net sales

$
59

$
5,808

$
4,656

$
14,562Income (loss) from discontinued operations before tax

$
(301
)
$
1,180

$
(7,646
)
$
1,316Provision (benefit) for income taxes


(223
)

448


(3,002
)

528Income (loss) from discontinued operations, net of tax

$
(78
)
$
732

$
(4,644
)
$
788


8

---



Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(3) Discontinued Operations (Continued)

The
major classes of assets and liabilities of operations from discontinued operations are as follows:

As of
October 3, 2009

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

$


$
1,517Inventories





2,680Prepaid expenses and other current assets





56Current assets of discontinued operations





4,253Property, plant and equipment, net





468Goodwill





1,819Other assets





83Noncurrent assets of discontinued operations





2,370Total assets of discontinued operations

$


$
6,623Accounts payable

$


$
1,640Accrued expenses


4,617


854Current liabilities of discontinued operations

$
4,617

$
2,494


(4) Comprehensive Income

Comprehensive income for the three and nine months ended October 3, 2009 and October 4, 2008 consist of the following:

Three Months Ended

Nine Months EndedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(in thousands)Net income

$
6,831

$
4,010

$
9,246

$
10,553Other comprehensive income, net of taxForeign currency translation adjustments


(52
)

(879
)

174


(813
)Gain (loss) on cash flow hedging activities


(54
)

(604
)

19


183Total comprehensive income, net of tax


6,725


2,527


9,439


9,923Less: Comprehensive income attributable to noncontrolling interest


131


103


262


370Comprehensive income attributable to the Company

$
6,594

$
2,424

$
9,177

$
9,553


9

---



Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(5) Net Income Per Share

The Company calculates net income per share in accordance with the Earnings Per Share Topic of FASB ASC. 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

Nine Months EndedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(in thousands, except per share amounts)Net income attributable to the Company

$
6,700

$
3,907

$
8,984

$
10,183Shares used in computing basic net income per share


22,123


21,171


22,123


21,225Effect of dilutive securities


295


145


214


136Shares used in computing diluted net income per share


22,418


21,316


22,337


21,361Basic earnings per share attributable to the Company's shareholders

$
0.30

$
0.18

$
0.41

$
0.48Diluted earnings per share attributable to the Company's shareholders

$
0.30

$
0.18

$
0.40

$
0.48Antidilutive potential common shares excluded


1,219


782


1,602


782


(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 nine months ended October 3, 2009, the Company did
not repurchase any shares. At October 3, 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 (higher of prime rate or the Federal Funds rate plus 0.5%) for base rate
borrowings, depending upon the Company's

10

---



Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(7) Credit Agreement (Continued)

leverage
ratio. 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. 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 October 3, 2009, the Company had outstanding indebtedness of $81.3 million under the term loan facility, $28.0 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 $46.7 million. The interest rate on the term loan
facility was at the three-month LIBOR rate plus 1.75% (2.04% in aggregate as of October 3, 2009). The interest rate on $20.0 million of the revolving credit facility is at the
one-month LIBOR rate plus 1.75% (2.0% in aggregate as of October 3, 2009). The remaining balance of the revolving credit facility is subject to an interest rate of prime plus 0.75%
(4.0% in aggregate as of October 3, 2009).

The
December 2007 Credit Agreement 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. The Company must also comply with certain administrative covenants, including furnishing audited financial statements
to the lenders within 90 days of fiscal year end. This facility also requires the Company to comply with a leverage ratio covenant and a fixed charge ratio covenant. As of October 3,
2009, the Company was in compliance with the required covenants.

(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 in accordance with the Derivatives and Hedging Topic of FASB ASC and the Company records the effective portion of any change in the fair
value as other comprehensive income (loss), net of tax.

11

---



Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(8) Swap Agreement (Continued)

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

As of October 3, 2009

As of January 3, 2009Balance sheet
classification

Fair
value

Balance sheet
classification

Fair
value(in thousands)Derivatives designated as hedging instruments:Interest rate swap agreement

Other long-term liabilities

$
1,465

Other long-term liabilities

$
1,497Total



$
1,465



$
1,497


The
following table summarizes the effects of the Swap:

Amount of gains (losses) recognized in other comprehensive incomeThree months ended

Nine months endedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(in thousands)Derivatives designated as cash flow hedges:Interest rate swap agreement, net of tax


(54
)

(604
)

19


183Total gains (losses)


(54
)

(604
)

19


183


(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 October 3, 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 $2.6 million of unrecognized tax benefits and related interest and penalties will reverse within the next twelve months. Approximately
$1.9 million of the $2.6 million relates to the utilization of net operating losses and interest on guaranteed third-party debt by an acquired entity and would be offset by the reversal
of an indemnification receivable from the seller.

(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.

12

---



Table of Contents

FGX International Holdings Limited

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(11) Segments (Continued)

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

---



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

Nine Months EndedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(in thousands)Segment Net SalesNon-prescription Reading Glasses

$
32,242

$
36,501

$
91,631

$
95,054Sunglasses and Prescription Frames


17,682


10,425


79,128


54,219International


10,656


6,369


23,782


26,056Total Net Sales

$
60,580

$
53,295

$
194,541

$
175,329Gross ProfitNon-prescription Reading Glasses

$
20,188

$
23,089

$
56,413

$
57,705Sunglasses and Prescription Frames


8,178


3,526


36,712


22,628International


7,568


4,285


15,364


16,789Total Gross Profit

$
35,934

$
30,900

$
108,489

$
97,122Segment Profits (Losses)Non-prescription Reading Glasses

$
16,565

$
16,474

$
43,881

$
40,204Sunglasses and Prescription Frames


2,581


107


19,760


13,031International


4,896


857


6,857


5,358Corporate / Unallocated expenses


(11,904
)

(11,024
)

(44,530
)

(38,643
)Operating Income

$
12,138

$
6,414

$
25,968

$
19,950DepreciationNon-prescription Reading Glasses

$
1,125

$
1,794

$
3,675

$
5,093Sunglasses and Prescription Frames


1,214


1,142


3,845


3,223International


366


363


1,684


1,971Corporate / Unallocated


309


251


916


745Total Depreciation

$
3,014

$
3,550

$
10,120

$
11,032Amortization of IntangiblesNon-prescription Reading Glasses

$
908

$
1,295

$
2,724

$
3,886Sunglasses and Prescription Frames


270





810


Total Amortization of Intangibles

$
1,178

$
1,295

$
3,534

$
3,886




As of
October 3, 2009

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

$
65,196

$
71,282Sunglasses and Prescription Frames


69,147


72,672International


19,140


16,095Corporate / Unallocated


89,406


112,966Total Identfiable Assets

$
242,889

$
273,015


(12) Subsequent event

On October 28, 2009, we acquired all of the outstanding stock of Corinne McCormack, Inc. and Eye-Bar Inc. in exchange for $1.45 million in cash.

14

---





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.

With
the acquisition of Corinne McCormack in October 2009, we added theCorinne McCormackbrand of eyewear and accessories. These products
are sold to better specialty and department stores.

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 Glove, RawlingsandC9 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

On October 28, 2009, we acquired all of the outstanding stock of Corinne McCormack, Inc. and
Eye-Bar Inc. in exchange for $1.45 million in cash.

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

---

15

---



Table of Contents



Overview

The following is a summary of the Company's operating results for the three and nine months ended October 3,
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

Nine Months EndedOctober 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of goods sold


40.7


42.0


44.2


44.6Gross profit


59.3


58.0


55.8


55.4Operating expenses:Selling expenses


25.9


32.5


29.9


31.1General and administrative expenses


11.4


11.0


10.8


10.7Amortization of acquired intangibles


2.0


2.4


1.8


2.2Operating income


20.0


12.1


13.3


11.4Other income (expense):Interest expense


(1.8
)

(2.8
)

(1.9
)

(2.7
)Other income, net


0.2


(0.4
)

0.1


(0.1
)Income from continuing operations before income taxes


18.4


8.9


11.5


8.6Income tax expense


7.0


2.7


4.4


3.0Income from continuing operations


11.4


6.2


7.1


5.6Discontinued operations, net of tax


(0.1
)

1.3


(2.4
)

0.4Net income


11.3


7.5


4.7


6.0Less: Net income attributable to noncontrolling interest


0.2


0.2


0.1


0.2Net income attributable to the Company


11.1
%

7.3
%

4.6
%

5.8
%


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

Three Months Ended

Nine Months EndedSegment

October 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(unaudited, dollars in thousands)Net salesNon-prescription Reading Glasses

$
32,242


53.2
%
$
36,501


68.5
%
$
91,631


47.1
%
$
95,054


54.2
%Sunglasses and Prescription Frames


17,682


29.2


10,425


19.6


79,128


40.7


54,219


30.9International


10,656


17.6


6,369


11.9


23,782


12.2


26,056


14.9Total net sales

$
60,580


100.0
%
$
53,295


100.0
%
$
194,541


100.0
%
$
175,329


100.0
%


17

---



Table of Contents

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

Three Months Ended

Nine Months EndedSegment

October 3, 2009

October 4, 2008

October 3, 2009

October 4, 2008(unaudited, dollars in thousands)Non-prescription Reading GlassesNet sales

$
32,242


100.0
%
$
36,501


100.0
%
$
91,631


100.0
%
$
95,054


100.0
%Cost of goods sold


12,054


37.4


13,412


36.7


35,218


38.4


37,349


39.3Gross profit

$
20,188


62.6
%
$
23,089


63.3
%
$
56,413


61.6
%
$
57,705


60.7
%Sunglasses and Prescription FramesNet sales

$
17,682


100.0
%
$
10,425


100.0
%
$
79,128


100.0
%
$
54,219


100.0
%Cost of goods sold


9,504


53.7


6,899


66.2


42,416


53.6


31,591


58.3Gross profit

$
8,178


46.3
%
$
3,526


33.8
%
$
36,712


46.4
%
$
22,628


41.7
%InternationalNet sales

$
10,656


100.0
%
$
6,369


100.0
%
$
23,782


100.0
%
$
26,056


100.0
%Cost of goods sold


3,088


29.0


2,084


32.7


8,418


35.4


9,267


35.6Gross profit

$
7,568


71.0
%
$
4,285


67.3
%
$
15,364


64.6
%
$
16,789


64.4
%


Three Months Ended October 3, 2009 Compared to Three Months Ended October 4, 2008

Net Sales.Net sales increased by $7.3 million, or 13.7%, from $53.3 million in the three months ended October 4, 2008
to
$60.6 million in the three months ended October 3, 2009.

In
the non-prescription reading glasses segment, net sales decreased by $4.3 million, or 11.7%, from $36.5 million in the three months ended October 4,
2008 to $32.2 million in the three months ended October 3, 2009. This decrease in net sales was due to a shift in timing of program updates at two major customers to the second quarter
of 2009 that in 2008 occurred in the third quarter. These program updates contributed $5.4 million of net sales in the third quarter of 2008. In addition, sales were negatively impacted by the
loss of an opening price point program at a major customer that contributed $1.5 million in the third quarter of 2008, partially offset by organic growth.

In
the sunglasses and prescription frames segment, net sales increased by $7.3 million, or 69.6%, from $10.4 million in the three months ended October 4, 2008 to
$17.7 million in the three months ended October 3, 2009. This increase was due to $6.9 million in sales by Dioptics Medical Products, which was acquired in November 2008, as well
as organic growth.

In
the international segment, net sales increased by $4.3 million, or 67.3%, from $6.4 million in the three months ended October 4, 2008 to $10.7 million in
the three months ended October 3, 2009. This increase in net sales was attributed to a $5.8 million reading glasses roll-out at a major customer in Canada, partially offset
by an approximately $1.1 million impact of unfavorable foreign exchange rates.

Gross Profit.Gross profit increased $5.0 million, or 16.3%, from $30.9 million in the three months ended October 4,
2008 to
$35.9 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit increased from 58.0% to 59.3% during the corresponding periods.

In
the non-prescription reading glasses segment, gross profit decreased by $2.9 million, or 12.6%, from $23.1 million in the three months ended
October 4, 2008 to $20.2 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit decreased from 63.3% in the third quarter of 2008 to 62.6%
during the current quarter. The decrease in gross profit as a percentage of net sales was due to the discontinuation of a high gross margin opening price point program at a major retailer, partially
offset by lower product costs and a change in pricing structure at a major customer.

18

---



Table of Contents

In
the sunglasses and prescription frames segment, gross profit increased by $4.7 million, or 131.9%, from $3.5 million in the three months ended October 4, 2008 to
$8.2 million in the three months ended October 3, 2009. As a percentage of net sales, gross profit increased from 33.8% to 46.3% during the corresponding periods. This increase in gross
profit as a percentage of net sales was due to sales of the higher gross margin Dioptics products (9.6 percentage points), as well as lower product costs.

In
the international segment, gross profit increased by $3.3 million, or 76.6%, from $4.3 million in the three months ended October 4, 2008 to $7.6 million in
the three months ended October 3, 2009. As a percentage of net sales, gross profit increased from 67.3% to 71.0% in the corresponding periods. This increase in gross profit as a percentage of
net sales was due to a higher margin reading glasses roll-out to a major Canadian retailer, partially offset by unfavorable foreign exchange rates.

Selling Expenses.Selling expenses decreased by $1.6 million, or 9.3%, from $17.3 million in the three
months ended October 4, 2008 to $15.7 million in the three months ended October 3, 2009. As a percentage of net sales, selling expenses decreased from 32.5% to 25.9% in the
corresponding periods. The dollar decrease in selling expenses was due to a $1.0 million decrease in freight costs, a $0.7 million decrease in depreciation, a $0.6 million
decrease due to timing of advertising, and other expense reductions. These decreases were partially offset by $1.6 million of selling expenses associated with the operations of Dioptics Medical
Products, which we acquired in November 2008.

General and Administrative Expenses.General and administrative expenses increased by $1.0 million, or 17.5%, from
$5.9 million in the
three months ended October 4, 2008 to $6.9 million in the three months ended October 3, 2009. As a percentage of net sales, general and administrative expenses increased from
11.0% to 11.4% in the corresponding periods. The dollar increase included $0.8 million in expenses associated with the Dioptics Medical Products business, which we acquired in November 2008.

Amortization of Acquired Intangibles.Amortization of acquired intangibles decreased by $0.1 million, or 9.0%, from
$1.3 million in the
three months ended October 4, 2008 to $1.2 million in the three months ended October 3, 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 $0.4 million, or 26.5%, from $1.5 million in the three months ended
October 4, 2008
to $1.1 million in the three months ended October 3, 2009. The decrease was the result of lower interest rates.

Income Taxes.Provision for income taxes was $4.2 million, or 38.0% of income from continuing operations before income taxes in
the three
months ended October 3, 2009, compared to $1.5 million, or 30.8%, in the three months ended October 4, 2008. The change in income tax rate resulted from discrete tax events that
benefited the tax rate in the third quarter of 2008, including the reduction of tax liability related to uncertain tax positions, adjustments to tax provision estimates from filing related federal and
state tax returns and anticipated refunds from amended state tax returns.

Income from Continuing Operations.For the reasons described above, income from continuing operations increased by $3.6 million, or
110.8%,
from $3.3 million during the three months ended October 4, 2008 to $6.9 million for the three months ended October 3, 2009.

Discontinued Operations, Net of Tax.Discontinued operations decreased $0.8 million from income of $0.7 million in the third
quarter of
2008 to a loss of $0.1 million in the third quarter of 2009. This decrease is due to the divestiture of the costume jewelry business, which was completed on July 23, 2009.

19

---



Table of Contents

Net Income.For the reasons described above, net income attributable to our shareholders increased by $2.8 million, from
$3.9 million
during the three months ended October 4, 2008 to $6.7 million for the three months ended October 3, 2009.

Nine Months Ended October 3, 2009 Compared to Nine Months Ended October 4, 2008

Net Sales.Net sales increased by $19.2 million, or 11.0%, from $175.3 million in the nine months ended October 4, 2008
to
$194.5 million in the nine months ended October 3, 2009.

In
the non-prescription reading glasses segment, net sales decreased by $3.5 million, or 3.6%, from $95.1 million in the nine months ended October 4,
2008 to $91.6 million in the nine months ended October 3, 2009. This decrease in net sales was due to the $5.9 million impact of the loss of an opening price point program at a
major customer, a non-anniversaried program update at a major customer that contributed $3.0 million of net sales in the first nine months in 2008 and a $2.0 million
reduction in a program update at a major customer compared to the first nine months of 2008, partially offset by organic growth.

In
the sunglasses and prescription frames segment, net sales increased by $24.9 million, or 45.9%, from $54.2 million in the nine months ended October 4, 2008 to
$79.1 million in the nine months ended
October 3, 2009. This increase was due to $26.6 million in sales by Dioptics Medical Products, which was acquired in November 2008, and the $1.3 million impact of a new sunglasses
program at an existing customer, partially offset by the $4.1 million impact of the reduction of a promotional program at a major retailer.

In
the international segment, net sales decreased by $2.3 million, or 8.7%, from $26.1 million in the nine months ended October 4, 2008 to $23.8 million in
the nine months ended October 3, 2009. This decrease in net sales was attributed to the approximately $4.8 million impact of unfavorable foreign exchange rates and $3.1 million of
non-anniversaried roll-outs to major U.K. customers in the first half of 2008, partially offset by a $5.8 million reading glasses roll-out at a major
customer in Canada in the third quarter of 2009.

Gross Profit.Gross profit increased $11.4 million, or 11.7%, from $97.1 million in the nine months ended October 4, 2008
to
$108.5 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 55.4% to 55.8% during the corresponding periods.

In
the non-prescription reading glasses segment, gross profit decreased by $1.3 million, or 2.2%, from $57.7 million in the nine months ended October 4,
2008 to $56.4 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 60.7% to 61.6% 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 $14.1 million, or 62.2%, from $22.6 million in the nine months ended October 4, 2008 to
$36.7 million in the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 41.7% to 46.4% during the corresponding periods. The 4.7 percentage
point increase in gross profit as a percentage of net sales was due to sales of the higher gross margin Dioptics products.

In
the international segment, gross profit decreased by $1.4 million, or 8.5%, from $16.8 million in the nine months ended October 4, 2008 to $15.4 million in
the nine months ended October 3, 2009. As a percentage of net sales, gross profit increased from 64.4% to 64.6% in the corresponding periods. The increase in gross profit as a percentage of net
sales was due to a higher margin reading glasses roll-out to a major Canadian retailer, partially offset by unfavorable foreign exchange rates and a lower-margin reading glasses program
rolled out to a new U.K. customer in 2009.

20

---



Table of Contents

Selling Expenses.Selling expenses increased by $3.4 million, or 6.3%, from $54.6 million in the nine months ended
October 4,
2008 to $58.0 million in the nine months ended October 3, 2009. As a percentage of net sales, selling expenses decreased from 31.1% to 29.9% in the corresponding periods. The dollar
increase in selling expenses is driven by $4.9 million associated with the operations of Dioptics Medical Products, which we acquired in November 2008, a $2.8 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 $2.9 million due to a higher number of
serviced customer store locations, partially offset by a $2.9 million decrease in freight costs, a $1.4 million decrease in depreciation and other expense reductions.

General and Administrative Expenses.General and administrative expenses increased by $2.3 million, or 12.0%, from
$18.7 million in the
nine months ended October 4, 2008 to $21.0 million in the nine months ended October 3, 2009. As a percentage of net sales, general and administrative expenses increased from 10.7%
to 10.8% in the corresponding periods. The dollar increase included $2.5 million in expenses associated with the Dioptics Medical Products business, which we acquired in November 2008,
partially offset by a decrease in public company related costs.

Amortization of Acquired Intangibles.Amortization of acquired intangibles decreased by $0.4 million, or 9.1%, from
$3.9 million in the
nine months ended October 4, 2008 to $3.5 million in the nine months ended October 3, 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 $1.0 million, or 21.7%, from $4.7 million in the nine months ended
October 4, 2008
to $3.7 million in the nine months ended October 3, 2009. The decrease was the result of lower interest rates.

Income Taxes.Provision for income taxes was $8.6 million, or 38.2% of income from continuing
operations before income taxes in the nine months ended October 3, 2009, compared to $5.3 million, or 35.4%, in the nine months ended October 4, 2008. The change in income tax
rate resulted from discrete tax events that benefited the tax rate in the first nine months of 2008, including the reduction of tax liability related to uncertain tax positions, adjustments to tax
provision estimates from filing related federal and state tax returns and anticipated refunds from amended state tax returns.

Income from Continuing Operations.For the reasons described above, income from continuing operations increased by $4.1 million,
or 42.2%,
from $9.8 million during the nine months ended October 4, 2008 to $13.9 million for the nine months ended October 3, 2009.

Discontinued Operations, Net of Tax.Discontinued operations decreased $5.4 million from income of $0.8 million in the first
nine
months of 2008 to a loss of $4.6 million in the first nine 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. We ceased operations of the jewelry business
upon completion of the sale on July 23, 2009.

Net Income.For the reasons described above, net income attributable to our shareholders decreased by $1.2 million from
$10.2 million
during the nine months ended October 4, 2008 to $9.0 million for the nine months ended October 3, 2009.

21

---





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 October 3, 2009, we had $6.6 million of cash and $46.7 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 high unemployment rate and corresponding weak 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 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:

Nine Months EndedOctober 3, 2009

October 4, 2008(unaudited, in thousands)Net cash provided by (used in):Operating activities

$
31,476

$
24,865Investing activities


(6,175
)

(10,511
)Financing activities


(20,730
)

(16,952
)Effect of exchange rates on cash balances


(107
)

Net increase (decrease) in cash

$
4,464

$
(2,598
)


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 increased by $6.6 million from $24.9 million in the nine
months ended
October 4, 2008 to $31.5 million in the nine months ended October 3, 2009. This increase in operating cash flow was due to a $9.5 million increase in cash provided by
activities related to inventory, a $5.0 million increase in cash provided by discontinued operations, a $4.1 million increase in net income from continuing operations and a
$3.1 million increase in cash provided by the activities related to accounts receivable, partially offset by a $9.8 million increase in cash used in activities related to accounts
payable and a $4.9 million increase in cash used in activities related to accrued income taxes. The change in inventory activity was a result of timing of shipments, partially offsetting a
change in cash from accounts payable. The change in discontinued operations activity is
due to the divestiture of the costume jewelry business. The change in accounts receivable activities is the result of timing of customer collections. 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 and incremental estimated tax payments for the 2009 tax year.

22

---



Table of Contents

Investing Activities.Net cash used in investing activities decreased from $10.5 million in the nine months ended October 4,
2008 to
$6.2 million in the nine months ended October 3, 2009. This decrease relates to fewer replacements of in-store display fixtures placed at retailers.

Financing Activities.Net cash used in financing activities increased by $3.7 million from $17.0 million in the nine months
ended
October 4, 2008 to $20.7 million in the nine months ended October 3, 2009. The increase in net cash used in financing activities was due to a $5.7 million increase in
payments on long-term obligations, partially offset by $1.5 million used in stock repurchases in 2008 and a decrease of $0.5 million in net repayments under the revolving
line of credit.

Capital Expenditures

Our capital expenditures were $6.2 million and $10.1 million for the nine months ended October 3, 2009 and
October 4, 2008, respectively. The decrease relates to fewer replacements of in-store display fixtures placed at retailers. 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
October 3, 2009, we had outstanding commitments for capital expenditures of $1.8 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 (higher of prime rate or the Federal Funds rate plus 0.5%) 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 October 3, 2009, we were in compliance with these covenants.

As
of October 3, 2009, we had outstanding indebtedness of $81.3 million under our term loan facility, $28.0 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 $46.7 million. Principal payments of $16.9 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%

23

---



Table of Contents

(2.04%
in aggregate as of October 3, 2009). The interest rate on $20.0 million of the revolving credit facility is at the one-month LIBOR rate plus 1.75% (2.0% in aggregate
as of October 3, 2009). The remaining balance of the revolving credit facility is subject to an interest rate of prime plus 0.75% (4.0% in aggregate as of October 3, 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 estimates and assumptions that management believes are the most significant ones 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 October 3, 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 October 3, 2009, we had $81.3 million outstanding under the term loan facility and $28.0 million
outstanding under the revolving credit facility. The term loan facility bore interest of 1.75% above three-month LIBOR, or 2.04% in aggregate, at October 3, 2009. $20.0 million of the
revolving credit facility bore interest of 1.75% above one-month LIBOR, or 2.0% in aggregate, at October 3, 2009. The remaining balance of the revolving credit facility bore
interest of 0.75% above prime, or 4.0% in aggregate, at October 3, 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 $0.7 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 in accordance with the Derivatives and Hedging Topic of FASB ASC 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

24

---



Table of Contents

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 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, October 3, 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 October 3, 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.

25

---



Table of Contents

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

None.

ITEM 5.    Other Information.

Effective as of November 6, 2009, FGX International Inc. ("FGX"), a subsidiary of the Company, entered into a second
amendment to the existing employment agreements (the "Amendments") with each of Alec Taylor (to which amendment the Company also is a party), John H. Flynn, Jr., Anthony Di Paola, Steven
Crellin, Jeffrey J. Giguere, Gerald Kitchen and Richard W. Kornhauser (collectively, the "Executives"). The Amendments include the following modifications to the underlying employment agreements:
(i) increase the multiple of base salary and annual target bonus to be paid as severance in connection with a qualifying termination of employment, whether occurring prior to or after a change
in control, to 2.0 for Mr. Taylor and to 1.5 for each of Messrs. Di Paola, Giguere, Kitchen, Kornhauser and Crellin (Mr. Crellin's Amendment also adds his annual target bonus to
the severance calculation and requires that he execute a general release prior to receiving any severance benefits); (ii) update the definition of "Change In Control" for all Executives; and
(iii) eliminate for all Executives any requirement that severance benefits be reduced by other income earned following termination of employment. Mr. Taylor's Amendment also conforms the
definition of "Good Reason" in his agreement to the employment agreements of the other Executives by providing the right to resign for Good Reason if there is a material reduction in his duties,
responsibilities or reporting structure.

Effective
as of November 6, 2009, FGX entered into an Employment Agreement with Robert Grow, the Company's Executive Vice President, Product Development. This agreement will
continue until terminated by either party. Mr. Grow's employment agreement provides for (i) a base salary of $235,424, (ii) eligibility for an annual target bonus of 50% of base
salary and (iii) certain other benefits, including health and life insurance, and an automobile allowance. The agreement also provides for a severance payment of 1.5 times Mr. Grow's
base salary and annual target bonus in connection with the termination of Mr. Grow's employment (a) by FGX without "Cause" or in connection with a "Change in Control" and (b) by
Mr. Grow for "Good Reason", as those terms are defined in the agreement. Payment of severance to Mr. Grow will be delayed by six months to the extent necessary to avoid payment of surtax
pursuant to Section 409A of the Internal Revenue Code. If any payments or benefits to be provided to Mr. Grow would result in assessment of an excise tax under the "golden parachute"
rules of the Code, such payments and benefits will be reduced to the extent necessary to avoid such taxes if this would increase the after-tax benefit to Mr. Grow. Mr. Grow
is entitled to recover attorneys' fees from the Company if he prevails in a legal action to enforce provisions of his employment agreement. Mr. Grow's agreement provides that he will refrain
from engaging in certain
activities that are competitive with the Company and its business during his employment and for 12 months thereafter.

The
Amendments and Mr. Grow's employment agreement are attached as exhibits to this Quarterly Report on Form 10-Q.

ITEM 6.    Exhibits.

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

26

---





Table of Contents

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.

November 6, 2009

FGX INTERNATIONAL HOLDINGS LIMITEDBy:

/s/ ANTHONY DI PAOLAAnthony Di PaolaTitle:

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


27

---





Table of Contents

Exhibit List

Exhibit
Number

Exhibit Description2.1

Asset Purchase Agreement, dated July 23, 2009, by and between FGX International Inc. and Crimzon Rose International, LLC(1)2.2

Purchase Order, dated July 23, 2009, issued by Head Link One Co., Limited to FGX International Inc.(1)2.3

Customer Support Agreement, dated July 23, 2009, by and between FGX International Inc. and Crimzon Rose International, LLC(1)2.4

Stock Purchase and Sale Agreement, dated October 28, 2009, by and among Corinne McCormack, Inc., Eye-Bar, Inc., Corinne A. McCormack and FGX International Inc.3.1

Amended and Restated Memorandum of Association(2)3.2

Amended and Restated Articles of Association(3)10.1

Amendment No. 2 to the Amended and Restated Employment Agreement by and among FGX International Inc., Alec Taylor and FGX International Holdings Limited, dated as of November 6, 2009.10.2

Amendment No. 2 to the Amended and Restated Employment Agreement by and between John H. Flynn, Jr. and FGX International Inc., dated as of November 6, 2009.10.3

Amendment No. 2 to the Amended and Restated Employment Agreement by and between Steven Crellin and FGX International Inc., dated as of November 6, 2009.10.4

Amendment No. 2 to the Employment Agreement by and between Anthony Di Paola and FGX International Inc., dated as of November 6, 2009.10.5

Amendment No. 2 to the Employment Agreement by and between Jeffrey J. Giguere and FGX International Inc., dated as of November 6, 2009.10.6

Amendment No. 2 to the Employment Agreement by and between Gerald Kitchen and FGX International Inc., dated as of November 6, 2009.10.7

Amendment No. 2 to the Employment Agreement by and between Richard W. Kornhauser and FGX International Inc., dated as of November 6, 2009.10.8

Employment Agreement by and between Robert Grow and FGX International Inc., dated as of November 6, 2009.31.1

Section 302 Certification of CEO31.2

Section 302 Certification of CFO32.1

Section 906 Certification of CEO32.2

Section 906 Certification of CFO


(1)Incorporated
by reference to the filing of such exhibit with out Quarterly Report on Form 10-Q for the quarterly period ended
July 4, 2000 filed with the SEC on August 7, 2009.(2)Incorporated
by reference to the filing of such exhibit with our Quarterly Report on Form 10-Q for the quarterly period ended
September 29, 2007 filed with the SEC on December 12, 2007.(3)Incorporated
by reference to the filing of such exhibit with our Current Report on Form 8-K filed with the SEC on April 9, 2008.


28

---