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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-K

|  |  |                                                                                     
|- |  | ------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2003

or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to

Commission File Number: 1-13606

SOLA INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)


DELAWARE
(State or other jurisdiction of
incorporation or organization)

94-3189941
(I.R.S. employer identification no.)

10590 WEST OCEAN AIR DRIVE, SUITE 300, SAN DIEGO, CA
(Address of principal executive offices)

92130
(Zip Code)

Registrants telephone number, including area code: (858) 509-9899

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

Title of each class:Common Stock, Par Value $0.01

Name of exchange on which registered:New York Stock Exchange

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   o

Indicate by check mark whether the registrant is an accelerated filer as
defined in Exchange Act Rule 12b-2.
Yes   x   No   o

As of September 30, 2002, the aggregate market value of Common Stock held
by non-affiliates was approximately $246,890,049. For purposes of this
computation, shares held by directors and executive officers of the registrant
have been excluded. Such exclusion of shares held by directors and executive
officers is not intended, nor shall it be deemed, to be an admission that such
persons are affiliates of the registrant.

As of
June 12, 2003, 24,728,933 shares of the registrants common stock, par
value $0.01 per share, which is the only class of common stock of the
registrant, were outstanding. The registrants stock is traded on the New York
Stock Exchange under the symbol SOL.

Documents Incorporated by Reference: Portions of the registrants proxy
statement for its 2003 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report.





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TABLE OF CONTENTS



|                  |                                                                                                         |  |  |  |  |  |  | 
|----------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I           
|                  | Item 1. Business                                                                                       
|                  | Item 2. Properties                                                                                     
|                  | Item 3. Legal Proceedings                                                                              
|                  | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II          
|                  | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters                      
|                  | Item 6. Selected Financial Data                                                                        
|                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                  | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|                  | Item 8. Financial Statements and Supplementary Data                                                    
|                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III         
|                  | Item 10. Directors and Executive Officers of the Registrant                                            
|                  | Item 11. Executive Compensation                                                                        
|                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                  | Item 13. Certain Relationships and Related Transactions                                                
|                  | Item 14. Controls and Procedure                                                                        
|                  | Item 15. Principal Accountant Fees and Services                                                        
|PART IV          
|                  | Item 16. Exhibits, Financial Statement Schedule and Reports on Form 8-K                                
|SIGNATURES       
|Certification    
|INDEX OF EXHIBITS
|EXHIBIT 12.1     
|EXHIBIT 21.1     
|EXHIBIT 23.1     
|EXHIBIT 99.1     



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SOLA INTERNATIONAL INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2003

|         |  |                                                                                                |  |     
|-------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                |  | Page
|         |  |                                                                                                |  |     
|PART I   |  |                                                                                                |  |     
|Item 1.  |  | Business                                                                                       |  | 1   
|Item 2.  |  | Properties                                                                                     |  | 9   
|Item 3.  |  | Legal Proceedings                                                                              |  | 10  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                            |  | 10  
|PART II  |  |                                                                                                |  |     
|Item 5.  |  | Market for the Registrants Common Equity and Related Stockholder Matters                      |  | 11  
|Item 6.  |  | Selected Financial Data                                                                        |  | 12  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 13  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 28  
|Item 8.  |  | Financial Statements and Supplementary Data                                                    |  | 30  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 30  
|PART III |  |                                                                                                |  |     
|Item 10. |  | Directors and Executive Officers of the Registrant                                             |  | 31  
|Item 11. |  | Executive Compensation                                                                         |  | 32  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |  | 32  
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  | 33  
|Item 14. |  | Controls and Procedures                                                                        |  | 33  
|Item 15. |  | Principal Accountant Fees and Services                                                         |  | 33  
|PART IV  |  |                                                                                                |  |     
|Item 16. |  | Exhibits, Financial Statement Schedule and Reports on Form 8-K                                 |  | 33  
|         |  | Signatures                                                                                     |  | 34  
|         |  | Certifications                                                                                 |  | 35  

Our trademarks, service marks and trade names include AO bActive, AO
Compact, Finalite, Percepta, SOLAMax, Spectralite and ViZio, among others. This
report also contains trademarks, service marks, copyrights and trade name of
other companies.

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PART I




Item 1.Business

Forward-Looking Information

Certain of the matters discussed in this report or in the information
incorporated by reference may constitute forward-looking statements.
Forward-looking statements can generally be identified by the use of
forward-looking terminology such as believes, expects, may, will,
should, seeks, approximately, intends, plans, estimates, or
anticipates or the negative of these terms or other comparable terminology,
or by discussions of strategy, plans or intentions. Statements contained in
this report that are not historical facts are forward-looking statements.
Without limiting the generality of the preceding statement, all statements in
this report concerning or relating to estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial results
are forward-looking statements. In addition, we, through our senior management,
from time to time make forward-looking public statements concerning our
expected future operations and performance and other developments. These
forward-looking statements are necessarily estimates reflecting our best
judgment based upon current information and involve a number of risks and
uncertainties. Other factors may affect the accuracy of these forward-looking
statements and our actual results may differ materially from the results
anticipated in these forward-looking statements. While it is impossible to
identify all relevant factors, factors that could cause actual results to
differ materially from those estimated by us include, but are not limited to,
those factors or conditions described in Managements Discussion and Analysis
of Financial Condition and Results of OperationsRisk Factors, as well as
changes in the regulation of the spectacle lens industry at either or both of
the federal and state levels, competitive pressures in the spectacle lens
industry and our response to these factors, and general conditions in the
economy and capital markets.

All subsequent written and oral forward-looking statements attributable to
SOLA and persons acting on our behalf are qualified in their entirety by the
cautionary statements contained in this report.

The Company

We commenced operations in 1960 and were incorporated in Delaware in 1993.
We are a leading designer, manufacturer and global distributor of a broad range
of plastic and glass eyeglass lenses and hold a strong manufacturing and
technology position in the growing plastic lens segment of the global spectacle
lens market. We have sales offices in 28 countries worldwide and operate in
most major regions of the world. We believe that we hold a top three market
position in terms of volume of plastic eyeglass lenses sold in each major
region where we operate  North America, Europe and Rest of World (consisting
primarily of Australia, Asia and South America). We focus our efforts on
products with advanced design characteristics, lens coatings and treatments,
and thin and light weight materials.

We market our spectacle lens products globally under the brands SOLA and
American Optical (AO) and distribute them globally through four primary
channels: (1) direct to national retail chains, (2) direct to retail outlets,
(3) wholesale distributors (e.g.,independent processing laboratories), and (4)
managed care organizations in the United States.

Our business is organized into three primary markets: North America,
Europe and Rest of World. For the fiscal year ended March 31, 2003, we
generated approximately 44% of our net sales from North America, 37% from
Europe and 19% from Rest of World.



| |  |  | North America is currently our largest market. Our net sales in North
America for the fiscal year ended March 31, 2003 were $249.2 million
compared to $236.8 million in the prior year, an increase of 5.2%.
Using constant exchange rates, net sales increased by 5.5%. The sales
increase in North America was due primarily to our sales and marketing
initiatives, improved supply chain management, and increased
prescription laboratory presence.                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Europe is currently our second largest market. Our net sales in Europe for
the fiscal year ended March 31, 2003 were $210.3 million compared to
$185.8 million in the prior year, an increase of 13.2%. Using constant
exchange rates, net sales increased by 1.5%. Net sales in the European
region increased due primarily to growth from our prescription laboratory
network in France, Italy and Spain that was partially offset by weaker
results from our wholesale businesses in Germany and the U.K.

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| |  |  | Rest of World is currently our third largest market. Our net sales in Rest
of World for the year ended March 31, 2003 were $103.3 million compared to
$106.9 million in the prior period, a decrease of 3.4%. Using constant
exchange rates, net sales increased by 0.6%. Net sales increased in the
Rest of World primarily in South America. This increase was partially
offset by sales declines in Asia, including Japan, and the Middle East due
largely to current economic and political conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For more information concerning our geographic areas, see Note 20 of Notes
to Consolidated Financial Statements and Risk FactorsRisk Factors Relating to
SOLA and the IndustryWe are subject to certain risks associated with our
foreign operations, We concentrate a large part of our manufacturing
operations in Tijuana, Mexico and We conduct all of our foreign operations
through subsidiaries and the payment of dividends by these entities may be
restricted.

Competitive Strengths

We believe that our strong competitive position is attributable to a
number of factors, including the following:

Global Scope

We currently sell our products to customers in approximately 50 countries
worldwide and operate in most major regions of the world. Our geographically
diverse customer base limits our dependence upon any particular customer or
geographic region. Our operations consist of four primary and seven specialized
manufacturing facilities, one primary research and development center, 31
full-service prescription laboratories and five primary distribution centers.
In addition, we have sales offices in 28 countries worldwide. Our global scope,
combined with our manufacturing and logistics capabilities, enables us to meet
customer demand for delivery of a broad range of products efficiently, cost
effectively and in a timely manner. Our primary brands, SOLA and AO, are
recognized throughout the world. We believe global brand recognition is a
significant advantage in the highly competitive spectacle lens market.

Leading Market Position

We believe that we hold a top three market position in terms of volume of
plastic eyeglass lenses sold in most major regions of the world, including
leading market positions in Australia, Brazil, France, Italy, the United
Kingdom, and the U.S.

Significant Sales of Valued-Added Products

We focus our efforts on products with advanced design characteristics,
lens coatings and treatments, and thin and light weight materials. We believe
our value-added products enable us to strengthen relationships with existing
customers and develop relationships with new customers. Many of our value-added
products are sold under global brand names developed under our two primary
brands, SOLA and AO.

Research and Development Expertise

We believe that we are a technological leader in the plastic lens segment
of the spectacle lens industry, with particular expertise in the development of
new lens materials and designs. We have devoted significant resources to the
research and development of new products and technology, with expenditures of
$12.2 million in fiscal 2003, $13.1 million in fiscal 2002, and $14.9 million
in fiscal 2001. The $0.9 million, or 6.9%, decrease in our research and
development expenses in fiscal 2003 was due in part to headcount reductions
associated with the transfer of research and development activities from our
Petaluma, California facilities to Lonsdale, Australia. Over the last ten
years, we have successfully developed and marketed a number of innovative
products. Most notable are our progressive lens designs (lenses that have a
continuous gradient of corrective power), including Percepta, SOLAMax, AO
Compact and AO bActive, and our proprietary thin and light weight materials,
Spectralite and Finalite. These products incorporate complex design features
that differentiate them from our competitors products. Sales of new products
generally have experienced a higher growth rate and generated an above average
gross profit per pair compared to other plastic lenses sold by us. Our
technical expertise is demonstrated by our receipt of numerous Optical
Laboratory Association awards for technical design excellence.

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Leading Position in the Growing Chain Retail and Managed Care Channels

We believe that we hold the leading market position in terms of volume of
plastic lenses sold in the North American chain retail and managed care
distribution channels. We have established our strong position in these
channels by providing differentiated new products, timeliness of delivery and a
commitment to product quality, technical support and product education. We work
with most major retail chains in North America, including Wal-Mart Stores,
Inc., LensCrafters and U.S. Vision, Inc. Our commitment to quality and customer
service is evidenced by Wal-Mart selecting us as category manager for its
optical lens business. In addition, our managed care customers include Kaiser
Permanente and Vision Service Plan (VSP). Our managed care customers select us
as their preferred spectacle lens supplier primarily because of our broad
product portfolio and superior marketing support services.

Strong Direct to Retail Business in Europe

Although the U.S. market is the single largest spectacle market in the
world, we benefit from our global diversity and, most specifically, from our
strong operations in Europe. The significant growth of our direct to retail
business is driven by highly experienced commercial teams across Europe that
are supported by our vertically integrated network of prescription
laboratories. We have five primary prescription laboratories in Europe, which
allow us to directly meet the needs of the eyecare professionals in markets
where an independent wholesale channel generally does not exist. Additionally,
we believe that these laboratories will enable us to penetrate new markets as
we introduce new products that require advanced technical processing
capabilities. Main supplier status with many retail chains and independent
practices alike is built on the cornerstone of a partnership approach and the
successful introduction of highly differentiated products.

Experienced Management Team

Our senior management team, led by President and Chief Executive Officer
Jeremy C. Bishop, has over 100 years of combined vision care industry
experience. Prior to his appointment as President and Chief Executive Officer
in April 2000, Mr. Bishop served as President of American Optical Lens Company,
a subsidiary of ours since its acquisition in 1996. Mr. Bishop joined American
Optical in 1990 as Vice President of European Operations. Under Mr. Bishops
leadership, we have reduced operating expenses, completed a number of key
strategic initiatives and improved our financial performance. Mr. Bishop and
his senior management team have fostered a new culture geared towards continued
cost reduction, strengthened sales and marketing, new product development and
cash flow generation.

Increased Emphasis on Driving Demand Through Wholesale Market

Through outright purchases of labs and restrictive distribution contracts,
our competitors have made significant strides in controlling access to
independent eye care professionals (ECPs). We have launched multiple
initiatives to address this trend and strengthen our position in this channel.
In the past year, we have significantly increased hiring of sales
representatives, and created a comprehensive training program for them to
increase their optical and selling skills. The addition of these sales
representatives and investments in prescription laboratories, including
acquired laboratories, has increased our reach in the channel.

In addition, we invested $17.3 million during fiscal 2003 for the
acquisition of certain net assets and/or stock of five prescription
laboratories located in the U.S. The acquisition of these businesses will play
an important role in helping us to realize our objectives with independent
retailers. Our operating model continues to emphasize creating profitable
growth for eye care professionals by providing them with innovative products,
dispensing tools and marketing programs supported by superior customer service.
Our continued focus on supplying high-technology products requires that we
posses a robust distribution system for their delivery. Laboratories, both
wholly-owned and independent, are a vital component of that solution.

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Innovative, Need-Specific Products

As the market becomes increasingly saturated with products, especially in
the progressive addition lens category, it becomes necessary to do more to
differentiate a new product. We have accomplished this with lens designs
meeting specific needs of a significant number of lens wearers that are not
ideally met by general-purpose lenses already established in the market.
SOLAMax, the latest progressive lens in the SOLA line, is an excellent example
of this. SOLAMax has the largest near vision area of any progressive lens.
This, combined with its exceptionally high adaptation rate, makes it the ideal
choice for new presbyopes, former bifocal wearers, and any presbyope who has a
near vision emphasis. Presbyopia is a natural aging process that limits the
eyes ability to focus on near objects and is the principal driver behind the
need for multi-focal vision correction.

Business Strategy

Our strategy is to enhance our strong market position and to increase net
sales and cash flow by capitalizing on our position as a leading manufacturer
and distributor of plastic eyeglass lenses.

Capitalize on Positive Demographic Trends Affecting the Vision Care Industry

We believe that we are well positioned to benefit from the positive
demographic changes expected to take place in our markets. According to the
U.S. Census, middle series projections, the number of people in the age group
45-60 is expected to grow approximately 3% per year, through 2005. Further, the
market for progressive lenses is expected to double in size from 2003 to 2015.
This age group is the group primarily affected by presbyopia. Presbyopia
affects the vast majority of people above the age of 45 and is a major source
of demand for our progressive and other multifocal lenses. Our leading position
in the design and manufacture of progressive lenses positions us favorably to
realize the benefit of this demographic trend. We will continue to focus on the
further development and enhancement of our progressive lens designs.

Focus on Marketing and Sales

We develop and manage our marketing strategy on a centralized basis while
employing local sales and marketing implementation and tactics. We
differentiate our products from those of our competitors through lens designs,
materials and coatings targeted to meet customer needs. We seek to expand our
market share by developing brand recognition for our products, continuing to
develop partnerships with chain retailers, expanding our direct to retail
business through our prescription laboratories and through independent
laboratories, focusing marketing expenditures on target markets and accounts,
and marketing to customers the advantage of higher margin, value-added
products. We continue to market our two primary brands, SOLA and AO, and to
position them throughout the world. Our marketing efforts are intended to help
us compete on the basis of quality and service rather than price.

Introduce New Products

We invest significant resources in the development of new and innovative
products. Since 1998, we have successfully developed and marketed a number of
proprietary lens designs, including AO Compact, SOLAMax and AO bActive
progressive lenses. In April 2002, we announced a global licensing agreement
with DuPont Fluoroproducts where we market a newly developed high performance
coating for ophthalmic lenses using the Dupont  Teflon ® brand.

Improve Cash Flow Performance

A primary focus of ours is executing key business fundamentals and
managing our business for improved financial performance, including cash flow
generation. During fiscal 2000 through 2002 we implemented strategic
initiatives aimed at streamlining and standardizing our operations globally. No
additional restructuring occurred in fiscal 2003. The initiatives had the
following major objectives:



| |  |  | To shift production of high-volume, standard products from higher-cost
manufacturing facilities in the United States, Australia and Ireland to
low-cost manufacturing sites in Mexico, China and Brazil;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | To consolidate manufacturing expertise at fewer production facilities;                                                                                                                                  

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| |  |  | To standardize product specifications globally; and 
| | - |  | ----------------------------------------------------
|
| |  |  | To streamline distribution and logistics operations.

We believe that these initiatives have resulted in cost reductions, lower
working capital investment, a more efficient distribution network, and improved
cash flow while maintaining or improving our customer service levels. Other
actions to improve profitability included developing global information
technologies that enable us to manage global inventories and demand and monitor
manufacturing performance.

Products

We manufacture lenses using both plastic and glass materials, with plastic
lenses currently accounting for approximately 95% of our net lens sales.
Approximately 53% of our sales of plastic prescription lenses are sales of
conventional hard resin plastic lenses, with the balance derived from advanced
lens materials with thin and light weight features. Our plastic lens materials
are comprised of the following:



| |  |  | Conventional hard resin plastic;                                                  
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | Spectralite, Finalite and other non-proprietary thin and light weight
plastic; and
|
| |  |  | Polycarbonate, a thin and lightweight material with greater impact
resistance.    

We market and produce a variety of lens coatings and treatments that
significantly enhance the performance of our lens products. These coatings and
treatments include the following:



| |  |  | Anti-scratch coatings that prolong the life of our lenses;                                      
| | - |  | ------------------------------------------------------------------------------------------------
|
| |  |  | Anti-reflective coatings that allow more light to pass through the lens
for improved vision; and
|
| |  |  | Photochromic treatments that darken the lens when exposed to direct
sunlight.                   

The penetration of coated and treated lenses varies significantly from
market to market and represents a significant growth opportunity for us.
Photochromic lenses are processed by a third party using technology that is
proprietary to it.

Most of the materials necessary to produce our products and coatings are
readily available from a number of potential sources at competitive prices.
While there are currently multiple suppliers of polycarbonate and monomer raw
materials, we purchase over 50% of those materials from three suppliers. The
loss of any of these suppliers, or a significant decrease in the supply of
polycarbonate or monomer, would require us to obtain these raw materials
elsewhere. In order to reduce materials costs, we coordinate centrally the
purchasing of raw materials, including monomers. For more information regarding
the availability of polycarbonate and monomer raw materials, see Risk
FactorsRisks Relating to SOLA and the IndustryWe are dependent on a small
number of suppliers for raw materials.

Marketing and Sales

Our sales offices are located in 28 countries worldwide. As of March 31,
2003, there were approximately 684 employees involved in our sales and
marketing efforts. Our sales and marketing expenditures for fiscal 2003 were
$106.9 million, representing 19% of net sales. We differentiate our products
from those of our competitors through lens designs, materials and coatings
targeted to meet customer needs. We seek to expand our market share by
developing brand recognition for our products, continuing to develop
partnerships with chain retailers, expanding our direct to retail business
through our prescription laboratories and through independent laboratories,
focusing our marketing expenditures on target markets and accounts and
marketing to customers the advantage of higher margin, value-added products.
Our marketing efforts are intended to help us compete on the basis of product
breadth, quality and service rather than price.

We continue to develop our two primary brands, SOLA and AO, and to
position them throughout the world. Under each of these brands, we will
continue to market a portfolio of products designed to meet the lifestyle needs
of consumers worldwide. Key brands of ours recognized throughout the world
include Percepta, AO Compact, SOLAMax and AO bActive.

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Distribution

Most multifocal lenses and some single vision lenses require secondary
processing at a laboratory before they can be dispensed to a consumer. In some
cases, lens manufacturers operate their own laboratories, while in other
instances they sell semi-finished lenses to independent labs that handle the
final processing and distribute the products to eyecare practitioners. Many
retail chains operate their own laboratories, either inside the retail location
or at a separate site.

The final stage in distribution takes place in either a retail store or an
independent eyecare practitioners office. Although dispensing regulations
differ from market to market, prescription lenses still require the involvement
of an optician, optometrist or ophthalmologist in most instances before they
can be sold to a consumer. Chain retailers have an increased presence in all
regions of the world and are gradually replacing the medical/healthcare
orientation of the industry with more consumer-oriented approaches.

The four primary channels that are used for distribution of our
prescription lenses are the following:



| |  |  | National chain retail, super optical retail stores and retail buying
groups, many of which have on-site lens processing capability. This is a
growing distribution channel for us in each of our major regions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Direct distribution to small- and medium-sized retail outlets, including
distribution direct to eyecare professionals through our processing
laboratories;                                                     
|
| |  |  | Wholesale distributors or independent processing laboratories that process
our lenses and then resell them to retail outlets and eyecare
practitioners; and                                                    
|
| |  |  | Managed care organizations in the United States, many of which have
on-site lens processing capability.                                                                                                        

Our plano lenses (lenses with no corrective power) are primarily sold
direct to sunglass manufacturers.

Our distribution and logistics operations consist of five primary
distribution centers. The five primary distribution centers are located in
North America (2), Europe, Asia and South America. For more information
regarding our North American chain retail channel, see Risk FactorsRisks
Relating to SOLA and the IndustryWe are dependent upon the North American
chain retail channel.

Customers

During fiscal 2003, our ten largest customers accounted for 27.9% of net
sales, and our largest customer accounted for less than 6% of net sales. During
fiscal 2003, five of our ten largest customers were located in North America
and accounted for 14.9% of net sales. For the year ended March 31, 2003, sales
to our top 20 customers, excluding competitors, increased by 17.4% as compared
to the prior year.

Manufacturing Operations

We currently operate eleven facilities, four primary and seven specialized
manufacturing sites worldwide. Recent strategic initiatives included shifting
production of high-volume, standard products from the U.S., Australia and
Ireland to low-cost manufacturing sites in Mexico, China and Brazil while
maintaining complex production at the Australian and Irish sites. This transfer
of production was facilitated by a global product standard specifications
project.

Research and Development

We continue to invest heavily in research and development in order to
introduce new and innovative products and to improve the efficiency of our
manufacturing process. As of March 31, 2003, there were 122 employees involved
in our research and development efforts. Our research and development
expenditures for fiscal 2003 were $12.2 million, representing 2.1% of net
sales, for fiscal 2002 were $13.1 million, representing 2.5% of net sales, and
for fiscal 2001 were $14.9 million, representing 2.7% of net sales. Our primary
research and development center is located in Lonsdale, Australia.

6



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Our research and development focuses on the design and development of
higher margin, value-added products, on new materials with superior
characteristics, on technology that will deliver products to the market more
efficiently and on technologies to improve productivity in the manufacture of
existing products.

In April 2002, we announced a global licensing agreement with DuPont
Fluoroproducts where we market a newly developed anti-reflective coating for
ophthalmic lenses using the Dupont  Teflon ® brand.

Competition

The spectacle lens industry is highly competitive. We compete principally
on the basis of customer service, quality, breadth of product offerings,
innovation and price. Our largest global competitors are Essilor International
SA and Hoya Corporation. The spectacle lens industry is characterized by price
competition, which can be severe in certain markets, particularly for
high-volume, standard products.

We attempt, to the extent possible, to counter competition on the basis of
price by focusing on providing a rapid response to orders, maintaining high
fill rates, developing differentiated new products and educating processing
laboratories and eyecare practitioners on the benefits of our lenses and
coatings. Since recently developed products comprise a substantial portion of
our sales, our performance is dependent on our continuing ability to develop
and market new products.

In addition to direct competition from other manufacturers of eyeglass
lenses, we compete indirectly with manufacturers of contact lenses and
providers of medical procedures for the correction of visual impairment.

Patents, Trademarks & Licenses

We seek to protect our intellectual property throughout the world. As of
March 31, 2003, we had filed, or applied for, patents for 98 discrete
inventions or technologies. Many of our patents have been filed in multiple
countries, and they include 71 patents, or patent applications, filed in the
United States. We have been granted, or are licensed to use, 1,055 trademarks
in various countries, representing rights to 251 discrete names. These include
92 trademarks granted in the United States. Further, there are 82 trade names
under application by us. We do not believe that we are dependent on any
particular patent, trade secret or similar intellectual property. Because of
our manufacturing, marketing and distribution strengths, we believe that the
loss of any individual trademark, trade secret or patent would not have a
material adverse effect on our results of operations or financial condition.

Employees

As of March 31, 2003, we had 6,791 employees throughout the world. The
majority of our employees are not represented by labor unions. We consider our
labor relations to be good and there have been no significant labor disputes in
the past ten years.

Strategic Initiatives

Our organization has historically been managed on a decentralized basis
with each operating unit having its own manufacturing facilities, distribution
centers and inventory management systems. This decentralized approach resulted
in excess manufacturing capacity, redundant facilities in high cost regions and
excessive distribution centers. In the third quarter of fiscal 1999, we
initiated a strategic operating review designed to streamline manufacturing and
distribution, reduce operating costs worldwide and write-off inventory SKUs
that are no longer being manufactured. In April 2000, Jeremy Bishop was
appointed President and Chief Executive Officer. Following his appointment, Mr.
Bishop expanded the scope of our strategic review program and accelerated the
implementation of our strategic initiatives begun in 1999.

The charges recorded for these initiatives from fiscal 1999 through the
end of fiscal 2001, net of gains on asset sales, totaled approximately $167.7
million, including $39.5 million of associated inventory write-offs classified
in cost of sales. The non-cash charges related primarily to the write-off of
equipment and other assets, as well as the impairment of goodwill. The cash
charges related primarily to severance expenses and facility closures

7



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Environmental Matters

We must comply with United States and foreign environmental laws and
regulations concerning emissions to the air, wastewater discharges and the
generation, handling, storage, transportation and disposal of hazardous wastes,
and with other federal, state and foreign laws and regulations. We believe that
we possess all material permits and licenses necessary for the continuing
operation of our business and believe that our operations are in substantial
compliance with the terms of all applicable environmental laws. It is
impossible to predict accurately what effect these laws and regulations will
have on us in the future.

Our manufacturing processes generally use non-hazardous chemicals where
feasible. Certain processes use a variety of volatile and other hazardous
substances. Where practical, we have been reducing the use of these chemicals.
Where the use of hazardous materials is essential, manufacturing processes are
developed which minimize the use of these chemicals and which comply with
relevant safety and environmental standards. We have also developed programs
to eliminate use of chlorinated hydrocarbons and chlorofluorocarbons, or CFCs,
in our manufacturing processes. Our current use of these substances is minimal
in our operations.

Since 1988, we have operated a ground water remediation system at our
Petaluma, California manufacturing facility in accordance with a consent order
issued by the U.S. EPA under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980. The system is designed to remediate a
pre-1982 release of hazardous substances. Analytical results indicate that
contamination levels have decreased significantly over the past few years.
Since March 1997, we have curtailed clean-up activities, while continuing to
monitor contamination levels. In 1997, we submitted to the EPA a report on
contamination levels and the impact of curtailed activities that indicates no
significant impact on the site from the curtailed activities. The EPA has
consented to continued curtailment of clean-up activities. We expect continued
reduction of clean-up activities due to relatively low levels of contamination
existing at the site. In connection with the acquisition from Pilkington,
Pilkington has agreed to indemnify us with respect to environmental losses
relating to certain then existing facts, events, conditions, matters or issues,
for (1) 50% of the losses to the extent they exceed $1 million but are less
than or equal to $5 million, and (2) 100% of the losses in excess of $5
million. In March 2001, we completed the sale of the affected property and
indemnified the buyer with respect to certain then-existing facts, events,
conditions, matters or issues.

It is possible that we may be involved in other similar investigations and
actions under state, federal or foreign laws in the future. Based on currently
available information, we do not believe that our share of costs at the
existing sites is likely to result in a liability that will have a material
adverse effect on our results of operations, financial condition or cash flows.

Our policy is to meet or exceed all applicable environmental, health and
safety laws and regulations. The complexity and continuing evolution of
environmental regulation, including certain programs for which implementing
regulations have not yet been finalized, preclude precise estimation of future
environmental expenditures.

Regulation

To satisfy Food and Drug Administration safety requirements for sale of
lenses in the U.S., all of our lenses, like those of our competitors, must
comply with the drop-ball impact test. This test involves dropping a steel
ball of diameter 5/8 inches onto the surface of the lens from a height of 50
inches. The lens is held in place and the steel ball must impact the lens near
its center. The central region of the lens deflects as the ball strikes, and
cracks may form, which could lead to the fracture of the lens. The lens passes
the test if it does not break.

There is a similar European ISO/CEN test for spectacle lenses, which
involves a static load, rather than an impact. In this case, force is applied
to the convex side of the lens through a steel ball. The load is applied for 10
seconds and then removed. The lens passes if it does not break.

There are several factors that could contribute to whether our lenses pass
these tests, including the nature of the lens material, coatings applied to the
lenses and lens power and curvature. While our manufacturing processes are
designed for our lenses to pass these tests, we cannot guarantee that they will
continue to pass these tests.

Available Information

Our website address is www.sola.com. We make available free of charge
through our internet site our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and Forms 3, 4 and 5 filed on behalf of
directors and executive officers, and any amendments to these reports, filed or
furnished pursuant to the Securities Exchange Act of 1934 as soon as reasonably
practicable after they are electronically filed with or furnished to the
Securities and Exchange Commission.

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Item 2.Properties

Our principal properties are set forth in the following table:

|                         |  |          |  |                                                               
|------------------------ |  | -------- |  | --------------------------------------------------------------
|                         |  | Owned or |  |                                                               
|Region and Location      |  | Leased   |  | Principal Operations                                          
|                         |  |          |  |                                                               
|North America            |  |          |  |                                                               
|San Diego, CA            |  | Leased   |  | Corporate Offices; Distribution Center                        
|Petaluma, CA             |  | Leased   |  | Sales and Marketing; Administrative Offices                   
|Clearwater, FL           |  | Leased   |  | Manufacturing                                                 
|Hebron, KY               |  | Leased   |  | Distribution Center and Laboratory                            
|Southbridge, MA          |  | Leased   |  | Research and Development; Sales Office                        
|Baltimore, MD            |  | Leased   |  | Laboratory                                                    
|Portland, OR             |  | Owned    |  | Laboratory                                                    
|Warwick, RI              |  | Leased   |  | Manufacturing; Sales and Administrative Offices               
|Roanoke, VA              |  | Leased   |  | Laboratory                                                    
|Tijuana, Mexico          |  | Leased   |  | Manufacturing                                                 
|Mexico City, Mexico      |  | Leased   |  | Laboratory and Sales Office                                   
|Ontario, Canada          |  | Leased   |  | Sales Office                                                  
|                        
|Europe                   |  |          |  |                                                               
|Ghent, Belgium           |  | Leased   |  | Laboratory                                                    
|Copenhagen, Denmark      |  | Leased   |  | Sales Office                                                  
|Goetzenbruck, France     |  | Owned    |  | Manufacturing                                                 
|Fougeres, France         |  | Both     |  | Laboratory; Sales and Marketing                               
|Wexford, Ireland         |  | Owned    |  | Manufacturing; Laboratory                                     
|Varese, Italy            |  | Leased   |  | Laboratory; Manufacturing; Sales and Marketing                
|Setubal, Portugal        |  | Leased   |  | Laboratory and Sales                                          
|Birmingham, UK           |  | Leased   |  | Laboratory; Sales and Marketing; Administrative Offices       
|London, UK               |  | Leased   |  | Sales and Marketing; Distribution Center;                     
|Basel, Switzerland       |  | Owned    |  | Sales Office                                                  
|Barcelona, Spain         |  | Leased   |  | Sales Office                                                  
|                        
|South America            |  |          |  |                                                               
|Buenos Aires, Argentina  |  | Owned    |  | Sales Office                                                  
|Petropolis, Brazil       |  | Owned    |  | Manufacturing; Sales and Marketing; Distribution Center       
|Villa de Cura, Venezuela |  | Owned    |  | Manufacturing                                                 
|                        
|Asia                     |  |          |  |                                                               
|Kowloon Bay, Hong Kong   |  | Leased   |  | Sales Office                                                  
|Guangzhou, China         |  | Both     |  | China Corporate Offices and Manufacturing                     
|Osaka, Japan             |  | Leased   |  | Laboratory; Sales and Marketing                               
|Singapore                |  | Leased   |  | Manufacturing; Sales and Marketing; Laboratory                
|Selangor, Malaysia       |  | Leased   |  | Sales and Marketing; Laboratory                               
|                        
|Australia                |  |          |  |                                                               
|Lonsdale, Australia      |  | Both     |  | Manufacturing; Research and Development; Laboratory; Marketing
|                         |  |          |  | and Distribution Center; Administrative offices               
|Auckland, New Zealand    |  | Leased   |  | Laboratory and Sales                                          
|                        
|Africa                   |  |          |  |                                                               
|Harare, Zimbabwe         |  | Owned    |  | Laboratory                                                    

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Our corporate headquarters and certain of our manufacturing and
distribution operations are located near major earthquake faults. Operating
results could be materially affected in the event of a major earthquake. We are
predominantly self-insured for losses and interruptions caused by earthquakes.

For further information concerning our leased properties, see Note 17 of
Notes to Consolidated Financial Statements. Our operating leases have
expirations ranging from 2004 to 2014. While we do not anticipate any
difficulties in renewing or replacing such leases as they expire, we cannot be
certain that we can do so. We believe that our manufacturing capacity is
sufficient for our current needs.




Item 3.Legal Proceedings

In addition to the proceedings described under BusinessEnvironmental
Matters, we are involved in routine litigation incidental to our business. We
believe that this routine litigation will not have a material adverse effect on
our results of operations, financial condition, or cash flows. See Note 19 of
Notes to Consolidated Financial Statements.




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

No matters were submitted to a vote of our security holders during the
last quarter of fiscal 2003.

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PART II




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

Public Market for Common Stock

Our common stock has been listed on the New York Stock Exchange since
February 23, 1995 under the symbol SOL. The following table sets forth on a
per share basis the closing high and low sales prices for consolidated trading
in our common stock as reported on the New York Stock Exchange Composite Tape
for the fiscal quarters indicated.

|                                  |                                         |  |      |       |     |  |   |       | 
|--------------------------------- | --------------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                  |                                         |  | High |       | Low
|                                  |                                         |  |      |       |    
|Fiscal Year Ended March 31, 2003: |                                         |  |      |       |     |  |   |      
|                                  | First Quarter ended June 30, 2002       |  | $    | 15.07 |     |  | $ | 9.60  | 
|                                  | Second Quarter ended September 30, 2002 |  |      | 10.64 |     |  |   | 7.67  | 
|                                  | Third Quarter ended December 31, 2002   |  |      | 13.68 |     |  |   | 8.89  | 
|                                  | Fourth Quarter ended March 31, 2003     |  |      | 12.80 |     |  |   | 10.40 | 
|                                 
|Fiscal Year Ended March 31, 2002: |                                         |  |      |       |     |  |   |      
|                                  | First Quarter ended June 30, 2001       |  | $    | 14.52 |     |  | $ | 9.01  | 
|                                  | Second Quarter ended September 30, 2001 |  |      | 16.65 |     |  |   | 11.75 | 
|                                  | Third Quarter ended December 31, 2001   |  |      | 19.89 |     |  |   | 14.20 | 
|                                  | Fourth Quarter ended March 31, 2002     |  |      | 20.10 |     |  |   | 10.80 | 

On June 12, 2003, the closing price per share of our common stock on the
New York Stock Exchange was $17.29. As of June 12, 2003, we had 304 holders of
record of our common stock, which excludes beneficial owners of common stock
held in street name.

We have not declared or paid any cash dividends on our common stock since
December 1993. The Indentures governing our 6 7/8% Senior Notes and our 11%
Senior Notes restrict and limit the payment of dividends on our common stock.
We do not anticipate paying any cash dividends in the foreseeable future and
intend to retain future earnings for the development and expansion of our
business.

Recent Unregistered Issuances of Common Stock

On March
21, 2003, we acquired Siouxland Ophthalmic Labs, Inc., an Iowa
corporation,
and its partially owned subsidiary, Kansas City Ophthalmics, L.L.C.,
a Missouri limited liability
company, in a cash transaction. In connection with the acquisition,
we issued 4,422 shares of our
common stock to a substantial customer of Kansas City Ophthalmics in
consideration for a three-year Exclusive Supply Agreement between Kansas City Ophthalmics and
the customer. The
customer, who had been a member of Kansas City Ophthalmics, was
determined to be an
accredited investor under Rule 501(a) of
Regulation D, as it was a corporation with assets
totaling over $5,000,000. An exemption from registration is claimed
pursuant to Section 4(2) of
the Securities Act of 1933, as amended, and Rule 506
Regulation D promulgated thereunder.

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Item 6.Selected Financial Data

We derived the following selected statement of operations data for the
five fiscal years in the period ended March 31, 2003 and the balance sheet data
as of March 31, 2003, 2002, 2001, 2000 and 1999 from our audited consolidated
financial statements. You should read the financial data set forth below in
conjunction with the consolidated financial statements and related notes and
Managements Discussion and Analysis of Financial Condition and Results of
Operations. We have reclassified certain prior year items to conform with the
current years presentation. The reclassifications had no impact on total
assets or net income.

|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|--------------------------------------- | ----------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ------- | ------- | ------- |  | ------- | ------- | --- |  | - | ------- |  |  | - | ------- | 
|                                        |                                                             |  | Fiscal Year Ended March 31,          
|                                        |                                                             |  |                                      
|                                        |                                                             |  | 2003                                  |         | 2002 |  | 2001(1) |         | 2000(2) |  | 1999(3)
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |        
|                                        |                                                             |  | (in thousands, except per share data)
|Statements of Operations Data           |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |        
|                                        | Net sales                                                   |  | $                                     | 562,746 |      |  | $       | 529,505 |         |  | $       | 545,432 |     |  | $ | 543,445 |  |  | $ | 534,103 | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|                                        | Income/(loss) before extraordinary
item                     |  | $                                     | 1,563   |      |  | $       | 19,118  |         |  | $       | (67,999 | )   |  | $ | 741     |  |  | $ | 12,521  | 
|                                        | Extraordinary item, net of taxes                            |  |                                       |        |      |  |         |        |         |  |         | 1,471   | (4) |  |   |        |  |  |   |        | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|                                        | Net income/(loss)                                           |  | $                                     | 1,563   |      |  | $       | 19,118  |         |  | $       | (66,528 | )   |  | $ | 741     |  |  | $ | 12,521  | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|Earnings/(Loss) Per Share Data, Basic   |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |        
|                                        | Income/(loss) before extraordinary
item                     |  | $                                     | 0.06    |      |  | $       | 0.79    |         |  | $       | (2.83   | )   |  | $ | 0.03    |  |  | $ | 0.51    | 
|                                        | Extraordinary item                                          |  |                                       |        |      |  |         |        |         |  |         | 0.06    |     |  |   |        |  |  |   |        | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|                                        | Net income/(loss)                                           |  | $                                     | 0.06    |      |  | $       | 0.79    |         |  | $       | (2.77   | )   |  | $ | 0.03    |  |  | $ | 0.51    | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|                                        | Weighted average common shares
outstanding                  |  |                                       | 24,573  |      |  |         | 24,067  |         |  |         | 24,049  |     |  |   | 24,887  |  |  |   | 24,794  | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|Earnings/(Loss) Per Share Data, Diluted |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |        
|                                        | Income/(loss) before extraordinary
item                     |  | $                                     | 0.06    |      |  | $       | 0.78    |         |  | $       | (2.83   | )   |  | $ | 0.03    |  |  | $ | 0.49    | 
|                                        | Extraordinary item                                          |  |                                       |        |      |  |         |        |         |  |         | 0.06    |     |  |   |        |  |  |   |        | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|                                        | Net income/(loss)                                           |  | $                                     | 0.06    |      |  | $       | 0.78    |         |  | $       | (2.77   | )   |  | $ | 0.03    |  |  | $ | 0.49    | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 
|                                        | Weighted average common and dilutive
securities outstanding |  |                                       | 24,856  |      |  |         | 24,583  |         |  |         | 24,049  |     |  |   | 25,069  |  |  |   | 25,412  | 
|                                        |                                                             |  |                                       |         |      |  |         |         |         |  |         |         |     |  |   |         |  |  |   |         | 

|                   |                                      |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------ | ------------------------------------ |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                   |                                      |  | As of March 31,
|                   |                                      |  |                
|                   |                                      |  | 2003            |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                   |                                      |  |                 |         |      |  |      |         |      |  |     
|Balance Sheet Data |                                      |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        
|                   | Total assets                         |  | $               | 759,079 |      |  | $    | 713,065 |      |  | $    | 662,375 |  |  | $ | 715,033 |  |  | $ | 699,299 | 
|                   | Long-term debt, less current
portion |  |                 | 324,204 | (5)  |  |      | 278,245 |      |  |      | 254,910 |  |  |   | 209,234 |  |  |   | 208,414 | 
|                   | Total
stockholders equity           |  |                 | 261,957 |      |  |      | 261,362 |      |  |      | 235,375 |  |  |   | 327,802 |  |  |   | 332,362 | 



|(1) |  | In fiscal 2001, we recorded special charges of $91.1 million and
inventory write-offs of $25.6 million, or $79.3 million net of tax. See
Note 13 of Notes to Consolidated Financial Statements.                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In fiscal 2000, we recorded special charges of $22.3 million and
inventory write-offs of $7.2 million, or $20.4 million net of tax. See
Note 13 of Notes to Consolidated Financial Statements.                                                                                                
|   
|(3) |  | In fiscal 1999, we recorded special charges of $14.8 million and
inventory write-offs of $6.6 million, or $14.6 million net of tax. See
Note 13 of Notes to Consolidated Financial Statements.                                                                                                
|   
|(4) |  | Consists of a gain resulting from the repurchase of senior notes, net of
tax.                                                                                                                                                                                                                 
|   
|(5) |  | Increase in long-term debt is due entirely to the strengthening of the
Euro versus the U.S. Dollar. Utilizing the exchange rate as of March 31,
2002, long-term debt, less current portion at March 31, 2003, would have
been $279.2 million, an increase of $1.0 million from the prior year.

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

You should read the following discussion and analysis together with our
consolidated financial statements and related notes included in this report.
This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. You should read the cautionary statements made
in this report as applying to related forward-looking statements wherever they
appear in this report. Our actual results may be materially different from the
results we discuss in the forward-looking statements due to various factors,
including those discussed in the Risk Factors and other sections of this
report.

Overview

We are a leading global designer, manufacturer and distributor of a broad
range of plastic and glass eyeglass lenses and hold a leading manufacturing and
technology position in the fast growing plastic lens segment of the global
spectacle lens market. We have sales offices in 28 countries worldwide and
operate in most major regions of the world. We believe that we hold a top three
market position in terms of volume of plastic eyeglass lenses sold in each
major region where we operate- North America, Europe and Rest of World
(consisting primarily of Australia, Asia and South America). We focus our
efforts on products with advanced design characteristics, lens coatings and
treatments and thin and light weight materials.

We market our spectacle lens products globally under the brands SOLA and
American Optical (AO) and distribute them globally through four primary
channels: (1) direct to national retail chains, (2) direct to retail outlets,
(3) wholesale distributors (e.g.,independent processing laboratories), and (4)
managed care organizations in the United States.

Our business is organized into three primary markets: North America,
Europe and Rest of World. For the fiscal year ended March 31, 2003, we
generated approximately 44% of our net sales from North America, 37% from
Europe and 19% from Rest of World.

Our business is somewhat seasonal, with fiscal third quarter results
generally weaker than the other three quarters. Fiscal fourth quarter results
are generally the strongest.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Our
estimates, judgments and assumptions are continually evaluated based on
available information and experience; however, actual amounts could differ from
those estimates. Our significant accounting policies are described in Note 2 of
the Notes to Consolidated Financial Statements.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for losses that we estimate
will arise from our customers inability to make required payments. We make
our estimates of the uncollectibility of our accounts receivable by analyzing
historical bad debts, specific customer credit worthiness, transaction history
with the customer and current economic trends. At March 31, 2003, the
allowance for doubtful accounts was $9.0 million and, at March 31, 2002, it was
$8.4 million. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. In fiscal 2003, our bad debt expense was $1.6
million compared to $2.3 million in fiscal 2002 and $3.0 million in fiscal
2001.

Valuation of Inventory

We write down our inventory for estimated obsolescence or
unmarketablility. The amount of such writedown is equal to the difference
between cost of inventory and the estimated market value based upon assumptions
about future demand, selling prices and market conditions. Our inventories
include components that may be subject to rapid technological obsolescence and
that are sold in a highly competitive industry. If actual product demand or
selling prices are less favorable than we estimate, we may be required to
record additional inventory write-downs in the future. Significant
unanticipated changes in demand or technological development could have a
material and significant impact on the future value of our inventory and
reported operating results.

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Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves us estimating our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets
will be realized from future taxable income and, to the extent we believe that
it is more likely than not that some or all of such assets will not be
realized, we must establish a valuation allowance. To the extent we establish a
valuation allowance or increase this allowance in a period, we must reflect
this adjustment within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision
for income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance of $13.7 million as of March 31, 2003, due to uncertainties
related to our ability to utilize some of our deferred tax assets, primarily
consisting of certain foreign net operating losses carried forward. The
valuation allowance is based on our estimates of taxable income by jurisdiction
in which we operate and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ from these estimates or we
adjust these estimates in future periods we may need to establish an additional
valuation allowance, which could impact our financial position and results of
operations.

The net deferred tax assets less deferred tax liabilities as of March 31,
2003 was $48.7 million, net of a valuation allowance of $13.7 million.

Valuation of Goodwill and Intangible Assets

At March 31, 2003, goodwill amounted to $208.8 million and identifiable
intangible assets amounted to $0.6 million.

We assess the impairment of identifiable intangibles and goodwill whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable, or at least annually in the case of goodwill. Factors we consider
important that could trigger an impairment review include the following:



| |  |  | Significant underperformance relative to expected historical or projected future operating results;          
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
|
| |  |  | Significant negative industry or economic trends;                                                            
|
| |  |  | Significant decline in our stock price for a sustained period; and                                           
|
| |  |  | Our market capitalization relative to net book value.                                                        

If we were to determine that the carrying value of intangibles or goodwill
may not be recoverable based upon the existence of one or more of the above
indicators of impairment, we would measure an impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business model.

In fiscal 2002, we elected to adopt Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets; as a result,
we ceased to amortize our goodwill. We had recorded $6.6 million of
amortization on these amounts during fiscal 2001. In lieu of amortization, we
performed an initial impairment review of our goodwill in fiscal 2002 and
perform an impairment review annually.

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Retirement Benefits

Our employee pension benefit costs and obligations are dependent on our
assumptions used by actuaries in calculating such amounts. These assumptions
include discount rates, inflation, salary
growth, long-term return on plan assets, retirement rates, mortality rates and
other factors. We base the discount rate assumptions on investment yields
available at year-end on corporate long-term bond yields. Our inflation assumption
is based on an evaluation of external market indicators. The salary growth
assumptions reflect our long-term actual experience, the near-term outlook, and
assumed inflation. Retirement and mortality rates are based primarily on
actual plan experience. Actual results that may differ from our assumptions
are accumulated and amortized over future periods and, therefore, generally
affect our recognized expense and recorded obligation in those future periods.
While we believe that the assumptions used are appropriate, significant
differences in actual experience or significant changes in assumptions would
affect our pension benefits costs and obligations. See Note 15 of Notes to our
Consolidated Financial Statements for more information regarding costs and
assumptions for employee retirement benefits.

Effective March 31, 2003, we discontinued any further accruals to the
participants of its pension plan and all benefit levels as of a normal
retirement date were frozen for all participants.

Determining Functional Currencies for the Purpose of Consolidation

In preparing our consolidated financial statements, we are required to
translate the financial statements of the foreign subsidiaries from the
currency in which they keep their accounting records, generally the local
currency, into United States Dollars. This process results in exchange gains
and losses, which, under the relevant accounting guidance, are either included
within the statement of operations or as a separate part of our net equity
under the caption accumulated other comprehensive loss.

Under the relevant accounting guidance, the treatment of these translation
gains or losses is dependent upon our determination of the functional currency
of each subsidiary. The functional currency is determined based on managements
judgment and involves consideration of all relevant economic facts and
circumstances affecting the subsidiary. Generally, the currency in which the
subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures would be considered the functional
currency, but any dependency upon the parent and the nature of the subsidiarys
operations must also be considered.

If any subsidiarys functional currency is deemed to be the local
currency, then any gain or loss associated with the translation of that
subsidiarys financial statements is included in accumulated other
comprehensive loss. However, if the functional currency is deemed to be the
United States Dollar or a currency other than the local currency, then any gain
or loss associated with the translation of these financial statements would be
included within our statement of operations. If we dispose of any of our
subsidiaries, any cumulative translation gains or losses included in
accumulated other
comprehensive loss would be realized into our statement of operations. If we
determine that there has been a change in the functional currency of a
subsidiary from the local currency to the United States Dollar, any translation
gains or losses arising after the date of change would be included within our
statement of operations.

Based on our assessment of the factors discussed above, we generally
consider the relevant subsidiarys local currency to be the functional currency
for our international subsidiaries. Accordingly, we had cumulative translation
losses of approximately $48.1 million and $46.3 million that were included in
accumulated other comprehensive loss within our balance sheet at March 31, 2003 and 2002,
respectively. During fiscal 2003, 2002 and 2001, translation adjustments of
$1.7 million, $3.3 million and $17.9 million, respectively, were included in
accumulated other comprehensive loss. Had we determined that the functional
currency of our subsidiaries was the United States Dollar or a currency other
than the local currency, these losses would have increased our net
income/(loss) for each of the years presented.

The magnitude of these gains or losses is dependent upon movements in the
exchange rates of the foreign currencies in which we transact business against
the United States Dollar. These currencies include the Japanese Yen, Euro,
Pound Sterling and Australian and Canadian Dollars. Any future translation
gains or losses could be significantly higher than those noted in each of these
years. In addition, if we determine that a change in the functional currency of
one of our subsidiaries has occurred, we would be required to include any
translation gains or losses from the date of change in our statement of
operations.

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Revenue Recognition

We recognize revenue pursuant to applicable accounting standards,
including Securities and Exchange Commission (SEC) Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition in FinancialStatements. SAB 101, as
amended, summarizes certain of the SEC staffs views in applying generally
accepted accounting principles to revenue recognition in financial statements
and provides guidance on revenue recognition issues in the absence of
authoritative literature addressing a specific arrangement or a specific
industry.

Our policy is to recognize revenue from sales to customers when the rights
and risks of ownership have passed to the customer, when persuasive evidence of
an arrangement exists, the price is fixed and determinable and collection of
the resulting receivable is reasonably assured. Under specific conditions, we
permit our customers to return or exchange products. The provision for
estimated returns is recorded as a reduction of revenue concurrently with the
recognition of revenue. We analyze historical sales returns and analysis of
credit memo data when evaluating the adequacy of the sales returns allowances
in any accounting period.

Financial Risk Management and Derivatives

The purpose of our foreign currency hedging activities is to protect us
from the risk that the eventual cash flows resulting from interest payments on
our Euro-denominated debt will be adversely affected by changes in exchange
rates. In addition, we seek to manage the impact of foreign currency
fluctuations related to the repayment of intercompany transactions, including
intercompany borrowings. We do not hold or issue financial instruments for
trading purposes. It is our policy to utilize derivative financial instruments
to reduce foreign exchange risks where internal netting strategies cannot be
effectively employed. Fluctuations in the value of hedging instruments are
offset by fluctuations in the value of the underlying exposures being hedged.

In addition, we use forward exchange contracts to hedge certain purchases
and sales commitments and the related payables and receivables, including other
third party or intercompany foreign currency transactions. Hedged transactions
are denominated primarily in European currencies, Australian Dollar and
Japanese Yen. Gains and losses due to rate fluctuations on these transactions
are recognized in the same period as the items being hedged and are recorded as
a foreign currency gain or loss. Cash flows related to these gains and losses
are reported as operating or financing activities in the accompanying
consolidated statements of cash flows depending on the nature of the hedged
item. The counterparties to these contracts are substantial and credit worthy
multinational commercial banks. The risks of counterparty nonperformance
associated with these contracts are not considered to be significant.

Contingent Liabilities

We establish reserves for estimated loss contingencies when it is
managements assessment that a loss is probable and the amount of the loss can
be reasonably estimated. Revisions to contingent liabilities are reflected in
income in the period in which circumstances change or different facts or
information become known that affect the previous assumptions with respect to
the likelihood or amount of loss. Reserves for contingent liabilities are based
upon managements assumptions and estimates, as well as the advice of legal
counsel or other third parties regarding the probable outcomes of the matter.
Should the outcome differ from the assumptions and estimates, revisions to the
estimated reserves for contingent liabilities would be required.

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Results of Operations

The following table shows the results of our operations for fiscal years
2003, 2002 and 2001.

|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |         |  
|--------------------------------------------------------------------------------------------------- | ------------------------ | - | --------------------------- | ------- | ---- | - | ------- | ------- |  | - | -------- | ------- | -
|                                                                                                    |                          |   | Fiscal year ended March 31,
|                                                                                                    |                          |   |                            
|                                                                                                    |                          |   | 2003                        |         | 2002 |   | 2001   
|                                                                                                    |                          |   |                             |         |      |   |        
|                                                                                                    |                          |   | (In thousands)             
|Net sales                                                                                           |                          | $ | 562,746                     |         |      | $ | 529,505 |         |  | $ | 545,432  |        
|Cost of sales                                                                                       |                          |   | 329,695                     |         |      |   | 315,213 |         |  |   | 349,556  |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|                                                                                                    | Gross profit             |   |                             | 233,051 |      |   |         | 214,292 |  |   |          | 195,876 |  
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Research and development expenses                                                                   |                          |   | 12,190                      |         |      |   | 13,053  |         |  |   | 14,857   |        
|Selling and marketing expenses                                                                      |                          |   | 106,876                     |         |      |   | 101,735 |         |  |   | 105,623  |        
|General and administrative expenses                                                                 |                          |   | 47,079                      |         |      |   | 47,683  |         |  |   | 52,006   |        
|Amortization                                                                                        |                          |   | 44                          |         |      |   | 44      |         |  |   | 6,610    |        
|Special charges                                                                                     |                          |   |                            |         |      |   | 28      |         |  |   | 91,065   |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Operating expenses                                                                                  |                          |   | 166,189                     |         |      |   | 162,543 |         |  |   | 270,161  |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|                                                                                                    | Operating/ income/(loss) |   |                             | 66,862  |      |   |         | 51,749  |  |   |          | (74,285 | )
|Interest income                                                                                     |                          |   | 1,440                       |         |      |   | 2,302   |         |  |   | 2,123    |        
|Interest expense                                                                                    |                          |   | (33,540                     | )       |      |   | (30,875 | )       |  |   | (25,575  | )      
|Foreign currency
gain/(loss)                                                                        |                          |   | (31,667                     | )       |      |   | 1,859   |         |  |   | (2,755   | )      
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Income/(loss) before (provision)/benefit for income taxes, minority interest
and extraordinary item |                          |   | 3,095                       |         |      |   | 25,035  |         |  |   | (100,492 | )      
|(Provision)/benefit for income taxes                                                                |                          |   | (929                        | )       |      |   | (7,010  | )       |  |   | 32,206   |        
|Minority interest                                                                                   |                          |   | (603                        | )       |      |   | 1,093   |         |  |   | 287      |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Income/(loss) before extraordinary item                                                             |                          |   | 1,563                       |         |      |   | 19,118  |         |  |   | (67,999  | )      
|Extraordinary item, net of tax                                                                      |                          |   |                            |         |      |   |        |         |  |   | 1,471    |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|                                                                                                    | Net income/ (loss)       |   | $                           | 1,563   |      |   | $       | 19,118  |  |   | $        | (66,528 | )
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Net income/(loss) per sharebasic:                                                                  |                          |   |                             |         |      |   |         |         |  |   |          |        
|Income/(loss) per share before extraordinary item                                                   |                          | $ | 0.06                        |         |      | $ | 0.79    |         |  | $ | (2.83    | )      
|Extraordinary item                                                                                  |                          |   |                            |         |      |   |        |         |  |   | 0.06     |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Net income/(loss) per sharebasic                                                                   |                          | $ | 0.06                        |         |      | $ | 0.79    |         |  | $ | (2.77    | )      
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Weighted average common shares outstanding                                                          |                          |   | 24,573                      |         |      |   | 24,067  |         |  |   | 24,049   |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Net income/(loss) per sharediluted:                                                                |                          |   |                             |         |      |   |         |         |  |   |          |        
|Income/(loss) per share before extraordinary item                                                   |                          | $ | 0.06                        |         |      | $ | 0.78    |         |  | $ | (2.83    | )      
|Extraordinary item                                                                                  |                          |   |                            |         |      |   |        |         |  |   | 0.06     |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Net income/(loss) per sharediluted                                                                 |                          | $ | 0.06                        |         |      | $ | 0.78    |         |  | $ | (2.77    | )      
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        
|Weighted average common and dilutive securities outstanding                                         |                          |   | 24,856                      |         |      |   | 24,583  |         |  |   | 24,049   |        
|                                                                                                    |                          |   |                             |         |      |   |         |         |  |   |          |        

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The following table shows certain items expressed as a percentage of our
net sales for the periods indicated:

|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |       |  
|--------------------------------------------------------------------------------------------------- | ----------------------- |  | ----------------- | ---- | ---- |  | ----- | ---- |  |  | ----- | ----- | -
|                                                                                                    |                         |  | Fiscal year ended
|                                                                                                    |                         |  | March 31,        
|                                                                                                    |                         |  |                  
|                                                                                                    |                         |  | 2003              |      | 2002 |  | 2001 
|                                                                                                    |                         |  |                   |      |      |  |      
|                                                                                                    |                         |  | (%)              
|Net sales                                                                                           |                         |  | 100.0             |      |      |  | 100.0 |      |  |  | 100.0 |      
|Cost of sales                                                                                       |                         |  | 58.6              |      |      |  | 59.5  |      |  |  | 64.1  |      
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|                                                                                                    | Gross profit            |  |                   | 41.4 |      |  |       | 40.5 |  |  |       | 35.9  |  
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|Research and development expenses                                                                   |                         |  | 2.2               |      |      |  | 2.5   |      |  |  | 2.7   |      
|Selling and marketing expenses                                                                      |                         |  | 19.0              |      |      |  | 19.2  |      |  |  | 19.4  |      
|General and administrative expenses                                                                 |                         |  | 8.4               |      |      |  | 9.0   |      |  |  | 9.5   |      
|Amortization                                                                                        |                         |  |                  |      |      |  |      |      |  |  | 1.2   |      
|Special charges                                                                                     |                         |  |                  |      |      |  |      |      |  |  | 16.7  |      
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|Operating expenses                                                                                  |                         |  | 29.6              |      |      |  | 30.7  |      |  |  | 49.5  |      
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|                                                                                                    | Operating income/(loss) |  |                   | 11.8 |      |  |       | 9.8  |  |  |       | (13.6 | )
|Interest expense, net                                                                               |                         |  | (5.7              | )    |      |  | (5.4  | )    |  |  | (4.3  | )    
|Foreign currency gain/(loss)                                                                        |                         |  | (5.6              | )    |      |  | 0.3   |      |  |  | (0.5  | )    
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|Income/(loss) before (provision)/benefit for income taxes, minority interest and
extraordinary item |                         |  | 0.5               |      |      |  | 4.7   |      |  |  | (18.4 | )    
|(Provision)/benefit for income taxes                                                                |                         |  | (0.2              | )    |      |  | (1.3  | )    |  |  | 5.9   |      
|Minority interest                                                                                   |                         |  | (0.1              | )    |      |  | 0.2   |      |  |  | 0.1   |      
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|Income/(loss) before extraordinary
item                                                             |                         |  | 0.2               |      |      |  | 3.6   |      |  |  | (12.4 | )    
|Extraordinary item, net of tax                                                                      |                         |  |                  |      |      |  |      |      |  |  | 0.3   |      
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      
|                                                                                                    | Net income/(loss)       |  |                   | 0.2  |      |  |       | 3.6  |  |  |       | (12.1 | )
|                                                                                                    |                         |  |                   |      |      |  |       |      |  |  |       |      

Fiscal 2003 Compared to Fiscal 2002

Net Sales.

Our net sales were $562.7 million in fiscal 2003, reflecting an increase
of $33.2 million or 6.3% from $529.5 million in fiscal 2002. Using constant
exchange rates, net sales increased by 3.1%. The increase in net sales was
primarily in our European and North American regions. Net sales in the European
region increased primarily due to growth from our prescription laboratory
network in France, Italy and Spain that was partially offset by weaker results
from our wholesale businesses in Germany and the U.K.. The increase in North
America was primarily due to our sales and marketing initiatives, improved
product portfolio and increased prescription laboratory presence. These
increases were partially offset by a decrease in net sales to the Rest of World
region. A net sales increase in South America was offset by sales declines in
Asia, including Japan, and the Middle East due largely to current economic and
political conditions. Net sales performances by region were as follows:



| |  |  | North America increased by $12.4 million or 5.2%;
| | - |  | -------------------------------------------------
|
| |  |  | Europe increased by $24.5 million or 13.2%; and  
|
| |  |  | Rest of World decreased by $3.7 million or 3.4%. 

Using constant exchange rates, the regional performances were as follows:



| |  |  | North America increased by 5.5%;
| | - |  | --------------------------------
|
| |  |  | Europe increased by 1.5%; and   
|
| |  |  | Rest of World increased by 0.6%.

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Gross Profit and Gross Margin.

Our gross profit totaled $233.1 million for fiscal 2003 compared to gross
profit of $214.3 million for fiscal 2002, an increase of $18.8 million or 8.8%.
Gross profit as a percentage of net sales or gross margin increased to
41.4% for fiscal 2003 from 40.5% for fiscal 2002. The increase in gross margin
for fiscal 2003 resulted primarily from improved overhead absorption due to our
decision to selectively increase global inventory balances to improve customer
service levels and to an increase of higher-margin value-added sales in North
America and Europe.

Operating Expenses.

Our operating expenses in fiscal 2003 totaled $166.2 million compared to
$162.5 million for fiscal 2002. Research and development expenses were $12.2
million or 2.2% of net sales in fiscal 2003 and were $13.1 million or 2.5% of
net sales for fiscal 2002. The decrease of $0.9 million or 6.9% in our research
and development expenses was due in part to headcount reductions associated
with the transfer of research and development activities from Petaluma,
California to Lonsdale, Australia. Selling and marketing expenses were $106.9
million or 19.0% of net sales in fiscal 2003 and were $101.7 million or 19.2%
of net sales in fiscal 2002. The increase in selling and marketing expenses was
primarily due to increased sales and marketing initiatives during fiscal 2003.
Our general and administrative expenses were $47.1 million in fiscal 2003 and
$47.7 million in fiscal 2002, a decrease of $0.6 million or 1.3%. As a
percentage of net sales, general and administrative expenses decreased to 8.4%
for fiscal 2003 compared to 9.0% for fiscal 2002. The decrease in general and
administrative expenses is the result of lower costs associated with the
consolidation of our corporate functions, as well as consolidating our North
American commercial activities into one primary location.

Net Interest Expense and Foreign Currency Gain/(Loss).

Our net interest expense totaled $32.1 million for fiscal 2003 compared to
$28.6 million for fiscal 2002, an increase of $3.5 million. The increase was
due primarily to the impact of the Euro-U.S. Dollar exchange rates between
periods. In fiscal 2003, we recorded a net foreign exchange loss of $31.7
million compared to a $1.9 million net foreign exchange gain for fiscal 2002.
Included in the $31.7 million foreign exchange loss recorded in fiscal 2003
were exchange losses on external and intercompany notes of $39.6 million. The
exchange losses on external and intercompany notes were due primarily to the
weakening of the U.S. Dollar to the Euro and the impact this had on our
Euro-denominated notes.

Provision for Income Taxes.

Our combined state, federal and foreign tax rate was 30.0% for fiscal 2003
compared to 28.0% for fiscal 2002. We have net deferred tax assets less
deferred tax liabilities on our balance sheet as of March 31, 2003 of $48.7
million. The utilization of these net deferred tax assets less deferred tax
liabilities depends upon our ability to generate taxable income in the future.

Minority Interest.

Our minority interest loss totaled $0.6 million for fiscal 2003 compared
to minority interest income of $1.1 million for fiscal 2002, a decrease of $1.7
million. The decrease was due primarily to increased income during fiscal 2003
from several of our joint venture entities whose results are included in the
consolidated statements of operations.

Management Assessment of Operating Results.

Management believes that fiscal 2003 and 2002 operating results are best
understood when costs associated with non-cash currency rate fluctuations are
excluded from recorded operating results. In the following paragraph, we
present net income/(loss) as adjusted to exclude the impact of foreign currency
gain/(loss) on net long-term Euro-denominated debt, net of tax. We consider
these measures to be useful as they provide a better representation of true
operating results because the re-measurement into U.S. Dollars of the principal
amount of our Euro-denominated debt has no near term impact on our cash flows
or our ability to conduct business and can cause reported results to fluctuate
significantly from period to period. However, these measures are not indicators
of performance under generally accepted accounting principles and may not be
comparable to information reported by other companies. Further, these measures
do not replace net income/(loss) as indicators of our operating performance.

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Net Income/(Loss).In fiscal 2003, excluding the unrealized translation
effect of foreign currency on our net long-term Euro-denominated debt, adjusted
net income for fiscal 2003 amounted to $10.4 million compared to $7.2 million
for fiscal 2002.

Fiscal 2002 Compared to Fiscal 2001

Net Sales.

Our net sales were $529.5 million in fiscal 2002, reflecting a decrease of
$15.9 million or 2.9% from $545.4 million in fiscal 2001. Using constant
exchange rates, net sales increased by 0.2%. The decrease in net sales was
primarily due to reduced sales in the Rest of World and North America regions.
Net sales in the Rest of World region decreased due to our efforts to
concentrate on higher margin value-added sales. The decrease in North America
was due primarily to decreased sales to laboratory customers that are owned and
aligned with two principal competitors. Net sales performances by region were
as follows:



| |  |  | North America decreased by $8.6 million or 3.5%; 
| | - |  | -------------------------------------------------
|
| |  |  | Europe increased by $2.9 million or 1.6%; and    
|
| |  |  | Rest of World decreased by $10.2 million or 8.7%.

Using constant exchange rates, the regional performances were as follows:



| |  |  | North America decreased by 3.6%;
| | - |  | --------------------------------
|
| |  |  | Europe increased by 4.1%; and   
|
| |  |  | Rest of World increased by 2.0%.

Gross Profit and Gross Margin.

Our gross profit totaled $214.3 million for fiscal 2002 compared to gross
profit of $195.9 million for fiscal 2001, an increase of $18.4 million or 9.4%.
Gross profit as a percentage of net sales or gross margin increased to
40.5% for fiscal 2002 from 35.9% for fiscal 2001. Fiscal 2002 gross profit was
adversely impacted by lower sales levels while fiscal 2001 gross profit
included inventory write-offs of $25.6 million.

Operating Expenses.

Our operating expenses in fiscal 2002 totaled $162.5 million compared to
$270.2 million for fiscal 2001. Operating expenses included special charges of
$91.1 million in fiscal 2001. Research and development expenses were $13.1
million or 2.5% of net sales in fiscal 2002 and were $14.9 million or 2.7% of
net sales for fiscal 2001. The decrease of $1.8 million or 12.1% in our
research and development expenses was due in part to headcount reductions
associated with the strategic initiatives. Selling and marketing expenses were
$101.7 million or 19.2% of net sales in fiscal 2002 and were $105.6 million or
19.4% of net sales in fiscal 2001. The decrease in selling and marketing
expenses was primarily due to lower costs as a result of centralizing product
management and marketing activities. Our general and administrative expenses
were $47.7 million in fiscal 2002 and $52.0 million in fiscal 2001, a decrease
of $4.3 million or 8.3%. As a percentage of net sales, general and
administrative expenses decreased to 9.0% for fiscal 2002 compared to 9.5% for
fiscal 2001. The decrease in general and administrative expenses was the result
of lower costs associated with the consolidation of our corporate functions, as
well as consolidating our North American administrative activities into one
primary location. Included in general and administrative expenses for fiscal
2001 were charges resulting from the devaluation of the Brazilian Real of $3.1
million. Included in operating expenses for fiscal 2001 was goodwill
amortization of $6.6 million. Due to early adoption of SFAS No. 142 in fiscal
2002, we are no longer required to amortize goodwill as a charge to earnings;
however, we are required on an annual basis to review goodwill for potential
impairment. If an impairment is found to exist, a charge will be recorded
against earnings.

Primarily as a result of our strategic initiatives, which commenced in the
third quarter of fiscal 1999, during fiscal 2002, we recorded net pretax
special charges comprised of $0.8 million associated with additional facility
closure costs, offset by a gain on the sale of land in North America of $0.8
million, also associated with facility closures.

20



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We recorded pretax special charges of $91.1 million in fiscal 2001. We
incurred $19.7 million of expense associated with workforce reductions in North
America, Europe and Australia. Included in the workforce reductions were 780
employees from manufacturing, 91 employees from sales and marketing, 75
employees from administration, and 46 employees from research and development.
At March 31, 2002, $25.1 million cash had been paid related to workforce
reductions incurred since fiscal 1999. The special charges included $24.3
million related to the write-off of molds, which were discontinued as a result
of our efforts to standardize product specifications on a global basis. Also,
we continued to transfer high-volume production to low-cost manufacturing
locations and to consolidate manufacturing expertise into fewer production
facilities. As a result, we incurred special charges of $28.2 million related
to redundant equipment write-offs and facility closure costs in fiscal 2001.
Additionally, as a result of our discontinuation of the development of the
polycarbonate Matrix product line, we incurred $7.6 million in asset
write-offs, including equipment ($7.0 million) and related commitments ($0.6
million). We recognized a gain on the sale of land in North America of $5.8
million associated with facility closures in fiscal 2001. Also included in
special charges is $17.0 million related to the impairment of goodwill
associated with a prior acquisition of a lens manufacturing business. This
impairment was recorded pursuant to SFAS 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, as we decided to
discontinue and cease operations of this lens manufacturing business and
completely close-down the facility. For more information, see Note 13 of Notes
to Consolidated Financial Statements.

|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |        |       |         |   |       |   |        |  |         |  
|--------------------------------------------------- | --------- | -------- | ------ | ---------- | ------- | - | ---------- |  | ------- | -------- | ------ |  | ---------- | - | ------ | ------- | ------- | - | ------- | ------------ | ------ | ----- | ------- | - | ----- | - | ------ |  | ------- | -
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         | Asset        |        |       |         |   |       |   |        |  |        
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         | Write-offs   |        |       |         |   |       |   |        |  |        
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         | Associated   |        |       |         |   |       |   |        |  |        
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         | with         |        |       |         |   |       |   |        |  |        
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         | Discontinued |        |       | Gain on |   |       |   |        | 
|                                                    |           |          |        | Workforce  |         |   | Mold       |  |         | Facility |        |  | Goodwill   |   |        | Product |         |   | sale of |              |        |       |         |  
|                                                    |           |          |        | Reductions |         |   | Write-offs |  |         | Closures |        |  | Impairment |   |        | Line    |         |   | Land    |              |        | Total |        
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |        |       |        
|Strategic initiative liability as of
March 31, 2000 |           | $        | 6,268  |            |         | $ |           |  |         | $        |       |  |            | $ |       |         |         | $ |        |              |        | $     |         |   |       | $ | 6,268  | 
|Fiscal 2001 Charge to operations                    |           |          | 19,681 |            |         |   | 24,256     |  |         |          | 28,235 |  |            |   | 17,057 |         |         |   | 7,690   |              |        |       | (5,854  | ) |       |   | 91,065 | 
|                                                    | Utilized: |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |        |       |         |   |       |   |        |  |        
|                                                    |           | Non-cash |        |            |        |   |            |  | (24,256 | )        |        |  | (25,286    | ) |        |         | (17,057 | ) |         |              | (7,690 | )     |         |   |      |   |        |  | (74,289 | )
|                                                    |           | Cash     |        |            | (12,267 | ) |            |  |        |          |        |  | (510       | ) |        |         |        |   |         |              |       |       |         |   | 5,854 |   |        |  | (6,923  | )
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |       
|Strategic initiative liability as of
March 31, 2001 |           |          | 13,682 |            |         |   |           |  |         |          | 2,439  |  |            |   |       |         |         |   |        |              |        |       |        |   |       |   | 16,121 | 
|Fiscal 2002 Charge to operations                    |           |          |       |            |         |   |           |  |         |          | 28     |  |            |   |       |         |         |   |        |              |        |       |        |   |       |   | 28     | 
|                                                    | Utilized: |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |        |       |         |   |       |   |        |  |        
|                                                    |           | Non-cash |        |            |        |   |            |  |        |          |        |  | (767       | ) |        |         |        |   |         |              |       |       |         |   |      |   |        |  | (767    | )
|                                                    |           | Cash     |        |            | (8,812  | ) |            |  |        |          |        |  | (274       | ) |        |         |        |   |         |              |       |       |         |   |      |   |        |  | (9,086  | )
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |       
|Strategic initiative liability as of
March 31, 2002 |           |          | 4,870  |            |         |   |           |  |         |          | 1,426  |  |            |   |       |         |         |   |        |              |        |       |        |   |       |   | 6,296  | 
|                                                    | Utilized: |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |        |       |         |   |       |   |        |  |        
|                                                    |           | Cash     |        |            | (4,219  | ) |            |  |        |          |        |  | (1,207     | ) |        |         |        |   |         |              |       |       |         |   |      |   |        |  | (5,426  | )
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |       
|Strategic initiative liability as of
March 31, 2003 |           | $        | 651    |            |         | $ |           |  |         | $        | 219    |  |            | $ |       |         |         | $ |        |              |        | $     |        |   |       | $ | 870    | 
|                                                    |           |          |        |            |         |   |            |  |         |          |        |  |            |   |        |         |         |   |         |              |       

At March 31, 2003, our strategic initiatives have been
substantially completed and we do not anticipate any additional
special charges related to our strategic initiatives. The liability associated
with the strategic initiatives as of March 31, 2003 is included in accrued
liabilities. We anticipate that substantially all of the accrued
liability will be paid in fiscal 2004 and will be funded through cash provided
by operations.

Operating expenses in fiscal 2002 declined by $30.4 million from fiscal
1999. Additionally, unit costs decreased significantly from fiscal 1999.

Net Interest Expense and Foreign Currency Gain/(Loss).

Our net interest expense totaled $28.6 million for fiscal 2002 compared to
$23.5 million for fiscal 2001, an increase of $5.1 million. The increase was
due primarily to increased average borrowing rates and increased borrowing
levels in fiscal 2002 compared to fiscal 2001. In fiscal 2002, we recorded a
net foreign exchange gain of $1.9 million compared to a $2.8 million net
foreign exchange loss for fiscal 2001. Exchange gains on external and
intercompany notes of $2.7 million were recorded in fiscal 2002 due primarily
to the strengthening of the U.S. Dollar to the Euro and the weakening of the
U.S. Dollar to the Brazilian Real and the impact this had on our Euro
denominated Senior Notes and U.S. Dollar denominated notes with our Brazilian
subsidiary.

Provision for Income Taxes.

Our combined state, federal and foreign tax rate was approximately 28.0%
for fiscal 2002 compared to 32.0% for fiscal 2001. We had net deferred tax
assets less deferred tax liabilities on our balance sheet as of March 31, 2002
amounting to approximately $36.1 million. The utilization of these net deferred
tax assets less deferred tax liabilities depends upon our ability to generate
taxable income in the future.

Minority Interest.

Our minority interest income totaled $1.1 million for fiscal 2002 compared
to $0.3 million for fiscal 2001, an increase of $0.8 million. The increase was
due primarily to increased losses during fiscal 2002 from several of our joint
venture entities whose results are included in the consolidated statements of
operations.

Extraordinary Item.

In June 2000, we purchased $5.0 million of our 6 7/8% Senior Notes prior
to their scheduled maturity in 2008. As a result, we recorded an extraordinary
gain of $1.5 million, net of tax of $0.9 million, resulting from the difference
between the carrying value of the notes and the purchase price. The purchase
was funded by our credit facility and resulted in a decline in net borrowings.

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Liquidity and Capital Resources

Our operating activities generated $34.0 million in cash in fiscal 2003
compared to $23.6 million in fiscal 2002 and $25.6 million in fiscal 2001. The
increase in cash flows from operations in fiscal 2003 resulted primarily from
improved operating performance in fiscal 2003. Included in net income for
fiscal 2003 was an unrealized $45 million foreign currency loss on net
long-term Euro-denominated debt and cash reserves (net of tax). Cash flow from
operations was not impacted by this currency loss since it was non-cash in
nature and, as a result, has been added back to net income for cash flow
reporting purposes.

Our inventories as a percentage of annualized net sales for fiscal 2003,
fiscal 2002, and fiscal 2001 were 14.9%, 15.0%, and 16.2%, respectively.
Inventories at March 31, 2003 increased $8.9 million when compared to the
previous year end. This increase was due to our decision to selectively
increase global inventory balances to improve customer service levels as well
as the impact of exchange rates. The decrease in fiscal 2002 compared to fiscal
2001 was a result of the strategic initiatives implemented during fiscal 2001
to reduce inventory levels. Accounts receivable as a percentage of annualized
net sales for fiscal 2003, fiscal 2002, and fiscal 2001 were 20.0%, 20.9%, and
21.8%, respectively. The decreases in fiscal 2003 and fiscal 2002 were a
result of improved collections.

During fiscal 2003, net cash expended on investing activities amounted to
$45.0 million. Included in this amount was $21 million for the acquisition of
certain assets or stock of five optical laboratories located in the U.S. and
the acquisition of the net assets of a fabricator of polycarbonate molds and
inserts and a Scandinavian distributor. We also invested in $21.9 million of
capital expenditures and an additional $3.1 million in molds. During fiscal
2002, net cash expended on investing activities amounted to $15.6 million.
Included in this amount was $17.1 million of capital expenditures and an
additional $5.9 million in molds, offset in part by proceeds from the disposal
of a $1.2 million trade investment and $5.5 million from the sale of a building
in Petaluma, California. During fiscal 2001, net cash expended on investing
activities amounted to $37.6 million. Included in this amount was $20.9 million
of capital expenditures, $15.4 million for the acquisition of Oracle Lens
Manufacturing Corporation, a polycarbonate lens manufacturer in Rhode Island,
and $2.5 million for the acquisition of the remaining 65% interest in a

wholesale laboratory group located in Australia and New Zealand. Partially
offsetting these expenditures was $6.4 million of net proceeds received from
the sale of land in Petaluma, California.

We anticipate capital expenditures, including molds, of approximately $20
to $25 million in fiscal 2004.

Our net cash used by financing activities amounted to $2.4 million in
fiscal 2003. This was primarily comprised of net payments on long term debt.
Our net cash provided by financing activities amounted to $34.5 million in
fiscal 2002, primarily as a result of the net impact of our issuance of 11%
Senior Notes, the proceeds of which were primarily used to repay our credit
facility. Net cash provided by financing activities amounted to $20.1 million
in fiscal 2001, primarily from borrowings on our credit facilities. Cash
outflows in fiscal 2001 included $8.2 million related to a stock buy back under
our stock repurchase program. Additionally, in the first quarter of fiscal
2001, we purchased $5.0 million of our 67/8% Senior Notes due 2008 for $2.7
million, resulting in an extraordinary gain of $1.5 million, net of tax.

On April 17, 2001, we completed the sale of 205 million ($182.0 million
at date of sale) of 11% Senior Notes due March 15, 2008 through a private
placement to qualified institutional buyers pursuant to Rule 144A and to
persons outside of the United States in compliance with Regulation S. The notes
are senior unsecured obligations and rank equally with all of our existing and
future unsecured debt. Interest on the notes is payable semi-annually on each
September 15 and March 15.

We may redeem these Senior Notes in whole or in part, at any time, on or after
March 15, 2005, at a redemption price equal to 100% of their principal amount
plus a premium declining ratably to par plus accrued and unpaid interest and
liquidation damages, if any. Prior to March 15, 2004, we may redeem up to 35%
of the original aggregate principal amount of these Senior Notes with the
proceeds of qualified equity offerings at a redemption price of 111% of their
principal amount plus accrued and unpaid interest and liquidation damages, if
any. The indenture governing the notes contains certain covenants that, among
other things, limit our ability to incur additional indebtedness or liens, make
investments, sell assets, pay dividends or make other distributions.

In addition to our outstanding 6 7/8% Senior Notes and 11% Senior Notes,
our foreign subsidiaries maintain local credit facilities to provide credit for
overdraft, working capital and some fixed asset investment purposes. As of
March 31, 2003, the total borrowing capacity available to our foreign
subsidiaries under such local facilities was approximately $18.6 million, of
which $1.1 million had been utilized.

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On October 29, 2002, we entered into a three-year $90 million secured
revolving credit facility. This credit agreement replaced the previous $45
million Credit Agreement. The new credit agreement contains a number of
covenants substantially similar to the prior Credit Agreement including, among
others, covenants restricting us and our subsidiaries with respect to the
incurrence of indebtedness, the creation of liens, the making of certain
investments and loans, the payment of dividends, and the ability to enter into
certain transactions with affiliates. In addition, the new credit agreement
requires us to maintain certain interest coverage, net worth and leverage
ratios and places certain restrictions on capital expenditures. Interest on the
new credit agreement is payable at a rate based upon the London Interbank
Offered Rate (LIBOR) plus 2.75% per annum. As of March 31, 2003, we were in
compliance with all covenants and there were no debt outstanding under this
agreement.

In order to continue our operations and meet our significant liquidity
requirements, we must achieve profitable operations or obtain additional funds
through equity or debt financing, bank financing, and other sources. We believe
that our existing cash balances, foreign credit facilities, internally
generated funds and other potential financing alternatives will be sufficient
to meet our capital, operating and debt service requirements for at least the
next twelve months. If we are unable to generate adequate cash flow from sales
of our products, we may need to seek additional sources of capital. However, we
cannot be certain that we will be able to obtain additional debt or equity
financing on terms acceptable to us, or at all. If adequate funds are not
available, we could be required to delay development or commercialization of
certain products, or reduce the marketing, customer support, or other resources
devoted to product development. Accordingly, our failure to obtain sufficient
funds on acceptable terms when needed could have a material adverse effect on
our business, results of operations and financial condition.

Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations at March 31,
2003, and the effect these obligations are expected to have on our liquidity
and cash flow in future periods:

|                                         |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |       | 
|---------------------------------------- |  | ---------------------- | ------- | ---------------- |  | --------- | ------ | --------- |  | ------------- | ------ |  |  | - | ------- |  |  | - | ----- | 
|                                         |  | Payments Due by Period
|                                         |  |                       
|Contractual Obligations                  |  | Total                  |         | Less than 1 year |  | 1-3 years |        | 4-5 years |  | After 5 years
|                                         |  |                        |         |                  |  |           |        |           |  |              
|                                         |  | (in thousands)        
|Notes payable                            |  | $                      | 522     |                  |  | $         | 522    |           |  | $             |       |  |  | $ |        |  |  | $ |      | 
|Long-term debt, including capital
leases |  |                        | 9,472   |                  |  |           | 3,510  |           |  |               | 3,840  |  |  |   | 1,679   |  |  |   | 443   | 
|Senior notes                             |  |                        | 318,242 |                  |  |           |       |           |  |               |       |  |  |   | 318,242 |  |  |   |      | 
|Operating leases                         |  |                        | 28,367  |                  |  |           | 7,029  |           |  |               | 10,061 |  |  |   | 5,253   |  |  |   | 6,024 | 
|                                         |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |       | 
|Total contractual obligations            |  | $                      | 356,603 |                  |  | $         | 11,061 |           |  | $             | 13,901 |  |  | $ | 325,174 |  |  | $ | 6,467 | 
|                                         |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |       | 

As of March 31, 2003, we had no debt outstanding under our Bank Credit
Agreement. We have issued a $1.6 million standby letter of credit maturing on
April 25, 2005 to guarantee third party debt. We have recourse provisions that
would enable us to recover fixed assets with an estimated net book value of
approximately $1.1 million in the event that the obligor defaults on its
payment obligation that is subject to our standby letters of credit.

Currency Exchange Rates

As a result of our worldwide operations, currency exchange rate
fluctuations tend to affect our results of operations and financial position.
The principal effect of currency exchange rates on our results of operations
and financial position is the impact on our Euro-denominated debt and
translation adjustments for subsidiaries where the local currency is the
functional currency. Translation adjustments for functional local currencies
have been recorded to stockholders equity.

Certain countries were determined to be hyperinflationary in fiscal 2003
and fiscal 2002 as defined under the provisions of Emerging Issues Task Force
(EITF) Issue No. D-55, Determining a Highly Inflationary Economy under FASB
Statement No. 52and EITF Issue No. D-56, Accounting for a Change in Functional
Currency and Deferred Taxes When an Economy Becomes Highly Inflationary.
Accordingly, the results of our entities located in those countries are being
accounted for in accordance with the provisions of these pronouncements.

Because a portion of our debt and associated interest is non-U.S. Dollar
denominated, we may hedge against certain currency fluctuations by entering
into currency swaps or forward contracts. As of March 31, 2003, we have several
foreign exchange contracts outstanding to hedge portions of our accounts
payable and accounts receivable exposure. During fiscal 2003, we had various
contracts in place to hedge the semi-annual interest payments on our
Euro-denominated third party debt. We do not hold derivative financial
instruments for speculative or trading purposes.

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Seasonality

Our business is somewhat seasonal, with fiscal third quarter results
generally weaker than the other three quarters. Fiscal fourth quarter results
are generally the strongest.

Inflation

Inflation continues to affect our cost of the goods and services that we
use. The competitive environment in many markets limits our ability to recover
higher costs through increased selling prices, and we are subject to price
erosion in many of our standard product lines. We seek to mitigate the adverse
effects of inflation through cost containment and productivity and
manufacturing process improvements. For a description of the effects of
inflation on our reported revenues and profits and the measures taken by us in
response to inflationary conditions, see Currency Exchange Rates above.

Impact of Recently Issued Accounting Standards

In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. We believe that the adoption of this standard will have
no material impact on our financial statements.

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period
beginning after June 15, 2003. We believe that the adoption of this standard
will have no material impact on our financial statements.

In March 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity (SFAS 149). This Statement establishes standards for
classification of certain financial instruments that have characteristics of
both liabilities and equity in the statement of financial position. This
Statement will be effective upon issuance for all contracts created or modified
after the date the Statement was issued and otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. We
believe that the adoption of this standard will have no material impact on our
financial statements.

Risk Factors

Certain of the matters discussed in this report or in the information
incorporated by reference may constitute forward-looking statements.
Forward-looking statements can generally be identified by the use of
forward-looking terminology such as believes, expects, may, will,
should, seeks, approximately, intends, plans, estimates, or
anticipates or the negative of these terms or other comparable terminology,
or by discussions of strategy, plans or intentions. Statements contained in
this report that are not historical facts are forward-looking statements.
Without limiting the generality of the preceding statement, all statements in
this report concerning or relating to estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial results
are forward-looking statements. In addition, we, through our senior management,
from time to time make forward-looking public statements concerning our
expected future operations and performance and other developments. These
forward-looking statements are necessarily estimates reflecting our best
judgment based upon current information and involve a number of risks and
uncertainties. Other factors may affect the accuracy of these forward-looking
statements and our actual results may differ materially from the results
anticipated in these forward-looking statements. While it is impossible to
identify all relevant factors, factors that could cause actual results to
differ materially from those estimated by us include, but are not limited to,
those factors or conditions described below, as well as changes in the
regulation of the spectacle lens industry at either or both of the federal and
state levels, competitive pressures in the spectacle lens industry and our
response to these factors, and general conditions in the economy and capital
markets.

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All subsequent written and oral forward-looking statements attributable to
SOLA and persons acting on our behalf are qualified in their entirety by the
cautionary statements contained in this section and elsewhere in this report.

Risks Relating to SOLA and the Industry

We operate in the highly competitive spectacle lens industry, and we may not be
able to compete effectively with entities with more established operating
histories and greater financial resources.

We operate in the highly competitive spectacle lens industry. We compete
primarily on the basis of customer service, quality and breadth of product
offerings, innovation and price. The spectacle lens industry is characterized
by price competition, which can be severe in some of our markets, particularly
for standard products. We attempt, to the extent possible, to counter
competition on the basis of price by focusing on providing a rapid response to
orders, maintaining high fill rates, developing differentiated new products and
educating processing laboratories and eyecare practitioners on the benefits of
our lenses and coatings. Our competitors may develop products or services that
are more effective or less expensive than our products or that could render
certain of our products less competitive. Since recently developed products
comprise a substantial portion of our sales, our performance and future growth
are dependent upon our continuing ability to develop and market new products.

Some of our competitors have significantly greater financial resources
than we do to fund expansion and research and development. Within a particular
market, certain of our competitors may enjoy a home-country advantage over
foreign competition. We also face competition from a number of our principal
competitors, such as Essilor and Hoya, that are vertically integrated with
processing laboratories to a greater extent than we are. This integration
limits the number of independent processing laboratories to which we can market
products. Since their acquisition by Essilor and Hoya, these laboratories have
decreased the purchase of our products. Our sales to Essilor and Hoya owned
laboratories were approximately 2.9% of net sales in fiscal 2003 and 3.5% in
fiscal 2002.

We are subject to certain risks associated with our foreign operations.

We have manufacturing and distribution sites in three major regions: North
America (including Mexico), Europe and Rest of World (comprised primarily of
Australia, Asia and South America). Approximately 56% of our net sales in the
fiscal year ended March 31, 2003 were derived from the sale of products outside
the United States. As a result, a significant portion of our sales and
operations are subject to the risks inherent in international operations,
including:



| |  |  | Developments in the foreign political and economic environment may have an
adverse effect on operations in those countries;                                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Tax rates in certain foreign countries may exceed those in the United
States and foreign earnings may be subject to withholding requirements or
the imposition of tariffs, exchange controls or other restrictions;
|
| |  |  | We may find it difficult to manage a large organization spread throughout
various countries, including staffing and managing foreign operations;                                                                   
|
| |  |  | We may have difficulty enforcing agreements and collecting receivables
through certain foreign legal systems;                                                                                                      
|
| |  |  | Foreign customers may have longer payment cycles than customers in the
United States; and                                                                                                                          
|
| |  |  | We may find it difficult to comply with a variety of foreign laws and
regulations.                                                                                                                                 

As we continue to expand our business globally, our success will be
dependent, in part, on our ability to effectively manage these and other risks.
These and other factors could have a material adverse effect on our
international operations or our business as a whole. Our cash flow is comprised
of a variety of currencies. Although we may enter into currency swap agreements
with financial institutions to reduce our exposure to fluctuations in foreign
currency values relative to our debt obligations, these hedging transactions,
if entered into, will not eliminate that risk entirely. As a result of our
worldwide operations, currency exchange rate fluctuations tend to affect our
results of operations and financial position. See Managements Discussion and
Analysis of Financial Condition and Results of OperationsCurrency Exchange
Rates andInflation.

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##### Table of Contents



We may not be able to continually reduce manufacturing costs.

To maintain and/or strengthen our competitive position within the
spectacle lens industry, we must continually reduce our product manufacturing
costs and operating expenses. In addition to normal cost reduction activities,
we have initiated product migration and standardization activities and reduced
the number of people employed worldwide. These reductions were necessary to
help offset price decreases, inflationary pressures and changes in product and
regional mix. To the extent our cost reduction activities are unsuccessful, in
part or in full, our ability to compete may be significantly impacted.

We concentrate a large part of our manufacturing operations in Tijuana, Mexico.

Currently, approximately 40% of our manufacturing operations are based in
three facilities in Tijuana, Mexico. A fire, flood, earthquake, war, work
stoppage, supply shortage or disruption, adverse government action or other
disaster or condition could result in a loss of production capabilities and,
accordingly, impede our ability to meet our customers requirements. The risks
of these events are partially mitigated by various efforts, in particular our
global specifications standardization program, which increasingly allows access
to inventory around the world; and our program to ensure dual or
multi-manufacturing site production of key products with planned stand-by
capacity.

We must continue to develop new and enhanced products.

We are continually developing new and enhanced products in an effort to
develop incremental sales and improved gross margins. Our ability to develop
new and enhanced products successfully will be a significant factor in our
ability to grow and remain competitive. Some of our products may become
obsolete, and we may not achieve the technological advances necessary for us to
remain competitive. We are also subject to the risks generally associated with
new product introductions, such as lack of market acceptance and delays in
product development. Our results may be affected by our ability to generate
sales from new products as anticipated and the costs of such introductions.

We compete against alternative technologies and treatments that provide a
substitute for spectacle lenses.

Spectacle lenses compete with other methods of vision correction,
including laser surgery and contact lenses. As these technologies evolve, they
may provide more competition to the spectacle lens business and lead to
declines in our net sales.

We conduct all of our foreign operations through subsidiaries and the payment
of dividends by these entities may be restricted.

We conduct all of our foreign operations through subsidiaries. These
operations contribute significantly to our sales and profitability. The payment
of dividends and the making of loans and advances to us by our subsidiaries are
in many instances subject to statutory restrictions, are contingent upon the
results of operations of those subsidiaries and are subject to various business
considerations. Dividends and other payments to us from subsidiaries in certain
jurisdictions are subject to legal restrictions and may have adverse tax
consequences to us. Management reviews the need for cash distributions to us
from our foreign subsidiaries on a case by case basis. Although it is
managements intention that all undistributed earnings of non-U.S. subsidiaries
be reinvested indefinitely, if the need for cash distributions from the
subsidiaries should arise in the future, there can be no assurance that the
subsidiaries will be permitted to make such cash distributions without legal
restrictions or adverse tax consequences to us.

We are dependent on a small number of suppliers for raw materials.

Most of the raw materials used in our products are readily available from
a number of suppliers at competitive prices, and we have not experienced any
significant shortages in obtaining raw materials. While there are currently
multiple suppliers of polycarbonate and monomer raw materials, we purchase over
50% of those materials from three suppliers. The loss of any of these
suppliers, or a significant decrease in the supply of polycarbonate or monomer,
would require us to obtain these raw materials elsewhere. If we were unable to
obtain polycarbonate or monomer from other suppliers at acceptable prices, we
might realize lower margins and experience difficulty in meeting our customers
requirements. In addition, our photochromic lenses are processed by a third
party using technology that is proprietary to it.

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We are dependent upon the North American chain retail channel.

Distribution to national chain retail, super optical retail stores and
retail buying groups is a growing distribution channel for spectacle lenses. We
believe this distribution channel will continue to be important to sustain
growth and profitability. While we are currently well positioned in this
distribution channel through relationships with key retailers, these
relationships could terminate or these retailers could choose one or more of
our competitors to provide them with lenses in the future. Additionally, these
retailers could choose to process and distribute lenses themselves rather than
purchasing the lenses from us or any other third party.

We may be adversely affected by environmental and safety regulations to which
we are subject.

We must comply with U.S. and foreign environmental laws and regulations
concerning emissions to the air, waste water discharges and the generation,
handling, storage, transportation and disposal of hazardous wastes, and with
other federal, state and foreign laws and regulations. We believe that we
possess all material permits and licenses necessary for the continuing
operation of our business and believe that our operations are in substantial
compliance with the terms of all applicable environmental laws. We cannot
assure you that we will operate at all times in complete compliance with all
such requirements. We could be subject to potentially significant fines and
penalties for any noncompliance that may occur. It is impossible to predict
accurately what effect these laws and regulations will have on us in the
future.

Our success depends on our key personnel and we may not be able to retain
sufficient qualified personnel.

Our success depends in part on our ability to attract personnel with
spectacle industry experience. We may face competition in recruiting this
personnel and accordingly experience difficulty in growing and succeeding. The
loss of the services of this personnel or the ability to retain such personnel
in the future could hinder the implementation of our business strategy. We do
not carry key man insurance on our senior management team.

Our substantial level of indebtedness could adversely affect our financial
condition.

We have substantial indebtedness that may limit our ability to respond to
market conditions (including our ability to satisfy capital expenditure
requirements) or to meet our contractual or financial obligations. In addition,
the debt instruments governing our indebtedness are subject to covenants that
could limit our ability to conduct our business. Furthermore, our ability to
satisfy our obligations depends on our future performance. Our future
performance is subject to prevailing economic conditions and to financial,
business and other factors, including factors beyond our control. Interest on
our $95 million aggregate principal amount of 6 7/8% Senior Notes and  205
million aggregate principal amount of 11% Senior Notes is payable in cash
semi-annually through and including March 15, 2008. The Senior Notes are both
payable in full on March 15, 2008. Although we believe that cash flow from
operations will be sufficient to meet all of our debt service requirements and
to fund our capital expenditure requirements, we cannot guarantee that this
will be the case.

Our Charter and By-laws contain antitakeover provisions that could make the
acquisition of SOLA more difficult.

Certain provisions of Delaware law and our certificate of incorporation
and by-laws could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire,
control of SOLA. For example, our by-laws include advance notice procedures for
stockholders to nominate candidates for election as directors as well as to
submit proposals for consideration at stockholders meetings. We have also
adopted a shareholder rights plan that could have the effect of delaying or
hindering a possible takeover of SOLA. In addition, we are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which could have the effect of delaying or preventing a change in control
of SOLA.

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Risks Relating to our Common Stock

The public market for our common stock has been and may continue to be
volatile.

The market price of our common stock is highly volatile and could
fluctuate significantly in response to various factors, including:



| |  |  | Actual or anticipated variations in our quarterly operating results;                
| | - |  | ------------------------------------------------------------------------------------
|
| |  |  | Announcements of new products by us or our competitors;                             
|
| |  |  | Changes in financial estimates by securities analysts;                              
|
| |  |  | Trends in our business environment, including competitive and pricing
pressures; and
|
| |  |  | General market conditions and other factors.                                        

In addition, the stock markets have experienced extreme price and volume
fluctuations that have affected the market prices of equity securities. These
fluctuations have often been unrelated or disproportionate to operating
performance. These broad market factors may materially affect the trading price
of our common stock. General economic, political and market conditions like
recessions and interest rate fluctuations may also have an adverse effect on
the market price of our common stock.

Our quarterly operating results may vary.

Our quarterly operating results have varied in the past, and we expect
that our quarterly operating results will continue to vary in future periods
depending on a number of factors, including seasonal variances in demand for
our products, the cost of product introductions, changes in product mix, our
ability to control costs, capital expenditures, working capital requirements
and other factors described in this Risk Factors section of this report. For
example, all other factors aside, our results are generally weakest in the
third quarter as a result of lower sales during the holiday season and
strongest in the fourth quarter. For these and other reasons, we may not meet
the earnings estimates of securities analysts or investors, and our stock price
could suffer.




Item 7A.Quantitative and Qualitative Disclosures about Market Risk

Quantitative Disclosures

We are exposed to market risks inherent in our operations, primarily
related to interest rate risk and currency risk. These risks arise from
transactions and operations entered into in the normal course of business.

Interest Rate Risk.We are subject to interest rate risk on our existing
long-term debt and any future financing requirements. During fiscal 2003, fixed
rate debt consisted primarily of outstanding balances on Senior Notes.

The following table presents the future principal cash flows and weighted
average interest rates expected on our existing long-term debt instruments.
Fair values have been determined based on quoted market prices as of March 31,
2003:

|                |                                |  |                                               |       |        |  |        |       |        |  |        |       |            |  |       |       |       |  |   |         |      |  |   |      |   |  |   |         |   |  |   |         | 
|--------------- | ------------------------------ |  | --------------------------------------------- | ----- | ------ |  | ------ | ----- | ------ |  | ------ | ----- | ---------- |  | ----- | ----- | ----- |  | - | ------- | ---- |  | - | ---- | - |  | - | ------- | - |  | - | ------- | 
|                |                                |  | Expected Maturity Date (as of March 31, 2003)
|                |                                |  |                                              
|                |                                |  | Fiscal                                        |       | Fiscal |  | Fiscal |       | Fiscal |  | Fiscal |       |            |  |       |       |       |  |   |         | Fair
|                |                                |  | 2004                                          |       | 2005   |  | 2006   |       | 2007   |  | 2008   |       | Thereafter |  | Total |       | Value
|                |                                |  |                                               |       |        |  |        |       |        |  |        |       |            |  |       |       |      
|                |                                |  | (Dollars in thousands)                       
|Long-term debt: |                                |  |                                               |       |        |  |        |       |        |  |        |       |            |  |       |       |       |  |   |         |      |  |   |      |   |  |   |         |   |  |   |        
|                | Fixed rate debt                |  | $                                             | 3,267 |        |  | $      | 1,746 |        |  | $      | 1,773 |            |  | $     | 1,248 |       |  | $ | 318,586 |      |  | $ | 444  |   |  | $ | 327,064 |   |  | $ | 341,896 | 
|                | Weighted average interest rate |  |                                               | 4.96  | %      |  |        | 5.32  | %      |  |        | 5.35  | %          |  |       | 5.22  | %     |  |   | 9.74    | %    |  |   | 4.09 | % |  |   | 9.63    | % |  |   |         | 
|Long-term debt: |                                |  |                                               |       |        |  |        |       |        |  |        |       |            |  |       |       |       |  |   |         |      |  |   |      |   |  |   |         |   |  |   |        
|                | Variable rate debt             |  | $                                             | 243   |        |  | $      | 178   |        |  | $      | 143   |            |  | $     | 86    |       |  | $ |        |      |  | $ |     |   |  | $ | 650     |   |  | $ | 650     | 
|                | Weighted average interest rate |  |                                               | 1.90  | %      |  |        | 1.56  | %      |  |        | 1.61  | %          |  |       | 1.59  | %     |  |   |         |      |  |   |      |   |  |   | 1.70    | % |  |   |         | 

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Currency Rate Risk.We are exposed to currency exchange rate fluctuations on
our 205 million 11% Senior Notes, due 2008 as well as accounts receivable and
accounts payable of our subsidiaries denominated in currencies other than their
local currencies. Our subsidiaries primarily operate in foreign markets and
predominantly have their local currencies as their functional currencies.
These subsidiaries do not have third party borrowings in currencies other than
their local currencies. Accordingly, there are no quantitative disclosures
related to borrowings by our subsidiaries.

The following table presents the future principal cash flows and weighted
average interest rates expected on the 205 million 11% Senior Notes, due 2008
as well as the contract amount and weighted average settlement price of the
outstanding forward exchange contracts. Fair values have been determined based
on quoted market prices as of March 31, 2003:

|                            |                                     |  |                                               |        |           |  |       |         |            |  |   |         |   |  |   |         | 
|--------------------------- | ----------------------------------- |  | --------------------------------------------- | ------ | --------- |  | ----- | ------- | ---------- |  | - | ------- | - |  | - | ------- | 
|                            |                                     |  | Expected Maturity Date (as of March 31, 2003)
|                            |                                     |  |                                              
|                            |                                     |  | Fiscal                                        |        | Fiscal    |  |       |         |            |  |   |         |  
|                            |                                     |  | 2004                                          |        | 2005-2008 |  | Total |         | Fair Value
|                            |                                     |  |                                               |        |           |  |       |         |           
|                            |                                     |  | (Dollars in thousands)                       
|Long-term debt:             |                                     |  |                                               |        |           |  |       |         |            |  |   |         |   |  |   |        
|                            | Fixed rate debt                     |  |                                               |       |           |  | $     | 223,433 |            |  | $ | 223,433 |   |  | $ | 239,074 | 
|                            | Weighted average interest rate      |  |                                               |       |           |  |       | 11      | %          |  |   | 11      | % |  |   |         | 
|Forward exchange
contracts: |                                     |  |                                               |        |           |  |       |         |            |  |   |         |   |  |   |        
|                            | Contract amounts due April 2003     |  | $                                             | 65,077 |           |  |       |        |            |  | $ | 65,077  |   |  | $ | 65,123  | 
|                            | Contract amounts due May 2003       |  | $                                             | 19,136 |           |  |       |        |            |  | $ | 19,136  |   |  | $ | 19,148  | 
|                            | Contract amounts due June 2003      |  | $                                             | 23,561 |           |  |       |        |            |  | $ | 23,561  |   |  | $ | 23,593  | 
|                            | Contract amounts due July 2003      |  | $                                             | 21,290 |           |  |       |        |            |  | $ | 21,290  |   |  | $ | 21,332  | 
|                            | Contract amounts due August 2003    |  | $                                             | 25,865 |           |  |       |        |            |  | $ | 25,865  |   |  | $ | 25,922  | 
|                            | Contract amounts due September 2003 |  | $                                             | 15,098 |           |  |       |        |            |  | $ | 15,098  |   |  | $ | 15,122  | 
|                            | Contract amounts due October 2003   |  | $                                             | 19,491 |           |  |       |        |            |  | $ | 19,491  |   |  | $ | 19,531  | 
|                            | Contract amounts due November 2003  |  | $                                             | 24,560 |           |  |       |        |            |  | $ | 24,560  |   |  | $ | 24,619  | 
|                            | Contract amounts due December 2003  |  | $                                             | 10,437 |           |  |       |        |            |  | $ | 10,437  |   |  | $ | 10,447  | 
|                            | Contract amounts due January 2004   |  | $                                             | 15,835 |           |  |       |        |            |  | $ | 15,835  |   |  | $ | 15,864  | 
|                            | Contract amount due February 2004   |  | $                                             | 19,600 |           |  |       |        |            |  | $ | 19,600  |   |  | $ | 19,632  | 
|                            | Contract amount due March 2004      |  | $                                             | 14,550 |           |  |       |        |            |  | $ | 14,550  |   |  | $ | 14,564  | 
|                            | Weighted average settlement price   |  |                                               | .3728  |           |  |       |        |            |  |   | .3728   |   |  |   |         | 

Qualitative Disclosures

Interest Rate Risk.Our primary interest rate risk exposures relate to:



| |  |  | Our ability to pay or refinance long-term borrowings at maturity at market
rates;                                                    
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The impact of interest rate movements on our ability to meet interest
expense requirements and financial covenants; and              
|
| |  |  | The impact of interest rate movements on our ability to obtain adequate
financing to fund future operations or business acquisitions.

We manage interest rate risk on our outstanding long-term borrowings
through the use of fixed rate debt. While we cannot predict our ability to
refinance existing debt, or the impact interest rate movements might have on
existing debt, we evaluate our financial position on an ongoing basis.
Because the majority of our debt is fixed rate in nature, an increase of 10% in
interest rates would not have a material increase in our net income for the
next 12 months.

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Currency Rate Risk.Our primary currency rate risk exposures relate to:



| |  |  | Our global operations, whereby approximately 56% of our revenues are
derived from operations outside the United States, denominated in
currencies other than the U.S. Dollar;                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The ability of our operations to satisfy cash flow requirements of
predominantly Euro and U.S. Dollar denominated long-term debt without the
need to repatriate earnings and profits, which are denominated in
currencies other than the Euro and U.S. Dollar;
|
| |  |  | Our investments in foreign subsidiaries being primarily directly from the
U.S. parent, resulting in U.S. Dollar investments in foreign currency
functional companies; and                                                                                     
|
| |  |  | The location of our operating subsidiaries in a number of countries that
have seen significant exchange rate changes against the U.S. Dollar,
primarily downward in recent years, such as Brazil, Mexico, Venezuela and
certain Asian countries.              

We manage our currency rate risks through a variety of measures. In
certain limited instances, subsidiaries, after obtaining direction and approval
from our head office, will enter into forward exchange contracts in connection
with inter-company purchases and sales of products. These contracts do not
extend longer than one year. Subsidiaries operating in high inflation
environments protect margins by methods that include increasing prices monthly
at a rate appropriate to cover anticipated inflation, compounding interest
charges on sales invoices daily and holding cash balances in U.S. Dollar
denominated accounts where possible. We disclose constant exchange rate net
sales performances in the aggregate, as well as by region, in Managements
Discussion and Analysis of Financial Condition and Results of Operations. For
more information, see Currency Exchange Rates.




Item 8.Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this
report. See Item 16.




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

None.

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PART III




Item 10.Directors and Executive Officers of the Registrant

The following table sets forth information with respect to the executive
officers and directors of SOLA as of June 13, 2003.

|                    |  |     |    |          |  |                                                                                    
|------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Maurice J. Cunniffe |  |     | 70 |          |  | Chairman of the Board                                                              
|Jeremy C. Bishop    |  |     | 53 |          |  | President and Chief Executive Officer, Director                                    
|Douglas D. Danforth |  |     | 80 |          |  | Director                                                                           
|A. William Hamill   |  |     | 55 |          |  | Director                                                                           
|Neil E. Leach       |  |     | 65 |          |  | Director                                                                           
|Robert A. Muh       |  |     | 65 |          |  | Director                                                                           
|Jackson L. Schultz  |  |     | 77 |          |  | Director                                                                           
|Steven M. Neil      |  |     | 51 |          |  | Executive Vice President, Finance, Chief Financial Officer,
Secretary and Treasurer
|Barry J. Packham    |  |     | 55 |          |  | Executive Vice President, Manufacturing and Logistics                              
|Mark Ashcroft       |  |     | 41 |          |  | President, Europe and Americas                                                     
|Simon Edwards       |  |     | 36 |          |  | Vice President, Research & Development                                             
|Wayne Rockall       |  |     | 47 |          |  | Vice President, Regional Director, Australasia                                     
|Gaetano Sciuto      |  |     | 35 |          |  | Vice President, Sunlens Division                                                   

Maurice J. Cunniffe was appointed Chairman of the Board of Directors in
November 2000. He has been a director since December 1996. He is Chairman and
Chief Executive Officer of A.O. Capital Corporation.

Jeremy C. Bishop was appointed Chief Executive Officer and President and a
director in April 2000. Prior to his appointment, he served as President of the
American Optical business, a position held since our purchase of American
Optical Corporations ophthalmic business in June 1996. He joined American
Optical Corporation in November 1990 as Vice President of European Operations.

Douglas D. Danforth has been a director since December 1994. He was
Chairman and Chief Executive Officer of Westinghouse Electric Corporation from
1983 to 1987. He is a director of Atlantic Express Transportation Corp and
Enivosource. He was a former director of Travelers, PNC Bank, PPG Industries,
Rubbermaid, and The Whirlpool Corporation and also served as Chairman and CEO
of the Pittsburgh Pirates Baseball Club from 1987 to 1994.

A. William Hamill has been a director since December 1996. Mr. Hamill is
President of H3 Companies LLC, an investments and advisory firm. From 1999
until May 2001, he served as Executive Vice President and Chief Financial
Officer of United Dominion Realty Trust, Inc.
Prior to joining Union Dominion, he served as Executive Vice President
and Chief Financial Officer of Union Camp Corporation, from June 1996 to April
1999, and previously served as managing director of Morgan Stanley & Co.
Incorporated. He is a director of NTELOS Inc.

Neil E. Leach has been a director since November 2000. He is Chairman of
the Board and Chief Executive Officer of Barnies Coffee and Tea Company
(formerly a division of Sara Lee). He has been Managing Director of Coastal
Development Associates LLC since 1987 and has founded and led a number of
companies both in and outside the optical industry, including Multifocal Rx
Lens Laboratory Inc. and affiliated laboratories during the past 43 years. He
is also past Chairman of Microtool and Instruments, Inc. and a director of
Intercontinental Bank, which was acquired by Bank of America.

Robert A. Muh serves as Chief Executive Officer of Sutter Securities,
Inc., a full-service brokerage firm he co-founded in 1992. Prior to that time,
he served as President of Financial Services International, Inc., a financial
advisory firm, from 1987 to 1992. From 1978 to 1987, he served as a partner and
a managing director for Bear, Stearns & Co., Inc. He also currently serves as a
director for Worldwide Restaurants, Inc. and DayRunner, Inc. and is a trustee
of the Massachusetts Institute of Technology.

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Jackson L. Schultz has been a director since November 1995. Following a
career in the United States Navy, where he retired as a Captain, Mr. Schultz
joined Wells Fargo Bank in 1970, retiring in 1990 as Senior Vice President
responsible for Public and Governmental Affairs. He is a past director of the
Bank of San Francisco and the Cooper Development Company. He was a member of
the Advisory Board to the United States Navy Exchange Command, and also serves
as Vice Chairman and a Governor of Claremont McKenna College Rose Institute of
State and Local Government.

Steven M. Neil was appointed Executive Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer in October 1997. Prior to joining
SOLA, Mr. Neil was Vice President-Finance, Treasurer and Chief Financial
Officer of Perrigo Company from May 1995 to September 1997. He also served as
President of Perrigo International, Inc. from July 1996. Mr. Neil served as
Vice President-Controller of Perrigo Company from January 1993 to May 1995.
Prior to that time he served as Controller and Chief Accounting Officer with
Applied Magnetics Corporation, where he also served in other positions of
increasing responsibility since 1983.

Barry J. Packham was appointed Executive Vice President, Manufacturing and
Logistics in May 2000. He joined SOLA as Vice President, Manufacturing
Development in February 1993. Mr. Packham was Managing Director of Ceramic Fuel
Cells Ltd., a research and development joint venture consortium in Melbourne,
Australia, from 1991 to 1993 and formerly held manufacturing and general
management positions with Kodak and Leigh-Mardon Pty. Ltd.

Mark Ashcroft was appointed President, American Commercial Operations in
January 2002. He also is Vice President, Europe, a position he has held since
October 1999. He joined us in August 1998 as Managing Director of SOLA UK,
based in Birmingham, England. From 1994 to 1998, he served as a Director of
Applied Chemicals International Pty Ltd., with responsibility for Strategy and
Market development, based in Melbourne, Australia.

Simon Edwards was appointed Vice President, Research & Technology in
August 2001. He served as Technical Director of Research Laboratories of
Australia from 1999 to 2001. Previous to that he had joined SOLA in 1989 and
served with SOLA in the role of Director of Optical Lens Design from 1996 until
1998.

Wayne Rockall was appointed Vice President, Australasia upon his joining
SOLA in October 1999. From 1992 to 1999, he served as Commercial Director of
United Distillers and Vintners division of Diageo Plc., with responsibility for
key accounts, in addition to field sales training and development, customer
service and export.

Gaetano Sciuto was appointed Vice President, Sunlens Division in July
2001. Prior to that time, he served as General Manager of the Sunlens Division.
From 1998 to 2000, he served as Director for Sunlens European operations. From
1996 to 1998, he was Vice President of Sales and Marketing for Lotto Sport
U.S.A.

Section 16(a) Beneficial Ownership Reporting Compliance

Information regarding Section 16(a) reporting compliance is included under
the caption Section 16(a) Beneficial Ownership Reporting Compliance in our
proxy statement for the 2003 Annual Meeting of Stockholders and is incorporated
by reference herein.




Item 11.Executive Compensation

Information regarding executive and director compensation is included
under the captions Executive Compensation and Director Compensation in our
proxy statement for the 2003 Annual Meeting of Stockholders and is incorporated
by reference herein.




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

Information regarding security ownership is included under the caption
Ownership of SOLA Common Stock in our proxy statement for the 2003 Annual
Meeting of Stockholders and is incorporated by reference herein.

Information regarding equity compensation plans is included under the
caption Equity Compensation Plan Information in our proxy statement for the
2003 Annual Meeting of Stockholders and is incorporated by reference herein.

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Item 13.Certain Relationships and Related Transactions

Information regarding certain relationships and related party transactions
is included under the caption Certain Transactions in our proxy statement for
the 2003 Annual Meeting of Stockholders and is incorporated by reference
herein.




Item 14.Controls and Procedure



| | (a) |  | Under the supervision and with the participation of our
management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended
(the Exchange Act), within 90 days of the filing date of this
report. Based on their evaluation, our principal executive officer
and our principal financial officer concluded that our disclosure
controls and procedures are effective.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | There have been no significant changes (including corrective
actions with regards to significant deficiencies or material
weaknesses) in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation referenced in paragraph (a) above.                                                                                                                                                                                                                                                                  




Item 15.Principal Accountant Fees and Services

Information regarding principal accountant fees and services is included
under the caption Relationship with Independent Accountants in our proxy
statement for the 2003 Annual Meeting of Stockholders and is incorporated by
reference herein.




PART IV




Item 16.Exhibits, Financial Statement Schedule and Reports on Form 8-K

(a)  Documents Filed as Part of this Report:

| |  |                                  |  |                                                                                                   |  |    
| |  | -------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ---
| |  | 1. Financial Statements.         |  |                                                                                                  
| |  |                                  |  | Report of PricewaterhouseCoopers LLP, Independent Accountants                                     |  | F-2
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Consolidated Balance Sheets as of March 31, 2003 and 2002                                         |  | F-3
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Consolidated Statements of Operations for the years ended March 31,
2003, 2002 and 2001           |  | F-4
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Consolidated Statements of Stockholders Equity for the years ended
March 31, 2003, 2002 and 2001 |  | F-5
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Consolidated Statements of Cash Flows for the years ended March 31,
2003, 2002 and 2001           |  | F-6
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Notes to Consolidated Financial Statements                                                        |  | F-7
| |  |                                  |  |                                                                                                   |  |    
| |  | 2. Supplemental Information.     |  |                                                                                                  
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Quarterly Financial Data  Unaudited                                                              |  | S-1
| |  |                                  |  |                                                                                                   |  |    
| |  | 3. Financial Statement Schedule. |  |                                                                                                  
| |  |                                  |  |                                                                                                   |  |    
| |  |                                  |  | Valuation and Qualifying Accounts                                                                 |  | S-2
| |  |                                  |  |                                                                                                   |  |    
| |  | 4. List of Exhibits              |  | E-1                                                                                              

(b)  Reports on Form 8-K:

On February 12, 2003, we filed a Form 8-K containing as Exhibit 99.1
our press release dated February 12, 2003. This press release contained our
earnings information for the third quarter of fiscal 2003.

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SIGNATURES

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



| | SOLA INTERNATIONAL INC.
(Registrant)
| | ------------------------------------

Date: June 13, 2003

| |     |                                                                                    
| | --- | -----------------------------------------------------------------------------------
| |     | /s/ STEVEN M. NEIL                                                                 
| | By: | Steven M. Neil                                                                     
| |     | Executive Vice President, Finance, Chief Financial Officer,
Secretary and Treasurer

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Jeremy C. Bishop
and Steven M. Neil and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report on Form 10-K for the fiscal year
ended March 31, 2003 necessary or advisable to enable SOLA International, Inc.
to comply with the Securities Exchange Act of 1934, any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof,
which amendments may make such other changes in the report as the aforesaid
attorney-in-fact executing the same deems appropriate.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

|                                      |  |                                                                                                                                  |  |              
|------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                             |  | Title                                                                                                                            |  | Date         
|                                      |  |                                                                                                                                  |  |              
|/s/ MAURICE J. CUNNIFFE               |  | Chairman of the Board                                                                                                            |  | June 13, 2003
|Maurice J. Cunniffe                   |  |                                                                                                                                  |  |              
|                                      |  |                                                                                                                                  |  |              
|/s/ JEREMY C. BISHOP
Jeremy C. Bishop |  | President and Chief Executive
Officer, Director (Principal
Executive Officer)                                                    |  | June 13, 2003
|                                      |  |                                                                                                                                  |  |              
|/s/ STEVEN M. NEIL
Steven M. Neil     |  | Executive Vice President,
Finance, Chief Financial
Officer, Secretary and
Treasurer (Principal Financial
and Accounting Officer) |  | June 13, 2003
|                                      |  |                                                                                                                                  |  |              
|/s/ DOUGLAS D. DANFORTH               |  | Director                                                                                                                         |  | June 13, 2003
|Douglas D. Danforth                   |  |                                                                                                                                  |  |              
|                                      |  |                                                                                                                                  |  |              
|/s/ A. WILLIAM HAMILL                 |  | Director                                                                                                                         |  | June 13, 2003
|A. William Hamill                     |  |                                                                                                                                  |  |              
|                                      |  |                                                                                                                                  |  |              
|/s/ NEIL E. LEACH                     |  | Director                                                                                                                         |  | June 13, 2003
|Neil E. Leach                         |  |                                                                                                                                  |  |              
|                                      |  |                                                                                                                                  |  |              
|/s/ ROBERT A. MUH                     |  | Director                                                                                                                         |  | June 13, 2003
|Robert A. Muh                         |  |                                                                                                                                  |  |              
|                                      |  |                                                                                                                                  |  |              
|/s/ JACKSON L. SCHULTZ                |  | Director                                                                                                                         |  | June 13, 2003
|Jackson L. Schultz                    |  |                                                                                                                                  |  |              

34



---



##### Table of Contents






Certification

I, Jeremy C. Bishop, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of SOLA International
Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a  14 and 15d  14) for the registrant
and we have:                                                                                            



| | a. |  | designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                 
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                       



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weakness in
internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |               |  |                                                           
|----- |  | ------------- |  | ----------------------------------------------------------
|Date: |  | June 13, 2003 |  | /s/ Jeremy C. Bishop
President and Chief Executive Officer

35



---



##### Table of Contents



Certification

I, Steven M. Neil, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of SOLA International
Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a  14 and 15d  14) for the registrant
and we have:                                                                                            



| | a. |  | designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                 
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                       



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weakness in
internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weakness.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |               |  |                                                                        
|----- |  | ------------- |  | -----------------------------------------------------------------------
|Date: |  | June 13, 2003 |  | /s/ Steven M. Neil
Executive Vice President and
Chief Financial Officer

36



---



##### Table of Contents



SOLA INTERNATIONAL INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                  |  |      |     | 
|------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                  |  | Page
|                                                                                                  |  |     
|Report of PricewaterhouseCoopers LLP, Independent Accountants                                     |  |      | F-2 | 
|Consolidated Balance Sheets as of March 31, 2003 and 2002                                         |  |      | F-3 | 
|Consolidated Statements of Operations for the years ended March 31, 2003, 2002 and 2001           |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity for the years ended March 31, 2003, 2002 and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002 and 2001           |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                        |  |      | F-7 | 
|Supplemental Information                                                                          |  |      | S-1 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of SOLA International Inc.:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 16(a)(1) on page 33 present fairly, in all material respects, the
financial position of SOLA International Inc. and its subsidiaries at March 31,
2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 16(a)(3) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for goodwill in fiscal year 2002, so
as to comply with the Statement of Financial Accounting Standard 142 Goodwill
and Other Intangible Assets.

PricewaterhouseCoopers LLP
San Jose, California

June 13, 2003

F- 2



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##### Table of Contents



SOLA INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |         |         |  |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | --------- | ------- | ------- | ------- |  |  | 
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         | March 31,
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |          
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         | 2003      |         | 2002   
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|ASSETS                                                                                                                                                                                                                           |                                                                                                                               |                                            |         |         |         |           |         |        
|Current assets:                                                                                                                                                                                                                  |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 | Cash and cash equivalents                                                                                                     |                                            | $       | 58,679  |         |           | $       | 68,419  |        
|                                                                                                                                                                                                                                 | Trade accounts receivable, less allowance for doubtful accounts of $8,972 and
$8,395 at March 31, 2003 and 2002, respectively |                                            |         | 123,088 |         |           |         | 114,993 |        
|                                                                                                                                                                                                                                 | Inventories                                                                                                                   |                                            |         | 91,442  |         |           |         | 82,586  |        
|                                                                                                                                                                                                                                 | Deferred taxes, current                                                                                                       |                                            |         | 25,065  |         |           |         | 18,584  |        
|                                                                                                                                                                                                                                 | Prepaid and other current assets                                                                                              |                                            |         | 13,095  |         |           |         | 15,509  |        
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 |                                                                                                                               | Total current assets                       |         |         | 311,369 |           |         |         | 300,091 | 
|Property, plant and equipment, net                                                                                                                                                                                               |                                                                                                                               |                                            | 172,448 |         |         |           | 164,465 |        
|Goodwill and other intangibles, net                                                                                                                                                                                              |                                                                                                                               |                                            | 208,809 |         |         |           | 190,719 |        
|Deferred taxes, long-term                                                                                                                                                                                                        |                                                                                                                               |                                            | 40,155  |         |         |           | 33,760  |        
|Other long-term assets                                                                                                                                                                                                           |                                                                                                                               |                                            | 26,298  |         |         |           | 24,030  |        
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 |                                                                                                                               | Total assets                               |         | $       | 759,079 |           |         | $       | 713,065 | 
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                             |                                                                                                                               |                                            |         |         |         |           |         |        
|Current liabilities:                                                                                                                                                                                                             |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 | Notes payable to banks                                                                                                        |                                            | $       | 522     |         |           | $       | 170     |        
|                                                                                                                                                                                                                                 | Current portion of long-term debt                                                                                             |                                            |         | 3,510   |         |           |         | 4,140   |        
|                                                                                                                                                                                                                                 | Accounts payable                                                                                                              |                                            |         | 65,637  |         |           |         | 68,546  |        
|                                                                                                                                                                                                                                 | Accrued liabilities                                                                                                           |                                            |         | 41,692  |         |           |         | 43,470  |        
|                                                                                                                                                                                                                                 | Accrued payroll and related compensation                                                                                      |                                            |         | 26,811  |         |           |         | 25,390  |        
|                                                                                                                                                                                                                                 | Deferred taxes, current                                                                                                       |                                            |         | 1,584   |         |           |         | 1,288   |        
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 |                                                                                                                               | Total current liabilities                  |         |         | 139,756 |           |         |         | 143,004 | 
|Long-term debt, less current portion                                                                                                                                                                                             |                                                                                                                               |                                            | 5,962   |         |         |           | 5,042   |        
|Senior notes                                                                                                                                                                                                                     |                                                                                                                               |                                            | 318,242 |         |         |           | 273,203 |        
|Deferred taxes, long-term                                                                                                                                                                                                        |                                                                                                                               |                                            | 14,913  |         |         |           | 14,973  |        
|Other long-term liabilities                                                                                                                                                                                                      |                                                                                                                               |                                            | 18,249  |         |         |           | 15,481  |        
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 |                                                                                                                               | Total liabilities                          |         |         | 497,122 |           |         |         | 451,703 | 
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|Commitments and contingencies (Notes 17 and 19)                                                                                                                                                                                  |                                                                                                                               |                                            |         |         |         |           |         |        
|Stockholders equity:                                                                                                                                                                                                            |                                                                                                                               |                                            |         |         |         |           |         |        
|Preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued                                                                                                                                                      |                                                                                                                               |                                            |        |         |         |           |        |        
|Common stock, $0.01 par value; 50,000 shares authorized; 24,996 and 24,938 shares
issued
as of March 31, 2003 and March 31, 2002, and 24,628 and 24,532
shares outstanding as of March 31, 2003 and March 31, 2002, respectively |                                                                                                                               |                                            | 250     |         |         |           | 249     |        
|Additional paid-in capital                                                                                                                                                                                                       |                                                                                                                               |                                            | 286,677 |         |         |           | 286,169 |        
|Retained earnings                                                                                                                                                                                                                |                                                                                                                               |                                            | 25,472  |         |         |           | 23,909  |        
|Accumulated other comprehensive loss                                                                                                                                                                                             |                                                                                                                               |                                            | (48,055 | )       |         |           | (46,329 | )      
|Common stock in treasury, at cost 
368 and 406 shares at March 31, 2003 and March 31, 2002, respectively                                                                                                                        |                                                                                                                               |                                            | (2,387  | )       |         |           | (2,636  | )      
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 |                                                                                                                               | Total stockholders equity                 |         |         | 261,957 |           |         |         | 261,362 | 
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        
|                                                                                                                                                                                                                                 |                                                                                                                               | Total liabilities and stockholders equity |         | $       | 759,079 |           |         | $       | 713,065 | 
|                                                                                                                                                                                                                                 |                                                                                                                               |                                            |         |         |         |           |         |        

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

F- 3



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##### Table of Contents



SOLA INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |         |          |  
|----------------------------------------------------------- | ------------------ | --------------------------------------------------------------------------------------------------- | ------- | -------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | -------- | -
|                                                            |                    |                                                                                                     |         | Year Ended March 31,
|                                                            |                    |                                                                                                     |         |                     
|                                                            |                    |                                                                                                     |         | 2003                 |         | 2002 |         | 2001   
|                                                            |                    |                                                                                                     |         |                      |         |      |         |        
|Net sales                                                   |                    | $                                                                                                   | 562,746 |                      |         | $    | 529,505 |         |         | $ | 545,432 |        
|Cost of sales                                               |                    |                                                                                                     | 329,695 |                      |         |      | 315,213 |         |         |   | 349,556 |        
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Gross profit                                                                                        |         |                      | 233,051 |      |         |         | 214,292 |   |         |         | 195,876  |  
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|Research and development expenses                           |                    |                                                                                                     | 12,190  |                      |         |      | 13,053  |         |         |   | 14,857  |        
|Selling and marketing expenses                              |                    |                                                                                                     | 106,876 |                      |         |      | 101,735 |         |         |   | 105,623 |        
|General and administrative expenses                         |                    |                                                                                                     | 47,079  |                      |         |      | 47,683  |         |         |   | 52,006  |        
|Amortization of goodwill and other intangibles              |                    |                                                                                                     | 44      |                      |         |      | 44      |         |         |   | 6,610   |        
|Special charges                                             |                    |                                                                                                     |        |                      |         |      | 28      |         |         |   | 91,065  |        
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            | Operating expenses |                                                                                                     |         | 166,189              |         |      |         | 162,543 |         |   |         | 270,161 |         
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Operating income/(loss)                                                                             |         |                      | 66,862  |      |         |         | 51,749  |   |         |         | (74,285  | )
|Interest income                                             |                    |                                                                                                     | 1,440   |                      |         |      | 2,302   |         |         |   | 2,123   |        
|Interest expense                                            |                    |                                                                                                     | (33,540 | )                    |         |      | (30,875 | )       |         |   | (25,575 | )      
|Foreign currency gain/(loss)                                |                    |                                                                                                     | (31,667 | )                    |         |      | 1,859   |         |         |   | (2,755  | )      
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Income/(loss) before (provision)/benefit for income
taxes, minority interest and extraordinary item |         |                      | 3,095   |      |         |         | 25,035  |   |         |         | (100,492 | )
|(Provision)/benefit for income taxes                        |                    |                                                                                                     | (929    | )                    |         |      | (7,010  | )       |         |   | 32,206  |        
|Minority interest                                           |                    |                                                                                                     | (603    | )                    |         |      | 1,093   |         |         |   | 287     |        
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Income/(loss) before extraordinary item                                                             |         |                      | 1,563   |      |         |         | 19,118  |   |         |         | (67,999  | )
|Extraordinary item, net of tax                              |                    |                                                                                                     |        |                      |         |      |        |         |         |   | 1,471   |        
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|Net income/(loss)                                           |                    | $                                                                                                   | 1,563   |                      |         | $    | 19,118  |         |         | $ | (66,528 | )      
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|Net income/(loss) per share  basic:                        |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Income/(loss) per share before extraordinary item                                                   |         | $                    | 0.06    |      |         | $       | 0.79    |   |         | $       | (2.83    | )
|                                                            |                    | Extraordinary item                                                                                  |         |                      |        |      |         |         |        |   |         |         | 0.06     |  
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Net income/(loss) per share  basic                                                                 |         | $                    | 0.06    |      |         | $       | 0.79    |   |         | $       | (2.77    | )
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|Weighted average common shares outstanding                  |                    |                                                                                                     | 24,573  |                      |         |      | 24,067  |         |         |   | 24,049  |        
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|Net income/(loss) per share  diluted:                      |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Income/(loss) per share before extraordinary item                                                   |         | $                    | 0.06    |      |         | $       | 0.78    |   |         | $       | (2.83    | )
|                                                            |                    | Extraordinary item                                                                                  |         |                      |        |      |         |         |        |   |         |         | 0.06     |  
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|                                                            |                    | Net income/(loss) per share  diluted                                                               |         | $                    | 0.06    |      |         | $       | 0.78    |   |         | $       | (2.77    | )
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        
|Weighted average common and dilutive securities outstanding |                    |                                                                                                     | 24,856  |                      |         |      | 24,583  |         |         |   | 24,049  |        
|                                                            |                    |                                                                                                     |         |                      |         |      |         |         |         |   |         |        

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

F- 4



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##### Table of Contents



SOLA INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands, except per share data)

|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |         |         |  
|----------------------------------------------------- | ---------------------------------------- | -------------------- | ------ | ------------ |  | ---------- | --- | ------- |  | -------- | ------- | ------------- |  | -------------- | --- | ------------- |  | ----- | ------ | ------- | - | ----------- | ------- | ------- | - |  | ------ | - |  | - | ------ | - |  | - | ------- | ------- | ------- | -
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   | Accumulated |         |         |   |  |        |   |  |   |        |  
|                                                      |                                          |                      |        | Common Stock |  | Additional |     |         |  |          |         | Other         |  | Treasury Stock |     | Total        
|                                                      |                                          |                      |        |              |  | Paid-in    |     | Equity  |  | Retained |         | Comprehensive |  |                |     | Stockholders
|                                                      |                                          |                      |        | Shares       |  | Value      |     | Capital |  | Loans    |         | Earnings      |  | Loss           |     | Shares        |  | Value |        | Equity 
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |        
|Balances, March 31, 2000                              |                                          |                      | 24,937 |              |  | $          | 249 |         |  | $        | 281,467 |               |  | $              | (10 | )             |  | $     | 71,319 |         |   | $           | (25,223 | )       |   |  |       |   |  | $ |       |   |  | $ | 327,802 |        
|Comprehensive loss:                                   |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|                                                      | Net loss                                 |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        | (66,528 | ) |             |         |         |   |  |        |   |  |   |        |   |  |   |         | (66,528 | )      
|                                                      | Foreign currency translation
adjustments |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         | (17,846 | ) |  |        |   |  |   |        |   |  |   |         | (17,846 | )      
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|                                                      |                                          | Comprehensive loss   |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |         | (84,374 | )
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|Purchase of common stock                              |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  | (1,250 | ) |  |   | (8,166 | ) |  |   | (8,166  | )      
|Common stock issued under stock option
plans          |                                          |                      | 1      |              |  |            |     |         |  |          | (60     | )             |  |                |     |               |  |       |        |         |   |             |         |         |   |  | 21     |   |  |   | 136    |   |  |   | 76      |        
|Tax benefit from exercise of stock
options            |                                          |                      |        |              |  |            |     |         |  |          | 27      |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   | 27      |        
|Repayment of equity participation loans               |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                | 10  |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   | 10      |        
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|Balances, March 31, 2001                              |                                          |                      | 24,938 |              |  |            | 249 |         |  |          | 281,434 |               |  |                |    |               |  |       | 4,791  |         |   |             | (43,069 | )       |   |  | (1,229 | ) |  |   | (8,030 | ) |  |   | 235,375 |        
|Comprehensive income:                                 |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|                                                      | Net income                               |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        | 19,118  |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         | 19,118  |        
|                                                      | Foreign currency translation
adjustments |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         | (3,260  | ) |  |        |   |  |   |        |   |  |   |         | (3,260  | )      
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|                                                      |                                          | Comprehensive income |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |         | 15,858  |  
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|Common stock issued under stock option
plans          |                                          |                      |        |              |  |            |     |         |  |          | 2,281   |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  | 823    |   |  |   | 5,394  |   |  |   | 7,675   |        
|Tax benefit from exercise of stock
options            |                                          |                      |        |              |  |            |     |         |  |          | 2,454   |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   | 2,454   |        
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|Balances, March 31, 2002                              |                                          |                      | 24,938 |              |  |            | 249 |         |  |          | 286,169 |               |  |                |    |               |  |       | 23,909 |         |   |             | (46,329 | )       |   |  | (406   | ) |  |   | (2,636 | ) |  |   | 261,362 |        
|Comprehensive loss:                                   |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|                                                      | Net income                               |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        | 1,563   |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         | 1,563   |        
|                                                      | Foreign currency translation
adjustments |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         | (1,726  | ) |  |        |   |  |   |        |   |  |   |         | (1,726  | )      
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|                                                      |                                          | Comprehensive loss   |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |         | (163    | )
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|Common stock issued under stock option
plans          |                                          |                      | 54     |              |  |            | 1   |         |  |          | 328     |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  | 38     |   |  |   | 249    |   |  |   | 578     |        
|Common stock issued related to purchase
of
businesses |                                          |                      | 4      |              |  |            |     |         |  |          | 30      |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   | 30      |        
|Tax benefit from exercise of stock
options            |                                          |                      |        |              |  |            |     |         |  |          | 150     |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   | 150     |        
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        
|Balances, March 31, 2003                              |                                          |                      | 24,996 |              |  | $          | 250 |         |  | $        | 286,677 |               |  | $              |    |               |  | $     | 25,472 |         |   | $           | (48,055 | )       |   |  | (368   | ) |  | $ | (2,387 | ) |  | $ | 261,957 |        
|                                                      |                                          |                      |        |              |  |            |     |         |  |          |         |               |  |                |     |               |  |       |        |         |   |             |         |         |   |  |        |   |  |   |        |   |  |   |         |        

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

F- 5



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##### Table of Contents



SOLA INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |   |         |         |  
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------- | --------------------------------------------------- | - | -------------------- | ------- | ------ | - | -------- | ------- | ------- | - | ------- | ------- | -
|                                                             |                                                                                          |                                                               |                                                     |   | Year Ended March 31,
|                                                             |                                                                                          |                                                               |                                                     |   |                     
|                                                             |                                                                                          |                                                               |                                                     |   | 2003                 |         | 2002   |   | 2001    
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |         
|Cash flows from operating activities:                        |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|Net income/(loss)                                            |                                                                                          | $                                                             | 1,563                                               |   |                      | $       | 19,118 |   |          | $       | (66,528 | )
|                                                             | Adjustments to reconcile net income/(loss) to net cash provided by operating
activities: |                                                               |                                                     |   |                      |         |        |   |          |         |         |   |        
|                                                             |                                                                                          | Minority interest in earnings                                 |                                                     |   | 603                  |         |        |   | (1,093   | )       |         |   | (287    | )      
|                                                             |                                                                                          | Depreciation                                                  |                                                     |   | 19,678               |         |        |   | 18,542   |         |         |   | 19,998  |        
|                                                             |                                                                                          | Amortization  goodwill and other intangibles                 |                                                     |   | 44                   |         |        |   | 44       |         |         |   | 6,610   |        
|                                                             |                                                                                          | Amortization  debt issuance costs                            |                                                     |   | 3,086                |         |        |   | 2,543    |         |         |   | 986     |        
|                                                             |                                                                                          | Provision for doubtful accounts                               |                                                     |   | 1,611                |         |        |   | 2,317    |         |         |   | 2,992   |        
|                                                             |                                                                                          | Tax benefit from exercise of stock options                    |                                                     |   | 150                  |         |        |   | 2,454    |         |         |   | 27      |        
|                                                             |                                                                                          | Non-cash portion of special charges                           |                                                     |   |                     |         |        |   | 767      |         |         |   | 74,289  |        
|                                                             |                                                                                          | Deferred taxes                                                |                                                     |   | (12,474              | )       |        |   | 1,155    |         |         |   | (30,923 | )      
|                                                             |                                                                                          | Foreign currency (gain)/loss                                  |                                                     |   | 30,631               |         |        |   | (1,868   | )       |         |   | (6,211  | )      
|                                                             |                                                                                          | Gain on early extinguishment of debt                          |                                                     |   |                     |         |        |   |         |         |         |   | (2,306  | )      
|                                                             |                                                                                          | (Gain)/loss on disposal/sale of property, plant and equipment |                                                     |   | 185                  |         |        |   | 167      |         |         |   | (5,812  | )      
|                                                             | Changes in assets and liabilities, net of acquisitions:                                  |                                                               |                                                     |   |                      |         |        |   |          |         |         |   |        
|                                                             |                                                                                          | Trade accounts receivable                                     |                                                     |   | 1,371                |         |        |   | 3,931    |         |         |   | (8,916  | )      
|                                                             |                                                                                          | Inventories                                                   |                                                     |   | 201                  |         |        |   | 7,316    |         |         |   | 28,711  |        
|                                                             |                                                                                          | Prepaid and other assets                                      |                                                     |   | 758                  |         |        |   | (14,294  | )       |         |   | (1,992  | )      
|                                                             |                                                                                          | Accounts payable                                              |                                                     |   | (6,734               | )       |        |   | (5,702   | )       |         |   | 3,354   |        
|                                                             |                                                                                          | Accrued and other current liabilities                         |                                                     |   | (6,980               | )       |        |   | (12,558  | )       |         |   | 7,425   |        
|                                                             |                                                                                          | Other long-term liabilities                                   |                                                     |   | 280                  |         |        |   | 721      |         |         |   | 4,207   |        
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|                                                             |                                                                                          |                                                               | Net cash provided by operating activities           |   |                      | 33,973  |        |   |          | 23,560  |         |   |         | 25,624  |  
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|Cash flows from investing activities:                        |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|                                                             |                                                                                          | Purchases of businesses                                       |                                                     |   | (21,024              | )       |        |   |         |         |         |   | (17,917 | )      
|                                                             |                                                                                          | Disposal of/(investments in) joint ventures                   |                                                     |   | 210                  |         |        |   | 1,183    |         |         |   | (1,335  | )      
|                                                             |                                                                                          | Capital expenditures                                          |                                                     |   | (21,897              | )       |        |   | (17,144  | )       |         |   | (20,923 | )      
|                                                             |                                                                                          | Mold expenditures                                             |                                                     |   | (3,073               | )       |        |   | (5,865   | )       |         |   | (5,352  | )      
|                                                             |                                                                                          | Divestitures and other asset dispositions                     |                                                     |   |                     |         |        |   | 5,500    |         |         |   | 7,816   |        
|                                                             |                                                                                          | Other investing activities                                    |                                                     |   | 810                  |         |        |   | 678      |         |         |   | 90      |        
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|                                                             |                                                                                          |                                                               | Net cash used in investing activities               |   |                      | (44,974 | )      |   |          | (15,648 | )       |   |         | (37,621 | )
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|Cash flows from financing activities:                        |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|                                                             |                                                                                          | Proceeds from the exercise of stock options                   |                                                     |   | 578                  |         |        |   | 7,675    |         |         |   | 86      |        
|                                                             |                                                                                          | Receipts/(payments) under notes payable to banks              |                                                     |   | 302                  |         |        |   | 717      |         |         |   | (15,890 | )      
|                                                             |                                                                                          | Borrowings on long-term debt                                  |                                                     |   | 1,252                |         |        |   | 3,572    |         |         |   | 4,531   |        
|                                                             |                                                                                          | Payments on long-term debt                                    |                                                     |   | (4,511               | )       |        |   | (9,461   | )       |         |   | (2,599  | )      
|                                                             |                                                                                          | Proceeds from bank debt                                       |                                                     |   | 10,000               |         |        |   | 17,500   |         |         |   | 44,800  |        
|                                                             |                                                                                          | Repayment of bank debt                                        |                                                     |   | (10,000              | )       |        |   | (167,500 | )       |         |   |        |        
|                                                             |                                                                                          | Issuance of senior notes                                      |                                                     |   |                     |         |        |   | 182,009  |         |         |   |        |        
|                                                             |                                                                                          | Purchase of treasury stock                                    |                                                     |   |                     |         |        |   |         |         |         |   | (8,166  | )      
|                                                             |                                                                                          | Repurchase of senior subordinated notes                       |                                                     |   |                     |         |        |   |         |         |         |   | (2,678  | )      
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|                                                             |                                                                                          |                                                               | Net cash provided by/(used in) financing activities |   |                      | (2,379  | )      |   |          | 34,512  |         |   |         | 20,084  |  
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|Effect of exchange rate changes on cash and cash equivalents |                                                                                          |                                                               | 3,640                                               |   |                      |         | (154   | ) |          |         | (790    | )
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|Net increase/ (decrease) in cash and cash equivalents        |                                                                                          |                                                               | (9,740                                              | ) |                      |         | 42,270 |   |          |         | 7,297   |  
|Cash and cash equivalents at beginning of year               |                                                                                          |                                                               | 68,419                                              |   |                      |         | 26,149 |   |          |         | 18,852  |  
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  
|Cash and cash equivalents at end of year                     |                                                                                          | $                                                             | 58,679                                              |   |                      | $       | 68,419 |   |          | $       | 26,149  |  
|                                                             |                                                                                          |                                                               |                                                     |   |                      |         |        |   |          |         |         |  

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

F- 6



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Basis of Presentation

SOLA International Inc. (Company) designs, manufactures and distributes
a broad range of eyeglass lenses, primarily focusing on the fast growing
plastic lens segment of the global market. The Company operates in one business
segment.

The accompanying consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in
the United States.

In order to continue its operations and meet its significant liquidity
requirements, the Company must maintain profitable operations or obtain
additional funds through equity or debt financing, bank financing, and other
sources. Management believes that its existing cash balances, foreign credit
facilities, internally generated funds and other potential financing
alternatives will be sufficient to meet the Companys capital, operating and
debt service requirements for at least the next twelve months. If the Company
is unable to generate adequate cash flow from sales of its products, the
Company may need to seek additional sources of capital. There can be no
assurance that the Company will be able to obtain additional debt or equity
financing on terms acceptable to the Company, or at all. If adequate funds are
not available, the Company could be required to delay development or
commercialization of certain products, or reduce the marketing, customer
support, or other resources devoted to product development. Accordingly, the
failure of the Company to obtain sufficient funds on acceptable terms when
needed could have a material adverse effect on the Companys business, results
of operations and financial condition.

2. Summary of Significant Accounting Policies

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All significant transactions between the entities
have been eliminated in the consolidation. The Company records minority interest gain or
loss which reflects the portion of the earnings of majority-owned operations
that are applicable to minority stockholders.

Cash and Cash Equivalents:

Cash equivalents consist primarily of highly liquid short-term investments
with an original maturity of three months or less.

Inventories:

Inventories are stated at the lower of cost (first-in, first-out) or
market. The Company writes down its inventory for estimated obsolescence or
unmarketablility. The amount of such writedown is equal to the difference
between cost of inventory and the estimated market value based upon assumptions
about future demand, selling prices and market conditions.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets
(buildings10 to 50 years; plant, molds and office equipment2 to 10
years). Leasehold improvements and leased equipment are amortized over the
lesser of their useful lives or the remaining term of the related leases. Gains
and losses on sale of assets are recorded in general and administrative
expenses. Repairs and maintenance costs are expensed when incurred.

Intangible Assets:

Goodwill represents the excess of purchase price and related costs over
the value assigned to the net tangible and identifiable intangible assets of
businesses acquired. In July 2001, the Financial Accounting Standards Board
issued SFAS No. 142 Goodwill and Other Intangible Assets,which establishes
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, Intangible Assets.The Company
adopted SFAS No. 142 beginning with the first quarter of fiscal 2002. SFAS 142
requires that goodwill and intangible assets that have indefinite useful lives
not be amortized but instead be tested when there are triggering factors that
indicate an impairment may have occurred or at least annually for impairment.
Intangible assets that have finite useful lives continue to be amortized over
their useful lives.

The following table reconciles the Companys net income/(loss) for the
fiscal 2003, 2002, and 2001 adjusted to exclude goodwill amortization pursuant
to SFAS No. 142 to amounts previously reported: (in thousands, except per share
data)

|                                                   |  |           |       |  |      |   |        |      |  |   |         |  
|-------------------------------------------------- |  | --------- | ----- |  | ---- | - | ------ | ---- |  | - | ------- | -
|                                                   |  | March 31, |      
|                                                   |  |           |      
|                                                   |  | 2003      |       |  | 2002 |   |        | 2001 | 
|                                                   |  |           |       |  |      |   |        |      | 
|Reported income/(loss) before extraordinary item   |  | $         | 1,563 |  |      | $ | 19,118 |      |  | $ | (67,999 | )
|Add back: Goodwill amortization, net of tax effect |  |           |      |  |      |   |       |      |  |   | 4,495   |  
|                                                   |  |           |       |  |      |   |        |      | 
|Adjusted income/(loss) before extraordinary item   |  | $         | 1,563 |  |      | $ | 19,118 |      |  | $ | (63,504 | )
|                                                   |  |           |       |  |      |   |        |      | 
|Reported net income/(loss)                         |  | $         | 1,563 |  |      | $ | 19,118 |      |  | $ | (66,528 | )
|Add back: Goodwill amortization, net of tax effect |  |           |      |  |      |   |       |      |  |   | 4,495   |  
|                                                   |  |           |       |  |      |   |        |      | 
|Adjusted net income/(loss)                         |  | $         | 1,563 |  |      | $ | 19,118 |      |  | $ | (62,033 | )
|                                                   |  |           |       |  |      |   |        |      | 
|Earnings/(loss) per share  basic                  |  |           |       |  |      |   |        |      |  |   |         |  
|Reported income/(loss) before extraordinary item   |  | $         | 0.06  |  |      | $ | 0.79   |      |  | $ | (2.83   | )
|Goodwill amortization                              |  |           |      |  |      |   |       |      |  |   | 0.19    |  
|                                                   |  |           |       |  |      |   |        |      | 
|Adjusted income/(loss) before extraordinary item   |  | $         | 0.06  |  |      | $ | 0.79   |      |  | $ | (2.64   | )
|                                                   |  |           |       |  |      |   |        |      | 
|Earnings/(loss) per share  basic                  |  |           |       |  |      |   |        |      |  |   |         |  
|Reported net income/(loss)                         |  | $         | 0.06  |  |      | $ | 0.79   |      |  | $ | (2.77   | )
|Goodwill amortization                              |  |           |      |  |      |   |       |      |  |   | 0.19    |  
|                                                   |  |           |       |  |      |   |        |      | 
|Adjusted net income/(loss)                         |  | $         | 0.06  |  |      | $ | 0.79   |      |  | $ | (2.58   | )
|                                                   |  |           |       |  |      |   |        |      | 
|Earnings/(loss) per share  diluted                |  |           |       |  |      |   |        |      |  |   |         |  
|Reported income/(loss) before extraordinary item   |  | $         | 0.06  |  |      | $ | 0.78   |      |  | $ | (2.83   | )
|Goodwill amortization                              |  |           |      |  |      |   |       |      |  |   | 0.19    |  
|                                                   |  |           |       |  |      |   |        |      | 
|Adjusted income/(loss) before extraordinary item   |  | $         | 0.06  |  |      | $ | 0.78   |      |  | $ | (2.64   | )
|                                                   |  |           |       |  |      |   |        |      | 
|Earnings/(loss)
per share  diluted                |  |           |       |  |      |   |        |      |  |   |         |  
|Reported net income/(loss)                         |  | $         | 0.06  |  |      | $ | 0.78   |      |  | $ | (2.77   | )
|Goodwill amortization                              |  |           |      |  |      |   |       |      |  |   | 0.19    |  
|                                                   |  |           |       |  |      |   |        |      | 
|Adjusted net income/(loss)                         |  | $         | 0.06  |  |      | $ | 0.78   |      |  | $ | (2.58   | )
|                                                   |  |           |       |  |      |   |        |      | 

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

The Company assesses the impairment of goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers important which could trigger an impairment
include the following:



| |  |  | Significant under performance relative to historical or
projected future operating results;                                      
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Significant changes in the manner of the Companys use of the
acquired assets or the strategy for the Companys overall business;
|
| |  |  | Significant negative industry or economic trends;                                                                                
|
| |  |  | Significant decline in the Companys stock price for a sustained period; and                                                     
|
| |  |  | Decreased market capitalization relative to net book value.                                                                      

When there is an indication that the carrying value of goodwill may not be
recoverable based upon the existence of one or more of the above indicators, an
impairment loss is recognized if the carrying amount exceeds its fair value.
During the fourth quarter of fiscal 2003, the Company performed an annual test
for impairment of goodwill and no impairment loss was recorded as a result.

Intangible assets with finite lives, including trademarks, patents and
licenses, are stated at cost and amortized on a straight-line basis over their
estimated useful lives of 3 to 15 years. Legal costs incurred by the Company in
successfully defending its patents are capitalized to patent costs and
amortized over the remaining life of the patent.

Other Assets:

Debt issuance costs are amortized to interest expense over the respective
lives of the debt instruments, which range from 5 to 10 years. As of March 31,
2003 and 2002, accumulated amortization was $6.0 million and $3.0 million,
respectively. The Companys debt issuance amortization costs were approximately
$3.1 million, $2.5 million and $1.0 million for fiscal 2003, 2002, and 2001,
respectively.

Long-Lived Assets:

The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. An impairment loss is
recognized when the undiscounted cash flows expected to be generated by an
asset (or group of assets) is less than its carrying amount. Any required
impairment loss is measured as the amount by which the assets carrying value
exceeds its fair value, and is recorded as a reduction in the carrying value of
the related asset and a charge to operating results.

Foreign Currency Translation:

The assets and liabilities and revenue and expense accounts of the
Companys foreign subsidiaries have been translated using the exchange rate at
the balance sheet date and the average exchange rate for the period,
respectively.

The net effect of the translation of the accounts of the Companys
subsidiaries has been included in equity as a component of
accumulated other
comprehensive income/(loss). Adjustments that arise from exchange rate changes
on transactions denominated in a currency other than the local currency are
included in income as incurred.

Under the relevant accounting guidance, the treatment of these translation
gains or losses is dependent upon the Companys determination of the functional
currency of each subsidiary. The functional currency is determined based on
managements judgment and involves consideration of all relevant economic facts
and circumstances affecting the subsidiary. Generally, the currency in which
the subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures would be considered the functional
currency, but any dependency upon the parent and the nature of the subsidiarys
operations must also be considered.

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Revenue Recognition:

The Company recognizes revenue pursuant to applicable accounting
standards, including Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in FinancialStatements. SAB
101, as amended, summarizes certain of the SEC staffs views in applying
generally accepted accounting principles to revenue recognition in financial
statements and provides guidance on revenue recognition issues in the absence
of authoritative literature addressing a specific arrangement or a specific
industry.

The Companys policy is to recognize revenue from sales to customers when
the rights and risks of ownership have passed to the customer, when persuasive
evidence of an arrangement exists, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured. Under specific
conditions, the Company permits its customers to return or exchange products.
The provision for estimated returns is recorded as a reduction of revenue
concurrently with the recognition of revenue. Management analyzes historical
sales returns and analysis of credit memo data when evaluating the adequacy of
the sales returns allowances in any accounting period. No individual customer
accounts for more than 6% of net sales. The Company generally does not require
collateral from its customers, but performs on-going credit evaluations of its
customers.

Shipping and handling fees charged to customers are included in net sales
and the related costs of $30.1 million, $32.6 million and
$29.1 million for
fiscal 2003, 2002 and 2001, respectively, are included in selling and marketing
expenses.

Advertising and Promotion Costs:

The Companys policy is to expense advertising and promotion costs as they
are incurred. The Companys advertising and promotion expenses were
approximately $7.1 million, $6.1 million and $6.2 million for fiscal 2003, 2002
and 2001, respectively.

Income Taxes:

The Company accounts for income taxes under the provisions of FASB
Statement No. 109, Accounting for Income Taxes(SFAS 109). Under SFAS 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is established when necessary to reduce
deferred tax assets to amounts expected to be realized.

Comprehensive Income/(Loss):

Other comprehensive income/(loss) includes foreign currency translation
adjustments that are not adjusted for income taxes as they relate to indefinite
investments in non-U.S. subsidiaries.

Reclassifications:

Certain prior year items have been reclassified to conform to the current
years presentation. These reclassifications had no impact on total assets,
operating income/(loss) or net income/(loss).

Use of Estimates:

The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued

Business Risk and Concentration of Credit Risks:

The Company operates manufacturing and distribution sites in all major
regions of the worldNorth America (including Mexico), Europe, and Rest of
World. As a result, a significant portion of the Companys sales and operations
are subject to certain risks, including adverse developments in the foreign
political and economic environment, exchange rates, tariffs and other trade
barriers, staffing and managing foreign operations and potentially adverse tax
consequences. Although the Company and its
predecessors have been successfully conducting business outside of the United
States since its inception in 1960, there can be no assurance that any of these
factors will not have a material adverse effect on the Companys financial
condition, cash flows, or results of operations in the future.

Cash and cash equivalents are invested in deposits with major banks in the
United States and in countries where subsidiaries operate. Deposits in these
banks may exceed the amount of insurance provided on such deposits. The Company
has not experienced any losses on its deposits of cash and cash equivalents.

During fiscal 2003, the Companys ten largest customers accounted for
27.9% of net sales, and the largest customer accounted for less than 6% of net
sales. During fiscal 2003, five of the ten largest customers were located in
North America and accounted for 14.9% of net sales. No single customers
accounts receivable balance was greater than 2.5% of total accounts receivable.

While there are currently multiple suppliers of polycarbonate and monomer
raw materials, the Company purchases over 50% of those materials from three
suppliers. The loss of any of these suppliers, or a significant decrease in the
supply of polycarbonate or monomer, would require the Company to obtain these
raw materials elsewhere. If the Company was unable to obtain polycarbonate or
monomer from other suppliers at acceptable prices, it might realize lower
margins and experience difficulty in meeting its customers requirements. In
addition, the Companys photocromic lenses are processed by a third party using
technology that is proprietary to it.

Derivative Instruments:

The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS Nos. 137 and 138 as of April 1, 2001. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. It
further provides criteria for derivative instruments to be designated as fair
value, cash flow and foreign currency hedges and establishes respective
accounting standards for reporting changes in the fair value of the
instruments. All of the Companys derivative instruments are recorded at their
fair value in other current assets or other accrued liabilities. The transition
adjustment upon adoption of SFAS No. 133 was not material.

The Company utilizes various hedge instruments, primarily forward
contracts, to hedge cash flows associated with certain purchase and sales
commitments and the related payables and receivables. The Company has elected
to designate its cash flow hedges as fair-value hedges in accordance with SFAS
No. 133 during fiscal 2003, fiscal 2002, and fiscal 2001. Accordingly, changes
in the fair value of these hedges are recorded immediately in foreign currency gain/(loss) to offset the changes in fair value of the assets or liabilities being
hedged.

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued

Earnings/(Loss) Per Share:

The following table sets forth the computation of basic and diluted
earnings/(loss) per share for the fiscal years ended March 31, 2003, 2002 and
2001:

|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |         |  
|-------------------------------------------------------------- | ------------------------------------------------------------------ | - | ---------------------- | ------ | ---- | - | ------ | ------ |  | - | ------- | ------- | -
|                                                               |                                                                    |   | Year Ended March 31,  
|                                                               |                                                                    |   |                       
|                                                               |                                                                    |   | 2003                   |        | 2002 |   | 2001  
|                                                               |                                                                    |   |                        |        |      |   |       
|                                                               |                                                                    |   | (in thousands,        
|                                                               |                                                                    |   | except per share data)
|Numerator:                                                     |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Income/(loss) before extraordinary item                        |                                                                    | $ | 1,563                  |        |      | $ | 19,118 |        |  | $ | (67,999 | )      
|Extraordinary gain on early extinguishment of
debt, net of tax |                                                                    |   |                       |        |      |   |       |        |  |   | 1,471   |        
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|                                                               | Net income/(loss)                                                  |   | $                      | 1,563  |      |   | $      | 19,118 |  |   | $       | (66,528 | )
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Denominator:                                                   |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Weighted average common shares outstanding                     |                                                                    |   | 24,573                 |        |      |   | 24,067 |        |  |   | 24,049  |        
|Effect of dilutive securities -  employee stock options        |                                                                    |   | 283                    |        |      |   | 516    |        |  |   |        |        
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|                                                               | Weighted average common shares and dilutive securities
outstanding |   |                        | 24,856 |      |   |        | 24,583 |  |   |         | 24,049  |  
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Net income/(loss) per sharebasic:                             |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Income/(loss) per share before extraordinary item              |                                                                    | $ | 0.06                   |        |      | $ | 0.79   |        |  | $ | (2.83   | )      
|Extraordinary gain on early extinguishment of debt, net of tax |                                                                    |   |                       |        |      |   |       |        |  |   | 0.06    |        
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|                                                               | Net income/(loss) per sharebasic                                  |   | $                      | 0.06   |      |   | $      | 0.79   |  |   | $       | (2.77   | )
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Net income/(loss) per sharediluted:                           |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|Income/(loss) per share before extraordinary item              |                                                                    | $ | 0.06                   |        |      | $ | 0.78   |        |  | $ | (2.83   | )      
|Extraordinary gain on early extinguishment of debt, net of tax |                                                                    |   |                       |        |      |   |       |        |  |   | 0.06    |        
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        
|                                                               | Net income/(loss) per sharediluted                                |   | $                      | 0.06   |      |   | $      | 0.78   |  |   | $       | (2.77   | )
|                                                               |                                                                    |   |                        |        |      |   |        |        |  |   |         |        

Options to purchase 1.5 million shares of common stock at a range of $9.26
to $38.38 per share and 1.4 million shares of common stock at a range of $13.74
to $41.44 per share were outstanding as of March 31, 2003 and March 31, 2002,
respectively, but were not included in the computation of the diluted earnings
per share for fiscal 2003 and fiscal 2002 because the options exercise price
was greater than the average market price of the common shares. For the year
ended March 31, 2001, approximately 3.4 million weighted average shares with
exercise prices at a range of $4.63 to $41.44 per share were not included in
the calculation of diluted net loss per share because to do so would be
anti-dilutive for the period.

Pro Forma Disclosures

Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, Accounting for Stock-BasedCompensation
(SFAS 123) and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rates of 2.19%-2.55%, 4.23%-4.50%, and 4.63%-5.90%, no dividend yield,
volatility factors of the expected market price of the Companys common stock
of 57.0%, 61.4%, and 51.9%-87.7% and a weighted-average expected life of the option
of 4 years, for fiscal 2003, 2002, and 2001, respectively.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate
the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Companys
actual and pro forma information follows:

|                                       |         |   |                       |       |      |   |        |      |  |   |         |       |  
|-------------------------------------- | ------- | - | --------------------- | ----- | ---- | - | ------ | ---- |  | - | ------- | ----- | -
|                                       |         |   | Year Ended March 31, 
|                                       |         |   |                      
|                                       |         |   | 2003                  |       | 2002 |   | 2001  
|                                       |         |   |                       |       |      |   |       
|                                       |         |   | (in thousands, except
|                                       |         |   | per share data)      
|Actual                                 |         |   |                       |       |      |   |        |      |  |   |         |      
|Net income/(loss)                      |         | $ | 1,563                 |       |      | $ | 19,118 |      |  | $ | (66,528 | )    
|Net income/(loss) per share:           |         |   |                       |       |      |   |        |      |  |   |         |      
|                                       | Basic   |   | $                     | 0.06  |      |   | $      | 0.79 |  |   | $       | (2.77 | )
|                                       | Diluted |   | $                     | 0.06  |      |   | $      | 0.78 |  |   | $       | (2.77 | )
|                                      
|Pro forma                              |         |   |                       |       |      |   |        |      |  |   |         |      
|Pro forma net income/(loss)            |         | $ | (700                  | )     |      | $ | 16,529 |      |  | $ | (68,684 | )    
|Pro forma net income/(loss) per share: |         |   |                       |       |      |   |        |      |  |   |         |      
|                                       | Basic   |   | $                     | (0.03 | )    |   | $      | 0.69 |  |   | $       | (2.86 | )
|                                       | Diluted |   | $                     | (0.03 | )    |   | $      | 0.67 |  |   | $       | (2.86 | )

The pro forma effect on net income of SFAS 123 may not be representative
of the effects on pro forma net income/(loss) in future periods.

Impact of Recently Issued Accounting Standards:

In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. We believe that the adoption of this standard will have
no material impact on our financial statements.

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied for the first interim or annual period
beginning after June 15, 2003. We believe that the adoption of this standard
will have no material impact on our financial statements.

In March 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity (SFAS 149). This Statement establishes standards for
classification of certain financial instruments that have characteristics of
both liabilities and equity in the statement of financial position. This
Statement will be effective upon issuance for all contracts created or modified
after the date the Statement was issued and otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company believes that the adoption of this standard will have no material
impact on its financial statements.

F-12



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

3. Inventories

|                 |  |                |        |      |  |   |        | 
|---------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                 |  | March 31,     
|                 |  |               
|                 |  | 2003           |        | 2002
|                 |  |                |        |     
|                 |  | (in thousands)
|Raw materials    |  | $              | 13,611 |      |  | $ | 13,104 | 
|Work in progress |  |                | 3,124  |      |  |   | 3,510  | 
|Finished goods   |  |                | 74,707 |      |  |   | 65,972 | 
|                 |  |                |        |      |  |   |        | 
|                 |  | $              | 91,442 |      |  | $ | 82,586 | 
|                 |  |                |        |      |  |   |        | 

4. Property, Plant and Equipment

|                                               |  |                |         |      |  |   |         | 
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                                               |  | March 31,     
|                                               |  |               
|                                               |  | 2003           |         | 2002
|                                               |  |                |         |     
|                                               |  | (in thousands)
|Land, buildings and leasehold improvements     |  | $              | 38,509  |      |  | $ | 34,997  | 
|Machinery and office equipment                 |  |                | 202,895 |      |  |   | 179,306 | 
|Equipment under capital leases                 |  |                | 4,985   |      |  |   | 2,790   | 
|Molds                                          |  |                | 60,783  |      |  |   | 57,710  | 
|                                               |  |                |         |      |  |   |         | 
|                                               |  |                | 307,172 |      |  |   | 274,803 | 
|Less accumulated depreciation and amortization |  |                | 134,724 |      |  |   | 110,338 | 
|                                               |  |                |         |      |  |   |         | 
|                                               |  | $              | 172,448 |      |  | $ | 164,465 | 
|                                               |  |                |         |      |  |   |         | 

Depreciation expense for fiscal 2003, 2002 and 2001 was $19.7 million,
$18.5 million and $20.0 million, respectively. Accumulated amortization on
equipment under capital leases was $0.4 million at March 31, 2003 and 2002.

5. Derivative Instruments

As a result of its global operations, the Companys foreign subsidiaries
are exposed to exchange rate fluctuations on certain assets and liabilities,
primarily accounts payable, accounts receivable, and intercompany indebtedness,
denominated in non-functional currencies. In addition, the parent company has
foreign currency exposure on its Euro-denominated third party debt. The
Company utilizes various hedge instruments, primarily forward contracts, to
hedge cash flows associated with certain purchase and sales commitments and the
related payables and receivables. The Company has elected to designate its
cash flow hedges as fair-value hedges in accordance with SFAS No. 133 during
fiscal 2003, fiscal 2002, and fiscal 2001. Accordingly, changes in the fair
value of these hedges are recorded immediately in foreign currency gain/(loss) to
offset the changes in fair value of the assets or liabilities being hedged.

During fiscal 2003 and 2002, the Company had various contracts in place to
hedge the semi-annual interest payments on its Euro-denominated third party
debt. Such hedges were designated as fair-value hedges in accordance with SFAS
No. 133.

The Company had 92 and 30 foreign exchange contracts outstanding as of
March 31, 2003 and 2002, respectively. The Company does not hold derivative

financial instruments for speculative or trading purposes.

F-13



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##### Table of Contents



SOLA INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

6. Accrued Liabilities

|                                                  |  |                |        |      |  |   |        | 
|------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                  |  | March 31,     
|                                                  |  |               
|                                                  |  | 2003           |        | 2002
|                                                  |  |                |        |     
|                                                  |  | (in thousands)
|Liabilities associated with strategic initiatives |  | $              | 870    |      |  | $ | 6,296  | 
|Marketing and promotional accrual                 |  |                | 12,632 |      |  |   | 10,348 | 
|Other accrued liabilities                         |  |                | 28,190 |      |  |   | 26,826 | 
|                                                  |  |                |        |      |  |   |        | 
|                                                  |  | $              | 41,692 |      |  | $ | 43,470 | 
|                                                  |  |                |        |      |  |   |        | 

7. Notes Payable to Banks

Notes payable to banks at March 31, 2003 and 2002 represent borrowings
denominated in foreign currencies under foreign credit agreements with lenders.
The weighted average interest rates on these borrowings as of March 31, 2003
and 2002 were 2.17% and 5.5%, respectively. As of March 31, 2003, the Company
had total unused lines of credit amounting to $17.5 million and there were no
restrictive covenants on the borrowings.

8. Long-Term Debt

|                                                                                                                                                                                                                  |  |                |       |      |  |   |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                                                                                                                                                                                                  |  | March 31,     
|                                                                                                                                                                                                                  |  | 2003           |       | 2002
|                                                                                                                                                                                                                  |  |                |       |     
|                                                                                                                                                                                                                  |  | (in thousands)
|Uncollateralized promissory note, interest rate at 7.5% at March 31, 2002, principal and interest
payable through January 2003                                                                                    |  | $              |      |      |  | $ | 2,000 | 
|Uncollateralized term loans, interest rates varying from 4.0% to 7.5% at March 31, 2003 and 2002,
principal and interest payable through March 2006                                                               |  |                | 1,765 |      |  |   | 1,703 | 
|Loans collateralized by equipment and other assets, interest rates varying from 0.2% to 12.0% at
March 31, 2003, principal and interest payable through August 2011                                               |  |                | 6,292 |      |  |   | 4,076 | 
|Loans collateralized by equipment and other assets, interest rates indexed to LIBOR and Bank Base
Rate (LIBOR 1.3% and Bank Base Rate 3.75% at March 31, 2003), principal and interest payable
through March 2007 |  |                | 592   |      |  |   | 629   | 
|Uncollateralized term loan, interest 1.85% at March 31, 2003 and 2002, principal and interest
payable through June 2008                                                                                           |  |                | 484   |      |  |   | 481   | 
|Uncollateralized interest free government loan, principal payable June 2007 through June
2011                                                                                                                     |  |                | 339   |      |  |   | 293   | 
|                                                                                                                                                                                                                  |  |                |       |      |  |   |       | 
|                                                                                                                                                                                                                  |  |                | 9,472 |      |  |   | 9,182 | 
|Less current portion                                                                                                                                                                                              |  |                | 3,510 |      |  |   | 4,140 | 
|                                                                                                                                                                                                                  |  |                |       |      |  |   |       | 
|Long-term debt, less current portion                                                                                                                                                                              |  | $              | 5,962 |      |  | $ | 5,042 | 
|                                                                                                                                                                                                                  |  |                |       |      |  |   |       | 

Aggregate annual maturities of long-term debt over the next five years and
thereafter are as follows:

|                        |       |                |       |       | 
|----------------------- | ----- | -------------- | ----- | ----- | 
|Period Ending March 31, |       | (in thousands)
|                        |       |               
|2004                    |       | $              | 3,510 |      
|2005                    |       |                | 1,923 |      
|2006                    |       |                | 1,917 |      
|2007                    |       |                | 1,335 |      
|2008                    |       |                | 344   |      
|Thereafter              |       |                | 443   |      
|                        |       |                |       |      
|                        | Total |                | $     | 9,472 | 
|                        |       |                |       |      

As of March 31, 2003, the carrying value and fair value of the Companys
long-term debt including current maturities approximates $9.5 million and $8.1
million, respectively. The fair value of its long-term debt including current
maturities is based on discounted future cash flows. Long-term debt includes
capital lease obligations of $5.3 million and $3.0 million at March 31, 2003
and 2002, respectively. Future minimum capital lease principal payments at
March 31, 2003 consist of $1.5 million, $1.4
million, $1.4 million, $0.9 million, and $0.2 million for fiscal 2004
through fiscal 2008, respectively. Interest on capital lease obligations is
approximately $0.5 million.

F-14



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

9. Bank Credit Agreement

On October 29, 2002, the Company entered into a $90 million collateralized
revolving credit facility expiring on October 31, 2005. This credit agreement
replaced a previous $45 million credit agreement. The new credit agreement
contains a number of covenants substantially similar to the prior credit
agreement including, among others, covenants restricting the Company and its
subsidiaries with respect to the incurrence of indebtedness, the creation of
liens, the making of certain investments and loans, the payment of dividends,
and the ability to enter into certain transactions with affiliates. In
addition, the new credit agreement requires the Company to maintain certain
interest coverage, net worth and leverage ratios and places certain
restrictions on capital expenditures. Interest on the new credit agreement is
payable at a rate based upon the London Interbank Offered Rate (LIBOR) plus
2.75% per annum. As of March 31, 2003, the Company was in compliance with all
covenants. At March 31, 2003, there was no debt outstanding under this
agreement.

In connection with the Credit Agreement, the Company entered into a
Security Agreement that grants a security interest in and pledges the rights to
certain of the Companys assets, including domestic accounts receivable,
domestic inventory and 65% of the pledged stock of certain significant foreign
subsidiaries, for the payment and performance of the Companys obligations
under the Credit Agreement.

During fiscal 2003, the Company borrowed and repaid $10 million under this
facility.

10. Senior Notes

Following is the detail of Senior Notes:

|                    |                    |   |                |         |      |   |         |         | 
|------------------- | ------------------ | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                    |                    |   | March 31,     
|                    |                    |   |               
|                    |                    |   | 2003           |         | 2002
|                    |                    |   |                |         |     
|                    |                    |   | (in thousands)
|6 7/8% Senior Notes |                    | $ | 94,809         |         |      | $ | 94,771  |        
|11% Senior Notes    |                    |   | 223,433        |         |      |   | 178,432 |        
|                    |                    |   |                |         |      |   |         |        
|                    | Total Senior Notes |   | $              | 318,242 |      |   | $       | 273,203 | 
|                    |                    |   |                |         |      |   |         |        

On April 17, 2001, the Company completed the sale of 205 million ($182.0
million at date of sale) of 11% Senior Notes due March 15, 2008 through a
private placement to qualified institutional buyers pursuant to Rule 144A and
to persons outside of the United States in compliance with Regulation S. The
notes are senior unsecured obligations and rank equally with all existing and
future unsecured debt. Interest on the notes is payable semi-annually on each
September 15 and March 15.

The Company may redeem these Senior Notes in whole or in part, at any
time, on or after March 15, 2005, at a redemption price equal to 100% of their
principal amount plus a premium declining ratably to par plus accrued and
unpaid interest and liquidation damages, if any. Prior to March 15, 2004, the
Company may redeem up to 35% of the original aggregate principal amount of
these Notes with the proceeds of qualified equity offerings at a redemption
price of 111% of their principal amount plus accrued and unpaid interest and
liquidation damages, if any. The indenture governing the notes contains certain
covenants that, among other things, limit the Companys ability to incur
additional indebtedness or liens, make investments, sell assets, pay dividends
or make other distributions.

The
Companys 6 7/8% Senior Notes (Notes) were issued under an indenture
dated March 19, 1998, among the Company and State Street Bank and Trust Company
of California, N.A., as Trustee (the Indenture). The Notes are unsecured
senior obligations of the Company, limited to $100 million aggregate principal
amount at maturity, and will mature on March 15, 2008. Interest on the Notes is
payable semiannually on March 15 and September 15 of each year. During fiscal
2001 the Company repurchased $5.0 million principal amount of its Notes. As a
result, the Company recorded an extraordinary gain, net of tax, of $1.5 million
resulting from the difference between the carrying value of the Notes and the
purchase price.

The Notes will be redeemable, as a whole or from time to time in part, at
the option of the Company on any date (a Redemption Date) at a redemption
price equal to the greater of (i) 100% of the principal amount of the Notes to
be redeemed or
(ii) the sum of the present values of the Remaining Scheduled Payments (as
defined) thereon discounted to such Redemption Date on a semiannual basis at
the Treasury Rate (as defined) plus 20 basis points, plus in either case
accrued interest (as defined).

F-15



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

The Notes rank pari passu to all other Senior Indebtedness, as defined in
the Indenture, of the Company. The Company has determined the estimated fair
value of its Senior Notes using available market information. The estimated
fair value, based on the most recent market trades, of the Senior Notes was
$333.1 million and $276.3 million at March 31, 2003 and March 31, 2002,
respectively, and the carrying amounts were $318.2 million and $273.2 million,
respectively. The fair value estimates do not necessarily reflect the values
the Company could realize in the current market.

11. Guarantees, Including Indirect Guarantees of Indebtedness of Others

The Company has issued a $1.6 million standby letter of credit, which
approximates fair value, maturing on April 25, 2005 to guarantee third party
debt. In the event that certain obligors default on their payment obligations
that are subject to the Companys standby letters of credit, the Company would
be required to guarantee such obligations. If the obligors default on their
payment obligations, the Company has recourse provisions that would enable it
to recover fixed assets with an estimated net book value of approximately $1.1
million.

12. Common Stock

Common Stock

The Company entered into loan agreements with certain members of the
Companys management to enable them to invest in the Companys common stock. As
of March 31, 2001, all loans have been repaid. On May 3, 2000 the Companys
Board of Directors authorized a stock repurchase program in which up to
1,250,000 shares of the Companys common stock may be repurchased in the open
market from time to time. Accordingly, the Company repurchased 1,250,000 shares
of its common stock in the open market for approximately $8.2 million during
the year ended March 31, 2001. The Company reissued 882,000 common shares from
treasury stock cumulatively through March 31, 2003.

Shareholder Rights Plan

On August 26, 1998 the Companys Board of Directors adopted a Shareholder
Rights Plan and declared a dividend distribution to be made to shareholders of
record on September 9, 1998 of one Right for each share of the Companys
outstanding common stock. The rights contain provisions which are intended to
protect the Companys shareholders in the event of an unsolicited and unfair
attempt to acquire the Company. The Company is entitled to redeem the Rights at
$.01 per Right at any time before a buyer acquires a 15 percent position in the
Company. The Rights will expire on August 27, 2008, unless redeemed or
exercised.

Stock Options

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees(APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation(SFAS 123)
requires use of option valuation models. Under APB 25, because the exercise
price of the Companys employee stock options equals or exceeds the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

F-16



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

On February 23, 1995 all outstanding stock options under the previous
corporate structure were assumed by the Company and converted into options to
acquire shares of the Companys Common Stock, with the number of shares subject
to such option and exercise price thereof adjusted appropriately (the Existing
Option Plan). The Existing Option Plan has been amended to provide that no new
options will be granted thereunder.

The Company adopted the SOLA International Inc. Stock Option Plan (the
International Plan), effective February 15, 1995. On August 14, 1998 and
August 16, 1996 the shareholders of the Company ratified increases of 1,690,000
and 500,000, respectively, to the number of options available for issuance
under the International Plan. The maximum number of shares of Common Stock with
respect to which options may be granted under the International Plan is
3,045,868 shares plus, subject to the requirements of Rule 16b-3 of the
Securities Exchange Act of 1934, if applicable, the number of shares of Common
Stock subject to existing options under the Existing Option Plan, which expire
or terminate without exercise for any reason, which number of shares underlying
Existing Options shall not exceed 1,645,219. Under the International Plan
certain key employees, and non-employee directors and/or creditors of the
Company and its subsidiaries and affiliates (each an Optionee) are eligible
to receive
non-qualified stock options (the International Options) to acquire shares of
Common Stock of the Company. International Options granted to an Optionee are
evidenced by an agreement between the Optionee and the Company which contains
terms not inconsistent with the International Plan, which the committee
appointed to administer the International Plan deemed necessary or desirable
(the International Option Agreement). Shares available for future grants
under the International Plan were 315,448 at March 31, 2003.

Pursuant to the Existing Option Plan and the International Plan (Plans),
unless otherwise set forth in an Existing Option Agreement or an International
Option Agreement, 20% of the Options granted to an Optionee vest on the date of
grant, with an additional 20% vesting on each successive one-year anniversary
of the date of grant. Options not previously vested become fully vested in the
event of a sale or other disposition of 80% or more of the outstanding capital
stock or substantially all of the assets of the Company, or upon a merger or
consolidation of the Company and its subsidiaries and affiliates unless the
merger or
consolidation is one in which the Company is the surviving corporation or one
in which control of the Company and its subsidiaries and affiliates does not
change (a Termination Event).

However, Existing Options which are not exercised on or prior to a
Termination Event lapse upon the closing of a Termination Event. All non-vested
Options of an Optionee lapse upon such Optionees termination of employment for
any reason. An Optionees vested Options lapse 45 days after termination of
such Optionees employment with the Company and its subsidiaries and affiliates
for any reason other than death or disability, in which case such options
terminate 180 days after such termination; provided, however, that such options
lapse immediately in the event an Optionees employment with the Company and
its subsidiaries and affiliates is terminated for cause.

F-17



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Option Activity

A summary of the Companys stock option activity and related information
for fiscal 2001, 2002 and 2003 follows:

|                                                                             |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |       |       | 
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------------- | ----- | --------------------- | ----- |  |  | - | ---- | -------- | ----- | ----- | ----- | 
|                                                                             |                                                                                                              |                |       | Number of             |       |  |  |   |      | Weighted
|                                                                             |                                                                                                              |                |       | Securities            |       |  |  |   |      | Average 
|                                                                             |                                                                                                              |                |       | Underlying            |       |  |  |   |      | Exercise
|                                                                             |                                                                                                              |                |       | Options               |       |  |  |   |      | Price   
|                                                                             |                                                                                                              |                |       |                       |       |  |  |   |      |         
|                                                                             |                                                                                                              |                |       | (in thousands, except
|                                                                             |                                                                                                              |                |       | per share data)      
|Options outstanding as of March 31, 2000                                     |                                                                                                              |                | 2,873 |                       |       |  |  |   |      | $        | 19.62 |      
|                                                                             | Options granted during fiscal 2001 with an exercise price equal to the market
price on the date of grant     |                |       | 1,025                 |       |  |  |   |      |          |       | 5.19  |      
|                                                                             | Options granted during fiscal 2001 with an exercise price greater than the market
price on the date of grant |                |       | 44                    |       |  |  |   |      |          |       | 7.88  |      
|                                                                             | Options exercised in fiscal 2001                                                                             |                |       | (22                   | )     |  |  |   |      |          |       | 4.75  |      
|                                                                             | Options cancelled in fiscal 2001                                                                             |                |       | (569                  | )     |  |  |   |      |          |       | 18.25 |      
|                                                                             |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |      
|Options outstanding as of March 31, 2001                                     |                                                                                                              |                | 3,351 |                       |       |  |  |   |      |          | 15.36 |      
|                                                                             | Options granted during fiscal 2002 with an exercise price equal to the market
price on the date of
grant     |                |       | 386                   |       |  |  |   |      |          |       | 14.30 |      
|                                                                             | Options exercised in fiscal
2002                                                                             |                |       | (823                  | )     |  |  |   |      |          |       | 9.32  |      
|                                                                             | Options cancelled in fiscal
2002                                                                             |                |       | (331                  | )     |  |  |   |      |          |       | 23.47 |      
|                                                                             |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |      
|Options outstanding as of March 31,
2002                                     |                                                                                                              |                | 2,583 |                       |       |  |  |   |      |          | 16.06 |      
|                                                                             | Options granted during fiscal 2003 with an exercise price equal to the market
price on the date of
grant     |                |       | 315                   |       |  |  |   |      |          |       | 12.24 |      
|                                                                             | Options exercised in fiscal
2003                                                                             |                |       | (92                   | )     |  |  |   |      |          |       | 11.45 |      
|                                                                             | Options cancelled in fiscal
2003                                                                             |                |       | (387                  | )     |  |  |   |      |          |       | 20.32 |      
|                                                                             |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |      
|Options outstanding as of March 31,
2003                                     |                                                                                                              |                | 2,419 |                       |       |  |  |   |      | $        | 15.25 |      
|                                                                             |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |      
|Options exercisable at:                                                      |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |      
|                                                                             |                                                                                                              | March 31, 2003 |       |                       | 1,658 |  |  |   |      |          |       | $     | 17.47 | 
|                                                                             |                                                                                                              | March 31, 2002 |       |                       | 1,567 |  |  |   |      |          |       | $     | 19.62 | 
|                                                                             |                                                                                                              | March 31, 2001 |       |                       | 2,088 |  |  |   |      |          |       | $     | 17.87 | 
|Weighted average fair value per share of options granted during fiscal year: |                                                                                                              |                |       |                       |       |  |  |   |      |          |       |      
|                                                                             |                                                                                                              | 2003           |       |                       |       |  |  | $ | 5.61 |          |       |       |       | 
|                                                                             |                                                                                                              | 2002           |       |                       |       |  |  | $ | 7.24 |          |       |       |       | 
|                                                                             |                                                                                                              | 2001           |       |                       |       |  |  | $ | 3.13 |          |       |       |       | 

The following table summarizes stock options outstanding at March 31,
2003:

|                        |  |                |       |             |  |                  |       |                |  |          |      |  |  |  |       |  |  |   |       | 
|----------------------- |  | -------------- | ----- | ----------- |  | ---------------- | ----- | -------------- |  | -------- | ---- |  |  |  | ----- |  |  | - | ----- | 
|                        |  | Outstanding    |       | Exercisable
|                        |  |                |       |            
|                        |  |                |       |             |  |                  |       |                |  | Weighted |      |  |  |  |       |  |  |  
|                        |  | Shares         |       | Weighted    |  | Average          |       | Shares         |  |          |      | 
|Range of Exercise Price |  | (in thousands) |       | Price       |  | Contractual Life |       | (in thousands) |  | Price   
|                        |  |                |       |             |  |                  |       |                |  |         
|$  4.63-$  6.25         |  |                | 636   |             |  | $                | 5.34  |                |  |          | 7.14 |  |  |  | 341   |  |  | $ | 5.41  | 
|$  7.88-$13.74          |  |                | 487   |             |  |                  | 11.48 |                |  |          | 7.91 |  |  |  | 239   |  |  |   | 10.66 | 
|$13.81-$16.50           |  |                | 612   |             |  |                  | 15.10 |                |  |          | 5.87 |  |  |  | 444   |  |  |   | 15.37 | 
|$16.88-$30.13           |  |                | 499   |             |  |                  | 24.64 |                |  |          | 5.04 |  |  |  | 449   |  |  |   | 25.42 | 
|$30.19-$38.38           |  |                | 185   |             |  |                  | 34.38 |                |  |          | 3.90 |  |  |  | 185   |  |  |   | 34.37 | 
|                        |  |                |       |             |  |                  |       |                |  |          |      |  |  |  |       |  |  |   |       | 
|Total                   |  |                | 2,419 |             |  | $                | 15.25 |                |  |          | 6.29 |  |  |  | 1,658 |  |  | $ | 17.47 | 
|                        |  |                |       |             |  |                  |       |                |  |          |      |  |  |  |       |  |  |   |       | 

F-18



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

13. Special Charges and Transition Costs

Commencing in the third quarter of fiscal 1999, the Company implemented
strategic initiatives designed to streamline manufacturing and logistics,
reduce operating costs worldwide and write-off inventory SKUs that are no
longer being manufactured. As a result of these strategic initiatives, during
fiscal 2002 and 2001 the Company recorded pretax special charges of $28,000 and
$91.1 million, respectively. No special charges were recorded for fiscal 2003.

During fiscal 2002, the Company recorded net pretax special charges of
$28,000 comprised of $0.8 million associated with additional facility closure
costs, offset by a gain on the sale of land in North America of $0.8 million,
also associated with facility closures.

During fiscal 2001, the Company recorded net pretax special charges of
$91.1 million. The Company incurred $19.7 million associated with workforce
reductions in North America, Europe and Australia. Included in the workforce
reductions were 780 employees from manufacturing, 91 employees from sales and
marketing, 75 employees from administration, and 46 employees from research and
development. At March 31, 2002, $25.1 million cash had been paid related to
workforce reductions incurred since fiscal 1999. The special charges include
$24.3 million related to the write-off of molds, which were discontinued as a
result of the Companys efforts to globally standardize product specifications.
Also, the Company continued the transfer of high-volume production to low-cost
manufacturing locations and the consolidation of manufacturing expertise into
fewer production facilities that commenced in the fourth quarter of fiscal
2000. As a result, special charges of $28.2 million related to redundant
equipment write-off and facility closure costs were incurred. Additionally, as
a result of the discontinuation of the development of the polycarbonate Matrix
product line, the Company incurred $7.6 million in asset write-offs
including equipment ($7.0 million) and related commitments ($0.6 million).
Lastly, the Company recognized a gain on the sale of land in North America of
$5.8 million associated with facility closures. Also included in special
charges is $17.0 million related to the impairment of goodwill associated
with a prior acquisition of a lens manufacturing business. This impairment was
recorded pursuant to SFAS 121, Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of, as the Company decided to
discontinue and exit operations of this lens manufacturing business and
completely close-down the facility.

In addition to the special charges of $91.1 million recorded during fiscal
2001, the Company wrote-down approximately $25.6 million in inventory due to
product discontinuance resulting from the Companys efforts to globally
standardize product specifications. These write-downs have been accounted for
in cost of sales.

The following table presents details of the special charges for fiscal
2002 and 2001 and related liabilities associated with the strategic initiatives
as of March 31, 2003, 2002 and 2001 (in thousands).

|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        |  |         |  
|--------------------------------------------------- | --------- | -------- | ------ | ---------- | ------- | ---------- | ------ | -------- | ------- | ---------- | ------ | ------- | ------- | ------- | ------ | ----- | ------- | - | ----- | ------------ | ------ | ------- | ------ | - | ----- | - | ------ |  | ------- | -
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       | Asset        |        |         |        |   |       |   |        | 
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       | Write-offs   |        |         |        |   |       |   |        | 
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       | Associated   |        |         |        |   |       |   |        | 
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       | with         |        |         |        |   |       |   |        | 
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       | Discontinued |        | Gain on |        |   |       |  
|                                                    |           |          |        | Workforce  |         | Mold       |        | Facility |         | Goodwill   |        | Product |         | sale of |        |       |         |  
|                                                    |           |          |        | Reductions |         | Write-offs |        | Closures |         | Impairment |        | Line    |         | Land    |        | Total
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |      
|Strategic initiative liability as of
March 31, 2000 |           | $        | 6,268  |            |         | $          |       |          |         | $          |       |         |         | $       |       |       |         | $ |      |              |        | $       |        |   |       | $ | 6,268  | 
|Fiscal 2001 Charge to operations                    |           |          | 19,681 |            |         |            | 24,256 |          |         |            | 28,235 |         |         |         | 17,057 |       |         |   | 7,690 |              |        |         | (5,854 | ) |       |   | 91,065 | 
|                                                    | Utilized: |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        |  |        
|                                                    |           | Non-cash |        |            |        |            |        |          | (24,256 | )          |        |         | (25,286 | )       |        |       | (17,057 | ) |       |              | (7,690 | )       |        |   |      |   |        |  | (74,289 | )
|                                                    |           | Cash     |        |            | (12,267 | )          |        |          |        |            |        |         | (510    | )       |        |       |        |   |       |              |       |         |        |   | 5,854 |   |        |  | (6,923  | )
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        | 
|Strategic initiative liability as of
March 31, 2001 |           |          | 13,682 |            |         |            |       |          |         |            | 2,439  |         |         |         |       |       |         |   |      |              |        |         |       |   |       |   | 16,121 | 
|Fiscal 2002 Charge to operations                    |           |          |       |            |         |            |       |          |         |            | 28     |         |         |         |       |       |         |   |      |              |        |         |       |   |       |   | 28     | 
|                                                    | Utilized: |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        |  |        
|                                                    |           | Non-cash |        |            |        |            |        |          |        |            |        |         | (767    | )       |        |       |        |   |       |              |       |         |        |   |      |   |        |  | (767    | )
|                                                    |           | Cash     |        |            | (8,812  | )          |        |          |        |            |        |         | (274    | )       |        |       |        |   |       |              |       |         |        |   |      |   |        |  | (9,086  | )
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        | 
|Strategic initiative liability as of
March 31, 2002 |           |          | 4,870  |            |         |            |       |          |         |            | 1,426  |         |         |         |       |       |         |   |      |              |        |         |       |   |       |   | 6,296  | 
|                                                    | Utilized: |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        |  |        
|                                                    |           | Cash     |        |            | (4,219  | )          |        |          |        |            |        |         | (1,207  | )       |        |       |        |   |       |              |       |         |        |   |      |   |        |  | (5,426  | )
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        | 
|Strategic initiative liability as of
March 31, 2003 |           | $        | 651    |            |         | $          |       |          |         | $          | 219    |         |         | $       |       |       |         | $ |      |              |        | $       |       |   |       | $ | 870    | 
|                                                    |           |          |        |            |         |            |        |          |         |            |        |         |         |         |        |       |         |   |       |              |        |         |        |   |       |   |        | 

At March 31, 2003, the Companys strategic initiatives have been
substantially completed and the Company does not anticipate any additional
special charges related to its strategic initiatives. The liability associated
with the strategic initiatives as of March 31, 2003 is included in accrued
liabilities. The Company anticipates that substantially all of the accrued
liability will be paid in fiscal 2004 and will be funded through cash provided
by operations.

14. Defined Contribution Plans

The Company sponsors several defined contribution plans covering
substantially all U.S. and U.K. employees. Under the U.S. 401(k) retirement
plan, the Company provides 50% matching contributions up to a maximum of 6% of
the employees compensation during the plan year. Contributions for the years
ended March 31, 2003, 2002 and 2001 were $0.7 million, $0.7 million and $1.0
million, respectively. Under the U.K. plan, the Company matches pension
contributions of up to 8% of the employees pensionable salary. The
contribution was $0.1 million in each of the years ended March 31, 2003, 2002
and 2001.

15. Defined Benefit Retirement Plans

The Company participates in a defined benefit pension plan (Domestic
Pension Plan) covering substantially all full-time domestic employees. The
Company also participates in a contributory defined benefit pension plan
covering certain Australian employees (International Pension Plan).

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

The following provides a reconciliation of the changes in the plans
benefit obligations and fair value of assets and a statement of the funded
status for both the Domestic and the International Pension Plans.

|                                      |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------- |  | ---------------- | ------ | --------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                      |  | Domestic Pension |        | International Pension
|                                      |  | Plan             |        | Plan                 
|                                      |  |                  |        |                      
|                                      |  | 2003             |        | 2002                  |  | 2003 |        | 2002
|                                      |  |                  |        |                       |  |      |        |     
|Year
ended March 31, (in thousands)   |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Reconciliation of benefit obligation: |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Benefit obligationbeginning of year  |  | $                | 22,354 |                       |  | $    | 22,703 |      |  | $ | 10,508 |   |  | $ | 11,857 |  
|Service cost                          |  |                  | 1,269  |                       |  |      | 1,308  |      |  |   | 1,541  |   |  |   | 1,536  |  
|Interest cost                         |  |                  | 1,464  |                       |  |      | 1,303  |      |  |   | 683    |   |  |   | 627    |  
|Participant contributions             |  |                  |       |                       |  |      |       |      |  |   | 121    |   |  |   | 128    |  
|Actuarial gain/(loss)                 |  |                  | 386    |                       |  |      | (2,516 | )    |  |   | 1,056  |   |  |   | (2,570 | )
|Curtailments                          |  |                  | (5,153 | )                     |  |      |       |      |  |   |       |   |  |   |       |  
|Benefit payments                      |  |                  | (727   | )                     |  |      | (444   | )    |  |   | (1,674 | ) |  |   | (2,134 | )
|Other                                 |  |                  |       |                       |  |      |       |      |  |   | 69     |   |  |   | 29     |  
|Effect of exchange rates              |  |                  |       |                       |  |      |       |      |  |   | 1,454  |   |  |   | 1,035  |  
|                                      |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Benefit obligationend of year        |  | $                | 19,593 |                       |  | $    | 22,354 |      |  | $ | 13,758 |   |  | $ | 10,508 |  
|                                      |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  

|                                             |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | ---------------- | ------ | --------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                             |  | Domestic Pension |        | International Pension
|                                             |  | Plan             |        | Plan                 
|                                             |  |                  |        |                      
|                                             |  | 2003             |        | 2002                  |  | 2003 |        | 2002
|                                             |  |                  |        |                       |  |      |        |     
|Year
ended March 31, (in thousands)          |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Reconciliation of fair value of plan assets: |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Fair value of plan assetsbeginning of year  |  | $                | 15,070 |                       |  | $    | 14,610 |      |  | $ | 11,762 |   |  | $ | 11,189 |  
|Actual return on plan assets                 |  |                  | (2,320 | )                     |  |      | 904    |      |  |   | (1,068 | ) |  |   | 292    |  
|Employer contributions                       |  |                  |       |                       |  |      |       |      |  |   | 1,311  |   |  |   | 1,217  |  
|Participant contributions                    |  |                  |       |                       |  |      |       |      |  |   | 121    |   |  |   | 128    |  
|Benefit payments                             |  |                  | (727   | )                     |  |      | (444   | )    |  |   | (1,674 | ) |  |   | (2,134 | )
|Other                                        |  |                  |       |                       |  |      |       |      |  |   | 69     |   |  |   | 29     |  
|Effect of exchange rates                     |  |                  |       |                       |  |      |       |      |  |   | 1,392  |   |  |   | 1,041  |  
|                                             |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Fair value of plan assetsend of year        |  | $                | 12,023 |                       |  | $    | 15,070 |      |  | $ | 11,913 |   |  | $ | 11,762 |  
|                                             |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  

|                                    |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|----------------------------------- |  | ---------------- | ------ | --------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                    |  | Domestic Pension |        | International Pension
|                                    |  | Plan             |        | Plan                 
|                                    |  |                  |        |                      
|                                    |  | 2003             |        | 2002                  |  | 2003 |        | 2002
|                                    |  |                  |        |                       |  |      |        |     
|Year
ended March 31, (in thousands) |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Funded status:                      |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Funded status at March 31           |  | $                | (7,571 | )                     |  | $    | (7,284 | )    |  | $ | (1,846 | ) |  | $ | 1,253  |  
|Unrecognized transition asset       |  |                  |       |                       |  |      |       |      |  |   | (43    | ) |  |   | (58    | )
|Unrecognized (gain) loss            |  |                  |       |                       |  |      | (51    | )    |  |   | 145    |   |  |   | (2,913 | )
|                                    |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  
|Accrued pension cost                |  | $                | (7,571 | )                     |  | $    | (7,335 | )    |  | $ | (1,744 | ) |  | $ | (1,718 | )
|                                    |  |                  |        |                       |  |      |        |      |  |   |        |   |  |   |        |  

The assumptions used in the measurement of the Companys benefit
obligation are shown in the following table:

|                                                 |  |                  |      |                       |  |      |      |      |  |  |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | --------------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                 |  | Domestic Pension |      | International Pension
|                                                 |  | Plan             |      | Plan                 
|                                                 |  |                  |      |                      
|                                                 |  | 2003             |      | 2002                  |  | 2003 |      | 2002
|                                                 |  |                  |      |                       |  |      |      |     
|Year
ended March 31,                             |  |                  |      |                       |  |      |      |      |  |  |      |   |  |  |      |  
|Discount rate                                    |  |                  | 6.50 | %                     |  |      | 6.50 | %    |  |  | 6.50 | % |  |  | 6.50 | %
|Expected long-term rate of return on plan assets |  |                  | 8.00 | %                     |  |      | 8.00 | %    |  |  | 7.50 | % |  |  | 7.50 | %
|Rate of increase in future compensation levels   |  |                  | 5.00 | %                     |  |      | 5.00 | %    |  |  | 4.00 | % |  |  | 4.00 | %

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

Net periodic pension costs include the following components:

|                                    |  |                       |        |                            |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |   |  |   |        |  
|----------------------------------- |  | --------------------- | ------ | -------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                    |  | Domestic Pension Plan |        | International Pension Plan
|                                    |  |                       |        |                           
|                                    |  | 2003                  |        | 2002                       |  | 2001 |        | 2003 |  | 2002 |        | 2001
|                                    |  |                       |        |                            |  |      |        |      |  |      |        |     
|Year
ended March 31, (in thousands) |  |                       |        |                            |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |   |  |   |        |  
|Service cost                        |  | $                     | 1,269  |                            |  | $    | 1,308  |      |  | $    | 2,220  |      |  | $ | 1,541 |   |  | $ | 1,536 |   |  | $ | 1,555  |  
|Interest cost                       |  |                       | 1,464  |                            |  |      | 1,303  |      |  |      | 1,429  |      |  |   | 683   |   |  |   | 627   |   |  |   | 676    |  
|Expected return on plan assets      |  |                       | (1,188 | )                          |  |      | (1,195 | )    |  |      | (1,700 | )    |  |   | (924  | ) |  |   | (909  | ) |  |   | (1,009 | )
|Amortization of transition asset    |  |                       |       |                            |  |      |       |      |  |      |       |      |  |   | (21   | ) |  |   | (19   | ) |  |   | (21    | )
|Amortization of gain                |  |                       |       |                            |  |      |       |      |  |      | (345   | )    |  |   | (151  | ) |  |   |      |   |  |   | (118   | )
|                                    |  |                       |        |                            |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |   |  |   |        |  
|Net periodic pension cost           |  | $                     | 1,545  |                            |  | $    | 1,416  |      |  | $    | 1,604  |      |  | $ | 1,128 |   |  | $ | 1,235 |   |  | $ | 1,083  |  
|                                    |  |                       |        |                            |  |      |        |      |  |      |        |      |  |   |       |   |  |   |       |   |  |   |        |  

Effective March 31, 2003, the Company discontinued any further accruals to
the participants of its pension plan and all benefit levels as of a normal
retirement date were frozen for all participants. As a result, and in
accordance with FASB Statement No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (SFAS 88), income of $1.3 million was recognized as of March 31,
2003. The $1.3 million income consists of a projected benefit
obligation (PBO) gain of $5.2 million due to the curtailment
offset by unrecognized losses of $3.9 million as a result of the
curtailment.

16. Income Taxes

The domestic and foreign components of income/(loss) before
provision/(benefit) for income taxes, minority interest and extraordinary item
are as follows:

|         |  |                      |         |      |  |      |        |   |  |   |          |  
|-------- |  | -------------------- | ------- | ---- |  | ---- | ------ | - |  | - | -------- | -
|         |  | Year Ended March 31,
|         |  |                     
|         |  | 2003                 |         | 2002 |  | 2001
|         |  |                      |         |      |  |     
|         |  | (in thousands)      
|Domestic |  | $                    | (27,482 | )    |  | $    | (297   | ) |  | $ | (89,087  | )
|Foreign  |  |                      | 30,577  |      |  |      | 25,332 |   |  |   | (11,405  | )
|         |  |                      |         |      |  |      |        |   |  |   |          |  
|         |  | $                    | 3,095   |      |  | $    | 25,035 |   |  | $ | (100,492 | )
|         |  |                      |         |      |  |      |        |   |  |   |          |  

The components of the provision/(benefit) for income taxes are as follows:

|                               |                   |   |                     |         |      |   |       |        |   |   |         |         |  
|------------------------------ | ----------------- | - | ------------------- | ------- | ---- | - | ----- | ------ | - | - | ------- | ------- | -
|                               |                   |   | Year Ended March 31
|                               |                   |   |                    
|                               |                   |   | 2003                |         | 2002 |   | 2001 
|                               |                   |   |                     |         |      |   |      
|                               |                   |   | (in thousands)     
|Current:                       |                   |   |                     |         |      |   |       |        |   |   |         |        
|                               | Federal and State |   | $                   | 200     |      |   | $     | 141    |   |   | $       | (561    | )
|                               | Foreign           |   |                     | 13,370  |      |   |       | 5,714  |   |   |         | (702    | )
|Deferred:                      |                   |   |                     |         |      |   |       |        |   |   |         |        
|                               | Federal and State |   |                     | (10,035 | )    |   |       | (1,817 | ) |   |         | (33,821 | )
|                               | Foreign           |   |                     | (7      | )    |   |       | (1,490 | ) |   |         | 307     |  
|Valuation allowance adjustment |                   |   | (2,599              | )       |      |   | 4,462 |        |   |   | 2,571   |        
|                               |                   |   |                     |         |      |   |       |        |   |   |         |        
|                               |                   | $ | 929                 |         |      | $ | 7,010 |        |   | $ | (32,206 | )      
|                               |                   |   |                     |         |      |   |       |        |   |   |         |        

During fiscal 2003, 2002, and 2001, the Company recognized $150,000, $2.5
million, and $27,000 of certain tax benefits related to the exercise of stock
options. Such benefits were recorded as a reduction of income taxes payable and
an increase in additional paid-in capital.

A reconciliation between income tax provisions/(benefits) computed at the
U.S. federal statutory rate and the effective rate reflected in the statements
of operations is as follows:

|                                                            |                                   |  |                      |       |      |  |       |   |  |  |       |    | 
|----------------------------------------------------------- | --------------------------------- |  | -------------------- | ----- | ---- |  | ----- | - |  |  | ----- | -- | 
|                                                            |                                   |  | Year Ended March 31,
|                                                            |                                   |  |                     
|                                                            |                                   |  | 2003                 |       | 2002 |  | 2001 
|                                                            |                                   |  |                      |       |      |  |      
|Provision/(benefit) at statutory federal rate               |                                   |  | 35.0                 | %     |      |  | 35.0  | % |  |  | (35.0 | )%
|State tax provision, net of federal effect                  |                                   |  | 2.0                  |       |      |  | 1.0   |   |  |  | (1.0  | ) 
|Valuation allowance                                         |                                   |  | (84.0                | )     |      |  | 17.8  |   |  |  | 2.6   |   
|Special charges at differing statutory rates                |                                   |  |                     |       |      |  |      |   |  |  | 3.6   |   
|Income of foreign subsidiaries at differing statutory rates |                                   |  | 120.7                |       |      |  | (20.8 | ) |  |  |      |   
|                                                            | Revision of prior years
estimates |  |                      | (25.4 | )    |  |       |  |  |  |       |   | 
|Tax credits and other                                       |                                   |  | (18.3                | )     |      |  | (5.0  | ) |  |  | (2.2  | ) 
|                                                            |                                   |  |                      |       |      |  |       |   |  |  |       |   
|                                                            |                                   |  | 30.0                 | %     |      |  | 28.0  | % |  |  | (32.0 | )%
|                                                            |                                   |  |                      |       |      |  |       |   |  |  |       |   

F-21



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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

|                           |                                                                               |  |                                                           |         |                |        |        |        |   |        | 
|-------------------------- | ----------------------------------------------------------------------------- |  | --------------------------------------------------------- | ------- | -------------- | ------ | ------ | ------ | - | ------ | 
|                           |                                                                               |  |                                                           |         | March 31      
|                           |                                                                               |  |                                                           |         |               
|                           |                                                                               |  |                                                           |         | 2003           |        | 2002  
|                           |                                                                               |  |                                                           |         |                |        |       
|                           |                                                                               |  |                                                           |         | (in thousands)
|Deferred tax assets:       |                                                                               |  |                                                           |         |                |        |        |       
|                           | Accounts receivable, principally due to allowances for doubtful accounts      |  | $                                                         | 2,172   |                |        | $      | 2,390  |  
|                           | Inventories, principally due to reserves                                      |  |                                                           | 7,810   |                |        |        | 14,655 |  
|                           | Accruals for employee benefits, current                                       |  |                                                           | 4,089   |                |        |        | 3,703  |  
|                           | Other current assets                                                          |  |                                                           | 3,807   |                |        |        | 612    |  
|                           |                                                                               |  |                                                           |         |                |        |        |       
|                           |                                                                               |  | Deferred tax assets, current                              |         |                | 17,878 |        |        |   | 21,360 | 
|                           | Property, plant and equipment, principally due to differences in
depreciation |  |                                                           | 2,601   |                |        |        | 2,619  |  
|                           | Accruals for employee benefits, long term                                     |  |                                                           | 4,534   |                |        |        | 4,941  |  
|                           | In-process research and development                                           |  |                                                           | 6,745   |                |        |        | 8,057  |  
|                           | Other long-term assets                                                        |  |                                                           | 27,122  |                |        |        | 4,784  |  
|Net operating losses (NOL) |                                                                               |  | 46,435                                                    |         |                |        | 50,962 |       
|                           |                                                                               |  |                                                           |         |                |        |        |       
|                           | Total deferred tax assets                                                     |  |                                                           | 105,315 |                |        |        | 92,723 |  
|                           | Less: valuation allowance                                                     |  |                                                           | 13,663  |                |        |        | 16,262 |  
|                           |                                                                               |  |                                                           |         |                |        |        |       
|                           |                                                                               |  | Net deferred tax assets                                   |         | $              | 91,652 |        |        | $ | 76,461 | 
|                           |                                                                               |  |                                                           |         |                |        |        |       
|Deferred tax liabilities:  |                                                                               |  |                                                           |         |                |        |        |       
|                           | Inventories                                                                   |  | $                                                         | 3,752   |                |        | $      | 4,218  |  
|                           | Other current liabilities                                                     |  |                                                           | 1,651   |                |        |        | 2,920  |  
|                           |                                                                               |  |                                                           |         |                |        |        |       
|                           |                                                                               |  | Deferred tax liabilities, current                         |         |                | 5,403  |        |        |   | 7,138  | 
|                           | Property, plant and equipment, principally due to differences in
depreciation |  |                                                           | 16,808  |                |        |        | 16,218 |  
|                           | Amortization of goodwill                                                      |  |                                                           | 10,633  |                |        |        | 14,102 |  
|                           | Other long-term liabilities                                                   |  |                                                           | 10,085  |                |        |        | 2,921  |  
|                           |                                                                               |  |                                                           |         |                |        |        |       
|                           |                                                                               |  | Net deferred tax liabilities                              |         |                | 42,929 |        |        |   | 40,379 | 
|                           |                                                                               |  |                                                           |         |                |        |        |       
|                           |                                                                               |  | Net deferred tax assets less net deferred tax liabilities |         | $              | 48,723 |        |        | $ | 36,082 | 
|                           |                                                                               |  |                                                           |         |                |        |        |       

The deferred tax assets valuation allowance at March 31, 2003 and 2002 is
primarily attributable to deferred tax assets, which resulted primarily from
foreign net operating loss carryovers. It is the opinion of management that it
is more likely than not that the realization of these deferred tax assets will
not be assured in the years presented.

For tax purposes, the Company and its foreign subsidiaries, at March 31,
2003, had net operating loss (NOL) carryforwards of $76.6 million attributable
to U.S. Federal NOL carryforwards, which expire between 2020 and 2022; and
approximately $66.6 million of foreign NOL carryforwards, of which $20.5
million expire between 2004 and 2018, and $46.1 million have no expiration
date. The deferred tax assets reflected in the Companys accounts as of March
31, 2003 before valuation allowances include these NOLs.

The Company has not provided for U.S. federal income and foreign
withholding taxes on $155.2 million of non-U.S. subsidiaries undistributed
earnings as of March 31, 2003 because such earnings are intended to be
reinvested indefinitely. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to U.S. income taxes
(subject to an adjustment for foreign tax credits). Determination of the amount
of unrecognized deferred U.S. income tax liability is not practicable because
of the complexities associated with its hypothetical calculation.

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

17. Commitments

The Company leases certain warehouse and office facilities, office
equipment and automobiles under noncancelable operating leases which expire in
2004 through 2014. The Company is responsible for taxes, insurance and
maintenance expenses related to the leased facilities. Under the terms of
certain lease agreements, the leases may be extended, at the Companys option,
and certain of the leases provide for adjustments of the minimum monthly rent.
Future minimum annual lease payments under the leases are as follows:

|                        |  |                |       | 
|----------------------- |  | -------------- | ----- | 
|Period Ending March 31, |  | (in thousands)
|                        |  |               
|2004                    |  | $              | 7,029 | 
|2005                    |  |                | 5,496 | 
|2006                    |  |                | 4,565 | 
|2007                    |  |                | 3,608 | 
|2008                    |  |                | 1,645 | 
|Thereafter              |  |                | 6,024 | 

The Company subleases certain of its office and warehouse facilities.
Future minimum rental receipts under noncancelable subleases are as follows:

|                        |  |                |     | 
|----------------------- |  | -------------- | --- | 
|Period Ending March 31, |  | (in thousands)
|                        |  |               
|2004                    |  | $              | 660 | 
|2005                    |  |                | 136 | 
|2006                    |  |                |    | 
|2007                    |  |                |    | 
|2008                    |  |                |    | 
|Thereafter              |  |                |    | 

Rent expense for fiscal 2003, 2002, and 2001 was $8.7 million, $6.8
million and $7.8 million, respectively.

18. Extraordinary Item

In June 2000, the Company purchased $5.0 million of its 6 7/8% Senior
Notes due 2008. As a result, the Company recorded an extraordinary gain of $1.5
million, net of tax of $0.9 million, resulting from the difference between the
carrying value of the Notes and the purchase price. The purchase was funded by
the Companys Credit Agreement and resulted in a decline in net borrowings.

19. Contingencies

The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to surface and subsurface waters and the
generation, handling, storage, transportation, treatment and disposal of waste
materials.

Since 1988, the Company has operated a ground water remediation system at
its Petaluma, California manufacturing facility in accordance with a consent
order issued by the U.S. EPA under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980. The system is designed to remediate a
pre-1982 release of hazardous substances. Analytical results indicate that
contamination levels have decreased significantly over the past few years.
Since March 1997, the Company has curtailed clean-up activities, while
continuing to monitor contamination levels. In 1997, the Company submitted to
the EPA a report on contamination levels and the impact of curtailed activities
that indicates no significant impact on the site from the curtailed activities.
The EPA has consented to continued curtailment of clean-up activities. The
Company expects continued reduction of clean-up activities due to relatively
low levels of contamination existing at the site. In connection with the
acquisition from Pilkington, Pilkington has agreed to indemnify the Company
with respect to environmental losses relating to certain then existing facts,
events, conditions, matters or issues, for (1) 50% of the losses to the extent
they exceed $1 million but are less than or equal to $5 million, and (2) 100%
of the losses in excess of $5 million. In March 2001, the Company completed
the sale of the affected property and indemnified the buyer with respect
to certain then-existing facts, events, conditions, matters or issues.

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##### Table of Contents



SOLA INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

It is possible that the Company may be involved in other similar
investigations and actions under state, federal or foreign laws in the future.
Based on currently available information, the Company does not believe that its
share of costs at the existing is likely to result in a liability that will
have a material adverse effect on its results of operations, financial
condition or cash flows.

The Companys policy is to meet or exceed all applicable environmental,
health and safety laws and regulations. The complexity and continuing evolution
of environmental regulation, including certain programs for which implementing
regulations have not yet been finalized, preclude precise estimation of future
environmental expenditures.

In the ordinary course of business, various legal actions and claims
pending have been filed against the Company. While it is reasonably possible
that such contingencies may result in a cost greater than that provided for in
the financial statements, it is the opinion of management that the ultimate
liability, if any, with respect to these matters, will not materially affect
the consolidated operations, cash flows, or financial position of the Company.

20. Worldwide Operations

The Companys senior management reviews financial information presented on
a consolidated basis for purposes of making operating decisions and assessing
financial performance. Disaggregated information by geographic region is
reviewed to monitor subsidiaries results. Accordingly, the Company considers
itself to be a single industry segment, specifically, operating in the
ophthalmic industry in the design and manufacture of eyeglass lenses.

A summary of information about the Companys geographic areas is as
follows:

|                          |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |         | 
|------------------------- | -------- |  | -------------- | ------- | ------ |  | -------- | ------- | ------------ |  | ------- | ------- |  |  | ------ | -------- | - |  | ------- | ------- | 
|                          |          |  | North          |         |        |  |          |         | Rest of      |  |         |         |  |  |        |          |  
|                          |          |  | America        |         | Europe |  | World(b) |         | Eliminations |  | Total  
|                          |          |  |                |         |        |  |          |         |              |  |        
|                          |          |  | (in thousands)
|Year Ended March 31, 2003 |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |        
|Net sales (a):            |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |        
|                          | External |  | $              | 249,185 |        |  | $        | 210,302 |              |  | $       | 103,259 |  |  | $      |         |   |  | $       | 562,746 | 
|                          | Internal |  |                | 42,491  |        |  |          | 96,470  |              |  |         | 74,527  |  |  |        | (213,488 | ) |  |         |        | 
|Identifiable assets       |          |  | 393,981        |         |        |  | 207,655  |         |              |  | 158,526 |         |  |  | (1,083 | )        |   |  | 759,079 |        
|                         
|Year Ended March 31, 2002 |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |        
|Net sales (a):            |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |        
|                          | External |  | $              | 236,785 |        |  | $        | 185,806 |              |  | $       | 106,914 |  |  | $      |         |   |  | $       | 529,505 | 
|                          | Internal |  |                | 58,420  |        |  |          | 74,481  |              |  |         | 73,586  |  |  |        | (206,487 | ) |  |         |        | 
|Identifiable assets       |          |  | 360,929        |         |        |  | 178,063  |         |              |  | 174,910 |         |  |  | (837   | )        |   |  | 713,065 |        
|                         
|Year Ended March 31, 2001 |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |        
|Net sales (a):            |          |  |                |         |        |  |          |         |              |  |         |         |  |  |        |          |   |  |         |        
|                          | External |  | $              | 245,397 |        |  | $        | 182,919 |              |  | $       | 117,116 |  |  | $      |         |   |  | $       | 545,432 | 
|                          | Internal |  |                | 63,670  |        |  |          | 65,895  |              |  |         | 77,708  |  |  |        | (207,273 | ) |  |         |        | 
|Identifiable assets       |          |  | 341,974        |         |        |  | 153,738  |         |              |  | 168,376 |         |  |  | (1,713 | )        |   |  | 662,375 |        
|                         



---



|(a) |  | Net sales are attributed to regions based on the location of SOLA and
its subsidiaries country or region of domicile.
|--- |  | ----------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The Rest of World consists primarily of Australia, Asia and South
America.                                            

Internal sales represent intercompany sales between regions at a mark-up
from cost; the elimination of any profit arising from such sales is reflected
in eliminations in determining operating income/(loss).

Included in North American operations are the Companys businesses in
Canada and Mexico, as well as the United States. In each of the three fiscal
years ended March 31, 2003, Canadian and Mexican operations accounted for less
than 5.1% of external revenues and less than 1.6% of identifiable assets of the
North American region. The information for Canada and Mexico, individually and
combined, is not considered material to information for the United States
alone.

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##### Table of Contents



SOLA INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

21. Supplementary Cash Flow Data

|                                                                         |                                           |  |                      |        |      |  |      |        |  |  |   |        |  
|------------------------------------------------------------------------ | ----------------------------------------- |  | -------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                                                         |                                           |  | Year Ended March 31,
|                                                                         |                                           |  |                     
|                                                                         |                                           |  | 2003                 |        | 2002 |  | 2001
|                                                                         |                                           |  |                      |        |      |  |     
|                                                                         |                                           |  | (in thousands)      
|Supplemental disclosures of cash flow information:                       |                                           |  |                      |        |      |  |      |        |  |  |   |       
|                                                                         | Interest paid                             |  | $                    | 36,501 |      |  | $    | 35,389 |  |  | $ | 32,064 |  
|                                                                         |                                           |  |                      |        |      |  |      |        |  |  |   |       
|                                                                         | Taxes paid/(received)                     |  | $                    | 11,158 |      |  | $    | 8,152  |  |  | $ | (4,018 | )
|                                                                         |                                           |  |                      |        |      |  |      |        |  |  |   |       
|Supplemental disclosures of non-cash investing and financing activities: |                                           |  |                      |        |      |  |      |        |  |  |   |       
|                                                                         | Capital expenditures accrued but not paid |  | $                    | 1,053  |      |  | $    | 10,776 |  |  | $ | 1,503  |  
|                                                                         |                                           |  |                      |        |      |  |      |        |  |  |   |       

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##### Table of Contents



SOLA INTERNATIONAL INC.
SUPPLEMENTAL INFORMATION
QUARTERLY FINANCIAL DATA-UNAUDITED
(in thousands, except per share data)

|                                    |  |               |         |           |  |          |         |           |  |   |         |   |  |   |         | 
|----------------------------------- |  | ------------- | ------- | --------- |  | -------- | ------- | --------- |  | - | ------- | - |  | - | ------- | 
|                                    |  | Quarter Ended
|                                    |  |              
|                                    |  | June 30,      |         | Sept. 30, |  | Dec. 31, |         | March 31,
|                                    |  | 2002          |         | 2002      |  | 2002     |         | 2003     
|                                    |  |               |         |           |  |          |         |          
|Net sales                           |  | $             | 135,177 |           |  | $        | 138,486 |           |  | $ | 135,241 |   |  | $ | 153,842 | 
|Gross profit                        |  |               | 55,416  |           |  |          | 56,165  |           |  |   | 56,041  |   |  |   | 65,429  | 
|Operating income                    |  |               | 15,028  |           |  |          | 14,993  |           |  |   | 14,018  |   |  |   | 22,823  | 
|Net income/(loss)                   |  |               | (5,352  | )         |  |          | 6,530   |           |  |   | (5,238  | ) |  |   | 5,623   | 
|Net income/(loss) per sharebasic   |  |               | (0.22   | )         |  |          | 0.27    |           |  |   | (0.21   | ) |  |   | 0.23    | 
|Net income/(loss) per sharediluted |  |               | (0.22   | )         |  |          | 0.26    |           |  |   | (0.21   | ) |  |   | 0.23    | 

|                                    |  |               |         |           |  |          |         |           |  |   |         |  |  |   |         | 
|----------------------------------- |  | ------------- | ------- | --------- |  | -------- | ------- | --------- |  | - | ------- |  |  | - | ------- | 
|                                    |  | Quarter Ended
|                                    |  |              
|                                    |  | June 30,      |         | Sept. 30, |  | Dec. 31, |         | March 31,
|                                    |  | 2001          |         | 2001      |  | 2001     |         | 2002     
|                                    |  |               |         |           |  |          |         |          
|Net sales                           |  | $             | 135,956 |           |  | $        | 129,444 |           |  | $ | 126,330 |  |  | $ | 137,775 | 
|Gross profit                        |  |               | 54,809  |           |  |          | 51,088  |           |  |   | 51,678  |  |  |   | 56,717  | 
|Operating income                    |  |               | 11,957  |           |  |          | 10,097  |           |  |   | 12,693  |  |  |   | 17,002  | 
|Net income/(loss)                   |  |               | 6,678   |           |  |          | (4,003  | )         |  |   | 7,272   |  |  |   | 9,171   | 
|Net income/(loss) per sharebasic   |  |               | 0.28    |           |  |          | (0.17   | )         |  |   | 0.30    |  |  |   | 0.37    | 
|Net income/(loss) per sharediluted |  |               | 0.28    |           |  |          | (0.17   | )         |  |   | 0.29    |  |  |   | 0.37    | 

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##### Table of Contents



Schedule II

SOLA INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

|                                |  |           |       |          |  |            |       |          |  |        |        |   |  |          |      |   |  |   |       | 
|------------------------------- |  | --------- | ----- | -------- |  | ---------- | ----- | -------- |  | ------ | ------ | - |  | -------- | ---- | - |  | - | ----- | 
|                                |  | Balance,  |       | Charged  |  |            |       |          |  |        |        |   |  | Balance,
|                                |  | Beginning |       | to       |  |            |       |          |  |        |        |   |  | End of  
|Allowance for doubtful accounts |  | of Period |       | Expenses |  | Deductions |       | Other(1) |  | Period
|                                |  |           |       |          |  |            |       |          |  |       
|Year ended March 31, 2003       |  | $         | 8,395 |          |  | $          | 1,611 |          |  | $      | (1,123 | ) |  | $        | 89   |   |  | $ | 8,972 | 
|                                |  |           |       |          |  |            |       |          |  |        |        |   |  |          |      |   |  |   |       | 
|Year ended March 31, 2002       |  | $         | 9,201 |          |  | $          | 2,317 |          |  | $      | (3,106 | ) |  | $        | (17  | ) |  | $ | 8,395 | 
|                                |  |           |       |          |  |            |       |          |  |        |        |   |  |          |      |   |  |   |       | 
|Year ended March 31, 2001       |  | $         | 8,873 |          |  | $          | 2,992 |          |  | $      | (2,391 | ) |  | $        | (273 | ) |  | $ | 9,201 | 
|                                |  |           |       |          |  |            |       |          |  |        |        |   |  |          |      |   |  |   |       | 



|(1) |  | Other relates primarily to foreign currency translation adjustments.
|--- |  | --------------------------------------------------------------------

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##### Table of Contents






INDEX OF EXHIBITS

|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|----------- | - | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   | Description |                                                                                                                                                                                                          | Reference
|            |   |             |                                                                                                                                                                                                          |          
|3.1         |   |             | Amended and Restated Certificate of Incorporation
of the Company                                                                                                                                         |           | Filed as Exhibit 3.1 to the Companys
Annual Report
on Form 10-K for the
fiscal year ended March 31, 1995
and incorporated herein by
reference (File No. 1-13606)  
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|3.2         |   |             | Amended and Restated By-Laws of the Company                                                                                                                                                              |           | Filed as Exhibit 3 to the Companys
Quarterly Report on Form 10-Q for the
period ended September 30, 1998 and
incorporated herein by reference
(File No. 1-13606)  
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|4.1         |   |             | Rights Agreement dated as of August 27, 1998
between SOLA International Inc. and Bank Boston
N.A                                                                                                         |           | Filed as Exhibit 1 to the Companys
Form 8-A
dated August 27, 1998 and
incorporated herein by reference
(File No. 1-13606)                                         
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|4.2         |   |             | Indenture by and between the Company and State
Street Bank and Trust Company of California, N.A.,
as Trustee, with respect to the 6 7/8% Notes due 2008                                                  |           | Filed as Exhibit 10.21 to the
Companys Annual Report
on Form 10-K for the
fiscal year ended March 31, 1998 and
incorporated herein by reference
(File No. 1-13606)
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|4.3         |   |             | Officers Certificate Related to Terms of Senior
Notes                                                                                                                                                   |           | Filed as Exhibit 99.1 to the Companys
Quarterly Report on Form 10-Q for the
period ended June 30, 1998 and
incorporated herein by reference
(File No. 1-13606)    
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|4.4         |   |             | Indenture dated as of April 17, 2001 by and between
the Company and The Bank of New York, as
Trustee, with respect to the 11% Notes due 2008                                                             |           | Filed as Exhibit 4.4 to the Companys
Annual Report on Form 10-K for the
fiscal year ended March 31, 2001 and
incorporated herein by reference                     
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|4.5         |   |             | Registration Rights Agreement dated as of April 17,
2001 by and among the Company and UBS AG
acting through its business group UBS Warburg, as
Initial Purchaser, with respect to the 11% Notes due
2008 |           | Filed as Exhibit 4.5 to the Companys
Annual Report on Form 10-K for the
fiscal year ended March 31, 2001 and
incorporated herein by reference                     
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|10.1        |   |             | Purchase Agreement, dated as of September 1, 1993
by and between SOLA Holdings Inc., Pilkington plc
and certain of Pilkington plcs subsidiaries                                                         |           | Filed as Exhibit 10.1 to the
Companys Registration
Statement, as amended, on Form S-1
(File No. 33-68824) and
incorporated herein by reference                    
|            |   |             |                                                                                                                                                                                                          |           |                                                                                                                                                                    
|10.2        | * |             | Employment Agreement between SOLA
International Inc. and Steven M. Neil, dated as of
September 2, 1997                                                                                                   |           | Filed as Exhibit 10.2 to the
Companys Registration
Statement, as amended, on Form S-3
(File No. 333-45929) and
incorporated herein by reference                   

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##### Table of Contents



|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|----------- | - | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   | Description |                                                                                                                                                                  | Reference
|            |   |             |                                                                                                                                                                  |          
|10.3        | * |             | Confidential Severance Agreement between SOLA
International Inc. and Steven M. Neil, dated as of
October 13, 1997                                                |           | Filed as Exhibit 10.5 to the Companys Annual Report on Form 10-K for the fiscal
year ended March 31, 1999 and incorporated herein by reference                            
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.4        |   |             | Lease Agreement between Optical SOLA de Mexico
and Messrs. Salvadore Luttenroth-Camou and Carlos
Lutteroth-Lomeli (including English summary of
principal terms) |           | Filed as Exhibit 10.10 to the Companys Registration
Statement, as amended, on Form S-1
(File No. 33-68824) and
incorporated herein by reference                           
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.5        | * |             | SOLA Investors Inc. Stock Option Plan                                                                                                                            |           | Filed as Exhibit 10.11 to the Companys Annual Report
on Form 10-K for the
fiscal year ended March 31, 1994 (File No. 1-13606) and
incorporated herein by reference        
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.6        | * |             | Amendment Number One to SOLA Investors Inc.
Stock Option Plan                                                                                                    |           | Filed as Exhibit 10.21 to the Companys Registration
Statement, as amended, on Form S-1
(File No. 33-87892) and
incorporated herein by reference                           
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.7        | * |             | Amended and Restated 1998 SOLA International
Inc. Stock Option Plan                                                                                              |           | Filed as Appendix A to the Companys
Fiscal 1998 Proxy Statement dated
June 30, 1998 and incorporated herein
by reference (File No. 1-13606)                               
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.8        |   |             | Form of Indemnification Agreement between the
executive officers and directors of the Company and
the Company                                                    |           | Filed as Exhibit 10.24 to the Companys Registration Statement,
as amended, on Form S-1 (File No. 33-87892) and incorporated
herein by reference                           
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.9        | * |             | SOLA International Inc. Management Incentive Plan                                                                                                                |           | Filed as Exhibit 10.25 to the Companys Registration Statement,
as amended, on Form S-1 (File No. 33-87892) and incorporated
herein by reference                           
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.10       | * |             | SOLA Optical 401(k) Savings Plan                                                                                                                                 |           | Filed as Exhibit 4.4 to the Companys Registration
Statement on Form S-8
(File No. 333-4489) filed with the
Commission on May 23, 1996 and
incorporated herein by reference
|            |   |             |                                                                                                                                                                  |           |                                                                                                                                                                            
|10.11       |   |             | Trust Agreement entered into as of May 15, 1996
between SOLA Optical USA, Inc. and Chase
Manhattan Bank, N.A                                                     |           | Filed as Exhibit 4.5 to the Companys Registration
Statement on Form S-8 (File No. 333-4489)
filed with the Commission
on May 23, 1996 and incorporated herein
by reference

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##### Table of Contents



|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |                                                                                                                                                  
|----------- | - | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------- | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   | Description |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Reference
|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          
|10.12       | * |             | Employment Agreement between SOLA International
Inc. and Jeremy Charles Bishop, dated as of
November 6, 2000                                                                                                                                                                                                                                                                                                                                     |           | Filed as Exhibit 10.27 to the Companys
Quarterly Report on Form 10-Q for the
period ended December 31, 2000 and
incorporated herein by reference
|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |                                                                                                                                                  
|10.13       | * |             | Confidential Severance Agreement between SOLA
International Inc. and Barry J. Packham, dated January
1, 1997                                                                                                                                                                                                                                                                                                                                     |           | Filed as Exhibit 10.23 to the Companys
Annual Report on Form 10-K for the period ended March 31, 2002
and incorporated herein by reference      
|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |                                                                                                                                                  
|10.14       | * |             | Confidential Severance Agreement between SOLA
International Inc. and Mark Ashcroft, dated April 6,
2002                                                                                                                                                                                                                                                                                                                                          |           | Filed as Exhibit 10.24 to the Companys
Annual Report on Form 10-K for the period ended March 31, 2002
and incorporated herein by reference      
|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |                                                                                                                                                  
|10.15       |   |             | Credit Agreement dated as of July 26, 2001 among the
Company, as Borrower, the Lenders named therein and
UBS Warburg
LLC, as Sole Lead Arranger, ABN AMRO
Bank, N.V. as Syndication Agent and UBS AG,
Stamford Branch, as Administrative
Agent, and UBS AG Stamford Branch, as Collateral
Agent, and Union Bank of California as
Documentation Agent                                                                                             |           | Filed as Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ended June 30, 2001 and incorporated herein
by reference     
|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |                                                                                                                                                  
|10.16       |   |             | Amendment No. 1 and Waiver dated as of July 19, 2002
to the Credit Agreement dated as of July 25, 2001
among Sola
International Inc., the Lenders named
therein, UBS Warburg LLC, as Sole Lead Arranger,
UBS AG, Stamford Branch, as an
Issuing Bank and as Administrative Agent, ABN AMRO
Bank, N.V., as Syndication Agent, UBS AG, Stamford
Branch, as
Collateral Agent for the Lenders, and Union Bank of
California, as Documentation Agent. |           | Filed as Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the period ended June 30, 2002 and incorporated herein
by reference     
|            |   |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |                                                                                                                                                  
|10.17       |   |             | Credit Agreement dated as of October 28, 2002
among SOLA International Inc., the Lenders named
therein, Union Bank of California, N.A., as Sole Lead
Arranger, as an Issuing Bank, as
Administrative Agent, and as Collateral Agent
for the Lenders                                                                                                                                                                                              |           | Filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the
period ended December 31, 2002 and
incorporated herein by reference 

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##### Table of Contents



|            |  |                                                                |  |           |  | 
|----------- |  | -------------------------------------------------------------- |  | --------- |  | 
|Exhibit No. |  | Description                                                    |  | Reference
|            |  |                                                                |  |          
|12.1        |  | Statement regarding ratio of earnings/(loss) to fixed
charges 
|            |  |                                                               
|21.1        |  | List of subsidiaries of the Company                           
|            |  |                                                               
|23.1        |  | Consent of PricewaterhouseCoopers LLP,
Independent Accountants
|            |  |                                                               
|99.1        |  | Certification of Chief Executive and Chief Financial
Officers 

*Compensatory plan or management agreement

E-4