Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 20-F**

 
| **(Mark One)**                                        | ** ** | ** **                                                                                                         |
|-------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|
| ** **                                            | ** ** | ** **                                                                                                         |
| **o**                                                 | ** ** | **REGISTRATION STATEMENT PURSUANT TO  SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                            | ** ** | ** **                                                                                                         |
| **OR**                                                |
| ** **                                            | ** ** | ** **                                                                                                         |
| **x**                                                 | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                |
| ** **                                            | ** ** | ** **                                                                                                         |
| **For the  fiscal year ended December 31, 2008** |
| ** **                                            | ** ** | ** **                                                                                                         |
| **OR**                                                |
| ** **                                            | ** ** | ** **                                                                                                         |
| **o**                                                 | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**            |
| ** **                                            | ** ** | ** **                                                                                                         |
| **OR**                                                |
| ** **                                            | ** ** | ** **                                                                                                         |
| **o**                                                 | ** ** | **SHELL COMPANY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**         |

 

**Commissionfile number 1-10421**

 

**LUXOTTICAGROUP S.p.A.**

(Exact name ofRegistrant as specified in its charter)

(Translation ofRegistrant’s name into English)

 

**REPUBLICOF ITALY**

(Jurisdiction ofincorporation or organization)

 

**VIA C.CANTÙ 2, MILAN 20123, ITALY**

(Address ofprincipal executive offices)

 

**MichaelA. Boxer, Esq.Senior Vice President and General CounselLuxottica U.S. Holdings Corp.**

**44Harbor Park Drive**

**PortWashington, NY  11050Tel: (516) 484-3800 Fax: (516) 484-9010**(Name, Telephone,Email and/or Facsimile number and Address of Company Contact Person)

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Securities registered orto be registered pursuant to Section 12(b) of the Act.

 
| **Title of  each class**    | ** ** | **Name of  each exchange of which registered** |
|-----------------------------|------------|------------------------------------------------|
| ORDINARY SHARES, PAR  VALUE |       | NEW YORK STOCK EXCHANGE                        |
| EURO 0.06 PER SHARE*        |       |                                           |
|                        |       |                                           |
| AMERICAN DEPOSITARY         |       | NEW YORK STOCK EXCHANGE                        |
| SHARES, EACH  REPRESENTING  |       |                                           |
| ONE ORDINARY SHARE          |       |                                           |

 

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*                    Not fortrading, but only in connection with the registration of American DepositaryShares, pursuant to the requirements of the New York Stock Exchange

 

Securities registered orto be registered pursuant to Section 12(g) of the Act.

 

**None.**

 

Securities for whichthere is a reporting obligation pursuant to Section 15(d) of the Act.

 

**None.**

 

Indicate the number ofoutstanding shares of each of the issuer’s classes of capital or common stockas of the close of the period covered by the annual report.

 
| ** ** | **ORDINARY  SHARES, PAR VALUE EURO 0.06 PER SHARE** | ** ** | **463,368,233** |
|------------|-----------------------------------------------------|------------|-----------------|

 

Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes x  No o

 

If this report is anannual or transition report, indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. Yes  o  No x

 

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

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files).o Yes         o No

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.

 
| x Large accelerated filer |   | o Accelerated filer |   | o Non-accelerated filer |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by check markwhich basis of accounting the registrant has used to prepare the financialstatements included in this filing:

 
| x U.S. GAAP |   | o International Financial Reporting  Standards as issued by the International Accounting Standards Board |   | o Other |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|
|        |   |                                                                                                     |   |

 

If “Other” has beenchecked in response to the previous question, indicate by check mark whichfinancial statement item the registrant has elected to follow.

 

Item 17   o  Item 18   o

 

If this is an annualreport, indicate by check mark whether the registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act). Yes  o No x

 

 

 

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Table ofContents

 
| **PART I**        | ** ** | ** **    | ** ** | ** **                                                                        | ** ** | **3**  |
|------------------------|------------|---------------|------------|-----------------------------------------------------------------------------------|------------|--------|
| ** **             | ** ** | **ITEM 1.**   | ** ** | **IDENTITY OF DIRECTORS,  SENIOR MANAGEMENT AND ADVISERS**                        |       | 3      |
| ** **             | ** ** | **ITEM 2.**   | ** ** | **OFFER STATISTICS AND  EXPECTED TIMETABLE**                                      |       | 3      |
| ** **             | ** ** | **ITEM 3.**   | ** ** | **KEY INFORMATION**                                                               |       | 3      |
| ** **             | ** ** | **ITEM 4.**   | ** ** | **INFORMATION ON  THE COMPANY**                                                   |       | 12     |
| ** **             | ** ** | **ITEM 4A.**  | ** ** | **UNRESOLVED  STAFF COMMENTS**                                                    |       | 35     |
| ** **             | ** ** | **ITEM 5.**   | ** ** | **OPERATING  AND FINANCIAL REVIEW AND PROSPECTS**                                 |       | 35     |
| ** **             | ** ** | **ITEM 6.**   | ** ** | **DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES**                                   |       | 53     |
| ** **             | ** ** | **ITEM 7.**   | ** ** | **MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**                            |       | 66     |
| ** **             | ** ** | **ITEM 8.**   | ** ** | **FINANCIAL  INFORMATION**                                                        |       | 67     |
| ** **             | ** ** | **ITEM 9.**   | ** ** | **THE OFFER AND  LISTING**                                                        |       | 69     |
| ** **             | ** ** | **ITEM 10.**  | ** ** | **ADDITIONAL  INFORMATION**                                                       |       | 70     |
| ** **             | ** ** | **ITEM 11.**  | ** ** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                   |       | 88     |
| ** **             | ** ** | **ITEM 12.**  | ** ** | **DESCRIPTION  OF SECURITIES OTHER THAN EQUITY SECURITIES**                       |       | 90     |
|                   |       |          |       |                                                                              |       |   |
| **PART II**       | ** ** | ** **    | ** ** | ** **                                                                        | ** ** | **90** |
| ** **             | ** ** | **ITEM 13.**  | ** ** | **DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**                               |       | 90     |
| ** **             | ** ** | **ITEM 14.**  | ** ** | **MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS** |       | 91     |
| ** **             | ** ** | **ITEM 15.**  | ** ** | **CONTROLS AND  PROCEDURES**                                                      |       | 91     |
| ** **             | ** ** | **ITEM 16.**  | ** ** | **[RESERVED]**                                                                    |       | 92     |
| ** **             | ** ** | **ITEM 16A.** | ** ** | **AUDIT COMMITTEE  FINANCIAL EXPERT**                                             |       | 92     |
| ** **             | ** ** | **ITEM 16B.** | ** ** | **CODE OF ETHICS**                                                                |       | 92     |
| ** **             | ** ** | **ITEM 16C.** | ** ** | **PRINCIPAL  ACCOUNTANT FEES AND SERVICES**                                       |       | 92     |
| ** **             | ** ** | **ITEM 16D.** | ** ** | **EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES**                   |       | 92     |
| ** **             | ** ** | **ITEM 16E.** | ** ** | **PURCHASES  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**       |       | 93     |
|                   | ** ** | **ITEM 16F.** | ** ** | **CHANGE IN  REGISTRANT’S CERTIFYING ACCOUNTANT**                            |       | 93     |
|                   | ** ** | **ITEM 16G.** | ** ** | **CORPORATE  GOVERNANCE**                                                         |       | 93     |
|                   |       |          |       |                                                                              |       |   |
| **PART III**      | ** ** | ** **    | ** ** | ** **                                                                        | ** ** | **95** |
| ** **             | ** ** | **ITEM 17.**  | ** ** | **FINANCIAL  STATEMENTS**                                                         |       | 95     |
| ** **             | ** ** | **ITEM 18.**  | ** ** | **FINANCIAL  STATEMENTS**                                                         |       | 96     |
| ** **             | ** ** | **ITEM 19.**  | ** ** | **EXHIBITS**                                                                      |       | 97     |
|                   |       |          | ** ** | ** **                                                                        |       |   |
| **SIGNATURES**         |       |          |       |                                                                              |       | 100    |
|                   |       |          |       |                                                                              |       |   |
| **EXHIBIT INDEX** |       |          |       |                                                                              |

 

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**F****ORWARD-LOOKINGINFORMATION**

 

Throughout this annualreport, management has made certain “forward-looking statements” within themeaning of the Private Securities Litigation Reform Act of 1995 which areconsidered prospective. These statements are made based on management’s currentexpectations and beliefs and are identified by the use of forward-looking wordsand phrases such as “plans,” “estimates,” “believes” or “belief,” “expects” orother similar words or phrases.

 

Such statements involverisks, uncertainties and other factors that could cause actual results todiffer materially from those which are anticipated. Such risks anduncertainties include, but are not limited to, the ability to manage the effectof the poor current global economic conditions on our business, the ability tosuccessfully acquire new businesses and integrate their operations, the abilityto predict future economic conditions and changes in consumer preferences, theability to successfully introduce and market new products, the ability tomaintain an efficient distribution network, the ability to achieve and managegrowth, the ability to negotiate and maintain favorable license arrangements,the availability of correction alternatives to prescription eyeglasses,fluctuations in exchange rates, as well as other political, economic andtechnological factors and other risks and uncertainties described in ourfilings with the U.S. Securities and Exchange Commission, or the SEC. Theseforward-looking statements are made as of the date hereof, and we do not assumeany obligation to update them.

 

Throughout this annualreport, when we use the terms “Luxottica,” “Company,” “Group,” “we,” “us” and “our,”unless otherwise indicated or the context otherwise requires, we are referringto Luxottica Group S.p.A. and its consolidated subsidiaries. References to “Luxottica,”“Company,” “Group,” “we,” “us” and “our,” for periods prior to our acquisitionof Oakley, Inc. (“Oakley”) on November 14, 2007, are to LuxotticaGroup S.p.A. and its consolidated subsidiaries, excluding Oakley and itssubsidiaries, unless otherwise indicated or the context otherwiserequires.  References to “Oakley” forperiods prior to the acquisition refer to Oakley and its consolidatedsubsidiaries, unless otherwise indicated or the context otherwise requires.

 

**TRADEMARKS**

 

Our house brands anddesigner line prescription frames and sunglasses that are referred to in thisannual report, and certain of our other products, are sold under names that aresubject to registered trademarks held by us or, in certain instances, ourlicensors. These trademarks may not be used by any person without our prior writtenconsent or the consent of our licensors, as applicable.

 

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Table of Contents

 

**PART I**

 

**ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

 

Not applicable.

 

**ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE**

 

Not applicable.

 

**ITEM 3.KEY INFORMATION**

 

The following tables setforth selected consolidated financial data for the periods indicated and arequalified by reference to, and should be read in conjunction with, our consolidatedfinancial statements, the related notes thereto, and Item 5—“Operating andFinancial Review and Prospects” contained elsewhere herein. We prepare ourfinancial statements in accordance with accounting principles generallyaccepted in the United States of America, or U.S. GAAP. The selectedconsolidated income statement data for the years ended December 31, 2008,2007 and 2006, and the selected consolidated balance sheet data as of December 31,2008 and 2007, are derived from the audited Consolidated Financial Statementsincluded in Item 18. The selected consolidated income statement data for theyears ended December 31, 2005 and 2004, and the selected consolidatedbalance sheet data as of December 31, 2006, 2005 and 2004, are derivedfrom audited consolidated financial statements which are not included in this Form 20-F.

 

[TABLES APPEAR ONTHE FOLLOWING PAGE]

 

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| ** **                                                     | ** ** | **Year Ended December 31,**   | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                                     | ** ** | **2007(5)** | ** ** | **2006(6)** | ** ** | **2005(6)(7)** | ** ** | **2004(6)(8)** | ** ** |
| ** **                                                     | ** ** | **(In thousands of Euro)(2)** | ** ** |
| ** **                                                     | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **STATEMENT OF INCOME DATA:**                                  |       |                                         |       |   |   |   |   |   |   |   |   |
| Net Sales                                                      |       | 5,201,611                                    |       | 4,966,054 |   | 4,676,156 |   | 4,134,263 |   | 3,179,613 |   |
| Cost of Sales                                                  |       | (1,744,907                                   | )          | (1,575,618 | ) | (1,487,700 | ) | (1,373,073 | ) | (1,053,076 | ) |
| Gross Profit                                                   |       | 3,456,705                                    |       | 3,390,436 |   | 3,188,456 |   | 2,761,190 |   | 2,126,537 |   |
| OPERATING EXPENSE                                              |       |                                         |       |   |   |   |   |   |   |   |   |
| Selling and Advertising                                        |       | (2,161,371                                   | )          | (2,069,280 | ) | (1,948,466 | ) | (1,755,536 | ) | (1,329,083 | ) |
| General and Administrative                                     |       | (545,571                                     | )          | (487,843 | ) | (484,002 | ) | (424,253 | ) | (317,955 | ) |
| Total                                                          |       | (2,706,942                                   | )          | (2,557,123 | ) | (2,432,468 | ) | (2,179,789 | ) | (1,647,038 | ) |
| Income from Operations                                         |       | 749,763                                      |       | 833,313 |   | 755,987 |   | 581,401 |   | 479,499 |   |
| OTHER INCOME (EXPENSE)                                         |       |                                         |       |   |   |   |   |   |   |   |   |
| Interest Income                                                |       | 13,265                                       |       | 17,087 |   | 9,804 |   | 5,650 |   | 6,662 |   |
| Interest Expense                                               |       | (135,267                                     | )          | (89,498 | ) | (70,622 | ) | (66,171 | ) | (55,378 | ) |
| Other—Net                                                 |       | (37,890                                      | )          | 19,780 |   | (16,992 | ) | 18,429 |   | 13,792 | ) |
| Other Income (Expenses)—Net                               |       | (159,892                                     | )          | (52,631 | ) | (77,810 | ) | (42,092 | ) | (34,924 | ) |
| Income Before Provision for Income Taxes                       |       | 589,870                                      |       | 780,681 |   | 678,177 |   | 539,309 |   | 444,575 |   |
| Provision for Income Taxes                                     |       | (194,657                                     | )          | (273,501 | ) | (238,757 | ) | (199,266 | ) | (156,852 | ) |
| Income Before Minority Interests in Consolidated  Subsidiaries |       | 395,213                                      |       | 507,180 |   | 439,420 |   | 340,043 |   | 287,723 |   |
| Minority Interests in Income of Consolidated  Subsidiaries     |       | (15,492                                      | )          | (14,976 | ) | (8,715 | ) | (9,253 | ) | (8,614 | ) |
| Net Income from Continuing Operations                          |       | 379,722                                      |       | 492,204 |   | 430,705 |   | 330,790 |   | 279,109 |   |
| Discontinued Operations—Net of Taxes and Gain on  Sale    |       | 0                                            |       | 0 |   | (6,419 | ) | 11,504 |   | 7,765 |   |
|                                                           |       |                                         |       |   |   |   |   |   |   |   |   |
| Net Income                                                     |       | 379,722                                      |       | 492,204 |   | 424,286 |   | 342,294 |   | 286,874 |   |
| Weighted Average Shares Outstanding (thousands)                |       |                                         |       |   |   |   |   |   |   |   |   |
| —Basic                                                    |       | 456,563.5                                    |       | 455,184.8 |   | 452,898.0 |   | 450,179.1 |   | 448,275.0 |   |
| —Diluted                                                  |       | 457,717.0                                    |       | 458,530.6 |   | 456,186.0 |   | 453,303.4 |   | 450,360.9 |   |
| Basic Earnings per Share from Continuing  Operations (1)       |       | 0.83                                         |       | 1.08 |   | 0.95 |   | 0.73 |   | 0.62 |   |
| Basic Earnings per Share from Discontinued  Operations (1)     |       | 0.00                                         |       | 0.00 |   | (0.01 | ) | 0.03 |   | 0.02 |   |
| Basic Earnings per Share (1)                                   |       | 0.83                                         |       | 1.08 |   | 0.94 |   | 0.76 |   | 0.64 |   |
| Diluted Earnings per Share from Continuing  Operations (1)     |       | 0.83                                         |       | 1.07 |   | 0.94 |   | 0.73 |   | 0.62 |   |
| Diluted Earnings per Share from Discontinued  Operations (1)   |       | 0.00                                         |       | 0.00 |   | (0.01 | ) | 0.03 |   | 0.02 |   |
| Diluted Earnings per Share (1)                                 |       | 0.83                                         |       | 1.07 |   | 0.93 |   | 0.76 |   | 0.64 |   |
| Cash Dividends Declared per Share (3)(4)                  |       | 0.00                                         |       | 0.42 |   | 0.29 |   | 0.23 |   | 0.21 |   |

 

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| (1)    |   | Earnings per Share for  each year have been calculated based on the weighted-average number of shares  outstanding during the respective years. Each American Depositary Share, or  ADS, represents one ordinary share.                                                                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                |
| (2)    |   | Except  for Earnings per Share amounts.                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                |
| (3)    |   | Cash  Dividends Declared per Share are expressed in gross amounts without giving  effect to applicable withholding or other deductions for taxes.                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                |
| (4)    |   | Our  dividend policy is based upon, among other things, our consolidated net  income for each fiscal year, and dividends for a fiscal year are paid in the  immediately following fiscal year. The dividends reported in the table were  declared and paid in the year for which they have been shown in the table. |
|   |   |                                                                                                                                                                                                                                                                                                                |
| (5)    |   | We  acquired Oakley in November 2007. Therefore, fiscal year 2007 includes  operating results of Oakley for the  period from and after November 14, 2007, which was the date of the  closing of the Oakley acquisition.                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                |
| (6)    |   | Results  of Things Remembered, our former specialty retail business, which was sold in  2006, are classified as discontinued operations and are not included in  results from continuing operations.                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                |
| (7)    |   | In  March 2005, we acquired the remaining 17.43 percent of the outstanding  shares of OPSM Group Limited, or OPSM, and, from that date, 100 percent of  the operating results of OPSM and its subsidiaries are included above.                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                |
| (8)    |   | We  acquired all of the outstanding shares of Cole National Corporation, or Cole,  in October 2004. Therefore, 2004 includes approximately three months of  operating results of Cole.                                                                                                                         |

 
| ** **                                                           | ** ** | **As of December 31,**                                      | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2008**                                                                   | ** ** | **2007** | ** ** | **2006(1)** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                           | ** ** | **(In thousands of Euro except share data)** | ** ** |
| **BALANCE SHEET DATA:**                                              |       |                                                                       |       |   |   |   |   |   |   |   |   |
| Working Capital(2)                                                   |       | 383,320                                                                    |       | (248,632 | ) | 68,187 |   | 368,863 |   | 218,807 |   |
| Total Assets                                                         |       | 7,305,225                                                                  |       | 7,157,266 |   | 4,968,878 |   | 4,973,522 |   | 4,556,058 |   |
| Total Debt(3)                                                        |       | 2,805,502                                                                  |       | 2,719,140 |   | 1,319,262 |   | 1,528,909 |   | 1,680,452 |   |
| Shareholders’ Equity                                            |       | 2,506,593                                                                  |       | 2,495,158 |   | 2,215,849 |   | 1,954,033 |   | 1,495,607 |   |
| Capital Stock                                                        |       | 27,802                                                                     |       | 27,757 |   | 27,613 |   | 27,479 |   | 27,312 |   |
| Number of Shares Adjusted to Reflect Changes in  Capital (thousands) |       | 463,368.2                                                                  |       | 462,623.6 |   | 460,216.2 |   | 457,975.7 |   | 455,205.5 |   |

 

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| (1)    | Certain  amounts in prior years have been reclassified to conform to the 2007  presentation.                                                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                              |
| (2)    | Working  capital is total current assets minus total current liabilities. See Item  5—“Operating and Financial Review and Prospects—Liquidity and Capital  Resources.”                                                        |
|   |                                                                                                                                                                                                                                              |
| (3)    | The current portion of  long-term debt was Euro 286.2 million, Euro 792.6 million,  Euro 359.5 million, Euro 111.0 million and Euro 405.1 million for the  years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively. |

 

**Dividends**

 

We are required to pay anannual dividend on our ordinary shares if such dividend has been approved by amajority of our stockholders at the ordinary meeting of stockholders. Before wemay pay any dividends with respect to any fiscal year, we are required, asnecessary, to set aside an amount equal to five percent of our statutory netincome for such year in our legal reserve unless and until the reserve,including amounts remaining from prior years, is at least equal to one-fifth ofthe nominal value of our then issued share capital.  Each year thereafter, such legal reserve requirement remains fulfilled so long as the reserveequals at least one-fifth of the nominal value of our issued share capital foreach such year.

 

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Atour ordinary meeting of stockholders on April 29, 2009, our stockholdersvoted to allocate net income for 2008 to our extraordinary reserve, therebysuspending for the time being the payment of dividends to further strengthenour equity structure.

 

The table below setsforth the cash dividends declared and paid on each ordinary share in each yearindicated.

 
| **Year**   | ** ** | **Cash Dividends per  Ordinary Share(1)(2)(3)** | ** ** | **Translated into U.S.$  per Ordinary Share(4)** | ** ** |
|------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** ** | ** ** | **(Euro)**                                                     | ** ** | **(U.S.$)**                                                          | ** ** |
| 2004       |       | 0.210                                                          |       | 0.254                                                                |       |
| 2005       |       | 0.230                                                          |       | 0.276                                                                |       |
| 2006       |       | 0.290                                                          |       | 0.363                                                                |       |
| 2007       |       | 0.420                                                          |       | 0.564                                                                |       |
| 2008       |       | 0.490                                                          |       | 0.770                                                                |       |
| 2009       |       | 0.000                                                          | (5)        | 0.000                                                                |       |

 

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| (1)    | Cash  dividends per ordinary share are expressed in gross amounts without giving  effect to applicable withholding or other deductions for taxes.                                                                                                                                                                                                                                             |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                          |
| (2)    | Each  ADS represents one ordinary share.                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                          |
| (3)    | Our  dividend policy is based upon, among other things, our consolidated net  income for each fiscal year, and dividends for a fiscal year are paid in the  immediately following fiscal year. The dividends reported in the table were  declared and paid in the fiscal year for which they have been reported in the  table.                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                          |
| (4)    | Translated  at the Noon Buying Rate on the payment date to holders of ADSs. See  “—Exchange Rate Information” below for more information regarding the Noon  Buying Rate. Holders of ADSs received their dividend denominated in U.S.  dollars based on the conversion rate used by our paying agent, Deutsche Bank  Trust Company Americas, on the ADS dividend payment date. |
|   |                                                                                                                                                                                                                                                                                                                                                                                          |
| (5)    | At  the ordinary meeting of stockholders held on April 29, 2009, the  stockholders voted to suspend for the time being the payment of dividends.                                                                                                                                                                                                                                         |

 

**Exchange Rate Information**

 

The following tables setforth, for each of the periods indicated, certain information regarding theNoon Buying Rate in New York City for cable transfers in foreign currencies ascertified for customs purposes by the Federal Reserve Bank of New York, whichwe refer to as the Noon Buying Rate, expressed in U.S.$ per Euro 1.00:

** **
| **Period**                        | ** ** | **Low** | ** ** | **High** | ** ** | **Average(1)** | ** ** | **End of Period** | ** ** |
|-----------------------------------|------------|---------|------------|----------|------------|----------------|------------|-----------------------------|------------|
| Year Ended December 31, 2004 |       | 1.1801  |       | 1.3625   |       | 1.2478         |       | 1.3538                      |       |
| Year Ended December 31, 2005 |       | 1.1667  |       | 1.3476   |       | 1.2400         |       | 1.1842                      |       |
| Year Ended December 31, 2006 |       | 1.1860  |       | 1.3327   |       | 1.2661         |       | 1.3197                      |       |
| Year Ended December 31, 2007 |       | 1.2904  |       | 1.4862   |       | 1.3705         |       | 1.4603                      |       |
| Year Ended December 31, 2008 |       | 1.2446  |       | 1.6010   |       | 1.4707         |       | 1.3919                      |       |

 

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(1)             Theaverage of the Noon Buying Rates in effect on the last business day of eachmonth during the period. When the Company consolidates its profit and lossstatement, it translates U.S. dollar denominated amounts into Euro using anaverage U.S. dollar/Euro exchange rate of each business day during theapplicable period.

 
| **Month**          | ** ** | **Low** | ** ** | **High** | ** ** |
|--------------------|------------|---------|------------|----------|------------|
| December 2008 |       | 1.2634  |       | 1.4358   |       |
| January 2009  |       | 1.2804  |       | 1.3718   |       |
| February 2009 |       | 1.2547  |       | 1.3064   |       |
| March 2009    |       | 1.2549  |       | 1.3730   |       |
| April 2009    |       | 1.2978  |       | 1.3460   |       |
| May 2009      |       | 1.3270  |       | 1.4130   |       |

 

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On June 19, 2009,the Noon Buying Rate was U.S.$ 1.3998 per Euro 1.00.

 

Unless otherwiseindicated, all convenience translations included in this annual report ofamounts expressed in Euro into U.S. dollars for the relevant period or datehave been made using the Noon Buying Rate in effect as of the end of suchperiod or date, as appropriate.

 

In this annual report,unless otherwise stated or the context otherwise requires, references to “$,” “U.S.$,”“dollars” or “U.S. dollars” are to United States dollars, references to “Euro”or “€” are to the Common European Currency, the Euro, references to “GBP” areto the British Pound Sterling, references to “Rs” are to Indian rupees, andreferences to “AUD” or “A$” are to Australian dollars.

 

**Risk Factors**

 

Our future operatingresults and financial condition may be affected by various factors, includingthose set forth below.

 

*Current economic conditions mayadversely impact demand for our products, reduce access to credit and cause ourcustomers and others with which we do business to suffer financial hardship,all of which could adversely impact our business, results of operations,financial condition and cash flows.*

 

Worldwide economicconditions have deteriorated significantly over the past year in many countriesand regions in which we do business and may remain depressed for theforeseeable future.  Due to the nature ofour products, our sales, especially in our retail stores, are affected by thediscretionary spending of consumers. Discretionary spending is affected by many factors, including generalbusiness conditions, inflation, interest rates, consumer debt levels,unemployment rates, the availability of consumer credit, currency exchangerates and other matters that influence consumer confidence. Many of thesefactors are outside our control.  Ourcustomers’ purchases of discretionary items could decline during periods inwhich disposable income is lower or prices have increased in response to risingcosts or in periods of actual or perceived unfavorable economicconditions.  If this occurs or ifunfavorable economic conditions continue to challenge the consumer environment,our business, results of operations, financial condition and cash flows couldbe materially adversely affected.

 

In addition, in economicconditions where there is decreased access to credit, increased financialdifficulties may lead to restructurings, bankruptcies, liquidations and otherunfavorable events for our consumers, customers, vendors, suppliers, logisticsproviders, other service providers and the financial institutions which arecounterparties to our credit facilities and other derivative transactions.  The likelihood that such third parties willbe unable to overcome these financial difficulties may increase.  If the third parties on which we rely forgoods and services are unable to overcome financial difficulties resulting fromthe deterioration of the worldwide economic conditions or if the counterpartiesto our credit facilities or our derivative transactions do not perform theirobligations, our business, results of operations, financial condition and cashflows could be materially adversely affected.

 

*If we are not successful incompleting and integrating strategic acquisitions to expand or complement ourbusiness, our future profitability and growth will be at risk.*

 

As part of our growthstrategy, we have made, and may continue to make, strategic businessacquisitions to expand or complement our business. Our acquisition activities,however, can be disrupted by overtures from competitors for the targetedcandidates, governmental regulation and rapid developments in our industry. Wemay face additional risks and uncertainties following an acquisition, including:(i) difficulty in integrating the newly-acquired business and operationsin an efficient and effective manner; (ii) inability to achieve strategicobjectives, cost savings and other benefits from the acquisition; (iii) thelack of success by the acquired business in its markets; (iv) the loss ofkey employees of the acquired business; (v) the diversion of the attentionof senior management from our operations; (vi) difficulty integratinghuman resources systems, operating systems, inventory management systems andassortment planning systems of the acquired business with our systems; (vii) thecultural differences between our organization and that of the acquiredbusiness; and (viii) liabilities that were not known at the time ofacquisition or the need to address tax or accounting issues.

 

If we fail to timely recognize or address these matters orto devote adequate resources to them, we may fail to achieve our growthstrategy or otherwise realize the intended benefits of any acquisition.  Even if we are able to integrate our businessoperations successfully, the integration may not result in the realization ofthe full benefits of synergies, cost savings,innovation and operational efficiencies that may be possible from theintegration or in the achievement of such benefits within the forecasted periodof time.

 

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*If we do not correctly predictfuture economic conditions and changes in consumer preferences, our sales ofpremium products and profitability will suffer.*

 

The fashion and consumerproducts industries in which we operate are cyclical. Downturns in generaleconomic conditions or uncertainties regarding future economic prospects, whichaffect consumer disposable income, have historically adversely affectedconsumer spending habits in our principal markets and thus made the growth insales and profitability of premium-priced product categories difficult duringsuch downturns. Therefore, future economic downturns or uncertainties couldhave a material adverse effect on our business, results of operations andfinancial condition, including sales of our designer and other premium brands.

 

The industry is also subjectto rapidly changing consumer preferences, and future sales may suffer if thefashion and consumer products industries do not continue to grow or if consumerpreferences shift away from our products. Changes in fashion could also affectthe popularity and, therefore, the value of the fashion licenses granted to usby designers. Any event or circumstance resulting in reduced market acceptanceof one or more of these designers could reduce our sales and the value of ourinventory of models from that designer. Unanticipated shifts in consumerpreferences may also result in excess inventory and underutilized manufacturingcapacity. In addition, our success depends, in large part, on our ability toanticipate and react to changing fashion trends in a timely manner. Anysustained failure to identify and respond to such trends would adversely affectour business, results of operations and financial condition and may result inthe write-down of excess inventory and idle manufacturing facilities.

 

*If we are unable to successfully introduce newproducts, our future sales and operating performance will suffer.*

 

The mid- andpremium-price categories of the prescription frame and sunglasses markets inwhich we compete are particularly vulnerable to changes in fashion trends andconsumer preferences. Our historical success is attributable, in part, to ourintroduction of innovative products which are perceived to represent animprovement over products otherwise available in the market. Our future successwill depend on our continued ability to develop and introduce such innovativeproducts. If we are unable to continue to do so, our future sales coulddecline, inventory levels could rise, leading to additional costs for storageand potential writedowns relating to the value of excess inventory, andproduction costs would be negatively impacted since fixed costs would representa larger portion of total production costs due to the decline in quantitiesproduced.

 

*If we fail to maintain anefficient distribution network in our highly competitive markets, our business,results of operations and financial condition could suffer.*

 

The mid- andpremium-price categories of the prescription frame and sunglasses markets inwhich we operate are highly competitive. We believe that, in addition tosuccessfully introducing new products, responding to changes in the marketenvironment and maintaining superior production capabilities, our ability toremain competitive is highly dependent on our success in maintaining anefficient distribution network. If we are unable to maintain an efficientdistribution network, our sales may decline due to the inability to timelydeliver products to customers and our profitability may decline due to anincrease in our per unit distribution costs in the affected regions, which mayhave an adverse impact on our business, results of operations and financialcondition.

 

*If we are unable to achieve andmanage growth, operating margins will be reduced as a result of decreasedefficiency of distribution.*

 

In order to achieve andmanage our growth effectively, we are required to increase and streamlineproduction and implement manufacturing efficiencies where possible, whilemaintaining strict quality control and the ability to deliver products to ourcustomers in a timely and efficient manner. We must also continuously developnew product designs and features, expand our information systems andoperations, and train and manage an increasing number of management level andother employees. If we are unable to manage these matters effectively, ourefficient distribution process could be at risk and we could lose market sharein affected regions.

 

*If we do not continue tonegotiate and maintain favorable license arrangements, our sales or cost ofsales will suffer.*

 

We have entered intolicense agreements that enable us to manufacture and distribute prescriptionframes and sunglasses under certain designer names, including *Chanel, Prada, Miu Miu, Dolce & Gabbana, D&G, Bvlgari,Tiffany & Co., Versace, Versus, Salvatore Ferragamo, Burberry*,*Polo Ralph Lauren, Donna Karan, DKNY, Paul SmithSpectacles, Brooks Brothers, Anne Klein, Stella McCartney* and, mostrecently, *Tory Burch.*These license agreementstypically have terms of between three and ten years and may contain options forrenewal for additional periods and require us to make 

 

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guaranteed andcontingent royalty payments to the licensor. See Item 4—“Information on theCompany—Business Overview—Recent Developments” regarding our new licenseagreement for the *Tory Burch* name. We believe thatour ability to maintain and negotiate favorable license agreements with leadingdesigners in the fashion and luxury goods industries is essential to thebranding of our products and, therefore, material to the success of ourbusiness. For the years ended December 31, 2008 and 2007, the salesrealized through the *Prada* and *Miu Miu* trade names together represented approximately 5.5percent and 6.4 percent of total sales, respectively.  For the years ended December 31, 2008and 2007, the sales realized through the *Dolce & Gabbana*and *D&G* trade names together representedapproximately 5.1 percent and 5.5 percent of total sales, respectively.  Accordingly, if we are unable to negotiateand maintain satisfactory license arrangements with leading designers, ourgrowth prospects and financial results could suffer from a reduction in salesor an increase in advertising costs and royalty payments to designers.

 

*If visioncorrection alternatives to prescription eyeglasses become more widelyavailable, or consumer preferences for such alternatives increase, ourprofitability could suffer through a reduction of sales of our prescriptioneyewear products, including lenses and accessories.*

 

Our business could benegatively impacted by the availability and acceptance of vision correctionalternatives to prescription eyeglasses, such as contact lenses and refractiveoptical surgery. According to industry estimates, over 45 million peoplewear contact lenses in the United States, and disposable contact lenses is thefastest growing segment of the lens subsector. In addition, the use ofrefractive optical surgery has grown substantially since it was approved by theU.S. Food and Drug Administration in 1995.

 

Increased use of visioncorrection alternatives could result in decreased use of our prescriptioneyewear products, including a reduction of sales of lenses and accessories soldin our retail outlets, which could have a material adverse impact on ourbusiness, results of operations, financial condition and prospects.

 

*If the Euro continues tostrengthen relative to certain other currencies, our profitability as aconsolidated group will suffer.*

 

Our principalmanufacturing facilities are located in Italy. We also maintain manufacturingfacilities in China, India and the United States as well as sales anddistribution facilities throughout the world. As a result, we are vulnerable toforeign exchange rate fluctuations in two principal areas:

 

·                  we incur most of our manufacturing costs in Euro andin Chinese Yuan, and receive a significant part of our revenues in othercurrencies. Therefore, a strengthening of the Euro or the Chinese Yuan relativeto other currencies in which we receive revenues could negatively impact thedemand for our products or decrease our profitability in consolidation, thusadversely affecting our business and results of operations; and

 

·                  a substantial portion of our assets, liabilities,revenues and costs are denominated in various currencies other than Euro, withmost of our revenues and operating expenses being denominated in U.S. dollars.As a result, our operating results, which are reported in Euro, are affected bycurrency exchange rate fluctuations, particularly between the U.S. dollar andthe Euro.

 

As our internationaloperations grow, future changes in the exchange rate of the Euro against theU.S. dollar and other currencies may negatively impact our reported results.

 

See Item 11—“Quantitativeand Qualitative Disclosures about Market Risk.”

 

*If our international sales sufferdue to changing local conditions, our profitability and future growth will beaffected.*

 

We currently operateworldwide and have begun to expand our operations in many countries, includingcertain developing countries in Asia and South America. Therefore, we aresubject to various risks inherent in conducting business internationally,including the following:

 

·                  exposure to local economic and political conditions;

 

·                  export and import restrictions;

 

·                  currency exchange rate fluctuations and currencycontrols;

 

·                  disruptions of capital and trading markets;

 

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·                  accounts receivable collection and longer paymentcycles;

 

·                  potential hostilities and changes in diplomatic andtrade relationships;

 

·                  changes in legal or regulatory requirements;

 

·                  withholding and other taxes on remittances and otherpayments by subsidiaries;

 

·                  investment restrictions or requirements; and

 

·                  local content laws requiring that certain productscontain a specified minimum percentage of domestically produced components.

 

The likelihood of suchoccurrences and their potential effect on us vary from country to country andare unpredictable, but any such occurrence may result in the loss of sales orincreased costs of doing business and may have a significant effect on ourbusiness, results of operations, financial condition and prospects.

 

*If we are unable to protect ourproprietary rights, our sales might suffer, and we may incur significant coststo defend such rights.*

 

We rely on trade secret,unfair competition, trade dress, trademark, patent and copyright laws toprotect our rights to certain aspects of our products and services, includingproduct designs, proprietary manufacturing processes and technologies, productresearch and concepts and recognized trademarks, all of which we believe areimportant to the success of our products and services and our competitiveposition. However, pending trademark or patent applications may not in allinstances result in the issuance of a registered trademark or patent, andtrademarks or patents granted may not be effective in thwarting competition orbe held valid if subsequently challenged. In addition, the actions we take toprotect our proprietary rights may be inadequate to prevent imitation of ourproducts and services. Our proprietary information could become known tocompetitors, and we may not be able to meaningfully protect our rights toproprietary information. Furthermore, other companies may independently developsubstantially equivalent or better products or services that do not infringe onour intellectual property rights or could assert rights in, and ownership of,our proprietary rights. Moreover, the laws of certain countries do not protectproprietary rights to the same extent as the laws of the United States.

 

Consistentwith our strategy of vigorously defending our intellectual property rights, wedevote substantial resources to the enforcement of patents issued andtrademarks granted to us, to the protection of our trade secrets, trade dressor other intellectual property rights and to the determination of the scope orvalidity of the proprietary rights of others that might be asserted against us.However, if the levelof potentially infringing activities by others were to increase substantially,we might have to significantly increase the resources we devote to protectingour rights. From time to time, third parties may assert patent,copyright, trademark or similar rights against intellectual property that isimportant to our business. The resolution or compromise of any litigation orother legal process to enforce such alleged third party rights, regardless ofits merit or resolution, could be costly and divert the efforts and attentionof our management. We may not prevail in any such litigation or other legalprocess or we may compromise or settle such claims because of the complextechnical issues and inherent uncertainties in intellectual property disputesand the significant expense in defending such claims.  An adverse determination in any dispute involving ourproprietary rights could, among other things, (i) require us to grantlicenses to, or obtain licenses from, third parties, (ii) prevent us frommanufacturing or selling our products, (iii) require us to discontinue theuse of a particular patent, trademark, copyright or trade secret or (iv) subject us to substantialliability. Any of these possibilities could have a material adverse effect onour business including by reducing our future sales or causing us to incursignificant costs to defend our rights.

 

*If we are unable to maintain ourcurrent operating relationship with Cole Licensed Brands host stores, we couldsuffer loss of sales and possible impairment of certain intangible assets.*

 

Our sales depend in parton our relationships with the host stores that allow us to operate our Cole’sLicensed Brands division, including Sears. Our leases and licenses with Searsare terminable upon short notice. If our relationship with Sears were toend, we would suffer a loss of sales and the possible impairment of certainintangible assets. This could have a material adverse effect on our business,results of operations, financial condition and prospects.

 

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*If we become subject to adversejudgments or determinations in legal proceedings to which we are, or maybecome, a party, our future profitability could suffer through a reduction ofsales or increased costs.*

 

We are currently a partyto certain legal proceedings as described in Item 8—“FinancialInformation—Legal Proceedings.” In addition, in the ordinary course of ourbusiness, we become involved in various other claims, lawsuits, investigationsand governmental and administrative proceedings, some of which are significant.Adverse judgments or determinations in one or more of these proceedings couldrequire us to change the way we do business or use substantial resources inadhering to the settlements and could have a material adverse effect on ourbusiness, including, among other consequences, by significantly increasing ourcosts to operate our business.

 

*If we become subject toadditional regulation by governmental authorities, our compliance with these regulationscould have an adverse effect on our financial condition, including adverselyaffecting the way we manufacture or distribute our products.*

 

Our operations aresubject to regulation by governmental authorities in the United States andother jurisdictions in which we conduct business. Governmental regulations,both in the United States and other jurisdictions, have historically beensubject to change. New or revised requirements imposed by governmentalregulatory authorities could have an adverse effect on us, including increasedcosts of compliance. We may also be adversely affected by changes in theinterpretation or enforcement of existing laws and regulations by governmentalauthorities that could affect sales or the way we currently manufacture ordistribute our products. Additionally, as a U.S. government contractorthrough our Oakley and Eye Safety Systems subsidiaries, we must comply with,and are affected by, laws and regulations related to our performance of ourgovernment business. These laws and regulations, including requirements toobtain applicable governmental approval, clearances and certain exportlicenses, may impose additional costs and risks on our business.  We may also become subject to audits, reviewsand investigations of our compliance with these laws and regulations. See Item 4—“Information on theCompany—Regulatory Matters” and Item 8—“Financial Information—LegalProceedings.”

 

*LeonardoDel Vecchio, our chairman and principal stockholder, controls 67.83% of ourvoting power and is in a position to affect our ongoing operations, corporatetransactions and any matters submitted to a vote of our stockholders, includingthe election of directors and a change in corporate control.*

 

Asof April 29, 2009, Mr. Leonardo Del Vecchio, the Chairman of ourBoard of Directors, has the power to vote 314,403,399 Ordinary Shares, or67.83% of the outstanding Ordinary Shares. See Item 7 — “Major Shareholders andRelated Party Transactions.” As a result, Mr. Del Vecchio has the abilityto exert significant influence over our corporate affairs and to control theoutcome of virtually all matters submitted to a vote of our stockholders,including the election of our directors, the amendment of our Articles ofAssociation or By-laws, and the approval of mergers, consolidations, the saleof all or substantially all of our assets and other significant corporatetransactions.

 

Mr. DelVecchio’s interests may conflict with or differ from the interests of our otherstockholders.  In situations involving a conflictof interest between Mr. Del Vecchio and our other stockholders, Mr. DelVecchio may exercise his control in a manner that would benefit himself to thepotential detriment of other stockholders. Mr. Del Vecchio’s significant ownership interest could delay,prevent or cause a change in control of our company, any of which may beadverse to the interests of our other stockholders.

 

*If ourprocedures designed to comply with Section 404 of the Sarbanes-Oxley Actof 2002 cause us to identify material weaknesses in our internal control overfinancial reporting, the trading price of our securities may be adverselyimpacted.*

 

Our annual report on Form 20-Fincludes a report from our management relating to its evaluation of ourinternal control over financial reporting, as required under Section 404of the U.S. Sarbanes-Oxley Act of 2002, as amended.  There are inherent limitations on theeffectiveness of internal controls, including collusion, management overrideand failure of human judgment.  In addition, control procedures aredesigned to reduce, rather than eliminate, business risks.  As aconsequence of the systems and procedures we have implemented to comply withthese requirements, we may uncover circumstances that we determine, withguidance from our independent auditors, to be material weaknesses, or thatotherwise result in disclosable conditions. Although we intend to take promptmeasures to remediate any such identified material weaknesses in our internalcontrol structure, measures of this kind may involve significant effort andexpense, and any disclosure of such material weaknesses or other disclosableconditions may result in a negative market reaction to our securities.

 

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**ITEM 4.INFORMATION ON THE COMPANY**

 

**Overview**

 

We are a leader inthe design, manufacturing and distribution of fashion, luxury and sportseyewear. We operate in two industry segments: (i) manufacturing andwholesale distribution; and (ii) retail distribution. See Item 18 —“FinancialStatements” for additional disclosures about our operating segments. Throughour manufacturing and wholesale distribution segment, we are engaged in thedesign, manufacture, wholesale distribution and marketing of house and designerlines of mid- to premium-priced prescription frames and sunglasses, and withthe acquisition of Oakley in November 2007, we became a designer,manufacturer and worldwide distributor of performance optics products. Weoperate our retail segment principally through our retail brands, whichinclude, among others, LensCrafters, Sunglass Hut, Pearle Vision, ILORI, TheOptical Shop of Aspen, OPSM, Laubman & Pank, Budget Eyewear, BrightEyes, Oakley “O” Stores and Vaults, David Clulow and our Licensed Brands (SearsOptical and Target Optical).

 

Our manufacturingactivities are carried out through six manufacturing facilities in Italy, twomanufacturing facilities in China, one manufacturing facility in India and twomanufacturing facilities in the United States. In 2008, we manufactured approximately 50.1 million prescription framesand sunglasses.

 

We operate ourdistribution activities through an extensive worldwide wholesale distributionnetwork and a retail distribution network based primarily in North America,Europe, Australia, mainland China and Hong Kong. In 2008, through our wholesaleand retail distribution networks, we distributed approximately 23.0 millionprescription frames and approximately 34.0 million sunglasses, inapproximately 6,100 models. Our products are distributed in over 130 countriesworldwide.

 

Our products aremarketed under a variety of well-known brand names. Our house brands include *Ray-Ban, Oakley, Persol, Vogue, Arnette, Revo, Luxottica*, *Sferoflex, K&L (Killer Loop), Eye Safety Systems, Mosley Tribes*and*Oliver Peoples.*Our designer lines include *Chanel, Prada, Miu Miu, Dolce & Gabbana, D&G, Bvlgari,Tiffany & Co, Versace, Versus, Salvatore Ferragamo, Burberry*,*Polo Ralph Lauren, Donna Karan, DKNY, BrooksBrothers, Anne Klein, Paul Smith Spectacles* and*Puma*(distributionlicense only). Additionally, in the summer of 2009, we will launch the firstcollection of *Stella McCartney*eyewear, and inthe fall, we will launch the *Tory Burch*line.  *Stella McCartney* sunglasseswill be distributed through premium retail locations. After an initial launchphase during which the new collections will be distributed through StellaMcCartney stores and exclusive stores in North America, Japan, Hong Kong andthe Middle East, distribution will be broadened to reach all other key globaleyewear markets. The new *Tory Burch*collection will be distributed not only by Tory Burch boutiques and premiumAmerican department stores but also in select and independent optical storesand in Luxottica’s retail chains. After North America, distribution will beextended next to Europe and then to the rest of the world. *Tory Burch*,a highly respected brand in the affordable luxury segment, completes our brandportfolio by further strengthening our position in the key North Americanmarket and in the continually expanding department store channel.

 

Our wholesale network iscomprised of 43 wholly- or majority-owned subsidiaries operating in principalmarkets, over 2,000 sales representatives and approximately 100 independentdistributors. Our primary wholesale customers include retailers of mid- andpremium-priced eyewear such as independent opticians, optical and sunglasschains, optical superstores, sunglass specialty stores, sporting goods andspecialty sports stores and duty-free shops. In certain countries, andespecially in North America, wholesale customers also include optometrists andophthalmologists, health maintenance organizations, or HMOs, and departmentstores.

 

Our retail network ismainly comprised of the following retail brands: Sunglass Hut, which isoperated globally; LensCrafters, which is operated in North America, China andHong Kong; Pearle Vision, our Licensed Brands (Sears Optical and TargetOptical), ILORI, Oakley “O” Stores and Vaults, Sunglass Icon, The Optical Shopof Aspen and Oliver Peoples and Internet and telesales operations, all of whichare operated primarily in North America; OPSM, Laubman & Pank, BudgetEyewear and Bright Eyes, which are operated in Australia, New Zealand and Asia(other than China and Hong Kong); and David Clulow, which is operated in theUnited Kingdom and Ireland.  Our NorthAmerican retail business is the largest optical retail business in NorthAmerica based on total sales. See “—Products and Services” below for a moredetailed discussion of our business.

 

**Company History**

 

In 1961, Leonardo DelVecchio and others established our original operations in Agordo, near Belluno,in northeastern Italy. Since that time, we have enjoyed significant growth inthe scope and size of our operations. We have developed and grown in severalphases, each of which is related to a specific business strategy. Throughoutmost of the

 

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1960s,we manufactured molds, metal-cutting machinery, frame parts and semi-finishedproducts for the optical market. We then progressively expanded our productioncapabilities to enable us to produce a finished frame product.

 

In 1969, we launched ourfirst line of Luxottica brand frames and began our transformation from athird-party supplier to an independent manufacturer with a line of brandedproducts.

 

In the early 1970s, wedistributed our products exclusively through wholesalers. In 1974, with theacquisition of the distributor that had marketed the Luxottica product line inItaly since 1971, we took our first step towards vertical integration.

 

Luxottica Group S.p.A.was organized as a corporation on November 23, 1981 under the laws of theRepublic of Italy. During the early 1980s, we continued to pursue verticalintegration by acquiring independent optical distributors and forming wholesalesubsidiaries in strategic markets. In 1981, with our acquisition of LaMeccanoptica Leonardo S.p.A., the owner of the *Sferoflex*brand and the holder of an important patent for a flexible hinge, we increasedour market share in Italy and various key European markets. During the late1980s, we began to expand our product lines to include the design, manufactureand distribution of designer frames through license agreements with majorfashion designers.

 

In 1990, our ADSs werelisted on the New York Stock Exchange. Throughout the 1990s, we expanded into the sunglasses business throughvarious acquisitions. In 1990, we acquired Florence Line S.p.A., the owner ofthe *Vogue* brand. In 1995, we became thefirst frame manufacturer to enter the North American retail market through theacquisition of LensCrafters. In the same year, we also acquired the medium- tohigh-end brand product line of Persol S.p.A.

 

Throughout the 1990s, wecontinued to expand our distribution network by forming new wholesalesubsidiaries. In June 1999, we acquired the Global Eyewear Division ofBausch & Lomb Incorporated, which we refer to as our Ray-Ban business.The Ray-Ban acquisition significantly increased our presence in the sunglassesmarket, strengthened our house brand portfolio and provided us with sunglasscrystal lens manufacturing technology, manufacturing facilities and equipment.

 

In December 2000,our ordinary shares were listed on the Mercato Telematico Azionario della BorsaItaliana S.p.A., which we refer to as the Milan Stock Exchange, or MTA.

 

Since 2000, we have made a number of key strategicacquisitions to strengthen our business. In April 2001, we acquired Sunglass Hut, a leading retailer ofsunglasses worldwide based on sales. In May 2001, we acquired all of theissued and outstanding common stock of First American Health Concepts, Inc.,which at that time was a leading provider of managed vision care plans in theUnited States based on sales.

 

In August 2003, we acquired 82.57 percent ofthe outstanding shares of OPSM (we acquired the remaining 17.43 percentinterest in March 2005), resulting in our leading position in theprescription business based on sales in the Australian and New Zealand markets,while at the same time presenting us with new growth opportunities in theAsia-Pacific markets. In October 2004, we strengthened and expanded ourNorth American retail and managed vision care business with the acquisition ofCole National Corporation, which, among other things, operates Pearle Visionand the Licensed Brands.

 

In 2006, we expanded our retail presence in China byacquiring three premium retail chains, Beijing Xueliang Optical Technology Co.Ltd., Ming Long Optical and Modern Sight Optics, to become a leading operatorof premium optical stores in China (based on the number of stores) in three ofthe top premium optical markets in mainland China, as well as Hong Kong, animportant market in Asia for luxury goods.

 

In November 2007, we acquired Oakley, Inc.,a worldwide specialist in performance optics with brands including Oakley, EyeSafety Systems, Fox, Mosley Tribes, Oliver Peoples and Paul Smith Spectacles,and retail chains including Oakley “O” Stores and Vaults, Sunglass Icon, TheOptical Shop of Aspen, Oliver Peoples and Bright Eyes.

 

Our capital expendituresfor our continuing operations were Euro 296.4 million for the year ended December 31,2008 and Euro 44.6 million for the three-month period ended March 31,2009. We expect 2009 aggregate capital expenditures to be approximately Euro200million, in addition to investment for any acquisitions. The mostsignificant investments planned are for the remodeling of existing stores forour North American retail operations, at an expected cost of approximately Euro45 million and for investment in new IT infrastructure worldwide (approximatelyEuro 50 million). We will fund these future capital expenditures with ourcurrent available borrowing capacity and available cash. For a description ofcapital expenditures for the previous three years, see Item 5—“Operating andFinancial Review and Prospects—Liquidity and Capital Resources—CashFlows—Investing Activities.”

 

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Our principal executiveoffices are located at Via C. Cantù 2, Milan, 20123, Italy, and our telephonenumber at that address is (011) 39-02-863341. We are domiciled in Milan,Italy.

 

**BusinessOverview**

 

***RecentDevelopments***

 

*Acquisitions*

 

On May 27, 2009, weentered into an agreement to acquire 40% of Multiopticas Internacional S.L., acompany that currently owns over 390 eyewear stores operating under the GMO,Econoptics and SunPlanet retail brands in Chile, Peru, Ecuador and Colombia.  This transaction, with a fair value ofapproximately Euro 40 million, is expected to close around the end of June 2009and marks our entry into the retail business in South America, a region wherewe already have a solid presence through our wholesale network. Under theagreement, we have a call option for the remaining 60 percent of MultiopticasInternacional S.L.  The call option willbe exercisable by us between 2012 and 2014 at a price to be determined on thebasis of Multiopticas’s consolidated sales and EBITDA values at the time of theexercise.

 

On July 31, 2008, weand Ruleplan Limited, a company unaffiliated with us, exchanged all of theordinary shares in Optika Holdings Limited, or OHL, for ordinary shares of our subsidiary, Sunglass Hut UK Ltd., or SGHUK. The fair value of the OHL shares exchanged was approximately GBP 35 million. Prior to the exchange, OHL was ajoint venture owned 50% by us and 50% by Ruleplan Limited. OHL, through itssubsidiaries, operated a chain of ophthalmic retail locations throughout theUnited Kingdom and Ireland under the brand name “David Clulow.” As a result ofthis transaction, we own, directly and indirectly, 66% of SGH UK and the formerstockholders of OHL own 34% of SGH UK. The former stockholders of OHL receiveda put option to sell their SGH UK shares to us, while we have a call option ontheir SGH UK shares.

 

*Ray Ban Indian Holdings Offer*

 

In August 2003, theSecurities Appellate Tribunal, or SAT, in India upheld the decision of the SecuritiesExchange Board of India, or SEBI, to require our wholly-owned indirectsubsidiary, Ray Ban Indian Holdings, Inc., to make a public offer in Indiato acquire up to an additional 20 percent of the outstanding shares of RayBanSun Optics India Ltd., or RayBan Sun Optics. The Supreme Court of India, on December 12,2006, directed that a public offer be made within 45 days of the order, using April 28,1999, as the reference date for calculating the offer price. The Supreme Courtalso directed that interest be paid at the rate of 10 percent per annum for theperiod between August 27, 1999, and the closing date to all persons whowere shareholders of RayBan Sun Optics throughout such period. In April 2007,pursuant to the Supreme Court order and in compliance with the applicable SEBIregulations, we launched a public offer through Ray Ban Indian Holdings, Inc.to acquire up to 4,895,900 shares, representing approximately 20 percent of theequity share capital of RayBan Sun Optics, which we subsequently increased toup to 7,545,200 shares, representing approximately 31 percent of the equityshare capital of RayBan Sun Optics. 6,454,280 shares were tendered in theoffer, which closed in May 2007.  In June 2007, our stakein RayBan Sun Optics increased to 70.5 percent. We paid total considerationof approximately Euro 13.0 million for the tendered shares.

 

During 2008, the Company,through Ray Ban Indian Holdings, Inc., announced its intention under SEBI(Delisting of Securities) Guidelines 2003 (the “Guidelines”) to acquire7,210,554 equity shares comprising 29.46% of the fully paid-up equity sharecapital from public stockholders of RayBan Sun Optics in order to delist itsshares from the Bombay Stock Exchange, or the BSE. The delisting offer made tothe stockholders in accordance with the Guidelines opened on August 18,2008 and closed successfully on August 22, 2008. From August 28, 2008to September 11, 2008, Ray Ban Indian Holdings, Inc. accepted shares fromthe remaining public stockholders holding shares in the form of physical sharecertificates or in certificated form who either could not participate in thebidding process or whose bids were rejected in the bidding process. Through theoffer, Ray Ban Indian Holdings, Inc. purchased 4,335,713 shares frompublic stockholders for approximately Euro 9.1 million (U.S. $13.4 million,including approximately U.S. $0.5 million in transaction costs). Following thedelisting offer, BSE approved the delisting of equity shares of RayBan SunOptics on October 22, 2008.

 

Forthe six months following the date of delisting, in accordance with theGuidelines, Ray Ban Indian Holdings, Inc. provided a final opportunityto the remaining stockholders to tender their shares for a period of six monthson the same terms and conditions as the delisting. During such period, whichended April 22, 2009, Ray Ban Indian Holdings, Inc. purchased1,239,195 shares from public stockholders for approximately Euro 2.9 million.Upon transfer of the remaining tendered shares, Ray Ban Indian Holdings, Inc.will own 93.32% of the equity shares of RayBan Sun Optics.

 

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We acquired our initialinterest in RayBan Sun Optics in connection with the purchase of the Ray-Baneyewear business from Bausch & Lomb in 1999.

 

*License Agreements*

 

OnJanuary 28, 2009, we entered into a new six-year licensing agreement, withan option for a four-year extension, with Tory Burch LLC to design, manufactureand globally distribute sun and prescription eyewear collections by *Tory Burch* and *TT*, twoemerging American fashion and lifestyle brands. 

 

OnJanuary 30, 2009, Salvatore Ferragamo Italia S.p.A., which controls GruppoFerragamo, agreed to a three-year extension through December 2011, with anoption for a further two-year extension, of its licensing agreement with uscovering design, manufacturing and global distribution of prescription and suneyewear under the *Salvatore Ferragamo* label. 

 

OnApril 9, 2009, Donna Karan International Inc. agreed to a five-yearextension through December 2014, with an option for a further five-yearextension, of the license agreement for the design, production and worldwidedistribution of prescription frames and sunglasses under the *Donna Karan* and *DKNY* brands. 

 

*Credit Agreements*

 

InJune 2009, we renegotiated our 18 month Euro 150.0 million unsecuredcredit facility with Banca Nazionale del Lavoro dated April 9, 2008. Thenew facility is a 2 year unsecured credit facility that is a revolvingloan that provides borrowing availability of up to Euro 150.0 million. Amountsborrowed under the revolving loan can be borrowed and repaid until finalmaturity. We can select interest periods of one, three or six months.

 

**Productsand Services**

 

***WholesaleOperations***

 

*OurBrands*

 

In ourwholesale operations, we manufacture and sell our prescription frames andsunglasses as either house brands or designer lines. House brands consist ofeyewear sold under brand names that we own. Designer lines are produced underdesigner names held by us under license agreements with third parties. Ourproducts, for both house brands and designer lines, consist of a variety ofdifferent styles ranging from conventional to contemporary and fashion-forwardstyling. Each brand is tailored for a specific market segment based on certaincharacteristics, such as the consumer’s age, lifestyle and fashionconsciousness.

 

*House Brands:*  Our housebrands are sold worldwide under brand names such as *Ray-Ban*and*Oakley*. In 2008 we developed approximately 730 distinct newmodels of frames within our house brands and private labels, of whichapproximately 490 are optical and 240 are sun. Each style is typically producedin two sizes and five colors. Actual availability of product styles, colors andsizes varies among geographic markets depending upon local demand.

 

The following is a summary description of each of ourmost significant house brands:

 

·                  **Ray-Ban**: Created in 1937 and acquired by us in 1999, the *Ray-Ban*line is the brand leader in the eyewear market based on sales and consumerawareness, bringing together renowned sunglass lenses and a timeless style.

 

·                  **Oakley**: Founded in 1975 and merged into our Group in 2007, *Oakley*is a market-leading, strong, iconic brand of performance optics products,including premium sunglasses, prescription eyewear, goggles andelectronically-enabled eyewear, whose loyal consumers and athletes have helpedcreate a culture and brand that are intertwined.

 

·                  **Persol**: Created in 1917 and acquired by us in 1995, the *Persol*brand is synonymous with design, elegance, tradition and technical precision.Our *Persol* line, which includes a wide rangeof prescription frames and sunglasses, is marketed as a timeless fashionaccessory due to the elegance and design of our products.

 

·                  **Oliver Peoples**: Created in 1987 and acquired by us in 2007, *Oliver Peoples* helped establish the luxury eyewear market. *Oliver Peoples*’ classic designs fuse old-world aestheticswith modern-day finesse and are worn by many of the world’s most recognizablecelebrities.

 

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·                  **Vogue Eyewear**: Created in 1973 and acquired by us in 1990, the *Vogue* brand is recognized as trendy and innovative andsymbolizes a young and dynamic style that stresses attention to detail andfashion.

 

·                  **Arnette**: Created in California in 1992 and acquired by us in 1999, *Arnette* is an active sport lifestyle brand targeted at youngconsumers.  This sports product line ischaracterized by a very forward-thinking design and provides outstandingcomfort and functionality, ideal for those who enjoy dynamic and extremesports.

 

·                  **Revo**: Created in 1985 and acquired by us in 1999, *Revo*is a product line targeted towards sport and leisure wearers.  The *Revo* line isknown for its high-quality lenses that are treated with a specialized coatingprocess.

 

·                  **Luxottica**: *Luxottica* is our original product line,comprised of prescription frames and sunglasses. *Luxottica*targets a broad mix of eyewear consumers.

 

·                  **Sferoflex**: The *Sferoflex* product line, which in 1981became the first brand name acquired by Luxottica Group, is comprised ofprescription frames characterized by a classic and comfortable style, withflexible hinges that allow the frame to adapt to the unique face shape of eachwearer.

 

·                  **Killer Loop or K&L**: Created in 1989 and acquired by us in 1999, *Killer Loop* is a sun and sports eyewear brand that combinesdesign and quality and has evolved throughout the years from exclusively sportseyewear to also include leisure eyewear and a more “urban style.” In 2008, ittook on a new name, *K&L*.

 

·                  **Mosley Tribes**: The *Mosley Tribes*brand, launched in 2005 and acquired by us in 2007, is a modern brand fusingfashion and urban lifestyles.

 

·                  **Eye Safety Systems**: *ESS* designs,develops and markets advanced eye protection systems for military, firefightingand law enforcement professionals and is a leading supplier of protectiveeyewear to the U.S. military and firefighting markets.

 

*DesignerLines:* Ourdesigner lines are produced and distributed through license agreements withmajor fashion houses. Currently, we sell designer lines under the names *Chanel, Prada, Miu Miu, Dolce & Gabbana, D&G, Bvlgari,Tiffany & Co., Versace, Versus, Salvatore Ferragamo, Burberry,**Polo Ralph Lauren*with its six**lines (*Purple Label, Polo, RalphLauren, Ralph, Chaps*and*Club Monaco*), *Donna Karan, DKNY, Brooks Brothers, Paul Smith Spectacles*and*Anne Klein*.* * Additionally, in the summer of 2009, we will launch the firstcollection of *Stella McCartney*eyewear, and inthe fall, we will launch the *Tory Burch*line. The licenseagreements governing these designer lines are exclusive contracts and typicallyhave terms of between three and ten years. See “—Trademarks, Trade Names,Patents and License Agreements—License Agreements.” Designer collections aredeveloped through the collaborative efforts of our in-house design staff andthe brand designer. Our designer lines presently feature approximately 1,340 differentmodels.

 

The following is a summary description of our maindesigner lines:

 

·                  **Chanel**: In 1999, we became the first company licensed to produce *Chanel*products. The *Chanel* productline, targeting luxury-oriented consumers, reflects the essentialcharacteristics of the brand: style, elegance and class.

 

·                  **Prada**: The *Prada* license agreement was signed in2003. The *Prada* collections offer a range ofoptical frames and sunglasses, as well as a series of models created forleisure time, identified by the brand’s unmistakable red stripe. The *Prada* collections have always been distinctive not only fortheir high quality but also for their forward-thinking approach and style,enabling the brand to anticipate and often inspire trends across all sectors.

 

·                  **Miu Miu**: The *Miu Miu* license comprises both opticalframes and sunglasses. This brand addresses a sophisticated clienteleparticularly attentive to new trends. The *Miu Miu* brandis urban, young, and refined, an alternative vision, a “new classic.”

 

·                  **Dolce & Gabbana:** Under licensesince 2005, the *Dolce & Gabbana* eyewearcollections are an expression of ultimate luxury. They are characterized bymodern, fashionable shapes, prestige materials and sumptuous details.

 

·                  **D&G**: Under license since 2005, the *D&G* eyewearcollection has a youthful, innovative and unconventional spirit. The eyewearcollection emphasizes the spirit of the brand: innovative, provocative andcosmopolitan.

 

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·                  **Bvlgari**: Under license since 1997, *Bvlgari* eyewearis distinguished by the high quality of its materials, attention to detail andelegant design. This product line addresses a clientele who seeks distinctiveand exclusive products.

 

·                  **Tiffany & Co.**: For 169 years, *Tiffany & Co.*has designed and produced standard-setting jewelry and accessories. The *Tiffany & Co.*eyewear collection, first launched inearly 2008, remains true to the brand’s high standards.

 

·                  **Versace**: Under license since 2003, *Versace* is a luxurybrand for modern women and men who choose to express strength, confidence anduniqueness through a bold and distinctive personal style. *Versace*represents the ideal of a sophisticated, free and highly desirable lifestyle.

 

·                  **Versus**: Under license since 2003, while staying true to the essence of the *Versace* brand, *Versus* embodiesa younger, edgier take on those themes. Filled with spirit and energy, *Versus* challenges convention, always in the vanguard ofmodern urban style.

 

·                  **Paul Smith Spectacles**:  The *Paul Smith Spectacles* brand, launched in 1994, includesprescription and sun eyewear that feature the whimsical yet classic designs andattention to detail that are synonymous with one of Britain’s leading fashiondesigners.

 

·                  **Salvatore Ferragamo:** The *Salvatore Ferragamo*collections are characterized by lavish attention to detail, original use ofmaterials and creative choice of colors. The eyewear collection is inspired bythe tradition of craftsmanship of this fashion house, reinterpreted in a contemporarymode.

 

·              **Burberry**: The *Burberry* license agreement was signed in2005, with the launch of the first *Burberry*eyewear collection in October 2006. This collection features the brand’score values of form and function, innovation and the essence of classic style.

 

·              **Polo Ralph Lauren**: *Polo Ralph Lauren*iscomprised of six collections:

 

·              **Purple Label**:  Anexclusive eyewear collection, the *Purple Label*combines the elegance of tradition with the requirements of the moderngentleman: high quality, precious materials, details and style.

 

·              **Ralph Lauren**: The *Ralph Lauren*eyewear collection embraces a youthful sophisticated elegance that mixesrefined luxury with cinematic glamour and an air of mystery. For thefashion-conscious woman seeking timeless styling with a modern attitude.

 

·              **Polo**: The *Polo* collection is inspired by theheritage of *Polo Ralph Lauren* apparel. Thiscollection features emblematic models that are classic and never out of style. *Polo* is the ideal collection for men who appreciate qualityand tradition with a fresh design.

 

·              **Ralph**: The *Ralph* line is an expression of the *Ralph Lauren* spirit at an accessible price point. Itfeatures the latest looks and trends, as well as some more classic looks, andvibrant colors for a feminine, flirty and fun look.

 

·              **Chaps**: *Chaps* features easy-to-wear designs inthe classic tradition of *Polo Ralph Lauren*.The line offers a designer name to the young consumer of moderately-pricedsportswear. Since its introduction, *Chaps* has cometo represent classic design, excellent quality and value.

 

·                  **Club Monaco**: *Club Monaco* offers quality eyewear,uncompromising style and affordable luxury. The styling targets both men andwomen, between 20 and 40 years of age, who are urban professionals, styleenthusiasts, and who appreciate design at mid-level prices.

 

·                  **Donna Karan**: This product line reflects the design sensibility and spirit of the *Donna Karan* collection, offering men and women sophisticatedand sleek styles.

 

·              **DKNY**: *DKNY* is easy-to-wear fashion with anurban mindset, the New York City street-smart look. *DKNY*eyewear caters to modern, urban, fashion-conscious women and men withmultifaceted lifestyles: international, eclectic, fun and real.

 

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·              **Brooks Brothers**: Characterized by lightweight materials and aslender line, the *Brooks Brothers* collectionsreflect the unique features of the style of this American brand. This is anaffordable product line with classic style that delivers functionality,lightness and high quality.

 

·              **Anne Klein**: The *Anne Klein* product line targetssuccessful professional women who place an emphasis on quality and image.

 

·              **Stella McCartney**: The *Stella McCartney*eyewear collection reflects Stella McCartney’s modern sense of innovation inher creation of desirable fashion. Combining everyday functionality with astrong fashion sensibility, the eyewear collection offers contemporaryfemininity with a sense of modern luxury.

 

·              **Tory Burch**: Under license since 2008, *Tory Burch* isan attainable luxury lifestyle brand defined by classic American sportswearwith an eclectic sensibility, which embodies the personal style and spirit ofits co-founder and creative director, Tory Burch.  The first sunglass collection will be instores in the third quarter of 2009.

 

Thefollowing table presents the respective percentages of our total unit (a “unit”represents an eyeglass frame or sunglass and excludes sales of other materials)sales that our designer and house brands comprised during the periodsindicated:

 
| ** **                                                              | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(as a percentage of total unit sales)** | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Designer brands                                                         |       | 33.0                                       |       | 42.7 |   | 41.2 |   | 35.9 |   | 32.8 |   |
| House brands                                                            |       | 67.0                                       |       | 57.3 |   | 58.8 |   | 64.1 |   | 67.2 |   |
| Total unit sales                                                        |       | 100.0                                      |       | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   |

 

*PrescriptionFrames and Sunglasses*

 

In 2008, our manufacturing facilities produced acombined total of approximately 50.1 million prescription frames andsunglasses. In 2007 and 2006, our manufacturing facilities produced a combinedtotal of approximately 41.8 million and 37.0 million prescription frames andsunglasses, respectively.

 

Since1990, sunglasses have become an increasingly significant product line for us aswe seek to capitalize on growth opportunities in the sunglasses segment. In1990, we acquired a distributor that supplied sunglasses under the *Vogue* brand name. In 1995, we expanded our activities in thesunglasses market by acquiring Persol S.p.A., an Italian producer ofhigh-quality, fashionable sunglasses and prescription frames in thepremium-priced segment of the market. In 1999, we acquired the Ray-Ban businessfrom Bausch & Lomb Incorporated, including the *Ray-Ban,Revo, Arnette* and *Killer Loop*brand names. As a result of our acquisition of the Ray-Ban business, thepercentage of our unit sales represented by sunglasses that we manufacture hasgrown significantly. This trend continued with the acquisition of Sunglass Hutand, in 2007, with the expansion of our sunglass-based retail business in SouthAfrica. This growth trend in our sunglass business has continued as a result ofour acquisition of Oakley.  In additionto the more fashion-oriented sun and ophthalmic products for which we haveearned a strong reputation, the Oakley acquisition brings to us a complementarytechnological expertise and know-how in high-performance optics, which includessunglasses, prescription eyewear, goggles, shields, visors andelectronically-enabled eyewear, most of which feature Oakley’s High DefinitionOptics® (HDO®) technology.

 

Unitsales of sunglasses manufactured by us and third parties in 2008, as apercentage of our total aggregate unit sales, were 59.6 percent, as compared to58.4 percent in 2007 and 57.2 percent in 2006.

 

Thefollowing table presents the respective percentages of our total unit salesthat our prescription frames and sunglasses comprised for the periodsindicated:

 
| ** **          | ** ** | **Year Ended December 31,**                              | ** ** |
|---------------------|------------|-------------------------------------------------------------------------|------------|
| ** **          | ** ** | **(as a percentage of total unit sales)** | ** ** |
| ** **          | ** ** | **2008**                                                                | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Prescription frames |       | 40.4                                                                    |       | 41.6 |   | 42.8 |   | 44.2 |   | 42.7 |   |
| Sunglasses          |       | 59.6                                                                    |       | 58.4 |   | 57.2 |   | 55.8 |   | 57.3 |   |
| Total unit sales    |       | 100.0                                                                   |       | 100.0 |   | 100.0 |   | 100.0 |   | 100.0 |   |

 

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***RetailOperations***

 

We operate our retail operations through our retailbrands, which include, among others, LensCrafters, Sunglass Hut, Pearle Vision,ILORI, The Optical Shopof Aspen, OPSM, Laubman & Pank, Budget Eyewear, Bright Eyes, Oakley “O”Stores and Vaults, David Clulow and our Licensed Brands (Sears Optical andTarget Optical). Due to the fragmented nature of the European retail market, wedo not have significant optical retail stores in Europe outside of the UnitedKingdom and Ireland.  As of March 31,2009, our retail business consisted of 5,649 corporate store locations and 547franchised or licensed locations as follows:

 
| **Geographic region** | ** ** | **Retail brand**                    | ** ** | **Number of corporate  store locations** | ** ** | **Number of franchised  or licensed locations** | ** ** | **Primary product** |
|----------------------------|------------|------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------|------------|--------------------------|
| North  America             |       | LensCrafters                             |       | 962                                                     |       |                                                      |       | Prescription             |
|                       |       | Pearle  Vision                           |       | 417                                                     |       | 375                                                       |       | Prescription             |
|                       |       | Sunglass  Hut                            |       | 1,562                                                   |       |                                                      |       | Sun                      |
|                       |       | ILORI                                    |       | 18                                                      |       |                                                      |       | Sun                      |
|                       |       | Sunglass  Icon                           |       | 99                                                      |       | 11                                                        |       | Sun                      |
|                       |       | The  Optical Shop of Aspen               |       | 24                                                      |       |                                                      |       | Prescription             |
|                       |       | Oliver  Peoples                          |       | 5                                                       |       | 1                                                         |       | Prescription/Sun         |
|                       |       | Oakley  “O” Stores and  Vaults |       | 99                                                      |       |                                                      |       | Sun/Apparel              |
| * *                   | * *   | *Licensed Brands:*                       |       |                                                    |       |                                                      |       |                     |
|                       |       | Sears  Optical                           |       | 878                                                     |       |                                                      |       | Prescription             |
|                       |       | Target  Optical                          |       | 331                                                     |       |                                                      |       | Prescription             |
| Asia-Pacific               |       | OPSM                                     |       | 319                                                     |       |                                                      |       | Prescription             |
|                       |       | Laubman &  Pank                 |       | 130                                                     |       |                                                      |       | Prescription             |
|                       |       | Budget  Eyewear                          |       | 76                                                      |       | 13                                                        |       | Prescription             |
|                       |       | Sunglass  Hut                            |       | 203                                                     |       | 3                                                         |       | Sun                      |
|                       |       | Bright  Eyes                             |       | 49                                                      |       | 92                                                        |       | Sun                      |
|                       |       | Oakley  “O” Stores and  Vaults |       | 15                                                      |       | 1                                                         |       | Sun/Apparel              |
|                       |       | Oliver  Peoples                          |       |                                                    |       | 1                                                         |       | Prescription/Sun         |
| China  and Hong Kong       |       | LensCrafters                             |       | 175                                                     |       |                                                      |       | Prescription             |
|                       |       | Sunglass  Hut                            |       | 6                                                       |       |                                                      |       | Sun                      |
|                       |       | Other  Brands                            |       | 65                                                      |       |                                                      |       | Prescription             |
| Europe                     |       | Sunglass  Hut                            |       | 81                                                      |       |                                                      |       | Sun                      |
|                       |       | Oakley  “O” Stores and  Vaults |       | 11                                                      |       | 5                                                         |       | Sun/Apparel              |
|                       |       | David  Clulow                            |       | 64                                                      |       | 5                                                         |       | Prescription/Sun         |
| Africa  and Middle East    |       | Sunglass  Hut                            |       |                                                    |       | 33                                                        |       | Sun                      |
|                       |       | Oakley  “O” Stores and  Vaults |       |                                                    |       | 1                                                         |       | Sun/Apparel              |
| South  Africa              |       | Sunglass  Hut                            |       | 56                                                      |       |                                                      |       | Sun                      |
|                       |       | Oakley  “O” Stores and  Vaults |       | 2                                                       |       |                                                      |       | Sun/Apparel              |
| Central  and South America |       | Oakley  “O” Stores and  Vaults |       | 2                                                       |       | 6                                                         |       | Sun/Apparel              |

 

*LensCrafters.*As of March 31,2009, we operated a retail network of 1,137 LensCrafters locations worldwide(of which 962 locations are in North America and 175 are in China and HongKong) offering a wide selection of prescription frames, sunglasses, lenses andother optical products. LensCrafters is currently the largest optical retailchain in North America in terms of sales. LensCrafters stores sell not onlyLuxottica products, but also a wide range of lenses and optical products madeby other suppliers. LensCrafters’ products include innovative lenses, such asFeatherWates® (lightweight, thin and impact-resistant lenses), DURALENS® (superscratch-resistant lenses), Advanced View ProgressiveÔ(free-form, digitally surfaced progressive lenses), Invisibles®(anti-reflective lenses) and MVP Maximum View Progressives® (multi-focal lenseswithout visible lines). Substantially all of our LensCrafters stores arelocated in high-traffic commercial malls and shopping centers, have an employedoptometrist or an independent, licensed optometrist on site (thereby allowingthe customer to have an eye examination on site), provide a large range ofprescription eyewear choices and, in North America, include a laboratory, whichenables us to provide the selected frame with prescription lenses to ourcustomers in approximately one hour. When we acquired LensCrafters in 1995,LensCrafters had approximately 600 stores. Between 1995 and 1998, we opened newstores and acquired other retail chains, reaching over 850 stores in NorthAmerica by 1999.

 

From1999 to 2004, LensCrafters’ expansion focused primarily on further developmentof those stores opened between 1996 and 1998. We continue to evaluate potentialretail expansion opportunities in North America through the acquiring of retailchains and opening of stores in areas where we are not already heavilyrepresented and in other prime locations. Since the LensCrafters acquisition,we have improved the efficiency of LensCrafters stores by managing theinventory from our central worldwide distribution center in Italy. This hasimproved inventory service and allowed for a

 

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more rapid supply ofstyles based on daily sales and inventory data. This has also increased thevolume of our products available in LensCrafters stores. In addition, we havefocused our promotional activities on those customers looking for a better purchaseexperience with high-quality products, rapid and efficient customer service andinnovative lens and frame technology. As a result of these initiatives,LensCrafters’ net sales have increased significantly since 1995.

 

During thelast few years, we have shifted LensCrafters to a more premium brand. Duringthis time, we have added additional elements, such as a new premium storeconcept that is being adopted as stores are remodeled across North America,associate training, advertising and marketing, which together represent thepremium brand and future direction of LensCrafters. With these new initiatives,we have seen the average transaction per customer grow.  LensCrafters is becoming known as one of thebest places to purchase fashionable, designer prescription frames andsunglasses.  LensCrafters hopes toshorten the purchase cycle of typically two to three years with this new focuson prescription frames as fashion.****LensCraftersis also working to increase its share of the contact lens market.  This initiative focuses on selected products(mostly national brand names) and more competitive pricing.  This new push for contact lenses is beingsupported through in-store displays, marketing and associate training.

 

As noted above, one of the most visible changes inLensCrafters’ shift toward a premium and stylish eyewear shopping experience isa new design for the stores, which is adopted in new and remodeled storelocations across North America. The store design features elegant eyeweardisplay boxes, wood flooring, fashion graphics, sleek decorative accents andartistic lighting fixtures. Every feature of the design directs the spotlighton the shopping gallery of designer eyewear collections, while the “fit andfinish” stations are more private and separated from the shopping and frameselection.

 

In2006, we began to expand the use of the LensCrafters name by rebranding certainretail locations to “LensCrafters” that we acquired as part of the acquisitionsof three optical retailers in China, which had a combined total of 274 storesacross Asia, including Hong Kong. Hong Kong is one of the most significantChinese luxury markets where middle class and affluent mainland Chinese visitfrequently to purchase luxury goods. Launching LensCrafters as a premium brandin Hong Kong was important for increasing awareness and consumer demand for ourproducts and services. In September 2006, we launched LensCrafters inBeijing, beginning the re-branding strategy of our acquisitions.  As of March 31, 2009, we operated 240retail stores in China and Hong Kong, of which 175 carry the LensCrafters namewhile the others retain their original brand names. Based on the strategy for2009, the remaining stores were re-branded to LensCrafters stores during thesecond quarter of 2009.

 

In 2009, LensCrafters began positioning itself as “theBrand that Loves Your Eyes,” a statement that guides all brand decisions andassociate interactions with customers. Every few years, LensCrafters has presented a “new face” to customers,with increasingly targeted marketing, operations and merchandising. 

 

*Sunglass Hut.*With theacquisition of Sunglass Hut in 2001, we became the world’s leading specialtyretailer of sunglasses based on sales. As of March 31, 2009, Sunglass Huthad 1,562 retail locations in North America, 212 in Asia-Pacific, 81 inEurope, 56 in South Africa and 33 in the Middle East. Sunglass Hut operates in-line stores and kiosks inshopping malls, as well as stores in street centers on high-traffic streets andin airports. We have increased sales of Luxottica-manufactured products atSunglass Hut locations from approximately 14.3 percent of total Sunglass Hutnet sales in April 2001 (the first month following the acquisition) to 81percent in December 2008, including Oakley products.  In addition to sunglasses that wemanufacture, Sunglass Hut continues to sell a variety of frames manufactured bythird-party vendors, including Maui Jim, Safilo, Bushnell, Spy and others.  Although we buy products from third parties,we do not believe that the loss of any one supplier would have a significantimpact on our future operations as we could easily replace lost supply withother sunglasses manufactured by us or other third-party vendors. After theacquisition of Sunglass Hut and Cole, we consolidated the administrative andcertain other functions of these businesses with our existing business to allowsignificant synergies between sun and optical retail operations. Sunglass Hutoutlets are located mostly in enclosed malls and airports with an averageretail space of approximately 400 square feet per kiosk/store.

 

In2007, we completed the acquisitions of two prominent specialty sun chains inSouth Africa, for a total of 65 stores, which were rebranded to Sunglass Hutstores in 2008. Both chains have prominent locations in shopping centers inurban areas, including Johannesburg and Cape Town, as well as attractiveairport locations.

 

Today,the Sunglass Hut brand is positioned as a key destination for premiumsunglasses.  Sunglass Hut offers thelatest name-brand products along with outstanding customer service to helpcustomers “find their cool.”

 

*ILORI*. In September 2007, Luxotticalaunched ILORI, our first luxury specialty store dedicated to sunglasses. ILORIhas 18 stores in the United States as of March 31, 2009, includingflagship stores in the SoHo neighborhood of New

 

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York City and in BeverlyHills, CA. ILORI caters to a different, more exclusive clientele than SunglassHut with higher-priced collections and more pampered, personalized service inluxurious surroundings.

 

*OSA, The Optical Shop of Aspen*. As of March 31, 2009, we operated24 The Optical Shop of Aspen stores throughout the United States, which areluxury optical retail stores offering fashion and luxury eyewear from a varietyof designers, as well as certain Oakley-owned brands, including *Oliver Peoples*, balanced between sun and optical.

 

*Sunglass Icon*. Our Sunglass Icon multi-branded sunglassspecialty retail locations offer a full range of eyewear, including brandsowned or licensed by us, as well as eyewear from other designers andbrands. As of March 31, 2009, Sunglass Icon operated 110 locationsthroughout North America. The Sunglass Icon retail stores are located inpremium malls throughout the United States.

 

*Pearle Vision.* With the acquisition of Cole in October 2004,we acquired Pearle Vision, the second-largest optical chain after LensCraftersin North America. Although both brands address the mid- to high-end customerbracket, their positioning is complementary. Pearle Vision focuses on thefactors that made the brand a success: customers’ trust in the doctor’sexperience and the quality of service they receive. Pearle Vision stores aremostly located in strip malls instead of the conventional malls where mostLensCrafters and Sunglass Hut stores are located. In addition, Luxottica hasfranchised Pearle Vision locations located throughout North America.

 

Our relaunching of the Pearle Vision brand in 2004 and2005 was centered on a return to its original values, which had made PearleVision the “Home of Trusted Eyecare” for generations of Americans.

 

A product mix increasingly geared to premium, highvalue-added products has helped restore strong customer relationships, as haveefforts to portray doctors in various advertising campaigns. At the same time,a significant reduction in sales promotions helped improve the positioning ofthe stores and consumer perceptions, resulting in increasing profitability.

 

The same premise Dr. Pearle used to build thecompany over 45 years ago remains strong today: Pearle Vision knows eyecare andeyewear, places the customer first, is honest and respects the customer.  Pearle Vision distinguishes itself as a “DifferentKind of Optical,” aiming to provide the most complete, professional opticalexperience available anywhere.

 

Sales of Luxottica products at Pearle Vision storesenjoyed strong growth, reaching nearly 86 percent of total sales in 2008. *Ray-Ban*, *Versace*, *Anne Klein* and *Vogue* were someof the stronger-selling brands.

 

In order to centralize services and achieve economiesof scale, most in-store labs were closed, and their work was transferred tonearby LensCrafters labs or to one of our seven large central lens finishingfacilities.

 

Pearle Vision’s franchises are increasingly turning tous as their preferred supplier, not only due to the strength of our brands andthe quality of our products, but also because of Luxottica’s FranchiseAdvantage Program. This program, which is available to franchisees, featuresmarketing solutions, preferential pricing and savings on selected categories ofproducts, including lenses, lab services, contact lenses and accessories, allof which are provided with a high level of service and merchandising support.

 

Wefirmly believe that the Pearle Vision brand has significant growthopportunities in both the United States and Canada, where the brand wasstrengthened in 2006 and is now the only optical chain represented throughoutCanada.

 

As of March 31,2009, Pearle Vision operated 417 corporate-owned store locations and had 375franchise locations throughout North America.

 

*Licensed Brands.* With the acquisition of Cole, we alsoacquired a group of distribution outlets under the names “Sears Optical” and “TargetOptical” (the “BJ’s Optical” license acquired with Cole was terminated in March 2008),which we refer to as our Licensed Brands. The Licensed Brands optical retaillocations are located in the host stores that bear the names of the hosts. Bothof these brands offer consumers the convenience of taking care of their opticalneeds where they shop and have a precise market positioning. As of March 31, 2009, we operated878 Sears Optical and 331 Target Optical locations throughout North America.

 

*Oakley “O” Stores andVaults*. As of March 31,2009, we operated 58 retail stores in North America under the Oakley Storename, which offer a full range of Oakley-branded optics products as well asOakley apparel, footwear and accessories. These stores are designed andmerchandised to immerse consumers in the Oakley brand through innovative use ofproduct presentation, graphics, audio and visual elements. In addition to thesefull-price retail venues, we operated 41

 

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Oakley Vaults, our Oakley outlet store concept,featuring discontinued and excess seasonal Oakley-branded merchandise inaddition to newer products priced at full retail. Our Oakley retail stores arelocated in some of the nation’s leading shopping malls and averageapproximately 2,500 square feet in size. We had 4 Oakley “O” Stores andVaults under franchise in Mexico as of March 31, 2009.  Outside of North America, as of March 31,2009, we operated 30 corporate-owned Oakley “O” Stores and Vaults and had 13franchise locations.

 

*Oliver Peoples*. Our Oliver Peoples subsidiary operates five luxuryoptical retail stores (two in Southern California, two in New York City and onein Las Vegas, Nevada). An additional two Oliver Peoples retail locations areoperated by others under license, one in Southern California and one in Tokyo.

 

*OPSM, Laubman & Pank andBudget Eyewear*. In Australia and New Zealand, we operate threebrands, which specialize in the prescription business: OPSM, Australia’s topeyewear brand for luxury and fashion-minded customers; Laubman & Pank,provider of high-quality eyecare and services; and Budget Eyewear, focused onprice-conscious consumers. The three brands operate in all of Australia’sstates, primarily in larger cities. OPSM is our only prescription brand in NewZealand and operates in the main urban areas. All brands have continued toextend further into the fashion segment through innovative store format,personnel training and product assortment programs that are tailored to theirrespective segments and leverage off of our portfolio of products. In theprescription segment, the three brands have a different positioning whichallows us to cover complementary segments with product offerings catering tothe needs of different consumer categories. Improved understanding of customersand initiatives have helped OPSM achieve a significant increase in sales andhave solidified its position as the best-known brand on the market. Laubman &Pank’s recognition as an optical fashion brand has continued to increase aspromotional programs clearly position the brand as a national chain. The brandis perceived to have a special focus on eye health, resulting from a series ofinitiatives that include TV campaigns and national screening programs. BudgetEyewear has successfully extended its product offerings while remaining thepreferred destination for those wanting good eyewear at lower prices. As of March 31,2009, a total of 499 stores throughout Australia were operated under the threebrands - OPSM (280 stores), Laubman & Pank (130 stores) and BudgetEyewear (89 stores including 13 franchise locations). OPSM is the market leaderin New Zealand, based on corporate-owned store locations, with 39 stores, as ofMarch 31, 2009.

 

*Bright Eyes*. Bright Eyes, first established in 1985, is one ofAustralia’s largest and fastest growing sunglass chains, with over 142 sunglassstores across Australia operating under the Bright Eyes and Sunglass Worxnames. As of March 31, 2009, Bright Eyes operated 49 corporate-owned storelocations and 92 franchise locations. The stores are located in highlydesirable real estate locations and sell brands such as *Oakley*,*Ray-Ban*, *Prada*,*Versace*, *Maui Jim*and *Arnette*.

 

*DavidClulow.*With 50years of experience, David Clulow is a premium optical retailer operating inthe United Kingdom and Ireland, predominantly in London and the South East ofthe United Kingdom. The brand is about service, quality and fashion and ourmarketing is targeted to reinforce these brand values and build long-termrelationships with our customers. In addition to operating optical stores,David Clulow operates a number of sunglass concessions in upmarket departmentstores, further reinforcing our position as a premium brand in the UnitedKingdom. As of March 31, 2009, David Clulow operated 37 corporate-ownedlocations (including 9 joint ventures), 5 franchise locations and 27 sunstores/concessions.

 

Wecontinue to explore opportunities to expand our retail operations worldwidethrough the opening of new stores or kiosks, or strategic acquisitions, whenappropriate.

 

*Oakley Internet and TelesalesOperations.* Weuse our Oakley website (*www.oakley.com*)as a complementary sales channel to our Oakley retail operations andinternational distribution, allowing consumers to purchase Oakley products asefficiently as possible. The Oakley website is fully e-commerce capable,allowing consumers to purchase our Oakley products for delivery in the UnitedStates, Canada and Australia. In addition, the Oakley website includesinformation about our Oakley products and innovations, such as HDO®** **(High Definition Optics®),and news about the athletes and others who endorse Oakley products. We believethe Oakley website serves to increase consumer awareness of the Oakley brand,improve customer service and increase sales through Oakley’s retail ande-commerce channels. We also maintain a customer service team to respond totelephone inquiries and make sales directly to consumers.

 

*EyeMed*. EyeMed Vision Care is one of thelargest vision benefits organizations in the United States, serving over 24 millionmembers in corporations, government entities and insurance companies withfunded vision benefits through a network of optometrists, ophthalmologists,opticians and Luxottica retail stores.

 

The primary contributors to EyeMed’s growth are theincreasing awareness of the importance of vision care and the expansion ofexisting relationships with health and ancillary benefit organizations.  EyeMed also focused on targeting the

 

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smaller employer segment.  EyeMed will continue to diversify its productofferings and provider networks to address the needs of itsbusiness-to-business customers, while continuing to identify and build demandin new market segments.

 

**Our Principal Markets**

 

The following table presents our net sales bygeographic market for the periods indicated:

 
| ** **                 | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------|------------|--------------------------------------------|------------|
| ** **                 | ** ** | **(In thousands of Euro)**  | ** ** |
| ** **                 | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| Italy Wholesale            |       | 1,379,599                                  |       |   | 1,506,077 |   |   | 1,321,887 |   |   |
| North America Retail(1)    |       | 2,599,003                                  |       |   | 2,744,454 |   |   | 2,840,977 |   |   |
| North America Wholesale    |       | 777,294                                    |       |   | 328,632 |   |   | 235,526 |   |   |
| Asia-Pacific Retail        |       | 435,859                                    |       |   | 453,223 |   |   | 388,505 |   |   |
| Asia-Pacific Wholesale     |       | 293,190                                    |       |   | 232,338 |   |   | 215,135 |   |   |
| Other Retail               |       | 74,283                                     |       |   | 64,641 |   |   | 64,678 |   |   |
| Other Wholesale            |       | 1,233,346                                  |       |   | 1,049,788 |   |   | 697,278 |   |   |
| Adjustment/Eliminations(2) |       | (1,590,963                                 | )          |   | (1,413,099 | ) |   | (1,087,828 | ) |   |
| Total                      |       | 5,201,611                                  |       |   | 4,966,054 |   |   | 4,676,156 |   |   |

 

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(1)             Excludesthe sales of our Things Remembered specialty retail business, which was sold inSeptember 2006. Things Remembered sales for fiscal 2006 (through its dateof sale on September 29, 2006) were Euro 157.1 million.

 

(2)             “Adjustment/Eliminations”represents the elimination of intercompany sales.

 

**Seasonality andEffect of 53-Week Year**

** **

Wehave also historically experienced sales volume fluctuations by quarter due toseasonality associated with the sale of sunglasses, which represented 59.6percent and 58.4 percent of our units sold in 2008 and 2007, respectively. As aresult, our net sales are typically higher in the second quarter, whichincludes increased sales to wholesale customers and increased sales in ourSunglass Hut stores, and lower in the first quarter, as sunglass sales are lowerin the cooler climates of North America, Europe and Northern Asia. Theseseasonal variations could affect the comparability of our results from periodto period. Our North American retail fiscal year is either a 53-week year or a52-week year, which also can affect the comparability of our results fromperiod to period. When a 53-week year occurs, we generally add the extra weekto the fourth quarter. A 53-week year occurs in five- to six-year intervals andoccurred in fiscal 2008 and will occur again in fiscal 2014.

 

**ManufacturingProcess**

 

***Overview***

 

Wemanufacture both metal and plastic frames. In addition to our framemanufacturing capacity, since 1999 we have also produced crystal andpolycarbonate sunglass lenses exclusively for our sunglasses collections.Production is principally carried out in our six Italian manufacturingfacilities. In China, we manufacture certain products distributed mainly by ourNorth American retail group and certain finished products for our wholesalebusiness, mainly in our owned production facilities. Each of our facilities istailored to a specific production technology that we believe allows us toachieve a high level of productivity.  Wehave manufacturing facilities in the United States where we manufacture orassemble most of our Oakley eyewear products.

 

***Designand Prototype Selection***

 

Webelieve that an important aspect of our success has been our emphasis on designand the continuous development of new styles. Our in-house designers worktogether with external designers to develop new models.

 

Forour designer line products, our design team works with licensors to discuss thebasic themes and fashion concepts for each product and then works closely witheach licensor’s designers to refine such themes. In addition, our design teamworks directly with our marketing and sales departments, which monitor demandfor our current models as well as general style trends in eyewear. The dataobtained from our marketing and sales departments is then used to refineexisting product designs and market positioning in order to react to changingconsumer preferences.

 

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Oncethe product concepts have been selected and approved, we produce prototypesthat are used to evaluate the proposed design. Our prototypes are developedusing computer-aided design/computer-aided manufacturing technology, known asCAD/CAM, which is fully integrated with our manufacturing processes. CAD/CAMtechnology allows a designer to view and modify two- and three-dimensionalimages of a new frame. Because this technology is fully integrated with themanufacturing processes, the conversion from prototype to production is streamlined.

 

Allprototypes are subject to review and approval by our licensors and ourdesigners to ensure consistency with the distinctive image of each productline. Our collections consist of both new models and the most successfulexisting models. Each year, we add approximately 2,100 new models to oureyewear collections. The ability to constantly renew our product base hasenabled us to meet consumer demand in each market segment in which our brandsare targeted. See Item 3—“Key Information—Risk Factors— If we do notcorrectly predict future economic conditions and changes in consumerpreferences, our sales of premium products and profitability will suffer.”

 

Oakley develops and employs innovative technologies,materials and processes in the design, development and manufacture of itsproducts. To date, Oakley has designed its products using primarily in-housestaff in order to speed the concept-to-market timeline and preserve brand imageand authenticity.

 

***Sourcing***

 

Theprincipal raw materials and parts purchased for our manufacturing processinclude plastic resins, metals, lenses and frame parts. We purchase asubstantial majority of our raw materials in Europe and, to a lesser extent, inAsia and the United States. In addition, we use certain external suppliers forframes, eyeglass cases and packaging materials. The Ray-Ban acquisitionprovided us with know-how and sunglass crystal lens manufacturing capabilities.We believe that our ability to produce sunglass crystal lenses is strategicallyimportant given our expanded presence in the sunglass market.

 

Oakley has built strong relationships with its majorsuppliers. With most suppliers, Oakley maintains agreements that prohibitdisclosure of its proprietary information or technology to third parties. AlthoughOakley relies on outside suppliers for most of the specific molded componentsof its glasses, goggles, watches and footwear, it generally retains ownershipof the molds used in the production of the components. We believe that most ofthe components that Oakley uses can be obtained from one or more alternativesources within a relatively short period of time, if necessary or desired. Inaddition, to further mitigate risk, Oakley has developed an in-house injectionmolding capability for sunglass frames.

 

EssilorS.A. has become one of the largest suppliers of our retail operations,accounting for 12% of our total merchandise purchases in 2008 and 15% in 2007.Although we do not have formal, long-term contracts with Essilor or any of ourother suppliers, we have not experienced any significant interruptions in oursupplies. We believe that the loss of Essilor S.A. or any of our other vendorswould not have a significant impact on the future operations of the Company aswe could replace them quickly with other third-party suppliers. For additionalinformation, see Note 14 to our Consolidated Financial Statements includedin Item 18 of this annual report.  Historically,prices of the principal raw materials used in our manufacturing process havebeen stable.

 

***Manufacturing***

 

Wehave six frame manufacturing facilities in Italy. Five facilities are locatedin northeastern Italy, the area in which most of the country’s optical industryis based, and the remaining facility is located near Turin. All of our facilitiesare highly automated, which has allowed us to maintain a high level ofproduction without significant capital outlay. In certain of these facilities,we also produce sunglass crystal lenses and polycarbonate lenses. In 2006,we modernized our operations in Italy by building a new approximately32,000 square-meter manufacturing facility to produce acetate frames andsunglasses for a total investment of approximately Euro 20.0 million. In2007, we further expanded our manufacturing facilities in Italy byapproximately 28,000 square meters in order to rationalize the productproduction flow, for a total investment of approximately Euro 23.4 million. Wewere able to rededicate one of our former facilities to our logistics operationfor a total investment of Euro 6.2 million. From 1998 to 2001, we operated,through our 50 percent-owned joint venture (Tristar Optical Company Ltd.) witha Japanese partner, a facility in China to manufacture prescription frames. In2001, we acquired from our Japanese partner the remaining 50 percent interestin this Chinese manufacturer so that it became one of our wholly-ownedsubsidiaries. In 2006, we increased our manufacturing capacity in China throughthe construction of a new approximately 26,000 square-meter manufacturingfacility to produce both metal and plastic frames for a total investment ofapproximately Euro 20.0 million. After the construction of this new facility,our annual average daily production in China increased by approximately 80percent compared to 2005.  In 2007, wefurther expanded our manufacturing capacity in China by approximately 74,000square meters, for a total investment of approximately Euro 7.2 million. Thepercentage of private

 

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label products producedat our facilities in China has been decreasing in favor of increased productionof certain of our core, fashion and North American brands.

 

Overthe past several years, we have consolidated our manufacturing processes bytailoring each of our manufacturing facilities in Italy to a specificproduction technology. This consolidation has allowed us to improve both theproductivity and quality of our operations. We produce plastic frames in ourfacilities in Sedico, Pederobba and Lauriano, while metal frames are producedin our facilities in Agordo and Rovereto. Certain frame parts are produced inour facility in Cencenighe. Our manufacturing facility in China produces bothmetal and plastic frames. In 2008, approximately 60 percent of the framesmanufactured by us were metal-based, and the remainder was plastic.

 

Themanufacturing process for both metal and plastic frames and sunglasses beginswith the fabrication of precision tooling and molds based on prototypesdeveloped by our in-house design and engineering staff. We believe that ourin-house capacity to engineer and produce precision tooling and molds gives usa strong competitive advantage by enabling us to reduce the lead time forproduct development and thereby adapt quickly to market trends, containproduction costs and maintain smaller and more efficient production runs sothat we can better respond to the varying needs of different markets.

 

Themanufacturing process for metal frames is comprised of approximately 70 phases,beginning with the production of basic components such as rims, temples andbridges, which are produced through a molding process. These components arewelded together to form frames through numerous stages of detailed assemblywork. Once assembled, the metal frames are treated with various coatings toimprove their resistance and finish, and then prepared for lens fitting andpackaging.

 

Wemanufacture plastic frames using either a milling process or injection molding,depending upon the style and color of the frame. In the milling process, acomputer-controlled machine carves frames from colored plastic sheets. Thisprocess produces rims, temples and bridges that are then assembled, finishedand packaged. In the injection molding process, plastic resins are liquefiedand injected in molds. The plastic parts are then assembled, coated, finishedand packaged.

 

Ourefficient distribution network allows us to track sales and inventory data on adaily basis. As a result, we are able to:

 

·                  make and revise manufacturing plans on the basis ofcurrent sales information;

 

·                  reallocate inventory within our wholesalesubsidiaries, thereby reducing overall inventory levels and the risk of obsolescence;and

 

·                  react quickly to changing market trends by providingrapid feedback to our in-house design team.

 

Weengage in research and development activities relating to our manufacturingprocesses on an on-going basis. As a result of such activities, we haveinvested, and will continue to invest, in automation, thus increasingefficiency while improving quality.

 

The principal manufacturing facility for our Oakleyproducts is located in Foothill Ranch, California, where we manufacture orassemble most Oakley eyewear products. We have another manufacturing facilitylocated in Dayton, Nevada, where we produce the frames used in our Oakley XMetal® (aproprietary alloy) eyewear products.

 

At our U.S. manufacturing facilities, we own, operate,and maintain most of the equipment used in the manufacture of Oakley’s eyewearproducts. Much of the equipment used has been specially designed and adaptedfor Oakley’s manufacturing processes. Manufacturing processes that we believeare unlikely to add significant value are currently contracted to outsidevendors. State-of-the-art manufacturing practices allow us to respond quicklyto customer demand, offer protection against piracy and enable us to adhere tostrict quality-control standards. We can build customized Oakley eyewearproducts to meet individual consumer demand for unique combinations of frame,lens and lens coating and to ship those products in less than 48 hours.

 

Weutilize third-party manufacturers to produce Oakley apparel, footwear, watches,electronically-enabled eyewear and certain goggles.

 

Costs associated withresearch and development activities are expensed when incurred and are notsignificant.

 

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***Lens Finishing Labs***

 

In North America, we have seven central lens finishinglabs that are of strategic importance to our North American retailbusiness.  Combining our broad presencein the market with additional capacity for handling lens finishing work, weanticipate increasing availability of our higher-margin lens treatments toconsumers at our stores. Lens finishing labs are also expected to contribute toa reduction of the time and cost of finishing work provided by third parties.

 

We operate Oakley optical lens laboratories in theUnited States, Ireland and Japan where we surface prescription lenses. Theselabs provide Oakley prescription lenses to the North and South American,European and Asian markets, respectively, enabling us to achieve expeditiousdelivery, better quality control and higher optical standards.

 

***QualityControl***

 

One of our key strategic objectives is ensuring thequality of our products, which has led to the integration of every phase of productionin Italy and China. Quality is the critical factor in the premium and luxurysegments for both wholesale customers and retail consumers.  In 1997, we were among the first companies inthe eyewear industry to obtain ISO 9001 certifications. Subsequently, in 2003,we obtained the “Vision 2000” certification, which is the third-generationindustry recognition for quality production. To ensure the high quality of ourproducts, our quality control and process control teams regularly inspectwork-in-progress at various stages of the production cycle. In addition, themajority of materials that we purchase are quality tested. We also conductinspections of, and certify compliance with, the production processes of ourmain suppliers. Each of our prescription frames and sunglasses undergoesseveral stages of quality inspection. Due to the efficiency of our qualitycontrols, the return rate for defective merchandise manufactured by us isapproximately one percent.

 

Wedesign Oakley products in our facilities in the United States to meet or exceedrelevant industry standards for safety, performance and durability. Throughoutthe development process, Oakley optics products undergo extensive testingagainst standards established specifically for eyewear by ANSI and ASTM. Thesestandards relate to product safety and performance and provide quantitativemeasures of optical quality, UV protection, light transmission and impactresistance. In addition, we perform a broad range of durability and mechanicalintegrity tests on Oakley lens coatings that include extremes of exposure to UVlight, heat, condensation and humidity. We test Oakley apparel, footwear andaccessories against strict guidelines established by ASTM and other industryauthorities to ensure quality, performance and durability.

 

**Distribution**

 

We distribute ourproducts through both wholesale and retail channels.

 

***Distributionby Wholesale Division***

 

We currently distributeour products in over 130 countries and operate mainly through 43 wholly- ormajority-owned wholesale distribution subsidiaries strategically located inmajor markets worldwide.  In marketswhere we do not have wholesale distribution subsidiaries, we employapproximately 100 independent distributors.

 

Each wholesaledistribution subsidiary operates its own network of sales representatives, whoare normally retained on a commission basis. Our network of wholesaledistribution subsidiaries represents a key element of our business. We believethat control over an extensive distribution network provides us with acompetitive advantage, because it enables us to maximize our brand image,marketing efforts and customer service activities by tailoring our operationsto meet the specific needs and peculiarities of local markets.

 

The following table setsforth certain information regarding our significant wholesale distributionsubsidiaries and affiliates as of May 31, 2009:

 

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| **Subsidiary**                                       | ** ** | **Country of Formation** | ** ** | **Percentage  Ownership** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|---------------------------|------------|
| Luxottica Italia  S.r.l.                             |       | Italy                              |       | 100                       | %          |
| Luxottica India  Eyewear Private Limited             |       | India                              |       | 100                       | %          |
| Luxottica Fashion  Brillen Vertriebs GmbH            |       | Germany                            |       | 100                       | %          |
| Luxottica Portugal  —Comercio de Optica S.A.    |       | Portugal                           |       | 100                       | %          |
| Luxottica France  S.A.S.                             |       | France                             |       | 100                       | %          |
| Luxottica Iberica S.A.                               |       | Spain                              |       | 100                       | %          |
| Luxottica U.K. Ltd.                                  |       | United  Kingdom                    |       | 100                       | %          |
| Luxottica Belgium N.V.                               |       | Belgium                            |       | 100                       | %          |
| Luxottica Nordic AB                                  |       | Sweden                             |       | 100                       | %          |
| Oy Luxottica Finland AB                              |       | Finland                            |       | 100                       | %          |
| Luxottica Vertriebsgesellschaft MbH                  |       | Austria                            |       | 100                       | %          |
| Luxottica Norge AS                                   |       | Norway                             |       | 100                       | %          |
| Avant-Garde Optics, LLC                              |       | United  States                     |       | 100                       | %          |
| Oakley, Inc.                                    |       | United  States                     |       | 100                       | %          |
| Oakley Icon Limited                                  |       | Ireland                            |       | 100                       | %          |
| Oliver Peoples, Inc.                            |       | United  States                     |       | 100                       | %          |
| Eye Safety Systems, Inc.                             |       | Australia                          |       | 100                       | %          |
| Oakley Japan KK                                      |       | Japan                              |       | 100                       | %          |
| Oakley Athletic (PTY) Limited                        |       | South  Africa                      |       | 100                       | %          |
| Oakley U.K. LTD.                                     |       | United  Kingdom                    |       | 100                       | %          |
| Oakley South Pacific PTY LTD.                        |       | Australia                          |       | 100                       | %          |
| Oakley Canada, Inc.                             |       | Canada                             |       | 100                       | %          |
| Oakley Brazil LTDA                                   |       | Brazil                             |       | 100                       | %          |
| Luxottica Canada Inc.                                |       | Canada                             |       | 100                       | %          |
| Luxottica Do Brasil Ltda                             |       | Brazil                             |       | 100                       | %          |
| Luxottica Mexico S.A.  de C.V.                       |       | Mexico                             |       | 100                       | %          |
| Luxottica Argentina  S.r.l.                          |       | Argentina                          |       | 75                        | %          |
| Mirari Japan Co Ltd.                                 |       | Japan                              |       | 100                       | %          |
| Luxottica South Africa Pty Ltd.                      |       | South  Africa                      |       | 100                       | %          |
| Luxottica (Switzerland) A.G.                         |       | Switzerland                        |       | 97                        | %          |
| Luxottica Australia Pty Ltd.                         |       | Australia                          |       | 100                       | %          |
| Luxottica Optics Ltd.                                |       | Israel                             |       | 100                       | %          |
| Luxottica Hellas A.E.                                |       | Greece                             |       | 70                        | %          |
| Luxottica Nederland B.V.                             |       | The  Netherlands                   |       | 51                        | %          |
| Luxottica Gozluk  Endustri Ve Ticaret Anonim Sirketi |       | Turkey                             |       | 64.84                     | %          |
| Luxottica Poland Sp.  Z.o.o.                         |       | Poland                             |       | 100                       | %          |
| Luxottica Central Europe KFT                         |       | Hungary                            |       | 100                       | %          |
| Luxottica South Eastern Europe Ltd.                  |       | Croatia                            |       | 70                        | %          |
| Luxottica ExTrA Limited                              |       | Ireland                            |       | 100                       | %          |
| Mirarian Marketing Pte Ltd.                          |       | Singapore                          |       | 51                        | %          |
| RayBan Sun Optics India Ltd.                         |       | India                              |       | 92.05                     | %          |
| Luxottica Korea Ltd.                                 |       | South  Korea                       |       | 100                       | %          |
| Luxottica (Shanghai) Trading Co, LTD                 |       | China                              |       | 100                       | %          |

 

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We maintain close contactwith our distributors in order to monitor sales and control the quality of thepoints of sale that display our products. We typically enter into distributionagreements with importers and distributors that establish minimum annualpurchases and impose territorial limitations. In addition, to the extentpermitted by law, we allow distribution only through specifically authorizedretail channels and qualified sales agents.

 

No single customer orgroup of related customers accounted for more than five percent of ourconsolidated net sales in any of the past three years.****Wedo not believe that the loss of any single customer would have a materialadverse effect on our financial condition or results of operations.

 

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Our distribution systemis integrated internationally. A worldwide computerized information networklinks the distribution and sales systems with the production facilities inItaly, China and the United States. This network enables us to monitorworldwide sales trends and inventory positions on a daily basis and to allocateproduction resources accordingly.

 

We believe that one ofour key competitive strengths is our ability to promptly satisfy customerdemand in a timely manner, both prior to and following a sale. In order tofurther improve our customer service capabilities, we have centralized ourdistribution centers in Europe (Italy) and Asia (Japan) and have begun aprocess to centralize our wholesale and retail distribution centers in NorthAmerica over time. We believe that centralizing our distribution centersimproves the efficiency of our distribution operations while reducing relatedcosts.

 

Our sales organization is comprised of a combinationof employees and independent sales representatives. Relationships with ourlarge international, national and regional accounts are generally managed andserviced by employees. Independent sales representatives service the remainingbase of retailers (which include optometrists, ophthalmologists and opticians)that carry our various product categories.

 

Currently,we distribute Oakley products in the United States through a base ofapproximately 11,000 retail accounts. Retail accounts are comprised of opticalstores, sunglass retailers, department stores, sporting goods stores andspecialty sports stores, including bike, surf, snow, skate, golf and motorsports stores.

 

***Distribution by Retail Division***

 

Through our retaildivision, we believe we operate the largest group of optical superstores in theUnited States and Canada based on both sales and store count. We believe we arethe largest specialty retailer of sunglasses in the world based on 2008revenues and believe we have become a leading player in the Australianprescription segment.

 

In our optical retailstores, customers can choose from a large selection of frames and lensesoffering a high level of comfort and fit. In North America, LensCrafterscustomers can obtain a completed pair of prescription glasses in approximatelyone hour because of on-site lens grinding laboratories. In our Sunglass Hut,ILORI, Sunglass Icon and Bright Eyes locations, customers can choose from alarge selection of Luxottica- and third-party-vendor-manufactured sunglasses.In addition, most locations can assist customers in purchasing otheraccessories to complement their eyewear purchases. As of March 31, 2009,our retail business consisted of 5,649 corporate-owned store locations and 547franchised locations. See “—Products and Services—Retail Operations” abovefor more information about our retail locations and a breakdown of thegeographic regions.

 

Theretail division’s stores sell not only frames that we manufacture but also awide range of frames,lenses and other ophthalmic products manufactured by other companies. In 2008, unitsmanufactured with our own brand names or our licensed brands, representedapproximately 72.4 percent of the total sales of frames based on units sold bythe retail division. In contrast, when OPSM was acquired in 2003, only 3.5percent of the total sales of frames sold were supplied by us and, when Colewas acquired in 2004, less than one percent of the total sales of frames soldwere supplied by us.

 

Substantially allLensCrafters (excluding the LensCrafters rebranded stores in China), PearleVision, Licensed Brands, OPSM, Laubman & Pank and Budget Eyewearstores have an employed or independent optometrist on-site, allowing thecustomer to have an eye examination, select from a large range of prescriptioneyewear and receive the selected frame with prescription lenses from onelocation. In addition, substantially all of our LensCrafters stores (excludingthe LensCrafters rebranded stores in China), have a lens grinding laboratory onsite, which allows our customers to receive a complete set of prescriptionframes or sunglasses in approximately one hour.

 

In2008, we completed the acquisition of David Clulow, an optical retail chain inoperation for almost 50 years in the United Kingdom and in Ireland. All of ourDavid Clulow optical stores have on-site optometrists enabling us to controlthe high service levels and quality advice we provide to our customer. Framesand lenses are sold separately and assembled either in our “in-store” finishinglaboratories, where available, or alternatively in the central glazinglaboratory.

 

**Competition**

 

Webelieve that our integrated business model, innovative technology and design,integrated sunglass manufacturing capabilities, effective brand and productmarketing efforts and vigorous protection of our intellectual property rightsare important aspects of competition and are among our primary competitiveadvantages.

 

Theprescription frame and sunglasses industry is highly competitive andfragmented. As we market our products throughout the world, we compete withmany prescription frame and sunglass companies in various local markets. Themajor competitive factors include fashion trends, brand recognition, marketingstrategies, distribution channels and the number and range of products offered.We believe that some of our largest competitors in the design, manufacturingand wholesale distribution of prescription frames and sunglasses are Charmant Group,De Rigo S.p.A., Marchon Eyewear, Inc., Marcolin S.p.A., Safilo Group S.p.A.,Silhouette International Schmied AG and Viva International Group. 

 

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Several of our mostsignificant competitors in the manufacture and distribution of eyewear aresignificant vendors to our retail division. Our success in these markets willdepend on, among other things, our ability to manage an efficient distributionnetwork and to market our products effectively as well as the popularity andmarket acceptance of our brands. See Item 3—“Key Information—RiskFactors—If we are unable to successfully introduce new products, our futuresales and operating performance will suffer” and “—If we fail to maintain anefficient distribution network in our highly competitive markets, our business, results ofoperations and financial condition could suffer.”

 

The highly competitiveoptical retail market in North America includes a large number of smallindependent competitors and several national and regional chains of opticalsuperstores. In recent years, a number of factors, including consolidationamong retail chains and the emergence of optical departments in discount retailers,have resulted in significant competition within the optical retailing industry.We compete against several large optical retailers in North America, includingWal-Mart and Eye Care Centers of America, and, in the sunglasses area,department stores and numerous sunglass retail chains and outlet centers. Ouroptical retail operations emphasize product quality, selection, customerservice and convenience. We do not compete primarily on the basis of price.

 

We believe that Oakley and our other sports brands areleaders in non-prescription sports eyewear, where they compete with mostlysmaller sunglass and goggle companies in various niches, and a number of largeeyewear and sports products companies that market eyewear.

 

The managed vision caremarket is highly competitive. EyeMed has a number of competitors, includingVision Service Plan (VSP), Davis Vision, and Spectera. While VSP was foundedalmost 55 years ago and is the current market leader, EyeMed’s consistent yearover year growth has enabled us to become the second largest market competitorin terms of funded lives. EyeMed competes based on its ability to offer anetwork and plan design with the goal of delivering overall value based on theprice, accessibility and administrative services provided to clients and theirmembers.

 

**Marketing**

 

Ourmarketing and advertising activities are designed primarily to enhance theimage of Luxottica and our brand portfolio and to drive traffic into our retaillocations. Advertising expenses amounted to approximately seven percent of ournet sales in each of 2008, 2007 and 2006.

 

***Marketing Strategy for Our Wholesale Distribution Business***

 

Ourmarketing strategy in the wholesale distribution business is focused onpromoting our extensive brand portfolio, our corporate image and the value ofour products. Advertising is extremely important in supporting our marketingstrategy, and we therefore engage in extensive advertising activities, both atthe point-of-sale and through various media directed at the end consumer of ourproducts.

 

Inour media advertising, we utilize mass media, such as print, radio andtelevision, as well as billboard advertising and digital media. The extent ofour advertising activities and the selection of different media depend upon thecompetitive conditions in each particular market. In addition, we advertise inpublications targeted to independent practitioners and other market-specificmagazines.

 

Ourpoint-of-sale marketing materials consist of displays, counter cards, catalogs,posters and product literature. Many of these materials are linked to ourconsumer advertising campaigns. Because the point-of-sale has becomeincreasingly important both as a communication medium and in terms of theconsumer brand experience, in 2007, we developed a new approach for our *Ray-Ban* brand with a shop-in-shop modular concept. Thisconcept can be adapted to the stores we identify as the most suitable,permitting the best delivery of *Ray-Ban*’s clearand unique brand signature.

 

Wealso benefit from brand-name advertising carried out by licensors of ourdesigner lines intended to promote the image of the designer line. Ouradvertising and promotional efforts in respect of our licensed brands aredeveloped in coordination with our licensors. We contribute to the designer aspecified percentage of our sales of the designer line to be devoted to itsadvertising and promotion.

 

Withour Oakley brands, we use less-conventional marketing methods in addition tothose mentioned above, including sports marketing, grass-roots sporting eventsand targeted product allocations.  Webelieve the exposure generated by athletes wearing Oakley products duringcompetition and in other media appearances serves as a more powerful endorsementof product performance and style than traditional commercial endorsements.Consequently, we will continue to 

 

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usesports marketing and endorsement arrangements extensively to achieve exposurethat results in strong brand recognition and authenticity on a global level.

 

Finally, we participate inmajor industry trade fairs (including the MIDO fair in Milan, Vision Expo inthe United States and the SILMO in Paris), where our new collections aredisplayed and promoted to the market.

 

***Marketing Strategy for Our Retail Business***

 

In addition to the marketing activities described above, we engage inpromotional and advertising activities through our retail business with bothshort- and long-term objectives. Our short-term objectives are to attractcustomers to our stores and promote sales. Our long-term objective is to buildthe image and visibility of our retail brands throughout the world, such as theLensCrafters and Pearle Vision brands in North America, the Sunglass Hut brandworldwide, the David Clulow brand in the United Kingdom and Ireland and theOPSM, Laubman & Pank and Budget Eyewear brands in Australia and NewZealand, thereby encouraging customer loyalty and repeat purchases. As of March 31,2009, we operated 142 Oakley “O” Stores and Vaults worldwide, offering a fullrange of Oakley products including sunglasses, footwear, apparel andaccessories. These stores are designed and merchandised to immerse the consumerin the Oakley brand through innovative use of product presentation, graphicsand original audio and visual elements. In the United States, Oakley “O” Storesare in major shopping centers. Oakley’s retail operations outside the UnitedStates are mostly franchised and are located in Mexico, Europe andAsia-Pacific. Additionally for our eyewear, apparel, footwear and accessoriesmarketed under the Oakley brand, long-term objectives are to utilize highprofile retail locations to drive brand equity and create awareness.

 

Webelieve that the product quality and service provided by our retail businesscontribute to our short- and long-term marketing objectives.

 

Aconsiderable amount of our retail business’s marketing budget is dedicated todirect marketing activities, such as communications with customers (*e.g.*, mailings and catalogues). Our direct marketingactivities benefit from our large database of customer information andinvestment in customer relationships marketing technologies and skills in theUnited States and in Australia. Another significant portion of the marketingbudget is allocated to broadcast and print media (*e.g.*,television, radio and magazines) designed to reach the broad markets in whichwe operate with image-building messages about our retail business.

 

**Trademarks,Trade Names, Patents and License Agreements**

 

***Trademarks, Trade Names and Patents***

 

Ourprincipal trademarks or trade names include *Luxottica, Ray-Ban,Oakley, Persol, Vogue, Arnette, Revo, LensCrafters, Sunglass Hut, ILORI, PearleVision, OPSM, Laubman & Pank, Budget Eyewear* and the Oakleyellipsoid*“O”*and square*“O”*logos.Our principal trademarks are registered worldwide. Other than *Luxottica, Ray-Ban, Oakley, LensCrafters, Sunglass Hut, Pearle Vision*,*OPSM*and the Oakley ellipsoid*“O”*and square*“O”*logos, wedo not believe that any single trademark or trade name is material to ourbusiness or results of operations. The collection of *Oakley*and *Ray -Ban* products accounted forapproximately 10.2 percent and 15.8 percent, respectively, of our net sales in2008. We believe that our trademarks have significant value for the marketingof our products and that having distinctive marks that are readily identifiableis important for creating and maintaining a market for our products;identifying our brands and distinguishing our products from those of ourcompetitors. Therefore, we utilize a combination of trademarked logos, names and other attributeson nearly all of our products.

 

LensCraftershas introduced several trademarked lenses that contain innovative technology,such as AVPÒ and AVPAdvanced View ProgressivesÒ (multi-focal lenses with awider view of vision), FeatherWatesÒ (lightweight, thin andimpact resistant lenses), DURALENSÒ (super scratch-resistantlenses), InvisiblesÒ (anti-reflective lenses),MVP Maximum View ProgressivesÒ (multi-focal lenses withoutvisible lines) and SUPERVIEWÒ (advanced A/R lenses).LensCrafters purchases these lenses under non-exclusive arrangements with third parties. Thenames of the lenses used by LensCrafters are typically trademarked, and thetrademarks are typically owned by us. OPSM has trademarked several lenses inrecent years that it uses in its advertising. They include ActiviseÒ for contact lenses, ActiveÒ for polycarbonate eyeglass lenses andInvisiblesÒ for multi-coated eyeglass lenses.

 

Weutilize patented and proprietary technologies and precision manufacturingprocesses in the production of our products. As of June 15, 2009, we helda portfolio of over 600 Oakley-related patents worldwide that protect ourdesigns and innovations.  Some of themost important of these patents relate to the following categories:  innovations in lens technology 

 

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andthe associated optical advances; electronically enabled eyewear; innovations inframe design and functionality; biased, articulating and dimensionally stableeyewear; and interchangeable lenses.

 

SeeItem 3 —“Key Information—Risk Factors—If we are unable to protect ourproprietary rights, our sales might suffer, and we may incur significant coststo defend such rights.”

 

***License Agreements***

*** ***

We have entered into license agreements to manufactureand distribute prescription frames and sunglasses with numerous designers.These license agreements have terms expiring through 2022. The table belowsummarizes the principal terms of our most significant license agreements.

 
| **Licensor**                              | ** ** | **Licensed Marks**                                                                                                                                                                                  | ** ** | **Territory**                              | ** ** | **Expiration**                                                   |
|-------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------------------|
| Burberry Limited                          |       | Burberry  Burberry Black Label**                                                                                                                                                                         |       | Worldwide exclusive  license               |       | December 31, 2015                                           |
| Bvlgari S.p.A                             |       | Bvlgari                                                                                                                                                                                                  |       | Worldwide exclusive  license               |       | December 31, 2010                                           |
| Chanel  Group                             |       | Chanel                                                                                                                                                                                                   |       | Worldwide exclusive  license               |       | March 31, 2011  (renewable until March 31, 2014)       |
| Club Monaco Corp.                         |       | Club Monaco                                                                                                                                                                                              |       | U.S. and Canada exclusive  license         |       | March 31, 2012  (renewable until March 31, 2017)       |
| Dolce &  Gabbana S.r.l           |       | Dolce & Gabbana  D&G                                                                                                                                                                        |       | Worldwide exclusive  license               |       | December 31, 2010  (renewable until December 31, 2015) |
| Donna Karan Studio LLC                    |       | Donna Karan  DKNY                                                                                                                                                                                        |       | Worldwide exclusive  license               |       | December 31, 2014  (renewable until December 31, 2019) |
| Gianni  Versace S.p.A                     |       | Gianni  Versace  Versace  Versace Sport  Versus                                                                                                                                                          |       | Worldwide exclusive  license               |       | December 31, 2012  (renewable until December 31, 2022) |
| Jones Investment Co. Inc                  |       | Anne Klein New York  Lion Head Design  AK Anne Klein                                                                                                                                                     |       | U.S. and rest of world  exclusive licenses |       | December 31, 2009                                           |
| Paul Smith Limited                        |       | Paul Smith  PS Paul Smith                                                                                                                                                                                |       | Worldwide exclusive license                |       | December 31, 2013                                           |
| Prada S.A                                 |       | Prada  Miu Miu                                                                                                                                                                                           |       | Worldwide exclusive  license               |       | December 31, 2013  (renewable until December 31, 2018) |
| PRL  USA Inc.  The Polo/Lauren Company LP |       | Polo by Ralph Lauren  Ralph Lauren  Ralph (Polo Player  Design) Lauren  RLX  RL  Ralph  Ralph/Ralph Lauren  Lauren by Ralph Lauren  Polo Jeans Company  The Representation of  the Polo Player  Chaps*** |       | Worldwide exclusive  license               |       | March 31, 2017                                              |
| Retail Brand  Alliance, Inc.*        |       | Brooks Brothers                                                                                                                                                                                          |       | Worldwide exclusive  license               |       | December 31, 2009                                           |
| Salvatore  Ferragamo Italia S.p.A         |       | Salvatore Ferragamo  Ferragamo                                                                                                                                                                           |       | Worldwide exclusive  license               |       | December 31, 2011  (renewable until December 31, 2013) |

 

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| Stella McCartney         |   | Stella McCartney                |   | Worldwide exclusive  license                                                                                                                                                                          |   | December 31, 2014  (renewable until December 31, 2019) |
|--------------------------|--------|---------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|
| Tiffany and Company |   | TIFFANY & CO.  Tiffany |   | U.S., Canada, Mexico, the  United Arab Emirates, Saudi Arabia, South Korea, Hong Kong, Japan, Australia,  the United Kingdom, China, Taiwan, France, Germany, Italy, South America  exclusive license |   | December 31, 2017                                           |
| Tory Burch LLC           |   | Tory Burch  TT                  |   | Worldwide exclusive  license                                                                                                                                                                          |   | December 31, 2014  (renewable until December 31, 2018) |

 

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*                    Retail BrandAlliance, Inc. is indirectly owned and controlled by one of our directors.

 

**             Japan only.

 

***      U.S.,Canada, Mexico and Japan only.

 

Underthese license agreements, we are required to pay a royalty which generallyranges from five percent to 14 percent of the net sales of the relevantcollection, which may be offset by any guaranteed minimum royalty payments. Thelicense agreements also provide for a mandatory marketing contribution thatgenerally amounts to between five and ten percent of net sales. Each licensoris responsible for the manner and form of advertising for its collection. Theselicense agreements typically have terms ranging from three to ten years, butmay be terminated early by either party for a variety of reasons, includingnon-payment of royalties, failure to meet minimum sales thresholds, productalteration and, under certain agreements, a change in control of LuxotticaGroup S.p.A.

 

Otherthan Dolce & Gabbana and D&G and Prada and Miu Miu (which accountedfor 5.1 percent and 5.5 percent of our 2008 net sales, respectively), no singledesigner line accounted for more than five percent of net sales for the yearended December 31, 2008. We believe that early termination of one or asmall number of the current license agreements would not have a materialadverse effect on our results of operations or financial condition. Upon anyearly termination of an existing license agreement, we expect that we wouldseek to enter into alternative arrangements with other designers to reduce anynegative impact of such a termination.

 

**RegulatoryMatters**

 

Ourproducts are subject to governmental health and safety regulations in most ofthe countries where they are sold, including the United States. We regularlyinspect our production techniques and standards to ensure compliance withapplicable requirements. Historically, compliance with such requirements hasnot had a material effect on our operations.

 

Inaddition, governments throughout the world impose import duties and tariffs onproducts being imported into their countries. Although in the past we have notexperienced situations in which the duties or tariffs imposed materiallyimpacted our operations, we can provide no assurances that this will be true inthe future.

 

Ourpast and present operations, including owned and leased real property, aresubject to extensive and changing environmental laws and regulations pertainingto the discharge of materials into the environment, the handling anddisposition of waste or otherwise relating to the protection of theenvironment. We believe that we are in substantial compliance with theapplicable environmental laws and regulations. However, we cannot predict withany certainty that we will not in the future incur liability under environmentalstatutes and regulations with respect to contamination of sites formerly orcurrently owned or operated by us (including contamination caused by priorowners and operators of such sites) and the off-site disposal of hazardoussubstances.

 

Ourretail operations are also subject to various legal requirements in the UnitedStates, Australia, Canada, New Zealand, Hong Kong, Singapore and Malaysia thatregulate the permitted relationships between licensed optometrists orophthalmologists, who primarily perform eye examinations and prescribecorrective lenses, and opticians, who fill such prescriptions and sell eyeglassframes.

 

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Throughour acquisition of Oakley, we produce and sell to the U.S. government,including the U.S. military, and to international governments, certain Oakleyand Eye Safety Systems protective eyewear products.  As a result, ouroperations are subject to various regulatory requirements, including thenecessity of obtaining government approvals for both new and continuingoperations, U.S.-imposed embargoes of sales to specific countries, foreignimport controls, expropriation of assets and various decrees, laws, taxes,regulations, interpretations and court decisions that are not always fullydeveloped and that may be retroactively or arbitrarily applied. Additionally, we could be subject to periodic audits by U.S. governmentpersonnel for contract and other regulatory compliance.

 

**OrganizationalStructure**

 

Weare a holding company, and the majority of our operations are conducted throughour wholly-owned subsidiaries. We operate in two industry segments: (i) manufacturingand wholesale distribution; and (ii) retail distribution. In the retailsegment, we primarily conduct our operations through LensCrafters, SunglassHut, Pearle Vision, Cole Licensed Brands and OPSM.  In the manufacturing and wholesaledistribution segment, we operate through 11 manufacturing plants and 43geographically-oriented wholesale distribution subsidiaries. See “—Distribution”for a breakdown of the geographic regions.

 

The significant subsidiaries controlled by LuxotticaGroup S.p.A., including holding companies, are:

 
| **Subsidiary**                            | ** ** | **Country of  Incorporation** | ** ** | **Percentage  of  Ownership** | ** ** |
|-------------------------------------------|------------|------------------------------------|------------|-------------------------------|------------|
| **Manufacturing**                         | ** ** | ** **                         | ** ** | ** **                    | ** ** |
| Luxottica S.r.l.                          |       | Italy                              |       | 100                           | %          |
| Luxottica Tristar (Dongguan) Optical Co.  |       | China                              |       | 100                           | %          |
| **Distribution**                          | ** ** | ** **                         | ** ** | ** **                    | ** ** |
| Avant-Garde Optics, LLC                   |       | United  States                     |       | 100                           | %          |
| Cole Vision Corporation                   |       | United  States                     |       | 100                           | %          |
| LensCrafters, Inc.                   |       | United  States                     |       | 100                           | %          |
| Sunglass Hut Trading, LLC                 |       | United  States                     |       | 100                           | %          |
| Pearle Vision, Inc.                  |       | United  States                     |       | 100                           | %          |
| OPSM Group Limited                        |       | Australia                          |       | 100                           | %          |
| Oakley Icon Limited                       |       | Ireland                            |       | 100                           | %          |
| **Holding companies**                     | ** ** | ** **                         | ** ** | ** **                    | ** ** |
| Luxottica U.S. Holdings Corp.             |       | United  States                     |       | 100                           | %          |
| Luxottica South Pacific Holdings Pty Ltd. |       | Australia                          |       | 100                           | %          |
| Cole National Corporation                 |       | United  States                     |       | 100                           | %          |
| Oakley, Inc.(1)                      |       | United  States                     |       | 100                           | %          |
| Arnette Optic Illusions, Inc.        |       | United  States                     |       | 100                           | %          |
| The United States Shoe Corporation        |       | United  States                     |       | 100                           | %          |
| Luxottica Trading and Finance Ltd.        |       | Ireland                            |       | 100                           | %          |

 

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(1)             In addition to being a holding company, Oakley, Inc.is also a manufacturer and a distributor.

 

**Property,Plant and Equipment**

** **

Our corporateheadquarters is located at Via C. Cantù 2, Milan 20123, Italy. Informationregarding the location, use and approximate size of our principal offices andfacilities as of April 30, 2009 is set forth below:

 

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| **Location**                                       | ** ** | **Use**                                                                            | ** ** | **Owned/Leased** | ** ** | **Approximate  Area in Square  Feet** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|------------------|------------|-------------------------------------------------|------------|
| Milan, Italy                                       |       | Corporate headquarters                                                             |       | Owned            |       | 70,  863                                        |       |   |
| Agordo, Italy(1)                                   |       | Administrative offices and  manufacturing facility                                 |       | Owned            |       | 926,200                                         |       |   |
| Mason (Ohio), United States                        |       | North American retail  division headquarters                                       |       | Owned            |       | 415,776                                         |       |   |
| Atlanta (Georgia), United States                   |       | North American retail  division distribution center                                |       | Owned            |       | 183,521                                         |       |   |
| Port Washington (NY), United States                |       | U.S. corporate and  wholesale headquarters and wholesale division                  |       | Owned            |       | 140,700                                         |       |   |
| Foothill Ranch/Lake Forest (CA), United States (2) |       | Oakley headquarters,  manufacturing, ophthalmic laboratory and distribution center |       | Owned            |       | 641,626                                         |       |   |
| Ontario (CA), United States                        |       | Oakley eyewear, apparel  and footwear distribution centers                         |       | Leased           |       | 408,000                                         |       |   |
| Dayton (NV), United States                         |       | Oakley manufacturing  facility                                                     |       | Owned            |       | 63,000                                          |       |   |
| Macquarie Park, Australia                          |       | Offices                                                                            |       | Leased           |       | 61,496                                          |       |   |
| Chipping Norton, Australia                         |       | Ophthalmic laboratory                                                              |       | Leased           |       | 60,172                                          |       |   |
| Revesby, Australia                                 |       | Distribution center                                                                |       | Leased           |       | 61,054                                          |       |   |
| Cincinnati (Ohio), United States                   |       | Ophthalmic laboratory,  warehouse, distribution center                             |       | Leased           |       | 132,000                                         |       |   |
| Dallas (Texas), United States                      |       | Ophthalmic laboratory,  distribution center, office                                |       | Leased           |       | 128,869                                         |       |   |
| Memphis (Tennessee), United States                 |       | Ophthalmic laboratory                                                              |       | Leased           |       | 59,350                                          |       |   |
| Columbus (Ohio), United  States                    |       | Ophthalmic laboratory, distribution center                                         |       | Leased           |       | 121,036                                         |       |   |
| Knoxville (Tennessee),  United States              |       | Ophthalmic laboratory                                                              |       | Leased           |       | 38,500                                          |       |   |
| London (Hammersmith), UK                           |       | Offices                                                                            |       | Leased           |       | 7,400                                           |       |   |
| Dongguan, China (1)(3)                             |       | Office, manufacturing  facility, land and dormitories                              |       | Leased           |       | 3,024,398                                       |       |   |
| Fukui, Japan                                       |       | Offices, distribution  center                                                      |       | Owned            |       | 45,364                                          |       |   |
| Shanghai, China                                    |       | Offices, fitting  laboratory                                                       |       | Leased           |       | 23,180                                          |       |   |
| Tokyo, Japan                                       |       | Japan corporate  headquarters                                                      |       | Leased           |       | 13,149                                          |       |   |
| Bhiwadi, India                                     |       | Manufacturing facility,  corporate offices                                         |       | Owned            |       | 343,474                                         |       |   |
| Rovereto, Italy                                    |       | Frame manufacturing  facility                                                      |       | Owned            |       | 228,902                                         |       |   |
| Sedico, Italy(1)                                   |       | Distribution center                                                                |       | Owned            |       | 392,312                                         |       |   |
| Cencenighe, Italy                                  |       | Semi-finished product  manufacturing facility                                      |       | Owned            |       | 59,892                                          |       |   |
| Lauriano, Italy                                    |       | Frame and crystal lenses  manufacturing facility                                   |       | Owned            |       | 292,078                                         |       |   |
| Pederobba, Italy(1)(4)                             |       | Frame manufacturing  facility                                                      |       | Owned            |       | 191,722                                         |       |   |
| Sedico, Italy(1)                                   |       | Frame manufacturing  facility                                                      |       | Owned            |       | 342,830                                         |       |   |
| Izmir, Turkey                                      |       | Turkish headquarters,  offices, warehouse and frame manufacturing facility         |       | Leased           |       | 92,750                                          |       |   |
| Dublin, Ireland                                    |       | Offices                                                                            |       | Leased           |       | 6,650                                           |       |   |
| Winnipeg, Canada                                   |       | Ophthalmic laboratory,  warehouse, distribution center                             |       | Leased           |       | 21,687                                          |       |   |

 

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(1)                                  Suchfacility is comprised of several different premises located within the samemunicipality.

 

(2)                                  Suchfacility is comprised of several different premises located in Foothill Ranchand Lake Forest, California, United States. The premises in Lake Forest(116,626 square feet) are leased.

 

(3)                                  Suchfacility consists of 571,076 square feet dedicated to offices and manufacturingand the rest consists of dormitories, related facilities and undeveloped land. Wehave leased this facility for 50 years.

 

(4)                                  25,963square feet of this facility are leased.

 

In 2008, our manufacturing facilities produced acombined total of approximately 50.1 million prescription frames andsunglasses. In 2007 and 2006, our manufacturing facilities produced a combinedtotal of approximately 41.8 million and 37.0 million prescription frames andsunglasses, respectively.

 

Substantially all of our retail stores areleased.  See “—Products andServices—Retail Operations” above for more information about our retaillocations and a breakdown of the geographic regions.

 

All of our leases expire between 2009 and 2025 andhave terms that we believe are generally reasonable and reflective of marketconditions.

 

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Webelieve that our current facilities (including our manufacturing capacity) areadequate to meet our present and reasonably foreseeable needs. There are noencumbrances on any of our principal owned properties.

 

**ITEM 4A. UNRESOLVED STAFF COMMENTS**

 

None.

 

**ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

 

**Overview**

 

We operate in two industrysegments: (i) manufacturing and wholesale distribution; and (ii) retaildistribution. Through our manufacturing and wholesale distribution segment, weare engaged in the design, manufacture, wholesale distribution and marketing ofhouse brand and designer lines of mid- to premium-priced prescription framesand sunglasses. We operate in our retail segment principally through the keybrands LensCrafters, Sunglass Hut, Pearle Vision, ILORI, The Optical Shop ofAspen, OPSM, Laubman & Pank, Budget Eyewear, Bright Eyes, Oakley“O” Stores and Vaults and DavidClulow, and our Licensed Brands (Sears Optical and Target Optical). As of December 31, 2008, the retailsegment consisted of 5,695 corporate-owned retail locations and 560 franchisedor licensed locations as follows:

 
| ** **                             | ** ** | **North  America** | ** ** | **Asia-  Pacific** | ** ** | **China /  Hong  Kong** | ** ** | **Europe** | ** ** | **Africa  and  Middle  East** | ** ** | **South  Africa** | ** ** | **Central  and South  America** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|--------------------|------------|--------------------|------------|-------------------------|------------|------------|------------|-------------------------------|------------|-------------------|------------|---------------------------------|------------|-----------|------------|
| LensCrafters                           |       | 966                |       |               |       | 170                     |       |       |       |                          |       |              |       |                            |       | 1,136     |       |
| Sunglass Hut and ILORI  (1)            |       | 1,708              |       | 208                |       | 6                       |       | 82         |       |                          |       | 68                |       |                            |       | 2,072     |       |
| Pearle Vision and  Licensed Brands (2) |       | 1,634              |       |               |       |                    |       |       |       |                          |       |              |       |                            |       | 1,634     |       |
| Oakley retail locations (3)            |       | 127                |       | 15                 |       |                    |       | 10         |       |                          |       | 2                 |       | 2                               |       | 156       |       |
| OPSM group (4)                         |       |               |       | 521                |       |                    |       |       |       |                          |       |              |       |                            |       | 521       |       |
| Other (5)                              |       |               |       | 49                 |       | 68                      |       | 59         |       |                          |       |              |       |                            |       | 176       |       |
| Franchised or licensed  locations(6)   |       | 391                |       | 114                |       |                    |       | 10         |       | 39                            |       |              |       | 6                               |       | 560       |       |
|                                   |       | 4,826              |       | 907                |       | 244                     |       | 161        |       | 39                            |       | 70                |       | 8                               |       | 6,255     |       |

 

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(1)             Includes Sunglass Icon locations.

 

(2)             Licensed brands include Sears Optical and TargetOptical.

 

(3)             Includes Oakley “O” Stores & Vaults, OliverPeoples and The Optical Shop of Aspen.

 

(4)             Includes Laubman & Pank and Budget Eyewear.

 

(5)             Includes David Clulow and Bright Eyes.

 

(6)             Includes franchised and licensed locations for PearleVision, Budget Eyewear, David Clulow, Sunglass Hut, Bright Eyes, “O” Stores &Vaults, Oliver Peoples and other Chinese brands.

 

(7)             Includes Asia-Pacific, Central & SouthAmerica and South Africa.

 

LensCrafters,ILORI, Pearle Vision, our Licensed Brands (Sears Optical and Target Optical) and Oakley (Oakley “O”Stores and Vaults, Sunglass Icon, The Optical Shop of Aspen and OliverPeoples), have retail distribution operations located throughout the UnitedStates, Canada and Puerto Rico, while OPSM, Laubman & Pank, BudgetEyewear and Bright Eyes operate retail outlets located in Australia and NewZealand. Sunglass Hut is a leading retailer of sunglasses worldwide based onsales.  In 2006, we began operatingretail locations in mainland China and currently we have rebranded 170locations to our premium LensCrafters brand in mainland China and Hong Kong. In 2008, we acquired David Clulow, a premium optical retaileroperating in the United Kingdom and Ireland. Our net sales consist of directsales of finished products manufactured with our own brand names or ourlicensed brands to opticians and other independent retailers through 

 

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ourwholesale distribution channel and sales directly to consumers through ourretail division retail channel. Our average retail unit selling price issignificantly higher than our average wholesale unit selling price, as ourretail sales typically include lenses as well as frames.

 

Demandfor our products, particularly our higher-end designer lines, is largelydependent on the discretionary spending power of the consumers in the marketsin which we operate. See Item 3—“Key Information—Risk Factors—If we do notcorrectly predict future economic conditions and changes in consumer preferences,our sales of premium products and profitability will suffer.” We have alsohistorically experienced sales volume fluctuations by quarter due toseasonality associated with the sale of sunglasses. As a result, our net salesare typically higher in the second quarter and lower in the first quarter.

 

Asa result of our numerous acquisitions and the subsequent expansion of ourbusiness activities in the United States through these acquisitions, ourresults of operations, which are reported in Euro, are susceptible to currencyrate fluctuations between the Euro and the U.S. dollar. The Euro/U.S. dollarexchange rate has fluctuated from an average exchange rate of Euro 1.00 =U.S.$1.2553 in 2006 to Euro 1.00 = U.S.$1.3705 in 2007 to Euro 1.00 =U.S.$1.4707 in 2008. Additionally, with the acquisition of OPSM and Bright Eyes(acquired through Oakley), our results of operations have been renderedsusceptible to currency fluctuations between the Euro and the Australiandollar. Although we engage in certain foreign currency hedging activities tomitigate the impact of these fluctuations, they have impacted our reportedrevenues and expenses during the periods discussed herein. See Item 11—“Quantitativeand Qualitative Disclosures About Market Risk—Foreign Exchange Sensitivity” andItem 3—“Key Information—Risk Factors—If the Euro continues to strengthenrelative to certain other currencies, our profitability as a consolidated groupwill suffer.”

 

**The Oakley Merger**

 

On November 14,2007, we completed the merger with Oakley, for a total purchase price ofapproximately U.S.$2.1 billion. In accordance with the terms of the mergeragreement, Oakley’s outstanding shares of common stock were converted into theright to receive U.S.$29.30 per share in cash and Oakley became an indirectwholly-owned subsidiary of Luxottica.  The merger was accounted for as a businesscombination for accounting purposes.  For additionalinformation, see Note 5 to our Consolidated Financial Statements includedin Item 18 of this annual report.

 

In connection with theacquisition, we increased our outstanding debt by approximately U.S.$2.2 billion.

 

Since theconsummation of the acquisition, we have begun to implement our strategicintegration plan with respect to Oakley. We immediately launched a full portfolio of project tasks, with specificobjectives, dedicated joint teams and designated accountabilities to addresskey integration and synergy areas, with direct significant involvement of ourtop management.

 

We expect that ourintegration with Oakley will result in synergies in the following areas:

 

·       international wholesaledevelopment;

 

·       developments related tospecific brands (especially *Revo* and *Arnette*);

 

·       sourcing retail operationssynergies in the key markets of North America and Asia-Pacific; and

 

·       general and administrativeexpenses.

 

Currently, all integration projectactivities are proceeding substantially according to the plan. In particular,specific integration tasks have been completed, including the integration ofthe retail operations in North America, the integration of the Oakley dedicatedsales force and marketing within the Luxottica commercial infrastructure inselected European countries and joint sourcing initiatives, while others are inthe implementation or detailed planning phase and are expected to be executedwithin the planned timeframe.

 

Weexpect that the transaction will result in operating synergies, driven byrevenue growth and efficiencies. We are currently on schedule to realize theinitial estimate of efficiencies. 

 

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The primaryfactors that may influence our ability to execute our integration plans andrealize the anticipated cost savings include:

 

·       difficulty in integratingthe newly-acquired business and operations in an efficient and effectivemanner;

 

·       inability to achievestrategic objectives, cost savings and other benefits from the acquisition;

 

·       the loss of key employeesof the acquired business;

 

·       the diversion of theattention of senior management from our operations;

 

·       liabilities that were notknown at the time of acquisition or the need to address tax or accountingissues;

 

·  difficulty integrating Oakley’s humanresources systems, operating systems, inventory management system andassortment planning systems with our systems; and

 

·       the cultural differencesbetween our organization and Oakley’s organization.

 

**CriticalAccounting Policies**

 

Thepreparation of financial statements in conformity with U.S. GAAP requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesas of the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Our estimates are based on historicalexperience and currently available information. Our significant accountingpolicies are discussed in Note 1 to our Consolidated Financial Statementsincluded in Item 18 of this annual report. The following is a discussionof what management believes are our most critical accounting policies:

 

***Revenue Recognition***

 

Revenues include sales of merchandise (both wholesaleand retail), insurance and administrative fees associated with the Company’s managedvision care business, eye exams and related professional services and sales ofmerchandise to franchisees, along with other revenues from franchisees such asroyalties based on sales and initial franchise fee revenues.

 

Revenue is recognized when itis realized or realizable and earned. Revenue is considered to be realized orrealizable and earned when there is persuasive evidence of an arrangement,delivery has occurred, the sales price is fixed or determinable andcollectability is reasonably assured.

 

In some countries, the wholesale and retail divisionsoffer the customer the right to return products for a limited period of timeafter the sale. However, such right of return does not impact the timing ofrevenue recognition as all conditions of SFAS No. 48, “Revenue RecognitionWhen Right of Return Exists,” are satisfied at the date of sale. We haveestimated and accrued for the amounts to be returned in the subsequent period.This estimate is based on our right of return policies and practices along withhistorical data, sales trends and the timing of returns from the originaltransaction date when applicable. Changes to these policies and practices or achange in the trend of returns could lead to actual returns being differentfrom the amounts estimated and accrued.

 

# Also included in retail division revenues are managed vision carerevenues consisting of (i) insurance revenues which are recognized whenearned over the terms of the respective contractual relationships and (ii) administrativeservices revenues which are recognized when services are provided during thecontract period. Accruals are established for amounts due under theserelationships determined to be uncollectible. Our insurance contracts requireus to estimate the potential costs and exposures over the life of the agreementsuch that the amount charged to the customers will cover these costs. Tomitigate the exposure risk, these contracts are usually short-term in nature.However, if we do not accurately estimate the future exposure and risksassociated with these contracts, we may suffer losses as we would not be ableto cover our costs incurred with revenues from the customer.

#  

***Income Taxes***

 

Incometaxes are recorded in accordance with SFAS No. 109, *Accountingfor Income Taxes*, which requires recognition of deferred tax assetsand liabilities for the expected future tax consequences of events that havebeen included in our consolidated financial statements or tax returns. Underthis method, deferred tax liabilities and assets are determined based on 

 

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thedifference between the consolidated financial statement and tax basis of assetsand liabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse. A valuation allowance is recorded fordeferred tax assets if it is determined that it is more likely than not thatthe asset will not be realized. These estimated tax rates and the deferred taxassets, including valuation allowances placed upon those deferred tax assets,and liabilities recorded are based on information available at the time ofcalculation. This information is subject to change due to subsequent tax auditsperformed by different taxing jurisdictions and changes in corporate structurenot contemplated at the time of calculation, as well as various other factors.

 

As of January 1, 2007, weadopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48,*Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109* (“FIN 48”). FIN 48provides that a tax benefit from an uncertain tax position may be recognizedwhen it is more likely than not that the position will be sustained uponexamination, including resolutions of any related appeals or litigationprocesses, based on the technical merits. In addition, it provides additionalrequirements regarding measurement, de-recognition, disclosure, interest andpenalties and classification. FIN 48 must be applied to all existing taxpositions for all open tax periods as of the date of adoption (see Note 8 toour Consolidated Financial Statements included in Item 18 of this annual reportfor a tabular reconciliation of uncertain tax positions). The cumulative effectof adoption of FIN 48 of Euro 8.1 million was recorded as a reduction toretained earnings on the date of adoption.

 

***Inventories***

 

Ourmanufactured inventories were approximately 83.7 percent and 66.2 percentof total frame inventory for 2008 and 2007, respectively. All inventories at December 31,2008 were valued using the lower of cost, as determined under aweighted-average method, or market. Inventories are recorded net of allowancesfor possible losses. These reserves are calculated using various factorsincluding sales volume, historical shrink results, changes in market conditionsand current trends. In addition, production schedules are made on similarfactors which, if not estimated correctly, could lead to the production ofpotentially obsolete inventory. As such, actual results could differsignificantly from the estimated amounts.

 

***Goodwill and Other Intangible Assets and Impairment of Long-LivedAssets***

 

Inconnection with various acquisitions, we have recorded as intangible assetscertain goodwill, trade names and certain other identifiable intangibles. At December 31,2008, the aggregate carrying value of intangibles, including goodwill, wasapproximately Euro 3.9 billion or approximately 53.8 percent of total assets.

 

Asacquisitions are an important element of our growth strategy, valuations of theassets acquired and liabilities assumed on the acquisition dates could have asignificant impact on our future results of operations.  Fair values of those assets and liabilitieson the date of the acquisition could be based on estimates of future cash flowsand operating conditions for which the actual results may varysignificantly.  This may lead to, amongother items, impairment charges and payment of liabilities different thanamounts originally recorded, which could have a material impact on futureoperations. In addition, in December 2007, the FASB issued SFAS No. 141(R),*Business Combinations Revised* (“SFAS No. 141(R)”),which revised the earlier SFAS 141. The significant changes include a changefrom the “cost allocation process” to determine the value of assets andliabilities to a full fair value measurement approach. In addition, acquisition-relatedexpenses will be expensed as incurred and not included in the purchase priceallocation, and contingent liabilities will be separated into two categories,contractual and non-contractual, and accounted for based on which category thecontingency falls into. This statement applies prospectively and is effectivefor business combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning after December 15,2008. Since we participate in business combinations, we believe this statement,once adopted, could have a significant effect on future results of operations.

 

SFASNo. 142, *Goodwill and Other Intangible Assets*(“SFAS No. 142”), sets forth requirements relating to accounting forongoing intangibles. Under SFAS No. 142, goodwill and intangible assetsdeemed to have an indefinite life are no longer amortized in the same manner asunder the previous standards, but rather are tested for impairment annuallyand, under certain circumstances, between annual periods. An impairment chargewill be recorded if the fair value of goodwill and other intangible assets isless than the carrying value. The calculation of fair value may be based on,among other items, estimated future cash flows if quoted market prices inactive markets are not available. We test our goodwill for impairment annuallyas of December 31 of each year and any other time a condition arises thatmay cause us to believe that an impairment has occurred. Since impairment testsuse estimates of the impact of future events, actual results may differ and wemay be required to record an impairment in future years.

 

Intangiblessubject to amortization based on a finite useful life continue to be amortizedon a straight-line basis over their useful lives. Our long-lived assets, otherthan goodwill, are tested for impairment whenever events or changes incircumstances indicate that the net carrying amount may not be recoverable.When such events occur, we measure 

 

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impairmentby comparing the carrying value of the long-lived asset to the estimatedundiscounted future cash flows expected to result from the use of the assetsand their eventual disposition. If the sum of the expected undiscounted futurecash flows were less than the carrying amount of the assets, we would recognizean impairment loss, if determined to be necessary. Actual results may differfrom our current estimates.

 

**RecentAccounting Pronouncements**

 

InApril 2009, the FASB issued FSP No. 141R-1, *Accountingfor Assets Acquired and Liabilities Assumed in a Business Combination ThatArise from Contingencies* (“FSP No. 141R-1”). FSP No. 141R-1amends and clarifies SFAS No. 141(R), to address application issues raisedby preparers, auditors and members of the legal profession on initialrecognition and measurement, subsequent measurement and accounting, anddisclosure of assets and liabilities arising from contingencies in a businesscombination. FSP No. 141R-1 is effective for assets or liabilities arisingfrom contingencies in business combinations for which the acquisition date ison or after the first annual reporting period beginning on or after December 15,2008. The impact of this standard on the consolidated financial statements isnot expected to be material, but this standard may have an effect on accountingfor future business combinations.

 

InDecember 2008, the FASB issued FSP 132(R)-1, *Employers’Disclosures about Postretirement Benefit Plan Assets*, which requiresenhanced disclosures on plan assets including fair value measurements andcategories of assets, investment policies and strategies and disclosures onconcentration of risks.  The enhanceddisclosures about plan assets required by this FSP shall be provided for fiscalyears ending after December 15, 2009. The enhanced disclosures are notrequired for earlier periods that are presented for comparative purposes. Theadoption is not expected to have a material effect on the financial statements.

 

InNovember 2008, the Emerging Issues Task Force (“EITF”) reached a consensuson Issue No. 08-7, *Accounting for DefensiveIntangible Assets* (“EITF No. 08-7”).  This consensus requires that the defensiveasset be recorded at its fair value on the opening balance sheet and amortizedover a reasonable life that approximates its diminishing value.  It also states that an indefinite useful lifefor these defensive assets would be rare. The consensus is effective forintangible assets acquired on or after the first annual reporting periodbeginning after December 15, 2008, which coincides with the adoption ofSFAS No. 141(R).  We expect EITF No. 08-7will have an impact on our consolidated financial statements when effective,which will depend on the nature, terms and size of the acquisitions consummatedafter the effective date.

 

InMay 2008, the FASB issued Statement No. 162, *TheHierarchy of Generally Accepted Accounting Principles*, whichidentifies the sources of accounting principles and the framework for selectingthe principles used in the preparation of financial statements that arepresented in conformity with generally accepted accounting principles (“GAAP”)in the United States.  The statementbecame effective November 15, 2008 and allowed for transition provisionsif necessary.  The adoption did not havea material effect on the financial statements.

 

OnApril 25, 2008, the FASB issued FSP FAS 142-3, *Determinationof the Useful Life of Intangible Assets* (“FSP FAS 142-3”). FSP FAS142-3 amends the factors that should be considered in developing renewal orextension assumptions used to determine the useful life of a recognizedintangible asset under SFAS No. 142. The objective of FSP FAS 142-3 is toimprove the consistency between the useful life of a recognized intangibleasset under SFAS No.142 and the period of expected cash flows to measure thefair value of an asset under SFAS No. 141(R), and U.S. GAAP. FSP FAS 142-3is effective on January 1, 2009 and early adoption is prohibited. The Companyis currently evaluating the impact of adopting FSP FAS No.142-3 on the Company’sconsolidated financial condition, operating results and cash flows.

 

InMarch 2008, the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133,* which amends the disclosure requirements toprovide more “enhanced” disclosures about (i) how and why derivatives areused by the Company, (ii) how these derivatives are accounted for underSFAS No. 133 and its interpretations, and (iii) how much and wherethe effects of these instruments are located on the balance sheets, profit andloss statements and cash flow statements. These disclosures will be made mostly through tabular formats and bettercross-referencing of information included in different sections of thefinancial report. The statement is effective for the fiscal years and interimperiods beginning on or after November 15, 2008.  Earlier adoption is encouraged.  Additionally, the Statement “encourages” butdoes not require comparative disclosures for earlier periods at initialadoption.  We are assessing thedisclosure impact of this standard on our future consolidated financialposition and results of operations.

 

InDecember 2007, the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51*,establishing new accounting and reporting standards for noncontrollinginterests (formerly 

 

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known as “minority interests”) in a subsidiary and, when applicable,how to account for the deconsolidation of such subsidiary. The key differencesinclude that noncontrolling interests will be recorded as a component ofequity, the consolidated income statements and statements of comprehensiveincome will be adjusted to include the noncontrolling interest and certaindisclosures have been updated.  Thestatement is effective for the fiscal years and interim periods within thoseyears beginning on or after December 15, 2008.  Earlier adoption is prohibited.  We have minority interests in certainsubsidiaries and are currently evaluating the effect of adoption.

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations Revised*(“SFAS141(R)”), which revises the current SFAS 141. The significant changes include achange from the “cost allocation process” to determine the value of assets andliabilities to a full fair value measurement approach. In addition, acquisitionrelated expenses will be expensed as incurred and not included in the purchaseprice allocation and contingent liabilities will be separated into twocategories, contractual and non-contractual, and accounted for based on whichcategory the contingency falls into. This statement applies prospectively andis effective for business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning after December 15,2008. Since we participate in business combinations, we believe thisstatement, once adopted, could have a significant effect on future results of operations.

 

In September 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans* (“SFAS No. 158”)*,*which requires the Company to recognize an asset orliability for the funded status (difference between fair value of plan assetsand benefit obligation, which for defined benefit pension plans is deemed to bethe projected benefit obligation) of its retirement plans and recognize changesin the funded status annually through other comprehensive income. Additionally,SFAS No. 158 changes the date as of which the funded status can be measured(eliminating the 90-day window) with limited exceptions. The effective date ofthe recognition of the funded status is for years ending after December 15,2006 (refer to Note 10 to our Consolidated Financial Statements included inItem 18 of this annual report for the effect on adoption). The effective datefor the change in acceptable measurement date is for fiscal years ending after December 15,2008. We have changed our measurement date on the consolidated financialstatements as required.

 

**Resultsof Operations**

 

Thefollowing table sets forth, for the periods indicated, the percentage of netsales represented by certain items included in our statements of consolidatedincome:

 
| ** **                                                 | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006(1)** | ** ** |
| Net Sales                                                  |       | 100.0%                                     |       | 100.0% |   | 100.0% |   |
| Cost of Sales                                              |       | 33.5                                       |       | 31.7 |   | 31.8 |   |
| Gross Profit                                               |       | 66.5                                       |       | 68.3 |   | 68.2 |   |
| Operating Expenses:                                        |       |                                       |       |   |   |   |   |
| Selling and Advertising                                    |       | 41.6                                       |       | 41.7 |   | 41.7 |   |
| General and Administrative                                 |       | 10.5                                       |       | 9.8 |   | 10.4 |   |
| Total                                                      |       | 52.0                                       |       | 51.5 |   | 52.0 |   |
| Income from Operations                                     |       | 14.4                                       |       | 16.8 |   | 16.2 |   |
| Other Income (Expense)—Net                            |       | (3.1)                                      |       | (1.1) |   | (1.7) |   |
| Provision for Income Taxes                                 |       | (3.7)                                      |       | (5.5) |   | (5.1) |   |
| Minority Interests in Income of Consolidated  Subsidiaries |       | (0.3)                                      |       | (0.3) |   | (0.2) |   |
| Net Income from Continuing Operations                      |       | 7.3                                        |       | 9.9 |   | 9.2 |   |
| Discontinued Operations                                    |       | 0.0                                        |       | 0.0 |   | (0.1) |   |
| Net Income                                                 |       | 7.3                                        |       | 9.9 |   | 9.1 |   |

 

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(1)            Resultsof Things Remembered, our former specialty gift business, which was sold in September 2006,are reclassified as discontinued operations and are not included in resultsfrom continuing operations for 2006.

 

Foradditional financial information by operating segment and geographic region,see Note 13 to our Consolidated Financial Statements included inItem 18 of this annual report.

 

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**Comparison of the fiscal year ended December 31,2008 to the fiscal year ended December 31, 2007**

 

***NetSales***. Net sales increased by Euro 235.5 million, or 4.7percent, to Euro 5,201.6 million during 2008 from Euro 4,966.1 million in 2007.Euro 638.4 million of such increase is attributable to the inclusion of netsales generated by Oakley for a full year in 2008 as compared to 2007, whenOakley net sales were only included from and after the acquisition date on November 14,2007. This positive effect was partially offset by (i) negative currencyfluctuation effects, in particular due to a weaker U.S. dollar compared to theEuro, which reduced net sales by Euro 294.2 million, primarily in the retaildistribution segment, (ii) a soft performance of the retail distributionsegment (excluding Oakley retail-related sales), which caused a reduction innet sales of Euro 95.9 million, and (iii) a soft performance of themanufacturing and wholesale distribution segment (excluding Oakleywholesale-related sales), which caused a reduction in net sales of Euro 12.7million.  The table below sets forth theeffect on our net sales of (i) the Oakley acquisition as if Oakley hadbeen acquired on January 1, 2007, and (ii) the U.S. Dollar-Euroexchange rate fluctuations:

 
| ** **                                                           | ** ** | **2008**    | ** ** | **2007**   | ** **  | **Difference** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|------------|-------------|----------------|------------|
| ** **                                                           | ** ** | ** **  | ** ** | ** ** | ** **  | ** **     | ** ** | ** ** | ** ** |
| **Net Sales - Total Group**                                          |       |        |       |       |        |           |       |   |   |
| *Amounts in thousands of Euro*                                       |       |        |       |       |        |           |       |   |   |
| Net Sales - as  reported                                             |       | 5,201.6     |       |       | 4,966.1     |           |       | 4.7 | % |
| Oakley’s Sales -  January 1 through November 13, 2007 |       |        |       |       | 572.9       |           |       |   |   |
| Exchange rate effect                                                 |       | 294.2       |       |       |        |           |       |   |   |
| **Pro Forma Net Sales at constant exchange rates**                   | ** ** | **5,495.8** | ** ** | ** ** | **5,539.0** | ** **     | ** ** | **(0.8** | **)%** |
|                                                                      |            |             |            |            |             |                |            |  |  |  |

 

Thefinancial information included in the preceding table and the following threetables is for informational purposes only and is not intended to represent thesales or operating margin that we would have reported had the Oakleyacquisition been completed as of January 1, 2007, and should not be takenas representative of our future sales or operating margin. The financialinformation included in these tables should be read in conjunction with theinformation contained in the consolidated financial statements and relatednotes included in this annual report.

 

Net sales for the retaildistribution segment decreased by Euro 153.2 million, or 4.7 percent, to Euro3,109.1 million in 2008 from Euro 3,262.3 million in 2007. The decrease in netsales for the period is primarily attributable to the strengthening of theEuro, mainly against the U.S. dollar, which negatively impacted net sales forthe period by Euro 228.3 million and to a 6.8 percent decrease in comparablestore sales of the North American retail operations, which reflects the changein sales from one period to another that, for comparison purposes, includes inthe calculation only stores open in the more recent period that also were openduring the comparable period in the same geographic area, and applies to bothperiods the average exchange rate for the prior period. This decrease in netsales was partially offset by a Euro 170.9 million, growth in net salesattributable to the inclusion of Oakley’s retail business. The table below setsforth the effect on our net sales of (i) the Oakley acquisition as ifOakley had been acquired on January 1, 2007, and (ii) the U.S.Dollar-Euro exchange rate fluctuations:

 
| ** **                                                           | ** ** | **2008**    | ** ** | **2007**   | ** **  | **Difference** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|------------|-------------|----------------|------------|
|                                                                 |       |        |       |       |        |           |       |   |   |
| **Net Sales - Retail**                                               |       |        |       |       |        |           |       |   |   |
| *Amounts in thousands of Euro*                                       |       |        |       |       |        |           |       |   |   |
| Net Sales - as  reported                                             |       | 3,109.1     |       |       | 3,262.3     |           |       | (4.7 | )% |
| Oakley’s Sales -  January 1 through November 13, 2007 |       |        |       |       | 145.6       |           |       |   |   |
| Exchange rate effect                                                 |       | 228.3       |       |       |        |           |       |   |   |
| **Pro Forma Net Sales at constant exchange rates**                   | ** ** | **3,337.4** | ** ** | ** ** | **3,407.9** | ** **     | ** ** | **(2.1** | **)%** |
|                                                                      |            |             |            |            |             |                |            |  |  |  |

 

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Net sales to thirdparties in the manufacturing and wholesale distribution segment increased byEuro 388.7 million, or 22.8 percent, to Euro 2,092.5 million in 2008 from Euro1,703.8 million in 2007. This increase was due to the inclusion of Euro 467.4million of net sales generated by Oakley’s manufacturing and wholesale businessfor 2008, as well as increased sales of our house brands, such as *Ray-Ban*. These volume increases occurred primarily in theEuropean and North American markets, which together accounted for approximately73.4 percent and 78.1 percent of the net sales to third parties in ourmanufacturing and wholesale distribution segment in 2008 and 2007,respectively. This increase was partially offset by the decrease in the netsales of the designer brands in the manufacturing and wholesale distributionsegment and by negative currency fluctuations, in particular a weaker U.S.dollar compared to the Euro, which caused a reduction in net sales to thirdparties in the manufacturing and wholesale distribution segment of Euro 65.9million. The table below sets forth the effect on our net sales of (i) theOakley acquisition as if Oakley had been acquired on January 1, 2007, and (ii) theU.S. Dollar-Euro exchange rate fluctuations:

 
| ** **                                                           | ** ** | **2008**    | ** ** | **2007**   | ** **  | **Difference** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|------------|-------------|----------------|------------|
|                                                                 |       |        |       |       |        |           |       |   |
| **Net Sales - Wholesale to third parties**                           |       |        |       |       |        |           |       |   |
| *Amounts in thousands of Euro*                                       |       |        |       |       |        |           |       |   |
| Net Sales - as  reported                                             |       | 2,092.5     |       |       | 1,703.8     |           |       | 22.8 | % |   |
| Oakley’s Sales -  January 1 through November 13, 2007 |       |        |       |       | 427.3       |           |       |   |   |   |
| Exchange rate effect                                                 |       | 65.9        |       |       |        |           |       |   |   |   |
| **Pro Forma Net Sales at constant exchange rates**                   | ** ** | **2,158.4** | ** ** | ** ** | **2,131.1** | ** **     | ** ** | **1.3** | **%** | ** ** |

 

During 2008, net sales inthe retail distribution segment accounted for approximately 59.8 percent oftotal net sales, as compared to approximately 65.7 percent of total net salesin 2007. This decrease in net sales in the retail distribution segment as apercentage of total net sales is primarily attributable to (i) asignificant increase in net sales to third parties in our manufacturing andwholesale distribution segment, which, as noted above, grew by 22.8 percent in2008 compared to 2007, as a result of the acquisition of Oakley, which isprimarily a wholesale business and (ii) negative currency exchange rateeffects, which more heavily impacted net sales for the retail distributionsegment, because of the heavy concentration of our retail business in NorthAmerica, Australia and China, where the Euro is not the functional currency.

 

On a geographicbasis, combined retail and manufacturing and wholesale operations in the UnitedStates and Canada comprised Euro 3,086.5 million, or 59.3 percent, of total netsales in 2008, which increased as compared to net sales in the United Statesand Canada of Euro 3,053.6 million, or 61.5 percent of total net sales in 2007.Net sales for operations in “Asia-Pacific” increased from Euro 584.2 million,or 11.8 percent of total net sales, in 2007 to Euro 648.7 million, or 12.5percent of total net sales, in 2008. This was primarily due to the inclusion of the net sales generated byOakley. Net sales for the rest of the world comprised 28.2 percent of total netsales and accounted for Euro 1,466.5 million of net sales during 2008, whichrepresented an increase in net sales of Euro 138.2 million, or 10.4 percent, ascompared to 2007. The increase in net sales for the rest of the world was dueto the inclusion of the net sales generated by Oakley.

 

During 2008, net sales tothird parties in our manufacturing and wholesale distribution segment in Europewere Euro 1,077.2 million, comprising 51.5 percent of our total net sales inthis segment as compared to Euro 1,021.1 million during 2007, or 59.9 percentof total net sales. The increase of Euro 56.1 million, or 5.5 percent, in 2008compared to 2007 was primarily due to the inclusion of the new Oakley business.The increase was partially offset by the strengthening of the Euro compared tothe U.S. dollar. In Euro, because of the inclusion of the dollar-denominatedOakley business, net sales to third parties in the United States and Canadaincreased by 57.7 percent to Euro 487.5 million in 2008 from Euro 309.1 millionin 

 

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2007. Net sales to third parties in the United Statesand Canada were U.S. $716.9 million and comprised 23.3 percent of our totalmanufacturing and wholesale distribution segment net sales in 2008, as comparedto U.S. $427.2 million, or 18.1 percent, of total segment net sales in 2007.The increase of U.S. $289.7 million, or 67.8 percent, in 2008 as compared to2007 in our manufacturing and wholesale distribution segment net sales in theUnited States and Canada was primarily driven by the inclusion of the Oakleybusiness and the strong performance of certain of our house brands, such as *Ray-Ban* and *Vogue*. During2008, net sales to third parties in our manufacturing and wholesaledistribution segment in the rest of the world were Euro 527.8 million,comprising 25.2 percent of our total net sales in this segment, as compared toEuro 373.5 million during 2007, or 21.9 percent of our net sales. The increaseof Euro 154.3 million, or 41.3 percent, in 2008 as compared to 2007 in manufacturingand wholesale distribution net sales in the rest of the world was primarilydriven by the inclusion of the Oakley business.

 

During 2008, net sales inour retail distribution segment in the United States and Canada comprised 83.6percent of our total retail net sales as compared to 84.1 percent of our totalretail distribution segment net sales for 2007. In Euro, because of theinclusion of the dollar-denominated Oakley retail business, retail distributionsegment net sales in the United States and Canada decreased by 5.3 percent,from Euro 2,744.4 million in 2007 to Euro 2,599.0 million in 2008, due to thestrengthening of the Euro compared to the U.S. dollar. However, in U.S.dollars, retail net sales in the United States and Canada increased by 1.6percent from U.S. $3,763.7 million in 2007 to U.S. $3,822.3 million in 2008 dueto the inclusion of the Oakley business. During 2008, net sales in the retailsegment in the rest of the world (excluding the United States and Canada)comprised 16.4 percent of our total retail distribution segment net sales anddecreased by Euro 7.8 million, or 1.5 percent, from Euro 517.9 million in 2007to Euro 510.1 million in 2008.

 

***Costof Sales.*** Cost of sales increased by Euro 169.3 million,or 10.7 percent, to Euro 1,744.9 million in 2008 from Euro 1,575.6 million in2007, primarily attributable to our overall sales growth. As a percentage of net sales, cost ofsales increased to 33.5 percent in 2008, as compared to 31.7 percent in 2007,mainly due to the significant impact of currency fluctuations on our net sales,a significant portion of which is generated in U.S. dollars, as compared to thecost of sales, a significant portion of which is generated in Euros. In 2008, theaverage number of frames produced daily in our facilities increased toapproximately 212,400, as compared to 175,800 in 2007, which was attributableto the addition of approximately 41,300 frames produced daily in Oakley’smanufacturing facilities, which were not included for most of 2007, offset, bya slight decrease in production volumes at the Italian and Chinesemanufacturing facilities.

 

***GrossProfit.*** Our grossprofit increased by Euro 66.3 million, or 2.0 percent, to Euro 3,456.7 million in 2008 from Euro 3,390.4 million in 2007. As a percentage of net sales, gross profit decreased to 66.5 percent in2008 from 68.3 percent in 2007, due to the factors noted above for cost ofsales.

 

***OperatingExpenses.*****Totaloperating expenses increased by Euro 149.8 million, or 5.9 percent, to Euro2,706.9 million in 2008 from Euro 2,557.1 million in 2007.******As apercentage of net sales, operating expenses increased to 52.0 percent in 2008from 51.5 percent in 2007.

 

Selling and advertisingexpenses (including royalty expenses) increased by Euro 92.1 million, or 4.5percent, to Euro 2,161.4 million in 2008 from Euro 2,069.3 million in 2007,primarily due to increases in sales force compensation costs of Euro 53.9million due to the inclusion of Oakley for a full year in 2008. As a percentageof net sales, selling and advertising expenses decreased to 41.6 percent in2008 compared to 41.7 percent in 2007.

 

General andadministrative expenses, including intangible asset amortization, increased byEuro 57.8 million, or 11.8 percent, to Euro 545.6 million in 2008 from Euro487.8 million in 2007, primarily due tothe one-time gain of Euro 20.0 million before taxes incurred from the sale ofreal estate in Milan, Italy in May 2007, which was recorded as a reductionof general and administrative expenses in 2007, and to an increase in generaland administrative expenses in the manufacturing and wholesale distributionsegment, as well as the amortization of the acquired Oakleytrademark intangibles of Euro 26.5 million in 2008 as compared to Euro 4.1million in 2007. These increases were partially offset by savings related tothe completion of the amortization of certain trade names of approximately Euro6.3 million and by other savings in general and administrative expenses in 2008as compared to 2007, including cost reduction initiatives put in place asof the first quarter of 2008 in the retail distribution segment. As apercentage of net sales, general and administrative expenses increased to 10.5percent in 2008 as compared to 9.8 percent in 2007.

 

***Incomefrom Operations.*****For thereasons described above, income fromoperations in 2008 decreased by Euro 83.5 million, or 10.0 percent, to Euro749.8 million from Euro 833.3 million in 2007. As a percentage of net sales, income from operations decreasedto 14.4 percent in 2008 from 16.8 percent in 2007. The table below sets forth theeffect on our operating margin of (i) the Oakley acquisition as if Oakleyhad been acquired on January 1, 2007 and (ii) the extraordinary gainresulting from the sale of real estate in Italy in May 2007 describedabove:

 

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| ** **                                             | ** ** | **Net Sales** | ** ** | **Income  from  Operations** | ** ** | **% of  Sales** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|------------------------------|------------|-----------------|------------|
|                                                   |       |          |       |                         |       |            |       |   |   |   |
| **Total Group**                                        |       |          |       |                         |       |            |       |   |   |   |
| *Amounts in thousands of Euro*                         |       |          |       |                         |       |            |       |   |   |   |
| 2007 as reported                                       |       | 4,966.1       |       |                         | 833.3      |            |       | 16.8 | % |   |
| Oakley - January 1 through November 13, 2007 |       | 572.9         |       |                         | 44.8       |            |       |   |   |   |
| Less extraordinary gain                                |       |          |       |                         | (20.0      | )               |       |   |   |   |
| **2007 adjusted**                                      | ** ** | **5,539.0**   | ** ** | ** **                   | **858.1**  | ** **      | ** ** | **15.5** | **%** | ** ** |
| **2008**                                               | ** ** | **5,201.6**   | ** ** | ** **                   | **749.8**  | ** **      | ** ** | **14.4** | **%** | ** ** |
| **Difference in operating margin**                     | ** ** | ** **    | ** ** | ** **                   | ** ** | ** **      | ** ** | **(1.1** | **)%** | ** ** |

 

***OtherIncome (Expense) — Net.*** Other income (expense) - net was Euro(159.9) million in 2008 as compared to Euro (52.6) million in 2007. Netinterest expense was Euro 122.0 million in 2008 as compared to Euro 72.4million in 2007, attributable to the increase in outstanding indebtednessborrowed in connection with the acquisition of Oakley, which was outstandingfor the full year 2008. Other — net was an expense of Euro 37.9 million in 2008as compared to income of Euro 19.8 million in 2007. The decrease in other — netwas due to a one-time loss of approximately Euro 22.8 million related to thesale in 2008 of a note we received in 2006 as part of the sale of the ThingsRemembered business.

 

***NetIncome***. Income before taxes decreased by Euro 190.8million, or 24.4 percent, to Euro 589.9 million in 2008 from Euro 780.7 millionin 2007. As a percentage of net sales, income before taxes decreased to 11.3percent in 2008 from 15.7 percent in 2007. Minority interests increased to Euro15.5 million in 2008 from Euro 15.0 million in 2007. Our effective tax rate was33.0 percent in 2008, as compared to 35.0 percent in 2007.

 

Net income decreased byEuro 112.5 million, or 22.9 percent, to Euro 379.7 million in 2008 from Euro492.2 million in 2007 for the reasons described above. Net income as a percentage of net sales decreased to 7.3 percentin 2008 from 9.9 percent in 2007. Excluding the non-recurring gain and lossthat occurred in 2007 and 2008, respectively, net income as a percentage of netsales would have been 7.6 percent (instead of 7.3 percent) in 2008 and netincome would have decreased by 9.6 percent (instead of 9.9 percent) in 2007.

 

Basic earnings per sharewere Euro 0.83 in 2008 as compared to Euro 1.08 in 2007. Diluted earnings pershare were Euro 0.83 in 2008 as compared to Euro 1.07 in 2007. Excluding thenon-recurring gain and loss that occurred in 2007 and 2008, respectively, basicearnings per share would have been Euro 0.87 in 2008 and Euro 1.05 in 2007 anddiluted earnings per share would have been Euro 0.86 in 2008 and Euro 1.05 in2007.

 

**Comparison of the fiscal year ended December 31, 2007 to thefiscal year ended December 31, 2006**

 

***Net Sales****.*  Net sales increased by Euro 289.9 million, or 6.2 percent, toEuro 4,966.1 million during 2007 from Euro 4,676.2 million in 2006. Of suchincrease, Euro 87.0 million isattributable to the inclusion of net sales of Oakley for the period from November 14,2007, which was the date of the closing of the Oakley acquisition (“acquisitiondate”), until the end of the year. The remaining increase in net salesprimarily resulted from the strong performance of the manufacturing andwholesale segment, which was partially offset by Euro 36.7 million in negative currencyfluctuations between the Euro, which is our reporting currency, and othercurrencies in which we conduct our business, particularly the U.S. dollar.

 

Net sales inthe retail segment decreased by Euro 31.9 million, or 1.0 percent, to Euro3,262.3 million in 2007 from Euro 3,294.2 million in 2006. The decrease in netsales for the period is primarily attributable to the strengthening of theEuro, mainly versus the U.S. dollar, which decreased net sales for the periodby Euro 250.1 million. The net decrease in sales 

 

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created by the foreigncurrency fluctuations offset the growth in net sales in 2007 mainly due to thefollowing: (i) a Euro 28.5 million increase attributable to the inclusionof Oakley’s net sales related to its retail operations for the period from theacquisition date; (ii) a 0.2 percent increase in same-store sales; (iii) theaddition of Euro 15.4 million in sales from the approximately 70 new Canadianretail stores which were acquired in June 2006, and therefore owned foronly a portion of 2006; (iv) the addition of Euro 44.5 million in salesfrom approximately 90 new U.S. retail stores which were acquired in February 2007;and (v) a Euro 62.9 million increase in net sales from the “Asia-Pacific”retail business, of which Euro 15.8 million in net sales was due to the newlyacquired stores in China and the remaining amount was mainly attributable tosales growth in Asia-Pacific.

 

Netsales to third parties in the manufacturing and wholesale segment increased byEuro 321.8 million, or 23.3 percent, to Euro 1,703.8 million in 2007 from Euro1,382.0 million in 2006. Of such increase, Euro 58.5 million is attributable tothe inclusion of Oakley net sales for the period from the acquisition date, andthe remaining increase was mainly attributable to increased sales of our *Ray-Ban* brand as well as the continued success of sales ofbranded products of our designer lines, such as *Prada*,*Dolce & Gabbana*, *Versace* and *Bvlgari*, and thelaunch of new products from our license agreements with *Burberry*and *Ralph Lauren*. These increases occurredprimarily in the European and North American markets, which, together,accounted for approximately 78.1 percent and 78.5 percent of our net sales tothird parties in our manufacturing and wholesale segment in 2007 and 2006,respectively. This increase was partially offset by the strengthening of theEuro, mainly versus the U.S. dollar, which decreased net sales by Euro 46.5million.

 

During 2007, net sales inthe retail segment accounted for approximately 65.7 percent of total net sales,as compared to approximately 70.4 percent of net sales in 2006. This decreasein retail net sales as a percentage of total net sales is primarilyattributable to a significant increase in net sales to third parties in ourmanufacturing and wholesale segment, which grew by 23.3 percent in 2007, and tonegative currency effects, which primarily affected net sales in the retailsegment, which are primarily concentrated in North America, Australia andChina, where the Euro is not the functional currency.

 

On a geographic basis,which includes Oakley from the date of acquisition, combined retail andmanufacturing and wholesale operations in the United States and Canada comprised61.5 percent, or Euro 3,053.6 million, of total net sales in 2007, whichdecreased as compared to net sales in the United States and Canada of Euro3,076.4 million in 2006, mainly due to the negative impact of the strengtheningof the Euro compared to the U.S. dollar. Net sales for operations inAsia-Pacific comprised 11.8 percent of total net sales and totaled Euro 584.2million in net sales during 2007, as compared to Euro 498.4 million in 2006,which represented a 17.2 percent increase in net sales, mainly due to the newlyacquired stores in China. Net sales for the rest of the world comprised 26.7percent of total net sales and accounted for Euro 1,328.3 million of net salesduring 2007, which represented an increase in net sales of Euro 226.9 millionor 20.6 percent as compared to 2006. The increase in net sales for the rest ofthe world was primarily attributable to strong performance in almost all majorEuropean markets.

 

During 2007, net sales tothird parties in our manufacturing and wholesale segment in Europe comprised59.9 percent of our total net sales in this segment and experienced an increaseof 20.2 percent from Euro 849.8 million in 2006 to Euro 1,021.1 million in2007. Net sales to third parties in our manufacturing and wholesale segment inthe United States and Canada comprised 18.1 percent of our total net sales inthis segment in 2007 and experienced an increase in its local currency of 44.6percent from U.S.$295.5 million in 2006 to U.S.$427.2 million in 2007. In Euro,net sales in the United States and Canada increased by 31.3 percent because thelocal currency increase was offset by the strengthening of the Euro compared tothe U.S. dollar. Net sales to third parties in our manufacturing and wholesalesegment in the rest of the world comprised 21.9 percent of our total net salesin this segment and experienced an increase of 25.9 percent from Euro 296.8million in 2006 to Euro 373.5 million in 2007.

 

During 2007, net sales inthe retail segment in the United States and Canada comprised 84.1 percent ofour total net sales in this segment. In Euro, net sales in the United Statesand Canada decreased by 3.4 percent because the local currency increase wasoffset by the strengthening of the Euro compared to the U.S. dollar. In U.S.dollars, retail net sales in the United States and Canada experienced anincrease of 5.5 percent from U.S.$3,566.4 million in 2006 to U.S.$3,763.7million in 2007. Net sales in the retail segment in the rest of the worldcomprised 15.9 percent of our total net sales in this segment and experiencedan increase of 14.3 percent from Euro 453.2 million in 2006 to Euro 517.9million in 2007.

 

***Costof Sales.*** Cost of sales increased by Euro 87.9 million,or 5.9 percent, to Euro 1,575.6 million in 2007, from Euro 1,487.7 million in2006, primarily attributable to our overall sales growth and the inclusion of Oakley’s cost of sales for the period fromthe acquisition date of Euro 37.6 million. As a percentage of net sales, cost of sales decreased to 31.7percent in 2007, as compared to 31.8 percent in 2006. In 2007, excluding the frames manufactured at our acquired Oakleyfacilities, the average number of frames produced daily in our facilitiesincreased to approximately 175,800, as compared to 154,900 in 2006, which wasattributable to increased production in both the Italian and Chinesemanufacturing facilities.

 

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***GrossProfit.*** Our gross profit increased by Euro 202.0 million,or 6.3 percent, to Euro 3,390.4 million in 2007 fromEuro 3,188.5 million in 2006, of which Euro49.3 million is attributable to the inclusion of Oakley’s gross profit for theperiod from the acquisition date. Asa percentage of net sales, gross profit increased to 68.3 percent in2007 from 68.2 percent in 2006.

 

***OperatingExpenses.*****Totaloperating expenses increased by Euro 124.7 million, or 5.1 percent, to Euro2,557.1 million in 2007 from Euro 2,432.5 million in 2006, of which Euro 45.6 million is attributable to theinclusion of Oakley’s operating expenses for the period from the acquisitiondate.******As a percentage of netsales, operating expenses decreased to 51.5 percent in 2007 from 52.0 percentin 2006 primarily due to the maintenance of strong cost controls in ourmanufacturing and wholesale segment.

 

Selling and advertisingexpenses (including royalty expenses) increased by Euro 120.8 million, or 6.2percent, to Euro 2,069.3 million in 2007 from Euro 1,948.5 million in 2006,primarily due to increases in sales, for which we were required to payadditional commissions to sales associates and royalty expenses to designers ofour licensed brands of Euro 65.7 million and Euro 25.1 million, respectively. Euro 28.7 million of the increase isattributable to the inclusion of Oakley’s selling and advertisingexpenses (including royalty expenses)for the period from the acquisition date. As a percentage of net sales,selling and advertising expenses remained flat at 41.7 percent both in 2007 andin 2006.

 

General andadministrative expenses, including intangible asset amortization, increased byEuro 3.8 million, or 0.8 percent, to Euro 487.8 million in 2007 from Euro 484.0million in 2006, primarily due to an increase of Euro 16.9 million attributable to the inclusion of Oakley generaland administrative expenses, including intangible asset amortization, for the period from the acquisition date andwas partially offset by a one time gain of Euro 20.0 million due to a realestate sale in Milan, Italy in May. As a percentage of net sales,general and administrative expenses decreasedto 9.8 percent in 2007 from 10.4 percent in 2006.

 

***Incomefrom Operations.*****For thereasons described above, income fromoperations in 2007 increased by Euro 77.3 million, or 10.2 percent, to Euro833.3 million from Euro 756.0 million in 2006, of which Euro 3.7 million is attributable to theinclusion of Oakley’s income of operations for the period from the acquisition date. As a percentage of netsales, income from operations increased to 16.8 percent in 2007 from 16.2percent in 2006. Income from operations without the one-time gain from the realestate sale described in the previous paragraph would have been equal to Euro813.3 million, or 16.4 percent of net sales, with an increase of Euro 57.3 million, or7.6 percent, as compared to 2006.

 

***OtherIncome (Expense) — Net.*** Other income (expense) - net was Euro(52.6) million in 2007 as compared to Euro (77.8) million in 2006, of whichEuro (10.9) million is attributable tothe inclusion of Oakley’s other income (expense) - net for the period from the acquisition date.This decrease in net expense is mainly attributable to a net realized andunrealized foreign exchange transaction and remeasurement gain in 2007 ascompared to a loss in 2006. Net interest expense was Euro 72.4 million in 2007as compared to Euro 60.8 million in 2006, attributable to an increase inoutstanding indebtedness.

 

***NetIncome from Continuing Operations***. Income before taxesincreased by Euro 102.5 million, or 15.1 percent, to Euro 780.7 million in 2007from Euro 678.2 million in 2006, despite the inclusion of Oakley’s income before taxes for the periodfrom the acquisition date of Euro (7.2) million. We expect Oakley infuture periods to have a positive impact on net income from continuingoperations. As a percentage ofnet sales, income before taxes increased to 15.7 percent in 2007 from 14.5percent in 2006. Minority interests increased to Euro 15.0 million in 2007 fromEuro 8.7 million in 2006. Our effective tax rate was 35.0 percent in 2007, ascompared to 35.2 percent in 2006.

 

Net income fromcontinuing operations increased by Euro 61.5 million, or 14.3 percent, to Euro492.2 million in 2007 from Euro 430.7 million in 2006, despite the inclusion ofOakley’s net income for the period fromthe acquisition date of Euro (4.7) million. Net income from continuingoperations as a percentage of net sales increased to 9.9 percent in 2007 from9.2 percent in 2006.

 

Basic earnings per sharefrom continuing operations were Euro 1.08 in 2007 as compared to Euro 0.95 in2006. Diluted earnings per share from continuing operations were Euro 1.07 in2007 as compared to Euro 0.94 in 2006.

 

***DiscontinuedOperations***. Discontinued operations resulted in a loss in2006 mainly due to the seasonal nature of the operations of the discontinuedThings Remembered business, in which substantially all operational profits wererealized during the second and fourth quarters. The operations were sold beforethe fourth quarter of 2006.

 

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***NetIncome.*** Net income increased by Euro 67.9 million, or16.0 percent, to Euro 492.2 million in 2007 from Euro 424.3 million in 2006. Net income as a percentage of netsales increased to 9.9 percent in 2007 from 9.1 percent in 2006.

 

Basic earnings per share were Euro 1.08 in 2007as compared to Euro 0.94 in 2006. Diluted earnings per share were Euro 1.07 in2007 as compared to Euro 0.93 in 2006.

 

**Taxes**

** **

Our effective tax rates forthe fiscal years ended December 31, 2008, 2007 and 2006 were approximately33.0 percent, 35.0 percent and 35.2 percent, respectively. For fiscal year2008, the tax rates also include a reduction of almost 6.0 percent in theItalian statutory tax rates. For fiscal year 2007, we received a taxbenefit of 5.3 percent related to the business reorganization of certainItalian companies resulting in the release of deferred tax liabilities, whichwas partially offset by an increase of 2.1 percent in our 2007 tax liabilitydue to the change in the Italian statutory tax rates. For fiscal year 2006, the tax rate includedthe results from the adoption of a change in the tax law in Australia, whichintroduced a tax consolidation regime for wholly-owned group entities. The taxconsolidation rules effectively pushed down the cost of acquiring anentity (or group of entities) to the assets that the entity (or group) owns.This resulted in the resetting of the cost basis of the assets for tax purposesand, for OPSM, in the related increases in fixed assets and intangibles as ofthe date of tax consolidation in December 2006, when OPSM filed itsconsolidated 2005 tax return, providing a one-time permanent benefit to the taxprovision.

 

**Liquidity and Capital Resources**

 

***CashFlows***

*** ***

*Operating Activities**.*  The Company’s netcash provided by operating activities was Euro 578.9 million, Euro 330.8million and Euro 599.0 million for 2008, 2007 and 2006, respectively. The Euro268.2 million decrease in 2007 as compared to 2006 was primarily attributableto advance payments of U.S.$199 million made in January 2007 by theCompany to certain designers for future contracted minimum royalties. TheCompany did not make such advance payments to designers for future contractedminimum royalties in 2008, which accounted for the Euro 248.1 million increasein net cash in 2008 as compared to 2007.

 

Depreciationand amortization were Euro 264.9 million in 2008 as compared to Euro 232.8million in 2007 and Euro 220.8 million in 2006. The increase in 2008 comparedto 2007 was primarily attributable to amortizationof the acquired Oakley trademarks of Euro 26.5 million in 2008as compared to Euro 4.1 million in 2007. The increase in depreciationexpense in 2007 as compared to 2006 was primarily attributable to increasedfixed assets due to the acquisition of new stores that occurred in 2007, newinvestments (mainly leasehold improvements) in the wholesale segment and theacquisition of Oakley during 2007, which accounted for a Euro 7.7 million ofthe increase.

 

Deferred taxeswere Euro 4.9 million in 2008 as compared to Euro (45.0) million in 2007 andEuro (72.5) million in 2006. The change in 2008 as compared to 2007 wasprimarily attributable to the business reorganization of certain Italiancompanies within the Group which resulted in the release of deferred taxliabilities partially offset by the increase in the 2007 tax charge due to achange in the Italian statutory tax rates which resulted in the reduction ofdeferred tax assets. The change in 2007 as compared to 2006 was primarily dueto a benefit recorded in 2006 related to the revaluation of certain tangibleand intangible assets in the retail division in Australia. Non-cash stock-basedcompensation expense was Euro 10.4 million in 2008 as compared to Euro 42.1million in 2007 and Euro 48.0 million in 2006. The decrease in 2008 as comparedto 2007 in non-cash expense was primarily attributable to the change in thevesting period for the 2006 performance plans (expense associated with theseplans was Euro 3.0 million in 2008 and Euro 34.1 million in 2007). The decreasein 2007 as compared to 2006 in non-cash stock-based compensation was primarilyattributable to the adoption of SFAS No. 123(R) for stockcompensation expense with respect to two performance stock option grants in2006. The change in accounts receivable of Euro 27.9 million in 2008 comparedto Euro (55.7) million in 2007 and Euro (83.1) million in 2006 was mainly dueto the improvement of the Company’s days-of-sales-outstanding resulting from aninitiative in this area that started in late 2007 and continued the positiveimprovement throughout 2008. The inventory change was Euro 1.4 million in 2008as compared to Euro (41.9) million in 2007 and Euro (27.7) million in 2006. Thechange in 2008 as compared to 2007 was mainly due to the Company’s focus on theplanning of the production process to align production with the sales trendwhich led to a reduction in inventory on hand. The change in 2007 as comparedto 2006 was primarily attributable to the growing inventory level experiencedin 2006 to support the business. The change in accounts payable was Euro (19.4)million in 2008 as compared to Euro 33.0 million in 2007 and Euro 71.7 millionin 2006. The change in 2008 compared to 2007 was mainly attributable toimproved payment terms with vendors that were negotiated in 2006 as well as anoverall decrease in purchases in 2008 as

 

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compared to2007. The change in 2007 as compared to 2006 was primarily attributable toimproved timing of payments. The change in accrued expenses was Euro (110.4)million in 2008 as compared to Euro (9.4) million in 2007 and Euro (25.2)million in 2006. The reasons for the change in 2008 as compared to 2007 include(i) the payments in 2008 of certain advisors’ fees associated with theOakley acquisition accrued in 2007, which accounted for 15 percent of the 2008change, and (ii) the completion of the restructuring of Oakley’s Europeanbusiness, which accounted for 29 percent of the 2008 change.****The change in 2007 as compared to 2006 was mainly driven bythe discontinuation in 2006 of the extended retail warranties sold separatelyby the retail division in North America. The change in income tax payable ofEuro 2.9 million in 2008, Euro (92.1) million in 2007 and Euro 5.9 million in2006 was primarily attributable to the timing of the bulk of our tax paymentsin 2007.

 

*Investing Activities.* The Company’s net cash usedin investing activities was Euro 322.6 million, Euro 1,788.0 million and Euro259.4 million in 2008, 2007 and 2006, respectively. The decrease of Euro1,465.4 million in 2008 as compared to 2007 mainly related to the numerousbusiness acquisitions that occurred in 2007. In 2008, the Company’sacquisitions of businesses used cash in the amount of Euro 13.3 million. In 2007,the Company’s acquisitions of businesses used cash in the amount of Euro1,491.1 million. These acquisitions included the Oakley business for a totalpurchase price of U.S.$2.1 billion, D.O.C Optics and its affiliates, an opticalretail business with approximately 100 stores located primarily in the MidwestUnited States, for approximately Euro 83.7 million (U.S.$110.2 million) incash, two prominent specialty sun chains in South Africa with a total of 65stores for approximately Euro 10 million, and some minor acquisitions in theretail segment in Australia and New Zealand. In 2006, the Company’sacquisitions of businesses used cash in the amount of Euro 134.1 million andincluded Shoppers Optical, a Canadian-based optical chain, for approximatelyEuro 48.7 million, Beijing Xueliang Optical Technology Co. Ltd. forapproximately Euro 17.0 million and the remaining 49 percent of theTurkish-based distributor Luxottica GuzlukEndustri Ve Ticaret Anonim forapproximately Euro 14.0 million. Cash used for acquisitions in 2006 waspartially offset by the sale in 2006 of Things Remembered, a specialty giftsretail business previously included in the North American retail division, fornet proceeds of Euro 128.0 million.

 

Our capital expenditures, excluding acquisitions,which were Euro 296.4 million in 2008 as compared to Euro 334.8 million in 2007and Euro 272.2 million in 2006, primarily relate in each year to investment inmanufacturing facilities for the manufacturing and wholesale segment and theopening, remodeling and relocation of stores in the retail division. Capitalexpenditures were Euro 44.6 million in the three-month period ended March 31,2009. It is our expectation that 2009 net capital expenditures will beapproximately Euro 200 million, not including investments for any currentlyunanticipated acquisitions. The Company will pay for these future capitalexpenditures with its currently available borrowing capacity and availablecash.

 

Net cash provided by disposals of property,plant and equipment was insignificant in 2008 as compared to Euro 29.7 million in2007 and Euro 21.6 million in 2006.  In2007, the cash provided by the disposal of fixed assets was primarilyattributable to the sale of a building located in Milan. In 2006, the cashprovided by the disposal of fixed assets was primarily attributable to the salesof an obsolete aircraft for a net price of Euro 15.6 million, unusedmanufacturing facilities in the wholesale division in Italy and a building inthe United Kingdom. No such non-recurring sales occurred in 2008. Acquisitionsof other intangible assets resulted in a use of cash of Euro 4.6 million in2008 as compared to Euro 3.9 million in 2007 and Euro 1.1 million in 2006.

 

*Financing Activities.*  The Company’s netcash provided by/(used in) financing activities was Euro (256.2) million, Euro1,427.2 million and  Euro (349.9) millionin 2008, 2007 and 2006, respectively. Cash used in financing activities in 2008mainly related to the repayment of maturing outstanding debt, including a portionof the bridge loan entered into in connection with the acquisition of Oakley in2007 and aggregate dividend payments to stockholders of Euro 223.6 million.Cash provided by financing activities in 2007 mainly related to the long-termloan of Euro 2.1 billion used to finance the Oakley acquisition, partiallyoffset by the aggregate dividend payments to stockholders of Euro 191.1 millionand the repayment of Euro 675.8 million of maturing debt which expired in 2007.Cash used in financing activities in 2006 consistedprimarily of the repayment of long-term maturing debt of Euro 233.4 million andthe payment of dividends to stockholders of Euro 131.4 million.

 

***Our Indebtedness***

 

We manage our financing requirements bymaintaining an adequate level of liquidity and committed and uncommittedfinancing facilities.  To this end, wetake a series of actions to ensure compliance with these financingrequirements.  In particular:

 

·         Ourtreasury department monitors our cash flow forecast in conjunction with ourliquidity and financing credit lines;

 

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·         Weutilize debt instruments and other credit lines in order to obtain funding forour operations;

 

·         Wemaintain adequate access to liquidity in our bank accounts; and

 

·         Wemonitor our liquidity risk in order to avoid unacceptable concentrations ofsuch risk.

 

Our debt agreements contain certain covenants, including covenants thatrestrict our ability to incur additional indebtedness. We do not currentlyexpect to require any additional financing that would require us to obtainconsents or waivers of any existing restrictions on additional indebtedness setforth in our debt agreements.

 

Our credit facilities contain certain financial covenants includingratios of Net Financial Position (“NFP”) (as defined in the agreements) tostockholders’ equity, NFP to EBITDA (earnings before interest, taxes anddepreciation as defined in the agreements) and EBITDA to net financial charges(as defined in the agreements).  As of March 31,2009, we were in compliance with these financial covenants and we expect tocontinue to be in compliance in the foreseeable future periods. We believe thatafter giving effect to any additional financing that we may incur, suchrestrictions would not materially affect our compliance with these covenants,our ability to incur the additional debt or our future business operations.

 

We have relied primarily upon internally generated funds, trade creditand bank borrowings to finance our operations and expansion.  So far, we have not seen a worsening of ourcredit conditions or any limitation on the availability of our credit facilitiesas a consequence of the global financial crisis.  We continue to monitor how the credit crisisevolves in order to have appropriate action plans in case of need.

 

*Bank Overdrafts*

 

Bank overdrafts representnegative cash balances held in banks and amounts borrowed under variousunsecured short-term lines of credit obtained by the Company and certain of itssubsidiaries through local financial institutions. These facilities are usuallyshort-term in nature or contain evergreen clauses with a cancellation noticeperiod. Certain of these subsidiaries’ agreements require a guaranty fromLuxottica Group S.p.A. Interest rates on these lines vary based on the countryof borrowing, among other factors. The Company uses these short-term lines ofcredit to satisfy its short-term cash needs.

 

Group total indebtednesswas Euro 2,949.5 million as of December 31, 2008. Available additionalborrowings under credit facilities as of such date were Euro 277.6 million.

 

*TheU.S.$300 Million Senior Unsecured Guaranteed Notes and the DB Swaps*

 

OnSeptember 3, 2003, Luxottica U.S. Holdings Corp. (“U.S. Holdings”) closeda private placement of U.S.$300 million of senior unsecured guaranteed notes,issued in three series (Series A, Series B and Series C). The Series Aand Series B Notes matured on September 3, 2008.  Interest on the Series C Notes accruesat 4.45 percent per annum. The Series C Notes mature on September 3,2010. The Series A and Series C Notes required annual prepaymentsbeginning on September 3, 2006 through the applicable dates of maturity.The Notes are guaranteed on a senior unsecured basis by us and LuxotticaS.r.l., our wholly-owned subsidiary. The Notes can be prepaid at U.S. Holdings’soption under certain circumstances. The proceeds from the Notes were used forthe repayment of outstanding debt and for other working capital needs. TheNotes contain certain financial and operating covenants.

 

*The Euro 200 Million CreditFacility with Banca Intesa and Related Interest Rate Swaps*

 

In September 2003, we entered into acredit facility with Banca Intesa S.p.A. of Euro 200 million. The creditfacility included a Euro 150 million term loan, which required repayment ofequal semi-annual installments of principal of Euro 30 million starting September 30,2006 until September 30, 2008. Interest accrued on the term loan atEuribor (as defined in the agreement) plus 0.55 percent. The revolving loanprovided borrowing availability of up to Euro 50 million. Interest accrued onthe revolving loan at Euribor (as defined in the agreement) plus 0.55 percent.On September 30, 2008, the final maturity of the credit facility, thecredit facility was repaid in full and cancelled.

 

In June 2005, we entered into fourinterest rate swap transactions with various banks with an aggregate initialnotional amount of Euro 120 million, which began to decrease by Euro 30 millionevery six months starting on March 30, 2007. These swaps expired on September 30,2008. The swaps were entered into as a cash flow hedge on a portion of theBanca Intesa Euro 200 million unsecured credit facility discussed above.

 

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*The Amended Euro 1,130 Million and U.S.$325Million Credit Facility and Related Interest Rate Swaps*

 

On June 3, 2004, we and our subsidiary U.S. Holdings entered intoa credit facility with a group of banks providing for loans in the aggregateprincipal amount of Euro 1,130 million and U.S.$325 million. The facilityconsists of three tranches (Tranche A, Tranche B and Tranche C). On March 10,2006, this agreement was amended to increase the available Tranche C borrowingsto Euro 725 million, decrease the interest margin and define a new maturitydate of five years from the date of the amendment for Tranche B and Tranche C.In February 2008, we exercised an option included in the amendment to theterm and revolving facility to extend the maturity date of Tranches B and C to March 2013.Tranche A is a Euro 405 million amortizing term loan requiring repayment ofnine equal quarterly installments of principal of Euro 45 million beginning in June 2007,which is to be used for general corporate purposes, including the refinancingof our existing debt as it matures. Tranche B is a term loan of U.S.$325million which was drawn upon on October 1, 2004 by U.S. Holdings tofinance the purchase price for the acquisition of Cole National. Amountsborrowed under Tranche B will mature in March 2013. Tranche C is arevolving credit facility of Euro 725 million-equivalent multi-currency(Euro/U.S. dollar). Amounts borrowed under Tranche C may be repaid andreborrowed with all outstanding balances maturing in March 2013. As of December 31,2008, U.S.$700 million (Euro 502.9 million) had been drawn from Tranche C byU.S. Holdings and Euro 175 million by Luxottica Group S.p.A. We can selectinterest periods of one, two, three or six months with interest accruing onEuro-denominated loans based on the corresponding Euribor rate and accruing onU.S. dollar-denominated loans based on the corresponding LIBOR rate, both plusa margin between 0.20 percent and 0.40 percent based on the “Net Debt/EBITDA”ratio, as defined in the agreement. The interest rate on December 31, 2008was 4.166 percent for Tranche A, 4.874 percent for Tranche B, 1.189 percent forTranche C amounts borrowed in U.S. dollars and 3.397 percent for Tranche Camounts borrowed in Euros. As of December 31, 2008, Euro 1,001.4 millionwas borrowed under this credit facility. For additional information, see Note 9 to our ConsolidatedFinancial Statements included in Item 18 of this annual report.

 

In June 2005, weentered into nine interest rate swap transactions with an aggregate initialnotional amount of Euro 405 million with various banks, which began to decreaseby Euro 45 million every three months starting on June 3, 2007 (“Club DealSwaps”). These swaps expire on June 3, 2009. The Club Deal Swaps wereentered into as a cash flow hedge on Tranche A of the credit facility discussedabove. The Club Deal Swaps exchange the floating rate of Euribor for an averagefixed rate of 2.565 percent per annum.

 

During the fourth quarterof 2007, we entered into thirteen interest rate swap transactions with anaggregate initial notional amount of U.S.$325 million with various banks (“TrancheB Swaps”). These swaps will expire on March 10, 2012. The Tranche B Swapswere entered into as a cash flow hedge on Tranche B of the credit facilitydiscussed above. The Tranche B Swaps exchange the floating rate of LIBOR for anaverage fixed rate of 4.62 percent per annum.

 

Certain of the interest rate swaps mentioned above have Lehman BrothersInternational (Europe), or LBIE, as the counterparty.  The aggregate initial notional amount ofthese LBIE swaps is U.S. $125.0 million. Since September 15, 2008, LBIE has been under administration, andwe received notice of the appointment of administrators to LBIE. In October 2008,we started a bidding procedure (a “Novation Agreement”) tosubstitute LBIE with another bank.  At the end of the biddingprocedure, on December 18, 2008, LBIE sold all the subject interest rateswap transactions to Calyon S.A. . Calyon S.A. is the new counterparty of suchswaps. The Novation Agreement preserves all previous conditions and terms,which permitted the Company to continue the hedging relationship between theswaps and the underlying facility.

 

*TheEuro 100 Million Unsecured Credit Facility*

 

In June 2007, the Company entered into an unsecured creditfacility with Banca Popolare di Verona e Novara Soc. Coop. a R.L (LLC), theproceeds of which were used to repay another unsecured credit facility enteredinto with this bank in 2005. The 18-month credit facility consisted of arevolving loan that provided borrowing availability of up to Euro 100 million.The final maturity of the credit facility was December 3, 2008, and thecredit facility was repaid in full.

 

*TheU.S.$1,500 Million Credit Facility, U.S.$500 Million Bridge Loan and RelatedInterest Rate Swaps*

 

To finance the acquisition of Oakley, on October 12, 2007, we andour subsidiary U.S. Holdings entered into two credit facilities with a group ofbanks providing for certain term loans and a short-term bridge loan for anaggregate principal amount of U.S.$2.0 billion. The term loan facility is aterm loan of U.S.$1.5 billion, with a five-year term, with options to extendthe maturity on two occasions for one year each time.  The term loan facility is divided into twofacilities, Facility D and Facility E. Facility D consists of an amortizingterm loan in an aggregate amount of U.S.$1.0 billion, made available to U.S.Holdings, and Facility E consists of a bullet term loan in an aggregate amountof U.S.$500 million, made available to the Group. Each facility has a five-yearterm, with options to extend the maturity on two occasions for one year eachtime. Weexercised the option to extend the maturity of the credit facility by one yearto October 12, 2013.

 

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The term loan has a spread of between 20 and 40 basispoints over LIBOR, depending on the Group’s ratio of debt to EBITDA, except forthe period between the date of the first utilization date and the calculationof the covenants for the first six months of 2008, for which the spread wasfixed at 40 basis points. Interest accrues on the term loan at LIBOR (asdefined in the agreement) plus 0.35 percent (1.545 percent for Facility D and2.346 percent for Facility E on December 31, 2008). The final maturity ofthe credit facility is October 12, 2013.

 

During the fourth quarter of 2007, we entered into teninterest rate swap transactions with an aggregate initial notional amount ofU.S.$500 million with various banks (“Tranche E Swaps”). These swaps willexpire on October 12, 2012. The Tranche E Swaps were entered into as acash flow hedge on Facility E of the credit facility discussed above. TheTranche E Swaps exchange the floating rate of LIBOR for an average fixed rateof 4.26 percentper annum.

 

During the fourth quarter of 2008 and January 2009,we entered into 14 interest rate swap transactions with an aggregate initialnotional amount of U.S. $700.0 million with various banks which will start todecrease by U.S.$ 50.0 million every three months beginning on April 12,2011 (“Tranche D Swaps”). These swaps will expire on October 12, 2012. TheTranche D Swaps were entered into as a cash flow hedge on Facility D of thecredit facility discussed above. The Tranche D Swaps exchange the floating rateof LIBOR for an average fixed rate of 2.423 percent per annum.

 

The short term bridge loan facility is for anaggregate principal amount of U.S.$500 million. Interest accrued on the shortterm bridge loan at LIBOR (as defined in the agreement) plus 0.15 percent. Thefinal maturity of the credit facility was eight months from the firstutilization date. On April 29, 2008, we and our subsidiary U.S. Holdingsentered into an amendment and transfer agreement to this facility. The terms ofsuch amendment and transfer agreement, among other things, reduced the totalfacility amount from U.S. $500 million to U.S. $150 million, effective July 1,2008, and provided for a final maturity date that is eighteen (18) months fromthe effective date of the agreement. From July 1, 2008, interest accruesat LIBOR (as defined in the agreement) plus 0.60 percent (4.6525 percent as of December 31,2008).  As of December 31, 2008,U.S. $150.0 million was borrowed under this facility.

 

*The Euro 150 Million Credit Facility*

 

In April 2008, we entered into a new Euro 150.0million unsecured credit facility with Banca Nazionale del Lavoro, which werenegotiated in June 2009. Under the original terms, this facility was an18-month revolving credit facility that provided borrowing availability of upto Euro 150.0 million.  The amountsborrowed under the revolving facility could be borrowed and repaid until finalmaturity.  Interest accrued at EURIBORplus 0.375 percent (3.604 percent as of December 31, 2008). We couldselect interest periods of one, three or six months.  The final maturity of the credit facility wasOctober 8, 2009.  As of December 31,2008, Euro 150.0 million was borrowed under this facility. In June 2009, we renegotiatedthis facility. The new facility consists of a 2 year unsecuredcredit facility that is a revolving loan that provides borrowing availabilityof up to Euro 150.0 million. Amounts borrowed under the revolving loan can beborrowed and repaid until final maturity. We can select interest periods ofone, three or six months.

 

*The Euro 250 Million Revolving CreditFacility*

 

On May 29, 2008, we enteredinto a Euro 250 million revolving credit facility agreement, guaranteed by oursubsidiary, U.S. Holdings, with Intesa Sanpaolo S.p.A. as agent and IntesaSanpaolo S.p.A., Banca Popolare di Vicenza S.c.p.A. and Banca AntonvenetaS.p.A. as lenders. The final maturity ofthe credit facility is May 29, 2013. The credit facility will requirerepayment of equal quarterly installments of principal of Euro 30 millionstarting August 29, 2011 and a last repayment of Euro 40 million on thefinal maturity date. Interest accrues at Euribor (as defined in the agreement)plus a margin between 0.40 percent and 0.60 percent based on the “NetDebt/EBITDA” ratio, as defined in the agreement (3.741 percent as of December 31,2008).  As of December 31, 2008,Euro 250.0 million was borrowed under this credit facility.

 

*The U.S.$275 Million Senior UnsecuredGuaranteed Notes of U.S. Holdings*

 

On July 1, 2008, oursubsidiary U.S. Holdings closed a private placement of U.S. $275 million ofsenior unsecured guaranteed notes, issued in three series (Series A, Series Band Series C).  The aggregateprincipal amounts of the Series A, Series B and Series C Notesare U.S. $20 million, U.S. $127 million and U.S. $128 million, respectively.The Series A Notes mature on July 1, 2013, the Series B Notesmature on July 1, 2015 and the Series C Notes mature on July 1,2018. Interest on the Series A Notes accrues at 5.96 percent per annum,interest on the Series B Notes accrues at 6.42 percent per annum andinterest on the Series C Notes accrues at 6.77 percent per annum. Theproceeds from the Notes received on July 1, 2008, were used to repay aportion of the bridge loan facility that expired on July 1, 2008.

 

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***Our Working Capital***

 

Set forth below is certain information regarding our working capital(total current assets minus total current liabilities):

 
| ** **          | ** ** | **As of December 31,**    | ** ** |
|---------------------|------------|------------------------------------------|------------|
| ** **          | ** ** | **2008**                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **          | ** ** | **(In millions of Euro)** | ** ** |
| Current Assets      |       | 1,940.6                                  |       | 1,910.6 |   | 1,493.5 |   |
| Current Liabilities |       | (1,557.3                                 | )          | (2,159.2 | ) | (1,425.3 | ) |
| Working Capital     |       | 383.3                                    |       | (248.6 | ) | 68.2 |   |

 

In 2007 and 2006, working capital decreased due to an increase in thecurrent portion of long-term debt scheduled to mature in 2008 and 2007,respectively. In 2008, working capital increased due to the repayment from cashprovided by operations and refinancing of maturing debt.

 

We believe that the financial resources available to us will besufficient to meet our currently anticipated working capital and capitalexpenditure requirements for the next 12 months.

 

We do not believe that the relatively moderate rates of inflation whichhave been experienced in the geographic markets where we compete have had asignificant effect on our net sales or profitability. In the past, we have beenable to offset cost increases by increasing prices, although we can give noassurance that we will be able to do so in the future.

 

**Off-Balance Sheet Arrangements**

 

We have no material off-balance sheet arrangementsthat have or are reasonably likely to have a current or future effect on ourfinancial condition, changes in financial condition, revenue or expenses,results of operations, liquidity, capital expenditures or capital resources.

 

We use, from time to time, derivative financial instruments,principally interest rate and currency swap agreements, as part of our riskmanagement policy to reduce our exposure to market risks from changes inforeign exchange rates and interest rates. Although we have not done so in thepast, we may enter into other derivative financial instruments when we assessthat the risk can be hedged effectively.

 

**Contractual Obligations and Commercial Commitments**

 

We are party to numerous contractual arrangements consisting of, amongother things, royalty agreements with designers, leases for retail store,plant, warehouse and office facilities, as well as certain data processing andautomotive equipment, and outstanding borrowings under credit agreements andfacilities with financial institutions to finance our operations. Thesecontractual arrangements may contain minimum annual commitments. A morecomplete discussion of the obligations and commitments is included in Notes 9and 15 to our Consolidated Financial Statements included in Item 18 of thisannual report.

 

The following table summarizes the scheduled maturities of ourlong-term debt, minimum lease commitments under non-cancelable operating leasesand minimum payments under non-cancelable royalty arrangements, purchasecommitments (including long-term) and endorsement contracts as of December 31,2008. The table does not include pension liabilities. Our pension plans arediscussed in Note 10 to our Consolidated Financial Statements included inItem 18 of this annual report.

 
| ** **                                  | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** | ** ** | ** ** |
| **(in millions of Euro)**    | ** ** | ** **                                | ** ** | ** ** | ** ** | **3 to 5** | ** ** | **5** | ** ** | ** ** | ** ** |
| **Contractual Obligations**            | ** ** | **1 Year**                           | ** ** | **1 to 3 Years** | ** ** | **Years** | ** ** | **Years** | ** ** | **Total** | ** ** |
| Long-Term Debt and Current Maturities(1)(2) |       | 286.2                                     |       | 518.6 |   | 1,817.2 |   | 183.5 |   | 2,805.5 |   |
| Interest Payments(3)                        |       | 69.2                                      |       | 117.7 |   | 53.3 |   | 37.4 |   | 277.6 |   |
| Operating Leases                            |       | 262.7                                     |       | 408.9 |   | 284.1 |   | 348.2 |   | 1,303.9 |   |
| Minimum Royalty Arrangements(4)             |       | 56.9                                      |       | 60.4 |   | 47.8 |   | 96.9 |   | 262.0 |   |
| Long-Term Purchase Commitments(5)           |       | 11.9                                      |       | 14.6 |   | 0.5 |   | — |   | 27.0 |   |
| Endorsement Contracts(6)                    |       | 6.1                                       |       | 4.0 |   | 0.3 |   | — |   | 10.4 |   |
| Total                                       |       | 693.0                                     |       | 1,124.2 |   | 2,203.2 |   | 666.0 |   | 4,686.4 |   |

 

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(1)                    As described previously, ourlong-term debt has certain financial and operating covenants that may cause theacceleration of future maturities if we do not comply with them. We were incompliance with these covenants as of December 31, 2008.

 

(2)                    The calculation of Long-Term Debtand Current Maturities includes capital lease obligations, pursuant to whichthe following amounts are scheduled to become due and payable: Euro 1.9 million(less than 1 year) and Euro 0.2 million (1 to 3 years).

 

(3)                    These amounts do not includeinterest payments due under our various revolving credit facilities as theamounts to be borrowed in future years are uncertain at this time. In addition,interest rates used to calculate the future interest due on our variableinterest rate term loans were calculated based on the interest rate as of December 31,2008 and assume that we make all scheduled principal payments as they mature.

 

(4)                    These amounts represent obligationsunder our license agreements with designers, some of which require us to makeannual guaranteed minimum payments.

 

(5)                    These amounts represent obligationsunder our supplier commitments with various suppliers.

 

(6)                    These amounts represent obligationsunder our endorsement contracts with selected athletes and others who endorseOakley products, certain of which require us to pay specified annual minimumcommitments and sometimes additional amounts based on performance goals.

 

At December 31, 2008, we had available funds of approximately Euro230.5 million under our unused short-term lines of credit. Substantially all ofthese lines have terms of less than one year, but they have been renewedannually in prior years. In addition, certain U.S. subsidiaries obtainedvarious letters of credit from banks outstanding of Euro 34.2 million as of December 31,2008. Most of these letters of credit are used as security in risk managementcontracts or store leases. Most contain annual evergreen clauses under whichthey are automatically renewed unless the bank is notified of non-renewal. Asof December 31, 2008, substantially all of our outstanding letters ofcredit mature within one year. For additional information, see Note 15 to ourConsolidated Financial Statements included in Item 18 of this annual report.

 

**ITEM 6. DIRECTORS, SENIOR MANAGEMENT ANDEMPLOYEES**

 

**Directors and Senior Management**

 

The Board of Directors of Luxottica Group S.p.A. currently consists of15 members, each of whom was appointed at the stockholders’ meeting held on April 29,2009.

 

The current term of the Board of Directors expires at the time of theapproval of the statutory financial statements as of and for the year ended December 31,2011.

 

Set forth below is certain informationregarding the directors and senior management of Luxottica Group S.p.A.:

 

 
| ** **            | ** ** | ** ** | ** ** | **Senior  Manager (1) or** | ** ** | ** **                                |
|-----------------------|------------|------------|------------|--------------------------------------|------------|-------------------------------------------|
| ** **            | ** ** | ** ** | ** ** | **Director (2)**                     | ** ** | ** **                                |
| **Name**              | ** ** | **Age**    | ** ** | **Since**                            | ** ** | **Position**                              |
| Leonardo  Del Vecchio |       | 74         |       | 1961                                 |       | Chairman  of the Board of Directors       |
| Luigi Francavilla     |       | 72         |       | 1968/1985                            |       | Chief Quality Officer and Deputy Chairman |
| Andrea Guerra         |       | 44         |       | 2004                                 |       | Chief Executive Officer and Director      |
| Roger Abravanel       |       | 62         |       | 2006                                 |       | Director                                  |
| Mario Cattaneo        |       | 78         |       | 2003                                 |       | Director                                  |
| Enrico Cavatorta      |       | 48         |       | 1999/2003                            |       | Chief Financial Officer and Director      |
| Roberto Chemello      |       | 55         |       | 1979/1985                            |       | Director                                  |
| Claudio Costamagna    |       | 53         |       | 2006                                 |       | Director                                  |
| Claudio Del Vecchio   |       | 52         |       | 1978/1986                            |       | Director                                  |
| Sergio Erede          |       | 68         |       | 2004                                 |       | Director                                  |

 

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| Sabina Grossi             |   | 44 |   | 2003 |   | Director                                                                 |
|---------------------------|--------|----|--------|------|--------|--------------------------------------------------------------------------|
| Ivanhoe Lo Bello (3)      |   | 46 |   | 2009 |   | Director                                                                 |
| Marco Mangiagalli (3)     |   | 60 |   | 2009 |   | Director                                                                 |
| Gianni Mion               |   | 65 |   | 2004 |   | Director                                                                 |
| Marco Reboa (3)           |   | 54 |   | 2009 |   | Director                                                                 |
| Colin Baden               |   | 46 |   | 1999 |   | President, Oakley                                                        |
| Frank Baynham             |   | 55 |   | 1987 |   | Executive V.P. and General Manager, LensCrafters, Retail N.A.            |
| Chris Beer                |   | 42 |   | 2003 |   | Chief Operating Officer, Luxottica Optical Retail, Australasia           |
| Michael A. Boxer          |   | 47 |   | 1993 |   | Senior V.P. and General Counsel N.A.                                     |
| Kerry Bradley             |   | 52 |   | 1988 |   | President, Luxottica Retail N.A.                                         |
| Tom Coleman               |   | 60 |   | 1987 |   | Executive Vice President, Licensed Brands & Retail  Development |
| Alessandro Curotti        |   | 49 |   | 2007 |   | Group General Counsel and Corporate Secretary                            |
| Fabio D’Angelantonio |   | 39 |   | 2005 |   | Retail Luxury and Sun Business Director and Chief Marketing Officer      |
| Jack S. Dennis            |   | 63 |   | 1982 |   | Chief Financial and Administrative Officer of Retail N.A.                |
| Valerio Giacobbi          |   | 44 |   | 1991 |   | Group Business Development Director                                      |
| Giuseppe La Boria         |   | 50 |   | 2001 |   | Wholesale and Retail Second Market Director                              |
| Seth McLaughlin           |   | 46 |   | 1994 |   | Senior V.P. and General Manager, Pearle Vision, Retail N.A.              |
| George Minakakis          |   | 51 |   | 1994 |   | Chief Operating Officer, Retail Greater China                            |
| Antonio Miyakawa          |   | 42 |   | 1993 |   | Executive Vice President, Marketing, Style & Product            |
| D. Scott Olivet           |   | 45 |   | 2005 |   | Chief Executive Officer, Oakley                                          |
| Mario Pacifico            |   | 46 |   | 2003 |   | Shared Services Director                                                 |
| Nicola Pelà          |   | 46 |   | 2005 |   | Group Human Resources Director                                           |
| Carlo Privitera           |   | 39 |   | 2005 |   | Chief Information Technology Officer                                     |

 

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(1)                    For our senior managers, the periods listed in the table reflectperiods of affiliation with Luxottica Group S.p.A. or any of its predecessorsand affiliates, and not necessarily the period since they were appointed totheir current position.

 

(2)                    For our directors, the periods listed in the table reflect theirrespective periods of directorship with Luxottica Group S.p.A. or any of itspredecessors.

 

(3)                    Mr. LoBello was nominated by minority stockholders. Messrs. Reboa andMangiagalli and the remaining twelve directors were nominated by ourcontrolling stockholder Delfin S.a.r.l. Messrs. Lo Bello, Reboa andMangiagalli were first elected directors at the stockholders’ meeting held on April 29,2009. 

 

Executive officers serve at the discretion of the Board of Directors. Messrs. Cattaneo, Chemello, Mion,Abravanel, Costamagna, Claudio Del Vecchio, Erede, Mangiagalli, Reboa, Lo Belloand Ms. Grossi are all non-executive directors. In addition, Messrs. Cattaneo, Mion,Abravanel, Costamagna, Mangiagalli, Reboa and Lo Bello are also independentdirectors under Italian law.

 

Pursuant to Italian law and our By-laws, a list for theappointment of the Board of Directors can be presented only by stockholders whohold the minimum percentage of the share capital established annually byConsob. For 2009, this was equal to 1% of the share capital of the Company. Alldirectors except Mr. Lo Bello were appointed by Delfin S.a.r.l., ourcontrolling stockholder.**** Mr. Lo Bello was appointed by minoritystockholders.

 

Pursuant to Italian law, we maintain a Board of Statutory Auditors,elected at the stockholders’ meeting, composed of three experts in accountingmatters who are required to have no other affiliation with Luxottica GroupS.p.A. and who must satisfy certain professional and other standards. The Boardof Statutory Auditors is required to verify that we: (i) comply withapplicable law and our bylaws; (ii) respect the principles of correctadministration; (iii) maintain adequate organizational structure, internalcontrols and administrative and accounting systems; (iv) ensure that ouraccounting system represents the facts in a fair and true manner; (v) complywith the Italian Code of Corporate Governance; and (vi) give adequateinstructions to our subsidiaries. Although 

 

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members of the Board of Statutory Auditors are required to attend themeetings of the Board of Directors and of the stockholders, they are not deemedto be members of the Board of Directors and do not vote on matters submitted tosuch meetings. Effective as of April 29, 2009, the members of the Board ofStatutory Auditors are Francesco Vella, Chairman, Enrico Cervellera and AlbertoGiussani. As of April 29, 2009, there were also two alternate members ofthe Board of Statutory Auditors, Mario Magenes and Alfredo Macchiati.  On May 29,2009, Mr. Magenes died. A successor to Mr. Magenes will be appointedat the next stockholders’ meeting. The alternate members will replace currentmembers who leave their position during the current term. Francesco Vella andAlfredo Macchiati were selected from a list submitted by the minoritystockholders referred to above. Enrico Cervellera, Alberto Giussani and MarioMagenes were selected from a list submitted by Delfin S.a.r.l. The current termof the Board of Statutory Auditors expires at the time of the approval of thestatutory financial statements as of and for the year ended December 31,2011.

 

See “—Summary of the Significant Differences Between Our CorporateGovernance Practices and the Corporate Governance Standards of the New YorkStock Exchange” below for more information regarding the designation of theBoard of Statutory Auditors to act as our audit committee.

 

Pursuant toItalian law, we also maintain a Human Resources Committee, elected within themembers of the Board of Directors. The Human Resources Committee hasverification, advisory and proposal-making functions, including: (i) recommendingto the Board the remuneration payable to the Company’s Directors withadditional responsibilities and determining the remuneration criteria for thetop management of the Company and of the entire Group; and (ii) reviewingthe Luxottica Group employees’ incentive plans and the criteria for thecomposition of the management bodies of the relevant subsidiaries. Effective asof April 29, 2009, the members of the Human Resources Committee arenon-executive directors Gianni Mion, Roger Abravanel, Claudio Costamagna andSabina Grossi, three of whom are independent. The term of the Human ResourcesCommittee is co-extensive with the term of our Board of Directors since itsmembers are also members of our Board of Directors.

 

See “—Summary of the Significant Differences Between Our CorporateGovernance Practices and the Corporate Governance Standards of the New YorkStock Exchange” below for more information regarding the designation of theHuman Resources Committee to act as our compensation committee.

 

A short biography of each of our Directors and executive officers isset forth below:

 

**Leonardo Del Vecchio**is the founder of our operations and has been Chairman of the Board since theGroup was formed in 1961. In 1986, the President of the Republic of Italyconferred on Mr. Del Vecchio the honor of Cavaliere dell’Ordine al “Meritodel Lavoro” (Knight of the Order for Labor Merit). In May 1995, hereceived an honorary degree in Business Administration from the Venice Ca’Foscari University. In 1999, he received a Master “honoris causa” inInternational Business from MIB- Management School in Trieste, and in 2002, hereceived an honorary degree in Managerial Engineering from the University ofUdine. In March 2006, Mr. Del Vecchio received another honorarydegree in Materials Engineering from Politecnico of Milan. Mr. Del Vecchio is also a director ofAssicurazioni Generali S.p.A., Beni Stabili S.p.A., GiVi Holding S.p.A., andGianni Versace S.p.A., vice chairman of the Surveillance Committee of Foncieredes Regions and a director of Delfin S.a.r.l., Aterno S.a.r.l. and LuxotticaUK.

 

**Luigi Francavilla**joined the Group in 1968, has been Director since 1985, Deputy Chairman since1991, and is the Chief Quality Officer of the Group. From 1977 until May 2009,he was Group Product and Design Director. From 1972 to 1977, Mr. Francavillawas General Manager of Luxottica S.r.l. and, from 1969 to 1971, he served asTechnical General Manager of Luxottica S.r.l. In addition, he is Chairman ofLuxottica S.r.l., our principal operating subsidiary. Mr. Francavilla is also a Director in the Belluno branch of theBank of Italy. In April 2000, he received an honorary degree inBusiness Administration from Constantinian University in Cranston, RhodeIsland, U.S.A.

 

**Andrea Guerra** wasappointed a Director and Chief Executive Officer of the Company on July 27,2004. Prior to joining the Company, Mr. Guerra was with MerloniElettrodomestici since 1994, where, from 2000, he was its Chief ExecutiveOfficer. Prior to being at Merloni, Mr. Guerra worked for Marriott Italiawhere he became Director of Marketing. He received a degree in BusinessAdministration from the “La Sapienza” University of Rome in 1989. Mr. Guerrais Chief Executive ofLuxottica S.r.l., Chairman of OPSM Group PTY Limited, member of the Boardof Directors of Luxottica U.S. Holdings Corp., LensCrafters Inc. and ofOakley, Inc., all of which belong to Luxottica Group. He is also member ofthe Board of Directors of Parmalat S.p.A. and DEA Capital S.p.A.

 

**Roger Abravanel**hasbeen a director since 2006. He worked at McKinsey & Company from 1972until June 2006. Mr. Abravanel is also involved in internationalconsulting projects, advising on strategic, organizational and operationaldevelopment issues. He graduated with a degree in Engineering from thePolitecnico di Milano and received a Masters in 

 

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Business Administration from INSEAD in Fontainebleau (with HighDistinctions).  He is the author ofseveral studies and articles on business organization. He is a member ofthe Board of Directors of Teva Pharmaceutical Industries LTD, BancaNazionale del Lavoro S.p.A., COFIDE S.p.A. and Coesia S.p.A.

 

**Mario Cattaneo** has been a Director since2003. He is emeritus professor of Corporate Finance at the Catholic Universityof Milan. He was a director of Eni S.p.A. from 1998 until 2005 and ofUnicredito from 1999 until 2005 and Statutory Auditor of the Bank of Italy from1991 until 1999.  He is the Chairman ofEuromobiliare Asset Management SGR S.p.A. and is a member of the Board ofDirectors of Bracco S.p.A. and Banca Sella Holding S.p.A. Furthermore, Mr. Cattaneois the chairman of the Board of Statutory Auditors of Italiana AssicurazioniS.p.A. and Sara Assicurazioni S.p.A. He is an auditor of Michelin Italiana  Sami S.p.A. and a member of the SupervisoryBoard of UBI Banca S.C.p.A.

 

**Enrico Cavatorta** hasbeen a Director of the Group since 2003. He has been Chief Financial Officersince he joined the Group in 1999, and he is a director of the principalsubsidiaries of the Company, including LuxotticaU.S. Holdings Corp., Luxottica S.r.l., OPSM Group Pty Ltd.,LensCrafters, Inc. and Oakley, Inc. Prior to joining Luxottica,Mr. Cavatorta was with Piaggio S.p.A., most recently as Group Controller,responsible for planning and control. From 1993 to 1996, Mr. Cavatorta wasa consultant with McKinsey & Co., having joined the firm from Procter &Gamble Italy, where he worked from 1985 to 1993, most recently as Controller. Mr. Cavatortagraduated with the highest honors from the LUISS University in Rome with abachelor’s degree in Business Administration.

 

**Roberto Chemello** hasbeen a Director since 1985. He holds a degree in Corporate Finance from the CàFoscari University in Venice. He joined the Group in 1979. Until 1985 he wasChief Financial Officer of the Company. Between 1985 and 2004 he was ChiefExecutive Officer of Luxottica. He then took over the position of ChiefOperations Officer, which he held until July 2008, when he left alloperational positions held in Luxottica. In 2007, he acquired control of WoodnS.r.l., a company that specializes in the manufacturing and marketing ofwood-based composites, where he holds the position of Chairman of the Board ofDirectors. In 2008, he was appointed Chairman of the Board of Directors of theChinese company, Sunbow Environmental Decoration Material Co Ltd, fully ownedby Woodn S.r.l., which manufactures wooden composites for distribution both inChina and internationally. In 2008, he was appointed member of the Board ofDirectors of the Entrepreneurs’ Association of the Belluno Province.

 

**Claudio Costamagna**has been a Director since 2006. Mr. Costamagnaholds a business administration degree and has held important offices inMontedison, Citigroup and Goldman Sachs where he served for many years asChairman of the Investment Banking division for Europe, the Middle East andAfrica. He is currently Chairman of “CC e Soci”, a financial advisory boutiquehe founded. Mr. Costamagna is a member of the Board of Directors ofAutogrill S.p.A., Bulgari S.p.A., DEA Capital S.p.A., MandelPartners S.A. and Breakingviews Ltd. He is also Chairman of theAssociazione Alumni Bocconi (association of graduates from Bocconi University).

 

**Claudio Del Vecchio,**a son of Leonardo Del Vecchio, joined the Group in 1978 and has been a Directorsince 1986. From 1979 to 1982, he managed our Italian and German distributionoperations. From 1982 until 1997, he was responsible for all businessoperations of the Group in North America. He also serves as a Director of U.S.Holdings, a key subsidiary in North America. Claudio Del Vecchio is Chairmanand Chief Executive Officer of Retail Brand Alliance, Inc., the owner ofBrooks Brothers.

 

**Sergio Erede** hasbeen a Director since 2004. Mr. Erede graduated magna cum laude from theUniversity of Milan in 1962 with a degree in jurisprudence and obtained anLL.M. from Harvard Law School in 1964. From 1965 to 1969, he was head of thelegal department of IBM Italia S.p.A. Prior to such time, Mr. Erede was anattorney at the law firm of Sullivan & Cromwell from 1964 to 1965, andthe law firm of Hale & Dorr from 1963 to 1964. In 1999, he founded thelaw firm of Bonelli, Erede & Pappalardo (which is the successor bymerger to the firm of Erede e Associati), a leading firm in Italian financialtransactions. Additionally, he is a member of the Board of Directors ofInterpump Group S.p.A., Carraro S.p.A., Gruppo Editoriale L’Espresso S.p.A.,Manifatture Lane Gaetano Marzotto & Figli S.p.A., Società ItaloBritannica L. Manetti - H. Roberts S.p.A., Manuli Rubber Industries S.p.A.,Gruppo IPG Holding S.r.l. (Gruppo Interpump) and Sintonia S.A. Additionally, Mr. Eredeis Chairman of AON Italia S.p.A., vice chairman of the Board of Directors ofBanca Nazionale del Lavoro S.p.A. and a member of the Surveillance Committeeand of the Audit Committee of Fonciere des Regions.

 

**Sabina Grossi** hasbeen a Director since 2003. She joined Luxottica Group S.p.A. in 1996 and wasHead of Investor Relations, a position which she held from 1996 until 2004.Prior to joining Luxottica Group S.p.A., she was a financial analyst withCaboto Sim S.p.A. from 1994 until 1996. From 1991 to 1993, Ms. Grossi was anassociate professor in the school of engineering of the La Sapienza Universityin Rome, where she taught undergraduate courses as well as published papers onmathematics and statistics. Ms. Grossi, who is a C.P.A. in Italy,graduated with the highest honors from the LUISS 

 

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University in Rome with a bachelor’s degree in Business Administration.Ms. Grossi is currently a member of the Board of Directors of MolmedS.p.A. and Oliver Twist Onlus.

 

**Ivanhoe Lo Bello**becamea Director on April 29, 2009. He has been Chairman of the Board ofDirectors of Banco di Sicilia S.p.A. — Gruppo Unicredit since April 2008.From January 2008 to April 2008, he was Vice President of Banco diSicilia S.p.A. — Gruppo Unicredit. From 1998 to 2001 and again since January 2008,he has been a member of the Board of Directors of Banco di Sicilia S.p.A. From2004 to 2008, he was Director of the Syracuse branch of the Bank of Italy. Heis currently a member of the Board of Directors of Unisicilia S.p.A., SviluppoMessina S.r.l., Governare S.r.l. and a member of the Board of StatutoryAuditors for Infocamere scpa. He is also a member of the Board of Directors ofthe President of Italy’s Committee of Civita and Committee of Unioncamere, andthe Istituto Nazionale di Ricerche Turistiche (National Institute for Researchin the Tourist Sector), and President of Cofindustria Sicilia and the Chamberof Commerce of Syracuse. Mr. Lo Bello graduated magna cum laude from theUniversity of Catania in 1989 with a degree in jurisprudence.

 

**Marco Mangiagalli**becamea Director on April 29, 2009. Mr. Mangiagalli received a degree inPolitical Economy from the “Luigi Bocconi” University in 1973. Most of hiscareer has been with Eni Group; he also has had working experience withBarclays Group in Italy and the Nuovo Banco Ambrosiano Group. He has served asa member of the Board for Agip S.p.A., Polimeri Europa S.p.A., Nuovo PignoneS.p.A., Snamprogetti S.p.A., Saipem S.p.A., Eni International Holding B.V.,Albacom S.p.A., Emittenti Titoli S.p.A. and Oil Investment Corp. He also hasbeen Chairman of Eni Coordination Center S.A., Eni Bank Ltd/Banque Eni S.A. andof Enifin S.p.A. Since August 2008 he has been Chairman of the Board ofDirectors for Saipem S.p.A.

 

**Gianni Mion** has beena Director since 2004. He is Chief Executive Officer of Edizione S.r.l.,aposition he has held since 1986. Prior to joining Edizione S.r.l., Mr. Mionwas the Chief Financial Officer of Marzotto S.p.A. from 1985 to 1986, ManagingDirector of Fintermica S.p.A. from 1983 to 1985, Vice President of Gepi S.p.A.from 1974 to 1982, controller of McQuay Europa S.p.A. from 1972 to 1974 and anauditor at the accounting firm of KPMG from 1967 to 1972. He has been chiefexecutive officer of Edizione Holding S.p.A. since 1986 and prior to that hewas the chief executive officer of Sintonia S.p.A. Mr. Mion is ChiefExecutive Officer of Edizione S.r.l. and also sits on the Board of Directors ofBenetton Group S.p.A., Autogrill S.p.A., Autogrill Group Inc., Atlantia S.p.A.,Sintonia, S.A., Fondazione Cassa di Risparmio di Venezia, Burgo Group S.p.A.,Il Gazzettino S.p.A. and Eurostazioni S.p.A. Mr. Mion graduated from theVenice University Ca’ Foscari with a degree in Business Administration and is aCertified Public Accountant.

 

**Marco Reboa**became aDirector on April 29, 2009. Mr. Reboa received a degree in BusinessEconomics from Universita Commerciale L. Bocconi in Milan, Italy in 1978. Hehas been registered in the Register of Chartered Accountants of Milan since1982 and he is an auditor pursuant to Ministerial Decree since 1995. He iscurrently a professor at the Faculty of Law at the Libero Istituto UniversitarioCarlo Cattaneo in Castellanza, Italy and works in private practice in Milan,specializing in extraordinary financial transactions. Mr. Reboa haspublished books and articles on financial statements, economic appraisals andcorporate governance.  He iseditor-in-chief of the Magazine of Chartered Accountants.  Mr. Reboa was the Chairman of theLuxottica Group S.p.A. Board of Statutory Auditors from June 14, 2006until April 29, 2009.  He is amember of the Board of Directors of Eni S.p.A., Interpump Group S.p.A. and BluHolding S.r.l., Chairman of the Board of Auditors of Mediobanca S.p.A., andAuditor of Gruppo Lactalis Italia S.p.A., biG S.r.l. and Egidio Galbani S.p.A.

 

**Colin Baden** joinedOakley in February 1996 as Director of Design and served as Vice Presidentof Design from February 1997 to February 1999. In February 1999,Mr. Baden was named President. Prior to joining Oakley, Mr. Baden wasa partner at Lewis Architects of Seattle, Washington for six years and beganadvising Oakley on company image and design issues in 1993.

 

**Frank Baynham** hasbeen Executive Vice President and General Manager LensCrafters, LuxotticaRetail North America since March 2008. From 1999 to March 2008, he served as Executive Vice President,Stores of Retail North America. Mr. Baynham has held various other seniorexecutive roles since joining LensCrafters in 1987. Prior to 1987, he worked inmarketing for Procter and Gamble and was a captain in the U.S. Army. Mr. Baynhamgraduated with a degree in Finance from Murray State University.

 

**Chris Beer**becameChief Operating Officer of Luxottica Optical Retail Australasia in February 2009.Previously, he held the position of Chief Operating Officer of Asia-Pacific andChina retail operations of Luxottica Group, from 2003, having had 22 years ofexperience with the OPSM Group (later acquired by Luxottica). He held seniorexecutive positions in sales and operations before being appointedInternational HR Manager for the OPSM Group in 1999 and General Manager Retailfor OPSM Australia in 2001. Mr. Beer oversees group operations, marketing,merchandise, distribution and manufacturing for the Australia/NZ Region.

 

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**Michael A. Boxer** hasbeen the Senior Vice President, General Counsel — North America since September 2005.Mr. Boxer is responsible for overseeing all legal matters for the Company’sNorth American retail and wholesale operations. Mr. Boxer has held variousother executive roles since joining the Company in 1993. Prior to joiningLuxottica in 1993, Mr. Boxer served as a corporate attorney with the lawfirm of Winston & Strawn in New York. He received his undergraduatedegree from Columbia University and his law degree from the New York UniversitySchool of Law.

 

**Kerry Bradley** becamePresident of Luxottica Retail North America in February 2009, and prior tothat he served as Chief Operating Officer of Retail North America since 2002. From1998 to 2002 he held the position of Executive Vice President of LensCrafters. Mr. Bradleyis responsible for all LensCrafters, Sunglass Hut, Cole and EyeMed sales,marketing and operations. Mr. Bradley has held various other seniorexecutive roles since joining LensCrafters in 1988. Mr. Bradley has aMaster’s degree in Business from the University of Edinburgh, Scotland and aB.S. degree in Business from Auburn University in Alabama.

 

**Tom Coleman** has been Executive Vice President LicensedBrands & Retail Development since 2008.**** From 2003 to 2008, he was Executive VicePresident Retail Asia-Pacific, responsible for all activities of the Group inthe Asia-Pacific region, which includes Australia, New Zealand, Hong Kong,Singapore and Malaysia. Prior to this, he served as Executive Vice President ofLensCrafters since 1997. Mr. Coleman has held various other seniorexecutive roles since joining LensCrafters in 1987.

 

**Alessandro Curotti**joinedthe Group as General Counsel and Corporate Secretary in 2007. Prior to joiningLuxottica he served as a corporate lawyer at companies such as Telecom Italia,Telecom Italia Mobile and Montedison. He received his law degree from theUniversity of Siena.

 

**Fabio D’Angelantonio**wasappointed to lead the Retail Luxury and Sun Business at the beginning of 2009,while maintaining the role of Chief Marketing Officer that he has held since2005. After experience with the European Union and in the Olivetti MarketingDepartment in Brussels and Madrid, Mr. D’Angelantonio led the internationaldepartment from 1995 to 2000 for the Belgian publishing house Editions Hemma(part of the Havas-Vivendi group). At the beginning of 2000, Mr. D’Angelantoniojoined Ciaoweb (Fiat-Ifil group) where he held the position of Channel Manager,eventually moving to Merloni Elettrodomestici, today Indesit Company, where heheld increasingly senior positions ending in Brand & AdvertisingManager, responsible for the management of the entire brand portfolio for thegroup. After receiving a degree in Business Administration in 1994 from theLUISS University in Rome, he completed an MBA in International Management atthe UBI in Brussels in 1999.

 

**Jack S. Dennis** hasbeen Chief Financial and Administrative Officer of Retail North America since2001, prior to which time he served as Chief Financial Officer of LensCrafterssince 1992 and Chief Administrative Officer since 1999. Prior to 1992, he wasController of LensCrafters, Vice President of Finance in several divisions ofU.S. Shoe and a Senior Audit Manager with Arthur Andersen & Co. Mr. Dennisgraduated with a degree in Accounting from the University of Kentucky.

 

**Valerio Giacobbi** iscurrently Group Business Development Director. He was the Executive VicePresident Retail North America from 2001 until March 2009. Prior to 2001,he was General Affairs Manager of Luxottica Group S.p.A. since 1991. Mr. Giacobbigraduated with a degree in Business Administration from the Ca’ FoscariUniversity in Venice.

 

**Giuseppe La Boria**joined Luxottica Group S.p.A. in 2001 as Head of Sales for Europe and South.Since the beginning of 2009, he has served as Wholesale and Retail SecondMarket Director for the Group. Prior to joining Luxottica Group S.p.A., Mr. LaBoria worked in Safilo S.p.A. as Sales Manager for Italy, during which periodhe was also responsible for all the commercial and marketing aspects of theDiesel Shades launch.

 

**Seth McLaughin** hasbeen Senior Vice President and General Manager Pearle Vision, Luxottica RetailNorth America since March 2008. From October 2004 to March 2008,he served as Senior Vice President, Consumer Marketing of Luxottica RetailNorth America. From July 1998 to October 2004, he served as VicePresident, Consumer Marketing. Prior to joining the Luxottica Group he workedat Boston Consulting Group, from 1990 to 1994, and in strategic consulting forProcter & Gamble, from 1984 to 1990. Mr. McLaughin has a Bachelorof Science degree from Iowa State University.

 

**GeorgeMinakakis** has been Chief Operating Officer for GreaterChina since September 2006. He has been with Luxottica for 13 years, mostrecently in Canada as Senior Vice President and General Manager of our retailoperations. Prior to Luxottica, Mr. Minakakis worked with PepsiCo for 7years. He holds a Masters Degree in Business Administration from AthabascaUniversity, Alberta, Canada.

 

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**Antonio Miyakawa** iscurrently the Executive Vice President of Marketing, Style & Product forLuxottica Group S.p.A. From 2003 until May 2009, he was Executive VicePresident of Wholesale and Marketing for Luxottica Group S.p.A. Previously hewas also head of our Asian wholesale operations, a position he held since 1999.Prior to this he served as Executive Vice President of Luxottica’s Japaneseoperations. Prior to joining Luxottica Group S.p.A., Mr. Miyakawa was ajunior consultant for Compact S.r.l. (an Italian consulting firm) working onvarious Luxottica matters.

 

**D. Scott Olivet**joinedOakley in October 2005 as its Chief Executive Officer and as an Oakleydirector. From August 2001 to October 2005, he served at Nike Inc. asVice President, Nike Subsidiaries and New Business Development, where he led,developed and executed the company’s multi-branding strategy including the ColeHaan, Converse, Hurley, Starter and Bauer-Nike Hockey brands. Prior to Nike, Mr. Olivetserved as The Gap, Inc.’s Senior Vice President of Real Estate, StoreDesign and Construction, responsible for The Gap, Banana Republic and Old Navybrands from 1998 to 2001. He worked with Bain & Company from 1984 to1998, serving as a partner and head of the firm’s worldwide practice inorganizational effectiveness and change management from 1993 to 1998.** **Mr. Olivet received his B.A. inGovernment from Pomona College and his M.B.A. from the Graduate School ofBusiness, Stanford University.

 

**Mario Pacifico**becameShared Services Director in May 2009. He joined the Group as Head ofInternal Auditing in 2003. Prior to joining Luxottica, he was VP of InternalAuditing of Prada Group. From 1990 to 2000, Mr. Pacifico was Controller ofEni’s Italy Division, Chief Financial Officer of Agip Trading B.V. and AuditManager for Agip S.p.A. Mr. Pacifico graduated from Bocconi University inMilan with a degree in Business Administration.

 

**Nicola Pelà** has beenGroup Human Resources Director since 2005. Before joining Luxottica, he held anumber of HR positions in Olivetti, Fiat, Barilla and SmithKline Beecham. Hehas lived and worked in Italy, the United States and Belgium. Mr. Pelà hasa bachelor’s degree in Law with honors and a master’s degree in BusinessAdministration from CUOA (Centro Universitario di Organizzazione Aziendale).

 

**CarloPrivitera**joined Luxottica in 2005 as Group Industrial Supply Chain Director.  Since January 2008, he has beenthe Chief Information Technology Officer. From December 2001 to February 2005,Mr. Privitera served in various capacities, including Planning Manager andProduction Control & Logistic Director of Fiat Group and itssubsidiaries. From 1996 to 2001, he served as Senior Manager in EfesoConsulenze. Mr. Privitera has a bachelor degree in Engineering from thePolitecnico in Milan. He also holds a master’s degree from Osaka University.

 

**Compensation**

 

Set forth below is information regarding total compensation paid to themembers of our Board of Directors and our Board of Statutory Auditors forservices rendered to Luxottica Group S.p.A. and our subsidiaries during 2008:

 
| **Name**                                                                     | ** ** | **Base  Compensation  (Euro)** | ** ** | **Other  Compensation  (Euro)** | ** ** | **Total  Compensation  (Euro)** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Leonardo Del Vecchio*Chairman of the Board of Directors*                     |       | 381,198                        | (1)        |                            | 879,044    | (2)                             |       | 1,260,242 |   |   |
| Luigi Francavilla (3)*Group Product and Design Director and Deputy Chairman* |       | 139,200                        | (3)        |                            | 1,492,670  | (2)(4)(5)                       |       | 1,631,870 |   |   |
| Andrea Guerra*Chief Executive Officer and Director*                          |       | 900,000                        | (6)        |                            | 2,717,233  | (4)(5)                          |       | 3,617,233 |   |   |
| Enrico Cavatorta*Chief Financial Officer and Director*                       |       | 81,198                         |       |                            | 1,228,193  | (2)(4)(5)                       |       | 1,309,391 |   |   |
| Roberto Chemello*Group Operations Director and Director*                     |       | 81,198                         |       |                            | 3,733,207  | (2)(4)(5)(7)                    |       | 3,814,405 |   |   |
| Roger Abravanel*Director*                                                    |       | 91,198                         | (8)        |                            | —     |                            |       | 91,198 |   |   |
| Tancredi Bianchi (9)*Director*                                               |       | 101,198                        | (10)       |                            | —     |                            |       | 101,198 |   |   |
| Mario Cattaneo*Director*                                                     |       | 101,198                        | (10)       |                            | —     |                            |       | 101,198 |   |   |

 

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| Claudio Costamagna*Director*                                  |   | 91,198  | (8)    |   | — |   |   | 91,198  |   |   |
|---------------------------------------------------------------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|
| Claudio Del Vecchio*Director*                                 |   | 81,198  |   |   | — |   |   | 81,198  |   |   |
| Sergio Erede*Director*                                        |   | 81,198  |   |   | — |   |   | 81,198  |   |   |
| Sabina Grossi*Director*                                       |   | 81,198  |   |   | 288    | (5)    |   | 81,486  |   |   |
| Gianni Mion*Director*                                         |   | 81,198  |   |   | — |   |   | 81,198  |   |   |
| Lucio Rondelli (9)*Director*                                  |   | 106,198 | (11)   |   | — |   |   | 106,198 |   |   |
| Marco Reboa (12)*Chairman of the Board of Statutory Auditors* |   | 105,000 |   |   | — |   |   | 105,000 |   |   |
| Enrico Cervellera*Member of the Board of Statutory Auditors*  |   | 70,000  |   |   | — |   |   | 70,000  |   |   |
| Giorgio Silva (12)*Member of the Board of Statutory Auditors* |   | 90,000  | (13)   |   | — |   |   | 90,000  |   |   |

 

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(1)             Compensationpaid as Director and Chairman of the Board of Directors.

 

(2)             Includescompensation paid for services rendered to subsidiary companies.

 

(3)             Compensationpaid as Director and Deputy Chairman. Mr. Francavilla became the ChiefQuality Officer on May 7, 2009.

 

(4)             Includescompensation paid as employee. This compensation also includes the bonus paidin 2008 for the achievement of certain targets in 2007.

 

(5)             Includesfringe benefits granted (such as insurance premiums and cars).

 

(6)             Compensationpaid as Director and Chief Executive Officer.

 

(7)             Includespart of the indemnity for the termination of employment which occurred during2008. An additional amount of the indemnity will be paid during 2009. As of July 31,2008, Mr. Chemello is no longer Group Operations Director.

 

(8)             Compensationpaid as Director and member of the Human Resources Committee.

 

(9)           As of April 29,2009, Messrs. Bianchi and Rondelli are no longer directors.

 

(10)       Compensationpaid as Director and member of the Internal Control Committee.

 

(11)       Compensationpaid as Director and Chairman of the Internal Control Committee.

 

(12)     As of April 29, 2009, Messrs. Reboaand Silva are no longer respectively Chairman and member of the Board ofStatutory Auditors of the Company.

 

(13)       Includescompensation paid as auditor and for services rendered as member of theSupervisory Body created pursuant to legislative decree 231/2001.

 

Aggregate compensation paid by us to oursenior management (who are not directors) as a group (18 people) wasapproximately Euro 9.7 million in 2008, of which approximately Euro 1.2 millionrepresented provision for termination indemnities and social security chargesrequired by Italian law. Members of this group were also granted options topurchase an aggregate of 115,000 of our ordinary shares at a weighted average exerciseprice of Euro 18.08 per share in 2008. These options expire on March 14,2017. The aggregate amount set aside or accrued during the year ended December 31,2008 to provide pension and retirement benefits for our directors who are alsomembers of our management was Euro 2.0 million. Our directors who are notmembers of management do not receive such benefits.

 

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With the exception of termination benefitsprovided for Mr. Guerra, our Chief Executive Officer, and Mr. Chemello,as described below, none of our directors have service contracts with theCompany or any of its subsidiaries providing for benefits upon termination ofemployment.

 

In case of termination other than for goodcause, we will pay our Chief Executive Officer a separation allowance, inaddition to providing for termination indemnities provided by Italian law, inthe amount of two times the sum of:

 

·                 annual basesalary, provided as a sum of annual base remuneration and director’semoluments; and

 

·                 variable pay,corresponding to the average bonus compensation received in the three years (orshorter period, as the case may be) preceding his termination.

 

This separation allowance is also due in thecase of termination for cause or in the case our Chief Executive Officerterminates the employment relationship within the 60 days following one of theevents listed below that leads to a reduction in responsibilities and tasksassigned:

 

·                 substantialchange to the authority given to the Chief Executive Officer; and

 

·                 change ofcontrol.

 

In July 2008, Mr. Chemello’sposition as Chief Operations Officer of Luxottica was terminated.  He remains a Director of Luxottica. As aresult of this termination, Luxottica paid Mr. Chemello an indemnity and Mr. Chemellokept the stock options he had previously received but forfeited his rightsunder the Performance Shares Plan.

 

**Employees**

 

As of December 31, 2008, we employedapproximately 61,000 employees worldwide, of whom approximately 39,000 wereemployed in the United States and Canada, 7,500 were employed in Italy, 11,500were employed in Asia-Pacific, 2,000 were employed in Europe and 1,000 wereemployed in subsidiaries located in other countries. As of such date,approximately 18,000 were employed in our manufacturing and wholesale segment,approximately 42,000 were employed in our retail segment and approximately1,000 were employed at corporate. Substantially all of our employees in Italyare covered by collective bargaining agreements. Other than those Pearle Visionemployees subject to collective bargaining agreements described below, none ofour employees in the United States are covered by collective bargainingagreements. We have enjoyed generally good relations with our employees.

 

Employment agreements in Italy are generallycollectively negotiated between the national association of companies within aparticular industry and the respective national unions. Individual companiesmust enter into contracts with their employees based on the relevant collectiveagreement. The agreement for optical workers, which is part of the nationaltextile agreement, covers approximately 7,445 of our employees. This agreementwas renewed in 2008 resulting in an average wage increase rate of approximatelythree percent per year. In addition to the national collective bargainingagreement for workers, we typically enter into separate local contracts withlabor unions representing our employees. In December 2006, we renewed alocal agreement with optical workers, supplementing the terms of the nationaltextile contract. The new agreement provided for new profitability targets foremployee variable wages.

 

Italian law provides that, upon terminationof employment, employees are entitled to receive certain compulsory severancepayments based on their compensation levels and length of employment. As of December 31,2008, we had established a reserve of Euro 49.7 million for such severancepayments, which is reflected in our consolidated financial statements.

 

Pearle Visionis currently a party to three collective bargaining agreements. Pearle Vision’scollective bargaining agreement with Local 108, Retail, Wholesale andDepartment Store union has a term that runs through December 31, 2009 andcovers approximately 60 employees holding the positions of Lab Associate, LeadLab Associate and Sales Associate. Pearle Vision’s collective bargainingagreement with Local 84932 of the Communications Workers of America has a term thatruns through May 31, 2010 and covers approximately 60 Pearle Visionemployees holding the positions of Lab Associate, Lead Lab Associate and SalesAssociate. Pearle Vision’s collective bargaining agreement with Local 888,United Food and Commercial Workers has been extended by agreement while theparties negotiate a new agreement and covers approximately 10 Pearle Visionemployees holding the positions of Lab Associate, Lead Lab Associate and SalesAssociate.

 

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**Share Ownership**

 

Setforth below is certain information concerning the beneficial ownership of ourordinary shares as of April 29, 2009, by each of our directors and executiveofficers who beneficially owns in excess of one percent of our outstandingordinary shares.

 
| **Shareholder**      | ** ** | **Issuer**             | ** ** | **Shares owned as of  April 29, 2009** | ** ** | **Percentage  Ownership** | ** ** |
|----------------------|------------|------------------------|------------|------------------------------------------------------------|------------|---------------------------|------------|
| Leonardo Del Vecchio |       | Luxottica Group S.p.A. |       | 314,403,339                                                | (1)        | 67.8                      | %          |
| Luigi Francavilla    |       | Luxottica Group S.p.A. |       | 5,575,400                                                  | (2)        | 1.2                       | %          |

 

----

(1)        Shares held of record byDelfin S.a.r.l., an entity established and controlled by Mr. Del Vecchio. Mr. DelVecchio holds voting and investment power over the shares held by such entity.

 

(2)        Includes 3,434,900 sharesheld by Mr. Francavilla and 2,140,500 shares that are issuable uponexercise of vested stock options.

 

Except as otherwise indicated above, each of ourdirectors and our executive officers owns less than one percent of our outstandingordinary shares.

 

In addition, set forth below is certaininformation regarding share ownership for our directors and our senior managers(who are not directors) as a group, prepared and disclosed as required byapplicable Italian law:

 
| **Shareholder**             | ** ** | **Shares held at the  beginning of 2008** | ** ** | **Shares bought during  2008** | ** ** | **Shares sold  during 2008** | ** ** | **Shares held at********the end of 2008** | ** ** |
|-----------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                  | ** ** | ** **                                                         | ** ** | ** **                               | ** ** | ** **                             | ** ** | ** **                                                         | ** ** |
| Leonardo Del Vecchio        |       | 314,403,339                                                        | (1)        | 45,000                                   |       | 45,000                                 |       | 314,403,339                                                        | (1)        |
| Luigi Francavilla           |       | 3,434,900                                                          | (2)        |                                     |       |                                   |       | 3,434,900                                                          | (2)        |
| Roberto Chemello            |       | 1,077,875                                                          | (3)        |                                     |       |                                   |       | 1,077,875                                                          | (3)        |
| Claudio Del Vecchio         |       | 3,381,000                                                          | (4)        |                                     |       |                                   |       | 3,381,000                                                          | (4)        |
| Sabina Grossi               |       | 12,200                                                             |       | 50,400                                   |       |                                   |       | 62,600                                                             |       |
| Senior Managers as  a group |       | 201,405                                                            |       |                                     |       |                                   |       | 201,405                                                            |       |

 

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(1)           Sharesheld by Leonardo Del Vecchio through Delfin S.a.r.l. Mr. Del Vecchio holdsvoting and investment power over the shares held by such entity.

 

(2)           3,364,800shares are held in usufruct with Mr. Francavilla’s wife. Mr. Francavillaand his wife hold voting and investment power over these shares.

 

(3)           Sharesheld by Filuni S.A., an entity established and controlled by Mr. Chemello.Mr. Chemello holds voting and investment power over the shares held bysuch entity.

 

(4)       Includes40,000 represented by ADRs, 10,000 of which are held through the Del VecchioFamily Foundation. Mr. Del Vecchio holds voting and investment power overthe shares held through this foundation.

 

In March 1998, we adopted an employee stockoption plan providing for the issuance of options covering up to 12,250,000ordinary shares of nominal value Euro 0.06 each. As a result of the change inthe par value of our ordinary shares from Lire to Euro, which was approved byour stockholders at the annual meeting held on June 26, 2001, the numberof ordinary shares available for issuance under the plan was reduced to10,798,642. Our Board of Directors administers the stock option plan. Thepurpose of the plan is to provide additional incentives to our key employees.Grants under the stock option plan may be of non-qualified options and/or incentivestock options. Under the plan, the Board of Directors may not grant an optionfor a term of more than nine years from the date of grant, or for a term thatexpires after March 31, 2011. The exercise price of these options is equalto the market value of the underlying ordinary shares on the date of grant,defined as the higher of (i) the closing market price of our ADRs on thebusiness day immediately preceding the date of the grant, and (ii) theaverage of the closing market prices for each business day during the 30-dayperiod ending on the date of the grant. Options granted under the plangenerally become exercisable in three equal installments beginning on January 31of the year after the date of grant and expire nine years after such date.

 

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In September 2001, we adopted an additionalemployee stock option plan providing for the issuance of options covering up to11,000,000 ordinary shares of nominal value Euro 0.06 each. The purpose andadministration of the 2001 stock option plan are similar to those of the 1998stock option plan, with the only significant difference being that the latestoption termination date is March 31, 2017. Under the 2001 Option Plan, theoption exercise price per share may not be less than the greater of (1) theclosing market price of our ADSs on the NYSE on the first business dayimmediately preceding the date of grant or (2) the average of the closingmarket price of the ADSs on the NYSE for each business day during the 30-dayperiod ending on the date of grant.

 

On September 14, 2004, our Chairman andmajority stockholder, Mr. Leonardo Del Vecchio, allocated shares previouslyheld through La Leonardo Finanziaria S.r.l., now held through Delfin S.a.r.l,both holding companies of the Del Vecchio family, representing 2.07 percent (or9.6 million shares) of the Company’s currently authorized and issued sharecapital, to a stock option plan for our top management at an exercise price ofEuro 13.67 per share (see Note 11 to the Consolidated Financial Statementsincluded in Item 18 of this annual report). The stock options to be issuedunder the stock option plan vested upon the achievement of certain economicobjectives as of June 30, 2006, and, as such, the holders of these optionsbecame entitled to exercise such options beginning on that date until theirtermination in 2014. 400,000 options from this grant were exercised in 2007 andno options were exercised in 2008.

 

In July 2006, weadopted an additional employee stock option plan providing for the issuance ofoptions covering up to 20,000,000 ordinary shares of nominal value of Euro 0.06each. The purpose of the plan is to provide additional incentives to keyemployees of the Group. Under the 2006 Option Plan, the option exercise priceper share shall be the fair market value of an ordinary share on the date ofgrant, which, for U.S. employees, is defined as the higher of (1) thearithmetic average of the official market price of our ordinary shares on theMTA during the month ending on the day prior to the date of grant or (2) theofficial market price of our ordinary shares on the MTA on the trading dayimmediately preceding the date of grant. Options granted under the plangenerally become exercisable three years after the date of grant and expirenine years after such date.

 

In May 2008, a performanceshares plan for the top managers of the Company and other companiesdirectly or indirectly controlled by the Company to be identified by the Board (the “Plan”) was adopted. The Plan isintended to strengthen the loyalty of our key employees and to recognize theircontributions to our success on a medium- to long-term basis. The beneficiariesof the Plan will be granted the right to receive ordinary shares (“Units”),without consideration, at the end of a three-year vesting period and subject toachievement of certain Company performance targets to be determined by ourBoard. The Plan will have a term of five years, during which the Board mayresolve to issue different grants to the Plan’s beneficiaries. The Plan coversa maximum of 6,500,000 ordinary shares. Each annual grant will not exceed2,000,000 Units. OnMay 13, 2008, the Board of Directors granted a total of 1,203,600 Units.On May 7, 2009, the Board of Directors granted a total of 1,435,000 Units.Employees who received awards under the Plan were directors, officers and othermanagers with highly strategic roles who were selected by the Board ofDirectors upon the direct recommendation of our Human Resources Committee.

 

On May 7, 2009, our Board of Directorsauthorized the reassignment of new options to employees who were thenbeneficiaries of the stock option grants approved in 2006 and 2007 and heldoptions with an exercise price, considering present market conditions and thefinancial crisis, that was significantly higher than the market price at suchtime, undermining the performance incentives that typically form the foundationof these plans. The Board of Directors therefore approved the grant of newoptions to the beneficiaries of the abovementioned stock option grants, whichwill be exercisable — conditional upon the surrender of the options granted in2006 and/or 2007 — at an exercise price determined pursuant to the provisionsof the 2001 and 2006 Stock Option Plans and, therefore, consistent with themarket values of Luxottica shares at the time of grant of the new options.

 

In connection with the reassignment of options to employees notdomiciled in the United States:

 

(1) 85 employee-beneficiaries of the2006 and 2007 stock option grants surrendered the options previously granted tothem under the abovementioned grants in order to be assigned new optionsgranted by the Board of Directors on May 7, 2009. Each such beneficiarywas assigned options granting the right to purchase the same number ofLuxottica Group ordinary shares that were subject to the options he or shepreviously held pursuant to the abovementioned grants, for a total amount of2,060,000 options. The new options were granted under the 2006 stock optionplan at an exercise price of Euro 13.45 per share.

 

(2) 10 employee-beneficiaries of the2006 3-year extraordinary stock option grant surrendered the options previouslygranted to them under the abovementioned grant in order to be assigned newoptions granted by the Board of Directors on May 7, 2009. Each suchbeneficiary was assigned options granting the right to purchase the same numberof Luxottica Group 

 

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ordinary shares that were subject to the options he or she previouslyheld pursuant to the abovementioned grant, reduced by 50%, for a total amountof 4,250,000 options. The new performance options were granted under the 2006stock option plan at an exercise price of Euro 13.45 per share.

 

The reassignment of options for employees domiciled inthe U.S. was structured as a tender offer. The offer expired on June 12,2009.  All outstanding eligible optionsthat were properly tendered under the reassignment program by eligibleemployees have been accepted.

 

Pursuant to the terms ofthe reassignment program, Luxottica accepted for cancellation options topurchase 3,725,000 ordinary shares, representing approximately 99.6% of theshares underlying all eligible options held by U.S. employees.  Of this amount, 825,000****shareswere subject to options issued under the 2006 and 2007 stock option grants,while 2,900,000 shares were subject to options issued under the 2006 3-yearextraordinary performance stock option grant. Pursuant tothe terms and conditions of the reassignment program, on June 12, 2009,Luxottica issued new options to purchase an aggregate of 2,275,000****ordinary shares to U.S. employees who properly tenderedeligible options, consisting of options issued under the Luxottica 2001 StockOption Plan to purchase an aggregate of 825,000 ordinary shares and newperformance options issued under the Luxottica 2006 Stock Option Plan topurchase an aggregate of 1,450,000 ordinary shares.

 

The new options issued under the Luxottica 2001Stock Option Plan have an exercise price of Euro 15.03 per share.  The new performance options issued under theLuxottica 2006 Stock Option Plan have an exercise price of Euro 15.11 pershare.

 

As of December 31, 2008, there were 14 separategrants outstanding under the plans described above, detailed as follows:

 
| ** **                      | ** ** | **Number of  ordinary shares  underlying  options granted(1)** | ** ** | **Exercise  Price(1)**     | ** ** | **Expiration Date** | ** **             | **Options held  by officers  and directors  (1)** | ** ** |
|---------------------------------|------------|-------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------|------------------------|------------------------------------------------------------------|------------|
|                            |       |                                                                          |       |                       |       |                     |                   |                                                             |       |   |
| **2000 Grant**                  |       | 2,142,200                                                                     |       | Euro   9.52 |       |                     | January 31, 2009  |                                                             | 19,000     |   |
| **2001 Grant**                  |       | 2,079,300                                                                     |       | U.S.$ 15.20           |       |                     | January 31, 2010  |                                                             | 8,100      |   |
| **2002 Grant**                  |       | 2,348,400                                                                     |       | U.S.$ 17.80           |       |                     | January 31, 2011  |                                                             | 8,100      |   |
| **2003 Grant**                  |       | 2,397,300                                                                     |       | Euro 10.51                 |       |                     | January 31, 2012  |                                                             | 56,000     |   |
| **2004 Grant**                  |       | 2,035,500                                                                     |       | Euro 13.79                 |       |                     | January 31, 2013  |                                                             | 422,100    |   |
| **2004 Performance Grant**      |       | 1,000,000                                                                     |       | U.S.$ 18.59           |       |                     | January 31, 2012  |                                                             | 290,000    |   |
| **2004 Shareholder Grant**      |       | 9,600,000                                                                     |       | Euro 13.67                 |       |                     | December 31, 2014 |                                                             | 9,200,000  |   |
| **2005 Grant**                  |       | 1,512,000                                                                     |       | Euro 16.89                 |       |                     | January 31, 2014  |                                                             | 162,000    |   |
| **2006 Grant(2)**               |       | 1,725,000                                                                     |       | Euro 22.19                 |       |                     | January 31, 2015  |                                                             | 760,000    |   |
| **2006 Performance Grant 1(2)** |       | 3,500,000                                                                     |       | Euro 22.09                 |       |                     | July 27, 2015     |                                                             | 2,700,000  |   |
| **2006 Performance Grant 2(2)** |       | 9,500,000                                                                     |       | Euro 20.99                 |       |                     | July 27, 2015     |                                                             | 9,250,000  |   |
| **2007 Grant(2)**               |       | 1,745,000                                                                     |       | Euro 24.05                 |       |                     | March 6, 2016     |                                                             | 180,000    |   |
| **2008 Grant**                  |       | 2,020,500                                                                     |       | Euro 18.08                 |       |                     | March 14, 2017    |                                                             | 115,000    |   |
| **2008 PSP Grant**              |       | 1,203,600                                                                     |       | N/A                        |       |                     | N/A                    |                                                             | 948,000    |   |
|                                 |            |                                                                               |            |                            |            |                          |                        |                                                                  |            |  |  |

 

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(1)           As restated to reflect the June 2000two-for-one stock split.

(2)           These grants were subject tothe reassignment of new options discussed above which was completed in June 2009.

 

*Stockoptions and PSP Units held by directors and senior managers*

 

Setforth below is certain information regarding stock options held by ourdirectors and our senior managers (who are not directors) as a group, preparedand disclosed as required by applicable Italian law.

 

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|                            |      | **Options  held at the beginning of  2008** |   | **Options  granted during 2008** |   | **Options  exercised during 2008** |             | **Options  expired  during  2008** |    | **Options  held at the end of 2008** |   |
|---------------------------------|-----------|---------------------------------------------|--------|----------------------------------|--------|------------------------------------|------------------|------------------------------------|---------|--------------------------------------|--------|
| **Name and   Position**         |      | **Number  of  Options**                     |   | **Average  exercise  price**     |   | **Average  expiration   date**     |             | **Number  of  Options**            |    | **Average  exercise  price**         |   | **Average  expiration  date** |   | **Number  of  Options** |   | **Average  exercise  price** |   | **Average  market  price at  exercise** |   | **Number  of  Options** |   | **Number  of  Options** |   | **Average  exercise  price** |   | **Average  expiration date** |   |
| Andrea                          |      | 2,000,000                                   |   | €                           | 13.67  |                               | 2014(a)          |                               |    |                                 |   |   |   |   | — |   |   |   |   |   | — |   | 2,000,000 |   | € | 13.67 |   | 2014(a) |   |
| Guerra, Chief                   |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Executive Officer and  Director |      | 2,500,000                                   |   | €                           | 20.99  |                               | 2015(a) (b)      |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 2,500,000 |   | € | 20.99 |   | 2015(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Luigi                           |      | 140,500                                     |   | €                           | 17.98  |                               | 2014(c)          |                               |    |                                 |   |   |   |   | — |   |   |   |   |   | — |   | 140,500 |   | € | 17.98 |   | 2014 |   |
| Francavilla,                    |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deputy                          |      | 2,000,000                                   |   | €                           | 13.67  |                               | 2014(a)          |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 2,000,000 |   | € | 13.67 |   | 2014(a) |   |
| Chairman and                    |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chief Quality Officer           |      | 1,500,000                                   |   | €                           | 20.99  |                               | 2015(a) (b) |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 1,500,000 |   | € | 20.99 |   | 2015(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Enrico                          |      | 93,500                                      |   | €                           | 20.08  |                               | 2014(c)          |                               |    |                                 |   |   |   |   |   |   |   |   |   |   | — |   | 93,500 |   | € | 20.08 |   | 2014 |   |
| Cavatorta,                      |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chief                           |      | 1,200,000                                   |   | €                           | 13.67  |                               | 2014(a)          |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 1,200,000 |   | € | 13.67 |   | 2014(a) |   |
| Financial                       |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Officer and Director            |      | 1,100,000                                   |   | €                           | 20.99  |                               | 2015(a) (b) |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 1,100,000 |   | € | 20.99 |   | 2015(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Roberto                         |      | 140,500                                |   | €                           | 17.98  |                               | 2014             |                               |    |                                 |   |   |   |   | — |   |   |   |   |   | — |   | 140,500 |   | € | 17.98 |   | 2014 |   |
| Chemello,                       |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Director                        |      | 2,000,000                                   |   | €                           | 13.67  |                               | 2014(a)          |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 2,000,000 |   | € | 13.67 |   | 2014(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |      | 1,100,000                                   |   | €                           | 20.99  |                               | 2015(a)          |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   | 1,100,000 |   | € | 20.99 |   | 2015(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sabina Grossi, Director         |      | 50,400                                      |   | €                           | 10.82  |                               | 2011             |                               | —  |                                 |   |   | — |   | 50,400 |   | € | 10.42 |   | € | 15.40 |   | — |   |   |   |   |   |   |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Senior Managers                 |      | 1,248,400                              |   | €                           | 19.10  |                               | n.a. (c)         |                               | 115.000 |                                 | € | 18,08 |   | 2017 |   | 8,000 |   | € | 9.52 |   | € | 17.04 |   |   |   | 1,355,800 |   | € | 18.81 |   | n.a. |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            | 2,000,000 |                                        | € | 13.67                            |   | 2014(a)                            |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   | 2,000,000 |   | € | 13.67 |   | 2014(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            | 5,750,000 |                                        | € | 21.51                            |   | 2015(a) (b)                   |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   | 5,750,000 |   | € | 21.51 |   | 2015(a) |   |
|                            |      |                                        |   |                             |   |                               |             |                               |    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            | 310,000   |                                        | € | 12.63                            |   | 2012(a)                            |             |                               |    |                                 |   |   |   | 20,000 |   | € | 12.70 |   | € | 17.60 |   |   |   | 290,000 |   | € | 13.36 |   | 2012(a) |   |

 

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(a)          The options areexercisable subject to the achievement of certain targets.

(b)         These options weresubject to the reassignment of new options discussed above.

(c)          These options include those subject to the reassignmentdiscussed above.

 

Setforth below is certain information regarding the PSP Units held by ourdirectors and our senior managers (who are not directors) as a group as of December 31,2008:

 
| **Name**                    | ** ** | **Role**                                   | ** ** | **Date of grant** | ** ** | **Number of Units** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|-------------------|------------|---------------------|------------|
| Luigi  Francavilla          |       | Deputy Chairman and  Chief Quality Officer |       | 5/13/2008         |       | 120,000             |       |
| Andrea  Guerra              |       | Director and CEO                           |       | 5/13/2008         |       | 240,000             |       |
| Enrico  Cavatorta           |       | Director and CFO                           |       | 5/13/2008         |       | 96,000              |       |
| Senior  Managers as a Group |       | —                                     |       | 5/13/2008         |       | 747,600             |       |

 

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**ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

 

**Major Shareholders**

 

The following tablesets forth, as of April 29, 2009, the beneficial ownership of ordinaryshares by each person known by us to beneficially own two percent or more ofthe outstanding ordinary shares (including ordinary shares represented byADSs):

** **
| **Identity of Person or Group** | ** ** | **Amount of  Shares Owned** | ** ** | **Percent of  Class** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|----------------------------|------------|
| Leonardo Del Vecchio                                |       | 314,403,339                           |       | 67.833                     | %          |
| Giorgio Armani                                      |       | 22,724,000                            | (1)        | 4.903                      | %          |
| Harris Associates L.P.                              |       | 9,436,900                             | (2)        | 2.036                      | %          |

 

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(1)        Including 13,514,000 shares represented by ADSs, and 9,210,000 sharesrepresented by ordinary shares. Of those, 9,010,000 ordinary shares are helddirectly and 200,000 ordinary shares are held indirectly through Giorgio ArmaniS.p.A.

 

(2)           Based on the ownership disclosure as reported by Harris Associates L.P.to the Company and Consob on April 9, 2008. Harris Associates L.P. hassince notified Consob and the Company that as of May 27, 2009 it ownedless than 2% of our ordinary shares.

 

Theshares held by Mr. Del Vecchio and our other directors and executiveofficers have the same voting rights as the shares held by other stockholders.

 

Mr. Del Vecchio is our controlling stockholderand serves as Chairman of our Board of Directors. We are not otherwise directlyor indirectly owned or controlledby another corporation or by any foreign government.

 

As of April 29,2009, approximately 7.466 percent of our ordinary shares were held in the formof ADSs by approximately 18,600 record holders.

 

To the best of our knowledge, to date there are noarrangements which may result in a change of control of LuxotticaGroup S.p.A.

 

**Related Party Transactions**

 

*Fixed Assets*

 

In connection with the acquisition of ourheadquarters building in Milan, our subsidiary entered into an agreementleasing a portion of this building, consisting of approximately 1,017.3 squaremeters, to our Chairman for Euro 0.5 million annually. The expiration date ofthis lease was originally September 15, 2010. The parties agreed toterminate the contract on March 15, 2008 due to the Company’s need foradditional office space. Management believes that the terms of the lease werefair to the Company.

 

*License Agreements*

 

We have a worldwide exclusive license agreement tomanufacture and distribute ophthalmic products under the Brooks Brothers name.The Brooks Brothers trade name is owned by Retail Brand Alliance, Inc. (“RBA”),which is controlled by Claudio Del Vecchio, one of our directors. The licenseagreement expires in December 2009. Royalties paid to RBA for suchagreement were Euro 0.8 million, Euro 0.9 million and Euro 1.3 million in theyears ended December 31, 2008, 2007 and 2006, respectively.

 

In July 2004, we signeda worldwide exclusive license agreement to manufacture and distributeophthalmic products under the name of Adrienne Vittadini. The AdrienneVittadini trade name was owned by RBA until November 2006 when the licensewas sold by RBA to a party that is unaffiliated with the Company. For the yearended December 31, 2006, royalties paid to RBA for such agreement wereEuro 1.0 million.

 

Management believes that the terms of both of theselicense agreements are fair to the Company.

 

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*ServiceRevenues*

 

During the years ended December 31, 2008, 2007and 2006, U.S. Holdings performed consulting and advisory services relating torisk management and insurance for RBA. Amounts received for the servicesprovided for those years were Euro 0.1 million, Euro 0.2 million and Euro 0.7million, respectively.  Managementbelieves that the compensation received for these services is fair to theCompany.

 

*Stockholder Plan*

 

On September 14, 2004, our Chairman andmajority stockholder, Mr. Leonardo Del Vecchio, allocated sharespreviously held through holding companies of the Del Vecchio family,representing 2.07 percent (or 9.6 million shares) of the Company’s currentlyauthorized and issued share capital, to a stock option plan for our topmanagement. See Item 6. — “Directors, Senior Management and Employees —Compensation.”

 

**ITEM 8. FINANCIAL INFORMATION**

 

**Financial Statements**

 

See Item 18—“Financial Statements.”

 

**Legal Proceedings**

 

The Company and its subsidiaries are involved in thefollowing legal and regulatory proceedings of which, unless already settled orotherwise concluded, the timing and outcomes are inherently uncertain, and suchoutcomes could have a material adverse effect on the Company’s business,financial position or operating results.

 

*California Vision Health CareService Plan Lawsuit*

 

In March 2002, an individual commenced anaction in the California Superior Court for the County of San Francisco againstthe Company and certain of its subsidiaries, including LensCrafters, Inc.and EYEXAM of California, Inc. The plaintiffs sought to certify this caseas a class action. The claims against LensCrafters and EYEXAM alleged variousstatutory violations relating to the confidentiality of medical information andthe operation of LensCrafters’ stores in California, including violations ofCalifornia laws governing relationships among opticians, optical retailers,manufacturers of frames and lenses and optometrists, and other unlawful orunfair business practices. The action sought unspecified damages, statutorydamages of U.S. $1,000 per class member, return of profits, restitution ofallegedly unjustly obtained sums, punitive damages and injunctive relief,including an injunction that would prohibit defendants from providing eyeexaminations or other optometric services at LensCrafters stores in California.

 

The partiesreached a settlement that offered a range of benefits, including store vouchersand a cash option, along with certain enhancements to LensCrafters’ businesspractices. The Court granted final approval of the settlement, and finaljudgment was entered on August 7, 2008. The settlement became final on October 6, 2008.

 

Amounts paid to settle this litigation and relatedcosts incurred for the years ended December 31, 2008, 2007 and 2006 werenot material.

 

*Cole Consumer Class Action Lawsuit*

 

In June 2006, Cole and its subsidiaries were suedby a consumer in a class action that alleged various statutory violationsrelated to the operations of Pearle Vision, Inc. and Pearle VisionCare, Inc.in California. The claims and remedies sought are similar to those asserted inthe LensCrafters and EYEXAM case. The parties entered into a settlementagreement, which provides for a store voucher at Pearle Vision or LensCraftersfor each class member and the payment of attorneys’ fees and costs. On December 19,2008, the court granted final approval of the settlement and entered finaljudgment. The settlement became final on March 17, 2009.

 

Amounts paid to settle this litigation and relatedcosts incurred for the years ended December 31, 2008, 2007 and 2006 werenot material.

 

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*Oakley Stockholder Lawsuit*

 

On June 26, 2007, the Pipefitters Local No. 636Defined Benefit Plan filed a class action complaint, on behalf of itself and all other stockholders of Oakley, against Oakleyand its Board of Directors in California Superior Court, County of Orange. The complaint alleged, among other things, that thedefendants violated their fiduciary duties to stockholders by approving Oakley’smerger with Luxottica and claimed that the price per share fixed by the mergeragreement was inadequate and unfair. The defendants filed demurrers to thecomplaint, which the Court granted without prejudice. On September 14,2007, the plaintiff filed an amended complaint containing the same allegationsas the initial complaint and adding purported claims for breach of the duty ofcandor. Because we believed the allegations were without merit, on October 9,2007, the defendants filed a demurrer to the amended complaint. Rather than respond to that demurrer, theplaintiff admitted that its claims were moot and on January 4, 2008 fileda motion for attorneys’ fees and expenses. The hearing for this motion tookplace on April 17, 2008. On May 29, 2008, the Court issued a rulingdenying the plaintiff’s motion for attorneys’ fees and expenses in itsentirety. The court did not rule on the defendants’ demurrer to theamended complaint. On July 11, 2008, the Court entered an orderdismissing the action with prejudice and denying the plaintiff’s motion forattorneys’ fees and expenses.  Theplaintiff has appealed the Court’s May 29, 2008 ruling and the July 11,2008 order.

 

Costs associated with this litigation incurred forthe years ended December 31, 2008 and 2007, were not material. Managementbelieves, based in part on advice from counsel, that no estimate of the rangeof possible losses, if any, can be made at this time.

 

*Fair Credit Reporting ActLitigation*

 

In January 2007,a complaint was filed against Oakley and certain of its subsidiaries in theUnited States District Court for the Central District of California, allegingwillful violations of the Fair and Accurate Credit Transactions Act related tothe inclusion of credit card expiration dates on sales receipts. Plaintiffbrought suit on behalf of a class of Oakley’s customers. Oakleydenied any liability and later entered into a settlement arrangement withPlaintiff that resulted in a complete release in favor of the Oakleydefendants, with no cash payment to the class members but rather an agreementby Oakley to issue vouchers for the purchase of products at Oakley retailstores during a limited period of time. The settlement also provided for thepayment of attorneys’ fees and claim administration costs by the Oakleydefendants.  An order approving thissettlement was entered on November 24, 2008.

 

Amounts paid to settle this litigation and relatedcosts incurred for the years ended December 31, 2008 and 2007, were notmaterial.

 

*Texas LensCrafters Class ActionLawsuit*

 

In May 2008, two individual optometristscommenced an action against LensCrafters, Inc. and Luxottica Group S.p.A.in the United States District Court for the Eastern District of Texas, allegingviolations of the Texas Optometry Act (“TOA”) and the Texas Deceptive TradePractices Act and tortious interference with customer relations.  The suit alleges that LensCrafters hasattempted to control the optometrists’ professional judgment and that certainterms of the optometrists’ sub-lease agreements with LensCrafters violate theTOA.  The suit seeks recovery of a civilpenalty of up to U.S.$1,000 for each day of a violation of the TOA, injunctiverelief, punitive damages and attorneys’ fees and costs.  In August 2008, plaintiffs filed a firstamended complaint, adding claims for fraudulent inducement and breach ofcontract.  In October 2008,plaintiffs filed a second amended complaint seeking to certify the case as aclass action on behalf of all current and former LensCrafters sub-leaseoptometrists.  Luxottica Group S.p.A.filed a motion to dismiss for lack of personal jurisdiction in October 2008.  That motion is currently pending.  The case was transferred to the WesternDistrict of Texas, Austin Division, in January 2009, pursuant to thedefendants’ motion to transfer venue. Although the Company believes that its operational practices in Texascomply with Texas law, if this action results in an adverse decision,LensCrafters may have to modify its activities in Texas.  Further, LensCrafters and Luxottica Groupmight be required to pay statutory damages, the amount of which may have amaterial adverse effect on the Company’s operating results, financial conditionand cash flow.

 

Costs associated with this litigation for the yearended December 31, 2008 were not material. Management believes, based inpart on advice from counsel, that no estimate of the range of possible losses,if any, can be made at this time.

 

The outcome of the outstanding litigation claimsdescribed above is inherently uncertain, and there can be no assurance that oneor more of these actions, if adversely determined, will not have a materialadverse effect on our business, results of operations and financial condition.In addition, we may be subject to material claims, judgments or proceedings inthe future which, if 

 

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adverselydetermined, may have a material adverse effect on our business, results ofoperations and financial condition. See Item 3—“Key Information—Risk Factors—Ifwe become subject to adverse judgments or determinations in legal proceedingsto which we are, or may become, a party, our future profitability could sufferthrough a reduction of sales or increased costs.”

 

The Company is a defendant in various other lawsuitsarising in the ordinary course of business. It is the opinion of the managementof the Company that it has meritorious defenses against all such outstandingclaims, which the Company will vigorously pursue, and that the outcome of suchclaims, individually or in the aggregate, will not have a material adverseeffect on the Company’s consolidated financial position or results ofoperations.

 

**Dividend Distributions**

 

See Item 3—“Key Information—Dividends” and Item 10—“AdditionalInformation—Dividends.”

 

**Significant Changes**

 

Except as otherwise indicated above, no significantchanges have occurred since the date of our annual financial statementsincluded in this Form 20-F.

 

**ITEM 9. THE OFFER AND LISTING**

 

Our ordinary shares were approved for trading on theMilan Stock Exchange on December 4, 2000. Our ADSs were admitted fortrading on the NYSE on January 24, 1990. Our ADSs are evidenced by ADRsissuable by Deutsche Bank Trust Company Americas, as depositary, pursuant to aDeposit Agreement.

 

The table below sets forth, for the periodsindicated, high and low closing prices of the ADSs on the NYSE (in U.S.dollars) and ordinary shares on the Milan Stock Exchange (in Euro).

** **
| ** **         | ** ** | **New York Stock Exchange** | ** ** | **Milan Stock Exchange** | ** ** |
|--------------------|------------|--------------------------------------------|------------|------------------------------------|------------|
| ** **         | ** ** | **(in U.S.$)**                        | ** ** | **(in Euro)**                 | ** ** |
| ** **         | ** ** | **High**                                   | ** ** | **Low**                            | ** ** | **High** | ** ** | **Low** | ** ** |
|               |       |                                       |       |                               |       |   |   |   |   |
| **2004**           |       | 20.39                                      |       | 15.18                              |       | 15.51 |   | 12.43 |   |
| **2005**           |       | 25.83                                      |       | 19.69                              |       | 21.94 |   | 15.11 |   |
| **2006**           |       | 31.39                                      |       | 24.36                              |       | 24.46 |   | 19.30 |   |
| **2007**           |       | 39.38                                      |       | 29.70                              |       | 28.79 |   | 21.33 |   |
| First Quarter      |       | 32.81                                      |       | 29.70                              |       | 24.92 |   | 22.72 |   |
| Second Quarter     |       | 38.64                                      |       | 32.00                              |       | 28.78 |   | 23.91 |   |
| Third Quarter      |       | 39.38                                      |       | 33.02                              |       | 28.79 |   | 23.87 |   |
| Fourth Quarter     |       | 37.19                                      |       | 30.84                              |       | 26.35 |   | 21.33 |   |
| December 2007 |       | 33.58                                      |       | 30.84                              |       | 22.86 |   | 21.48 |   |
| Year 2007     |       | 39.38                                      |       | 29.70                              |       | 28.79 |   | 21.33 |   |
| **2008**           |       |                                       |       |                               |       |   |   |   |   |
| First Quarter      |       | 30.92                                      |       | 23.15                              |       | 21.15 |   | 14.80 |   |
| Second Quarter     |       | 29.62                                      |       | 23.33                              |       | 19.40 |   | 14.90 |   |
| Third Quarter      |       | 27.06                                      |       | 21.94                              |       | 18.59 |   | 13.80 |   |
| Fourth Quarter     |       | 22.50                                      |       | 15.98                              |       | 16.70 |   | 12.67 |   |
| December 2008 |       | 20.02                                      |       | 17.60                              |       | 15.15 |   | 12.67 |   |
| Year 2008     |       | 30.92                                      |       | 15.98                              |       | 21.15 |   | 12.67 |   |
| **2009**           |       |                                       |       |                               |       |   |   |   |   |
| January 2009  |       | 18.60                                      |       | 14.22                              |       | 13.49 |   | 10.96 |   |
| February 2009 |       | 15.32                                      |       | 12.84                              |       | 11.85 |   | 10.21 |   |
| March 2009    |       | 15.43                                      |       | 11.88                              |       | 11.69 |   | 9.61 |   |
| April 2009    |       | 18.59                                      |       | 15.78                              |       | 14.07 |   | 11.85 |   |
| May 2009      |       | 21.91                                      |       | 18.45                              |       | 15.96 |   | 14.49 |   |

 

The high and low closing prices of the ADSs on theNYSE for the first quarter of 2009 were U.S.$18.60 and U.S.$11.88,respectively. The high and low closing prices of the ordinary shares on theMilan Stock Exchange for the first quarter of 2009 were Euro 13.49 and Euro9.61, respectively.

 

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**ITEM 10. ADDITIONAL INFORMATION**

 

**Articles of Association and Amended and Restated By-laws**

 

*Our Objectives*

 

Our Articles of Association provide that LuxotticaGroup S.p.A.’s principal objectives are, among other things, (i) theownership and management of other companies or entities both in Italy andabroad, (ii) financing and managerial coordination of the owned companiesand entities and (iii) providing credit support for our subsidiaries. TheLegislative Decree No. 58 of February 24, 1998 regulating the Italianfinancial markets (“Decree No. 58”) and our Amended and Restated By-laws****contain, among other things, provisions to the followingeffect:

 

*Directors*

 

The Board of Directors is invested with the fullestpowers for ordinary and extraordinary management of the company, except for theacts that the law reserves for stockholders’ meetings. Compensation of thedirectors is approved by the ordinary stockholders at the annual meeting ofstockholders. The compensation of directors who also serve as executiveofficers is determined by the Board of Directors with the favorable opinion ofthe Board of Statutory Auditors.

 

Directors are not required to hold ordinary sharesof Luxottica Group S.p.A. as a qualification for office.

 

Directors are required to report to the otherdirectors and to the Board of Statutory Auditors any transactions involving theCompany in which such director or a party affiliated with such directormay have an interest. Our directors usually abstain from voting on matters inwhich they have an interest (including their compensation), but there is norequirement under Italian law to abstain from such vote.

 

**Rights Attaching to Ordinary Shares**

 

*Dividends*

 

We are required to pay an annual dividend on theordinary shares if approved by a majority of stockholders at the ordinarymeeting that must be held within the time specified by the law in force fromtime to time. Before dividends may be paid with respect to the results of anyyear in compliance with Italian law, an amount equal to five percent of our netincome for such year must be set aside to the legal reserve until the reserve,including amounts set aside during prior years, is equal to at least one-fifthof the nominal value of our issued share capital. Dividends can only bedistributed out of realized profits, resulting from regularly approvedfinancial statements. In cases where losses have reduced the Company’s sharecapital, dividends cannot be distributed until the share capital has beenrestored or reduced accordingly. See Item 3—“Key Information—Dividends.”

 

Future determinations as to dividends will depend upon,among other things, our earnings, financial position and capital requirements,applicable legal restrictions and such other factors as the Board of Directorsand stockholders may determine. Dividends are usually paid in accordance withthe dates set annually by Borsa Italiana S.p.A. Dividends which are notcollected within five years of the date on which they become payable areforfeited in favor of the Company. Dividends are paid to those persons who holdthe ordinary shares through an intermediary on a dividend payment date declaredat the stockholders’ meeting. The intermediary, upon request by thestockholder, issues a certified statement of account allowing the stockholderto collect the dividends.

 

If dividends are not distributed and an appropriatereserve is created, the stockholders can adopt a resolution, at anextraordinary meeting, to convert such reserve into capital. In this case, theshares resulting from the increase are attributable to the stockholders withoutadditional consideration in proportion to their ownership before the increase.

 

*Notification of the Acquisition of Shares and Voting Rights*

 

Pursuant to Italian securities laws and Consob (theItalian securities regulatory authority) implementing regulations thereof, anyperson acquiring any interest in excess of two percent in the votingshares of a listed company must give notice to Consob and the company whoseshares are acquired. The voting rights attributable to the shares in respect ofwhich such notification has not been made may not be exercised. Any resolutiontaken in violation of the foregoing may be annulled if the resolution would nothave been passed in the absence of such votes.

 

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In addition, any person whose aggregate actualshareholding in a listed company exceeds or falls below two percent, fivepercent, ten percent, 15 percent, 20 percent, 25 percent, 30 percent, 35percent, 40 percent, 45 percent, 50 percent, 66.6 percent, 75 percent, 90percent or 95 percent of the listed company’s voting share capital is obligatedto notify Consob and the listed company whose shares are acquired or disposedof. For the purpose of calculating these ownership thresholds, shares owned byany person, irrespective of whether the relative voting rights are exercisableby such person or by a third party or are suspended, are taken intoconsideration and, except in certain circumstances, account should also betaken of shares held through, or shares the voting rights of which areexercisable by, subsidiaries, fiduciaries or intermediaries. Anyone directly orindirectly holding financial instruments granting the unconditional right toacquire or dispose of shares, by way of physical settlement, shall disclosewhenever said holding exceeds or falls below the following thresholds: twopercent, five percent, ten percent, 15 percent, 20 percent, 25 percent, 30percent, 50 percent or 75 percent of the listed company’s voting share capital.Notification should be made (except in certain circumstances) within fivetrading days.

 

Disclosure obligations also apply to listedcompanies whenever they hold, directly or through subsidiaries, their ownshares and whenever their holdings exceed or fall below the relevantthresholds.

 

Cross ownership between listed companies may notexceed two percent of their respective voting shares and cross ownershipbetween a listed company and an unlisted company may not exceed two percent ofthe voting shares of the listed company and ten percent of the voting shares ofthe unlisted company. If the relevant threshold is exceeded, the company whichis the latter to exceed such threshold may not exercise the voting rightsattributable to the shares in excess of the threshold and must sell the excessshares within a period of twelve months. If the company does not sell theexcess shares within twelve months, it may not exercise the voting rights inrespect of its entire shareholding. If it is not possible to ascertain which isthe later company to exceed the threshold, subject to any different agreementbetween the two companies, the limitation on voting rights and the obligationto sell the excess shares will apply to both of the companies concerned. Thetwo percent limit for cross ownership is increased to five percent on thecondition that such limit is only exceeded by the two companies concernedfollowing an agreement authorized in advance by an ordinary stockholders’meeting of each of the two companies. Furthermore, if a party holds an interestin excess of two percent of a listed company’s share capital, such listedcompany or the party which controls the listed company may not purchase aninterest above two percent in a listed company controlled by the first party.In case of non-compliance, voting rights attributable to the shares held inexcess may not be exercised. If it is not possible to ascertain who the laterparty to exceed the limit is, the limitation on voting rights will, subject todifferent agreement between the two parties, apply to both. Any stockholders’resolution taken in violation of the limitation on voting rights may beannulled by the relevant court if the resolution would not have been passed inthe absence of such votes. The foregoing provisions in relation to crossownership do not apply when the thresholds are exceeded following a publictender offer aimed at acquiring at least 60 percent of the company’sshares.

 

The validity of any agreement regarding the exerciseof the voting rights attached to shares of a listed company or of its parentcompany is subject to the notification of such agreement to Consob, thepublication of a summary of such agreement in the press and the filing of theagreement with the Register of Enterprises, in each case, within five days, tendays and 15 days, respectively, of the date of the agreement. Failure tocomply with the foregoing requirements will render the agreement null and voidand the voting rights of the relative shares cannot be exercised.

 

The agreements subject to the above include thosewhich: (i) regulate the exercise of, or prior consultation for theexercise of voting rights in, a listed company or its controlling company; (ii) containlimitations on the transfer of shares or securities which grant the right topurchase or subscribe for shares; (iii) provide for the purchase of sharesor securities mentioned in (ii);  (iv) haveas their object or effect the exercise (including joint exercise) of a dominantinfluence over the company; or (v) aim to encourage or frustrate atakeover bid or equity swap, including commitments relating tonon-participations in a takeover bid.

 

Any agreement of the nature described above can havea legal maximum term of three years (and may be renewed for an additionalthree-year term at its expiration), and if executed for a longer term shallotherwise expire three years after its execution. Any such agreement executedfor an unlimited term can be terminated by a party upon six months’ priornotice. In the case of a public tender offer, stockholders who intend toparticipate in the tender offer may withdraw from the agreement without notice.Consob Regulation 11971/99 contains provisions which govern the method andcontent of the notification and publication of the agreements as well as anysubsequent amendments thereto.

 

*General Meetings*

 

Meetings of the stockholders may be held at our executive offices in Italy, in any country inthe European Union or in the United States, following publication of notice ofthe meeting, including the agenda, in the “Gazzetta Ufficiale della RepubblicaItaliana” or, alternatively, in one of the following daily newspapers: “Il Sole24Ore,” “Il Corriere della Sera” or 

 

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“la Repubblica” at least30 days before the date fixed for the meeting. Deutsche Bank Trust CompanyAmericas will mail to all record holders of ADRs a notice containing a summaryof the information contained in any notice of a stockholders’ meeting receivedby Deutsche Bank Trust Company Americas. See “—Documents on Display.”

 

Meetings of stockholders may be either ordinarymeetings or extraordinary meetings. Stockholders’ meetings may be called by theBoard of Directors or the Board of Statutory Auditors. In the case of a listedcompany in Italy, stockholders’ meetings must be promptly convened upon therequest of holders representing at least ten percent of the share capital,provided that the request contains a summary of the matters to be discussed.The Board of Directors may, however, resolve not to convene a meeting if theinterest of Luxottica so requires. In this case, the competent Court, on appealby the stockholders who have asked for such meeting, can order by decree, afterhaving conferred with the Board of Directors and the Board of StatutoryAuditors, that such meeting be convened. Stockholders’ meetings may not beconvened upon the request of stockholders whenever the matter to be dealt withat such meeting requires a proposal, a presentation document or a report by theBoard of Directors.

 

Holders of ordinary shares are entitled to attendand vote at ordinary and extraordinary stockholders’ meetings. Each holder isentitled to cast one vote for each ordinary share held. Votes may be castpersonally or by proxy, in accordance with applicable Italian regulation.However, the voting rights of ordinary shares held in breach of applicable lawmay in some cases not be exercised.

 

Ordinary stockholders’ meetings must be convened atleast once a year to approve the annual financial statements of LuxotticaGroup S.p.A. Our By-laws provide that the meeting for the approval of thefinancial statements can be convened within the time specified by the law inforce from time to time.

 

At ordinary stockholders’ meetings, stockholdersresolve upon dividend distribution, if any, appoint the Directors, StatutoryAuditors and external auditors, determine their remuneration and vote onbusiness matters submitted by the Directors.

 

The quorum required, in person or by proxy, for anordinary meeting, upon first notice is at least 50 percent of the totalnumber of issued and outstanding ordinary shares, while on second call there isno quorum requirement. Resolutions at ordinary meetings may be adopted, infirst and second calls, by a simple majority of ordinary shares represented atsuch meeting.

 

To the extent provided by law, stockholders whorepresent at least 1/40 of the share capital issued and outstanding mayrequest, within five days from the publication of the agenda, a supplement ofthe agenda provided that the request contains a summary of the matters to bediscussed.

 

The Board of Directors, composed, in accordance withthe By-laws, of not less than five and not more than 15 directors, shall beappointed by the stockholders at the ordinary meeting on the basis of listspresented by stockholders pursuant to the procedures indicated below.

 

A list for the appointment of directors can bepresented only by those stockholders who, alone or jointly with otherpresenting stockholders, at the time of the presentation of the list, hold anaggregate interest at least equal to the percentage established by Consob pursuantto article 147 ter subparagraph 1 Legislative Decree 58/98. For 2009, thepercentage established by Consob for Luxottica was equal to 1%. Eachstockholder may not submit or contribute to submitting, by means of trust orproxy, more than one list. The lists shall set forth not more than fifteencandidates, listed in descending numerical order.

 

Pursuant to article 147ter, subparagraph 4,legislative decree no. 58/1998, at least one director, or in the event theBoard is composed of more than seven members, then at least two directors, mustfulfill the necessary requirements to be considered ‘‘independent’’ inaccordance with article 147ter (hereinafter ‘‘147ter Independent Director’’).

 

The lists, signed by the stockholder or stockholderssubmitting them, together with the professional resumes of the candidates,shall be filed at the registered office of the Company at least 15 days priorto the first call for an ordinary meeting, together with a certification fromwhich title to the interest in the ordinary shares can be confirmed. Within thesame time period mentioned above, each candidate shall file a statementdeclaring that he/she accepts his/her candidacy, confirming, under his/her ownresponsibility, that there are no grounds in accordance with law or regulationfor his/her ineligibility or incompatibility and that he/she meets anyrequirements prescribed in the respective lists.

 

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Each list shall contain, and expressly name within thefirst seven candidates named in the list, at least one 147ter IndependentDirector, and if the list is composed of more than seven candidates, such listshall contain and expressly name a second 147ter Independent Director. Ifappropriate, each list may also expressly name directors having therequirements of independence as provided for by the codes of conductestablished by companies managing regulated markets or industry associations.

 

No candidate may appear on more than one list.

 

At the end of voting, the candidates from the twolists that have obtained the highest number of votes will be elected, accordingto the following criteria:

 

(a)      all members of the Board, up to the number of membersof the Board previously determined by the ordinary meeting less one, will beelected from the list which obtains the most votes (hereinafter, the ‘‘MajorityList’’).

 

Such candidates will be appointed in the numericalorder they appear on the list.

 

(b)         One director shall be the candidate listed first onthe list that has obtained the second highest number of votes and who is notrelated to or affiliated with, directly or indirectly, the stockholders whohave presented or voted for the Majority List (hereinafter, the ‘‘Minority List’’).However, if, for a board composed of no more than seven members, a 147terIndependent Director is not elected from the Majority List or, in the event theboard is composed of more than seven members, only one 147ter IndependentDirector has been appointed, then the first 147ter Independent Directorindicated in the Minority List shall be elected instead of the first candidateindicated in the Minority List.

 

The lists that do not obtain a percentage of votes atleast equal to half of that required for the presentation of the list ofcandidates shall not be considered.

 

The first candidate listed on the Majority List willbe appointed as Chairman of the Board of Directors.

 

In the event of a tie with respect to the top twolists, the ordinary meeting will proceed to take a new vote on only the top twolists.

 

If only one list is submitted, the ordinary meetingwill cast its votes on it and, if the list receives a simple majority of votes,the candidates listed in descending numerical order will be elected asdirectors, until the requisite number, as determined by the ordinary meeting,is reached, subject to the obligation of the ordinary meeting to appoint aminimum number of 147ter Independent Directors. The candidate listed first onthe Majority List will be elected as Chairman of the Board of Directors.

 

If there are no lists, the Board of Directors will beappointed by the ordinary meeting with such majorities as required by law.

 

The Board of Statutory Auditors, composed, inaccordance with the By-laws, of three regular auditors and two alternateauditors, shall be appointed by the stockholders at the ordinary meeting on thebasis of lists presented by stockholders pursuant to the procedures indicatedbelow.

 

The appointment of oneregular Statutory Auditor, as Chairman, and of one alternate Statutory Auditorshall be reserved for the stockholders who presented or voted the MinorityList, who must not be related, directly or indirectly, to the stockholders whopresented or voted the Majority List.

 

Pursuant to article 27 ofour By-laws a list for the appointment of statutory Auditors can be presentedonly by those stockholders who, alone or jointly with other presentingstockholders, at the time of the presentation of the list, hold an aggregateinterest at least equal to the one established by Consob pursuant to article147-ter, subparagraph 1, of legislative decree 58/98. For 2009, the percentageestablished by Consob for Luxottica was equal to 1%.

 

The lists shall be filedat the registered office of the Company at least fifteen days prior to thestockholders’ meeting called for the appointment of the Statutory Auditors.

 

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The lists shall indicatethe name of one or more candidates to be appointed as regular Auditors andalternate Auditors.

 

The name of eachcandidate shall be marked in a descending numerical order in each section(section of regular Auditors and section of alternate Auditors) and thecandidates listed shall not be more than the members of the body to beappointed.

 

The lists shall also include the following:

 

(i) information related to the identityof the stockholders who have filed the list, indicating the percentage of theircombined shareholding and documents giving evidence of the lawful title oftheir shareholding;

 

(ii) representations of stockholdersdifferent from the ones who hold, separately or jointly, a controlling interestor a simple majority interest in the share capital of the Company, stating thelack of affiliation as per section 114quinquies of Regolamento Emittenti;and

 

(iii) detailed information on personaland professional qualifications of each candidate as well as a declaration bythe candidate confirming the existence of the qualifications required by law,the acceptance of the office together with such candidate’s administration andcontrol offices held in other companies.

 

In the event that only one list is submittedor only lists by related-party stockholders as determined by applicable law,are submitted as of the last day provided for the presentation of such lists,it is possible to present a list until the fifth day following such date. Insuch case the above share interest thresholds providing for the presentation ofthe lists shall be reduced by half.

 

A stockholder cannot submit and vote formore than one list, including through third parties or by means of trustcompanies. Stockholders belonging to the same group and stockholders signing astockholders’ agreement regarding the shares of the listed company shall notpresent or vote for more than one list including through third parties or bymeans of trust companies. Each candidate shall present only one list subject toineligibility.

 

The appointment of the statutory auditorsshall occur according to the following criteria:

 

(i) two regular auditors and onealternate auditor shall be taken from the list which has obtained the highestnumber of votes (hereinafter the “Majority List”), on the basis of thedescending numerical order by which the candidates are listed; and

 

(ii) one regular auditor, who will alsobe the Chairman of the Board of the Statutory Auditors (hereinafter the “MinorityStatutory Auditor”), and one alternate auditor (hereinafter the “AlternateMinority Statutory Auditor”) shall be taken from the list which has obtainedthe second highest number of votes and which shall not be related to orconnected with, in any manner, the stockholders who have presented or voted forthe Majority List pursuant to applicable law (hereinafter the “Minority List”)on the basis of the descending numerical order by which the candidates arelisted. In case of an equal number of votes among the lists, the list presentedby the stockholders holding the higher shareholding interests at the time offiling, or in second instance, the list presented by the stockholders who ownedthe higher number of stockholders’ interests shall prevail.

 

If only one list issubmitted, the ordinary meeting shall vote on it and, if the same list obtainsthe majority of the voting persons, without including those abstaining fromvoting, all the candidates included in such list shall be appointed. In such casethe Chairman of the Board of the Statutory Auditors shall be the first regularstatutory auditor.

 

Extraordinary meetings of stockholders may be calledto vote upon, among other things, proposed amendments to the By-laws, capitalincreases, mergers, spin-offs, issuance of debentures, appointment of receiversand similar extraordinary actions. Extraordinary stockholders’ meetings shallbe properly convened when, in the case of the first meeting, stockholdersrepresenting at least one-half of our share capital are present at the meeting,and in the case of the second and third (and any subsequent) meetings,stockholders representing, respectively, more than one-third and one-fifth ofour share capital are present at the meeting. Resolutions are adopted on first,second and third call of extraordinary stockholders meetings with theaffirmative vote of holders of at least two-thirds of the shares represented atthe meeting.

 

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Pursuant to our By-laws, subject to the concurrentcompetence of the extraordinary meeting of stockholders, the Board also has theauthority over resolutions in connection with mergers and demergers inaccordance with Articles 2505 and 2505-*bis*and 2506-*ter*of the Civil Code,the establishment or termination of branches, the determination of whichdirectors shall be authorized to represent the Company, the reduction of theoutstanding capital stock in the event of withdrawal of a stockholder, theamendment of the By-laws to comply with legal requirements, or the transfer ofthe principal place of business within the national territory.

 

The meeting notice period of 30 days is reducedto, respectively, 20 days with respect to meetings convened at the requestof minority stockholders and meetings convened to resolve upon LuxotticaGroup S.p.A.’s dissolution, and 15 days for meetings convened pendinga public tender offer launched with respect to our ordinary shares. The noticemay specify a date for a second meeting in the event that a quorum is notobtained at the first meeting. Notice of any subsequent meeting that must beheld within 30 days from the previously adjourned meeting, must be publishedat least eight days prior to the date of the meeting. In addition, a meetingwill be deemed duly convened if stockholders representing 100 percent ofLuxottica Group S.p.A.’s share capital, together with a majority of themembers of the Board of Directors and the Board of Statutory Auditors, arepresent at the meeting.

 

To attend any stockholders’ meeting, a holder ofordinary shares must, at least two business days prior to the date fixed forthe meeting, deposit a certified statement of account specifying its ownershipof the ordinary shares at our offices or with such agent banks as may bespecified in the notice of meeting in exchange for an admission ticket andproxy form for the meeting. Such statements may be obtained by beneficialowners of the ordinary shares through the intermediaries associated with MonteTitoli (or such authorized centralized securities custody and administrationsystem with which their accounts are held). Alternatively, beneficial ownersmay instruct the relevant intermediary to procure the admission tickets andproxy forms.

 

Stockholders may appoint proxies by completing theform attached to the admission ticket. Directors, Statutory Auditors, externalauditors or our employees as well as employees of companies controlled by usmay not vote as proxies for stockholders and any one proxy cannot representmore than 200 stockholders of Luxottica Group S.p.A.

 

Pursuant to legislative decree n. 58/98,proxies may be solicited by an intermediary (for example, banks or investmentfirms) on behalf of a qualified soliciting stakeholder (generally, one or morestockholders who own at least one percent or such lesser percentage determinedby Consob) of our voting capital and who has been registered in ourstockholders’ register as a holder of such shares for at least six months.

 

Proxies may be collected by a stockholders’association provided that such association has been formed by certified privateagreement, does not carry out business activities and is made up of at least50 individuals each of whom owns no more than 0.1 percent of our votingcapital. Members of the stockholders’ association may, but are not obliged togrant proxies to the legal representative of the association and proxies may begranted in respect of only certain of the matters to be discussed at therelevant stockholders’ meeting. The association may vote in different ways incompliance with the instructions expressed by each member who has granted aproxy to the association. Consob has established by implementing regulationsprovisions that govern the transparency and the proper performance of thesolicitation and collection of proxies.

 

Our By-laws do not contain any limitations on thevoting rights in respect of ordinary shares held by any stockholder.Resolutions adopted at a stockholders’ meeting are binding on all stockholders.However, each absent, dissenting or abstaining stockholder (as well as anyDirector or Statutory Auditor) has the right, under Italian law, to ask a courtto annul resolutions taken in violation of applicable laws or the By-laws. Inaddition, in a limited number of cases (including the merger of a listedcompany with, and its incorporation into, an unlisted company) applicable lawgrants dissenting and absent stockholders the right to obtain the redemption oftheir shares by the issuer at the average market price of the shares during theprevious six-month period. A redemption can be effected either by utilizing theavailable reserves of the issuer (in which case the shares may be held andregistered in the name of the issuer) or alternatively by a reduction of sharecapital of the issuer.

 

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*OptionRights*

 

Pursuantto Italian law, holders of ordinary shares are entitled to subscribe forissuances of shares, debentures convertible into shares and rights to subscribefor shares in proportion to their holdings, unless such option rights arewaived or limited by a stockholders’ resolution adopted by the affirmative voteof holders of more than 50 percent of the ordinary shares and such waiver orlimitation is in the interest of Luxottica Group S.p.A. Particular Italianregulations set forth the procedures to be followed by Italian listed companiesin such circumstances.

 

Itis likely that the option rights generally available to holders of ordinaryshares may not be fully available to holders of ADRs. See “ —Description ofAmerican Depositary Receipts—Share Dividends and Other Distributions.”

 

Pursuantto Decree n. 58/98, in the event that: (i) the newly issued shares are offeredfor subscription to our employees or employees of our subsidiaries; and (ii) thenew shares to be issued by us for subscription by the aforementioned parties donot exceed one percent of our share capital, the resolution excluding optionrights is to be approved by stockholders representing the majority required forextraordinary meetings.

 

Pursuantto Italian law, such option rights may be eliminated in certain other casesincluding contributions in kind.

 

*PreferentialShares*

 

UnderItalian law, a company such as ours may issue shares that have a preferenceover ordinary shares with respect to the distribution of dividends or surplusassets. At present, we have no such preferential shares outstanding and anyissuance of such shares would be subject to approval by a majority of stockholders.

 

*Rightson Liquidation*

 

Ona liquidation or winding-up of the company, subject to the preferential rightsof holders of any outstanding preferential shares, holders of ordinary shareswill be entitled to participate in any surplus assets remaining after paymentof the creditors. Shares rank *pari passu*among themselves in liquidation.

 

*Purchaseof Shares by Luxottica Group S.p.A.*

 

Weand our subsidiaries may purchase up to an aggregate of ten percent of ourordinary shares, subject to certain conditions and limitations provided byItalian law, including that the purchase be approved by stockholders. Sharesmay only be purchased out of profits available for dividends and distributablereserves as appearing in the latest stockholder-approved unconsolidatedfinancial statements. Further, we may only repurchase fully paid shares. Aslong as such shares are owned by us, they would not be entitled to dividendsnor to subscribe for new ordinary shares in the case of capital increases, andtheir voting rights would be suspended. A corresponding reserve must be createdin our balance sheet which is not available for distribution.

 

Decreen. 58/98 provides that the purchase by a listed company of its own shares andthe purchase of shares of a listed company by its subsidiary must take place byway of a public offer or on the market in a manner agreed with Borsa Italiana S.p.A.which must ensure the equality of treatment among stockholders, subject tocertain limitations. The foregoing does not apply to shares being purchased bya listed company from its employees or employees of its parent company orsubsidiaries under certain circumstances.

 

The ordinary meeting of stockholders on May 13, 2008 approved a programauthorizing the repurchase and disposal of up to a maximum of 18,500,000Luxottica Group ordinary shares over the 18-month period following such date,for a maximum cost of up to Euro 370,000,000. As of May 31, 2009, there havebeen no repurchases under this program.

 

*MinorityStockholders’ Rights*

 

Anabsent or dissenting stockholder (representing 1/1000 of the share capital ofthe Company) may, within three months, ask a court to annul stockholders’resolutions taken in violation of applicable laws or our By-laws. Anystockholders may bring to the attention of the Board of Statutory Auditorsfacts or acts which are deemed wrongful. If such stockholders represent morethan 1/50 percent of our share capital, the Board of Statutory Auditors mustinvestigate without delay and report its findings and recommendations at thestockholders’ meeting.

 

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Stockholdersrepresenting more than 1/20 of our share capital have the right to report majorirregularities to the relevant court. In addition, stockholders representing atleast 1/40 of our share capital may initiate a liability suit against thedirectors, Statutory Auditors and general managers of Luxottica Group S.p.A. Wemay waive or settle the suit only if less than five percent of the stockholdersvote against such waiver or settlement. We will reimburse the legal costs ofsuch action in the event that the claim of such stockholders is successful and (i)the court does not award such costs against the relevant directors, StatutoryAuditors or general managers, or (ii) such costs cannot be recovered from suchdirectors, Statutory Auditors or general managers. In compliance with decree n.58/98, our By-laws give minority stockholders the right to appoint directorsand one Statutory Auditor as chairman and one Alternate Auditor to the Board ofStatutory Auditors. See Item 6—“Directors, Senior Management andEmployees—Directors and Senior Management.”

 

*ItalianTender Offer Rules*

 

Underlegislative decree n. 58/98, a public tender offer is required to be launchedby any person that through share purchases holds more than 30 percent of thevoting stock of an Italian listed company. The public tender offer must coverthe whole voting stock of the company. Similarly, under Consob rules, a publictender for the entire voting stock of a listed company must be made by anyperson owning more than a 30 percent interest in the voting securities of acompany (but does not exercise majority voting rights at an ordinarystockholders’ meeting) and purchases or acquires, directly or indirectly, alsothrough the exercise of subscription or conversion rights, during a 12-monthperiod more than five percent of the ordinary capital with voting rights. Theoffer must be launched within 20 days from the date on which the relevantthreshold was exceeded, and must be made at a price for each class ofsecurities at least equal to the highest price paid by the offeror and/or byits concert parties for the purchase of the relevant class of the targetcompany’s securities over a 12-month period preceding the announcement of thecompulsory bid. If no purchases for value of the relevant class of securitieshave been made in the relevant period, the offer price will be equal to theweighted average market price of the target securities over the previous 12months (or, if a market price for the relevant class of securities has not beenavailable for the whole of this period, over such shorter period for which a marketprice has been available).

 

Consobregulates these provisions in greater detail through a number of exemptionsfrom the duty to launch a tender offer. Such exemptions include, among others: (i)when another person or persons jointly control the company; (ii) when a partyexceeds the threshold as a result of shares transferred to it by a relatedparty; and (iii) when the threshold is exceeded by a party following theexercise of pre-emption or conversion rights to which such party was entitled. Article107 of the legislative decree further provides that the acquisition of aninterest above 30 percent of the voting stock of a company does not trigger theobligation to launch a 100 percent tender offer if the person concerned hasexceeded the threshold as a result of a public tender offer launched on 60 percentor more of the voting stock of the company. This provision is available only (i)if the tender offer is conditional on the acceptance by a majority of thestockholders of the company (excluding, for the purpose of calculating suchmajority, the offeror or any stockholder that holds an absolute or relativemajority shareholding exceeding ten percent as well as the offeror’ssubsidiaries, controlling persons, related companies and other personsconnected to it by virtue, among other things, of a stockholders’ agreement(together, “persons or entities acting in concert with the offeror”)), (ii) ifthe offeror (including the persons or entities acting in concert with theofferor) has not acquired more than one percent of the voting stock of thecompany in the preceding 12 months and during the offer period and (iii) uponreceipt of an exemption granted by Consob provided that the terms of (i) and (ii)have complied with Consob rules that a mandatory bid need not be made. However,after the offer has been completed the offeror nevertheless becomes subject tothe duty to launch an offer for 100 percent of the voting stock if, in thecourse of the subsequent 12 months, (i) it (including the persons or entities actingin concert with the offeror) has purchased more than one percent of the votingstock of the company, or (ii) the company has approved a merger or spin-off.Finally, anyone holding 90 percent or more of the voting stock of a companymust grant to all other stockholders the right to sell off their remainingshares, unless an adequate distribution of the shares is resumed so as toensure proper trading within a period of three months. Moreover, any person who, following a tender offer for100 percent of the voting stock, purchases more than 95 percent of the votingstock: (i) must grant to all other stockholders the right to sell their votingshares or (ii) alternatively, and provided that it has stated its intention todo so in the offering documentation, is entitled to acquire all remainingvoting shares of the company (squeeze-out) within three months following theconclusion of the tender offer. Shares held in breach ofthese rules cannot be voted and must be sold within 12 months.

 

*DerivativeSuits*

 

UnderItalian law, action against members of the Board of Directors, members of theBoard of Statutory Auditors and General Managers of a company may be brought onbehalf of the company if authorized by a resolution adopted at an ordinarymeeting of stockholders. In respect of listed companies, Italian law providesfor a form of stockholders’ action against members of a board of directors,which may be brought by holders of at least 1/40 of the outstanding shares. Weare 

 

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allowednot to commence, or to settle, the suit provided that stockholders representingat least five percent of the issued and outstanding shares do not vote againsta resolution to this effect. We will reimburse the legal costs of such actionin the event that the claim of such stockholders is successful and (i) thecourt does not award these costs as part of the judgment against the relevantdirectors, Statutory Auditors or general managers or (ii) these costs cannot berecovered from such directors, Statutory Auditors or general managers. Inaddition, Italian law permits a stockholder acting alone to bring an actionagainst members of a board of directors in the event that such stockholder hassuffered damages directly related to negligence or willful misconduct.

 

*NoLimitation of Ownership*

 

NeitherItalian law nor any of our constituent documents impose any limitations on theright of non-resident or foreign stockholders to hold or exercise voting rightson our ordinary shares or the ADSs.

 

**Descriptionof American Depositary Receipts**

 

Thefollowing is a summary of certain provisions of the Amended and RestatedDeposit Agreement (the “Deposit Agreement”), dated as of March 30, 2006, amongDeutsche Bank Trust Company Americas, as depositary, the owners and holdersfrom time to time of ADRs issued thereunder and us. The Deposit Agreementsupersedes our earlier deposit agreement with The Bank of New York. Thissummary does not purport to be complete and is qualified in its entirety byreference to the Deposit Agreement, a copy of which has been filed as anexhibit to this annual report. For more complete information, the entireagreement should be read. Copies of the Deposit Agreement are available forinspection at the principal Corporate Trust Office of Deutsche Bank TrustCompany Americas at 60 Wall Street, New York, New York 10005.

 

ADRsare issued by Deutsche Bank Trust Company Americas. Each ADR evidences anownership interest in a number of American Depositary Shares, each of whichrepresents one ordinary share that we deposit with Deutsche Bank Milan, ascustodian under the Deposit Agreement. Each ADR will also represent securities,cash or other property deposited with Deutsche Bank Trust Company Americas butnot distributed to ADR holders. Deutsche Bank Trust Company Americas’ CorporateTrust Office is located at 60 Wall Street, New York, New York 10005, and itsprincipal executive office is located at 60 Wall Street, New York, New York10005.

 

*ShareDividends and Other Distributions*

 

DeutscheBank Trust Company Americas has agreed to pay to ADR holders the cash dividendsor other distributions it or the custodian receives on ordinary shares or otherdeposited securities, after deducting its fees and expenses.

 

*Cash*

 

DeutscheBank Trust Company Americas converts any cash dividend or other cashdistribution we pay on the ordinary shares into U.S. dollars, if it can do soon a reasonable basis and can transfer the U.S. dollars to the United States.If it is not possible for Deutsche Bank Trust Company Americas to convertforeign currency in whole or in part into U.S. dollars, or if any approval orlicense of any government is needed and cannot be obtained, Deutsche Bank TrustCompany Americas may distribute the foreign currency to, or in its discretionmay hold the foreign currency uninvested and without liability for interest forthe accounts of, ADR holders entitled to receive the same.

 

*Shares*

 

DeutscheBank Trust Company Americas will, unless otherwise requested by us, distributenew ADRs representing any shares we may distribute as a dividend or freedistribution. Deutsche Bank Trust Company Americas will only distribute wholeADRs. It will sell shares which would require it to issue a fractional ADR anddistribute the net proceeds in the same way as it does with dividends ordistributions of cash. If Deutsche Bank Trust Company Americas does notdistribute additional ADRs, each ADR will also represent the additionaldeposited shares.

 

*Rightsto Receive Additional Shares*

 

Ifwe offer holders of our ordinary shares any rights to subscribe for additionalordinary shares or any other rights, Deutsche Bank Trust Company Americas maymake these rights available to ADR holders. We must first instruct DeutscheBank Trust Company Americas to do so and furnish it with satisfactory evidencethat it is legal to do so. If we do not furnish this evidence and/or give theseinstructions, or if Deutsche Bank Trust Company Americas determines in itsreasonable discretion that it is not lawful and feasible to make such rightsavailable to all or certain owners, Deutsche Bank Trust Company Americas maysell the rights and allocate the net proceeds to holders’ accounts. DeutscheBank Trust Company 

 

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Americasmay allow rights that are not distributed or sold to lapse. In that case, ADRholders will receive no value for them.

 

IfDeutsche Bank Trust Company Americas makes rights available to ADR holders,upon instruction from such holders it will exercise the rights and purchase theshares on behalf of the ADR holders.

 

*Deposit,Withdrawal and Cancellation*

 

ADRsmay be turned in at the Corporate Trust Office of Deutsche Bank Trust CompanyAmericas. Upon payment of its fees and expenses and of any taxes or charges,such as stamp taxes or stock transfer taxes or fees, Deutsche Bank TrustCompany Americas will deliver the deposited securities underlying the ADRs atthe office of the custodian, except that Deutsche Bank Trust Company Americasmay deliver at its Corporate Trust Office any dividends or distributions withrespect to the deposited securities represented by the ADRs, or any proceedsfrom the sale of any dividends, distributions or rights, which may be held byDeutsche Bank Trust Company Americas. Alternatively, at the request, risk andexpense of the applicable ADR holder, Deutsche Bank Trust Company Americas willdeliver the deposited securities at its Corporate Trust Office.

 

*VotingRights*

 

ADRholders may instruct Deutsche Bank Trust Company Americas to vote the sharesunderlying ADRs but only if we ask Deutsche Bank Trust Company Americas to askfor such instructions. Otherwise, ADR holders will not be able to exercisetheir right to vote unless such holders withdraw the ordinary shares underlyingthe ADRs. However, an ADR holder may not know about a meeting at which such holdermay be entitled to vote enough in advance to withdraw the shares.

 

Ifwe ask for instructions of an ADR holder, Deutsche Bank Trust Company Americaswill notify the ADR holder of the upcoming vote and arrange to deliver votingmaterials. The materials will (1) describe the matters to be voted on and (2) explainhow ADR holders, on a certain date, may instruct Deutsche Bank Trust CompanyAmericas to vote the shares or other deposited securities underlying the ADRsas directed. For instructions to be valid, Deutsche Bank Trust Company Americasmust receive them on or before the date specified. Deutsche Bank Trust CompanyAmericas will try, as far as practical, subject to Italian law and theprovisions of our articles of association, to vote or to have its agents votethe shares or other deposited securities as instructed by the ADR holder.Deutsche Bank Trust Company Americas will only vote or attempt to vote asinstructed by the ADR holder and will not vote any of such holder’s shares orother deposited securities except in accordance with such instructions.

 

DeutscheBank Trust Company Americas shall fix a record date whenever:

 

·                 any cash dividend or distribution shall becomepayable;

 

·                 any distribution other than cash shall be made;

 

·                 rights shall be issued with respect to the depositedsecurities;

 

·                 Deutsche Bank Trust Company Americas, for anyreason, causes a change in the number of ordinary shares that are representedby each ADS; or

 

·                 Deutsche Bank Trust Company Americas receives noticeof any meeting of holders of ordinary shares or other deposited securities.

 

The purpose of fixing a record date is to determine which ADR holdersare:

 

·                 entitled to receive such dividend, distribution orrights;

 

·                 entitled to receive the net proceeds from the saleof such dividend, distribution or rights; and

 

·                 entitled to give instructions for the exercise ofvoting rights at any such meeting.

 

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**MaterialContracts**

 

Thecontracts described below have been entered into by Luxottica Group S.p.A.and/or its subsidiaries since June 30, 2007 and, as of the date of this annualreport, contain provisions under which we or one or more of our subsidiarieshas an obligation or entitlement which is or may be material to us. Thisdiscussion is not complete and should be read in conjunction with theagreements described below, each of which has been filed with the SEC as anexhibit to this annual report.

 

*Contracts Relating to the Company’sIndebtedness*

 

For a discussion of ourmaterial credit agreements and financings entered into since June 24, 2007, see“– The U.S.$1,500 Million Credit Facility, U.S.$500 Million Bridge Loan andRelated Interest Rate Swaps”, “– The Euro 250 Million Revolving Credit Facility”and “– The U.S.$275 Million Senior Unsecured Guaranteed Notes of U.S. Holdings”in Item 5 – “Operating and Financial Review and Prospects – Liquidity andCapital Resources – Our Indebtedness.”

 

*Luxottica Group S.p.A. 2008Performance Shares Plan*

 

In May 2008, a performanceshares plan for the top managers of the Company and other companiesdirectly or indirectly controlled by the Company to be identified by the Board was adopted. For further information on this plan, see Item 6—“Directors,Senior Management and Employees—Share Ownership.”

 

*MergerAgreement with Oakley*

 

OnJune 20, 2007, we entered into an Agreement and Plan of Merger (the “MergerAgreement”) with Oakley and Norma Acquisition Corp., an indirect wholly-ownedsubsidiary of Luxottica formed for the purpose of effecting the transactionscontemplated by the Merger Agreement, pursuant to which we acquired all of theoutstanding equity interests of Oakley. Pursuant to the Merger Agreement, NormaAcquisition Corp. was merged with and into Oakley with Oakley surviving as anindirect wholly-owned subsidiary of Luxottica. At the effective time of themerger, each outstanding share of Oakley’s common stock was converted into theright to receive U.S.$29.30 per share in cash without interest, and eachoutstanding option was converted into the right to receive U.S.$29.30 per sharein cash less the applicable exercise price of such option for each share ofcommon stock underlying such option. The transaction closed on November 14,2007.

 

*Non-CompetitionAgreement with Oakley and Jim Jannard*

 

Concurrently with the execution of the MergerAgreement, we entered into a Non-Competition Agreement (the “Non-CompetitionAgreement”) with Oakley, Norma Acquisition Corp. and Jim Jannard, the founderand majority stockholder of Oakley, pursuant to which Mr. Jannard agreed to notparticipate, directly or indirectly, in specified activities considered to bein competition with Oakley or any of its subsidiaries for a period of fiveyears, subject to certain exceptions.

 

Those exceptions allow Mr. Jannard to (i) own,directly or indirectly, solely as a passive investment, less than 5.0 percentof any class of securities of any entity in competition with the Business (asdefined in the Non-Competition Agreement) where equity securities are traded onany national securities exchange, provided that he is not a controlling personof, or a member of a group which controls, such entity, and (ii) be aninvestor, partner, member, director or principal of a private equity firm,venture capital firm or hedge fund that makes investments in a Competitor (asdefined in the Non-Competition Agreement), provided that he completely recuseshimself from selecting, advising or managing the investment in any suchCompetitor.

 

**ItalianExchange Controls**

 

Thefollowing is a summary of relevant Italian laws in force as at the date of thisannual report but does not purport to be a comprehensive description of allexchange control considerations that may be relevant.

 

Thereare no exchange controls in Italy. Residents and non-residents of Italy mayeffect any investments, disinvestments and other transactions that entail atransfer of assets to or from Italy, subject only to the reporting,record-keeping and disclosure requirements described below. In particular,residents of Italy may hold foreign currency and foreign securities of anykind, within and outside Italy, while non-residents may invest in Italiansecurities without restriction and may export from Italy cash, instruments ofcredit or payment and securities, whether in foreign currency or Euro,representing interest, dividends, other asset distributions and the proceeds ofdispositions.

 

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Regulationsconcerning updated reporting, record-keeping, and restrictions on the use ofcash and securities are contained in Legislative Decree Nos. 231 dated November21, 2007 (“Decree 231/2007”), which implements the Anti-Money LaunderingDirectives Nos. 2005/60/CE and 2006/70 CE.

 

Article49 of the Decree 231/2007 provides that transfers of cash, bearer bank orpostal passbooks, in Euro or foreign currency, effected for any reason betweendifferent parties (resident or non-resident), are forbidden when the totalamount is equal to or greater than Euro 12,500. The transfer may only beexecuted through banks, electronic money institutions and “Poste ItalianeS.p.A.” (Italian Mail) (collectively, the “Authorised Operators”). Within 30days of their knowledge, the Authorised Operators must promptly notify theMinistry of Finance of any breach of the provisions set out in Art. 49 ofDecree 231/2007.

 

Inaddition, the Authorised Operators effecting such transactions, are requiredto: (i) duly identify the customer and the effective current account holder onthe basis of documents, data or information deriving from an independent andreliable source; (ii) set up a “Data Processing Archive” (Archivio UnicoInformatico) which contains a copy of any document required for the customer’sidentification; (iii) notify the Financial Intelligence Unit (Unità diInformazione Finanziaria) of any suspicious operation, where possible, beforecarrying out the transaction; and (iv) maintain records of similar transactionsthat occurred in the last ten years. The breach of dispositions of Decree231/2007 involves criminal and administrative sanctions: criminal sanctions areimposed for, among other things, breach of customer identification obligationsand recording duties, and failure to disclose the fact that a suspicioustransaction was reported; administrative sanctions are imposed for, among otherthings, failure to set up the Data Processing Archive and to report thesuspicious transactions to the Financial Intelligence Unit.

 

TheFinancial Intelligence Unit must maintain reports for a period of ten years andmay use them, directly or through other government offices, to police moneylaundering, tax evasion and any other crime or violation.

 

Individuals,non-profit entities and certain partnerships that are resident in Italy mustdisclose on their annual tax declarations all investments held outside Italyand foreign financial assets held at the end of a taxable period through whichforeign source income taxable in Italy may be derived as well as the totalamount of transfers effected during a taxable period to, from, within andbetween countries other than Italy relating to such foreign investments orfinancial assets, even if at the end of the taxable period such persons nolonger owned such foreign investments or financial assets. No such disclosureis required if the total value of the foreign investments and financial assetsheld at the end of a taxable period and the total amount of the relatedtransfers effected during the taxable period are not greater than Euro 10,000in the aggregate. In addition, no such disclosure is required in respect ofsecurities deposited for management with qualified Italian financialintermediaries and in respect of contracts entered into through theirintervention, provided that the items of income derived from such foreignfinancial assets are collected through the intervention of the sameintermediaries. Corporations and commercial partnerships resident in Italy areexempt from such disclosure requirements with respect to their annual taxdeclarations because this information is required to be disclosed in theirfinancial statements.

 

Therecan be no assurance that the present regulatory environment in or outside Italywill continue or that particular policies presently in effect will bemaintained, although Italy is required to maintain certain regulations andpolicies by virtue of its membership in the European Union and otherinternational organizations and its adherence to various bilateral andmultilateral international agreements.

 

**Taxation**

 

Thefollowing summary contains a description of the principal United States federaland Italian income tax consequences of the ownership and disposition of ADSs orordinary shares by U.S. holders (as defined below) resident in the UnitedStates for tax purposes. The following description does not purport to be acomplete analysis of all possible tax considerations that may be relevant to aU.S. tax resident holder of ADSs or ordinary shares, and U.S. tax residentholders are advised to consult their advisors as to the overall consequences oftheir individual circumstances. In particular, this discussion does not addressall material tax consequences of owning ordinary shares or ADSs that may applyto special classes of holders, some of whom may be subject to different rules,including:

 

·                 partnershipsand other pass-through entities;

 

·                 tax-exempt entities;

 

·                 certain banks, financial institutions and insurancecompanies;

 

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·                 broker-dealers;

 

·                 traders in securities that elect to mark to market;

 

·                 investors liable for alternative minimum tax;

 

·                 investors that actually or constructively own tenpercent or more of the voting stock of Luxottica Group S.p.A.;

 

·                 investors that hold ordinary shares or ADSs as partof a straddle or a hedging or conversion transaction;

 

·                 investors whose functional currency is not the U.S.dollar; or

 

·                 investors who do not hold the ordinary shares orADSs as capital assets within the meaning of the Internal Revenue Code of 1986,as amended (the “Code”).

 

Inaddition, the following summary does not discuss the tax treatment of ordinaryshares or ADSs that are held in connection with a permanent establishment orfixed base through which a U.S. holder carries on business or performs personalservices in Italy.

 

Furthermore,certain persons that may not be U.S. holders but who may otherwise be subjectto United States federal income tax liability will also be subject to UnitedStates federal as well as Italian tax consequences due to their ownership anddisposition of ADSs or ordinary shares. Such investors should consult withtheir own advisors as to the particular consequences associated with theirinvestment.

 

This discussion is based on the tax laws of Italy andof the United States, including the Code, its legislative history, existing andproposed regulations, and published rulings and court decisions, as currentlyin effect, as well as on the currently applicable Convention Between the UnitedStates of America and Italy for the Avoidance of Double Taxation with respectto Taxes on Income and the Prevention of Fraud or Fiscal Evasion (the “Treaty”)and the Convention Between the United States of America and the Italian Republicfor the Avoidance of Double Taxation and the Prevention of Fiscal Evasion withrespect to Taxes on Estates and Inheritances (the “Estate Tax Convention”).These laws are subject to change, possibly on a retroactive basis that couldaffect the tax consequences described below. A new tax treaty and protocolbetween Italy and the United States (collectively, the “New Treaty”) to replacethe current Treaty was signed on August 25, 1999, and ratified by Italy pursuantto Law 3 March 2009, No. 20, but is not yet in effect. The New Treaty includesan anti-abuse provision and a provision limiting treaty benefits toindividuals, qualified governmental entities, companies that are publiclytraded or that satisfy certain share ownership requirements, certain pensionplans and other tax-exempt entities, and certain other persons meetingprescribed anti-treaty shopping requirements.

 

The New Treaty also clarifies the availability oftreaty benefits to entities that are treated as fiscally transparent underUnited States or Italian law.

 

Inaddition, this section is based in part upon the representations of thedepositary and the assumption that each obligation in the Deposit Agreement andany related agreement will be performed in accordance with its terms.

 

Thisdiscussion addresses only Italian income taxation, gift and inheritancetaxation and capital gains taxation and United States federal income and estatetaxation.

 

Forpurposes of the current Treaty, the Estate Tax Convention and the Code, U.S.holders of ADSs will be treated as the owners of the underlying ordinary sharesrepresented by such ADSs. Exchanges of ordinary shares for ADSs and ADSs forordinary shares generally will not be subject to Italian tax or United Statesfederal income tax.

 

*ItalianTax Law*

 

*Withholding or Substitute Tax on Dividends.*In general,dividends paid by Italian corporations to non-Italian resident beneficialowners without a permanent establishment in Italy to which ordinary shares orADSs are effectively connected, are subject to final Italian withholding tax(or substitute tax, in the case of dividends on underlying shares listed on theMilan Stock Exchange) at the rate of 27 percent, unless reduced by anapplicable double taxation treaty or Italian domestic legislation. Reduced rates(normally 15 percent) of withholding tax (or substitute tax) on dividends applyto non-Italian resident beneficial owners of ordinary shares or ADSs who areentitled to and timely comply with procedures for claiming benefits under anapplicable income tax treaty entered into by Italy. Italy has concluded incometax treaties with 

 

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over60 foreign countries, including all European Union member states, Argentina,Australia, Brazil, Canada, Japan, New Zealand, Norway, Switzerland, the UnitedStates and some countries in Africa, the Middle East and East Asia. It shouldbe noted that in general the income tax treaties are not applicable if thebeneficial owner is a tax-exempt entity or, with a few exceptions, apartnership or a trust.

 

Underthe Treaty, Italian withholding tax (or substitute tax) at a reduced rate of 15percent will generally apply to dividends paid by an Italian corporation to aU.S. resident entitled to Treaty benefits who timely complies with theprocedures for claiming such benefits, provided the dividends are noteffectively connected with a permanent establishment in Italy through which theU.S. resident carries on a business or with a fixed base in Italy through whichthe U.S. resident performs independent personal services. The foregoinggenerally applicable treatment will not be changed by the dividend article ofthe New Treaty.

 

TheItalian budget bill for 2008, enacted on December 24, 2007 under Law No. 244,provides for the application of a reduced 1.375% withholding tax or substitutetax on dividends paid by an Italian corporation out of profits accrued from January1, 2008 (for entities ending their tax year on December 31) to non-residentbeneficiary entities (i) subject to corporate taxation and (ii) resident in anEU Member State or in other states (excluding the United States) which adhereto the “Accordo sullo spazio economico europeo,” which are included in an *ad hoc* “white list” still to be released with a properdecree. Provisional disposals provide that, in the meantime, reference is to bemade to the Decree dated September 4, 1996, which reports the list of countriesallowing an adequate exchange of information with the Italian tax authority.

 

UnderItalian law, in general, shares of Italian companies listed on the Milan StockExchange have to be registered in the centralized deposit system managed by *Monte Titoli*. Dividends paid on shares held in the *Monte Titoli*system (including our shares and our ADSs) tonon-Italian beneficial owners without a permanent establishment in Italy aresubject to a substitute tax on the same conditions and at the same rate as thewithholding tax mentioned above, but which may be reduced under an applicabledouble-taxation treaty. This substitute tax will be levied by the Italianauthorized intermediary that participates in the *Monte Titoli*system and with which the securities are deposited, as well as by non-Italianauthorized intermediaries participating in the *Monte Titoli*system (directly or through a non-Italian centralized deposit systemparticipating in the *Monte Titoli*system), through a fiscal representative to be appointed in Italy.

 

Sincethe ordinary shares of Luxottica Group S.p.A. are registered in the centralizeddeposit system managed by *Monte Titoli*,the substitute tax regime will apply to dividends paid by Luxottica GroupS.p.A., instead of the withholding tax regime.

 

Fora non-Italian resident beneficial owner of the ordinary shares or ADSs toobtain a reduced rate of substitute tax on dividends pursuant to an applicableincome tax treaty entered into by Italy, including the Treaty, the followingprocedure must be followed. The intermediary with whom the shares are depositedmust timely receive:

 

·                  a declaration by the beneficial owner of ordinaryshares or ADSs that contains all the data identifying this person as thebeneficial owner and indicates the existence of all the conditions necessaryfor the application of the relevant income tax treaty, as well as the elementsthat are necessary to determine the applicable treaty substitute tax rate; and

 

·                  a certification by the tax authorities of thebeneficial owner’s country of residence that the beneficial owner of theordinary shares or ADSs is a resident of that country for the purposes of theapplicable income tax treaty that is valid until March 31 of the year followingsubmission. The time for processing requests for certification by theapplicable authorities will vary. The time normally required by the U.S.Internal Revenue Service (the “IRS”) is six to eight weeks.

 

Theintermediary must keep the foregoing documentation for the entire period inwhich the Italian tax authorities are entitled to issue an assessment withrespect to the tax year in which the dividends are paid and, if an assessmentis issued, until the assessment is settled. If the intermediary with which theshares are deposited is not resident in Italy, the aforesaid duties andobligations must be carried out by (i) a bank or an investment services companythat is a resident in Italy or (ii) a permanent establishment in Italy of anon-resident bank or investment services company, appointed by the foreignintermediary as its fiscal representative in Italy.

 

Asan alternative to the application of the more favorable treaty rate ofsubstitute tax on dividends or where an income tax treaty does not apply, andexcept for entities that benefit from the above-mentioned 1.375 percentsubstitute tax, under domestic Italian law non-resident stockholders can claima refund of an amount up to four-ninths of the 27 percent substitute tax ondividend income from Italian tax authorities provided that (i) they implementan *ad hoc* refund procedure in 

 

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accordancewith the terms and conditions established by law, and (ii) they provideevidence that this dividend income was subject to income tax in their countryof residence in an amount at least equal to the total refund claimed.Beneficial owners of ordinary shares or ADSs should contact their tax advisorsconcerning the possible availability of these refunds, the payment of which isnormally subject to extensive delays.

 

Distributionsof newly issued ordinary shares to beneficial owners with respect to theirshares or ADSs that are made as part of a pro rata distribution to allstockholders based on a gratuitous increase of the share capital throughtransfer of reserves or other provisions to share capital generally will not besubject to Italian tax. However, distributions of dividends in kind will besubject to withholding tax.

 

*Tax on Capital Gains.*Upon disposal of ordinaryshares or ADSs of an Italian resident corporation, capital gains realized bynon-Italian resident individuals and foreign corporations without a permanentestablishment in Italy to which the ordinary shares or ADSs are effectivelyconnected may be subject to taxation in Italy. However, the tax regime dependson whether the interest (ordinary shares, ADSs and/or rights) disposed of is “qualified”or “non-qualified.” The disposal of a “qualified” shareholding in a corporationthe stock of which is listed on a regulated market (such as Luxottica GroupS.p.A.) is defined to occur when a stockholder (i) owns shares, ADSs and/orrights through which shares may be acquired representing in the aggregate morethan five percent of the share capital or two percent of the shares with votingrights at an ordinary stockholders’ meeting of the corporation and (ii) in anytwelve-month period following the date the ownership test under (i) is met,such stockholder engages in the disposal of shares, ADSs and/or of rightsthrough which shares may be acquired that individually or in the aggregateexceed the percentages indicated under (i) above. Capital gains realized bynon-Italian resident stockholders upon disposal of a “non-qualified”shareholding, are in principle subject in Italy to a capital gain tax (“CGT”)at 12.5 percent. However, an exemption from CGT is provided for gains realizedby non-Italian resident stockholders without a permanent establishment in Italyto which the ordinary shares or ADSs are effectively connected on the disposalof “non-qualified” shareholdings in Italian resident corporations the stock ofwhich is listed on a regulated market (such as Luxottica Group S.p.A.) evenwhen such shareholdings are held in Italy. Non-Italian residents who dispose ofshares or ADSs may be required to timely provide a self-declaration that theyare not resident in Italy for tax purposes, in order to benefit from thisexemption, in the case that the “risparmio amministrato” (non-discretionaryinvestment portfolio) or “risparmio gestito” (discretionary investmentportfolio) regime, respectively, provided for by arts. 6 and 7 of ItalianLegislative Decree 21 November 1997, No. 461 applies to them. Upon disposal ofa “qualified” shareholding, non-Italian resident stockholders are in principlesubject to Italian ordinary taxation on 49.72 percent of the capital gainrealized starting from January 1, 2009.

 

Theabove is subject to any provisions of an applicable income tax treaty enteredinto by the Republic of Italy, if the income tax treaty provisions are morefavorable. The majority of double tax treaties entered into by Italy, inaccordance with the OECD Model tax convention, provide that capital gainsrealized from the disposition of Italian securities are subject to taxationonly in the country of residence of the seller. Therefore, the capital gainsrealized by a non-Italian resident entitled to the benefits of a treaty enteredinto by Italy in accordance with the OECD Model in respect of taxation ofcapital gains from the disposition of Italian securities will not be subject toItalian taxation on such capital gains, regardless of whether the shareholdingdisposed of is qualified or non-qualified. Non-Italian residents who dispose ofshares or ADSs may be required to timely provide appropriate documentationestablishing that the conditions of non-taxability of capital gains realizedpursuant to the applicable income tax treaties have been satisfied (including acertificate of tax residence issued by the competent foreign tax authorities),in the case that the “risparmio amministrato” (non-discretionary investmentportfolio) or “risparmio gestito” (discretionary investment portfolio) regime,respectively, provided for by arts. 6 and 7 of Italian Legislative Decree 21 November1997, No. 461 applies to them.

 

Underthe Treaty, a person who is considered a U.S. resident for purposes of theTreaty and is fully entitled to benefits under the Treaty will not incurItalian capital gains tax on disposal of ordinary shares or ADSs, unless theordinary shares or ADSs form part of a business property of a permanentestablishment of the holder in Italy or pertain to a fixed base available to aholder in Italy for the purpose of performing independent personal services.U.S. residents who sell ordinary shares or ADSs may be required to timelyproduce appropriate documentation establishing that the above-mentionedconditions for non-taxability of capital gains under the Treaty have beensatisfied (including a certificate of tax residence issued by the competentU.S. tax authorities).

 

Suchtreatment will not be changed by the capital gains provisions of the NewTreaty.

 

*Inheritance andGift Tax.* Subject to certainexceptions, Italian inheritance and gift tax is generally payable on transfersof ordinary shares and/or ADSs of an Italian resident corporation by reason ofdeath or donation, regardless of the residence of the deceased or donor andregardless of whether the ordinary shares or ADSs are held outside Italy.

 

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In particular, transfers of assets and rights(including ordinary shares and/or ADSs) on death or by gift are generallysubject to Italian inheritance and gift tax:

 

(i)       at arate of 4 percent in the case of transfers made to the spouse or relatives indirect line, on the portion of the global net value of the transferred assets(including ordinary shares and ADSs), if any, exceeding, for each beneficiary,Euro 1,000,000;

 

(ii)      at arate of 6 percent, in the case of transfers made to relatives within the fourthdegree or relatives-in-law within the third degree (in the case of transfers tobrothers or sisters, the 6 percent rate is applicable only on the portion of theglobal net value of the transferred assets (including ordinary shares andADSs), if any, exceeding, for each beneficiary, Euro 100,000); and

 

(iii)     at arate of 8 percent, in any other case.

 

Inheritance or gift taxes paid in a jurisdictionoutside of Italy relating to the same estate on assets (including ordinaryshares and ADSs) existing in that jurisdiction are deductible, in whole or inpart, from the Italian inheritance and gift tax due with respect to the estate.

 

The above-described regime may be superseded by theprovisions of the double taxation treaties in respect of taxes on estates andinheritances entered into by Italy, if more favorable and where applicable.

 

Subject to certain limitations, the Estate TaxConvention between the United States and Italy generally affords a credit forinheritance tax imposed by Italy on ordinary shares or ADSs of an Italianresident corporation that is applicable to any U.S. federal estate tax imposedon the same ordinary shares or ADSs. This credit is available only to theestate of a deceased person who, at the time of death, was a national of ordomiciled in the United States. There is currently no gift tax conventionbetween Italy and the United States.

 

*UnitedStates Federal Taxation*

 

Forpurposes of this section, a U.S. holder is an individual or entity which is abeneficial owner of shares or ADSs and is:

 

·                  a citizen or resident of the United States;

 

·                  a corporation or other entity taxable as acorporation organized under the laws of the United States or any state thereof;

 

·                  an estate whose income is subject to United Statesfederal income tax regardless of its source; or

 

·                  a trust if a United States court can exerciseprimary supervision over the trust’s administration and one or more UnitedStates persons are authorized to control all substantial decisions of thetrust.

 

Ifa partnership, or an entity treated for U.S. tax purposes as a partnership,holds ordinary shares or ADSs, the tax treatment of a partner will generallydepend upon the status of the partner and the activities of the partnership.Persons who are partners in partnerships holding ordinary shares or ADSs shouldconsult their tax advisors.

 

*Taxation of Dividends.*Under the United Statesfederal income tax laws, a U.S. holder must include as gross income the grossamount of any dividend paid by Luxottica Group S.p.A. out of its current oraccumulated earnings and profits, as determined for United States federalincome tax purposes. Such holder must also include any Italian tax withheld fromthe dividend payment in this gross amount even though the holder does not infact receive such amounts withheld. The dividend is ordinary income that mustbe included in income when the U.S. holder, in the case of ordinary shares, orthe depositary, in the case of ADSs, receives the dividend, actually orconstructively. The dividend will not be eligible for the dividends receiveddeduction generally allowed to United States corporations in respect ofdividends received from other United States corporations. The amount of thedividend distribution that must be included in income for a U.S. holder will bethe U.S. dollar value of the Euro payments made, determined at the spotEuro/U.S. dollar rate on the date the dividend distribution is includible inincome, regardless of whether the payment is in fact converted into U.S.dollars. Generally, any gain or loss resulting from currency exchangefluctuations during the period from the date the U.S. holder includes thedividend payment in income to the date he converts the payment into U.S.dollars will be treated as ordinary income or loss. The gain or loss generallywill be income from sources within the United States for foreign tax creditlimitation purposes. Distributions in 

 

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excessof current and accumulated earnings and profits, as determined for UnitedStates federal income tax purposes, will be treated as a return of capital tothe extent of the U.S. holder’s basis in the shares or ADSs and thereafter ascapital gain.

 

Subjectto certain generally applicable limitations, the Italian withholding orsubstitute tax imposed on dividends in accordance with the Treaty and paid overto Italy will be creditable against a U.S. holder’s United States federalincome tax liability. To the extent a refund of the tax withheld is availableto the U.S. holder under Italian law or under the Treaty, the amount of taxwithheld that is refundable will not be eligible for credit against such holder’sUnited States federal income tax liability. See “—Italian Tax Law—Withholdingor Substitute Tax on Dividends” for the procedures for obtaining a tax refund.

 

Dividendspaid by foreign corporations generally constitute income from sources outsidethe United States, but generally will be “passive income” which is treatedseparately from other types of income for purposes of computing the foreign taxcredit allowable. The rules governing the foreign tax credit are complex. U.S.holders should consult their tax advisors regarding the availability of aforeign tax credit for Italian withholding taxes imposed on dividends paid onordinary shares or ADSs.

 

Certaindividends received by non-corporate U.S. holders in taxable years beginningbefore January 1, 2011 in respect of ordinary shares or ADSs will be taxed atthe rate applicable to long-term capital gains (generally at a maximum incometax rate of 15 percent) if the dividends are “qualified dividends.” Thisreduced income tax rate is only applicable to dividends paid by U.S.corporations and “qualified foreign corporations” and only with respect toshares held by a qualified U.S. holder (i.e., a non-corporate stockholder suchas an individual) for a minimum holding period (generally, more than 60 daysduring the 121-day period beginning 60 days before the ex-dividend date). Webelieve that we are a “qualified foreign corporation” and that dividends paidby us to individual U.S. holders of ordinary shares held for the minimumholding period should thus be eligible for the reduced income tax rate. See “—PassiveForeign Investment Company Considerations” for a discussion of certainrestrictions on “qualified foreign corporation” status. *Non-corporateU.S. holders are urged to consult their own tax advisors to determine whetherthey are subject to any special rules that limit their ability to be taxed atthis favorable rate.*

 

*Taxation of Capital Gains.*If a U.S. holder sells orotherwise disposes of ordinary shares or ADSs and such shares constitute acapital asset in the hands of the U.S. holder, such holder will recognizecapital gain or loss for United States federal income tax purposes equal to thedifference between the U.S. dollar value of the amount realized and the taxbasis, determined in U.S. dollars, in the ordinary shares or ADSs. Capital gainof a non-corporate U.S. holder, recognized in taxable years which begin before January1, 2011, is generally taxed at a maximum rate of 15 percent for property heldmore than one year. Additionally, gain or loss will generally be from sourceswithin the United States for foreign tax credit limitation purposes.

 

*Passive Foreign Investment Company Considerations.* A corporationorganized outside the U.S. generally will be classified as a passive foreigninvestment company (a “PFIC”) for U.S. federal income tax purposes in anytaxable year in which either: (a) at least 75 percent of its gross income is “passiveincome,” or (b) the average percentage of the gross value of its assets thatproduce “passive income” or are held for the production of passive income is atleast 50 percent. Passive income for this purpose generally includes dividends,interest, royalties, rents and gains from commodities and securitiestransactions. Under a special “look-through” rule, in determining whether it isa PFIC, a foreign corporation is required to take into account a pro rataportion of the income and assets of each corporation in which it owns, directlyor indirectly, at least a 25 percent interest. Where the “look-through” rule applies,there is eliminated from the determination of the status of the foreigncorporation as a PFIC stock and debt instruments issued by such a 25 percent-ownedsubsidiary as well as dividends and interest received from such a 25 percent-ownedsubsidiary. Based on our audited financial statements, we strongly believe thatwe are not a PFIC for U.S. federal income tax purposes for 2008. Based on ouraudited financial statements and our current expectations regarding the valueand nature of our assets and the sources and nature of our income, we do notexpect to become a PFIC for U.S. federal income tax purposes for future years.Nonetheless, given that our PFIC status will be determined by reference to theassets and income tests applied annually, with the assets test being applied byreference to the average of the fair market value of our assets at the end ofeach quarter, and the income test being applied by reference to our income atthe end of the taxable year, we cannot provide complete assurance that we willnot be a PFIC for either the current taxable year or for any subsequent taxableyear. If we are classified as a PFIC in any year that a U.S. holder is astockholder, we generally will continue to be treated as a PFIC for that U.S.holder in all succeeding years, regardless of whether we continue to meet theincome or asset test described above. If we are classified as a PFIC in anyyear, certain materially adverse consequences could result for U.S. holders ofordinary shares or ADSs. Such adverse consequences could, however, bematerially lessened if the U.S. holders timely file either a qualified electingfund or a mark-to-market election. In addition, if we were classified as aPFIC, in a taxable year in which we pay a dividend or the prior 

 

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taxableyear, we would not be a qualified foreign corporation (as described in “—Taxationof Dividends”), and our dividends would not be eligible for the reduced 15 percentU.S. income tax rate.

 

*Although, as stated above, we strongly believe that we are not, and wedo not expect to become, a PFIC, we suggest that all existing and potentialU.S. holders consult their own tax advisors regarding the potential tax impactif we were determined to be a PFIC.*

 

*Backup Withholding and Information Reporting.*In general,dividend payments or other taxable distributions made within the United Statesto a U.S. holder will be subject to information reporting requirements andbackup withholding tax (currently at the rate of 28 percent) if such U.S.holder is a non-corporate United States person and such holder:

 

·                  fails to provide an accurate taxpayer identificationnumber;

 

·                  is notified by the IRS that he has failed to reportall interest or dividends required to be shown on his federal income taxreturns and the payor of the interest or dividends is notified by the IRS ofthe underreporting; or

 

·                  in certain circumstances, fails to comply withapplicable certification requirements.

 

A U.S. holder generally may obtain a refund of anyamounts withheld under the backup withholding rules that exceed his, her or itsincome tax liability by filing a refund claim with the IRS.

 

AfterDecember 31, 2010, the backup withholding rate will increase to 31 percentunder the sunset provisions of currently applicable U.S. tax law.

 

Personswho are not United States persons may be required to establish their exemptionfrom information reporting and backup withholding by certifying their status onInternal Revenue Service Form W-8BEN, W-8ECI or W-8IMY.

 

Thepayment of proceeds from the sale of ordinary shares or ADSs to or through aUnited States office of a broker is also subject to these United States backupwithholding and information reporting rules unless the seller certifies, underpenalties of perjury, that such seller is a non-U.S. person (or otherwiseestablishes an exemption). Special rules apply where ordinary shares or ADSsare sold through a non-U.S. office of a non-U.S. broker and the sale proceedsare paid outside the United States.

 

U.S.holders generally may obtain a refund of any amounts withheld under the backupwithholding rules that exceed such holder’s income tax liability by filing atimely refund claim with the IRS.

 

*Estate Tax Convention.*Under the Estate TaxConvention between the United States and Italy, the ordinary shares or ADSswill be deemed situated in Italy. Subject to certain limitations, the EstateTax Convention affords a credit for estate or inheritance tax imposed by Italyon ordinary shares or ADSs that is applicable against United States federalestate tax imposed on ordinary shares or ADSs. This credit is available only tothe estate of a deceased person who, at the time of death, was a national of ordomiciled in the United States.

 

**Documentson Display**

 

Weare subject to the informational requirements of the Securities Exchange Act of1934, applicable to foreign private issuers, and in accordance therewith wefile reports and other information with the SEC. Reports and other informationfiled by us are available for inspection and copying, upon payment of feesprescribed by the SEC, at the Public Reference Room maintained by the SEC at100 F Street, N.E., Washington, DC 20549. Copies of such material are alsoavailable for a fee by sending an electronic mail message to the internet groupmailbox publicinfo@sec.gov, by fax at (202) 777-1027 or by mail to 100 FStreet, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 formore information on the Public Reference Room. In addition, such material mayalso be inspected and copied at the offices of the New York Stock Exchange, Inc.,20 Broad Street, New York, New York 10005. The public may also view our annualreports and other documents filed with the SEC on the Internet at www.sec.gov.

 

Wefurnish Deutsche Bank Trust Company Americas, as depositary with respect to theADSs, with annual reports in English (or a translation or summary in English ofthe Italian reports), which include a review of operations and annual auditedconsolidated financial statements prepared in conformity with U.S. GAAP. Wealso furnish Deutsche Bank Trust Company Americas with quarterly reports inEnglish (or a translation or summary in English of the Italian reports) thatinclude unaudited interim financial information prepared in conformity withU.S. GAAP. If requested by us, Deutsche Bank 

 

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TrustCompany Americas arranges for the mailing of such reports to registered holdersof ADSs. We also furnish to Deutsche Bank Trust Company Americas, in English,all notices of stockholders’ meetings and other reports and communications thatare made generally available to our stockholders. To the extent permitted bylaw, Deutsche Bank Trust Company Americas makes such notices, reports andcommunications available to holders of ADSs in such manner as we request andmails to holders of ADSs a notice containing the information (or a summarythereof in a form provided by us) contained in any notice of a stockholders’meeting received by Deutsche Bank Trust Company Americas. As a foreign privateissuer, we are exempt from the rules under the Securities Exchange Act of 1934prescribing the furnishing and content of proxy statements.

 

**ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

**InterestRate Sensitivity**

 

At December 31, 2008 and 2007, our interestrate sensitivity was limited to the amount of our unhedged variable rateoutstanding debt under our credit facilities and bank overdraft facilities.

 

Included in this amount are:

 

·                  Tranche B and Tranche C borrowingson our subsequently amended credit facility with a group of banks, of Euro1,130 million and U.S.$325 million (of which Euro 677.9 million and Euro 567.4million were borrowed under Tranche C as of December 31, 2008 and 2007,respectively, and U.S.$325 million was borrowed under Tranche B as of December 31,2008). However, in 2007, we entered into interest rate swaps to effectivelyhedge the floating rate to a fixed rate for Tranche B. As of December 31, 2008,this credit facility bore interest at EURIBOR on Euro-denominated loans and LIBORon U.S.$-denominated loans, plus a margin between 0.20 and 0.40 percent basedon the Net Debt/ EBITDA ratio as defined in the agreement (3.397 percent onTranche C for amounts borrowed in Euro and 1.189 percent for amounts borrowedin U.S.$ as of December 31, 2008).

 

·                  Our Euro 150million credit facility, of which Euro 150 million was borrowed as of December 31,2008. This credit facility accrues interest at EURIBOR plus 0.375 percent(3.604 percent as of December 31, 2008).

 

·                  Our Euro 250million credit facility, of which Euro 250.0 million was borrowed as of December31, 2008. This credit facility accrues interest at EURIBOR plus a marginbetween 0.40 percent and 0.60 percent based on the “Net Debt/EBITDA” ratio, asdefined in the agreement (3.741 percent as of December 31, 2008).

 

·                  Our Tranche D U.S.$1.0 billion credit facility, ofwhich U.S.$1.0 billion was borrowed as of December 31, 2008 (unchanged from2007). This credit facility accrues interest at LIBOR plus a margin between0.20 and 0.40 percent based on the Net Debt/EBITDA ratio as defined in theagreement (1.545 percent as of December 31, 2008). However, in 2008, we enteredinto interest rate swaps for a notional amount of U.S. $500 million thateffectively hedge the floating rate to a fixed rate for a portion of Tranche D.

 

Additionally,in 2003 we issued U.S.$300 million of fixed rate senior unsecured guaranteednotes in three series (Series A, B and C). We immediately entered into threeinterest rate swaps to hedge such series of notes, thereby effectively changingthe fixed rate to a variable rate of six-month LIBOR plus a spread of 0.6575 percentor 0.73 percent depending on the series. These swaps were terminated by apayment to the bank in December 2005, and we will amortize the final fair valueadjustment to the debt as an adjustment to the fixed-rate yield over theremaining life of the debt. This has effectively increased our fixed rate onsuch Series A, B and C notes to 5.64 percent, 5.99 percent and 5.44 percent,respectively.

 

However,the effect of a ten percent change in interest rates (upward or downward) at December31, 2008 and 2007, would not have had a material effect on our future annualpretax earnings and cash flows. This was calculated by us, based on ourexpected future pretax earning and cash flows with an interest rate adjustmentof ten percent above and below the rates in effect as of December 31, 2008 and2007. We calculated this effect both on a single year basis and an accumulatedbasis using a present value calculation for all variable-rate debt instruments.For U.S.$-denominated activities, we used an exchange rate of Euro 1.00 =U.S.$1.30 and Euro 1.00 = U.S.$1.45 as of December 31, 2008 and 2007,respectively.

 

Wemonitor our exposure to interest rate fluctuations and may enter into hedgingarrangements to mitigate our exposure to increases in interest rates if webelieve it is prudent to do so. We have 35 interest rate derivatives outstandingas of December 31, 2008:

 

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·                  In June 2005, the Company entered into nineinterest rate swap transactions with various banks with an aggregate initialnotional amount of Euro 405 million, which began to decrease by Euro 45 millionevery three months starting on June 3, 2007 (“Club Deal Swaps”). These swapsexpired quarterly beginning in June 2007 and ending in June 2009. The Club DealSwaps were entered into as a cash flow hedge on Tranche A of the creditfacility discussed above. See Item 5—“Operating and Financial Review andProspects—Liquidity and Capital Resources—Our Indebtedness—The Amended Euro1,130 Million and U.S.$325 Million Credit Facility and Related Interest RateSwaps.” The Club Deal Swaps exchange thefloating rate of Euribor for an average fixed rate of 2.565 percent per annum.

 

·                  In June 2005, the Company entered into four interestrate swap transactions with various banks with an aggregate initial notionalamount of Euro 120 million, which began to decrease by Euro 30 million everysix months starting on March 30, 2007 (“Intesa OPSM Swaps”). These swapsexpired on September 30, 2008. The Intesa OPSM Swaps were entered into as acash flow hedge on a portion of the Banca Intesa Euro 200 million unsecuredcredit facility discussed above. See Item 5—“Operating and Financial Review andProspects—Liquidity and Capital Resources—Our Indebtedness— The Euro 200Million Credit Facility with Banca Intesa and Related Interest Rate Swaps.”

 

·                  During the third quarter of 2007, the Group enteredinto thirteen interest rate swap transactions with an aggregate initialnotional amount of U.S.$325 million with various banks (“Tranche B Swaps”).These swaps will expire on March 10, 2012. The Tranche B Swaps were enteredinto as a cash flow hedge on Tranche B of the credit facility discussed above.See Item 5—“Operating and Financial Review and Prospects—Liquidity and CapitalResources—Our Indebtedness—Amended Euro 1,130 Million and U.S.$325 MillionCredit Facility and Related Interest Rate Swaps.” The Tranche B Swaps exchangethe floating rate of LIBOR for an average fixed rate of 4.62 percent per annum.

 

·                  During the third quarter of 2007, the Group enteredinto ten interest rate swap transactions with an aggregate initial notionalamount of U.S.$500 million with various banks (“Tranche E Swaps”). These swapswill expire on October 12, 2012. The Tranche E Swaps were entered into as acash flow hedge on Tranche E of the credit facility discussed above. See Item 5—“Operatingand Financial Review and Prospects—Liquidity and Capital Resources—OurIndebtedness— The U.S.$1,500 Million Credit Facility, U.S.$500 Million BridgeLoan and Related Interest Rate Swaps.” The Tranche E Swaps exchange the floating rate of LIBOR for an averagefixed rate of 4.26 percent per annum.

 

·                  During the fourth quarter of 2008, the Group entered into ten interestrate swap transactions with an aggregate initial notional amount of U.S. $500.0million with various banks, which will start to decrease by U.S.$50.0 millionevery three months beginning on April 12, 2011 (“Tranche D Swaps”). These swapswill expire on October 12, 2012. The Tranche D Swaps were entered into as acash flow hedge on Tranche D of the credit facility discussed above. See Item 5—  “Operating and Financial Review and Prospects — Liquidity and Capital Resources — OurIndebtedness — The U.S. $1,500.0 Million Credit Facility, U.S.$500.0 Million Bridge Loan and Related Interest Rate Swaps.” The Tranche D Swapsexchange the floating rate of LIBOR for an average fixed rate of 2.423 percentper annum.

 

**ForeignExchange Sensitivity**

 

Ourmanufacturing subsidiaries are mainly located in Italy and our sales anddistribution facilities are maintained worldwide. With the acquisition ofOakley, we also now have manufacturing facilities in the U.S. that will bedistributing their products worldwide. As such, we are vulnerable to foreign currency exchange ratefluctuations in two principal areas:

 

1.                                            We incur mostof our manufacturing costs in Euro or Chinese Yuan and we receive a significantportion of our revenues in other currencies (which we refer to as EconomicRisk); and

 

2.                                            Differencesbetween the functional currency of certain subsidiaries and the Euro as thereporting currency (which we refer to as Translation Risk).

 

*Economic Risk*.  Astrengthening of the Euro relative to other currencies in which we receiverevenues could negatively impact the demand for our products manufactured inItaly and/or reduce our gross margins. However, our newly acquired Oakleymanufacturing facilities in the U.S. have offset these reduced margins as weexpand Oakley’s sales in Euro-denominated countries.  We expect that the weakening of the Euro willhave the reverse effect.  In addition, tothe extent that our receivables and payables are denominated in differentcurrencies, exchange rate fluctuations could further impact our 

 

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reportedresults of operations. However, our production cycles are relatively short andour receivables and payables are generally short-term in nature. As a result,we do not believe that we currently have significant exposure in this area. Wewill, if we believe it is necessary, enter into foreign exchange contracts tohedge certain of these transactions, which could include sales, receivablesand/or payables balances.

 

EffectiveJanuary 1, 2001, we adopted SFAS No. 133, as amended and interpreted, whichestablishes accounting and reporting standards for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities. SFAS 133 requires that all derivatives, whether designatedas a hedging relationship or not, be recorded on the balance sheet at fairvalue regardless of the purpose or intent for holding them. If a derivative isdesignated as a fair-value hedge, changes in the fair value of the derivativeand the related change in the hedge item are recognized in operations. If aderivative is designated as a cash-flow hedge, changes in the fair value of thederivative are recorded in other comprehensive income in the consolidatedstatement of stockholders’ equity and are recognized in the consolidatedstatements of income when the hedged item affects operations. For a derivativethat does not qualify as a hedge, changes in fair value are recognized inoperations.

 

Fromtime to time, we use derivative financial instruments, principally currencyforward agreements, as part of our risk management policy to reduce ourexposure to market risks from changes in foreign exchange rates. As of December31, 2008, we had several currency forward derivatives and option structuresreplicating forward contracts (zero cost collar) with a maturity no longer than180 days. We may enter into other foreign exchange derivative financialinstruments when we assess that the risk can be hedged effectively.

 

*Translation Risk.*A substantial portion ofrevenues and costs are denominated in various currencies other than Euro. Thefollowing table provides information about our revenues and costs denominatedin various currencies for the years ended December 31, 2008 and 2007, and isnot meant to be a tabular disclosure of market risk:

 
| **2008**           | ** ** | **U.S. Dollars** | ** ** | **Euro** | ** ** | **Other** | ** ** | **Total** | ** ** |
|--------------------|------------|------------------|------------|----------|------------|-----------|------------|-----------|------------|
| Revenues           |       | 59.0             | %          | 19.3     | %          | 21.7      | %          | 100       | %          |
| Operating expenses |       | 57.4             | %          | 26.8     | %          | 15.8      | %          | 100       | %          |

 
| **2007**           | ** ** | **U.S. Dollars** | ** ** | **Euro** | ** ** | **Other** | ** ** | **Total** | ** ** |
|--------------------|------------|------------------|------------|----------|------------|-----------|------------|-----------|------------|
| Revenues           |       | 61.2             | %          | 20.6     | %          | 18.2      | %          | 100       | %          |
| Operating expenses |       | 54.8             | %          | 30.1     | %          | 15.1      | %          | 100       | %          |

 

Becausea large portion of our revenues and expenses are denominated in U.S. dollars,fluctuations in the exchange rate between the U.S. dollar and the Euro, ourreporting currency, could have a material effect on our reported financialposition and results of operations. The effect of a ten percent weakening ofthe U.S.$ against the Euro as compared to the actual 2008 and 2007 averageexchange rate between the U.S.$ and Euro would have been a decrease in incomebefore taxes of Euro 36 million and of Euro 67 million, respectively. In addition,a significant change in the mix of revenues or expenses between or amonggeographic or operating segments could increase or decrease our exposure toother currency exchange rate fluctuations. We will continue to monitor ourexposure to exchange rate fluctuations and enter into hedging arrangements ifand to the extent we believe it to be appropriate.

 

Theacquisitions of OPSM in 2003, Cole in 2004 and Oakley in 2007 have furtherincreased our exposure to fluctuations in currency exchange rates. The majorityof the operations, assets and liabilities of Cole and Oakley are denominated inU.S. dollars, while, for OPSM and a part of the Oakley business, theoperations, assets and liabilities are mostly denominated in Australiandollars.

 

**ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**

 

None.

 

**PART II**

 

**ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**

 

None.

 

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**ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS ANDUSE OF PROCEEDS**

 

None.

 

**ITEM 15. CONTROLS AND PROCEDURES**

 

*DisclosureControls and Procedures*

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our reports under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms, andthat such information is accumulated and communicated to our management,including our principal executive officer and our principal financial officer,as appropriate, to allow timely decisions regarding required disclosures. Anycontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving the desired control objectives. Ourmanagement, with the participation of our principal executive officer and ourprincipal financial officer, has evaluated the effectiveness of the design and operationof our disclosure controls and procedures as of December 31, 2008. Based uponthat evaluation, our principal executive officer and our principal financialofficer have concluded that the design and operation of our disclosure controlsand procedures provide reasonable assurance that, as of December 31, 2008, thedisclosure controls and procedures are effective.

 

*Management’sReport on Internal Control over Financial Reporting*

 

Asrequired by the SEC rules and regulations for the implementation of Section 404of the Sarbanes-Oxley Act, our management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Exchange Act Rule 13a-15(f). Our internal control over financialreporting is designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of our consolidated financialstatements for external reporting purposes in accordance with accountingprinciples generally accepted in the United States of America.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements in our consolidated financial statements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

On July 31,2008, we and Ruleplan Limited, a company unaffiliated with us, exchanged all ofthe ordinary shares in Optika Holdings Limited, or OHL, for ordinary shares of our subsidiary,Sunglass Hut UK Ltd., or SGH UK. The fair value of the shares of SGH UK issuedto Ruleplan Limited for this transaction was approximately Euro 22.1 million(approximately GBP 17.5 million). As of year end, OHL was a separate controlenvironment. OHL was excluded from management’s report on internal controlsover financial reporting, as permitted by SEC guidance, for the year ended December31, 2008.  OHL was not material to theCompany’s consolidated results of operations for fiscal year 2008 or to theCompany’s consolidated balance sheet as of December 31, 2008.

 

Underthe supervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we have conductedan evaluation of the effectiveness of our internal control over financialreporting based on the framework in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Basedon our evaluation under the framework in *InternalControl—Integrated Framework*, our management has concluded that ourinternal control over financial reporting was effective as of December 31,2008.

 

Our independent registered public accounting firm hasaudited and issued its report on the effectiveness of our internal control overfinancial reporting as of December 31, 2008, which appears in Item 18 of thisannual report on Form 20-F.

 

*Changesin Internal Control over Financial Reporting*

 

During the period covered by this annual report, therewere no changes in our internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**ITEM 16. [RESERVED]**

 

**ITEM 16A. Audit Committee Financial Expert**

 

OurBoard of Directors has determined that a member of our Board of StatutoryAuditors, Alberto Giussani, appointed on April 29, 2009, qualifies as an “auditcommittee financial expert,” as defined in the SEC rules, and is “independent,”as defined in such rules. Prior to April 29, 2009, Marco Reboa was our “auditcommittee financial expert.” The Board of Statutory Auditors has beendesignated by our Board of Directors as the appropriate body to act as our “AuditCommittee,” as defined in the Sarbanes-Oxley Act, SEC regulations and the NYSElisting standards. See Item 6—“Directors, Senior Management andEmployees—Summary of the Significant Differences Between Our CorporateGovernance Practices and the Corporate Governance Standards of the New YorkStock Exchange—Board Committees.”

 

**ITEM 16B. Code of Ethics**

 

TheBoard of Directors adopted a Code of Ethics, as may be amended from time totime, that applies to our chief executive officer, chief financial officer andall of our directors, members of management bodies, any other employees, andthat is addressed to those who directly or indirectly permanently ortemporarily have relationships and dealings with the Company. We will provide acopy of our Code of Ethics without charge upon a written request sent to ourregistered office at Via C. Cantù 2, 20123 Milan, Italy. You may also obtain acopy of our Code of Ethics on our website at *www.luxottica.com*.

 

Inaccordance with Italian law, we adopted a Procedure for Handling PrivilegedInformation, updated in March 2008, in order to ensure that material non-publicinformation is promptly and adequately disclosed to the public and incompliance with the fundamental principles of transparency and truthfulness. Wealso adopted an Internal Dealing Procedure in order to comply with certainregulatory amendments. The procedure, updated in March 2008, governs thedisclosure obligations and the limitations concerning transactions carried outon shares and other financial instruments by a “significant” person (includingdirectors, the main stockholders of the company and the persons closely relatedto them).

 

**ITEM 16C. Principal Accountant Fees and Services**

 

Deloitte& Touche S.p.A., or Deloitte & Touche, was engaged as our independentregistered public accounting firm to audit our consolidated financialstatements for the years ended December 31, 2008 and 2007. Due to the nature ofour operations, numerous Deloitte & Touche entities and affiliates performnumerous other accounting, tax and consulting tasks for us around the world.The Board of Directors is the corporate body competent to pre-approve, with thefavorable opinion of the Board of Statutory Auditors, all audit services forthe annual audit of Luxottica Group S.p.A.’s own financial statements and forthe audit of the consolidated financial statements of Luxottica Group S.p.A.and its subsidiaries, and to pre-approve all non-audit services permissible forall entities in the group, although pre-approval of such services may notalways be possible based on the nature of the service. Each pre-approval istypically given for a one-year period and is detailed by category and budgetedcost.

 

Thefollowing table sets forth the aggregate fees paid by the Company to Deloitte &Touche for 2008 and 2007:

 
| **Thousands of Euro**                                                                                  | ** ** | **2008  Fees** | ** ** | **2007  Fees** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------|------------|----------------|------------|
| Audit fees (including annual financial statement  audit, semi-annual reviews and Sarbanes-Oxley audit) |       | 4,608          |       | 4,231          |       |
| Audit related fees (including benefit plan audits  and acquisition due diligence)                      |       | 88             |       | 355            |       |
| Tax fees (including compliance and planning)                                                           |       | 127            |       | 605            |       |
| All other fees                                                                                         |       | 402            |       | 0              |       |
| Total fees                                                                                             |       | 5,225          |       | 5,191          |       |

 

OurBoard of Statutory Auditors has approved all of the audit and non-audit fees ofDeloitte & Touche for the year 2008 in accordance with the pre-approvalpolicy set forth above. The percentage of audit work performed by persons otherthan full-time permanent employees of Deloitte & Touche is less than 50 percent.

 

**ITEM 16D. Exemptions from the Listing Standards for Audit Committees**

 

Werely on the exemption from the listing standards for audit committees set forthin Exchange Act Rule 10A-3(c)(3). We believe that such reliance will notmaterially adversely affect the ability of our Board of Statutory Auditors toact independently and to satisfy the other requirements of the SEC rules.

 

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**ITEM 16E. Purchases of Equity Securities by the Issuer and AffiliatedPurchasers**

 

From January 1, 2008to December 31, 2008, no purchases were made by or on behalf of theCompany or any affiliated purchaser of ordinary shares or ADSs.

 

Theordinary meeting of stockholders on May 13, 2008 approved a programauthorizing the repurchase and disposal of up to a maximum of 18,500,000Luxottica Group ordinary shares over the 18-month period following such date,for a maximum cost of up to Euro 370,000,000. As of May 31, 2009, therehave been no repurchases under this program.

 

**ITEM 16F. Change in Registrant’s Certifying Accountant**

 

Notapplicable.

 

**ITEM 16G. Corporate Governance**

 

**Summaryof the Significant Differences Between Our Corporate Governance Practices andthe Corporate Governance Standards of the New York Stock Exchange**

 

*Overview*

 

OnNovember 4, 2003, the New York Stock Exchange (the “NYSE”) established newcorporate governance rules for listed companies. Under these NYSE rules,we are permitted, as a listed foreign private issuer, to adhere to thecorporate governance standards of our home country in lieu of certain NYSEcorporate governance rules, so long as we disclose the significant ways inwhich our corporate governance practices differ from those followed by U.S.companies under the NYSE listing standards.

 

Ourcorporate governance practices are governed principally by the Italian Code ofCorporate Governance, amended in March 2006, issued by Borsa Italiana andgenerally by the rules and regulations of Commissione Nazionale per leSocietà e la Borsa, or Consob for Italian companies (collectively, the “ItalianCorporate Governance Policies”). Under these Italian Corporate GovernancePolicies, we are permitted not to comply with certain rules andregulations, as long as we disclose the reason for non-compliance.

 

Thefollowing is a brief summary of the significant differences between ourcorporate governance practices in accordance with the Italian CorporateGovernance Policies and those followed by U.S. companies under the NYSE listingstandards.

 

*Composition of Board of Directors; Independence*

 

TheNYSE listing standards provide that the board of directors of a U.S. listedcompany must consist of a majority of independent directors and that certaincommittees must consist solely of independent directors. A director qualifiesas independent only if the board affirmatively determines that the director hasno material relationship with the company, either directly or indirectly. Thelisting standards enumerate a number of relationships that precludeindependence. In addition, non-management directors of a U.S. listed companyare required to meet at regularly scheduled executive sessions withoutmanagement.

 

TheItalian Corporate Governance Policies recommend that an “adequate number” ofnon-executive and independent directors serve on the board of directors of anItalian company, but do not require the board of directors to consist of amajority of independent directors. Italian law requires that at least onedirector or, in the event the board of directors is composed of more than sevenmembers, at least two directors must fulfill the requirements to beindependent.

 

Thestandards for determining director independence under the Italian CorporateGovernance Policies are substantially similar to the NYSE listing standards forU.S. listed companies. The Italian Corporate Governance Policies require ournon-executive directors to meet at executive sessions without management onceper year, unless the reason for any non-compliance is disclosed.

 

Basedon standards under the Italian Corporate Governance Policies, our Board ofDirectors has determined that, among its 15 members, 7 directors areindependent. This number of independent directors complies with the “adequatenumber” of non-management directors recommended by the Italian CorporateGovernance Policies. During 2008, our non-

 

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managementdirectors did not schedule executive sessions without management, as our LeadIndependent Director, Lucio Rondelli, who served until April 29, 2009,determined that it was not necessary to convene such sessions, considering thehigh number of meetings of the Board of Directors and the Internal ControlCommittee.

 

*Board Committees*

 

TheNYSE listing standards require a U.S. listed company to have an auditcommittee, a nominating/corporate governance committee and a compensationcommittee. Each of these committees must consist solely of independentdirectors and must have a written charter that addresses certain mattersspecified in the listing standards. The NYSE listing standards contain detailedrequirements for the audit committees of U.S. listed companies. Some, but notall, of these requirements also apply to non-U.S. listed companies such as us.Italian law, on the other hand, requires neither the establishment of boardcommittees nor the adoption of written committee charters. However, the ItalianCorporate Governance Policies do require the establishment of a CompensationCommittee, with certain exceptions, as discussed below.

 

Italianlaw does not require Italian listed companies to have an audit committee, butdoes require companies to appoint a Board of Statutory Auditors. The Board ofDirectors has designated the Board of Statutory Auditors as the appropriatebody to act as the “Audit Committee,” as defined in the Sarbanes-Oxley Act, SECregulations and the NYSE listing standards. It operates in accordance withItalian law, the Company’s By-laws and the “Regulations Governing the Duties ofthe Board of Statutory Auditors in accordance with U.S. Audit CommitteeRequirements.” The Board of Statutory Auditors has acted as the Audit Committeesince the annual meeting of stockholders on June 14, 2006. Additionalinformation regarding our Board of Statutory Auditors is set forth below.

 

Withrespect to the nomination of directors, Italian law requires that each Italianlisted company file with its registered office, at least 10 days before itsordinary meeting of stockholders, a list of the personal and professionalqualifications of each proposed director nominee. The Italian CorporateGovernance Policies also recommend that, if an Italian listed company appointsa committee to select, or recommend the selection by the board of directors of,director nominees for the next ordinary meeting of stockholders, a majority ofthis committee be comprised of non-executive directors. The Company has electednot to appoint a committee to select, or recommend the selection of, directornominees.

 

TheItalian Corporate Governance Policies require that Italian listed companiesappoint a Compensation Committee and that a majority of this committee becomprised of independent directors, unless the reason for any non-compliance isdisclosed. Our Human Resources Committee performs the functions of acompensation committee, including the review of our officers’ compensation andour stock option plans. On April 29, 2009, the Board of Directors of theCompany, appointed new members of the Human Resources Committee amongnon-executive members of the Board, three of which were independent directors,to comply with the provisions of the amended Italian Corporate GovernancePolicies.

 

Formore information on the resolution adopted by the Company to comply with theprovisions of the Corporate Governance Policies, as amended on March 2006,please see our annual report on corporate governance available on the companywebsite at *www.luxottica.com*.

 

*Internal Control Committee*

 

TheItalian Corporate Governance Policies also require the establishment of anInternal Control Committee. Our Internal Control Committee consists of threeindependent directors. The committee has investigative, advisory andproposal-making functions concentrating on, among other matters, the internalcontrol system and the proper use of accounting principles in conjunction withour administration managers and auditors. The committee reports to the Board ofDirectors at least twice a year. The members of the Internal Control Committeeare Mario Cattaneo, Chairman, Marco Mangiagalli and Marco Reboa, each an independentdirector.

 

*Board of Statutory Auditors*

 

OurBoard of Statutory Auditors consists of three regular members and two alternatemembers. The Board of Statutory Auditors is appointed by our stockholders andserves for a period of three years. Italian law establishes the qualificationsof candidates that may be appointed as members of the Board of StatutoryAuditors. The office of Member of the Board of Statutory Auditors in a listedcompany pursuant to Italian law may not be assumed by any individual who holdsthe same position in five other listed companies. Our By-laws are required toensure that at least one member of the Board of Statutory Auditors and oneAlternate Auditor may be elected by our minority stockholders. Our By-lawscomply with this requirement by providing that at least one regular member, whoshall serve as Chairman of the Board of Statutory Auditors, and one alternatemember may be elected by our minority stockholders in accordance with Italianlaw.

 

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TheBoard of Statutory Auditors oversees our compliance with our By-laws andapplicable laws and the adequacy of our internal control system and accountingand administrative system. The Board of Statutory Auditors is required toattend all meetings of our stockholders and the meetings of our Board ofDirectors. The Board of Statutory Auditors is also required to notify Consob ifwe fail to comply with our By-laws or any applicable laws.

 

*Code of Business Conduct and Ethics*

 

TheNYSE listing standards require each U.S. listed company to adopt, and post onits website, a code of business conduct and ethics for its directors, officersand employees. Under SEC rules, all companies required to submit periodicreports to the SEC, including us, must disclose in their annual reports whetherthey have adopted a code of ethics for their chief executive officer and seniorfinancial officers. In addition, they must file a copy of the code withthe SEC, post the text of the code on their website or undertake to provide acopy upon request to any person without charge. There is significant, thoughnot complete, overlap between the code of business conduct and ethics requiredby the NYSE listing standards and the code of ethics for the chief financialofficer and senior financial officers required by the SEC’s rules.

 

Inaccordance with SEC rules we have adopted a Code of Ethics, which containsprovisions in compliance with SEC requirements. Our Code of Ethics is availableon our website at *www.luxottica.com*.

 

*Stockholder Approval of Equity Compensation Plans*

 

TheNYSE listing standards require U.S. listed companies to seek stockholderapproval for certain equity compensation plans. Italian law requires Italianlisted companies to submit any capital increases of shares reserved forissuance under their equity compensation plans to stockholders for theirapproval at the meeting of stockholders. In accordance with Italian law, ourstockholders approved capital increases of shares reserved for issuance underour existing stock option plans in 1998, 2001 and 2006.

 

*Corporate Governance Guidelines; Certification*

 

TheNYSE listing standards require U.S. listed companies to adopt, and post ontheir websites, a set of corporate governance guidelines. The guidelines mustaddress, among other things, director qualification standards, directorresponsibilities, director access to management and independent advisers,director compensation, director orientation and continuing education,management succession and an annual performance evaluation of the Board ofDirectors. In addition, the chief executive officer of a U.S. listed companymust certify to the NYSE annually that he or she is not aware of any violationsby the company of the NYSE’s corporate governance listing standards. Thecertification must be disclosed in the company’s annual report to stockholders.

 

Italianlaw requires that listed companies annually report to their stockholders ontheir corporate governance system. Our Company complies with such requirement.You may find our Annual Report on Corporate Governance on our website at *www.luxottica.com*.

 

**ITEM 17. Financial Statements**

 

Notapplicable.

 

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**ITEM 18. Financial Statements**

 
| **Index  to Consolidated Financial Statements**                                                                 | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|
| Reports  of Independent Registered Public Accounting Firm                                                       | F-1        |
| Consolidated  Balance Sheets, December 31, 2008 and 2007                                                   | F-5        |
| Consolidated Statements of Income for the Years Ended  December 31, 2008, 2007 and 2006                    | F-7        |
| Consolidated Statements of Shareholders’ Equity for  the Years Ended December 31, 2008, 2007 and 2006 | F-8        |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and  2006               | F-9        |
| Notes to  Consolidated Financial Statements                                                                     | F-10       |
|                                                                                                            |       |
| **Consolidated  Financial Statement Schedules**                                                                 | ** ** |
| Valuation and Qualifying Accounts                                                                               | F-57       |

 

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|        | Deloitte & Touche  S.p.A. |
|--------|-------------------------------|
|   | Via Tortona, 25               |
|   | 20144 Milano                  |
|   | Italia                        |
|   |                          |
|   | Tel: +39 02 83322111          |
|   | Fax: +39 02 83322112          |
|   | www.deloitte.it               |

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

**To theBoard of Directors and Shareholders of**

**LUXOTTICAGROUP S.p.A.**

 

Wehave audited the accompanying consolidated balance sheets of Luxottica GroupS.p.A. (an Italian corporation) and subsidiaries (the “Company”) as of December31, 2008 and 2007, and the related consolidated statements of income,shareholders’ equity, and cash flows for each of the three years in the periodended December 31, 2008. Our audits also included the financial statementschedule listed in the Index at Item 18. These financial statements andfinancial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the financialstatements and financial statement schedule based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial respects, the financial position of Luxottica Group S.p.A. andsubsidiaries as of December 31, 2008 and 2007, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2008, in conformity with accounting principles generally acceptedin the United States of America. Also, in our opinion, such financial statementschedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

 

Asdiscussed in Note 1 to the consolidated financial statements, effective January1, 2007, the Company changed its method of accounting for uncertainty in incometaxes to conform to Financial Accounting Standards Board Interpretation No. 48,“Accounting for Uncertainty in Income Taxes — an interpretation of FASBStatement No. 109.” Also, as discussed in Notes 1 and 10 to the consolidatedfinancial statements, the Company adopted the measurement date provision andrecognition and disclosure provisions of Statement of Financial AccountingStandards No. 158, “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)”effective December 31, 2008 and December 31, 2006, respectively.

 

Ancona Bari BergamoBologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Perugia

Roma Torino Treviso Verona

 

Sede Legale: Via Tortona,25 - 20144 Milano

Capitale Sociale: Euro10.328.220.00 i.v.

Partita IVA/CodiceFiscale/Registro delle Imprese Milano n. 03049560156 - R.E.A. Milano n. 1720239

 

Member of Deloitte ToucheTohmatsu

 

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Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of December 31, 2008, based on the criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated June 23, 2009expressed an unqualified opinion on the Company’s internal control overfinancial reporting.

 
|                    |   |
|--------------------|--------|
|               |   |
| Milan,  Italy      |   |
| June 23, 2009 |   |

 

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|        | Deloitte & Touche  S.p.A. |
|--------|-------------------------------|
|   | Via Tortona, 25               |
|   | 20144 Milano                  |
|   | Italia                        |
|   |                          |
|   | Tel: +39 02 83322111          |
|   | Fax: +39 02 83322112          |
|   | www.deloitte.it               |

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

**To theBoard of Directors and Shareholders of**

**LUXOTTICAGROUP S.p.A.**

 

Wehave audited the internal control over financial reporting of Luxottica GroupS.p.A. and subsidiaries (the “Company”) as of December 31, 2008, based on thecriteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission. The Company’smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying “Management’sReport on Internal Control over Financial Reporting.” Our responsibility is toexpress an opinion on the Company’s internal control over financial reportingbased on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

 

Acompany’s internal control over financial reporting is a process designed by,or under the supervision of, the company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected bythe company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof the inherent limitations of internal control over financial reporting,including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented ordetected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to futureperiods are subject to the risk that the controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

Ancona Bari BergamoBologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Perugia

Roma Torino Treviso Verona

 

Sede Legale: Via Tortona,25 - 20144 Milano

Capitale Sociale: Euro10.328.220.00 i.v.

Partita IVA/CodiceFiscale/Registro delle Imprese Milano n. 03049560156 - R.E.A. Milano n. 1720239

 

Member of Deloitte ToucheTohmatsu

 

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Table of Contents

 

Inour opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2008, based on thecriteria established in Internal Control — Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated financialstatements and financial statement schedule as of and for the year endedDecember 31, 2008 of the Company and our report dated June 23, 2009 expressedan unqualified opinion on those financial statements and financial statementschedule, and included an explanatory paragraph relating to the Company’sadoption of Financial Accounting Standards Board Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109,”effective January 1, 2007, and the Company’s adoption of the measurement dateprovision and recognition and disclosure provisions of Statement of FinancialAccounting Standards No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans—an amendment of FASB Statements No. 87,88, 106 and 132(R)” effective December 31, 2008 and December 31, 2006,respectively.

 
|                    |   |
|--------------------|--------|
|               |   |
| Milan,  Italy      |   |
| June 23, 2009 |   |

 

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** **

LUXOTTICAGROUP SPA

 

**CONSOLIDATEDBALANCE SHEETS DECEMBER 31, 2008 AND 2007 (*)**

 
| ** **                                                                                                                                                | ** ** | **2008**           | ** ** | **2008**       | ** ** | **2007**      | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------|------------|---------------|------------|
| ** **                                                                                                                                                | ** ** | **(US $/000) (1)** | ** ** | **(EURO/000)** | ** ** |
| ** **                                                                                                                                                |       |               |       |           |       | ** **    |       |
| **ASSETS**                                                                                                                                                |       |               |       |           |       | ** **    |       |
|                                                                                                                                                      |       |               |       |           |       |          |       |
| CURRENT  ASSETS:                                                                                                                                          |       |               |       |           |       |          |       |
| Cash  and cash equivalents                                                                                                                                |       | $                  | 401,494    |           | €     | 288,450       |       | € | 302,894 |   |
| Marketable  securities                                                                                                                                    |       | 32,779             |       | 23,550         |       | 21,345        |       |
| Accounts  receivable - net  (Less allowance for doubtful accounts, Euro 29.1 million in 2008 (US$ 40.5  million) and Euro 25.5 million in 2007  |       | 876,922       |       | 630,018   |       | 665,184  |       |
| Sales  and income taxes receivable                                                                                                                        |       | 211,024            |       | 151,609        |       | 89,000        |       |
| Inventories  - net                                                                                                                                        |       | 794,757            |       | 570,987        |       | 575,016       |       |
| Prepaid  expenses and other                                                                                                                               |       | 200,509            |       | 144,054        |       | 139,305       |       |
| Deferred  tax assets - net                                                                                                                                |       | 183,601            |       | 131,907        |       | 117,853       |       |
|                                                                                                                                                      |       |               |       |           |       |          |       |
| Total  current assets                                                                                                                                     |       | 2,701,086          |       | 1,940,575      |       | 1,910,597     |       |
|                                                                                                                                                      |       |               |       |           |       |          |       |
| PROPERTY,  PLANT AND EQUIPMENT - net                                                                                                                      |       | 1,629,494          |       | 1,170,698      |       | 1,057,782     |       |
|                                                                                                                                                      |       |               |       |           |       |          |       |
| OTHER  ASSETS:                                                                                                                                            |       |               |       |           |       |          |       |
| Goodwill                                                                                                                                                  |       | 3,750,855          |       | 2,694,774      |       | 2,601,840     |       |
| Intangible  assets - net                                                                                                                                  |       | 1,717,647          |       | 1,234,030      |       | 1,306,117     |       |
| Investments                                                                                                                                               |       | 7,659              |       | 5,503          |       | 17,668        |       |
| Other  assets                                                                                                                                             |       | 245,252            |       | 176,199        |       | 195,370       |       |
| Deferred  tax assets - net                                                                                                                                |       | 116,150            |       | 83,447         |       | 67,891        |       |
|                                                                                                                                                      |       |               |       |           |       |          |       |
| Total  other assets                                                                                                                                       |       | 5,837,562          |       | 4,193,952      |       | 4,188,887     |       |
|                                                                                                                                                      |       |               |       |           |       |          |       |
| TOTAL  ASSETS                                                                                                                                             |       | $                  | 10,168,142 |           | €     | 7,305,225     |       | € | 7,157,266 |   |

 

----

(1) Translatedfor convenience at the New York City Noon Buying Rate as determined in Note 1

(*)In accordance with US GAAP See notes to the consolidated financial statements

 

See notes to the consolidatedfinancial statements

 

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Table ofContents

 

LUXOTTICAGROUP SPA

 

**CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2008 AND 2007(*)**

 
| ** **                                                                                                                                                                                                                                          | ** ** | **2008**              | ** ** | **2008**       | ** ** | **2007**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|-----------|------------|
| ** **                                                                                                                                                                                                                                          | ** ** | **(US $/000)****(1)** | ** ** | **(EURO/000)** | ** ** |
| **LIABILITIES AND****SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                    |       |                  |       |           |       |      |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| CURRENT LIABILITIES:                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| Bank overdrafts                                                                                                                                                                                                                                     |       | $                     | 601,948    |           | €     | 432,465   |       | € | 455,588 |   |
| Current portion of long-term debt                                                                                                                                                                                                                   |       | 398,379               |       | 286,213        |       | 792,617   |       |
| Accounts payable                                                                                                                                                                                                                                    |       | 554,088               |       | 398,080        |       | 423,432   |       |
| Accrued expenses                                                                                                                                                                                                                                    |       | 0                     |       |           |       |      |       |
| Payroll and related                                                                                                                                                                                                                                 |       | 183,215               |       | 131,630        |       | 132,983   |       |
| Customers’ right of return                                                                                                                                                                                                                     |       | 43,654                |       | 31,363         |       | 26,557    |       |
| Other                                                                                                                                                                                                                                               |       | 360,715               |       | 259,153        |       | 308,738   |       |
| Income taxes payable                                                                                                                                                                                                                                |       | 25,545                |       | 18,353         |       | 19,314    |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| Total current liabilities                                                                                                                                                                                                                           |       | 2,167,544             |       | 1,557,255      |       | 2,159,229 |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| LONG-TERM DEBT                                                                                                                                                                                                                                      |       | 3,506,599             |       | 2,519,289      |       | 1,926,523 |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| LIABILITY FOR TERMINATION INDEMNITIES                                                                                                                                                                                                               |       | 77,281                |       | 55,522         |       | 56,911    |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| DEFERRED TAX LIABILITIES - NET                                                                                                                                                                                                                      |       | 325,079               |       | 233,551        |       | 248,377   |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| OTHER LONG-TERM LIABILITIES                                                                                                                                                                                                                         |       | 536,838               |       | 385,687        |       | 229,972   |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                       |       |                  |       |           |       |      |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES                                                                                                                                                                                                     |       | 65,876                |       | 47,328         |       | 41,097    |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| SHAREHOLDERS’ EQUITY:                                                                                                                                                                                                                          |       |                  |       |           |       |      |       |
| Capital stock par value Euro 0.06 463,368,233 and  462,623,620 ordinary shares authorized and issued at December 31, 2008 and  2007, respectively; 456,933,447 and 456,188,834 shares outstanding at  December 31, 2008 and 2007, respectively |       | 38,698                |       | 27,802         |       | 27,757    |       |
| Additional paid-in capital                                                                                                                                                                                                                          |       | 419,699               |       | 301,529        |       | 277,947   |       |
| Retained earnings                                                                                                                                                                                                                                   |       | 3,883,253             |       | 2,789,894      |       | 2,636,868 |       |
| Accumulated other comprehensive loss, net of tax                                                                                                                                                                                                    |       | (755,308              | )          | (542,646       | )          | (377,428  | )          |
| Total                                                                                                                                                                                                                                               |       | 3,586,342             |       | 2,576,580      |       | 2,565,145 |       |
| Less treasury shares at cost; 6,434,786 and  6,434,786 shares at December 31, 2008 and 2007, respectively                                                                                                                                      |       | 97,415                |       | 69,987         |       | 69,987    |       |
| Total shareholders’ equity                                                                                                                                                                                                                     |       | 3,488,927             |       | 2,506,593      |       | 2,495,158 |       |
|                                                                                                                                                                                                                                                |       |                  |       |           |       |      |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                     |       | $                     | 10,168,142 |           | €     | 7,305,225 |       | € | 7,157,266 |   |

 

----

(1) Translatedfor convenience at the New York City Noon Buying Rate as determined in Note 1

(*) In accordance with US GAAP

 

See notes to the consolidated financial statements

 

F-6

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Tableof Contents

 

LUXOTTICA GROUP SPA

 

**CONSOLIDATED****STATEMENTS OF INCOME FOR THEYEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (*)**

 
| ** **                                                     | ** ** | **2008**              | ** ** | **2008**    | ** ** | **2007**       | ** ** | **2006**    | ** ** |
|----------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------|------------|
| ** **                                                     | ** ** | **(US $/000)****(1)** | ** ** | ** **  | ** ** | **(Euro/000)** | ** ** | ** **  | ** ** |
|                                                           |       |                  |       |        |       |           |       |        |       |
| NET SALES                                                      |       | $                     | 7,240,123  |        | €     | 5,201,611      |       | €      | 4,966,054  |   | € | 4,676,156 |   |
|                                                           |       |                  |       |        |       |           |       |        |       |
| COST OF SALES                                                  |       | (2,428,735            | )          | (1,744,907  | )          | (1,575,618     | )          | (1,487,700  | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| GROSS PROFIT                                                   |       | 4,811,387             |       | 3,456,705   |       | 3,390,436      |       | 3,188,456   |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| OPERATING EXPENSES:                                            |       |                  |       |        |       |           |       |        |       |
| Selling and advertising                                        |       | (3,008,412            | )          | (2,161,371  | )          | (2,069,280     | )          | (1,948,466  | )          |
| General and administrative                                     |       | (759,380              | )          | (545,571    | )          | (487,843       | )          | (484,002    | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| Total                                                          |       | (3,767,793            | )          | (2,706,942  | )          | (2,557,123     | )          | (2,432,468  | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| INCOME FROM OPERATIONS                                         |       | 1,043,595             |       | 749,763     |       | 833,313        |       | 755,987     |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| OTHER INCOME (EXPENSE):                                        |       |                  |       |        |       |           |       |        |       |
| Interest income                                                |       | 18,464                |       | 13,265      |       | 17,087         |       | 9,804       |       |
| Interest expense                                               |       | (188,278              | )          | (135,267    | )          | (89,498        | )          | (70,622     | )          |
| Other - net                                                    |       | (52,739               | )          | (37,890     | )          | 19,780         |       | (16,992     | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| Other expense - net                                            |       | (222,554              | )          | (159,892    | )          | (52,631        | )          | (77,810     | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| INCOME BEFORE PROVISION FOR INCOME TAXES                       |       | 821,041               |       | 589,870     |       | 780,681        |       | 678,177     |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| PROVISION FOR INCOME TAXES                                     |       | (270,943              | )          | (194,657    | )          | (273,501       | )          | (238,757    | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| INCOME BEFORE MINORITY INTERESTS IN CONSOLIDATED  SUBSIDIARIES |       | 550,097               |       | 395,213     |       | 507,180        |       | 439,420     |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| MINORITY INTERESTS IN INCOME OF CONSOLIDATED  SUBSIDIARIES     |       | (21,563               | )          | (15,492     | )          | (14,976        | )          | (8,715      | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| NET INCOME FROM CONTINUING OPERATIONS                          |       | 528,535               |       | 379,722     |       | 492,204        |       | 430,705     |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| DISCONTINUED OPERATIONS, NET OF TAXES                          |       |                  |       |        |       |           |       | (6,419      | )          |
|                                                           |       |                  |       |        |       |           |       |        |       |
| NET INCOME                                                     |       | $                     | 528,535    |        | €     | 379,722        |       | €      | 492,204    |   | € | 424,286 |   |
|                                                           |       |                  |       |        |       |           |       |        |       |
| EARNINGS PER SHARE: BASIC                                      |       |                  |       |        |       |           |       |        |       |
| Continuing Operations                                          |       | 1.16                  |       | 0.83        |       | 1.08           |       | 0.95        |       |
| Discontinued operations                                        |       | 0                     |       | 0           |       | 0              |       | (0.01       | )          |
| Net Income                                                     |       | 1.16                  |       | 0.83        |       | 1.08           |       | 0.94        |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| EARNINGS PER SHARE: DILUTED                                    |       |                  |       |        |       |           |       |        |       |
| Continuing Operations                                          |       | 1.15                  |       | 0.83        |       | 1.07           |       | 0.94        |       |
| Discontinued operations                                        |       | 0                     |       | 0           |       | 0              |       | (0.01       | )          |
| Net Income                                                     |       | 1.15                  |       | 0.83        |       | 1.07           |       | 0.93        |       |
|                                                           |       |                  |       |        |       |           |       |        |       |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                  |       |                  |       |        |       |           |       |        |       |
| Basic                                                          |       | 456,563,502           |       | 456,563,502 |       | 455,184,797    |       | 452,897,854 |       |
| Diluted                                                        |       | 457,717,044           |       | 457,717,044 |       | 458,530,609    |       | 456,185,650 |       |

 

----

(1) Translated for convenience at the New York City Noon Buying Rate asdetermined in Note 1

(*) In accordance with US GAAP 

 

See notes to the consolidated financial statements

 

F-7

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Table of Contents

 

LUXOTTICA GROUP SPA

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDEDDECEMBER 31, 2006, 2007 AND 2008 (*)**

 
| ** **                                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **     | ** ** | ** **      | ** ** | ** **         | ** ** | ** **         | ** ** | **Accumulated**     | ** ** | ** **             | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------|------------|----------------|------------|-----------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|------------------------|------------|------------|------------|
| ** **                                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **     | ** ** | ** **      | ** ** | ** **         | ** ** | **Other**          | ** ** | **Other**           | ** ** | ** **             | ** ** | ** ** | ** ** |
| ** **                                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **      | ** ** | **Unearned**       | ** ** | **Comprehensive**  | ** ** | **Comprehensive**   | ** ** | **Treasury**           | ** ** | **Total**  | ** ** |
| ** **                                                                                    | ** ** | **Common  Stock** | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Stock-based** | ** ** | **Income  (Loss)** | ** ** | **Income  (Loss)** | ** ** | **Shares  Amount,** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                                    | ** ** | **Shares**        | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**    | ** ** | **Compensation**   | ** ** | **Net of  Tax**    | ** ** | **Net of  Tax**     | ** ** | **at Cost**            | ** ** | **Equity** | ** ** |
| BALANCES,  JANUARY 1, 2006                                                                    |       | 457,975,723       |       | 27,479      |       | 150,179        |       | 2,050,883       |       | (48,567            | )          |               |       | (155,954            | )          | (69,987                | )          | 1,954,033  |       |
|                                                                                          |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| Exercise  of stock options                                                                    |       | 2,240,525         |       | 134         |       | 24,308         |       |            |       |               |       |               |       |                |       |                   |       | 24,443     |       |
| Translation  adjustment                                                                       |       |              |       |        |       |           |       |            |       |               |       | (126,853           | )          | (126,853            | )          |                   |       | (126,853   | )          |
| Effect  of adoption of SFAS 123 R                                                             |       |              |       |        |       | (48,567        | )          |            |       | 48,567             |       |               |       |                |       |                   |       | 0          |       |
| Realized  stock based compensation                                                            |       |              |       |        |       | 47,969         |       |            |       |               |       |               |       |                |       |                   |       | 47,969     |       |
| Minimum  pension, liability, net of taxes of Euro 0.4 million                                 |       |              |       |        |       |           |       |            |       |               |       | (624               | )          | (624                | )          |                   |       | (624       | )          |
| Effect  of adoption SFAS 158, net of taxes of Euro 5.5 million                                |       |              |       |        |       |           |       |            |       |               |       | (8,409             | )          | (8,409              | )          |                   |       | (8,409     | )          |
| Unrealized  gain on available-for-sale securities, net of taxes of Euro 0.5 million           |       |              |       |        |       |           |       |            |       |               |       | 1,244              |       | 1,244               |       |                   |       | 1,244      |       |
| Diluted  gain on business combinations                                                        |       |              |       |        |       | 21,847         |       |            |       |               |       |               |       |                |       |                   |       | 21,847     |       |
| Excess  tax benefit on stock options                                                          |       |              |       |        |       | 7,279          |       |            |       |               |       |               |       |                |       |                   |       | 7,279      |       |
| Change  in fair value of derivative instruments, net of taxes of Euro 1.8 million             |       |              |       |        |       |           |       |            |       |               |       | 2,003              |       | 2,003               |       |                   |       | 2,003      |       |
| Dividends  declared (Euro 0.29 per share)                                                     |       |              |       |        |       |           |       | (131,369        | )          |               |       |               |       |                |       |                   |       | (131,369   | )          |
| Income  from continuing operations                                                            |       |              |       |        |       |           |       | 430,705         |       |               |       | 430,705            |       |                |       |                   |       | 430,705    |       |
| Loss  from discontinued operations                                                            |       |              |       |        |       |           |       | (6,419          | )          |               |       | (6,419             | )          |                |       |                   |       | (6,419     | )          |
| Comprehensive  income                                                                         |       |              |       |        |       |           |       |            |       |               |       | 291,647            |       |                |       |                   |       |       |       |
|                                                                                          |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| BALANCES,  DECEMBER 31, 2006                                                                  |       | 460,216,248       |       | 27,613      |       | 203,016        |       | 2,343,800       |       |               |       |               |       | (288,593            | )          | (69,987                | )          | 2,215,849  |       |
|                                                                                          |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| Exercise  of stock options                                                                    |       | 2,407,372         |       | 144         |       | 26,498         |       |            |       |               |       |               |       |                |       |                   |       | 26,642     |       |
| Translation  adjustment                                                                       |       |              |       |        |       |           |       |            |       |               |       | (90,881            | )          | (90,881             | )          |                   |       | (90,881    | )          |
| Effect  of adoption of FIN 48                                                                 |       |              |       |        |       |           |       | (8,060          | )          |               |       |               |       |                |       |                   |       | (8,060     | )          |
| Realized  stock based compensation                                                            |       |              |       |        |       | 42,121         |       |            |       |               |       |               |       |                |       |                   |       | 42,121     |       |
| Minimum  pension, liability, net of taxes of Euro 3.9 million                                 |       |              |       |        |       |           |       |            |       |               |       | 9,688              |       | 9,688               |       |                   |       | 9,688      |       |
| Unrealized  gain on available-for-sale securities, net of taxes of Euro 0.9 million           |       |              |       |        |       |           |       |            |       |               |       | (1,579             | )          | (1,579              | )          |                   |       | (1,579     | )          |
| Excess  tax benefit on stock options                                                          |       |              |       |        |       | 6,313          |       |            |       |               |       |               |       |                |       |                   |       | 6,313      |       |
| Change  in fair value of derivative instruments, net of taxes of Euro 4,6 million             |       |              |       |        |       |           |       |            |       |               |       | (6,062             | )          | (6,062              | )          |                   |       | (6,062     | )          |
| Dividends  declared (Euro 0.42 per share)                                                     |       |              |       |        |       |           |       | (191,077        | )          |               |       |               |       |                |       |                   |       | (191,077   | )          |
| Net  Income                                                                                   |       |              |       |        |       |           |       | 492,204         |       |               |       | 492,204            |       |                |       |                   |       | 492,204    |       |
| Comprehensive  income                                                                         |       |              |       |        |       |           |       |            |       |               |       | 403,369            |       |                |       |                   |       |       |       |
|                                                                                          |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| BALANCES,  DECEMBER 31, 2007                                                                  |       | 462,623,620       |       | 27,757      |       | 277,947        |       | 2,636,868       |       |               |       |               |       | (377,428            | )          | (69,987                | )          | 2,495,158  |       |
| * *                                                                                      |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| Exercise  of stock options                                                                    |       | 744,613           |       | 45          |       | 7,081          |       |            |       |               |       |               |       |                |       |                   |       | 7,126      |       |
| Translation  adjustment                                                                       |       |              |       |        |       |           |       |            |       |               |       | (73,682            | )          | (73,682             | )          |                   |       | (73,682    | )          |
| Realized  stock based compensation                                                            |       |              |       |        |       | 10,424         |       |            |       |               |       |               |       | 0                   |       |                   |       | 10,424     |       |
| Adjustment  to pension liability, net of taxes of Euro 29.2 million                           |       |              |       |        |       |           |       |            |       |               |       | (50,658            | )          | (50,658             | )          |                   |       | (50,658    | )          |
| Adoption  of SFAS No. 158 measurement date provisions, net of taxes of Euro 1.9  million |       |              |       |        |       |           |       | (3,079          | )          |               |       |               |       |                |       |                   |       | (3,079     | )          |
| Unrealized  gain on available-for-sale securities, net of taxes of Euro 0.2 million           |       |              |       |        |       |           |       |            |       |               |       | 409                |       | 409                 |       |                   |       | 409        |       |
| Excess  tax benefit on stock options                                                          |       |              |       |        |       | 631            |       |            |       |               |       |               |       | 0                   |       |                   |       | 631        |       |
| Change  in fair value of derivative instruments, net of taxes of Euro 20.7 million            |       |              |       |        |       |           |       |            |       |               |       | (41,287            | )          | (41,287             | )          |                   |       | (41,287    | )          |
| Diluted  gain on business combinations                                                        |       |              |       |        |       | 5,446          |       |            |       |               |       |               |       |                |       |                   |       | 5,446      |       |
| Dividends  declared (Euro 0.49 per share)                                                     |       |              |       |        |       |           |       | (223,617        | )          |               |       |               |       | 0                   |       |                   |       | (223,617   | )          |
| Net  Income                                                                                   |       |              |       |        |       |           |       | 379,722         |       |               |       |               |       | 0                   |       |                   |       | 379,722    |       |
| Comprehensive  income                                                                         |       |              |       |        |       |           |       |            |       |               |       | (165,218           | )          |                |       |                   |       |       |       |
|                                                                                          |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| BALANCES,  DECEMBER 31, 2008                                                                  |       | 463,368,233       |       | 27,802      |       | 301,529        |       | 2,789,894       |       |               |       |               |       | (542,646            | )          | (69,987                | )          | 2,506,593  |       |
| * *                                                                                      |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
| Comprehensive  income (1)                                                                     | * *   | * *          |       |        |       |           |       |            |       |               |       | $                  | (229,967   | )                   |       |                   |       |       |       |   |
| BALANCES,  DECEMBER 31, 2008 (1)                                                              |       | 463,368,233       |       | $           | 38,698     |           | $          | 419,699         |       | $                  | 3,883,253  |               |       |                |       |                   | $          | (755,308   | )          | $ | (97,415 | ) | $ | 3,488,927 |   |
| (US  $/000) (1)                                                                               |       |              |       |        |       |           |       |            |       |               |       |               |       |                |       |                   |       |       |       |
|                                                                                               |            |                   |            |             |            |                |            |                 |            |                    |            |                    |            |                     |            |                        |            |            |            |  |  |  |  |  |  |  |

 

----

| (1)                                                 |   | Translated  for convenience at the New York City Noon Buying Rate as determined in Note 1 |
|-----------------------------------------------------|--------|-------------------------------------------------------------------------------------------|
| (*)                                                 |   | In  accordance with US GAAP                                                               |
|                                                |   |                                                                                      |
| See  notes to the consolidated financial statements |

 

F-8

----

Table of Contents

** **

LUXOTTICA GROUP SPA

** **

**CONSOLIDATED STATEMENTS OF CASH FLOWS THE YEARS ENDED DECEMBER31, 2008, 2007 AND 2006 (*)**

** **
| ** **                                                                           | ** ** | **2008**              | ** ** | **2008**   | ** ** | **2007**       | ** ** | **2006**   | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                                                           | ** ** | **(US $/000)****(1)** | ** ** | ** ** | ** ** | **(Euro/000)** | ** ** | ** ** | ** ** |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                |       |                  |       |       |       |           |       |       |       |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| Net income                                                                           |       | $                     | 528,535    |       | €     | 379,722        |       | €     | 492,204    |   | € | 430,705 |   |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| Adjustments to reconcile net income to net cash  provided by operating activitities: |       |                  |       |       |       |           |       |       |       |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| Minority interest in income of consolidated  subsidiaries                            |       | 21,563                |       | 15,492     |       | 14,976         |       | 8,715      |       |
| Stock-based compensation                                                             |       | 14,509                |       | 10,424     |       | 42,121         |       | 47,969     |       |
| Excess tax benefits from stock-based compensation                                    |       | (878                  | )          | (631       | )          | (6,313         | )          | (7,279     | )          |
| Depreciation and amortization                                                        |       | 368,767               |       | 264,938    |       | 232,813        |       | 220,797    |       |
| Benefit for deferred income taxes                                                    |       | 6,762                 |       | 4,858      |       | (45,037        | )          | (72,509    | )          |
| Net Loss (Gain) on disposals of fixed assets and  other                              |       | 2,851                 |       | 2,048      |       | (19,337        | )          | 4,930      |       |
| Loss on sale of promissory note                                                      |       | 32,298                |       | 23,204     |       |           |       |       |       |
| Termination indemnities matured during the year -  net                               |       | (2,049                | )          | (1,472     | )          | (3,595         | )          | 4,369      |       |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| Changes in operating assets and liabilities, net  of acquisition of businesses:      |       |                  |       |       |       |           |       |       |       |
| Accounts receivable                                                                  |       | 38,799                |       | 27,875     |       | (55,707        | )          | (83,107    | )          |
| Prepaid expenses and other                                                           |       | (36,391               | )          | (26,145    | )          | (220,727       | )          | 8,568      |       |
| Inventories                                                                          |       | 1,904                 |       | 1,368      |       | (41,916        | )          | (27,658    | )          |
| Accounts payable                                                                     |       | (26,993               | )          | (19,393    | )          | 32,989         |       | 71,723     |       |
| Accrued expenses and other                                                           |       | (153,646              | )          | (110,386   | )          | (9,433         | )          | (25,243    | )          |
| Accrual for customers’ right of return                                          |       | 5,692                 |       | 4,090      |       | 9,855          |       | 11,121     |       |
| Income taxes payable                                                                 |       | 4,041                 |       | 2,903      |       | (92,142        | )          | 5,875      |       |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| Total adjustments                                                                    |       | 277,228               |       | 199,173    |       | (161,453       | )          | 168,271    |       |
|                                                                                 |       |                  |       |       |       |           |       |       |       |
| Cash provided by operating activities                                                |       | 805,763               |       | 578,895    |       | 330,751        |       | 598,976    |       |
|                                                                                      |            |                       |            |            |            |                |            |            |            |  |  |  |  |

 

(Continued)

 

F-9

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Table of Contents

** **

LUXOTTICA GROUP SPA

** **

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (*)**

 
| ** **                                                                                  | ** ** | **2008**           | ** ** | **2008**   | ** ** | **2007**       | ** ** | **2006**   | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                                                                                  | ** ** | **(US $/000) (1)** | ** ** | ** ** | ** ** | **(Euro/000)** | ** ** | ** ** | ** ** |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |       |               |       |       |       |           |       |       |       |
| Property, plant and equipment:                                                              |       |               |       |       |       |           |       |       |       |
| Additions (2)                                                                               |       | (433,632           | )          | (311,540   | )          | (322,770       | )          | (267,882   | )          |
| Disposals                                                                                   |       | 0                  |       |       |       | 29,700         |       | 21,563     |       |
| Increase in investments                                                                     |       | (0                 | )          |       |       |           |       | (5,872     | )          |
| Purchases of businesses net of cash acquired                                                |       | (18,496            | )          | (13,288    | )          | (1,491,086     | )          | (134,114   | )          |
| Proceeds from sale of Promissory note and other                                             |       | 9,576              |       | 6,880      |       |           |       | 128,007    |       |
| Additions of intangible assets                                                              |       | (6,452             | )          | (4,636     | )          | (3,883         | )          | (1,140     | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| Cash used in investing activities of continuing  operations                                 |       | (449,004           | )          | (322,584   | )          | (1,788,039     | )          | (259,439   | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |       |               |       |       |       |           |       |       |       |
| Long-term debt:                                                                             |       |               |       |       |       |           |       |       |       |
| Proceeds                                                                                    |       | 1,385,927          |       | 995,709    |       | 2,145,428      |       | 84,100     |       |
| Repayments                                                                                  |       | (1,399,490         | )          | (1,005,453 | )          | (675,834       | )          | (233,378   | )          |
| Repayment of acquired lines of credit                                                       |       |               |       |       |       | (166,577       | )          |       |       |
| (Decrease) increase in overdraft balances                                                   |       | (42,551            | )          | (30,570    | )          | 282,280        |       | (101,008   | )          |
| Exercise of stock options                                                                   |       | 9,919              |       | 7,126      |       | 26,642         |       | 24,443     |       |
| Excess tax benefit from stock-based compensation                                            |       | 878                |       | 631        |       | 6,313          |       | 7,279      |       |
| Dividends                                                                                   |       | (311,253           | )          | (223,617   | )          | (191,077       | )          | (131,369   | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| Cash provided by/(used) in financing activities of  continuing operations                   |       | (356,569           | )          | (256,174   | )          | 1,427,174      |       | (349,933   | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                            |       | 190                |       | 137        |       | (30,114        | )          | (10,395    | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| CASH AND EQUIVALENTS, BEGINNING OF YEAR                                                     |       | 421,599            |       | 302,894    |       | 339,122        |       | 367,461    |       |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| Effect of exchange rate changes on cash and cash  equivalents                               |       | (20,296            | )          | (14,582    | )          | (6,114         | )          | (17,944    | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| CASH AND EQUIVALENTS, END OF YEAR                                                           |       | 401,493            |       | 288,450    |       | 302,894        |       | 339,122    |       |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| Cash  provided by (used in) operating activities of discontinued operations                 |       |               |       |       |       |           |       | (5,688     | )          |
| Cash  provided by (used in) investing activities of discontinued operations                 |       |               |       |       |       |           |       | (9,186     | )          |
| Cash  provided by (used in) financing activities of discontinued operations                 |       |               |       |       |       |           |       | 16,209     |       |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| (DECREASE)INCREASE  IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS                 |       |               |       |       |       |           |       | 1,334      |       |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| CASH  RECLASSIFIED AS ASSETS OF DISCONTINUED OPERATION AT BEGINNING OF YEAR                 |       |               |       |       |       |           |       | 4,795      |       |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| EFFECT  OF TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS OF DISCONTINUED  OPERATIONS |       |               |       |       |       |           |       | (557       | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| CASH  RETAINED BY DISCONTINUED OPERATIONS UPON SALE                                         |       |               |       |       |       |           |       | (5,572     | )          |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| **CASH INCLUDED IN ASSETS OF DISCONTINUED OPERATION AT END OF  PERIOD**                     |       |               |       |       |       |           |       |       |       |
|                                                                                        |       |               |       |       |       |           |       |       |       |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                                          |       |               |       |       |       |           |       |       |       |
| Cash paid during the year for interest                                                      |       | 168,672            |       | 121,181    |       | 73,202         |       | 67,496     |       |
| Cash paid during the year for income taxes                                                  |       | 370,390            |       | 266,104    |       | 454,062        |       | 242,628    |       |
| Property and equipment purchases in accounts  payable                                       |       | 16,307             |       | 11,716     |       | 26,820         |       | 14,822     |       |
| Acquisition of businesses:                                                                  |       |               |       |       |       |           |       |       |       |
| Fair value of assets acquired                                                               |       | 12,956             |       | 9,308      |       | 545,129        |       | 10,863     |       |

 

----

(1) Translated for convenience at the New YorkCity Noon Buying Rate as determined in Note 1

(2) Additions, excluding the change in accountspayable related to Property and equipment, are Euro 296.436 thousand, Euro334.769 thousand and Euro 272.180 thousand for years 2008, 2007 and 2006respectively, as indicated in footnote 13 “Segment Information”.

(*) In accordance with US GAAP

 

See notes to the consolidated financial statements

 

F-10

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Table of Contents

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**         **ORGANIZATION ANDSIGNIFICANT ACCOUNTING POLICIES**

 

**Organization** - Luxottica Group S.p.A. and its subsidiaries (collectively“Luxottica Group” or the “Company”) operate in two industry segments: (1) manufacturingand wholesale distribution and (2) retail distribution.

 

Throughits manufacturing and wholesale distribution operations, Luxottica Group isengaged in the design, manufacturing, wholesale distribution and marketing ofhouse brand and designer lines of mid to premium-priced prescription frames andsunglasses, and, with the acquisition of Oakley Inc. (“Oakley”) in November 2007,the Company, through various Oakley subsidiaries, is a designer, manufacturer,and worldwide distributor of performance optics products.

 

Throughits retail operations, as of December 31, 2008, the Company owned andoperated 5,695 retail locations worldwide (5,885 locations at December 31,2007) and franchised an additional 560 locations (522 locations at December 31,2007) principally through LensCrafters, Inc., Sunglass Hut InternationalInc., OPSM Group Limited, Cole National Corporation (“Cole”) and Oakley. Theretail division of Oakley (“O” retail) consists of owned retail locationsoperating under various names including “O” stores which sell apparel and otherOakley branded merchandise in addition to performance sunglasses.

 

LuxotticaGroup’s net sales consist of direct sales of finished products manufacturedunder its own brand names or licensed brands to opticians and other independentretailers through its wholesale distribution channels and direct sales toconsumers through its retail segment.

 

Demand for theCompany’s products, particularly the higher-end designer lines, is largelydependent on the discretionary spending power of the consumers in the marketsin which the Company operates.

 

TheNorth America retail division’s fiscal year is a 52- or 53-week period endingon the Saturday nearest December 31. The accompanying consolidatedfinancial statements include the operations of the North America retaildivision for the 53-week period ended January 3, 2009 and for the 52-weekperiods ended December 29, 2007 and December 30, 2006.

 

F-11

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Table of Contents

 

**Principlesof Consolidation and Basis of Presentation** - The consolidated financial statements ofLuxottica Group include the financial statements of the parent company and allwholly or majority-owned subsidiaries. The principles of the FinancialAccounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46 (revisedDecember 2003), *Consolidation of VariableInterest Entities* and Accounting Research Bulletin (“ARB”) No. 51,*Consolidated Financial Statements* areconsidered when determining whether an entity is subject to consolidation.During 2007 a subsidiary of the Company located in the United States acquiredan additional 26 percent interest in an affiliated manufacturing and wholesaledistributor, located and publicly traded in India, in which it previously heldan approximate 44 percent interest. Until the time that the Company became themajority shareholder, this investment was accounted for under the equitymethod. During 2008, the Company acquired through one of its subsidiaries anadditional 16 percent interest in an affiliated company in which it previouslyheld a 50 percent interest. Until the time that the Company became the majorityshareholder, this investment was accounted for under the equity method.Investments in other companies in which the Company has less than a 20 percentinterest with no ability to exercise significant influence are carried at cost.All intercompany accounts and transactions are eliminated in consolidation.Luxottica Group prepares its consolidated financial statements in accordancewith accounting principles generally accepted in the United States of America (“U.S.GAAP”).

 

Inaccordance with FASB Statement of Financial Accounting Standard (“SFAS”) No. 141,*Business Combinations*, the Companyaccounts for all business combinations under the purchase method (see “RecentAccounting Pronouncements” for a discussion on the revised standard).Furthermore, the Company recognizes intangible assets apart from goodwill ifthey arise from contractual or legal rights or if they are separable fromgoodwill.

 

**Use of Estimates** - The preparation offinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Significant judgment and estimates are required inthe determination of the valuation allowances against receivables, inventoryand deferred tax assets, calculation of pension and other long-term employeebenefit accruals, legal and other accruals for contingent liabilities and thedetermination of impairment considerations for long-lived assets, among otheritems. Actual results could differ from those estimates.

 

**Foreign Currency Translation and Transactions** — Luxottica Group accountsfor its foreign currency denominated transactions and foreign operations inaccordance with SFAS No. 52, *Foreign CurrencyTranslation*. The financial statements of foreign subsidiaries aretranslated into Euro, which is the functional currency of the parent companyand the reporting currency of the Company. Assets and liabilities of foreignsubsidiaries, which use the local currency as their functional currency, aretranslated at year-end exchange rates. Results of operations are translatedusing the average exchange rates prevailing throughout the year. The resultingcumulative translation adjustments are recorded as a separate component of “Accumulatedother comprehensive income (loss).”

 

Transactionsin foreign currencies are recorded at the exchange rate in effect at thetransaction date. Gains or losses from foreign currency transactions, such asthose resulting from the settlement of foreign receivables or payables duringthe year, are recognized in the consolidated statement of income in such year.Aggregate foreign exchange transaction gain/(loss), included in Other Expense -net, for the fiscal years 2008, 2007 and 2006 were Euro (0.3) million, Euro15.2 million and Euro (19.9) million, respectively.

 

**Cash and Cash Equivalents** — Cash and cash equivalents includes cashon hand, demand deposits, highly liquid investments with an original maturityof three months or less, and amounts in-transit from banks for customer creditcard and debit card transactions. Substantially all amounts in transit from thebanks are converted to cash within four business days from the time of sale.Credit card and debit card transactions in transit were approximately Euro 16.7million and Euro 25.5 million at December 31, 2008 and 2007, respectively.

 

**Bank Overdrafts**— Bank overdrafts represent negative cashbalances held in banks and amounts borrowed under various unsecured short-termlines of credit (see “Short Term Credit Facilities” included in Note 15 forfurther discussion of the short-term lines of credit) that the Company hasobtained through local financial institutions. These facilities are usuallyshort-term in nature or may contain provisions that allow them to renewautomatically with a cancellation notice period. Certain subsidiaries’agreements require a guarantee 

 

F-12

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Table of Contents

 

fromLuxottica Group. Interest rates on these lines of credit vary and can be usedto obtain various letters of credit when needed.

 

**Inventories** — Luxottica Group’s manufactured inventories,approximately 83.7 percent and 66.2 percent of total frame inventory for 2008and 2007, respectively, are stated at the lower of cost, as determined underthe weighted-average method, or market value. Retail inventories notmanufactured by the Company or its subsidiaries are stated at the lower of costas determined by the weighted-average cost method, or market value. Inventoriesare recorded net of allowances for estimated losses. This reserve is calculatedusing various factors including sales volume, historical shrink results andcurrent trends.

 

**Property, Plant and Equipment** - Property, plant and equipment are statedat historical cost. Depreciation is computed on the straight-line method overthe estimated useful lives of the related assets as follows:

 
| ** **                           | ** ** | **Estimated Useful Life**                              |
|--------------------------------------|------------|--------------------------------------------------------|
|                                 |       |                                                   |
| Buildings  and building improvements |       | 19 to 40  years                                        |
|                                 |       |                                                   |
| Machinery  and equipment             |       | 3 to 12  years                                         |
|                                 |       |                                                   |
| Aircraft                             |       | 25 years                                               |
|                                 |       |                                                   |
| Other  equipment                     |       | 5 to 8 years                                           |
|                                 |       |                                                   |
| Leasehold  improvements              |       | Lesser of 15  years or the remaining life of the lease |

 

Maintenanceand repair expenses are expensed as incurred. Upon the sale or disposition ofproperty and equipment, the cost of the asset and the related accumulateddepreciation and leasehold amortization are removed from the accounts and anyresulting gain or loss is included in the consolidated statement of income.

 

**Capitalized Leased**********Property**  — Capitalized leasedassets are amortized using the straight-line method over the term of the lease,or in accordance with practices established for similar owned assets ifownership transfers to the Company at the end of the lease term.

 

**Goodwill** — Goodwill represents the excess of thepurchase price (including acquisition-related expenses) over the value assignedto the net tangible and identifiable intangible assets acquired. The Company’sgoodwill is tested annually for impairment as of December 31 of each yearin accordance with SFAS No. 142, *Goodwilland Other Intangible Assets*(“SFAS 142”). Additional impairmenttests are performed if, for any reason, the Company believes that an event hasoccurred that may impair goodwill. Such tests are performed at the reportingunit level which consists of four units, Wholesale, Retail North America,Retail Asia Pacific and Retail Other, as required by the provisions of SFAS142. For the fiscal years 2008, 2007, and 2006 the Company did not recognizeany goodwill impairment charge.

 

**Trade Names and Other Intangibles** — In connection with variousacquisitions, Luxottica Group has recorded as intangible assets certain tradenames and other intangibles which the Company believes have a finite life.Trade names are amortized on a straight-line basis over periods ranging from 20to 25 years (see Note 7). Other intangibles include, among other items,distributor networks, customer lists and contracts, franchise agreements andlicense agreements, and are amortized over the respective useful lives. Allintangibles are subject to impairment testing in accordance with SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*(“SFAS144”). Aggregate amortization expense of trade names and otherintangibles for the fiscal years 2008, 2007 and 2006 was Euro 73.9 million,Euro 69.5 million and Euro 68.8 million, respectively.

 

**Impairment of Long-Lived Assets** — Luxottica Group’slong-lived assets, other than goodwill, are tested for impairment wheneverevents or changes in circumstances indicate that the net carrying amount maynot be recoverable. When such events occur, the Company measures impairment bycomparing the carrying value of the long-lived asset to the estimatedundiscounted future cash flows expected to result from the use of thelong-lived assets and their eventual disposition. If the sum of the expectedundiscounted future cash flows is less than the carrying amount of thelong-lived assets, the Company records an impairment loss, if determined to benecessary. Such impairment loss is measured as the amount by which the carryingamount of the long-

 

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livedasset exceeds the fair value in accordance with SFAS 144. The aggregateimpairment loss on certain non-performing long-lived assets charged to theconsolidated statements of income during fiscal years 2008, 2007 and 2006 wasnot material.

 

**Store Opening and Closing Costs** - Store opening costs arecharged to operations as incurred in accordance with Statement of Position No. 98-5,*Accounting for the Cost of Start-upActivities*. The costs associated with closing stores or facilitiesare recorded at fair value as such costs are incurred. Store closing costs chargedto the consolidated statements of income during fiscal years 2008, 2007 and2006 were not material.

 

**SelfInsurance**- The Company is self insured for certain losses relating to workers’compensation, general liability, auto liability, and employee medical benefitsfor claims filed and for claims incurred but not reported.  The Company’s liability is estimated on anundiscounted basis using historical claims experience and industry averages;however, the final cost of the claims may not be known for over five years. Asof December 31, 2008 and 2007, self insurance accruals were Euro 43.2million and Euro 40.9 million, respectively.

 

**Income Taxes** - Income taxes are recorded in accordance with SFAS No. 109,*Accounting for Income Taxes*,which requires recognition of deferred tax assets and liabilities for theexpected future tax consequences of events that have been included in theCompany’s consolidated financial statements or tax returns. Under this method,deferred tax liabilities and assets are determined based on the differencebetween the consolidated financial statement and tax basis of assets andliabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse. A valuation allowance is recorded fordeferred tax assets if it is determined that it is more likely than not thatthe asset will not be realized. Changes in valuation allowances from period toperiod are included in the tax provisions in the relevant period of change.

 

As of January 1, 2007, the Company adoptedFIN No. 48, *Accounting for Uncertainty in Income Taxes —an interpretation of FASB Statement No. 109*(“FIN 48”). FIN 48provides that a tax benefit from an uncertain tax position may be recognizedwhen it is more likely than not that the position will be sustained uponexamination, including resolutions of any related appeals or litigationprocesses, based on the technical merits. In addition, it provides additionalrequirements regarding measurement, de-recognition, disclosure, interest and penaltiesand classification. FIN 48 must be applied to all existing tax positions forall open tax periods as of the date of adoption (see Note 8 for a tabularreconciliation of uncertain tax positions). The cumulative effect of adoptionof FIN 48 of Euro 8.1 million was recorded as a reduction to retained earningson the date of adoption.

 

The Companyrecognizes interest and penalties related to unrecognized tax benefits withinthe income tax expense line in the accompanying consolidated statements ofincome. Accrued interest and penalties are included within the related taxliability in the consolidated balance sheet.

 

**Liability for TerminationIndemnities** - The reserve for employeetermination indemnities of Italian companies was considered a defined benefitplan through December 31, 2006 and was accounted for accordingly.Effective January 1, 2007, the Italian employee termination indemnitysystem was reformed, and such indemnities are subsequently accounted for as adefined contribution plan. Termination indemnities in other countries areprovided through payroll tax and other social contributions in accordance withlocal statutory requirements.

 

**Revenue Recognition** - Revenues includesales of merchandise (both wholesale and retail), insurance and administrativefees associated with the Company’s managed vision care business, eye exams andrelated professional services, and sales of merchandise to franchisees alongwith other revenues from franchisees such as royalties based on sales andinitial franchise fee revenues. Excluded from revenues and recorded net inexpenses when applicable are amounts collected from customers and remitted togovernmental authorities for taxes directly related to the revenue-producingtransaction.

 

Revenue is recognized when it is realized orrealizable and earned. Revenue is considered to be realized or realizable andearned when there is persuasive evidence of an arrangement, delivery hasoccurred, the sales price is fixed or determinable and collectibility isreasonably assured.

 

Wholesale Divisionrevenues are recognized from sales of products at the time of shipment, astitle and the risks and rewards of ownership of the goods are assumed by thecustomer at such time. The products are not subject to formal customeracceptance provisions. In some countries, the customer has the right to returnproducts for a limited period of time after the sale. However, such right ofreturn does not impact the timing of 

 

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revenue recognitionas all conditions of SFAS No. 48, *Revenue Recognition WhenRight of Return Exists*(“SFAS 48”), are satisfied at the date ofsale. Accordingly, the Company has recorded an accrual for the estimatedamounts to be returned.  This estimate isbased on the Company’s right of return policies and practices along withhistorical data and sales trends.  Thereare no other post-shipment obligations. Revenues received for the shipping andhandling of goods are included in sales and the costs associated with shipmentsto customers are included in operating expenses.

 

# **Retail Division revenues, are recognized upon receiptby the customer at the retail location, or, for internet and catalogue sales,when goods are shipped directly to the customer. In some countries, the Companyallows retail customers to return goods for a period of time and, as such, theCompany has recorded an accrual for the estimated amounts to be returned. Thisaccrual is based on the historical return rate as a percentage of net sales andthe timing of the returns from the original transaction date. There are noother post-shipment obligations. As such, the right of return does not impactthe timing of revenue recognition as all conditions of SFAS 48, are satisfiedat the date of sale. Additionally, the Retail Division enters into discountprograms and similar relationships with third parties that have terms of twelveor more months. Revenues under these arrangements are likewise recognized astransactions occur in the Company’s retail locations and customers take receiptof products and services. Advance payments and deposits from customers are notrecorded as revenues until the product is delivered. At December 31, 2008and 2007 customer advances included in the consolidated balance sheet in “AccruedExpenses and Other” were Euro 23.0 million and Euro 22.9 million, respectively.Retail Division also includes managed vision care revenues consisting of (i) insurancerevenues, which are recognized when earned over the terms of the respectivecontractual relationships, and (ii) administrative services revenues,which are recognized when services are provided during the contract period.Accruals are established for amounts due under these relationships determinedto be uncollectible.**

# ** **

The Companylicenses to third parties the rights to certain intellectual property and otherproprietary information and recognizes royalty revenues when earned.

 

# **Franchise revenues based on sales by franchisees(such as royalties) are accrued and recognized as earned. Initial franchisefees are recorded as revenue when all material services or conditions relatingto the sale of the franchise have been substantially performed or satisfied bythe Company and when the related store begins operations. Allowances areestablished for amounts due under these relationships when they are determinedto be uncollectible. Sales of ophthalmic products and other materials arerecorded when the goods are shipped direct to franchisees net of appropriateallowances.**

# ** **

Revenues associated with our third-partyfranchisees and licensors at December 31, 2008, 2007, and 2006, consist ofthe following:

 
| ** **                          | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Initiation fees                     |       | 754        |       | 456        |       | 170        |       |
| Royalties                           |       | 14,712     |       | 16,949     |       | 17,005     |       |
| Sales of frames and other materials |       | 27,102     |       | 32,999     |       | 35,940     |       |
| Other revenue                       |       | 455        |       | 750        |       | 781        |       |
|                                |       |       |       |       |       |       |       |
| **Total**                           | ** ** | **43,023** | ** ** | **51,154** | ** ** | **53,896** | ** ** |

 

# **The Wholesale and Retail Divisions may offer certainpromotions during the year.  Free framesgiven to customers as part of a promotional offer are recorded in cost of salesat the time they are delivered to the customer. Discounts and coupons tendered by customers are recorded as a reductionof revenue at the date of sale.**

# ** **

Total shippingcosts in fiscal years 2008, 2007 and 2006, for the Wholesale and Retaildivisions, associated with the sale of goods were Euro 14.2 million, Euro 8.3million and Euro 7.3 million, respectively.

 

**ManagedVision Care Underwriting and Expenses** - The Company sells vision insurance planswhich generally have a duration of up to five years. Based on its experience,the Company believes it can predict utilization and claims experience underthese plans, including claims incurred but not yet reported, with a high degreeof confidence. Claims are recorded as they are incurred and certain othermembership costs are amortized over the covered period.

 

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**Advertisingand Direct Response Marketing** — Costs to develop and create newspaper, radio andother media advertising are expensed as incurred. Costs to develop and createtelevision advertising are expensed the first time the airtime is used. Thecosts to communicate the advertising are expensed the first time the airtime oradvertising space is used with the exception of certain direct responseadvertising programs. Costs for certain direct response advertising programsare capitalized if such direct response advertising costs are expected toresult in future economic benefit and the primary purpose of the advertising isto elicit sales to customers who could be shown to have responded specificallyto the advertising.  Such costs relatedto the direct response advertising are amortized over the period during whichthe revenues are recognized, not to exceed 90 days. Generally, other directresponse program costs that do not meet the capitalization criteria areexpensed the first time the advertising occurs. Advertising expenses incurredduring fiscal years 2008, 2007 and 2006 were Euro 339.3million, Euro348.2 million and Euro 318.1 million, respectively, and no significant amountshave been reported as assets.

 

TheCompany receives a reimbursement from its acquired franchisees for certainmarketing costs.  Operating expenses inthe consolidated statements of income are net of amounts reimbursed by thefranchisees calculated based on a percentage of their sales.  The amounts received in fiscal years 2008,2007 and  2006 for such reimbursementwere Euro 15.1 million, Euro 16.8 million and Euro 19.2 million, respectively.

 

**Earnings Per Share** — Luxottica Group calculates basic anddiluted earnings per share in accordance with SFAS No. 128, *Earnings per Share*. Net income availableto shareholders is the same for the basic and diluted earnings per sharecalculations for the years ended December 31, 2008, 2007 and 2006. Basicearnings per share are based on the weighted average number of shares of commonstock outstanding during the period. Diluted earnings per share are based onthe weighted average number of shares of common stock and common stockequivalents (options) outstanding during the period, except when the commonstock equivalents are anti-dilutive. The following is a reconciliation frombasic to diluted shares outstanding used in the calculation of earnings pershare:

 
| ** **                                                                                                                                     | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                                                                                                           |       |        |       |        |       |        |       |
| Weighted average shares outstanding — basic                                                                                               |       | 456,563,502 |       | 455,184,797 |       | 452,897,854 |       |
|                                                                                                                                           |       |        |       |        |       |        |       |
| Effect of dilutive stock options                                                                                                               |       | 1,153,542   |       | 3,345,812   |       | 3,287,796   |       |
|                                                                                                                                           |       |        |       |        |       |        |       |
| Weighted average shares outstanding — dilutive                                                                                            |       | 457,717,044 |       | 458,530,609 |       | 456,185,650 |       |
|                                                                                                                                           |       |        |       |        |       |        |       |
| Options not included in calculation of  dilutive shares as the exercise price was greater than the average price  during the respective period |       | 18,529,635  |       | 4,947,775   |       | 6,885,893   |       |

 

**Stock-Based Compensation** - Stock-based compensationrepresents the cost related to stock-based awards granted to employees.Stock-based compensation cost is measured at grant date based on the estimatedfair value of the award and recognizes the cost on a straight-line basis (netof estimated forfeitures) over the employee requisite service period. The fairvalue of stock options is estimated using a binomial lattice valuationtechnique. Deferred tax assets are recorded for awards that result indeductions on income tax returns, based on the amount of compensation costrecognized and the statutory tax rate in the jurisdiction in which thededuction will be received. Differences between the deferred tax assetsrecognized for financial reporting purposes and the actual tax deductionreported on the income tax return are recorded in Additional Paid-In Capital(if the tax deduction exceeds the deferred tax asset) or in the consolidatedstatements of income (if the deferred tax asset exceeds the tax deduction andno additional paid-in capital exists from previous awards).

 

**Derivative Financial Instruments** — Derivative financialinstruments are accounted for in accordance with SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*(“SFAS133”), as amended and interpreted.

 

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SFAS133 requires that all derivatives, whether or not designed in hedgingrelationships, be recorded on the balance sheet at fair value regardless of thepurpose or intent for holding them. If a derivative is designated as afair-value hedge, changes in the fair value of the derivative and the relatedchange in the hedge item are recognized in operations. If a derivative isdesignated as a cash-flow hedge, changes in the fair value of the derivativeare recorded in other comprehensive income/(loss) (“OCI”) in the consolidatedstatements of shareholders’ equity and are recognized in the consolidatedstatements of income when the hedged item affects operations. The effect ofthese derivatives in the consolidated statements of income depends on the itemhedged (for example, interest rate hedges are recorded in interest expense).For a derivative that does not qualify as a hedge, changes in fair value arerecognized in the consolidated statements of income, under the caption “Other —net”.

 

Designatedhedging instruments and hedged items qualify for hedge accounting only if thereis a formal documentation of the hedging relationship at the inception of thehedge, the hedging relationship is expected to be highly effective andeffectiveness is tested at the inception date and at least every three months.

 

Certaintransactions and other future events, such as (i) the derivative no longereffectively offsetting changes to the cash flow of the hedged instrument, (ii) theexpiration, termination or sale of the derivative, or (iii) any otherreason of which the Company becomes aware that the derivative no longerqualifies as a cash flow hedge, would cause the balance remaining in othercomprehensive income to be realized into earnings prospectively. Based oncurrent interest rates and market conditions, the estimated aggregate amount tobe recognized into earnings as additional expense from other comprehensiveincome relating to these cash flow hedges in fiscal 2009 is approximately Euro14.7 million, net of taxes.

 

Luxottica Group uses derivative financial instruments,principally interest rate and currency swap agreements, as part of its riskmanagement policy to reduce its exposure to market risks from changes ininterest and foreign exchange rates. Although it has not done so in the past,the Company may enter into other derivative financial instruments when itassesses that the risk can be hedged effectively.

 

**Defined Benefit Pensions -** The funded status of theCompany’s defined benefit pension plans is recognized in the consolidatedstatements of income. The funded status is measured as the difference betweenthe fair value of plan assets and the benefit obligation at December 31,the measurement date. For defined benefit pension plans, the benefit obligationis the projected benefit obligation (“PBO”), which represents the actuarialpresent value of benefits expected to be paid upon retirement based onestimated future compensation levels. The fair value of plan assets representsthe current market value of cumulative company and participant contributionsmade to an irrevocable trust fund, held for the sole benefit of participants,which are invested by the trust fund. Overfunded plans, with the fair value ofplan assets exceeding the benefit obligation, are aggregated and recorded as aprepaid pension asset equal to this excess. Underfunded plans, with the benefitobligation exceeding the fair value of plan assets, are aggregated and recordedas a retirement benefit obligation equal to this excess. The current portion ofthe retirement benefit obligations represents the actuarial present value ofbenefits payable in the next 12 months exceeding the fair value of plan assets,measured on a plan-by-plan basis.

 

Net periodic pension benefit cost/(income) is recordedin the consolidated statements of income and includes service cost, interestcost, expected return on plan assets, amortization of prior servicecosts/(credits) and (gains)/losses previously recognized as a component ofgains and (losses) not affecting retained earnings and amortization of the nettransition asset remaining in accumulated gains and (losses) not affectingretained earnings. Service cost represents the actuarial present value ofparticipant benefits earned in the current year. Interest cost represents thetime value of money cost associated with the passage of time. Certain events,such as changes in employee base, plan amendments and changes in actuarial assumptions,result in a change in the benefit obligation and the corresponding change inthe gains and (losses) not affecting retained earnings. The result of theseevents is amortized as a component of net periodic cost/(income) over theservice lives of the participants.

 

**Fair Value** — Effective January 1,2008, the Company adopted FASB Statement No. 157, *Fair ValueMeasurements*, (“SFAS 157”) and FASB Statement No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities —Including an amendment of FASB Statement No. 115* (“SFAS 159”).  SFAS 157 establishes a definition of fairvalue (based on an exit price model), establishes a framework for measuringfair value and expands disclosures about fair value measurements. SFAS 157 doesnot require new fair value measurements but clarifies the definition, method,and disclosure requirements of previously issued standards

 

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that address fair value measurements. In February 2008, the FASBissued FASB Staff Position No. 157-1 (“FSP No. 157-1”), *Application of FASB Statement No. 157 to FASB Statement No.13 andOther Accounting Pronouncements that Address Fair Value Measurements forPurposes of Lease Classification or Measurement under Statement 13*,and FSP No. 157-2, *Effective Date of FASBStatement No. 157*. FSP 157-1 amends SFAS No. 157 toexclude leases and lease transactions under FASB Statement No. 13, Accountingfor Leases. While FSP 157-2 amends the effective date of SFAS No. 157 forall non-financial assets and non-financial liabilities, except those recognizedor disclosed on a recurring basis (at least annually) until the beginning ofthe first quarter of 2009. In October 2008, FASB issued FSP No. 157-3,*Determining the Fair Value of a Financial AssetWhen the Market for that Asset is Not Active*, which clarifies how tocalculate the fair value of financial asset under certain conditions and givesan example of such. SFAS No 159 allows the Company to elect and record at fairvalue many financial assets and liabilities and certain other items with thechange being recorded in earnings. This can be done on an instrument byinstrument basis in most circumstances, is irrevocable after elected for thatinstrument and must be applied to the entire instrument. The adoption of bothof these standards did not have a material effect on the consolidated financialstatements. See Note 16.

 

**Information Expressed in US Dollars** - The Company’s consolidated financialstatements are stated in Euro, the currency of the country in which the parentcompany is incorporated and operates. The translation of Euro amounts into USDollar amounts is included solely for the convenience of international readersand has been made at the rate of Euro 1 to US Dollar 1.3919. Such rate wasdetermined by using the noon buying rate of the Euro to US Dollar as certifiedfor customs purposes by the Federal Reserve Bank of New York as of December 31,2008. Such translations should not be construed as representations that Euroamounts could be converted into US Dollars at that or any other rate.

 

**RecentAccounting Pronouncements –**

 

In April 2009, the FASB issued FSP No. 141R-1, Accounting forAssets Acquired and Liabilities Assumed in a Business Combination That Arisefrom Contingencies (“FSP No. 141R-1”). FSP No. 141R-1 amends andclarifies SFAS No. 141R, Business Combinations, to address applicationissues raised by preparers, auditors, and members of the legal profession oninitial recognition and measurement, subsequent measurement and accounting, anddisclosure of assets and liabilities arising from contingencies in a businesscombination. FSP No. 141R-1 is effective for assets or liabilities arisingfrom contingencies in business combinations for which the acquisition date ison or after the first annual reporting period beginning on or after December 15,2008. The impact of this standard on the consolidated financial statements isnot expected to be material, but this standard may have an effect on accountingfor future business combinations.

 

In December 2008, theFASB issued FASB Staff Position (“FSP”) 132(R)-1, *EmployeeDisclosures about Postretirement Benefit Plan Assets* which requiresenhanced disclosures on plan assets including fair value measurements andcategories of assets, investment policies and strategies and disclosures onconcentration of risks.  The effectivedate for the enhanced disclosures about plan assets required by this FSP shallbe provided for fiscal years ending after December 15, 2009. Thedisclosure requirements are not required for earlier periods that are presentedfor comparative purposes. The adoption is not expected to have a materialeffect on the financial statements.

 

In November 2008, theEmerging Issues Task Force (“EITF”) reached a consensus on issue No. 08-7,*Accounting for Defensive Intangible Assets*.  This consensus requires that the defensiveasset be recorded at its fair value on the opening balance sheet and amortizedover a reasonable life that approximates its diminishing value.  It also states that an indefinite useful lifefor these defensive assets would be rare. The consensus is effective forintangible assets acquired on or after the first annual reporting periodbeginning after December 15, 2008, which coincides with the adoption ofSFAS No. 141(R).  The Companyexpects EITF No. 08-7 will have an impact on its consolidated financialstatements when effective,  will dependon the nature, terms and size of the acquisitions consummated after theeffective date.

 

In May 2008, the FASBissued Statement No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles*, which identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements that are presented in conformity withgenerally accepted accounting principles (“GAAP”) in the United States.  The statement became effective November 15,2008

 

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and allowed for transitionprovisions if necessary.  The adoptiondid not have a material effect on the financial statements.

 

On April 25, 2008, theFASB issued FSP FAS 142-3-”Determination of the Useful Life of IntangibleAssets”. FSP FAS 142-3 amends the factors that should be considered indeveloping renewal or extension assumptions used to determine the useful lifeof a recognized intangible asset under SFAS No. 142- “Goodwill and OtherIntangible Assets”. The objective of FSP FAS 142-3 is to improve theconsistency between the useful life of a recognized intangible asset under SFASNo.142 and the period of expected cash flows to measure the fair value of anasset under SFAS No. 141R- “Business Combinations”, and other U.S. GAAPs.The FSP FAS 142-3 is effective on January 1, 2009 and early adoption isprohibited. The Company is currently evaluating the impact of adopting FSP FASNo.142-3 on the Company’s consolidated financial condition, operating resultsand cash flows.

 

In March 2008, the FASB issued Statement No. 161,*Disclosures about Derivative Instruments andHedging Activities — an amendment of FASB Statement No. 133,*which amends the disclosure requirements to provide more “enhanced” disclosuresabout (i) how and why derivatives are used by the Company, (ii) howthese derivatives are accounted for under SFAS No. 133 and itsinterpretations, and (iii) how much and where are the effects of theseinstruments located on the balance sheet, profit and loss and cash flowstatements.  This will be done mostlythrough tabular formats and better cross referencing of information included indifferent sections of the financial report. The statement is effective for thefiscal years and interim periods beginning on or after November 15,2008.  Earlier adoption isencouraged.  Additionally, the Statement “encourages”but does not require, comparative disclosures for earlier periods at initialadoption.  The Company is still assessingthe disclosure impact of this standard on its future consolidated financialposition and results of operations.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements — an amendment to ARB No. 51*,establishing new accounting and reporting standards for noncontrollinginterests (formerly known as “minority interests”) in a subsidiary and, whenapplicable, how to account for the deconsolidation of such subsidiary. The keydifferences include that non-controlling interests will be recorded as acomponent of equity, the consolidated income statements and statements ofcomprehensive income will be adjusted to include the non controlling interestand certain disclosures have been updated. The statement is effective for the fiscal years and interim periodswithin those years beginning on or after December 15, 2008.  Earlier adoption is prohibited.  The Company has minority interests in certainsubsidiaries and as such is currently evaluating the effect of adoption.

 

In December 2007,the FASB issued SFAS No. 141(R), *Business CombinationsRevised* (“SFAS 141(R)”), which revises the current SFAS 141. Thesignificant changes include a change from the “cost allocation process” to determinethe value of assets and liabilities to a full fair value measurement approach.In addition, acquisition related expenses will be expensed as incurred and notincluded in the purchase price allocation and contingent liabilities will beseparated into two categories, contractual and non-contractual, and accountedfor based on which category the contingency falls into. This statement appliesprospectively and is effective for business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning after December 15, 2008. Since it will be applied prospectively it will not have an effect on thecurrent financial statements, however, since the Company participates inbusiness combinations, in the future the Company believes this statement afterthe adoption date could have a significant effect on future operations.

 

In September 2006,the FASB issued SFAS No. 158, *Employer’s Accounting forDefined Benefit Pension Other Post Retirement Plans*(“SFAS 158”)*,*which requires the Company to recognize an asset orliability for the funded status (difference between fair value of plan assetsand benefit obligation, which for defined benefit pension plans is deemed to bethe Projected Benefit Obligation) of its retirement plans and recognize changesin the funded status annually through other comprehensive income (“O.C.I.”).Additionally, SFAS 158 changes the date as of which the funded status can bemeasured (eliminates the 90 day window) with limited exceptions. The effectivedate of the recognition of the funded status is for years ending after December 15,2006, and as such, refer to Note 10 for the effect on adoption. The effectivedate for the change in acceptable measurement date is for fiscal years endingafter December 15, 2008. The Company has changed its measurement date onthe consolidated financial statements as required (see Note 10).

 

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**2.         RELATED PARTY TRANSACTIONS**

 

**Stock Incentive Plan -**On September 14, 2004,the Company announced that its majority shareholder, Mr. Leonardo DelVecchio, had allocated shares held through La Leonardo Finanziaria S.r.l. (subsequentlymerged into Delfin S.a.r.l.), a holding company of the Del Vecchio family,representing at that time 2.11 percent (or 9.6 million shares) of the Company’sauthorized and issued share capital, to a stock option plan for top managementof the Company. The stock options to be issued under the stock option planvested upon the meeting of certain economic objectives as of June 30, 2006and, as such, the holders of these options became entitled to exercise suchoptions beginning on that date until their termination in 2014. In 2008, nooptions from this grant were exercised. In 2007 400,000 options were exercised.

 

As of December 31, 2008 total receivables and payables from/toother related parties amount to Euro 3.6 million and Euro 0.9 million, respectively(Euro 1.3 million and Euro 1.1 million as of December 31, 2007). The transactionsrelated to the above receivables were immaterial in amount and/or significanceto the Company.

 

**3.         INVENTORIES - NET**

 

Inventories— net consisted of the following (thousands of Euro):

** **
| ** **                            | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------------------|------------|-------------|------------|-------------|------------|
| Raw materials and packaging           |       | 112,693     |       | 117,191     |       |
| Work in process                       |       | 48,013      |       | 52,132      |       |
| Finished goods                        |       | 475,369     |       | 492,839     |       |
| Less: Inventory obsolescence reserves |       | (65,088     | )          | (87,146     | )          |
| **Total**                             | ** ** | **570,987** | ** ** | **575,016** | ** ** |

 

**4.         SALE OF THINGS REMEMBERED**

 

On September 29, 2006, the Company sold itsThings Remembered (“TR”) specialty gifts retail business to a private equityconsortium for net cash consideration of Euro 128.0 million (US$ 162.1including costs of US$ 5.3 million) and a promissory note (the “TR Note”) witha principal amount of Euro 20.6 million (US$26.1 million). The TR businessoperated solely in the United States and was included in the retail segment ofthe Company’s operations. In the consolidated statements of income for 2006,the Company has reclassified sales, cost of sales and other expenses associatedwith the discontinued operations as a single line item after income fromcontinuing operations but before net income. Revenues, income from operations,income before provision for income taxes and income tax provision reclassifiedunder discontinued operations for the twelve-month period ended December 31,2006, are as follows (thousands of Euro):

** **
| ** **                               | ** ** | **2006 (1)** | ** ** |
|------------------------------------------|------------|--------------|------------|
| Revenues                                 |       | 157,110      |       |
| Income from operations                   |       | 3,250        |       |
| Income before provision for income taxes |       | 761          |       |
| Income tax provision                     |       | (45          | )          |
|                                     |       |         |       |
| Gain/loss on sale                        |       | 13,278       |       |
| Income taxes on sale                     |       | (20,413      | )          |
| (Loss)/Gain on discontinued operations   |       | (6,419       | )          |

 

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(1)     From January 1, 2006through September 29, 2006

 

The TR Note (withan original principal amount of US $ 26.1 million) had a stated interest rateof 15.0%. Interest was “paid-in-kind” annually in the form of an additionalprincipal amount added to the outstanding principal balance. All unpaidinterest and outstanding principal would have been due in March 2013. TheTR Note was subordinated to certain other outstanding senior debt of theacquirer as defined in the TR Note. The TR Note was previously classified as an“available-for-sale” security as the Company had the contractual ability tosell such note and as such, changes in its fair value were included in OCI andreclassified to earnings when realized. For fiscal 2007 there were no amountsreclassified from OCI into earnings. During 2008, the Company sold the TR Notewithout recourse to an independent third party for approximately Euro 1.0million.  The loss on the sale of thenote of Euro 22.8 million including Euro 0.4 million previously recorded inaccumulated other comprehensive income (loss) is included in other expense netin the consolidated statements of income.

 

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**5.         ACQUISITIONS AND INVESTMENTS**

 

**a)    ****Oakley**

 

On June 20, 2007,the Company and Oakley entered into a definitive merger agreement with theunanimous approval of the Boards of Directors of both companies. On November 14,2007, the merger was consummated, the Company acquired all the outstandingcommon stock of Oakley which became a wholly owned subsidiary of the Companyand Oakley’s results of operations began to be included in the consolidatedstatements of income of the Company. The aggregate consideration paid by theCompany to the former shareholders, option holders, and holders of other equityrights of Oakley was approximately Euro 1,425.6 million (US $2,091 million) incash. In connection with the merger, the Company assumed approximately Euro166.6 million (US $244.4 million) of outstanding indebtedness. The purchaseprice of Euro 1,441.5 million (US $2,111.2 million) including approximatelyEuro 15.9 million (US $20.1 million) of direct acquisition related expenses wasallocated to the assets acquired and liabilities assumed based on their fairvalue at the date of the acquisition. The Company used various methods tocalculate the fair value of the assets acquired and the liabilities assumed.The excess of purchase price over net assets acquired (“goodwill”) has beenrecorded in the accompanying consolidated balance sheet. No portion of thisgoodwill is deductible for tax purposes. The acquisition of Oakley was made asa result of the Company’s strategy to strengthen its performance sunglasswholesale and retail businesses worldwide.

 

Thepurchase price allocation was finalized in 2008 resulting in no materialchanges to the final fair values allocated to inventories, intangible assetsand accrued expenses from the purchase price allocation done in 2007. The mainchanges from last year’s allocation relate to the restructuring of a part ofthe Retail North America operations. The purchase price (includingacquisition-related expenses) has been allocated based upon the fair value ofthe assets acquired and liabilities assumed as follows (thousands of Euro):

 
| *Assets acquired:*                             |   |      |   |
|------------------------------------------------|--------|-----------|--------|
| Cash and cash equivalents                      |   | 62,310    |   |
| Inventories                                    |   | 122,668   |   |
| Property, plant and equipment                  |   | 131,466   |   |
| Deferred tax assets                            |   | 43,425    |   |
| Prepaid expenses and other current assets      |   | 10,850    |   |
| Accounts receivable                            |   | 104,740   |   |
| Trade names and other intangible assets        |   | 538,469   |   |
| Other assets                                   |   | 3,985     |   |
|                                           |   |      |   |
| *Liabilities assumed:*                         |   |      |   |
| Accounts payable                               |   | 36,560    |   |
| Accrued expenses and other current liabilities |   | 93,586    |   |
| Deferred tax liabilities                       |   | 181,789   |   |
| Outstanding borrowings on credit facilities    |   | 166,850   |   |
| Other long term liabilities                    |   | 25,904    |   |
| Bank overdrafts                                |   | 5,584     |   |
|                                           |   |      |   |
| Fair value of net assets                       |   | 507,640   |   |
|                                           |   |      |   |
| Goodwill                                       |   | 933,813   |   |
|                                           |   |      |   |
| Total purchase price                           |   | 1,441,453 |   |

 

Thefollowing table sets forth the Company’s unaudited pro forma consolidatedresults of operations assuming that the acquisition of Oakley was completed asof January 1 of each of the fiscal years shown below (in thousands of Euroexcept for earnings per share data):

 

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| ** **         | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|--------------------|------------|-----------|------------|-----------|------------|
|               |       |      |       |      |       |
| Net Sales          |       | 5,539,000 |       | 5,243,055 |       |
|               |       |      |       |      |       |
| Net Income         |       | 470,363   |       | 385,896   |       |
|               |       |      |       |      |       |
| Earnings per share |       |      |       |      |       |
| Basic              |       | 1.04      |       | 0.85      |       |
| Diluted            |       | 1.04      |       | 0.85      |       |

 

Proforma data may not be indicative of the results that would have been obtainedhad these events actually occurred at the beginning of the periods presented,nor does it intend to be a projection of future results.

 

**b)        ****Other acquisitions andinvestments:**

 

The following is a description of other acquisitionsand investments. No pro forma financial information is presented, asthese acquisitions were not material, individually or in aggregate, to theCompany’s consolidated financial statements.

 

On July 31, 2008,Sunglass Hut UK Ltd. (“SGH”), an indirect wholly owned subsidiary of theCompany, issued new shares of common stock and paid an aggregate of GBP 600,000to the shareholders of Optika Holdings Limited (“OHL”) for all the outstandingshares of OHL. OHL through its subsidiaries operated a chain of ophthalmicretail locations throughout the UK and Ireland under the brand name “David Clulow”.The total consideration exchanged for the OHL acquisition was Euro 22.1 million(approximately GBP 17.5). OHL was a joint venture owned 50% by the Company and50% by a third party. Upon the completion of this transaction the Company owns,directly and indirectly, approximately 66% of the SGH and OHL (the “combinedentity”). As a result of the acquisition the former shareholders of OHLreceived a minority stake of the combined entity of 34% and a put option tosell the shares to the Company, while the Company was granted a call option onthe minority stake. The acquisition of the Company’s additional interest in OHLwas accounted for as a business combination. The Company used various methodsto calculate the fair value of the assets acquired and the liabilities assumed.The goodwill recorded in the consolidated financial statements as of December 31,2008 totals Euro 18.1 million. There were no significant intangibles realizedor other fair value adjustments associated with the business combination.

 

In February 2007,the Company completed the acquisition of certain assets and assumed certainliabilities of D.O.C Optics Corporation and its affiliates, an optical retailbusiness with approximately 100 stores located primarily in the Midwest UnitedStates of America for approximately Euro 83.7 million (U.S. $110.2 million) incash. The purchase price, including direct acquisition-related expenses, wasallocated to the assets acquired and liabilities assumed based on their fairvalue at the date of the acquisition. The goodwill recorded in the consolidatedfinancial statements as of December 31, 2007 totals Euro 70.4 million, ofwhich Euro 64.9 million is deductible for tax purposes. The Company usedvarious methods to calculate the fair value of the assets acquired andliabilities assumed. The final allocation of the purchase price among theassets and liabilities acquired and the amount of the goodwill has beencompleted in 2008 resulting in no material differences from the purchase priceallocation done in 2007. The acquisition was made as a result of the Company’sstrategy to continue expansion of its retail business in the United States ofAmerica.

 

During 2007, incompliance with the 2006 decision of the Supreme Court of India, the Companylaunched a public offering to acquire an additional 31 percent of theoutstanding equity share capital of RayBan Sun Optics India LTD (“RBSO”).Effective upon the entry of the shares tendered in the offer into the shareregister on June 26, 2007 the Company increased its ownership interest inRBSO to 70.5 percent. As of such date, RBSO was consolidated into the financialstatements. The total cost of the shares acquired was approximately Euro 13million (US $17.2 million). The Company recorded the acquisition as a “step-acquisition”and allocated the purchase price paid over the newly acquired proportionalshare of the fair value of RBSO assets and liabilities acquired. There were nosubstantial unrecognized intangibles, and as such, goodwill was recorded forthe excess price paid over the net fair values of assets and liabilities ofapproximately Euro 9.1 million (US $ 12.3 million). During 2008, the Companymade a delisting offer to the remaining public shareholders of RBSO pursuant toIndia’s delisting guidelines. Through this process the public shareholderstendered 4,335,713 shares for approximately Euro 9.1 million (US $13.4 million,including approximately US

 

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$0.5 million intransaction costs). As of December 31, 2008 the Company owned 88.2% ofRBSO and the transaction increased goodwill by approximately Euro 5.0 million(US $7.8 million).

 

In March 2007the Company announced that it had acquired two prominent specialty sun chainsin South Africa, with a total of 65 stores. The two acquisitions represent animportant step in the expansion of the Company’s sun retail presence worldwide.Luxottica Group’s total investment in the two transactions was approximatelyEuro 10 million. The Company used various methods to calculate thefair value of the assets acquired and liabilities assumed. The excess of thepurchase price over net assets acquired (“goodwill”) has been recorded in theaccompanying consolidated balance sheet. All valuations have been completed during2008 with no material differences from the purchase price allocation done in2007 which resulted in the recognition of goodwill of Euro 8.3 million as ofthe date of acquisition.

 

On July 1,2006, the Company acquired certain assets and assumed certain liabilities fromKing Optical Group Inc. consisting of its 74 Canadian optical store chain knownas Shoppers Optical (“SO”). The aggregate consideration paid by the Company tothe former owners of SO was approximately Canadian dollar (“CDN$”) 68.8 million(Euro 48.3 million) in cash. In connection with the acquisition, the Companyassumed no indebtedness. The purchase price of CDN$ 69.3 million (Euro 48.7million), including approximately CDN$ 0.1 million (Euro 0.4 million) of directacquisition-related expenses, was allocated to the assets acquired andliabilities assumed based on their fair value at the date of the acquisition.All valuations of net assets including but not limited to fixed assets andinventory have been completed during 2007 resulting in no material differencesfrom the purchase price allocation done in 2006. The acquisition was made as aresult of the Company’s strategy to continue expansion of its retail businessin Canada.

 

In May 2006, the Company completed the purchase of the remaining 49%stake of the Turkish-based distributor Luxottica Gozluk Endustri Ve Ticaret Anonim (“LuxotticaTurchia”) for an amount of Euro 15 million. Goodwill of Euro 7.0 million representing the excessof the net assets acquired has been recorded in the accompanying ConsolidatedBalance Sheets. In November 2006 Standard Gozluk Industri Ve Tircaret A.S.(“Standard”), a Turkish wholesaler fully owned by the former minority shareholdersof Luxottica Turchia, merged with Luxottica Turchia. As a result of the mergerthe former shareholders of Standard received a minority stake of LuxotticaTurchia of 35.16% and a put option to sell the shares to the Company, while theCompany was granted a call option on the minority stake. The acquisition wasaccounted for in accordance with SFAS 141 and, accordingly, the totalconsideration of Euro 46.7 million has been allocated to the fair market valueof the assets and liabilities of the company at the acquisition date. Allvaluations of net assets including but not limited to fixed assets andinventory have been completed during 2007 resulting in the recognition ofintangible assets of approximately Euro 19.6 million and related deferred tax liabilitiesfor approximately Euro 3.9 million and in the reduction of the goodwillrecognized in 2006 by approximately Euro 15.7 million. The acquisition was made as a result of theCompany’s strategy to continue expansion of its wholesale business in Turkey,in particular in the prescription frames market.

 

In November 2006,the Company completed the acquisition, which was announced in June 2006, of Modern Sight Optics, a leadingpremium optical chain that operates a total of 28 stores in Shanghai, China. Thesestores are located in premium and high-end commercial centers and shoppingmalls situated primarily in Shanghai’s downtown area and affluent residentialareas. The Company acquired 100 percent of the equity interest in Modern SightOptics for total consideration of RMB 140 million (approximately Euro 14million). Theacquisition was accounted for in accordance with SFAS 141 and, accordingly, thetotal consideration of Euro 16.3 million, including direct acquisition-relatedexpenses, has been allocated to the fair market value of the assets andliabilities of the company as of the acquisition date. All valuations of netassets including but not limited to fixed assets and inventory have beencompleted during 2007 with no material differences from the purchase priceallocation done in 2006 which resulted in the recognition of goodwill of Euro15.9 million as of the date of acquisition. The acquisition was made as a result of theCompany’s strategy to continue expansion of its retail business in The People’sRepublic of China.

 

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**6.         PROPERTY, PLANT AND EQUIPMENT — NET**

 

Property,plant and equipment-net consisted of the following (thousands of Euro):

 
| ** **                                           | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                 |       |      |       |      |       |
| Land and buildings, including leasehold improvements |       | 755,254   |       | 687,428   |       |
| Machinery and equipment                              |       | 795,126   |       | 697,776   |       |
| Aircraft                                             |       | 40,018    |       | 40,222    |       |
| Other equipment                                      |       | 513,631   |       | 439,696   |       |
|                                                 |       | 2,104,029 |       | 1,865,122 |       |
|                                                 |       |      |       |      |       |
| Less: accumulated depreciation and amortization      |       | 933,331   |       | 807,340   |       |
| Total                                                |       | 1,170,698 |       | 1,057,782 |       |

 

Depreciationand amortization expense relating to property, plant and equipment for theyears ended December 31, 2008, 2007 and 2006 was Euro 191.0 million, Euro163.3 million and Euro 151.9 million, respectively. Included in other equipmentis approximately Euro 79.7 million and Euro 71.6 million of construction inprogress as of December 31, 2008 and 2007, respectively. Constructionin-progress consists mainly of the opening, remodeling and relocation of stores andthe expansion of manufacturing facilities in Italy.

 

Certaintangible assets are maintained in currencies other than Euro (the reportingcurrency) and, as such, balances may fluctuate due to changes in exchangerates.

 

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**7.**         **GOODWILL AND INTANGIBLE****ASSETS** - **NET**

 

Thechanges in the carrying amount of goodwill for the years ended December 31,2007 and 2008, are as follows (thousands of Euro):

 
| ** **                               | ** ** | **Retail  Segment** | ** ** | **Wholesale  Segment** | ** ** | **Oakley**  | ** ** | **Total**     | ** ** |
|------------------------------------------|------------|---------------------|------------|------------------------|------------|-------------|------------|---------------|------------|
|                                     |       |                |       |                   |       |        |       |          |       |
| Balance as of January 1, 2007       | ** ** | **1,353,999**       | ** ** | **340,615**            | ** ** | **—**  | ** ** | **1,694,614** | ** ** |
|                                     |       |                |       |                   |       |        |       |          |       |
| Acquisitions (a)                         |       | 86,021              |       | 9,611                  |       | 904,148     |       | 999,780       |       |
|                                     |       |                |       |                   |       |        |       |          |       |
| Adjustments on previous acquisitions (a) |       |                |       | (15,678                | )          |        |       | (15,678       | )          |
|                                     |       |                |       |                   |       |        |       |          |       |
| Change in exchange rates (b)             |       | (84,323             | )          | 4,393                  |       | 3,054       |       | (76,876       | )          |
|                                     |       |                |       |                   |       |        |       |          |       |
| Balance as of December 31, 2007     | ** ** | **1,355,697**       | ** ** | **338,941**            | ** ** | **907,202** | ** ** | **2,601,840** | ** ** |
|                                     |       |                |       |                   |       |        |       |          |       |
| Acquisitions (a)                         |       | 24,192              |       | 6,914                  |       |        |       | 31,106        |       |
|                                     |       |                |       |                   |       |        |       |          |       |
| Adjustments on previous acquisitions (a) |       | 241,238             |       | 695,787                |       | (907,202    | )          | 29,823        |       |
|                                     |       |                |       |                   |       |        |       |          |       |
| Change in exchange rates (b)             |       | 6,629               |       | 25,376                 |       |        |       | 32,005        |       |
|                                     |       |                |       |                   |       |        |       |          |       |
| Balance as of December 31, 2008     | ** ** | **1,627,756**       | ** ** | **1,067,018**          | ** ** | **—**  | ** ** | **2,694,774** | ** ** |

 

----

(a)     Goodwillacquired in 2007 mainly consists of the acquisition of Oakley, the acquisitionof the additional 26% of the net equity of the Indian subsidiary and minoracquisitions in the Retail segment. Goodwill acquired in 2008 in the Retailsegment mainly consists of the acquisition of OHL. Goodwill acquired in 2008 inthe Wholesale segment mainly consists of the acquisition of the additional17.7% of the net equity of the Indian subsidiary. The adjustments on previousacquisitions mainly refer to the finalization of theOakley fair value analysis. Oakley goodwill hasbeen allocated to the wholesale and retail segments in 2008.

 

(b)    Certaingoodwill balances are denominated in currencies other than Euro (the reportingcurrency) and, as such, balances may fluctuate due to changes in exchangerates.

 

Intangibleassets-net consist of the following (thousands of Euro):

 
| ** **                                | ** ** | **2008**                    | ** ** | **2007**                      | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | **Gross  Carrying  amount** | ** ** | **Accumulated  depreciation** | ** ** | **Total** | ** ** | **Gross  Carrying  amount** | ** ** | **Accumulated  depreciation** | ** ** | **Total** | ** ** |
| ** **                                | ** ** | ** **                  | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade names and Trademarks (a)            |       | 1,318,737                   |       | (394,612                      | )          | 924,125 |   | 1,288,620 |   | (325,912 | ) | 962,708 |   |
| Customer relation, contracts and list (b) |       | 215,868                     |       | (20,206                       | )          | 195,662 |   | 210,258 |   | (9,153 | ) | 201,105 |   |
| Distributor Network (b)                   |       | 81,086                      |       | (15,179                       | )          | 65,907 |   | 79,359 |   | (12,410 | ) | 66,949 |   |
| Franchise Agreements (b)                  |       | 20,619                      |       | (3,870                        | )          | 16,749 |   | 20,749 |   | (2,757 | ) | 17,992 |   |
| Other (c)                                 |       | 51,490                      |       | (19,903                       | )          | 31,587 |   | 77,847 |   | (20,484 | ) | 57,363 |   |
|                                      |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| **Total**                                 | ** ** | **1,687,800**               | ** ** | **(453,770**                  | **)**      | **1,234,030** | ** ** | **1,676,833** | ** ** | **(370,716** | **)** | **1,306,117** | ** ** |

 

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(a)     Trade names includes various trade names and trademarks acquiredwith the acquisitions of LensCrafters, Sunglass Hut International, OPSM, Coleand Oakley . Trade names are amortized on a straight-line basis over a periodof 25 years (except for the Ray-Ban trade names, which are amortized over aperiod of 20 years), as the Company believes these trade names to befinite-lived assets. The weighted average amortization period is 24 years.

 

(b)    Distributor network, customer contracts and lists, and franchiseagreements were identifiable intangibles recorded in connection with theacquisition of Cole in 2004 and of Oakley in 2007. These assets have finitelives and are amortized on a straight-line basis or on

 

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an accelerated basis(projected diminishing cash flows) over periods ranging between 3 and 25 years.The weighted average amortization period is 20.6 years.

 

(c)     Other identifiable intangibles have finite lives ranging between3 and 17 years and are amortized on a straight line basis. The weighted averageamortization period is 11.3 years. Most of these useful lives were determinedbased on the terms of the license agreements and non-compete agreements. During2007, approximately Euro 5.8 million of intangibles became fully amortized andwere written off. The reduction in the gross carrying amount in 2008 of theOther Intangible assets was primarily due to (i) the finalization of theOakley fair value analysis, and (ii) the reclassification of someintangible assets as a result of the change in the contractual agreement basedon which the above mentioned assets were originally recorded.

 

Certainintangible assets are maintained in currencies other than Euro (the reportingcurrency) and, as such, balances may fluctuate due to changes in exchangerates.

 

Amortizationexpense for 2008, 2007 and 2006 was Euro 73.9 million, Euro 69.6 million andEuro 68.8 million, respectively. Estimated annual amortization expense relatingto identifiable assets is shown below (thousands of Euro):

 
| **Years  ending December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------|------------|
| 2009                                |       | 77,376     |       |
| 2010                                |       | 75,877     |       |
| 2011                                |       | 74,350     |       |
| 2012                                |       | 73,388     |       |
| 2013                                |       | 72,610     |       |

 

**8.**         **INCOME TAXES**

 

Incomebefore provision for income taxes and the provision for income taxes consistedof the following (thousands of Euro):

 
| ** **                                          | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|-----------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                |       |        |       |        |       |        |       |
| Income before provision for income taxes            |       |        |       |        |       |        |       |
| Italian Companies                                   |       | 199,793     |       | 317,637     |       | 251,343     |       |
| USA Companies                                       |       | 172,609     |       | 319,154     |       | 331,035     |       |
| Other foreign Companies                             |       | 217,468     |       | 143,890     |       | 95,799      |       |
|                                                |       |        |       |        |       |        |       |
| **Total income before provision for  income taxes** | ** ** | **589,870** | ** ** | **780,681** | ** ** | **678,177** | ** ** |
|                                                |       |        |       |        |       |        |       |
| Provision for income taxes                          |       |        |       |        |       |        |       |
|                                                |       |        |       |        |       |        |       |
| Current                                             |       |        |       |        |       |        |       |
| Italian Companies                                   |       | 87,333      |       | 156,198     |       | 157,342     |       |
| USA Companies                                       |       | 29,975      |       | 116,785     |       | 120,681     |       |
| Other foreign Companies                             |       | 55,985      |       | 61,742      |       | 33,206      |       |
|                                                |       |        |       |        |       |        |       |
| **Total provision for current income  taxes**       | ** ** | **173,293** | ** ** | **334,725** | ** ** | **311,229** | ** ** |
|                                                |       |        |       |        |       |        |       |
| Deferred                                            |       |        |       |        |       |        |       |
| Italian Companies                                   |       | (7,757      | )          | (47,736     | )          | (23,016     | )          |
| USA Companies                                       |       | 39,517      |       | (10,592     | )          | (3,392      | )          |
| Other foreign Companies                             |       | (10,396     | )          | (2,896      | )          | (46,064     | )          |
|                                                |       |        |       |        |       |        |       |
| **Total provision for deferred income  taxes**      | ** ** | **21,364**  | ** ** | **(61,224** | **)**      | **(72,472** | **)**      |
|                                                |       |        |       |        |       |        |       |
| **Total taxes**                                     | ** ** | **194,657** | ** ** | **273,501** | ** ** | **238,757** | ** ** |

 

TheItalian statutory tax rate is the result of two components: national (“IRES”)and regional (“IRAP”) tax. IRAP could have a substantially different base forits computation than IRES.

 

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Reconciliationbetween the Italian statutory tax rate and the effective tax rate is asfollows:

 
| ** **                                                   | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                   | ** ** | **2008**                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                         |       |                             |       |   |   |   |   |
| Italian statutory tax rate                                   |       | 31.4                             | %          | 37.3 | % | 37.3 | % |
| Aggregate effect of different rates in foreign jurisdictions |       | (1.7                             | )%         | (1.7 | )% | (1.5 | )% |
| Aggregate effect of asset revaluation in Australia           |       |                             |       |   |   | (6.8 | )% |
| Aggregate effect of Italian restructuring                    |       |                             |       | (5.3 | )% |   |   |
| Aggregate effect of change in tax law in Italy               |       |                             |       | 2.1 | % |   |   |
| Effect of non-deductible stock-based compensation            |       | 1.1                              | %          | 1.1 | % | 5.5 | % |
| Aggregate other effects                                      |       | 2.2                              | %          | 1.5 | % | 0.7 | % |
|                                                         |       |                             |       |   |   |   |   |
| Effective rate                                               |       | 33.0                             | %          | 35.0 | % | 35.2 | % |

 

In2006, the Australian subsidiaries of the Company elected to apply a new taxconsolidation regime, which was introduced by the Australian government. Byelecting such new consolidation regime for tax purposes, certain intangible andfixed assets were revaluated for tax purposes increasing their tax basis. Theincrease in the tax basis became effective in 2006 upon filing the final 2005tax return in December 2006.

 

The2007 tax benefit of 5.3%, relates to the business reorganization of certainItalian companies which results in the release of deferred tax liabilities andis partially offset by the increase by 2.1% in the 2007 tax charge due to thechange in the Italian statutory tax rates which results in the reduction ofdeferred tax assets.

 

Thedeferred tax assets and liabilities as of December 31, 2008 and 2007,respectively, were comprised of (thousands of Euro):

 

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* *

*Amounts in thousands of Euro*

 
| ** **                                              | ** **   | **2008**       | ** **   | **2007**       | ** **   |
|---------------------------------------------------------|--------------|----------------|--------------|----------------|--------------|
| **Deferred Income Tax Assets**                          |         |           |         |           |         |
| Inventory                                               |         | 71,660         |         | 73,062         |         |
| Insurance and other reserves                            |         | 8,580          |         | 10,238         |         |
| Right of return reserve                                 |         | 14,471         |         | 13,464         |         |
| Net operating loss carryforwards                        |         | 50,565         |         | 45,224         |         |
| Occupancy reserves                                      |         | 19,630         |         | 14,681         |         |
| Employee-related reserves (including pension liability) |         | 72,974         |         | 48,977         |         |
| Trade name                                              |         | 76,525         |         | 72,686         |         |
| Deferred tax on derivatives                             |         | 21,685         |         | 549            |         |
| Other                                                   |         | 54,819         |         | 28,349         |         |
| Fixed assets                                            |         | 29,684         |         | 24,472         |         |
| ***Total Deferred  Income Tax assets***                 | *** *** | ***420,593***  | *** *** | ***331,702***  | *** *** |
| *** ***                                            | *** *** | *** ***   | *** *** | *** ***   | *** *** |
| Valuation Allowance                                     |         | (24,048        | )            | (27,088        | )            |
|                                                    |         |           |         |           |         |
| ***Net Deferred tax  assets***                          | *** *** | ***396,545***  | *** *** | ***304,614***  | *** *** |
|                                                    |         |           |         |           |         |
| **Deferred Income Tax Liabilities**                     |         |           |         |           |         |
| Trade name                                              |         | (241,409       | )            | (216,997       | )            |
| Fixed Assets                                            |         | (32,919        | )            |           |         |
| Other intangibles                                       |         | (115,031       | )            | (117,975       | )            |
| Dividends                                               |         | (13,316        | )            | (11,933        | )            |
| Other                                                   |         | (12,067        | )            | (20,342        | )            |
| ***Total Deferred  Income Tax Liabilites***             | *** *** | ***(414,742*** | ***)***      | ***(367,247*** | ***)***      |
|                                                    |         |           |         |           |         |
| **Net Deferred Income Tax Liabilities**                 | ** **   | **(18,197**    | **)**        | **(62,633**    | **)**        |

 

Deferredincome tax assets and liabilities have been classified in the consolidatedfinancial statements as follows:

 
| Deferred Income Tax Assets - current          |       | 131,907     |   | 117,853     |   |
|-----------------------------------------------|------------|-------------|--------|-------------|--------|
| Deferred Income Tax Assets - non current      |       | 83,447      |   | 67,891      |   |
| Deferred Income Tax Liabilities - non current |       | (233,551    | )      | (248,377    | )      |
| **Net Deferred Income Tax Liabilities**       | ** ** | **(18,197** | **)**  | **(62,633** | **)**  |

 

On December 24,2007, the Italian Government issued the Italian Finance Bill of 2008 (the “2008Bill”). The 2008 Bill decreases the national tax rate (referred to as “IRES”)from 33% to 27.5%, and the regional tax rate (referred to as “IRAP”) from 4.25%to 3.9%. The effect of this change created an additional Euro 8 million ofdeferred tax expense in 2007.

 

TheCompany does not provide for an accrual for income taxes on undistributedearnings of its non Italian operations to the related Italian parent companythat are intended to be permanently invested. It is not practicable todetermine the amount of income tax liability that would result had suchearnings actually been distributed. In connection with the 2008 earnings ofcertain subsidiaries, the Company has provided for an accrual for income taxesrelated to declared dividends of earnings.

 

At December 31,2008, a US subsidiary of the Company had Federal net operating losscarry-forwards (NOLs) of approximately Euro 97.6 million which may be usedagainst income generated by certain subsidiary groups.  Substantially all of the NOLs begin expiringin 2019. Approximately Euro 231.1 thousand and Euro 513.0 thousand of theseNOLs were used in 2008 and 2007, respectively. The use of the NOL is limiteddue to restrictions imposed by U.S. tax rules governing utilization ofloss carry-forwards following changes in ownership.  None of the net operating losses expired in2008, 2007 or 2006. As of December 31, 2008, a US subsidiary of theCompany had various state net operating loss carry-forwards (SNOLs), associatedwith individual states within the United States of America totaling approximately Euro 8.0million. These SNOLs begin expiring in 2009. Due to the foreign operations ofthe US subsidiary, as of December 31, 2008, such US subsidiary of theCompany has approximately Euro 4.1 million and Euro 1.9 million of non US netoperating

 

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losses and foreigntax credit carry-forwards, respectively. These foreign NOLs and foreign taxcredits will begin to expire in 2012 and 2016, respectively.

 

As of December 31,2008 and 2007, the Company has recorded an aggregate valuation allowance ofEuro 24.1 million and Euro 27.1 million, respectively, against deferred taxassets as it is more likely than not that the above deferred income tax assetswill not be fully utilized in future periods. The amount of valuation allowancethat would be allocated directly to capital in future periods, if reversed, isnot material.

 

Areconciliation of the amount of unrecognized tax benefits is as follows(amounts in thousands of Euro):

 
| Balance — January 1, 2007                   |   | 54,089 |   |
|-------------------------------------------------------|--------|--------|--------|
| Gross increase — acquisition of Oakley           |   | 14,176 |   |
| Gross increase — tax positions in prior period   |   | 5,018  |   |
| Gross decrease — tax positions in prior period   |   | (7,473 | )      |
| Gross increase — tax positions in current period |   | 5,796  |   |
| Settlements                                           |   | (2,799 | )      |
| Lapse of statute of limitations                       |   | (8,851 | )      |
| Change in exchange rates                              |   | (3,365 | )      |
|                                                  |   |   |   |
| Balance — December 31, 2007                 |   | 56,591 |   |
|                                                  |   |   |   |
| Gross increase — tax positions in prior period   |   | 4,910  |   |
| Gross decrease — tax positions in prior period   |   | (9,356 | )      |
| Gross increase — tax positions in current period |   | 13,139 |   |
| Settlements                                           |   | (6,756 | )      |
| Lapse of statute of limitations                       |   | (2,296 | )      |
| Change in exchange rates                              |   | 1,901  |   |
|                                                  |   |   |   |
| Balance — December 31, 2008                 |   | 58,133 |   |

 

Included in the balance of unrecognized tax benefits at December 31,2008 and December 31, 2007, are Euro 39.1 million and Euro 39.9 million oftax benefits that, if recognized, would affect the effective tax rate.

 

The Group does not anticipate the unrecognized tax benefits to changesignificantly during 2009.

 

The Group recognizes interest accrued related to unrecognized taxbenefits and penalties as income tax expense. Related to the uncertain taxbenefits noted above, the Company’s accrual for penalties and interest during2008 and 2007 was immaterial and, in total, as of December 31, 2008, theCompany has recognized a liability for penalties of approximately Euro 3.6million and interest expense of approximately Euro 7.5 million.

 

TheGroup is subject to taxation in Italy and foreign jurisdictions of which onlythe U.S. federal is significant.

 

Italiancompanies’ taxes are subject to review pursuant to Italian law. As of December 31, 2008, tax years from 2003through the most recent year were open for such review. At the date of December 31,2008 no Italian companies are subjected to a tax inspection. The previous taxinspections open in 2007 were closed with no material liabilityfor the Group.

 

The Group’s U.S. federaltax years for 2005, 2006 and 2007 are subject to examination by the taxauthorities.

 

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**9.         LONG-TERM DEBT**

 

Long-termdebt consists of the following (thousands of Euro):

 
| ** **                                                                                                           | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                           | ** ** | **2008**              | ** ** | **2007** | ** ** |
|                                                                                                                 |       |                  |       |   |   |
| Credit agreement with various Italian financial institutions (a)                                                     |       | 400,000               |       | 185,000 |   |
| Senior unsecured guaranteed notes (b)                                                                                |       | 213,196               |       | 97,880 |   |
| Credit agreement with various financial institutions (c)                                                             |       | 1,001,403             |       | 1,059,918 |   |
| Other loans with banks and other third parties, interest at various  rates, payable in installments through 2014 (d) |       | 4,314                 |       | 4,894 |   |
| Credit Agreement with various financial Institution for Oakley  Acquisition (e)                                      |       | 1,185,482             |       | 1,369,582 |   |
| Capital lease obligations, payable in installments through 2009                                                      |       | 1,107                 |       | 1,866 |   |
|                                                                                                                 |       |                  |       |   |   |
| Total                                                                                                                |       | 2,805,502             |       | 2,719,140 |   |
|                                                                                                                 |       |                  |       |   |   |
| Current maturities                                                                                                   |       | 286,213               |       | 792,617 |   |
|                                                                                                                 |       |                  |       |   |   |
| **Long Term Debt**                                                                                                   |       | 2,519,289             |       | 1,926,523 |   |

 

----

(a) InSeptember 2003, the Company acquired its ownership interest of OPSM andmore than 90 percent of the performance rights and options of OPSM for anaggregate of AUD 442.7 million (Euro 253.7 million), including acquisitionexpenses. The purchase price was paid for with the proceeds of a creditfacility with Banca Intesa S.p.A. of Euro 200 million, in addition to othershort-term lines available. The credit facility included a Euro 150 millionterm loan, which required repayment of equal semi-annual installments of principal of Euro 30million starting on September 30, 2006 until the final maturity date.Interest accrued on the term loan at Euribor (as defined in the agreement) plus0.55 percent. The revolving loan provided borrowing availability of up to Euro50 million; amounts borrowed under the revolving portion could be borrowed andrepaid until final maturity. Interest accrued on the revolving loan at Euribor(as defined in the agreement) plus 0.55 percent. The Company could selectinterest periods of one, two or three months. The final maturity of the creditfacility was September 30, 2008, the credit facility was re-paid in full.The credit facility contains certain financial and operating covenants. TheCompany was in compliance with those covenants during 2008, prior to the finalmaturity date.

 

In June 2005,the Company entered into four interest rate swap transactions with variousbanks with an aggregate initial notional amount of Euro 120 million whichdecreased by Euro 30 million every six months starting on March 30, 2007.These swaps expired on September 30, 2008. The ineffectiveness of cashflow hedges was tested at the inception date and throughout the year. Theresults of the tests indicated that the cash flow hedges were highly effectiveprior to the swap expiration date of September 2008.

 

In December 2005,the Company entered into an unsecured credit facility with Banca Popolare diVerona e Novara Soc. Coop. a R.L (LLC). The 18-month credit facility consistedof a revolving loan that provided borrowing availability of up to Euro 100.0million. Amounts borrowed under the revolving portion could be borrowed andrepaid until final maturity. The final maturity of the credit facility was June 1,2007. The Company repaid the outstanding amount on the maturity date with theproceeds of a new unsecured credit facility with Banca Popolare di Verona eNovara Soc. Coop. a R.L. The new 18-month credit facility consisted of arevolving loan that provided borrowing availability of up to Euro 100.0million. Amounts borrowed under the revolving portion could be borrowed andrepaid until final maturity. Interest accrued on the revolving loan at Euribor(as defined in the agreement) plus 0.25 percent. The Company could selectinterest periods of one, three or six months. The credit facility expired on December 3,2008 and the credit facility was repaid in full.

 

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In April 2008, the Company entered into a newEuro 150.0 million unsecured credit facility with Banca Nazionale del Lavoro.This facility is an 18-month revolving credit facility that provides borrowingavailability of up to Euro 150.0 million. The amounts borrowed under therevolving facility can be borrowed and repaid until final maturity. Interestaccrues at EURIBOR plus 0.375 percent (3.604 percent as of December 31,2008). The Company can select interest periods of one, three or six months. Thefinal maturity of the credit facility is October 8, 2009. As of December 31,2008 Euro 150.0 million was borrowed under this facility.

 

On May 29,2008, the Company entered into a Euro 250.0 million revolving credit facility,guaranteed by its subsidiary, Luxottica U.S. Holdings Corp. (US Holdings), withIntesa Sanpaolo S.p.A., as agent, and Intesa Sanpaolo S.p.A., Banca Popolare diVicenza S.c.p.A. and Banca Antonveneta S.p.A., as lenders. The final maturityof the credit facility is May 29, 2013. The credit facility will requirerepayment of equal quarterly installments of Euro 30.0 million of principalstarting on August 29, 2011, and a repayment of Euro 40.0 million on thefinal maturity date. Interest accrues at EURIBOR (as defined in the agreement)plus a margin between 0.40 percent and 0.60 percent based on the “NetDebt/EBITDA” ratio, as defined in the agreement (3.741 percent as of December 31,2008). As of December 31, 2008 Euro 250.0 million was borrowed under thiscredit facility.

 

(b) On September 3, 2003, USHoldings closed a private placement of US $300 million (Euro 215.5 million atthe exchange rate as of December 31, 2008) of senior unsecured guaranteednotes (the “Notes”), issued in three series (Series A, Series B and Series C).Interest on the Series A Notes accrued at 3.94 percent per annum andinterest on Series B and Series C Notes accrues at 4.45 percent perannum. The Series A and Series B Notes matured on September 3,2008 and the Series C Notes mature on September 3, 2010. The Series Aand Series C Notes require annual repayments beginning on September 3,2006 through the applicable dates of maturity. The Notes are guaranteed on asenior unsecured basis by the Company and Luxottica S.r.l., a wholly ownedsubsidiary. The Notes contain certain financial and operating covenants. USHoldings was in compliance with those covenants as of December 31, 2008.In December 2005, US Holdings terminated three interest rate swaps thatcoincided with the Notes and, as such, the final adjustment to the carryingamount of the hedged interest-bearing financial instruments is being amortizedas an adjustment to the fixed-rate debt yield over the remaining life of thedebt. The effective interest rate on the Series C Notes outstanding as December 31,2008, is 5.44 percent for its remaining life. Amounts outstanding under theseNotes were Euro 15.6 million and Euro 97.9 million as of December 31, 2008and 2007, respectively.

 

On July 1, 2008 US Holdings closed a privateplacement of U.S. $275 million senior unsecured guaranteed notes (the “2008Notes”), issued in three series (Series A, Series B and Series C).The principal amounts of Series A, Series B and Series C Notesare U.S. $20 million, U.S. $127 million and U.S. $128 million, respectively. Series ANotes mature on July 1, 2013, Series B Notes mature on July 1,2015 and Series C Notes mature on July 1, 2018. Interest on the Series ANotes accrues at 5.96 percent per annum, interest on the Series B Notesaccrues at 6.42 percent per annum and interest on the Series C Notesaccrues at 6.77 percent per annum. The proceeds from the 2008 Notes received onJuly 1, 2008, were used to repay a portion of the Bridge Loan Facilitywhich was amended on July 1, 2008. In addition, U.S. Holdings extended theamended Bridge Loan ( see (e) below) of U.S. $150 million for a further 18months starting from July 1, 2008.

 

(c) On June 3, 2004, as amended on March 10, 2006, the Companyand US Holdings entered into a credit facility with a group of banks providingfor loans in the aggregate principal amount of Euro 1,130 million and US $325million. The five-year facility consists of three Tranches (Tranche A, TrancheB, Tranche C). The March 2006 amendment increased the availableborrowings, decreased the interest margin and defined a new maturity date offive years from the date of the amendment for Tranche B and Tranche C. On February 2007,the Company exercised an option included in the amendment to the term andrevolving facility to extend the maturity date of Tranches B and C to March 2012.On February 2008, the Company exercised an option included in theamendment to the term and revolving facility to extend the maturity date ofTranches B and C to March 2013. TrancheA is a Euro 405 million amortizing term loan requiring repayment of nineequal quarterly installments of principal of Euro 45 million beginning in June 2007,which is to be used for general corporate purposes, including the refinancing ofexisting Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of US $325 million which was drawn upon on October 1,2004 by US Holdings to finance the purchase price of the acquisition ofCole.  Amounts borrowed under Tranche Bwill mature in March 2013. TrancheC is a Revolving Credit Facility of Euro 725 million-equivalentmulti-currency (Euro/US Dollar). Amounts borrowed under Tranche C may be repaidand reborrowed with all outstanding balances maturing in March 2013. TheCompany can select interest periods of one, two, three or six months withinterest accruing

 

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onEuro-denominated loans based on the corresponding Euribor rate and US Dollardenominated loans based on the corresponding LIBOR rate, both plus a marginbetween 0.20 percent and 0.40 percent based on the “Net Debt/EBITDA” ratio, asdefined in the agreement. The interest rate on December 31, 2008 was 4.166percent for Tranche A, 4.874 percent for Tranche B, 1.189 percent on Tranche Camounts borrowed in US Dollars and 3.397 percent on Tranche C borrowed in Euro.The credit facility contains certain financial and operating covenants. TheCompany was in compliance with those covenants as of December 31, 2008.Under this credit facility, Euro 1,001.4 million and Euro 1,059.9 million wasborrowed as of December 31, 2008 and 2007, respectively.

 

In June 2005, theCompany entered into nine interest rate swap transactions with an aggregateinitial notional amount of Euro 405 million with various banks which willdecrease by Euro 45 million every three months starting on June 3, 2007(the “Club Deal Swaps”). These swaps will expire on June 3, 2009. The ClubDeal Swaps were entered into as a cash flow hedge on Tranche A of the creditfacility discussed above. The Club Deal Swaps exchange the floating rate ofEuribor for an average fixed rate of 2.565 percent per annum. Theineffectiveness of cash flow hedges was tested at the inception date and atleast every three months. The results of the tests indicated that the cash flowhedges are highly effective. As a consequence approximately Euro 0.17 million,net of taxes, is included in other comprehensive income as of December 31,2008. Based on current interest rates and market conditions,the estimated aggregate amount to be recognized as earnings from othercomprehensive income for these cash flow hedges in fiscal 2009 is approximatelyEuro 0.07 million,net of taxes.

 

During the third quarterof 2007 the Group entered into 13 interest rate swap transactions with anaggregate initial notional amount of US $325.0 million with various banks (“TrancheB Swaps”). These swaps will expire on March 10, 2012. The Tranche B Swapswere entered into as a cash flow hedge on Tranche B of the credit facilitydiscussed above. The Tranche B Swaps exchange the floating rate of Libor for anaverage fixed rate of 4.616 percent per annum. The ineffectiveness of cash flowhedges was tested at the inception date and at least every three months. Theresults of the tests indicated that the cash flow hedges are highly effective.As a consequence approximately US $ (17.3) million, net of taxes, is includedin other comprehensive income as of December 31, 2008. Basedon current interest rates and market conditions, the estimated aggregate amountto be recognized as earnings from other comprehensive income for these cashflow hedges in fiscal 2009 is approximately US $ (6.3) million, net of taxes.

 

(d) Other loans consist of several small credit agreements. Certainsubsidiaries’ fixed assets are pledged as collateral for such loans.

 

(e) On November 14,2007, the Group completed the merger with Oakley for a total purchase price of approximatelyUS $2.1 billion. In order to finance the acquisition of Oakley, on October 12,2007 the Company and its subsidiary U.S. Holdings entered into two creditfacilities with a group of banks providing for certain term loans and a bridgeloan for an aggregate principal amount of U.S. $2.0 billion. The term loanfacility is a term loan of U.S. $1.5 billion, with a five-year term, withoptions to extend the maturity on two occasions for one year each time. Theterm loan facility is divided into two facilities, Facility D and Facility E.Facility D consists of an amortizing term loan in an aggregate amount of U.S.$1.0 billion, made available to US Holdings, and Facility E consists of abullet term loan in an aggregate amount of U.S. $500 million, made available tothe Company. Each facility has a five-year term, with options to extend thematurity date on two occasions for one year each time. Interest accrues on theterm loan at LIBOR plus 20 to 40 basis points based on “Net Debt to EBITDA”ratio, as defined in the agreement (1.545 percent for Facility D and 2.346percent for Facility E on December 31, 2008). On September 2008, theCompany exercised an option included in the agreement to extend the maturitydate of Tranches D and E to October 12, 2013. These credit facilitiescontain certain financial and operating covenants. The Company was incompliance with those covenants as of December 31, 2008. US $1,500.0million was borrowed under this credit facility as of December 31, 2008.

 

During the third quarterof 2007 the Group entered into ten interest rate swap transactions with anaggregate initial notional amount of US $500.0 million with various banks (“TrancheE Swaps”). These swaps will expire on October 12, 2012. The Tranche ESwaps were entered into as a cash flow hedge on Facility E of the creditfacility discussed above. The Tranche E Swaps exchange the floating rate ofLibor for an average fixed rate of 4.26 percent per annum. The ineffectivenessof cash flow hedges was tested at the inception date and at least every threemonths. The results of the tests indicated that the cash flow hedges are highlyeffective. As a consequence approximately US $ (30.1) million, net of taxes, isincluded in other comprehensive income as of

 

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December 31, 2008. Basedon current interest rates and market conditions, the estimated aggregate amountto be recognized in earnings from other comprehensive income for these cashflow hedges in fiscal 2009 is approximately US $ (9.5) million, net of taxes.

 

During the fourth quarterof 2008 US Holdings entered into ten interest rate swap transactions with anaggregate initial notional amount of US $500.0 million with various banks (“TrancheD Swaps”).The last maturity of these swaps will be October 12, 2012. TheTranche D Swaps were entered into as a cash flow hedge on Facility D of thecredit facility discussed above. The Tranche D Swaps exchange the floating rateof Libor for an average fixed rate of 2.77 percent per annum. Theineffectiveness of cash flow hedges was tested at the inception date and atleast every three months. The results of the tests indicated that the cash flowhedges are highly effective. As a consequence approximately US $ (10.7)million, net of taxes, is included in other comprehensive income as of December 31,2008. Based on current interest rates and market conditions, the estimatedaggregate amount to be recognized in earnings from other comprehensive incomefor these hedges in fiscal 2009 is approximately US $ (4.7) million, net oftaxes.

 

The short term bridge loan facility was for an aggregate principalamount of U.S. $500 million. Interest accrued on the short term bridge loan atLIBOR (as defined in the agreement) plus 0.15 percent. The final maturity ofthe credit facility was eight months from the first utilization date. On April 29,2008, the Company and its subsidiary U.S. Holdings entered into an amendmentand transfer agreement to the U.S. $500.0 million short-term bridge loanfacility entered into to finance the Oakley acquisition. The terms of thisamendment and transfer agreement, among other things, reduced the totalfacility amount from U.S. $500.0 million to U.S. $150.0 million, effective on July 1,2008, and provided for a final maturity date that is 18 months from theeffective date of the agreement. From July 1, 2008, interest accrues atLIBOR (as defined in the agreement) plus 0.60 percent (4.6525 percent as of December 31,2008).As of December 31, 2008 U.S. $150.0 million was borrowed under thisfacility.

 

Long-termdebt, including capital lease obligations, matures in the years subsequent to December 31,2008 as follows (thousands of Euro):

 
| **Years  eneded December 31** | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------|------------|
| 2009                               |       | 286,213    |       |
| 2010                               |       | 260,601    |       |
| 2011                               |       | 257,978    |       |
| 2012                               |       | 511,564    |       |
| 2013                               |       | 1,305,686  |       |
| Thereafter                         |       | 183,460    |       |
|                               |       |       |       |
| Total                              |       | 2,805,502  |       |

 

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**10.       EMPLOYEE BENEFITS**

 

# **Liability for Termination Indemnities -**

# ** **

Withregards to staff leaving indemnities (“TFR”), Italian law provides forseverance payments to employees upon dismissal, resignation, retirement ofother termination of employment.  TFR,through December 31, 2006, was considered an unfunded defined benefitplan.  Therefore, through December 31,2006, the Company accounted for the defined benefit plan in accordance withEITF 88-1, “Determination of Vested Benefit Obligation for a Defined BenefitPension Plan,” using the option to record the vested benefit obligation, whichis the actuarial present value of the vested benefits to which the employee wouldbe entitled if the employee retired, resigned or were terminated as of the dateof the financial statements.

 

Effective January 1, 2007, the TFR system was reformed, and underthe new law, employees are given the ability to choose where the TFR compensationis invested, whereas such compensation otherwise would be directed to theNational Social Security Institute or Pension Funds. As a result, contributionsunder the reformed TFR system are accounted for as a defined contribution plan.The liability accrued until December 31, 2006 continues to be considered adefined benefit plan, therefore each year, the Company adjusts its accrualbased upon headcount and inflation and excluding the changes in compensationlevel.

 

There are also some termination indemnities in other countries which areprovided through payroll tax and other social contributions in accordance withlocal statutory requirements. The related charges to earnings for theyears ended December 31, 2008, 2007 and 2006 were Euro 17.9 million, Euro15.4 million and Euro 12.9 million respectively.

 

**QualifiedPension Plans** —During fiscal years 2008, 2007, and 2006, the Company continued to sponsor aqualified noncontributory defined benefit pension plan, the Luxottica GroupPension Plan (“Lux Plan”), which provides for the payment of benefits toeligible past and present employees of the Company upon retirement. Pensionbenefits are accrued based on length of service and annual compensation under acash balance formula.

 

The Lux Plan was amendedeffective January 1, 2006, granting eligibility to associates who work inthe Cole Vision stores, field management, and the related labs and distributioncenters. Additionally, the Company amended the pension accrual formula for theCole associates, as well as all new hires for the Company. The new formula hasa more gradual benefit accrual pattern and incorporates changes to the vestingschedule as required by the Pension Plan Protection Act of 2006.

 

As of the effective dateof the Cole acquisition, the Company assumed sponsorship of the Cole NationalGroup, Inc. Retirement Plan (“Cole Plan”). This was a qualifiednoncontributory defined benefit pension plan that covered Cole employees whomet eligibility service requirements and were not members of certain collectivebargaining units. In January 2002, the Cole Plan was frozen for allparticipants. The average pay for all participants was frozen as of March 31,2002, and covered compensation was frozen as of December 31, 2001. Benefitservice was also frozen as of March 31, 2002, except for those who wereage 50 with 10 years of benefit service as of that same date, whoseservice will continue to increase as long as they remain employed by theCompany. As of December 31, 2007, the Cole Plan was merged into the LuxPlan. The projected benefit obligation and fair value of net assets transferredon such date were Euro 34.2 million (US $49.9 million) and Euro 37.6 million(US $54.9 million), respectively. Upon the merger, there were no changes to theprovisions or benefit formulas of the Lux Plan.

 

**NonqualifiedPension Plans and Agreements** — The Company also maintains a nonqualified,unfunded supplemental executive retirement plan (“SERP”) for participants ofits qualified pension plan to provide benefits in excess of amounts permittedunder the provisions of prevailing tax law. The pension liability and expenseassociated with this plan are accrued using the same actuarial methods andassumptions as those used for the qualified pension plan.

 

Starting January 1,2006, this plan’s benefit provisions were amended to mirror the changes made tothe Company’s qualified pension plan.

 

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A subsidiary of theCompany sponsors the Cole National Group, Inc. Supplemental Pension Plan.This plan is a nonqualified unfunded SERP for certain participants of the Colepension plan who were designated by the Board of Directors of Cole on the recommendationof Cole’s chief executive officer at such time. This plan provides benefits inexcess of amounts permitted under the provisions of the prevailing tax law. Thepension liability and expense associated with this plan are accrued using thesame actuarial methods and assumptions as those used for the qualified pensionplan.

 

Thefollowing tables provide key information pertaining to the Company’s pensionplans and SERPs. During the fiscal year 2008, the Company adopted a December 31measurement date for these plans as required by SFAS 158. The Company used a September 30measurement date for fiscal 2007 (thousands of Euros).

 
| ** **                                    | ** ** | **Pension Plans** | ** ** | **SERP**    | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------|------------|
| **Obligation  and funded status**             | ** ** | **2008**          | ** ** | **2007**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |              |       |        |       |   |   |   |   |
| Change in benefit obligations:                |       |              |       |        |       |   |   |   |   |
| Benefit obligation — beginning of period |       | 266,786           |       | 272,248     |       | 10,095 |   | 8,320 |   |
| Service cost                                  |       | 21,666            |       | 16,449      |       | 679 |   | 504 |   |
| Interest cost                                 |       | 21,210            |       | 15,606      |       | 870 |   | 589 |   |
| Actuarial (gain)/loss                         |       | 55                |       | (1,690      | )          | 92 |   | 1,871 |   |
| Benefits paid                                 |       | (11,111           | )          | (8,573      | )          | (294 | ) | (219 | ) |
| Translation difference                        |       | 14,914            |       | (27,254     | )          | 573 |   | (970 | ) |
| **Benefit obligation — end of  period**  | ** ** | **313,520**       | ** ** | **266,786** | ** ** | **12,015** | ** ** | **10,095** | ** ** |

 
| ** **                                           | ** ** | **Pension Plans** | ** ** | **SERP**    | ** ** |
|------------------------------------------------------|------------|-------------------|------------|-------------|------------|
| ** **                                           | ** ** | **2008**          | ** ** | **2007**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                 |       |              |       |        |       |   |   |   |   |
| Change in plan assets:                               |       |              |       |        |       |   |   |   |   |
| Fair value of plan assets — beginning of period |       | 226,575           |       | 216,792     |       |   |   |   |   |
| Actual return on plan assets                         |       | (55,679           | )          | 24,203      |       |   |   |   |   |
| Employer contribution                                |       | 16,318            |       | 16,717      |       | 294 |   | 219 |   |
| Benefits paid                                        |       | (11,111           | )          | (8,573      | )          | (294 | ) | (219 | ) |
| Translation difference                               |       | 8,276             |       | (22,564     | )          |   |   |   |   |
| **Fair value of plan assets — end  of period**  | ** ** | **184,379**       | ** ** | **226,575** | ** ** | **0** | ** ** | **0** | ** ** |
|                                                 |       |              |       |        |       |   |   |   |   |
| Funded status                                        |       | (129,141          | )          | (40,211     | )          | (12,015 | ) | (10,095 | ) |

 

Amountsrecognized in the consolidated balance sheets as of December 31, 2008 and2007, consist of the following (thousands of Euros):

 
| ** **                                  | ** ** | **Pension Plans** | ** ** | **SERP**   | ** ** |
|---------------------------------------------|------------|-------------------|------------|------------|------------|
| ** **                                  | ** ** | **2008**          | ** ** | **2007**   | ** ** | **2008** | ** ** | **2007** | ** ** |
| Liabilities:                                |       |              |       |       |       |   |   |   |   |
| Current liabilities                         |       | —            |       | —     |       | 443 |   | 770 |   |
| Noncurrent liabilities                      |       | 129,141           |       | 40,211     |       | 11,572 |   | 9,325 |   |
| **Total accrued pension liabilities**       | ** ** | **129,141**       | ** ** | **40,211** | ** ** | **12,015** | ** ** | **10,095** | ** ** |
|                                        |       |              |       |       |       |   |   |   |   |
| Other comprehensive income:                 |       |              |       |       |       |   |   |   |   |
| Net loss                                    |       | 104,015           |       | 28,380     |       | 3,535 |   | 3,898 |   |
| Prior service cost                          |       | 217               |       | 283        |       | 5 |   | 17 |   |
| Contributions after measurement date        |       | —            |       | —     |       |   |   | 5 |   |
| **Accumulated other comprehensive  income** | ** ** | **104,232**       | ** ** | **28,663** | ** ** | **3,540** | ** ** | **3,920** | ** ** |

 

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Theaccumulated benefit obligations for the pension plans and SERPs as of December 31,2008 and September 30, 2007 and 2006 were as follows (thousands of Euros):

 
| ** **                                                                                               | ** ** | **Pension Plans** | ** ** | **SERP**    | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------|------------|
| ** **                                                                                               | ** ** | **2008**          | ** ** | **2007**    | ** ** | **2006** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                               | ** ** | ** **        | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accumulated benefit obligations                                                                          |       | 288,828           |       | 245,829     |       | 255,239 |   | 10,124 |   | 7,989 |   | 6,542 |   |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| **Components  of Net Periodic Benefit Cost and Other Amounts Recognized in Other  Comprehensive Income** |       |              |       |        |       |   |   |   |   |   |   |   |   |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| Net Periodic Benefit Cost:                                                                               |       |              |       |        |       |   |   |   |   |   |   |   |   |
| Service cost                                                                                             |       | 17,333            |       | 16,449      |       | 13,326 |   | 543 |   | 504 |   | 335 |   |
| Interest cost                                                                                            |       | 16,968            |       | 15,606      |       | 15,090 |   | 696 |   | 589 |   | 442 |   |
| Expected return on plan assets                                                                           |       | (17,256           | )          | (16,703     | )          | (15,837 | ) |   |   |   |   |   |   |
| Amortization of actuarial loss                                                                           |       | 1,174             |       | 2,640       |       | 3,277 |   | 342 |   | 413 |   | 299 |   |
| Amortization of prior service cost                                                                       |       | 52                |       | 547         |       | 561 |   | (9 | ) | 9 |   | 10 |   |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| **Net  periodic benefit cost**                                                                           | ** ** | **18,271**        | ** ** | **18,539**  | ** ** | **16,417** | ** ** | **1,572** | ** ** | **1,515** | ** ** | **1,086** | ** ** |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| Adjustment due to change in measurement date                                                             |       | 4,568             |       |        |       |   |   | 397 |   |   |   |   |   |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| Other Changes in Plan Assets and Benefit  Obligations Recognized in Other Comprehensive Income:          |       |              |       |        |       |   |   |   |   |   |   |   |   |
| Net loss (gain)                                                                                          |       | 77,303            |       | (9,191      | )          | 4,518 |   | 92 |   | 1,871 |   | 1,831 |   |
| Prior Service cost                                                                                       |       |              |       |        |       | 297 |   |   |   |   |   |   |   |
| Amortization of actuarial loss                                                                           |       | (1,467            | )          | (2,640      | )          | (3,277 | ) | (427 | ) | (413 | ) | (299 | ) |
| Amortization of prior service cost                                                                       |       | (64               | )          | (547        | )          | (561 | ) | (11 | ) | (9 | ) | (10 | ) |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| **Total  recognized in other comprehensive income**                                                      | ** ** | **75,772**        | ** ** | **(12,378** | **)**      | **977** | ** ** | **(346** | **)** | **1,449** | ** ** | **1,522** | ** ** |
|                                                                                                     |       |              |       |        |       |   |   |   |   |   |   |   |   |
| **TOTAL**                                                                                                | ** ** | **98,611**        | ** ** | **6,161**   | ** ** | **17,394** | ** ** | **1,623** | ** ** | **2,964** | ** ** | **2,608** | ** ** |

 

Theestimated net loss and prior service cost for the defined benefit pension plansthat will be amortized from accumulated OCI into net periodic benefit cost overthe next fiscal year are Euro 2.0 million and Euro 0.1 million, respectively.The estimated net loss and prior service cost for the SERPs  that will be amortized from accumulated OCIinto net periodic benefit cost over the next fiscal year are Euro 0.2 millionand Euro 0.0 million, respectively.

 
| ** **                                                                                                                | ** ** | **Pension Plans** | ** ** | **SERP** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------|------------|
| **Assumptions**                                                                                                           | ** ** | **2008**          | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Weighted-average assumption used to determine benefit obligations:                                                        |       |              |       |     |       |   |   |   |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Discount rate                                                                                                             |       | 6.30%             |       | 6.50%    |       | 6.30% |   | 6.50% |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Rate of compensation increase                                                                                             |       | 6%/5%/4%          |       | 6%/5%/4% |       | 6%/5%/4% |   | 6%/5%/4% |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Weighted-average assumption used to determine net periodic benefit  cost for years ended December 31, 2008 and 2007: |       |              |       |     |       |   |   |   |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Discount rate                                                                                                             |       | 6.50%             |       | 6.00%    |       | 6.50% |   | 6.00% |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Expected long-term return on plan assets                                                                                  |       | 8.00%             |       | 8.25%    |       | N/A |   | N/A |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Rate of compensation increase                                                                                             |       | 6%/5%/4%          |       | 6%/5%/4% |       | 6%/5%/4% |   | 6%/5%/4% |   |
|                                                                                                                      |       |              |       |     |       |   |   |   |   |
| Mortality table                                                                                                           |       | RP-2000           |       | RP-2000  |       | RP-2000 |   | RP-2000 |   |

 

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The Company uses anassumption for salary increases based on a graduated approach of historicalexperience. The Company’s experience shows salary increases that typically varyby age.

 

Ouractuaries use the RP-2000 Mortality Table, which includes death rates for eachage, in estimating the amount of pension benefits that will become payable.

 

For 2008, the Company’slong-term rate of return assumption on the pension plans’ assets was 8.00%. Indeveloping this assumption, the Company considered input from its third-partypension asset managers, investment consultants, and plan actuaries, includingtheir review of asset class return expectations and long-term inflationassumptions. The Company also considered the pension plans’ historical averagereturn over various periods of time (through September 30, 2008). Theresulting assumption was also benchmarked against the assumptions used by otherU.S. corporations as reflected in several surveys to determine consensusthinking at that time on this assumption.

 

PlanAssets — The pension plan’s target and actual asset allocations at December 31,2008 and September 30, 2007, by asset category are as follows:

 
| ** **           | ** ** | **Asset  Allocation** | ** ** | **Plan Assets at  December 31, 2008** | ** ** | **Plan Assets at  September 30, 2007** | ** ** |
|----------------------|------------|-----------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|
| *** ***         | ** ** | **Target**            | ** ** | **Lux Plan**                               | ** ** | **Lux Plan**                                | ** ** | **Cole Plan** | ** ** |
| ***Asset Category*** | ** ** | ** **            | ** ** | ** **                                 | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Equity securities    |       | 65                    | %          |                                       | 57         | %                                           |       | 63 | % |   | 72 | % |   |
| Debt securities      |       | 35                    | %          |                                       | 42         | %                                           |       | 35 | % |   | 27 | % |   |
| Other                |       | —                | %          |                                       | 1          | %                                           |       | 2 | % |   | 1 | % |   |
|                 |       |                  |       |                                       |       |                                        |       |   |   |   |   |   |   |
| Total                |       | 100                   | %          |                                       | 100        | %                                           |       | 100 | % |   | 100 | % |   |

 

The Lux Plan’sinvestment policy defines the target allocation as mentioned in the above tableas well as a range of possible allocations. The range of allocation to equity securities is 58% to 72% and the rangeof allocation to debt securities is 32% to 38%. The actual allocation percentages at any given time may vary from thetargeted amounts due to changes in stock and bond valuations as well as timingof contributions to, and benefit payments from, the pension plan trusts.  Beginning in September 2008, the globalcapital markets took a downward turn and have since become extremelyvolatile.  This volatility is evident inthe year-end market values of plan assets. Upon direction from the plan’s administrator, the Luxottica Group’sEmployee Retirement Income Security Act of 1974 (“ERISA”) PlansCompliance and Investment Committee, it was decided to refrain from an actualrebalancing of the plan’s assets until the markets become more stable.

 

Plan assetsare invested in diversified portfolios consisting of an array of asset classeswithin the above target allocations and using a combination of activestrategies. Active strategies employ multiple investment management firms. Riskis controlled through diversification among asset classes, managers, styles,market capitalization (equity investments), and individual securities. Certaintransactions and securities are not authorized to be conducted or held in thepension trusts, such as ownership of real estate other than real estateinvestment trusts, commodity contracts, and American Depositary Receipts (“ADRs”)or common stock of the Company. Risk is further controlled both at the assetclass and manager level by assigning benchmarks and

 

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excess returntargets. The investment managers are monitored on an ongoing basis to evaluateperformance against the established market benchmarks and return targets.

 

The definedbenefit pension plans have an investment policy that was developed to serve asa management tool to provide the framework within which the fiduciary’sinvestment decisions are made, establish standards to measure investmentmanager’s performance, outline the roles and responsibilities of the variousparties involved, and describe the ongoing review process.

 

**BenefitPayments** —The following estimated future benefit payments, which reflect expected futureservice, are expected to be paid in the years indicated (thousands of Euros):

 
| ** ** | ** ** | **Pension** | ** ** | **Supplemental** | ** ** |
|------------|------------|-------------|------------|------------------|------------|
| ** ** | ** ** | **Plan**    | ** ** | **Plans**        | ** ** |
| 2009       |       | 10,677      |       | 442              |       |
| 2010       |       | 11,314      |       | 560              |       |
| 2011       |       | 12,395      |       | 558              |       |
| 2012       |       | 13,670      |       | 948              |       |
| 2013       |       | 15,276      |       | 1,179            |       |
| 2014-2018  |       | 92,668      |       | 4,746            |       |

 

**Contributions** — The Companyexpects to contribute Euro 26.9 million to its pension plan and Euro 0.4million to the SERP in 2009.

 

**Other Benefits** — The Companyprovides certain postemployment medical, disability, and life insurancebenefits. The Company’s accrued liability related to this obligation as of December 31,2008 and 2007, was Euro 1.6 million and Euro 1.4 million, respectively, and isincluded in other long term liabilities on the consolidated balance sheets.

 

The Company sponsors a tax incentive savings plan covering all full-timeemployees. The Company makes quarterly contributions in cash to the plan basedon a percentage of employees’ contributions. Additionally, the Company may makean annual discretionary contribution to the plan, which may be made in theparent company’s ADRs or cash. Aggregate contributions made to the taxincentive savings plan by the Company were Euro 8.8 million and Euro 8.1million for fiscal 2008 and 2007, respectively. For fiscal 2008 and 2007, thesecontributions did not include a discretionary match.

 

Upon the acquisition of Oakley, effective November 14, 2007, theCompany also sponsors a tax incentive savings plan for all United States Oakleyassociates with at least six months of service. This plan is funded by employeecontributions with the Company matching a portion of the employee contribution.Company contributions to the plan for fiscal 2008 and for the period November 14,2007 through December 31, 2007, were Euro 1.2 million and Euro 0.1million, respectively.

 

The Company sponsors the following additionalother benefit  plans, which cover certainpresent and past employees of the Cole companies acquired:

 

·                 Cole provides, under individualagreements, postemployment benefits for continuation of health care benefitsand life insurance coverage to former employees after employment. As of December 31,2008 and 2007, the accrued liability, related to these benefits, was Euro 0.7million and Euro 1.0 million, respectively, and is included in “other long termliabilities” on the consolidated balance sheet.

 

·                 The Company sponsors a taxincentive savings plan covering all full-time employees in Puerto Rico.  The Company makes quarterly contributions incash to the plan based on a percentage of employee’s contributions.  The Company may make an annual discretionarycontribution to the plan, which may be made in the parent company’s ADRs orcash.  In 2008 and 2007, contributions tothe plan were immaterial.  For fiscal2008 and 2007, these contributions did not include a discretionary match.

 

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·                 Cole established and maintainsthe Cole National Group, Inc. Supplemental Retirement Benefit Plan, whichprovides supplemental retirement benefits for certain highly compensated andmanagement employees who were previously designated by the former Board ofDirectors of Cole as participants. This is an unfunded noncontributory definedcontribution plan. Each participant’s account is credited with interest earnedon the average balance during the year. This plan was frozen as to futuresalary credits on the effective date of the Cole acquisition in 2004. The planliability of Euro 1.0 million and Euro 1.0 million at December 31, 2008and 2007, respectively, is included in “other long term liabilities” on theconsolidated balance sheets.

 

***Other Defined Contribution Plan —***The Company continues toparticipate in superannuation plans in Australia and Hong Kong.  The plans provide benefits on a definedcontribution basis for employees on retirement, resignation, disablement ordeath.  Contributions to defined contributionsuperannuation plans are recognized as an expense as the contributions are paidor become payable to the fund. Contributions are accrued based on legislated rates and annualcompensation.

 

Certain employees of the Company located outside the United States arecovered by state sponsored postemployment benefit plans. These plans aregenerally funded in conformity with the applicable local government regulationsand amounts are expensed as contributions accrue. The aggregate liability tothe Company for these foreign postemployment benefit plans as of December 31,2008 and 2007, was immaterial.

 

**Health Benefit Plans** —The Company partially subsidizes health care benefits for U.S. eligibleretirees. Employees generally become eligible for retiree health care benefitswhen they retire from active service between the ages of 55 and 65. Benefitsare discontinued at age 65.

 

As of the Coleacquisition date, the Company assumed a liability for a postretirement benefitplan maintained by Cole in connection with its acquisition of Pearle in 1996.This plan was closed to new participants at the time of Cole’s acquisition ofPearle. Under this plan, the eligible former employees are provided lifeinsurance and certain health care benefits, which are partially subsidized byCole. Medical benefits under this plan can be maintained past age 65.Effective January 1, 2008, the Cole postretirement benefit plan was mergedinto the Luxottica Group Postretirement Medical Benefits Program (“LuxPostretirement Plan”). The projected benefit obligation transferred on suchdate was Euro 2.2 million. Upon the merger, there were no changes to provisionsof the Lux Postretirement Plan.

 

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Amounts recognized in the consolidated balancesheets as of December 31, 2008 and 2007, consist of the following(thousands of Euros):

 
| ** **                                    | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|
| Liabilities:                                  |       |      |       |      |       |
| Current liabilities                           |       | 157       |       | 173       |       |
| Noncurrent liabilities                        |       | 2,773     |       | 3,260     |       |
| **Total accrued postretirement  liabilities** | ** ** | **2,930** | ** ** | **3,433** | ** ** |

 

Amounts recognized in accumulated OCI areimmaterial.

 

**Benefit Payments** — Thefollowing estimated future benefit payments for the health benefit plans, whichreflect expected future service, are estimated to be paid in the yearsindicated (thousands of Euros):

 
| **Years Ending December 31** |   |   |   |
|-----------------------------------|--------|--------|--------|
| 2009                              |   | 157    |   |
| 2010                              |   | 171    |   |
| 2011                              |   | 192    |   |
| 2012                              |   | 206    |   |
| 2013                              |   | 215    |   |
| 2014-2018                         |   | 1,275  |   |

 

**Contributions** — Theexpected contributions for 2009 are expected to be immaterial for both theCompany and aggregate employee participants.

 

For 2008, an 11.0% (11.5% for 2007) increase inthe cost of covered health care benefits was assumed. This rate was assumed todecrease gradually to 5% for 2020 and remain at that level thereafter. Thehealth care cost trend rate assumption could have a significant effect on theamounts reported. A 1% increase or decrease in the health care trend rate wouldnot have a material impact on the consolidated financial statements. Theweighted-average discount rate used in determining the accumulatedpostretirement benefit obligation was 6.3% at December 31, 2008 and 6.5%at September 30, 2007.

 

The weighted-average discount rate used indetermining the net periodic benefit cost for 2008 and 2007, was 6.5%, and6.00%, respectively.

 

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#### **Implementation of SFAS No. 158**

#### ** **

As required bySFAS 158, during fiscal 2008 the Company adopted a December 31 measurementdate for the Lux Plan, SERP and the Lux Postretirement Plan.  As a result of this change in measurementdate, the adjustment to Retained Earnings net of tax related to the Lux Plan,the SERP and Lux Postretirement Plan was a decrease of Euro 2.8 million, Euro0.2 million and Euro 0.1 million, respectively. The impact to accumulated othercomprehensive income net of tax related to the Lux Plan and the SERP plans wasan increase of Euro 0.2million, Euro 0.0 million and Euro 0.0 million,respectively

 

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**11.          STOCK OPTION AND INCENTIVE PLANS**

 

**Stock Option Plan**

 

Beginningin April 1998, certain officers and other key employees of the Company andits subsidiaries were granted stock options of Luxottica Group S.p.A. under theCompany’s stock option plans (the “plans”). The aggregate number of sharespermitted to be granted under these plans to the employees is 24,714,600. TheCompany believes that the granting of options to these key employeesstrengthens their loyalty and recognizes their contribution to the Group’ssuccess. Prior to 2006, under the older plans the stock options were granted ata price that was equal to or greater than market value of the shares at thedate of grant. Under the 2005 and 2006 plans, options were granted at the greater of either(i) the previous 30 day averagestock price immediately before the date of grant or (ii) the price on thegrant date depending on certain regulatory requirements of the country wherethe employee receiving the option is located. These options become exercisablein either three equal annual installments, two equal annual installments in the second and third yearsof the three-year vesting period or 100 percent vesting on the thirdanniversary of the date of grant. Certain options may contain acceleratedvesting terms if there is a change in ownership (as defined in the plans).

 

TheCompany adopted SFAS No. 123(R), Share-Based Payment, as of January 1,2006, and at such point began expensing stock options over their requisiteservice period based on their fair value as of the date of grant. For the yearsended December 31, 2008, 2007 and 2006, Euro 7.5 million, Euro 7.8 millionand Euro 7.0 million, respectively, of compensation expense has been recordedfor these plans.

 

Asummary of option activity under the Plans as of December 31, 2008, andchanges during the year then ended is as follows:

 
| ** **                               | ** ** | ** **      | ** ** | **Weighted Average** | ** ** | **Weighted Average** | ** ** | ** **          | ** ** |
|------------------------------------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|---------------------|------------|
| ** **                               | ** ** | **Number**      | ** ** | **Exercise Price**   | ** ** | **Remaining**        | ** ** | **Aggregate**       | ** ** |
| ** **                               | ** ** | **of Options**  | ** ** | **(Denominated**     | ** ** | **Contractual**      | ** ** | **Intrinsic Value** | ** ** |
| ** **                               | ** ** | **Outstanding** | ** ** | **in Euro)**         | ** ** | **Terms**            | ** ** | **(Euro 000s)**     | ** ** |
| Outstanding as of December 31, 2007 |       | 9,113,913       |       | 16.61                |       |                 |       |                |       |
| Granted                                  |       | 2,020,500       |       | 18.08                |       |                 |       |                |       |
| Forfeitures                              |       | (248,800        | )          | 10.89                |       |                 |       |                |       |
| Exercised                                |       | (724,613        | )          | 8.65                 |       |                 |       |                |       |
| Outstanding as of December 31, 2008 |       | 10,161,000      |       | 13.89                |       | 5.51                 |       | 3,611               |       |
| Exercisable at December 31, 2008    |       | 5,708,000       |       | 14.57                |       | 3.75                 |       | 3,611               |       |

 

Theweighted-average fair value of grant-date fair value options granted during theyears 2008, 2007 and 2006 was Euro 5.02, Euro 6.03 and Euro 5.72, respectively.

 

The fair value ofthe stock options granted was estimated at the date of grant using a binomiallattice model. The following table presents the weighted – average assumptionsused in the valuation and the resulting weighted average fair value per optiongranted:

 

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| ** **                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| * *                           | * *   | * * | * *   | * * | * *   | * * | * *   |
| Dividend yield                     |       | 1.65     | %          |     | 1.43       | %        |       | 1.33 | % |   |
| Risk-free interest rate            |       | 3.63     | %          |     | 3.91       | %        |       | 3.11 | % |   |
|                               |       |     |       |     |       |     |       |   |   |   |
| Expected option life (years)       |       | 6.27     |       |     | 5.7        |     |       | 5.8 |   |   |
|                               |       |     |       |     |       |     |       |   |   |   |
| Expected volatility                |       | 26.93    | %          |     | 23.70      | %        |       | 25.91 | % |   |
|                               |       |     |       |     |       |     |       |   |   |   |
| Weighted average fair value (Euro) |       | 5.02     |       |     | 6.03       |     |       | 5.72 |   |   |

 

Expectedvolatilities are based on implied volatilities from traded share options on theCompany’s stock, historical volatility of the Company’s share price, and otherfactors. The expected option life is based on the historical exerciseexperience for the Company based upon the date of grant and represents theperiod of time that options granted are expected to be outstanding. Therisk-free rate for periods within the contractual life of the option is basedon the U.S. Federal Treasury or European government bond yield curve, asappropriate, in effect at the time of grant.

 

As of December 31, 2008 there was Euro 10.2 million of totalunrecognized compensation cost related to non-vested share-based compensationarrangements; that cost is expected to be recognized over a period of 1.8years.

 

**Stock Performance Plans**

 

In October 2004,under a Company performance plan, the Company granted options to acquire anaggregate of 1,000,000 shares of the Company to certain employees of the NorthAmerican Luxottica Retail Division which vested and became exercisable on January 31,2007 as certain financial performance measures were met over the period ending December 2006.For the years ended December 31, 2008, 2007 and 2006 Euro 0.0 million,Euro 0.2 million and Euro 1.9 million, respectively, of compensation expensehas been recorded for this plan.

 

In September 2004,the Company’s Chairman and majority shareholder, Mr. Leonardo Del Vecchio,allocated shares held through La Leonardo Finanziaria S.r.l., an Italianholding company of the Del Vecchio family, representing, at that time, 2.11percent (or 9.6 million shares) of the Company’s currently authorized andissued share capital, to a stock option plan for top management of the Companyat an exercise price of Euro 13.67 per share. The stock options to be issuedunder the stock option plan vested upon meeting certain economic objectives in June 2006.For the year ended December 31, 2006 Euro 21.4 million of compensationexpense has been recorded for this plan.

 

In July 2006,under a Company performance plan, the Company granted options to acquire anaggregate of 13,000,000 shares of the Company to certain top managementpositions throughout the Company which vest and become exercisable as certainfinancial performance measures are met. Upon vesting the employee will be ableto exercise such options until they expire in 2016. Currently it is expectedthat these performance conditions will be met. If these performance measuresare not expected to be met no additional compensation costs will be recognizedand previous compensation costs recognized will be reversed. In 2008 managementrevisited their estimate of the period when the targeted performance measuresare likely to be met. Based on the new estimate the vesting period has beenpostponed to December 31, 2013. For the years ended December 31,2008, 2007 and 2006, Euro 3.0 million, Euro 34.1 million and Euro 17.6 million,respectively, of compensation expense has been recorded for these plans.

 

Asummary of option activity under the performance plans as of December 31,2008, and changes during the year then ended are as follows:

 
| ** **                               | ** ** | ** **      | ** ** | **Weighted Average** | ** ** | **Weighted Average** | ** ** | ** **          | ** ** |
|------------------------------------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|---------------------|------------|
| ** **                               | ** ** | **Number**      | ** ** | **Exercise Price**   | ** ** | **Remaining**        | ** ** | **Aggregate**       | ** ** |
| ** **                               | ** ** | **of Options**  | ** ** | **(Denominated**     | ** ** | **Contractual**      | ** ** | **Intrinsic Value** | ** ** |
| **Performance  Plans**                   | ** ** | **Outstanding** | ** ** | **in Euro)**         | ** ** | **Terms**            | ** ** | **(Euro 000s)**     | ** ** |
| Outstanding as of December 31, 2007 |       | 22,670,000      |       |                 | 18.01      |                 |       |                |       |   |   |   |   |
| Granted                                  |       | 1,203,600       |       |                 |       |                 |       |                |       |   |   |   |   |
| Forfeitures                              |       | (100,000        | )          |                 | 22.09      |                 |       |                |       |   |   |   |   |
| Exercised                                |       | (20,000         | )          |                 | 12.64      |                 |       |                |       |   |   |   |   |
| Outstanding as of December 31, 2008 |       | 23,753,600      |       |                 | 17.1       |                 |       | 6.37                |       |   | 15,362 |   |   |
| Exercisable at December 31, 2008    |       | 9,650,000       |       |                 | 13.66      |                 |       | 5.55                |       |   | 15,362 |   |   |

 

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Theweighted-average fair value of grant-date fair value options granted during theyear 2006 was Euro 5.13. There were no performance grants issued in 2007. In May 2008,a Performance Shares Plan for top managers within the Group as identified bythe Board of Directors of the Group (the “Board”) (the “2008 PSP”) was adopted.The 2008 PSP is intended to strengthen the loyalty of the Group’s key employeesand to recognize their contribution to the Group’s success on a medium-tolong-term basis. The beneficiaries of the 2008 PSP are granted the right toreceive ordinary shares, without consideration, at the end of the three-yearvesting period, and subject to achievement of certain financial target as definedby the Board. The 2008 PSP has a term of five years, during which time theBoard may resolve to issue different grants to the 2008 PSP’s beneficiaries.The 2008 PSP covers a maximum of 6,500,000 ordinary shares. Each annual grantwill not exceed 2,000,000 ordinary shares. On May 13, 2008, the Boardgranted 1,203,600 rights to receive ordinary shares. Management believes that,based on the current estimates, the Group performance targets as defined by theplan will not be achieved. Accordingly no compensation expense has beenrecorded in 2008 for this plan.

 

The fair value ofthe stock options granted was estimated at the date of grant using a binomiallattice model. The following table presents the weighted — average assumptionsused in the valuation and the resulting weighted average fair value per optiongranted:

 
| ** **                         | ** **   | ** ** | ** **   | ** ** | ** **   | **2006**   | ** ** |
|------------------------------------|--------------|------------|--------------|------------|--------------|------------|------------|
| *** ***                       | *** *** | **2008**   | ** **   | ** ** | *** *** | **Plan I** | ** ** | **Plan II** | *** *** |
| *** ***                       | *** *** | **PSP**    | *** *** | **2007**   | *** *** | **(a)**    | ** ** | **(b)** | *** *** |
| Dividend yield                     |         | 1.65       | %            |       | —       |       |       | 1.33 | % |   | 1.33 | % |   |
| Risk-free interest rate            |         | 3.96       | %            |       | —       |       |       | 3.88 | % |   | 3.89 | % |   |
| Expected option life (years)       |         | 2.10       |         |       | —       |       |       | 5.36 |   |   | 5.53 |   |   |
| Expected volatility                |         | 30.41      | %            |       | —       |       |       | 26.63 | % |   | 26.63 | % |   |
| Weighted average fair value (Euro) |         | 17.67      |         |       | —       |       |       | 6.15 |   |   | 5.8 |   |   |

 

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(a)   Stock PerformancePlan issued in July 2006 for a total of 9,500,000 options granted

 

(b)   Stock Performance Plan issued in July 2006 for atotal of 3,500,000 options granted

 

As of December 31, 2008 there was Euro 14.8 million of totalunrecognized compensation cost related to non-vested share-based compensationarrangements; that cost is expected to be recognized over a period of 5 years.

 

Cash received from option exercises under all share-based arrangementsand actual tax benefits realized for the tax deductions from option exercisesare disclosed in the consolidated statements of shareholders’ equity.

 

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**12.       SHAREHOLDERS’ EQUITY**

 

In May 2008and June 2007, the Company’s Annual Shareholders Meetings approved cash dividendsof Euro 223.6 million and Euro 191.1 million, respectively. These amountsbecame payable in May 2008 and June 2007, respectively. Italian lawrequires that five percent of net income be retained as a legal reserve untilthis reserve is equal to one-fifth of the issued share capital. As such, thislegal reserve is not available for dividends to the shareholders. Legalreserves of the Italian entities included in retained earnings were Euro 5.6million and Euro 5.5 million at December 31, 2008 and 2007, respectively.

 

LuxotticaGroup’s legal reserve roll-forward for fiscal period 2006-2008 is detailed asfollows (thousands of Euro):

 
| January 1, 2006         |   | 5,477 |   |
|------------------------------|--------|-------|--------|
| Increase in fiscal year 2006 |   | 36    |   |
| December 31, 2006       |   | 5,513 |   |
| Increase in fiscal year 2007 |   | 23    |   |
| December 31, 2007       |   | 5,536 |   |
| Increase in fiscal year 2008 |   | 18    |   |
| December 31, 2008       |   | 5,554 |   |

 

Previously theBoard of Directors authorized US Holdings to repurchase through the open marketup to 21,500,000 ADRs of Luxottica Group S.p.A., representing at that timeapproximately 4.7 percent of the authorized and issued share capital. As of December 31,2004, both repurchase programs expired and US Holdings purchased 6,434,786 ADRs(1,911,700 in 2002 and 4,523,786 in 2003) at an aggregate purchase price ofEuro 70.0 million (U.S. $73.8 million translated at the exchange rate at thetime of the transactions). In connection with the repurchase, an amount of Euro70.0 million is classified as treasury shares in the Company’s consolidatedfinancial statements. The market value of these shares based on the share priceas listed on the Milan Stock Exchange at December 31, 2008, isapproximately Euro 81.5 million (US $113.8 million).

 

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**13**.       **SEGMENTS AND RELATED INFORMATION**

 

Inaccordance with SFAS No. 131, *DisclosuresAbout Segments of an Enterprise and Related Information*, the Companyoperates in two industry segments: (1) manufacturing and wholesaledistribution and (2) retail distribution. Through its manufacturing andwholesale distribution operations, the Company is engaged in the design,manufacture, wholesale distribution and marketing of house brand and designerlines of mid- to premium-priced prescription frames and sunglasses. The Companyoperates in the retail segment through its Retail Division, consisting ofLensCrafters, Sunglass Hut International, OPSM Group Limited and Cole NationalCorporation. For 2007, Oakley was viewed as a stand alone segment since it wasnot yet integrated into the wholesale and retail segments.

 

Thefollowing tables summarize the segment and geographic information deemedessential by the Company’s management for the purpose of evaluating the Company’sperformance and for making decisions about future allocations of resources.

 

The “Inter-segmenttransactions and corporate adjustments” column includes the elimination ofinter-segment activities which consist primarily of sales of product from themanufacturing and wholesale segment to the retail segment and corporate relatedexpenses not allocated to reportable segments. Identifiable assets are thosetangible and intangible assets used in operations in each segment. Corporateidentifiable assets are principally cash, goodwill and trade names.

 
| **(thousands  of Euro)**             | ** ** | **Manufacturing  and  Wholesale** | ** ** | **Retail** | ** ** | **Oakley** | ** ** | **Inter-Segments  Transactions and  Corporate  Adjustments** | ** ** | **Consolidated** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|------------|------------|------------|------------|--------------------------------------------------------------|------------|------------------|------------|
|                                 |       |                              |       |       |       |       |       |                                                         |       |             |       |
| *Year  ended December 31, 2006* |       |                              |       |       |       |       |       |                                                         |       |             |       |
|                                 |       |                              |       |       |       |       |       |                                                         |       |             |       |
| Net Sales                            |       | 1,715,369                         |       | 3,294,161  |       |       |       | (333,374                                                     | )(1)       | 4,676,156        |       |
| Income from operations               |       | 445,843                           |       | 431,547    |       |       |       | (121,403                                                     | )(2)       | 755,987          |       |
| Capital Expenditure                  |       | 108,117                           |       | 164,063    |       |       |       | 0                                                            |       | 272,180          |       |
| Depreciation & Amortization |       | 57,331                            |       | 122,403    |       |       |       | 41,063                                                       | (3)        | 220,797          |       |
| Identifiable assets                  |       | 1,853,144                         |       | 1,343,482  |       |       |       | 1,772,252                                                    | (4)        | 4,968,878        |       |
|                                 |       |                              |       |       |       |       |       |                                                         |       |             |       |
| *Year  ended December 31, 2007* |       |                              |       |       |       |       |       |                                                         |       |             |       |
|                                 |       |                              |       |       |       |       |       |                                                         |       |             |       |
| Net Sales                            |       | 1,992,740                         |       | 3,233,802  |       | 86,964     |       | (347,452                                                     | )(1)       | 4,966,054        |       |
| Income from operations               |       | 527,991                           |       | 361,809    |       | 3,717      |       | (60,204                                                      | )(2)       | 833,313          |       |
| Capital Expenditure                  |       | 112,973                           |       | 213,293    |       | 8,503      |       | 0                                                            |       | 334,769          |       |
| Depreciation & Amortization |       | 68,981                            |       | 118,100    |       | 7,682      |       | 38,050                                                       | (3)        | 232,813          |       |
| Identifiable assets                  |       | 2,321,204                         |       | 1,405,299  |       | 1,937,292  |       | 1,493,471                                                    | (4)        | 7,157,266        |       |
|                                 |       |                              |       |       |       |       |       |                                                         |       |             |       |
| *Year  ended December 31, 2008* |       |                              |       |       |       |       |       |                                                         |       |             |       |
|                                 |       |                              |       |       |       |       |       |                                                         |       |             |       |
| Net Sales                            |       | 2,472,330                         |       | 3,109,146  |       |       |       | (379,865                                                     | )(1)       | 5,201,611        |       |
| Income from operations               |       | 545,507                           |       | 291,469    |       |       |       | (87,213                                                      | )(2)       | 749,763          |       |
| Capital Expenditure                  |       | 125,489                           |       | 170,947    |       |       |       |                                                         |       | 296,436          |       |
| Depreciation & Amortization |       | 85,987                            |       | 123,129    |       |       |       | 55,822                                                       | (3)        | 264,938          |       |
| Identifiable assets                  |       | 2,750,081                         |       | 1,528,410  |       |       |       | 3,026,734                                                    | (4)        | 7,305,225        |       |

 

----

| (1)    | Inter-segment elimination of net Sales relates to intercompany sales  from the manufacturing and wholesale segment to the retail segment.                                                                                                                              |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                   |
| (2)    | Inter-segment elimination of Income from operations mainly relates to  depreciation and amortization of corporate identifiable assets and  profit-in-stock elimination for frames manufactured by the wholesale segment  and included in the retail segment inventory. |

 

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| (3)    | Corporate adjustments to depreciation and amortization relate to  depreciation and amortization of corporate assets.                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                   |
| (4)    | Corporate adjustments to  identifiable assets include mainly the net value of goodwill and trade names  of acquired retail businesses. |

 

The geographic segmentsinclude Italy, the main manufacturing and distribution base, United States andCanada (which includes the United States of America, Canada and Caribbeanislands), Asia Pacific (which includes Australia, New Zealand, China, Hong Kongand Japan) and Other (which includes all other geographic locations includingEurope (excluding Italy), South and Central America and the Middle East). Salesare attributed to geographic segments based on the legal entity domicile wherethe sale is originated.

 
| **(Thousands of Euro)  Year Ended December 31,** | ** ** | **Italy  (6)** | ** ** | **United States   and Canada  (6)** | ** ** | **Asia Pacific  (6)** | ** ** | **Other  (6)** | ** ** | **Adjustments and   Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|----------------|------------|-------------------------------------|------------|-----------------------|------------|----------------|------------|------------------------------------|------------|------------------|------------|
| 2006                                                  |       |           |       |                                |       |                  |       |           |       |                               |       |             |       |
| Net sales (5)                                         |       | 1,321,887      |       | 3,076,503                           |       | 603,640               |       | 761,955        |       | (1,087,829                         | )          | 4,676,156        |       |
| Income from operations                                |       | 389,275        |       | 331,002                             |       | 33,841                |       | 79,397         |       | (77,528                            | )          | 755,987          |       |
| Long lived assets, net                                |       | 280,692        |       | 387,861                             |       | 110,099               |       | 8,549          |       | —                             |       | 787,201          |       |
| Identifiable assets                                   |       | 1,331,719      |       | 2,675,833                           |       | 748,305               |       | 388,825        |       | (175,804                           | )          | 4,968,878        |       |
|                                                  |       |           |       |                                |       |                  |       |           |       |                               |       |             |       |
| 2007                                                  |       |           |       |                                |       |                  |       |           |       |                               |       |             |       |
| Net sales (5)                                         |       | 1,506,077      |       | 3,073,086                           |       | 685,561               |       | 1,114,429      |       | (1,413,098                         | )          | 4,966,054        |       |
| Income from operations                                |       | 377,799        |       | 324,167                             |       | 57,191                |       | 127,761        |       | (53,605                            | )          | 833,313          |       |
| Long lived assets, net                                |       | 326,978        |       | 575,566                             |       | 134,435               |       | 20,803         |       | 0                                  |       | 1,057,782        |       |
| Identifiable assets                                   |       | 1,894,546      |       | 4,839,680                           |       | 804,786               |       | 752,818        |       | (1,134,565                         | )          | 7,157,266        |       |
|                                                  |       |           |       |                                |       |                  |       |           |       |                               |       |             |       |
| 2008                                                  |       |           |       |                                |       |                  |       |           |       |                               |       |             |       |
| Net sales (5)                                         |       | 1,379,599      |       | 3,376,294                           |       | 729,050               |       | 1,307,631      |       | (1,590,963                         | )          | 5,201,611        |       |
| Income from operations                                |       | 290,697        |       | 332,564                             |       | 53,262                |       | 133,018        |       | (59,778                            | )          | 749,763          |       |
| Long lived assets, net                                |       | 348,016        |       | 655,393                             |       | 141,339               |       | 25,950         |       |                               |       | 1,170,698        |       |
| Identifiable assets                                   |       | 1,731,022      |       | 4,914,282                           |       | 790,691               |       | 858,380        |       | (989,150                           | )          | 7,305,225        |       |

 

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(5)       No single customerrepresents five percent or more of sales in any year presented.

 

(6)       Sales, income from operations andidentifiable assets are the result of combination of legal entities located inthe same geographic area.

 

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**14.       FINANCIAL INSTRUMENTS**

 

**Concentration of Credit Risk -**

 

Financialinstruments which potentially expose the Company to concentration of creditrisk consist primarily of cash investments and accounts receivable. The Companyattempts to limit its credit risk associated with cash equivalents by placingthe Company’s cash balances and investments with highly rated banks andfinancial institutions. With respect to accounts receivable, the Company limitsits credit risk by performing ongoing credit evaluations and certain customersmay be required to post security in the form of letters of credit. As of December 31,2008 and 2007, no single customer balances comprised 10 percent or more of theoverall accounts receivable balance. However, included in accounts receivableas of December 31, 2008 and 2007, was approximately Euro 12.3 million forboth fiscal years, due from the host stores of our license brands retaildivision. These receivables represent cash proceeds from sales deposited intothe host stores bank accounts, which are subsequently forwarded to the Companyon a weekly or monthly basis depending on the Company’s contract with theparticular host store and are based on contract arrangements that are shortterm in length.

 

**Concentration of Supplier Risk -**

 

As aresult of the OPSM and Cole acquisitions, Essilor S.A. has become one of thelargest suppliers to the Company’s Retail Division. For the 2008, 2007 and 2006fiscal years, Essilor S.A. accounted for approximately 12.0 percent, 15.0percent and 15.0 percent of the Company’s total merchandise purchases,respectively. The Company has not signed any specific purchase contract withEssilor. Management believes that the loss of this vendor would not have asignificant impact on the future operations of the Company as it could replacethis vendor quickly with other third-party suppliers.

 

**15.       COMMITMENTS AND CONTINGENCIES**

 

**Royalty Agreements -**

 

LuxotticaGroup has entered into license agreements to manufacture, design and distributeprescription frames and sunglasses with selected fashion brands.

 

Under theselicense agreements, Luxottica Group is required to pay a royalty whichgenerally ranges from five percent to 14 percent of the net sales (asidentified in the relevant agreements). Some of these agreements provide alsofor annual guaranteed minimum payments. Such license agreements also providefor a mandatory marketing contribution that generally amounts to between fiveand ten percent of net sales (as identified in the relevant agreements). Theselicense agreements typically have terms ranging from three to ten years, butmay be terminated early by either party for a variety of reasons, inter alia,non-payment of royalties, failure to meet minimum sales thresholds, productalteration and, under certain agreements, a change in control of Luxottica GroupS.p.A.

 

On April 17,2008 Luxottica Group announced the signing of a 6-year license agreement forthe design, manufacture and distribution of sun eyewear under the StellaMcCartney brand; it is renewable for further 5 years. The agreement began on January 1,2009.

 

On January 31,2008 Luxottica Group announced the extension of the license agreement for thedesign, manufacture and distribution of sun and prescription eyewear under theChanel brand for another 3 years and it is renewable for an additional periodof 3 years.

 

Minimumpayments required in each of the years subsequent to December 31, 2008 aredetailed as follows (thousands of Euro):

 

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| **Year  Ending December 31,** | ** ** | ** **  | ** ** |
|------------------------------------|------------|-------------|------------|
| 2009                               |       | 56,862      |       |
| 2010                               |       | 34,148      |       |
| 2011                               |       | 26,291      |       |
| 2012                               |       | 23,697      |       |
| 2013                               |       | 24,141      |       |
| Thereafter                         |       | 96,872      |       |
| **Total**                          | ** ** | **262,011** | ** ** |

 

Totalroyalties and related advertising expenses for the fiscal years 2008, 2007 and2006 aggregated 139.5 million, Euro 181.6 million and Euro 184.1 million,respectively.

 

Totalpayments for royalties and related advertising expenses for the fiscal years2008, 2007 and 2006 aggregated Euro 142.4 million, Euro 278.2 million and Euro225.1 million, respectively.

 

**Leases**

 

TheCompany leases through its worldwide subsidiaries various retail store, plant,warehouse and office facilities, as well as certain of its data processing andautomotive equipment under operating lease arrangements expiring between 2009and 2025, with options to renew at varying terms. The lease arrangements forthe Company’s U.S. retail locations often include escalation clauses andprovisions requiring the payment of incremental rentals, in addition to any establishedminimums contingent upon the achievement of specified levels of sales volume.In addition, with the acquisition of Cole, the Company operates departments invarious host stores paying occupancy costs solely as a percentage of sales.Certain agreements which provide for operations of departments in a majorretail chain in the United States contain short-term cancellation clauses.

 

Totalrental expense for each year ended December 31 is as follows (thousands ofEuro):

 
| ** **      | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------|------------|----------|------------|----------|------------|----------|------------|
|            |       |     |       |     |       |     |       |
| Minimum rent    |       | 288,743  |       | 264,496  |       | 236,546  |       |
| Contingent rent |       | 55,464   |       | 60,177   |       | 64,091   |       |
| Sublease income |       | (26,017  | )          | (38,806  | )          | (35,955  | )          |
|            |       |     |       |     |       |     |       |
|            |       | 318,190  |       | 285,867  |       | 264,682  |       |

 

Futureminimum annual rental commitments are as follows (thousands of Euro):

 
| **Years Ending  December 31,** | ** ** | ** **    | ** ** |
|-------------------------------------|------------|---------------|------------|
| 2009                                |       | 262,662       |       |
| 2010                                |       | 221,936       |       |
| 2011                                |       | 186,977       |       |
| 2012                                |       | 156,085       |       |
| 2013                                |       | 127,971       |       |
| Thereafter                          |       | 348,249       |       |
| **Total**                           | ** ** | **1,303,880** | ** ** |

 

**OtherCommitments**—****The Company is committed to pay amounts in future periodsfor endorsement contracts, supplier purchase and other long term commitments.Endorsement contracts are entered into with selected athletes and others whoendorse Oakley products. Oakley is often required to pay specified minimalannual commitments and, in certain cases, additional amounts based onperformance goals. Certain contracts provide additional incentives based on theachievement of specified goals. Supplier commitments have been entered intowith various suppliers in the normal course of business.

 

Future minimum amounts tobe paid for endorsement contracts and supplier purchase commitments at December 31,2008, are as follows (thousands of Euro):

 

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| **Year ending  December 31,** | ** ** | **Endorsement contracts** | ** ** | **Supplier  commitments** | ** ** |
|------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| 2009                               |       | 6,121                     |       | 11,914                    |       |
| 2010                               |       | 2,811                     |       | 11,898                    |       |
| 2011                               |       | 1,153                     |       | 2,652                     |       |
| Thereafter                         |       | 305                       |       | 486                       |       |
| **Total**                          | ** ** | **10,390**                | ** ** | **26,950**                | ** ** |

 

**Guarantees-**

 

The United States Shoe Corporation, a wholly ownedsubsidiary of the Company, remains contingently liable on seven store leases inthe United Kingdom. These leases were previously transferred to third parties.The third parties have assumed all future obligations of the leases from thedate each agreement was signed. However, under the common law of the UnitedKingdom, the lessor still has the right to seek payment of certain amounts fromthe Company if unpaid by the new obligor. If the Company is required to payunder these guarantees, it has the right to recover amounts from the newobligor. These leases will expire during various years until December 31,2015. At December 31, 2008, the maximum amount for which the Company’ssubsidiary is contingently liable is Euro 5.2 million.

 

Cole has guaranteed future minimum lease payments forcertain store locations leased directly by franchisees. These guaranteesaggregated approximately Euro 3.0 million at December 31, 2008.  Performance under a guarantee by the Companyis triggered by default of a franchisee on its lease commitment. Generally,these guarantees also extend to payments of taxes and other expenses payableunder the leases, the amounts of which are not readily quantifiable. The termsof these guarantees range from one to ten years. Many are limited to periodsless than the full term of the lease involved. Under the terms of the guarantees, Cole has the right to assume theprimary obligation and begin operating the store. In addition, as part of thefranchise agreements, Cole may recover any amounts paid under the guaranteefrom the defaulting franchisee. The Company has accrued a liability at December 31,2005 for the estimates of the fair value of the Company’s obligations fromguarantees entered into or modified after December 31, 2002, using anexpected present value calculation. Such amount is immaterial to theconsolidated financial statements as of December 31, 2008 and 2007.

 

**Short-Term Credit Facilities-**

 

As of December 31,2008 and 2007, Luxottica Group had unused short-term lines of credit ofapproximately  Euro 230.5 million andEuro 291.4 million, respectively.

 

TheCompany and its wholly-owned Italian subsidiary Luxottica S.r.l. maintainunsecured lines of credit with primary banks for an aggregate maximum credit ofEuro 374.8 million (Euro 467.4 million at December 31, 2007). These linesof credit are renewable annually, can be cancelled at short notice and have nocommitment fees. At December 31, 2008 and 2007, these credit lines wereutilized for Euro 252.4 million and Euro 312.0 million, respectively.

 

USHoldings maintains four unsecured lines of credit with four separate banks foran aggregate maximum credit of Euro 111.3 million (US Dollar 155.0 million).These lines of credit are renewable annually, can be cancelled at short noticeand have no commitment fees. At December 31, 2008, there were Euro 46.7million (US $65.0 million) of borrowings outstanding and there were Euro 24.6million in aggregate face amount of standby letters of credit outstanding underthese lines of credit (see below).

 

Theblended average interest rate on these lines of credit is approximately LIBORplus 0.25 percent.

 

**Outstanding Standby Letters of Credit -**

 

A U.S.subsidiary has obtained various standby and trade letters of credit from banksthat aggregated Euro 34.2 million and Euro 31.0 million as of December 31,2008 and 2007, respectively. Most of these letters of credit are used forsecurity in risk management contracts, purchases from foreign vendors or assecurity on store leases. Most standby letters of credit contain evergreenclauses under which the letter is automatically renewed unless the bank isnotified not to renew. Trade letters of credit are for purchases from foreignvendors

 

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and aregenerally outstanding for a period that is less than six months. Substantiallyall the fees associated with maintaining the letters of credit fall within therange of 50 to 100 basis points annually.

 

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**Litigation -**

 

The Company and its subsidiaries areinvolved in the following legal and regulatory proceedings of which the timingand outcomes are inherently uncertain, and such outcomes could have a materialadverse effect on the Company’s business, financial position or operatingresults.

 

**California Vision Health Care Service Plan Lawsuit**

 

In March 2002, an individualcommenced an action in the California Superior Court for the County of SanFrancisco against the Company and certain of its subsidiaries, includingLensCrafters, Inc. and EYEXAM of California, Inc. The plaintiffs sought to certify this case asa class action. The claims against LensCrafters and EYEXAM alleged various statutoryviolations relating to the confidentiality of medical information and theoperation of LensCrafters’ stores in California, including violations ofCalifornia laws governing relationships among opticians, optical retailers,manufacturers of frames and lenses and optometrists, and other unlawful orunfair business practices. The action sought unspecified damages,statutory damages of U.S. $1,000 per class member, return of profits,restitution of allegedly unjustly obtained sums, punitive damages andinjunctive relief, including an injunction that would prohibit defendants fromproviding eye examinations or other optometric services at LensCrafters storesin California.

 

The parties reached a settlementthat offers a range of benefits, including store vouchers and a cash option,along with certain enhancements to LensCrafters’ business practices. The Courtgranted final approval of the settlement, and final judgment was entered on August 7,2008. The settlement became final on October 6, 2008.

 

Amounts paidto settle this litigation and related costs incurred for the years ended December 31,2008, 2007 and 2006 were not material.

 

**Cole Consumer Class ActionLawsuit**

 

In June 2006, Cole and itssubsidiaries were sued by a consumer in a class action that alleged variousstatutory violations related to the operations of Pearle Vision, Inc. andPearle Vision Care, Inc. in California. The claims and remedies sought aresimilar to those asserted in the LensCrafters and EYEXAM case. The parties enteredinto a settlement agreement, which provides for a store voucher atPearle Vision or LensCrafters for each class member and the payment ofattorneys’ fees and costs. On December 19, 2008, the court granted finalapproval of the settlement and entered final judgment. The settlement becamefinal on March 17, 2009.

 

Amounts paidto settle this litigation and related costs incurred for the years ended December 31,2008, 2007 and 2006 were not material.

 

**Oakley Shareholder Lawsuit**

 

On June 26, 2007, thePipefitters Local No. 636 Defined Benefit Plan filed a class actioncomplaint, on behalf of itself and all other shareholders of Oakley, Inc.(“Oakley”), against Oakley and its Board of Directors in California SuperiorCourt, County of Orange. The complaint alleged, among other things, that thedefendants violated their fiduciary duties to shareholders by approving Oakley’smerger with Luxottica and claimed that the price per share fixed by the mergeragreement was inadequate and unfair. The defendants filed demurrers to thecomplaint, which the Court granted without prejudice. On September 14,2007, the plaintiff filed an amended complaint containing the same allegationsas the initial complaint and adding purported claims for breach of the duty ofcandor. Because the Company believed the allegations were without merit, on October 9,2007, the defendants filed a demurrer to the amended complaint. Rather thanrespond to that demurrer, the plaintiff admitted that its claims were moot andon January 4, 2008 filed a motion for attorneys’ fees and expenses. Thehearing for this motion took place on April 17, 2008. On May 29,2008, the Court issued a ruling denying the plaintiff’s motion for attorneys’fees and expenses in its entirety. The court did not rule on thedefendants’ demurrer to the amended complaint. On July 11, 2008, the Courtentered an order dismissing the action with prejudice and denying the plaintiff’smotion for attorneys’ fees and expenses. The plaintiff has appealed the Court’s May 29, 2008 ruling and the July 11,2008 order.

 

Costs associated with this litigation incurred for the years ended December 31,2008 and 2007, were not material. Management believes, based in part on advicefrom counsel, that no estimate of the range of possible losses, if any, can bemade at this time.

 

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**Fair Credit Reporting Act Litigation**

 

In January 2007, a complaint wasfiled against Oakley and certain of its subsidiaries in the United StatesDistrict Court for the Central District of California, alleging willfulviolations of the Fair and Accurate Credit Transactions Act related to theinclusion of credit card expiration dates on sales receipts. Plaintiff broughtsuit on behalf of a class of Oakley’s customers. Oakley denied any liability,and later entered into a settlement arrangement with Plaintiff that resulted ina complete release in favor of the Oakley defendants, with no cash payment tothe class members but rather an agreement by Oakley to issue vouchers for thepurchase of products at Oakley retail stores during a limited period of time.The settlement also provided for the payment of attorneys’ fees and claimadministration costs by the Oakley defendants. An order approving thissettlement was entered on November 24, 2008.

 

Amounts paid to settle this litigation and related costs incurred forthe years ended December 31, 2008 and 2007, were not material.

 

**Texas LensCrafters Class ActionLawsuit**

 

In May 2008,two individual optometrists commenced an action against LensCrafters, Inc.and Luxottica Group S.p.A. in the United States District Court for the EasternDistrict of Texas, alleging violations of the Texas Optometry Act (“TOA”) andthe Texas Deceptive Trade Practices Act, and tortious interference withcustomer relations. The suit alleges that LensCrafters has attempted to controlthe optometrists’ professional judgment and that certain terms of the optometrists’sub-lease agreements with LensCrafters violate the TOA. The suit seeks recoveryof a civil penalty of up to U.S. $1,000 for each day of a violation of the TOA,injunctive relief, punitive damages, and attorneys’ fees and costs. In August 2008,plaintiffs filed a first amended complaint, adding claims for fraudulentinducement and breach of contract. In October 2008, plaintiffs filed asecond amended complaint seeking to certify the case as a class action onbehalf of all current and former LensCrafters’ sub-lease optometrists.Luxottica Group S.p.A. filed a motion to dismiss for lack of personaljurisdiction in October 2008. That motion is currently pending. The casewas transferred to the Western District of Texas, Austin Division, in January,2009, pursuant to the defendants’ motion to transfer venue. Although theCompany believes that its operational practices in Texas comply with Texas law,if this action results in an adverse decision, LensCrafters may have to modifyits activities in Texas. Further, LensCrafters and Luxottica Group might berequired to pay statutory damages, the amount of which might have a materialadverse effect on  the Company’soperating results, financial condition and cash flow**.**

 

Costs associated with this litigation for the year ended December 31,2008 were not material.  Managementbelieves, based in part on advice from counsel, that no estimate of the rangeof possible losses, if any, can be made at this time.

 

The Company is a defendant in various other lawsuits arising in theordinary course of business. It is the opinion of the management of the Companythat it has meritorious defenses against all such outstanding claims, which theCompany will vigorously pursue, and that the outcome of such claims,individually or in the aggregate, will not have a material adverse effect onthe Company’s consolidated financial position or results of operations.

 

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**LUXOTTICA GROUP S.p.A. andSubsidiaries**

 

**16.****                             ****FAIRVALUES**

 

Certain assets and liabilities of the Companyare recorded at fair value on a recurring basis while others are recorded atfair value based on specific events. SFAS No. 157 specifies a hierarchy ofvaluation techniques consisting of three levels:

 

·                                         Level 1 — Inputs are quoted pricesin an active markets for identical assets or liabilities

 

·                                         Level 2 — Inputs are quoted forsimilar assets or liabilities in an active market, quoted prices for identicalor similar assets and liabilities in markets that are not active, inputs otherthan quoted prices that are observable (for example interest rates and yieldcurves observable at common quoted intervals) or market-corroborated inputs

 

·                                         Level 3 — Unobservable inputs usedwhen observable inputs are not available in situations where there is little,if any market activity for the asset or liability

 

At December 31, 2008 the fair value of theCompany’s financial assets and liabilities measured on a recurring basis are asfollows (thousands of Euros):

 
| ** **                 | ** ** | **Balance  Sheet**           | ** ** | **December**  | ** ** | **Fair  Value Measurements at  Reporting Date Using** | ** ** |
|----------------------------|------------|------------------------------|------------|---------------|------------|-------------------------------------------------------|------------|
| **Description**            | ** ** | **Classification**           | ** ** | **31,  2008** | ** ** | **Level  1 –**                                   | ** ** | **Level  2 –** | ** ** | **Level  3 –** | ** ** |
| Marketable securities      |       | Prepaid  Expenses and Other  |       | 23,550        |       | 23,550                                                |       |   |   |   |   |
| Foreign Exchange Contracts |       | Prepaid  Expenses and Other  |       | 7,712         |       |                                                  |       | 7,712 |   |   |   |
| Interest Rate Derivatives  |       | Other  Assets                |       | 138           |       |                                                  |       | 138 |   |   |   |
| Interest Rate Derivatives  |       | Other  Long Term Liabilities |       | 64,213        |       |                                                  |       | 64,213 |   |   |   |
| Foreign Exchange Contracts |       | Other  Accrued Expenses      |       | 5,022         |       |                                                  |       | 5,022 |   |   |   |

 

As of December 31, 2008 the Company did not have any Level 3 fairvalue measurements.

 

The Company maintains policies and procedures with the aim of valuingthe fair value of assets and liabilities using the best and most relevant dataavailable.

 

The fair value of the marketable securities are based on quoted pricesthat are observable in active markets such as bond prices, including bothcorporate and government bonds.

 

The Company portfolio of foreign exchange derivatives includes onlyforeign exchange forward contracts on the most traded currency pairs withmaturity less than one year. The fair value of the portfolio is valued usinginternal models that use market observable inputs including Yield Curves, Spotand Forward prices.

 

The fair value of the interest rate derivatives portfolio is calculatedusing internal models that maximize the use of market observable inputsincluding Interest Rates, Yield Curves and Foreign Exchange Spot prices.

 

The fair value of the TR Note as of December 31, 2007 was based ondiscounted projected cash flows utilizing an expected yield and disclosed as “OtherAssets” on the consolidated balance sheet. During 2008 the Company sold suchnote to a third party (see Note 4 “Sale of Things Remembered”).

 

SFAS 159 allows the Company to elect on a financials instrument basis tofair value such instrument with changes in its fair value recorded intooperations during the period of change. As of December 31, 2008 and for the year then ended the Company hasnot elected any of its financial instruments to be accounted for underSFAS  159.

 

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** **

**LUXOTTICAGROUP S.p.A. and Subsidiaries**

 

**17.          SUBSEQUENT EVENTS**

 

On January 28, 2009, the Company entered a newlicensing agreement to design, manufacture and globally distribute sun andprescription eyewear collection by Tory Burch and TT, two emerging Americanfashion and lifestyle brands. The agreement with Tory Burch LLC will run forsix years - renewable for a further four — with an expected launch of the firstcollection in 2009.

 

The new collections will be distributed not only byTory Burch boutiques and premium American department stores but also in selectindependent optical stores and in Luxottica’s retail chains. After NorthAmerica, distribution will be extended to Europe and the rest of the world.

 

Tory Burch, a highly appreciated brand in the affordableluxury segment, completes Luxottica’s brand portfolio by further strengtheningits positioning in the key North American market and in the continuallyexpanding department store channel.

 

On January 30, 2009, Luxottica Group andSalvatore Ferragamo Italia S.p.A., which controls Gruppo Ferragamo, agreed to athree-year extension of their licensing agreement covering design,manufacturing and global distribution of prescription and sun eyewear under theSalvatore Ferragamo label. The new agreement runs until December 2011,with an option on a two-year renewal under the same terms.

 

On April 9, 2009 Luxottica Group and Donna KaranInternational Inc., agreed a five-year extension of the license agreement forthe design, production and worldwide distribution of prescription frames andsunglasses under the Donna Karan and DKNY brands. The new agreement runsthrough December 2014, with an option for a further five-year extension.

 

Following the PSP plan adopted in 2008, on May 7,2009, the Board of Directors granted its top employees 1,435,600 rights toreceive ordinary shares. On the same day Board of Directors authorized thereassignment of new options to employees who are currently beneficiaries of thestock option grants approved in 2006 and 2007 whose exercise price, consideringpresent market conditions and the financial crisis, is significantly higherthan the present market price and, therefore, undermine the performanceincentives that typically form the foundation of these plans. The Board of Directorstherefore approved the grant of new options to the beneficiaries of theabovementioned stock option grants, which will be exercisable — conditionalupon the withdrawal of the options granted in 2006 and/or 2007 — at an exerciseprice that will be determined pursuant to the provisions of the 2001 and 2006Stock Option Plans and, therefore, consistent with the market values ofLuxottica shares on the date of grant of the new options.

 

On May 27,2009 Luxottica Group and Multiopticas Internacional S.L., a company thatcurrently owns over 390 eyewear stores operating under the GMO, Econoptics andSunPlanet retail brands in Chile, Peru, Ecuador and Colombia, entered into anagreement pursuant to which Luxottica will acquire a 40 percent participationin Multiopticas Internacional. Under the terms of the agreement, which isexpected to close around the end of June, Luxottica will have a call option forthe remaining 60 percent of Multiopticas Internacional. The call option will beexercisable by the Group between 2012 and 2014 at a price to be determined onthe basis of Multiopticas’ sales and EBITDA values at the time of the exercise.

 

*  * *  *  *

 

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**LuxotticaGroup S.p.A. and Subsidiaries**

** **

**VALUATION AND QUALIFYING ACCOUNTS**

 

**ALLOWANCEFOR DOUBTFUL ACCOUNTS**

**(Amountsexpressed in thousands of Euro)**

 
| ** ** | ** ** | **Balance at  beginning  of period** | ** ** | **Charged to  costs and  expenses** | ** ** | **Other (1) (2)** | ** ** | **Deductions** | ** ** | **Balance at   end of  period** | ** ** |
|------------|------------|--------------------------------------|------------|-------------------------------------|------------|------------------------|------------|----------------|------------|---------------------------------|------------|
| 2006       |       | 27,554                               |       | 2,198                               |       | 99                     |       | (7,160         | )          | 22,691                          |       |
| 2007       |       | 22,691                               |       | 2,157                               |       | 8,499                  |       | (7,804         | )          | 25,543                          |       |
| 2008       |       | 25,543                               |       | 15,250                              |       | (386                   | )          | (11,338        | )          | 29,069                          |       |
|            |            |                                      |            |                                     |            |                        |            |                |            |                                 |            |  |  |  |  |  |

** **

**ALLOWANCE FORINVENTORY RESERVE ACCOUNTS**

**(Amountsexpressed in thousands of Euro)**

 
| ** ** | ** ** | **Balance at  beginning  of period** | ** ** | **Charged to  costs and  expenses** | ** ** | **Other (3)** | ** ** | **Deductions** | ** ** | **Balance at  end of  period** | ** ** |
|------------|------------|--------------------------------------|------------|-------------------------------------|------------|---------------|------------|----------------|------------|--------------------------------|------------|
| 2006       |       | 59,105                               |       | 24,357                              |       | 4,228         |       | (42,437        | )          | 45,253                         |       |
| 2007       |       | 45,253                               |       | 58,057                              |       | 26,837        |       | (43,002        | )          | 87,146                         |       |
| 2008       |       | 87,146                               |       | 39,075                              |       | (976          | )          | (60,157        | )          | 65,088                         |       |
|            |            |                                      |            |                                     |            |               |            |                |            |                                |            |  |  |  |  |  |

 

**VALUATION ALLOWANCE**

**(Amountsexpressed in thousands of Euro)**

 
| ** ** | ** ** | **Balance at  beginning  of period** | ** ** | **Charged to  costs and  expenses** | ** ** | **Other (1)** | ** ** | **Deductions** | ** ** | **Balance at  end of  period** | ** ** |
|------------|------------|--------------------------------------|------------|-------------------------------------|------------|---------------|------------|----------------|------------|--------------------------------|------------|
| 2006       |       | 15,038                               |       | 22,291                              |       | (1,206        | )          | (6,342         | )          | 29,781                         |       |
| 2007       |       | 29,781                               |       | 9,391                               |       | (1,051        | )          | (11,033        | )          | 27,088                         |       |
| 2008       |       | 27,088                               |       | 1,292                               |       | 503           |       | (4,835         | )          | 24,048                         |       |
|            |            |                                      |            |                                     |            |               |            |                |            |                                |            |  |  |  |  |  |

 

----

| (1)    |   | Other  includes translation differences of the period.                                                                                                                                                                                                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                              |
| (2)    |   | For  2007 the beginning amount relating to the acquired balances of Oakley.                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                              |
| (3)    |   | Other  includes:                                                                                                                                                                                                                                                                                                                  |
|   |   | a) for 2006 the translation differences of the period.

b)  for 2007 the beginning amount relating to the acquired balances of Oakley as  well as translation differences

c)  for 2008 the adjustment made to the inventory following the completion of the  Oakley purchase price allocation, as well as translation difference |

 

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**LUXOTTICA GROUP S.p.A. and Subsidiaries**

 

**ITEM 19. EXHIBITS**

 

*Exhibits.*The following documents are filed as exhibits herewith, unlessotherwise specified and incorporated herein by reference:

 
| **Exhibit  Number** | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1                 |       | Articles  of Association of Luxottica Group S.p.A. (incorporated herein by  reference to Amendment No. 3 to Form F-1 (file No. 33-32039)  filed with the U.S. Securities and Exchange Commission (the “Commission”) on  January 23, 1990).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 1.2                 |       | Amended  and Restated By-laws of Luxottica Group S.p.A. (Unofficial English  translation filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 2.1                 |       | Amended  and Restated Deposit Agreement, dated as of March 30, 2006, among  Luxottica Group S.p.A., Deutsche Bank Trust Company Americas, as Depositary,  and all owners and holders form time to time of American Depositary Receipts  issued thereunder (incorporated herein by reference to our Registration  Statement on Form F-6, as filed with the Commission on March 29,  2006.)                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 2.2                 |       | Subscription  Agreement, dated June 18, 1999, from Luxottica Luxembourg S.A. and  Luxottica Group S.p.A., as guarantor of the Notes, to Credit Suisse  First Boston (Europe) Limited and UniCredito Italiano S.p.A., as joint  lead managers and Banca Commerciale Italiana, Banca d’Intermediazione  Mobiliare IMI, Bayerische Hypo-und Vereinsbank AG, Caboto Holding  SIM S.p.A., Merrill Lynch International and Paribas, as managers  (incorporated herein by reference to our Report on Form 6-K dated  November 19, 1999, as filed with the Commission on November 23,  1999).                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 2.3                 |       | Fiscal  Agency Agreement, dated June 25, 1999, between Luxottica  Luxembourg S.A., Luxottica Group S.p.A., Bankers Trust Company,  Bankers Trust Luxembourg S.A. and Credit Suisse First Boston  (incorporated herein by reference to our Report on Form 6-K dated  November 19, 1999, as filed with the Commission on November 23,  1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1                 |       | Luxottica  Group S.p.A. 1998 Stock Option Plan (incorporated herein by reference to  our Form S-8, dated October 20, 1998, as filed with the Commission  on October 23, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.2                 |       | Luxottica  Group S.p.A. 2001 Stock Option Plan (incorporated herein by reference to  our Form S-8 (file no. 333-14006), as filed with the Commission on  October 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.3                 |       | Form of  Note Purchase Agreement, dated as of September 3, 2003, by and between  Luxottica U.S. Holdings Corp. and each of the Purchasers listed in  Schedule A attached thereto (incorporated herein by reference to our  Report on Form 6-K, as filed with the Commission on September 30,  2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.4                 |       | Form of  Parent Guarantee, dated as of September 3, 2003, granted by Luxottica  Group S.p.A. (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on September 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.5                 |       | Form of  Subsidiary Guarantee, dated as of September 3, 2003, granted by  Luxottica S.r.l. (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on September 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.6                 |       | Amended  and Restated Facilities Agreement, dated June 3, 2004, for Luxottica  Group S.p.A. and Luxottica U.S. Holdings Corp. arranged by ABN AMRO  Bank N.V., Banca Intesa S.p.A., Banc of America Securities Limited,  Citigroup Global Markets Limited, HSBC Bank plc, Mediobanca—Banca di Credito  Finanziario S.p.A., The Royal Bank of Scotland plc, Calyon S.A.,  Succursale di Milano, Calyon New York Branch, Capitalia S.p.A. and UniCredit  Banca Mobiliare S.p.A. with UniCredito Italiano S.p.A.,  New York branch, and Unicredit Banca d’Impresa S.p.A., acting as  Agents (incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2005, as filed with the  Commission on June 28, 2006). |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.7                 |       | Amendment  Agreement, dated March 10, 2006, for Luxottica Group S.p.A. and  Luxottica U.S. Holdings Corp. arranged by ABN AMRO Bank N.V., Banca  Intesa S.p.A., Banc of America Securities Limited, Citigroup Global  Markets Limited, HSBC Bank plc, Mediobanca—Banca di Credito  Finanziario S.p.A., The Royal Bank of Scotland plc, Calyon S.A.,  Succursale di Milano, Calyon New York Branch, Capitalia S.p.A. and UniCredit  Banca Mobiliare S.p.A. with UniCredito Italiano S.p.A.,  New York branch, and Unicredit Banca d’Impresa S.p.A., acting as  Agents (incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2005, as filed with the  Commission on June 28, 2006).                     |

 

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| 4.8    |   | Amendment  No. 2 to Agreement and Plan of Merger, dated as of July 14, 2004,  by and between Luxottica Group S.p.A., Colorado Acquisition Corp. and Cole  National Corporation (incorporated herein by reference to our report on  Form 6-K, dated July 14, 2004, as filed with the Commission on  July 16, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.9    |   | Luxottica  Group S.p.A. 2006 Stock Option Plan (incorporated herein by reference to our  Annual Report on Form 20-F for the year ended December 31, 2005, as  filed with the Commission on June 28, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.10   |   | Agreement  and Plan of Merger, dated as of June 20, 2007, by and among Luxottica  Group S.p.A., Norma Acquisition Corp. and Oakley, Inc. (incorporated  herein by reference to our Report on Form 6-K, as filed with the  Commission on June 25, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.11   |   | Non-Competition  Agreement, dated as of June 20, 2007, by and among Luxottica Group  S.p.A., Norma Acquisition Corp., Oakley, Inc. and Jim Jannard  (incorporated herein by reference to our Report on Form 6-K, as filed  with the Commission on June 25, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.12   |   | Term  Facility Agreement, dated October 12, 2007, among Luxottica Group S.p.A.  and Luxottica U.S. Holdings Corp., as borrowers, Citibank N.A., New York /  Citibank N.A., Milan Branch, Intesa Sanpaolo S.p.A., Bayerische Hypo- und Vereinsbank  AG, Milan Branch (part of UniCredit Markets and Investment Banking) /  Bayerische Hypo- und Vereinsbank AG, New York Branch (part of UniCredit  Markets and Investment Banking) and The Royal Bank of Scotland plc, as  Underwriters, Citigroup Global Markets Limited, Intesa Sanpaolo S.p.A.,  Bayerische Hypo- und Vereinsbank AG, Milan Branch (part of UniCredit Markets  and Investment Banking) and The Royal Bank of Scotland plc, as Bookrunners,  and Bayerische Hypo- und Vereinsbank AG, New York Branch (part of UniCredit  Markets and Investment Banking), as Agent (incorporated herein by reference  to our Report on Form 6-K, as filed with the Commission on  November 8, 2007). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.13   |   | Bridge  Facility Agreement, dated October 12, 2007, among Luxottica U.S. Holdings  Corp. as borrower, Banc of America Securities Limited and Bayerische Hypo-  und Vereinsbank AG, Milan Branch (part of UniCredit Markets and Investment  Banking) as Arrangers, Bank of America, N.A. and Bayerische Hypo- und  Vereinsbank AG, New York Branch (part of UniCredit Markets and Investment  Banking), as Underwriters and Lenders and Banc of America Securities Limited,  as Agent (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on November 8, 2007).                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.14   |   | Amendment  and Transfer Agreement, dated April 29, 2008, among Luxottica U.S.  Holdings Corp., as borrower, Luxottica Group S.p.A., as the company,  Luxottica Group S.p.A. and Luxottica S.r.l., as original guarantors, Banc of America Securities Limited and Bayerische  Hypo- und Vereinsbank AG, Milan Branch (part of UniCredit Markets and  Investment Banking), as exclusive bookrunners and arrangers, Bank of America,  N.A. and Bayerische Hypo- und Vereinsbank AG, New York Branch (part of  UniCredit Markets and Investment Banking), as underwriters, Bank of America  N.A. and Unicredito Italiano S.p.A. — New York Branch, as new underwriters,  the Existing Lenders and the New Lenders and Banc of America Securities  Limited, as agent (incorporated herein by reference to our annual  report on Form 20-F for the year ended December 31, 2007, as filed  with the Commission on June 26, 2008).                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.15   |   | Luxottica  Group S.p.A. 2008 Performance Shares Plan (Unofficial English translation  incorporated herein by reference to our annual report on Form 20-F for  the year ended December 31, 2007, as filed with the Commission on  June 26, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.16   |   | Revolving  Credit Facility Agreement, dated May 29, 2008, by and among Luxottica  Group S.p.A, as borrower, Luxottica U.S. Holdings Corp., as guarantor, Intesa  Sanpaolo S.p.A., as agent, and Intesa Sanpaolo S.p.A., Banca Popolare di  Vicenza S.c.p.A. and Banca Antonveneta S.p.A., as lenders (English language  summary incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2007, as filed with the  Commission on June 26, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.17   |   | Form of  Note Purchase Agreement, dated as of June 30, 2008, by and between  Luxottica U.S. Holdings Corp. and each of the Purchasers listed in Schedule A  attached thereto (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on July 11, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.18   |   | Form of  Parent Guarantee, dated as of July 1, 2008, granted by Luxottica Group  S.p.A. (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on July 11, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.19   |   | Form of  Subsidiary Guarantee, dated as of July 1, 2008, granted by Luxottica  S.r.l. (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on July 11, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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| 8.1    |   | List  of Subsidiaries (filed herewith).                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                   |
| 12.1   |   | Certificate  of Principal Executive Officer Pursuant to §302 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|   |   |                                                                                                                   |
| 12.2   |   | Certificate  of Principal Financial Officer Pursuant to §302 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|   |   |                                                                                                                   |
| 13.1   |   | Certificate  of Principal Executive Officer Pursuant to §906 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|   |   |                                                                                                                   |
| 13.2   |   | Certificate  of Principal Financial Officer Pursuant to §906 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|   |   |                                                                                                                   |
| 15.1   |   | Consent  of Deloitte & Touche S.p.A. (filed herewith).                                                        |

 

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**SIGNATURES**

 

Theregistrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned tosign this annual report on its behalf.

 
|   |                       | LUXOTTICA GROUP S.p.A.  (Registrant)   |
|--------|----------------------------|----------------------------------------|
|   |                       |                                   |
|   | By:                        | /s/ ANDREA GUERRA                      |
|   |                       | Andrea Guerra  Chief Executive Officer |
|   |                       |                                   |
|   |                       |                                   |
|   | Dated:  June 24, 2009 |

 

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1                 |       | Articles  of Association of Luxottica Group S.p.A. (incorporated herein by  reference to Amendment No. 3 to Form F-1 (file No. 33-32039)  filed with the Commission on January 23, 1990).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 1.2                 |       | Amended  and Restated By-laws of Luxottica Group S.p.A. (Unofficial English  translation filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1                 |       | Amended  and Restated Deposit Agreement, dated as of March 10, 2006, among  Luxottica Group S.p.A., Deutsche Bank Trust Company Americas, as Depositary,  and all owners and holders form time to time of American Depositary Receipts  issued thereunder (incorporated herein by reference to our Registration Statement  on Form F-6, as filed with the Commission on March 29, 2006.)                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.2                 |       | Subscription  Agreement, dated June 18, 1999, from Luxottica Luxembourg S.A. and  Luxottica Group S.p.A., as guarantor of the Notes, to Credit Suisse  First Boston (Europe) Limited and UniCredito Italiano S.p.A., as joint  lead managers and Banca Commerciale Italiana, Banca d’Intermediazione  Mobiliare IMI, Bayerische Hypo-und Vereinsbank AG, Caboto Holding  SIM S.p.A., Merrill Lynch International and Paribas, as managers  (incorporated herein by reference to our Report on Form 6-K dated  November 19, 1999, as filed with the Commission on November 23,  1999).                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.3                 |       | Fiscal  Agency Agreement, dated June 25, 1999, between Luxottica  Luxembourg S.A., Luxottica Group S.p.A., Bankers Trust Company,  Bankers Trust Luxembourg S.A. and Credit Suisse First Boston  (incorporated herein by reference to our Report on Form 6-K dated  November 19, 1999, as filed with the Commission on November 23,  1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1                 |       | Luxottica  Group S.p.A. 1998 Stock Option Plan (incorporated herein by reference to  our Form S-8, dated October 20, 1998, as filed with the Commission  on October 23, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2                 |       | Luxottica  Group S.p.A. 2001 Stock Option Plan (incorporated herein by reference to  our Form S-8 (file no. 333-14006), as filed with the Commission on  October 15, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3                 |       | Form of  Note Purchase Agreement, dated as of September 3, 2003, by and between  Luxottica U.S. Holdings Corp. and each of the Purchasers listed in  Schedule A attached thereto (incorporated herein by reference to our  Report on Form 6-K, as filed with the Commission on September 30,  2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.4                 |       | Form of  Parent Guarantee, dated as of September 3, 2003, granted by Luxottica  Group S.p.A. (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on September 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.5                 |       | Form of  Subsidiary Guarantee, dated as of September 3, 2003, granted by  Luxottica S.r.l. (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on September 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.6                 |       | Amended  and Restated Facilities Agreement, dated June 3, 2004, for Luxottica  Group S.p.A. and Luxottica U.S. Holdings Corp. arranged by ABN AMRO  Bank N.V., Banca Intesa S.p.A., Banc of America Securities Limited,  Citigroup Global Markets Limited, HSBC Bank plc, Mediobanca—Banca di  Credito Finanziario S.p.A., The Royal Bank of Scotland plc, Calyon  S.A., Succursale di Milano, Calyon New York Branch, Capitalia S.p.A. and  UniCredit Banca Mobiliare S.p.A. with UniCredito Italiano S.p.A.,  New York branch, and Unicredit Banca D’Impresa S.p.A., acting as  Agents (incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2005, as filed with the  Commission on June 28, 2006). |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.7                 |       | Amendment  Agreement, dated March 10, 2006, for Luxottica Group S.p.A. and  Luxottica U.S. Holdings Corp. arranged by ABN AMRO Bank N.V., Banca  Intesa S.p.A., Banc of America Securities Limited, Citigroup Global  Markets Limited, HSBC Bank plc, Mediobanca—Banca di Credito  Finanziario S.p.A., The Royal Bank of Scotland plc, Calyon S.A.,  Succursale di Milano, Calyon New York Branch, Capitalia S.p.A. and UniCredit  Banca Mobiliare S.p.A. with UniCredito Italiano S.p.A.,  New York branch, and Unicredit Banca D’Impresa S.p.A., acting as  Agents (incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2005, as filed with the  Commission on June 28, 2006).                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.8                 |       | Amendment  No. 2 to Agreement and Plan of Merger, dated as of July 14, 2004,  by and between Luxottica Group S.p.A., Colorado Acquisition Corp. and Cole  National Corporation (incorporated herein by reference to our report on  Form 6-K, dated July 14, 2004, as filed with the Commission on  July 16, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

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| 4. 9   |   | Luxottica  Group S.p.A. 2006 Stock Option Plan (incorporated herein by reference to our  annual report on Form 20-F for the year ended December 31, 2005, as  filed with the Commission on June 28, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.10   |   | Agreement  and Plan of Merger, dated as of June 20, 2007, by and among Luxottica  Group S.p.A., Norma Acquisition Corp. and Oakley, Inc. (incorporated  herein by reference to our Report on Form 6-K, as filed with the  Commission on June 25, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.11   |   | Non-Competition  Agreement, dated as of June 20, 2007, by and among Luxottica Group  S.p.A., Norma Acquisition Corp., Oakley, Inc. and Jim Jannard  (incorporated herein by reference to our Report on Form 6-K, as filed  with the Commission on June 25, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.12   |   | Term  Facility Agreement, dated October 12, 2007, among Luxottica Group S.p.A.  and Luxottica U.S. Holdings Corp., as borrowers, Citibank N.A., New York /  Citibank N.A., Milan Branch, Intesa Sanpaolo S.p.A., Bayerische Hypo- und  Vereinsbank AG, Milan Branch (part of UniCredit Markets and Investment  Banking) / Bayerische Hypo- und Vereinsbank AG, New York Branch (part of  UniCredit Markets and Investment Banking) and The Royal Bank of Scotland plc,  as Underwriters, Citigroup Global Markets Limited, Intesa Sanpaolo S.p.A.,  Bayerische Hypo- und Vereinsbank AG, Milan Branch (part of UniCredit Markets  and Investment Banking) and The Royal Bank of Scotland plc, as Bookrunners,  and Bayerische Hypo- und Vereinsbank AG, New York Branch (part of UniCredit  Markets and Investment Banking), as Agent (incorporated herein by reference  to our Report on Form 6-K, as filed with the Commission on  November 8, 2007). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.13   |   | Bridge  Facility Agreement, dated October 12, 2007, among Luxottica U.S.  Holdings Corp. as borrower, Banc of America Securities Limited and Bayerische  Hypo- und Vereinsbank AG, Milan Branch (part of UniCredit Markets and  Investment Banking) as Arrangers, Bank of America, N.A. and Bayerische Hypo-  und Vereinsbank AG, New York Branch (part of UniCredit Markets and Investment  Banking), as Underwriters and Lenders and Banc of America Securities Limited,  as Agent (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on November 8, 2007).                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.14   |   | Amendment  and Transfer Agreement, dated April 29, 2008, among Luxottica U.S.  Holdings Corp., as borrower, Luxottica Group S.p.A., as the company,  Luxottica Group S.p.A. and Luxottica S.r.l., as original guarantors, Banc of America Securities Limited and Bayerische Hypo-  und Vereinsbank AG, Milan Branch (part of UniCredit Markets and Investment  Banking), as exclusive bookrunners and arrangers, Bank of America, N.A. and  Bayerische Hypo- und Vereinsbank AG, New York Branch (part of UniCredit  Markets and Investment Banking), as underwriters, Bank of America N.A. and  Unicredito Italiano S.p.A. — New York Branch, as new underwriters, the  Existing Lenders and the New Lenders and Banc of America Securities Limited,  as agent (incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2007, as filed with the  Commission on June 26, 2008).                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.15   |   | Luxottica  Group S.p.A. 2008 Performance Shares Plan (Unofficial English translation  incorporated herein by reference to our annual report on Form 20-F for  the year ended December 31, 2007, as filed with the Commission on  June 26, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.16   |   | Revolving  Credit Facility Agreement, dated May 29, 2008, by and among Luxottica  Group S.p.A, as borrower, Luxottica U.S. Holdings Corp., as guarantor, Intesa  Sanpaolo S.p.A., as agent, and Intesa Sanpaolo S.p.A., Banca Popolare di  Vicenza S.c.p.A. and Banca Antonveneta S.p.A., as lenders (English language  summary incorporated herein by reference to our annual report on  Form 20-F for the year ended December 31, 2007, as filed with the  Commission on June 26, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.17   |   | Form of  Note Purchase Agreement, dated as of June 30, 2008, by and between  Luxottica U.S. Holdings Corp. and each of the Purchasers listed in Schedule A  attached thereto (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on July 11, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.18   |   | Form of  Parent Guarantee, dated as of July 1, 2008, granted by Luxottica Group  S.p.A. (incorporated herein by reference to our Report on Form 6-K, as filed  with the Commission on July 11, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.19   |   | Form of  Subsidiary Guarantee, dated as of July 1, 2008, granted by Luxottica  S.r.l. (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on July 11, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 8.1    |   | List  of Subsidiaries (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 12.1   |   | Certificate  of Principal Executive Officer Pursuant to §302 of the Sarbanes-Oxley Act of  2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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| 12.2   |   | Certificate  of Principal Financial Officer Pursuant to §302 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                   |
| 13.1   |   | Certificate  of Principal Executive Officer Pursuant to §906 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|   |   |                                                                                                                   |
| 13.2   |   | Certificate  of Principal Financial Officer Pursuant to §906 of the Sarbanes-Oxley Act of  2002 (filed herewith). |
|   |   |                                                                                                                   |
| 15.1   |   | Consent  of Deloitte & Touche S.p.A. (filed herewith).                                                   |

 

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