Table of Contents

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 20-F**

 

**(MarkOne)**

 

| **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, 2009** |
| ** ** | ** **                                                                                                                                            |
| **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

 
| **LUXOTTICA GROUP S.p.A.**                                                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)                                                                                                                                                                  |
|                                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                              |
| (Translation of Registrant’s name into English)                                                                                                                                                                    |
|                                                                                                                                                                                                                    |
| **REPUBLIC OF ITALY**                                                                                                                                                                                                   |
| (Jurisdiction of incorporation or organization)                                                                                                                                                                         |
|                                                                                                                                                                                                                    |
| **VIA C. CANTÙ 2, MILAN 20123, ITALY**                                                                                                                                                                             |
| (Address of principal executive offices)                                                                                                                                                                                |
|                                                                                                                                                                                                                    |
| **Michael A. Boxer, Esq.**

**Senior Vice President and General Counsel**

**Luxottica U.S. Holdings Corp.**

**44 Harbor Park Drive**

**Port Washington, NY 11050**

**Tel: (516) 484-3800**

**Fax: (516) 484-9010** |
| (Name, Telephone, Email and/or Facsimile number and Address of  Company Contact Person)                                                                                                                                 |

 

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Securitiesregistered or to 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 for trading, but only in connection with theregistration of American Depositary Shares, pursuant to the requirements of theNew York Stock Exchange

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act. 

** **

**None.**

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act.

 

**None.**

 

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report.

 
| ORDINARY SHARES,  PAR VALUE EURO 0.06 PER SHARE | 464,386,383 |
|-------------------------------------------------|-------------|

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

Yes  x  No  o

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

Yes  o  No  x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

Yes  x  No  o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).

Yes  o  No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. 

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

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

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

 

If“Other” has been checked in response to the previous question, indicate bycheck mark which financial statement item the registrant has elected to follow.

Item17  o  Item 18  o

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined by Rule 12b-2 of the Exchange Act).

Yes  o  No  x

 

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Table of Contents

 
| **PART I**        | ** **    | ** **                                                                        | **4**  |
|------------------------|---------------|-----------------------------------------------------------------------------------|--------|
| ** **             | **ITEM 1.**   | **IDENTITY OF  DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**                        | 4      |
| ** **             | **ITEM 2.**   | **OFFER  STATISTICS AND EXPECTED TIMETABLE**                                      | 4      |
| ** **             | **ITEM 3.**   | **KEY INFORMATION**                                                               | 4      |
| ** **             | **ITEM 4.**   | **INFORMATION ON  THE COMPANY**                                                   | 14     |
| ** **             | **ITEM 4A.**  | **UNRESOLVED  STAFF COMMENTS**                                                    | 35     |
| ** **             | **ITEM 5.**   | **OPERATING  AND FINANCIAL REVIEW AND PROSPECTS**                                 | 36     |
| ** **             | **ITEM 6.**   | **DIRECTORS,  SENIOR MANAGEMENT AND EMPLOYEES**                                   | 54     |
| ** **             | **ITEM 7.**   | **MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**                            | 67     |
| ** **             | **ITEM 8.**   | **FINANCIAL  INFORMATION**                                                        | 68     |
| ** **             | **ITEM 9.**   | **THE OFFER AND LISTING**                                                         | 71     |
| ** **             | **ITEM 10.**  | **ADDITIONAL  INFORMATION**                                                       | 71     |
| ** **             | **ITEM 11.**  | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                   | 89     |
| ** **             | **ITEM 12.**  | **DESCRIPTION OF SECURITIES  OTHER THAN EQUITY SECURITIES**                       | 92     |
|                   |          |                                                                              |   |
| **PART II**       | ** **    | ** **                                                                        | **93** |
| ** **             | **ITEM 13.**  | **DEFAULTS, DIVIDEND ARREARAGES  AND DELINQUENCIES**                              | 93     |
| ** **             | **ITEM 14.**  | **MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS** | 93     |
| ** **             | **ITEM 15.**  | **CONTROLS AND PROCEDURES**                                                       | 93     |
| ** **             | **ITEM 16.**  | **[RESERVED]**                                                                    | 93     |
| ** **             | **ITEM 16A.** | **AUDIT COMMITTEE FINANCIAL EXPERT**                                              | 94     |
| ** **             | **ITEM 16B.** | **CODE OF ETHICS**                                                                | 94     |
| ** **             | **ITEM 16C.** | **PRINCIPAL  ACCOUNTANT FEES AND SERVICES**                                       | 94     |
| ** **             | **ITEM 16D.** | **EXEMPTIONS FROM THE  LISTING STANDARDS FOR AUDIT COMMITTEES**                   | 94     |
| ** **             | **ITEM 16E.** | **PURCHASES OF EQUITY  SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**       | 95     |
| ** **             | **ITEM 16F.** | **CHANGE IN  REGISTRANT’S CERTIFYING ACCOUNTANT**                            | 96     |
| ** **             | **ITEM 16G.** | **CORPORATE  GOVERNANCE**                                                         | 96     |
|                   |          |                                                                              |   |
| **PART III**      | ** **    | ** **                                                                        | **98** |
| ** **             | **ITEM 17.**  | **FINANCIAL STATEMENTS**                                                          | 98     |
| ** **             | **ITEM 18.**  | **FINANCIAL STATEMENTS**                                                          | 99     |
| ** **             | **ITEM 19.**  | **EXHIBITS**                                                                      | 100    |
|                   |          |                                                                              |   |
| **SIGNATURES**         |          | 103                                                                               |
|                   |          |                                                                              |
| **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, our ability to manage the effectof the uncertain current global economic conditions on our business, ourability to successfully acquire new businesses and integrate their operations,our ability to predict future economic conditions and changes in consumerpreferences, our ability to successfully introduce and market new products, ourability to maintain an efficient distribution network, our ability to achieveand manage growth, our ability to negotiate and maintain favorable licensearrangements, the availability of correction alternatives to prescriptioneyeglasses, fluctuations in exchange rates, changes in local conditions, ourability to protect our proprietary rights, our ability to maintain ourrelationships with host stores, any failure of our information technology,inventory and other asset risk, credit risk on our accounts, insurance risks,changes in tax laws, as well as other political, economic, legal andtechnological factors and other risks and uncertainties described in our filingswith the U.S. Securities and Exchange Commission (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 priorwritten consent or the consent of our licensors, as applicable.

 

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**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, ourconsolidated financial statements, the related notes thereto, and Item 5—“Operatingand Financial 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, 2009,2008 and 2007, and the selected consolidated balance sheet data as of December 31,2009 and 2008, are derived from the audited Consolidated Financial Statementsincluded in Item 18. The selected consolidated income statement data for theyears ended December 31, 2006 and 2005, and the selected consolidatedbalance sheet data as of December 31, 2007, 2006 and 2005, are derivedfrom audited consolidated financial statements which are not included in this Form 20-F.

 

[TABLES APPEAR ONTHE FOLLOWING PAGE]

 

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| ** **                                                   | ** ** | **2009**                                         | ** ** | **2008(2)** | ** ** | **2007(2)(3)** | ** ** | **2006(2)(4)** | ** ** | **2005(2)(4)(5)** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------|------------|----------------|------------|----------------|------------|-------------------|------------|
| ** **                                                   | ** ** | **(In thousands of Euro except per share data)** | ** ** |
| ** **                                                   | ** ** | ** **                                       | ** ** | ** **  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **        | ** ** |
| **STATEMENT OF INCOME DATA:**                                |       |                                             |       |        |       |           |       |           |       |              |       |
| Net Sales                                                    |       | 5,094,318                                        |       | 5,201,611   |       | 4,966,054      |       | 4,676,156      |       | 4,134,263         |       |
| Cost of Sales                                                |       | (1,768,436                                       | )          | (1,751,251  | )          | (1,575,618     | )          | (1,487,700     | )          | (1,373,073        | )          |
| Gross Profit                                                 |       | 3,325,882                                        |       | 3,450,360   |       | 3,390,436      |       | 3,188,456      |       | 2,761,190         |       |
| OPERATING EXPENSE                                            |       |                                             |       |        |       |           |       |           |       |              |       |
| Selling and Advertising                                      |       | (2,106,360                                       | )          | (2,124,430  | )          | (2,069,280     | )          | (1,948,466     | )          | (1,755,536        | )          |
| General and Administrative                                   |       | (636,320                                         | )          | (576,717    | )          | (487,843       | )          | (484,002       | )          | (424,253          | )          |
| Total                                                        |       | (2,742,680                                       | )          | (2,700,597  | )          | (2,557,123     | )          | (2,432,468     | )          | (2,179,789        | )          |
| Income from Operations                                       |       | 583,202                                          |       | 749,763     |       | 833,313        |       | 755,987        |       | 581,401           |       |
| OTHER INCOME (EXPENSE)                                       |       |                                             |       |        |       |           |       |           |       |              |       |
| Interest Income                                              |       | 6,887                                            |       | 13,265      |       | 17,087         |       | 9,804          |       | 5,650             |       |
| Interest Expense                                             |       | (91,571                                          | )          | (135,267    | )          | (89,498        | )          | (70,622        | )          | (66,171           | )          |
| Other—Net                                               |       | (4,235                                           | )          | (37,890     | )          | 19,780         |       | (16,992        | )          | 18,429            |       |
| Other Income (Expenses)—Net                             |       | (88,919                                          | )          | (159,892    | )          | (52,631        | )          | (77,810        | )          | (42,092           | )          |
| Income Before Provision for Income Taxes                     |       | 494,283                                          |       | 589,870     |       | 780,681        |       | 678,177        |       | 539,309           |       |
| Provision for Income Taxes                                   |       | (167,417                                         | )          | (194,657    | )          | (273,501       | )          | (238,757       | )          | (199,266          | )          |
| Net Income from Continuing Operations                        |       | 326,866                                          |       | 395,213     |       | 507,180        |       | 439,420        |       | 340,043           |       |
| Discontinued Operations—Net of Taxes and Gain on  Sale  |       | 0                                                |       | 0           |       | 0              |       | (6,419         | )          | 11,504            |       |
| Net Income                                                   |       | 326,866                                          |       | 395,213     |       | 507,180        |       | 433,001        |       | 351,547           |       |
| Less: Net Income Attributable to Noncontrolling  Interests   |       | (12,105                                          | )          | (15,492     | )          | (14,976        | )          | (8,715         | )          | (9,253            | )          |
|                                                         |       |                                             |       |        |       |           |       |           |       |              |       |
| Net Income Attributable to Luxottica Group Shareholders      |       | 314,762                                          |       | 379,722     |       | 492,204        |       | 424,286        |       | 342,294           |       |
| Weighted Average Shares Outstanding (thousands)              |       |                                             |       |        |       |           |       |           |       |              |       |
| —Basic                                                  |       | 457,270.5                                        |       | 456,563.5   |       | 455,184.8      |       | 452,898.0      |       | 450,179.1         |       |
| —Diluted                                                |       | 457,942.6                                        |       | 457,717.0   |       | 458,530.6      |       | 456,186.0      |       | 453,303.4         |       |
| Basic Earnings per Share from Continuing  Operations (1)     |       | 0.69                                             |       | 0.83        |       | 1.08           |       | 0.95           |       | 0.73              |       |
| Basic Earnings per Share from Discontinued  Operations (1)   |       | 0.00                                             |       | 0.00        |       | 0.00           |       | (0.01          | )          | 0.03              |       |
| Basic Earnings per Share (1)                                 |       | 0.69                                             |       | 0.83        |       | 1.08           |       | 0.94           |       | 0.76              |       |
| Diluted Earnings per Share from Continuing  Operations (1)   |       | 0.69                                             |       | 0.83        |       | 1.07           |       | 0.94           |       | 0.73              |       |
| Diluted Earnings per Share from Discontinued  Operations (1) |       | 0.00                                             |       | 0.00        |       | 0.00           |       | (0.01          | )          | 0.03              |       |
| Diluted Earnings per Share (1)                               |       | 0.69                                             |       | 0.83        |       | 1.07           |       | 0.93           |       | 0.76              |       |

 

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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)    |   | Prior year amounts have  been reclassified to conform with the 2009 presentation. For additional  detail, please refer to Note 1 “Reclassifications” and “Recent accounting  pronouncements” to our Consolidated Financial Statements included in Item 18  of this annual report. |
|   |   |                                                                                                                                                                                                                                                                                                  |
| (3)    |   | 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.                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                  |
| (4)    |   | 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.                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                  |
| (5)    |   | 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.                                                                   |

 
| ** **                                                           | ** ** | **As of December 31,**                                      | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                                                   | ** ** | **2008 (1)** | ** ** | **2007** | ** ** | **2006(1)** | ** ** | **2005** | ** ** |
| ** **                                                           | ** ** | **(In thousands of Euro except share data)** | ** ** |
| **BALANCE SHEET DATA:**                                              |       |                                                                       |       |   |   |   |   |   |   |   |   |
| Working Capital(2)                                                   |       | 562,556                                                                    |       | 366,454 |   | (248,632 | ) | 68,187 |   | 368,863 |   |
| Total Assets                                                         |       | 7,136,056                                                                  |       | 7,305,225 |   | 7,157,266 |   | 4,968,878 |   | 4,973,522 |   |
| Total Debt(3)                                                        |       | 2,570,469                                                                  |       | 2,805,502 |   | 2,719,140 |   | 1,319,262 |   | 1,528,909 |   |
| Shareholders’ Equity                                            |       | 2,803,343                                                                  |       | 2,506,593 |   | 2,495,158 |   | 2,215,849 |   | 1,954,033 |   |
| Capital Stock                                                        |       | 27,863                                                                     |       | 27,802 |   | 27,757 |   | 27,613 |   | 27,479 |   |
| Number of Shares Adjusted to Reflect Changes in  Capital (thousands) |       | 464,386.4                                                                  |       | 463,368.2 |   | 462,623.6 |   | 460,216.2 |   | 457,975.7 |   |

 

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| (1)    |   | Prior  year amounts have been reclassified to conform with the 2009 presentation.  For additional detail, please refer to Note 1 “Reclassifications” and “Recent  accounting pronouncements” to our Consolidated Financial Statements included  in Item 18 of this annual report. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                  |
| (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 166.3 million, Euro 286.2 million,  Euro 792.6 million, Euro 359.5 million and Euro 111.0 million for  the years ended December 31, 2009, 2008, 2007, 2006 and 2005,  respectively.                                                    |

 

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**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.

 

Atour ordinary meeting of stockholders on April 29, 2009, our stockholdersvoted to allocate net income for 2008 to our extraordinary reserve, therebysuspending the payment of dividends until later in 2009 in order to strengthenour equity structure. At our ordinary meeting of stockholders held on October 29,2009, our stockholders approved the distribution of a cash dividend in theamount of Euro 0.22 per ordinary share from our extraordinary reserve. Thetotal amount of the dividend paid to holders on December 4, 2009, was Euro102 million.

 

At our ordinarymeeting of stockholders held on April 29, 2010, our stockholders approvedthe distribution of a cash dividend in the amount of Euro 0.35 per ordinaryshare. The dividend will be paid on May 27, 2010, to our stockholders ofrecord on May 26, 2010, including Deutsche Bank Trust Company Americas, asdepositary on behalf of holders of our American Depositary Shares, or ADSs.Each ADS represents the right to receive one ordinary share and is evidenced byan American Depositary Receipt, or ADR. The ADSs will trade ex-dividend on May 20,2010. Deutsche Bank Trust Company Americas will convert the Euro amount of suchdividend payment into U.S. dollars on May 27, 2010. The dividend amountfor each ADS holder will be paid commencing on June 3, 2010, to all suchholders of record on May 26, 2010. The total amount of the dividend will be approximately Euro 163 million.

 

Futuredeterminations as to dividends will depend upon, among other things, ourearnings, financial position and capital requirements, applicable legalrestrictions and such other factors as the Board of Directors and ourstockholders may determine.

 

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. $)**                                                     | ** ** |
| 2005       |       | 0.230                                                          |       | 0.276                                                                 |       |
| 2006       |       | 0.290                                                          |       | 0.363                                                                 |       |
| 2007       |       | 0.420                                                          |       | 0.564                                                                 |       |
| 2008       |       | 0.490                                                          |       | 0.770                                                                 |       |
| 2009       |       | 0.220                                                          | (5)        | 0.327                                                                 |       |

 

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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)    |   | 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, as specified in the applicable proxy statement.                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                           |
| (5)    |   | The  dividend of Euro 0.22 per ordinary share was approved by our Board of  Directors on September 18, 2009 and was voted upon and approved by our  stockholders at the ordinary meeting of stockholders held on October 29,  2009.                                                                                  |

 

**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:

 

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| **Period**                        | ** ** | **Low** | ** ** | **High** | ** ** | **Average(1)** | ** ** | **End of Period** | ** ** |
|-----------------------------------|------------|---------|------------|----------|------------|----------------|------------|-----------------------------|------------|
| 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                      |       |
| Year Ended December 31, 2009 |       | 1.2547  |       | 1.5100   |       | 1.3946         |       | 1.4332                      |       |

 

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(1)          The average of the Noon Buying Rates ineffect on the last business day of each month during the period. When theCompany consolidates its profit and loss statement, it translates U.S. dollardenominated amounts into Euro using an average U.S. dollar/Euro exchange rateof each business day during the applicable period.

 
| **Month**          | ** ** | **Low** | ** ** | **High** | ** ** |
|--------------------|------------|---------|------------|----------|------------|
| October 2009  | ** ** | 1.4532  |       | 1.5029   |       |
| November 2009 |       | 1.4658  |       | 1.5085   |       |
| December 2009 |       | 1.4243  |       | 1.5100   |       |
| January 2010  |       | 1.3870  |       | 1.4536   |       |
| February 2010 |       | 1.3476  |       | 1.3955   |       |
| March 2010    |       | 1.3344  |       | 1.3758   |       |

 

On April 23, 2010,the Noon Buying Rate was U.S. $1.3360 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, financialcondition and cash flows.*

 

Our operations andperformance depend significantly on worldwide economic conditions. Uncertaintyabout current global economic conditions poses a risk to our business becauseconsumers and businesses may continue to postpone spending in response totighter credit markets, unemployment, negative financial news and/or declinesin income or asset values, which could have a material adverse effect on demandfor our products and services. Discretionary spending is affected by manyfactors, including general business conditions, inflation, interest rates,consumer debt levels, unemployment rates, availability of consumer credit,conditions in the real estate and mortgage markets, currency exchange rates andother matters that influence consumer confidence. Many of these factors areoutside our control.  Our customers’purchases of discretionary items could decline during periods in whichdisposable income is lower or prices have increased in response to rising costsor in periods of actual or perceived unfavorable economic conditions.  If this occurs or if unfavorable economicconditions continue to challenge the consumer environment, our business,results of operations, financial condition and cash flows could be materiallyadversely affected.

 

In the event of renewedfinancial turmoil affecting the banking system and financial markets,additional consolidation of the financial services industry or significantfailure of financial services institutions, there could be a new or incrementaltightening of the credit markets, decreased liquidity and extremevolatility in fixed income, credit, currency and equity markets. In addition,the credit crisis could continue to have material adverse effects on ourbusiness, including the inability of customers of our wholesale distributionbusiness to obtain credit to finance purchases of our products,restructurings, bankruptcies, liquidations and other unfavorable events for ourconsumers, customers, vendors, suppliers, 

 

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logistics providers,other service providers and the financial institutions that are counterpartiesto 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 for goodsand services or our wholesale customers are unable to overcome financialdifficulties resulting from the deterioration of the worldwide economicconditions or if the counterparties to our credit facilities or our derivativetransactions do not perform their obligations, our business, results ofoperations, financial condition and cash flows could be materially adverselyaffected.

 

*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 andoperations in an efficient and effective manner; (ii) inability to achievestrategic objectives, 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) a decrease in the focus ofsenior management on our operations; (vi) difficulty integrating humanresources 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.

 

*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 alsosubject to rapidly changing consumer preferences and future sales may suffer ifthe fashion and consumer products industries do not continue to grow or ifconsumer preferences shift away from our products. Changes in fashion couldalso affect the popularity and, therefore, the value of the fashion licensesgranted to us by designers. Any event or circumstance resulting in reducedmarket acceptance of one or more of these designers could reduce our sales andthe value of our inventory of models from that designer. Unanticipated shiftsin consumer preferences may also result in excess inventory and underutilizedmanufacturing capacity. In addition, our success depends, in large part, on ourability to anticipate and react to changing fashion trends in a timely manner.Any sustained failure to identify and respond to such trends could materiallyadversely affect our business, results of operations and financial conditionand may result in the write-down of excess inventory and idle manufacturingfacilities.

 

*If we are unable to successfully introduce new products,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 write-downs relating to the value of excess inventory, and productioncosts would be negatively impacted since fixed costs would represent a largerportion of total production costs due to the decline in quantities produced,which could materially adversely affect our results of operations.

 

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*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 a material adverse impact on our business, results of operations andfinancial condition.

 

*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 develop newproduct designs and features, expand our information systems and operations,and train and manage an increasing number of management level and otheremployees. If we are unable to manage these matters effectively, our efficientdistribution process could be at risk and we could lose market share inaffected regions, which could materially adversely affect our businessprospects.

 

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

 

We have enteredinto license agreements that enable us to manufacture and distributeprescription frames 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 guaranteed and contingentroyalty payments to the licensor. See Item 4—“Information on theCompany—Overview—Brand Portfolio” regarding our new license agreement for the *Tory Burch* name. We believe that our ability to maintain andnegotiate favorable license agreements with leading designers in the fashionand luxury goods industries is essential to the branding of our products and,therefore, material to the success of our business. For the years ended December 31,2009 and 2008, the sales realized through the *Prada*and *Miu Miu* trade names together representedapproximately 4.7 percent and 5.5 percent of total sales,respectively.  For the years ended December 31,2009 and 2008, the sales realized through the *Dolce &Gabbana* and *D&G* tradenames together represented approximately 4.0 percent and 5.1 percent of totalsales, respectively.  Accordingly, if weare unable to negotiate and maintain satisfactory license arrangements withleading designers, our growth prospects and financial results could materiallysuffer from a reduction in sales or an increase in advertising costs androyalty 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 39 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 strengthens relativeto certain other currencies, our profitability as a consolidated group willsuffer.*

 

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, our results ofoperations could be materially adversely affected by foreign exchange ratefluctuations in two principal areas:

 

·                  we incur most of ourmanufacturing costs in Euro and in Chinese Yuan, and receive a significant partof our revenues in other currencies such as the U.S. dollar and the Australiandollar. Therefore, a strengthening of the Euro 

 

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or theChinese Yuan relative to other currencies in which we receive revenues couldnegatively impact the demand for our products or decrease our profitability inconsolidation, thus adversely affecting our business and results of operations;and

 

·                  a substantial portionof our assets, liabilities, revenues and costs are denominated in variouscurrencies other than Euro, with most of our revenues and operating expensesbeing denominated in U.S. dollars. As a result, our operating results, whichare reported in Euro, are affected by currency exchange rate fluctuations,particularly between the U.S. dollar and the 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 business suffers due tochanging 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 localeconomic and political conditions;

 

·                  export and importrestrictions;

 

·                  currency exchange ratefluctuations and currency controls;

 

·                  cash repatriationrestrictions;

 

·                  application of theForeign Corrupt Practices Act;

 

·                  difficulty inenforcing intellectual property and contract rights;

 

·                  disruptions of capitaland trading markets;

 

·                  accounts receivablecollection and longer payment cycles;

 

·                  potential hostilitiesand changes in diplomatic and trade relationships;

 

·                  legal or regulatoryrequirements;

 

·                  withholding and othertaxes on remittances and other payments by subsidiaries;

 

·                  investmentrestrictions or requirements; and

 

·                  local content lawsrequiring that certain products contain a specified minimum percentage ofdomestically 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 material adverse effect on ourbusiness, results of operations, financial condition and prospects.

 

Compliancewith U.S. and foreign laws and regulations that apply to our internationaloperations increases our costs of doing business, including cost of compliance,in certain jurisdictions, and such costs may rise in the future as a result ofchanges in these laws and regulations or in their interpretation orenforcement. We have implemented policies and procedures designed to facilitateour compliance with these laws and regulations, but there can be no assurancethat our employees, contractors or agents will not violate such laws andregulations or our policies. Any such violations could individually, or in theaggregate, materially adversely affect our financial condition or operatingresults.

 

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Additionally,as a U.S. government contractor through our Oakley and Eye Safety Systemssubsidiaries, we must comply with, and are affected by, U.S. laws andregulations related to our government business. These laws and regulations,including requirements to obtain applicable governmental approvals, clearancesand certain export licenses, may impose additional costs and risks on ourbusiness.  We also may become subject toaudits, reviews and investigations of our compliance with these laws andregulations. See Item 4—“Information on the Company—Regulatory Matters” andItem 8—“Financial Information—Legal Proceedings.”

 

*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 are importantto the success of our products and services and our competitive position.However, pending trademark or patent applications may not in all instancesresult in the issuance of a registered trademark or patent, and trademarks orpatents granted may not be effective in thwarting competition or be held validif subsequently challenged. In addition, the actions we take to protect ourproprietary rights may be inadequate to prevent imitation of our products andservices. Our proprietary information could become known to competitors, and wemay not be able to meaningfully protect our rights to proprietary information.Furthermore, other companies may independently develop substantially equivalentor better products or services that do not infringe on our intellectualproperty rights or could assert rights in, and ownership of, our proprietaryrights. Moreover, the laws of certain countries do not protect proprietaryrights 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 host stores of our Licensed Brands, wecould suffer a loss in sales and possible impairment of certain intangibleassets.*

 

Our sales depend in parton our relationships with the host stores that allow us to operate our LicensedBrands division, including Sears Optical and Target Optical. Our leases andlicenses with Sears Optical are terminable upon short notice. If ourrelationship with Sears Optical or Target Optical were to end, wewould suffer a loss of sales and the possible impairment of certain intangibleassets. This could have a material adverse effect on our business, results ofoperations, financial condition and prospects.

 

*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.

 

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*LeonardoDel Vecchio, our chairman and principal stockholder, controls 67.67% of our votingpower 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 March 1, 2010, Mr. Leonardo Del Vecchio, the Chairman of our Boardof Directors, through the company Delfin S.a.r.l., has the power to vote 314,403,339Ordinary Shares, or 67.67% of the outstanding Ordinary Shares. See Item 7 — “MajorShareholders and Related Party Transactions.” As a result, Mr. Del Vecchiohas the ability to exert significant influence over our corporate affairs andto control the outcome of virtually all matters submitted to a vote of ourstockholders, including the election of our directors, the amendment of ourArticles of Association or By-laws, and the approval of mergers, consolidationsand other significant corporate transactions.

 

Mr. DelVecchio’s interests may conflict with or differ from the interests of our otherstockholders.  In situations involving aconflict of 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, with theassistance of our independent auditors, to be material weaknesses, or thatotherwise result in disclosable conditions. Any identified material weaknessesin our internal control structure may involve significant effort and expense toremediate, and any disclosure of such material weaknesses or other disclosableconditions may result in a negative market reaction to our securities.

 

*We rely on information technologyin our operations, and any material failure, inadequacy, interruption orsecurity failure of that technology could harm our ability to effectivelyoperate our business.*

 

Werely on information technology systems across our operations, including formanagement of our supply chain, point-of-sale processing in our stores andvarious other processes and transactions. Our ability to effectively manage ourbusiness and coordinate the production, distribution and sale of our productsdepends on, among other things, the reliability and capacity of these systems.The failure of these systems to operate effectively, network disruptions,problems with transitioning to upgraded or replacement systems, or a breach indata security of these systems could cause delays in product supply and sales,reduced efficiency of our operations, unintentional disclosure of customer,patient or other confidential information of the Company, or damage to ourreputation, and potentially significant capital investments could be requiredto remediate the problem, which could have a material adverse effect on ourresults of operations.

 

*If werecord a write-down for inventories or other assets that are obsolete or exceedanticipated demand or net realizable value, such charges could have a materialadverse effect on our results of operations.*

 

Werecord a write-down for product and component inventories that have becomeobsolete or exceed anticipated demand or net realizable value. We review ourlong-lived assets for impairment whenever events or changed circumstancesindicate that the carrying amount of an asset may not be recoverable, and wedetermine whether valuation allowances are needed against other assets,including, but not limited to, accounts receivable and deferred tax assets. Ifwe determine that impairments or other events have occurred that lead us tobelieve we will not fully realize these assets, we record a write-down or avaluation allowance equal to the amount by which the carrying value of theassets exceeds its fair market value. Although we believe our inventory andother asset-related provisions are currently adequate, no assurance can be madethat, given the rapid and unpredictable pace of product obsolescence forfashion eyewear, we will not incur additional inventory or asset-relatedcharges, which charges could have a material adverse effect on our results ofoperations.

 

*We areexposed to credit risk on our accounts receivable. This risk is heightenedduring periods when economic conditions worsen.*

 

A substantialmajority of our outstanding trade receivables are not covered by collateral orcredit insurance. While we have procedures to monitor and limit exposure tocredit risk on our trade and non-trade receivables, there can be no 

 

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assurance such procedureswill effectively limit our credit risk and avoid losses, which could have amaterial adverse effect on our results of operations.

 

*Unforeseenor catastrophic losses not covered by insurance could materially adverselyaffect our results of operations and financial condition.*

 

Forcertain risks, we do not maintain insurance coverage because of cost and/oravailability. Because we retain some portion of our insurable risks, andin some cases self-insure completely, unforeseen or catastrophic losses inexcess of insured limits could materially adversely affect our results ofoperations and financial condition.

 

*Changesin our tax rates, the adoption of new U.S. tax legislation or exposure toadditional tax liabilities could affect our future results.*

 

Weare subject to taxes in Italy, the United States and numerous other foreignjurisdictions. Our future effective tax rates could be affected by changes inthe mix of earnings in countries with differing statutory tax rates, changes inthe valuation of deferred tax assets and liabilities, or changes in tax laws ortheir interpretation. In addition, the current U.S. administration and Congresshave recently announced proposals for new U.S. tax legislation that, ifadopted, could adversely affect our tax rate. Any of these changes could have amaterial adverse effect on our profitability. We also are regularly subject tothe examination of our income tax returns by the U.S. Internal Revenue Serviceas well as the governing tax authorities in other countries where we operate.We routinely assess the likelihood of adverse outcomes resulting from theseexaminations to determine the adequacy of our provision for taxes. Currently,some of our companies are under examination by the tax authorities in theUnited States. There can be no assurance that the outcomes of the currentongoing examinations and possible future examinations will not materiallyadversely affect our business, results of operations, financial condition andprospects.

 

**ITEM 4.INFORMATION ON THE COMPANY**

 

**OVERVIEW**

 

We are a leader in premium,luxury and sport/performance eyewear, with net sales reaching Euro 5.1 billionin 2009, approximately 60,000 employees and a strong global presence. Weoperate in two industry segments: (i) manufacturing and wholesaledistribution; 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,through Oakley, of performance optics products. We operate our retail segmentprincipally through our retail brands, which include, among others,LensCrafters, Sunglass Hut, Pearle Vision, ILORI, The Optical Shop of Aspen,OPSM, Laubman & Pank, Budget Eyewear, Bright Eyes, Oakley “O” Storesand Vaults, David Clulow and our Licensed Brands (Sears Optical and TargetOptical).

 

Founded in 1961 by LeonardoDel Vecchio, we are now a vertically integrated organization.  Our manufacturing of prescription and sunframes and lenses for sunglasses is backed by wide-reaching wholesale andretail distribution networks comprising over 6,200 retail locations as of December 31,2009, mostly in North America, Asia-Pacific and China.

 

Product design, developmentand manufacturing takes place in six production facilities in Italy, two whollyowned factories in China and two sports sunglasses production facilities in theUnited States. Luxottica also has a small plant in India serving the localmarket. In 2009, we produced approximately 48.7 million units.

 

The design and quality of ourproducts and our strong and well-balanced brand portfolio are known around theworld. Our house brands include Ray-Ban, one of the world’s best-known sunbrands, Oakley, Vogue, Persol, Oliver Peoples, Arnette and REVO, and ourlicensed designer brands include Bvlgari, Burberry, Chanel, Dolce &Gabbana, Donna Karan, Polo Ralph Lauren, Paul Smith, Prada, SalvatoreFerragamo, Stella McCartney, Tiffany, Tory Burch and Versace.

 

Our wholesale distributionnetwork, covering 130 countries across five continents, has 16 logisticscenters and 43 commercial subsidiaries providing direct operations in keymarkets. We are currently seeking to penetrate emerging markets and areexploring new channels of distribution, such as shopping centers, airports andrailway stations, in the geographic markets that we currently serve.

 

Our direct wholesaleoperations are complemented by an extensive retail network. We are a leader inthe prescription business in North America with our LensCrafters and PearleVision brands, in Asia-Pacific with our OPSM, 

 

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Laubman & Pank andBudget Eyewear brands, and in China with our LensCrafters brand. In our retailsun business, we operate 2,283 retail locations in North America, Asia-Pacific,South Africa, Europe and the Middle East, mainly through the Sunglass Hutbrand. In 2009, we created a new global sun and luxury retail management groupto support the Sunglass Hut, Ilori, The Optical Shop of Aspen and Bright Eyesbrands and reinforce our global retail brands dedicated to sun and luxuryeyewear. This management group focuses on redefining our customer experience toallow us to leverage the opportunities for growth into new and existingmarkets.

 

In North America, we operateour Licensed Brands points of sale, with over 1,200 stores under the SearsOptical and Target Optical brands. In addition, we are one of the largestmanaged vision care operators in the United States, through EyeMed, and thesecond biggest lens finisher, having a network of five central laboratories andover 900 on-site labs at LensCrafters stores.

 

In 2009, we distributedapproximately 19.7 million prescription frames and approximately 35.3million sunglasses, in approximately 6,400 different styles.

 

Our Oakley brand provides apowerful wholesale and retail (“O Stores”) presence in both the performanceoptics and the sport channels.  In our OStore locations, we offer a variety of Oakley-branded products in addition toour Oakley sunglass styles. Our Oakley-branded products include men’s and women’sapparel, footwear, backpacks and accessories designed for surf, snow,golf, outdoor, motor sport, mountain bike and other athletic lifestyles.

 

Ourcapital expenditures for our continuing operations were Euro 200.4 million forthe year ended December 31, 2009 and Euro 31.7 million for the three-monthperiod ended March 31, 2010. We expect 2010 aggregate capital expendituresto be approximately Euro 210 million, excluding any additional investments forbusiness acquisitions. The most significant investments planned are for theremodeling of existing stores for our North American retail operations and forinvestment in new IT infrastructure worldwide. We will fund these futurecapital expenditures with our current available borrowing capacity andavailable cash. For a description of capital expenditures for the previousthree years, see Item 5—“Operating and Financial Review and Prospects—Liquidityand Capital Resources—Cash Flows—Investing Activities.”

 

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

 

**HISTORY**

 

**Founding**

 

Luxottica Group was founded by Leonardo Del Vecchio in1961, when he set up Luxottica di Del Vecchio e C. S.a.S., which became ajoint-stock company organized under the laws of Italy under the name ofLuxottica S.p.A. in 1964.  Westarted out as a small workshop and operated until the end of the 1960s as acontract producer of dyes, metal components and semi-finished goods for theoptical industry. We gradually widened the range of processes that we offereduntil we had an integrated manufacturing structure capable of producing afinished pair of glasses. In 1971, our first collection of prescription eyewearwas presented at Milan’s MIDO (an international optics trade fair), marking ourdefinitive transition from contract manufacturer to independent producer.

 

**Expansion in WholesaleDistribution**

 

In the early 1970s, we soldour frames exclusively through wholesalers. In 1974, after five years ofsustained development of our manufacturing capacity, we started to pursue astrategy of vertical integration, with the goal of distributing frames directlyto the market. Our first step was the acquisition of Scarrone S.p.A., which hadmarketed our products since 1971, and which brought with it vital knowledge ofthe Italian market.

 

Our international expansionbegan in the 1980s with the acquisition of independent distributors, theopening of branches and the forming of joint ventures in key internationalmarkets.  Our international wholesaledevelopment started with the opening of the first commercial subsidiary inGermany in 1981 and continued with the acquisition of Avant-Garde Optics Inc.,a wholesale distributor in the U.S. market, in the mid-1980s and theacquisition of Mirari, a distributor in Japan, in the 1990s. Our internationalexpansion continues today as we open new distribution channels in emerging markets.

 

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**Eyewear:  A New Frontier of Fashion**

 

Throughout our history, we have invested in our products. Our acquisitionin 1981 of La Meccanoptica Leonardo, the owner of the Sferoflex brand and animportant flexible hinge patent, enabled us to enhance the image and quality ofour products and increase our market share.

 

Beginning in the late 1980s, eyeglasses, previously perceived as meresight-correcting instruments, began to evolve into “eyewear.” Continualaesthetic focus on everyday objects and interest on the part of designers inthe emerging accessories industry led us, in 1988, to embark on our firstcollaboration with the fashion industry by entering into a licensing agreementwith Giorgio Armani. We followed up that initial collaboration (the Armanilicense was terminated in 2003) with numerous others, gradually building ourcurrent world-class brand portfolio featuring names like Bvlgari (1996),Salvatore Ferragamo (1998), Chanel (1999), Prada (2003), Versace (2003), DonnaKaran (2005), Dolce & Gabbana (2006), Burberry (2006), Polo RalphLauren (2007), Tiffany (2008), Stella McCartney (2009) and Tory Burch (2009).

 

As for our house brands, weexpanded in the sun business by buying Vogue (1990), Persol (1995), Ray-Ban(1999) and Oakley (2007).

 

**Financial Markets**

 

In 1990, we listed ourAmerican Depositary Shares (“ADSs”) on the New York Stock Exchange. In 2000, ourstock was listed on Borsa Italiana’s electronic share market and has been inItaly’s Mercato Telematico Azionario (MTA) since 2003.

 

**Entry Into RetailDistribution**

 

In 1995, we acquired The United States Shoe Corporation, which ownedLensCrafters, one of North America’s largest optical retail chains. As aresult, we became the world’s first significant eyewear manufacturer to enterthe retail market, thereby maximizing synergies with our production andwholesale distribution and increasing penetration of our products throughLensCrafters stores.

 

**Ray-Ban**

 

In 1999, we acquired Ray-Ban, one of the world’s best-known sunglassbrands. Through this acquisition, we obtained crystal sunglass lens technologyand the associated manufacturing capacity and upgraded our portfolio withbrands like Arnette, REVO and Killer Loop.

 

After we acquired Ray-Ban, weengaged in extensive advertising campaigns to re-launch the brand and torestore its prestige which we believe had waned in the 1990s.

 

**A Decade of Growth**

 

Since 2000, we havestrengthened our retail business by acquiring a number of chains, includingSunglass Hut (2001), a leading retailer of premium sunglasses, OPSM Group(2003), a leading optical retailer in the Asia-Pacific region, and ColeNational (2004), which brought with it another leading optical retail chain inNorth America, Pearle Vision, and an extensive Licensed Brands store business.In 2005, we began our retail expansion into China, where LensCrafters has sincebecome a leading brand in China’s high-end market. In 2006, we started toexpand Sunglass Hut globally in high-potential markets like the Middle East,South Africa, Thailand, India and the Philippines.

 

During this time, our wholesale segment has supported our new licensingagreements with an increasing commitment to research, innovation, productquality and manufacturing excellence, while we continue to focus ourdistribution expansion on customer differentiation and emerging sales channels,such as large department stores and travel retail.

 

**Oakley**

 

In 2007, we acquiredCalifornia-based Oakley, a leading sports and performance brand, for U.S.$ 2.1billion. Oakley, a brand known and appreciated worldwide, owns the OliverPeoples brand and a license to manufacture and distribute the Paul Smith brand,as well as its own retail network of over 160 stores.

 

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**RECENT DEVELOPMENTS**

 

On January 5, 2010, the minority stockholders of Luxottica GozlucEndustri ve Ticaret Anonim Sirketi, our Turkey-based subsidiary, notified us oftheir intention to exercise the put option to sell to us a 35.16% interest insuch subsidiary.  The purchase price willbe approximately Euro 61.5 million.  Theexercise of the put option will result in this becoming a wholly-ownedsubsidiary.  The sale is expected toclose in May 2010, subject to approval by Turkish antitrust authorities.

 

On January 29,2010, our subsidiary Luxottica U.S. Holdings Corp. closed a private placementof U.S. $175 million of senior unsecured guaranteed notes, issued in threeseries (Series D, Series E and Series F).  See Item 5 —“Operating and Financial Reviewand Prospects — Liquidity and Capital Resources — Our Indebtedness — Our OtherDebt Financings.”

 

In February 2010,Luxottica and Essilor International formed a long-term joint venturefor the Australian and New Zealand markets. The joint venture will manageEyebiz Pty Limited, Luxottica’s Sydney-based optical lens finishing laboratory,which, as a result of this alliance, will be majority-controlled by Essilor. Eyebizwill continue to supply all of Luxottica’s retail optical outlets in Australiaand New Zealand: OPSM, Budget Eyewear and Laubman & Pank.

 

On March 9, 2010, ourBoard of Directors convened a stockholders’ meeting for April 29, 2010, toapprove the distribution of a cash dividend. See Item 3 — “Key Information — Dividends.”

 

On March 31, 2010, weannounced the five-year extension of our license agreement with Retail BrandAlliance, Inc. for the design, production and worldwide distribution ofprescription frames and sunglasses under the Brooks Brothers brand.  The terms of the license agreement weresubstantially unchanged from our previous agreement and we have an option foran additional five-year extension under the same terms.

 

On April 16, 2010, weannounced that starting with the first quarter of fiscal year 2010 and for allfuture reporting periods we will report our financial results in accordancewith the International Financial Reporting Standards as issued by theInternational Accounting Standards Board in all financial communicationsincluding reports to the SEC.  Up to andincluding the 2009 fiscal year, we had been reporting our financial resultsunder U.S. GAAP, which we used since our initial listing on the New York StockExchange.

 

**DESIGN AND PRODUCTDEVELOPMENT**

 

Our success depends on, among other things, product design and thecontinuous development of new styles. Each year, we add approximately 2,300 newstyles to our eyewear collections.

 

Inour design process, we seek to merge technology and creativity.  Our designers strive for innovation andtechnology and treat eyewear as art, as objects to put on display.  In designing products, they survey markettrends but draw mostly on their imagination and creativity.

 

Our in-house designers oversee the entire concept phase of the creativeprocess, culminating in the creation of the model. At the initial phase, theprototype makers transform designs into one-off pieces, crafted by hand withmeticulous precision.

 

Once the prototypes or style concepts are developed in the initial phase ofdesign, they are passed on to the product department, which uses 3D software toanalyze the steps necessary to bring the prototype to mass production.

 

Three main manufacturing technologies are involved, metal, acetate slabsand plastic (injection molding).

 

At this point in the cycle, the tooling shop puts together equipment neededto make the components for the new model. The first specimens obtained areassembled and undergo a series of tests required by internal quality controlprocedures.

 

The next steps are production and quality certification of sales samples ofthe new models. These samples are subjected to a sequence of tests to ascertainthe quality of what has been engineered so far.

 

The final step is the production of an initial significant batch usingdefinitive tooling certified by an external standards organization, which isproduced in a pilot facility accurately representing the Luxottica plant chosento mass produce the new model to meet the needs of production planning.

 

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For our designer lineproducts, our design team works with licensors to discuss the basic themes andfashion concepts for each product and then works closely with each licensor’sdesigners to refine such themes. In addition, our design team works directlywith our marketing and sales departments, which monitor demand for our currentmodels as well as general style trends in eyewear. The information obtainedfrom our marketing and sales departments is then used to refine existingproduct designs and market positioning in order to react to changing consumerpreferences.

 

**BRAND PORTFOLIO**

 

Our brand portfolio is one ofthe largest in the industry, with our major global brands backed by leadingbrands both at a regional level and in particular segments and niche markets.Our portfolio is balanced between house and licensed designer brands, combiningthe stability and volumes of the former with the prestige and high margins ofthe latter.

 

The presence of Ray-Ban, one of the world’s best-selling brands of sunand prescription eyewear, and Oakley, a leader in the sport/performancecategory, gives the portfolio a strong base, complemented by Persol and OliverPeoples in the high end of the market, the Arnette and REVO brands in thesports market, and Vogue.

 

Alongside the house brands,which accounted for over 71% of all units sold in 2009, our portfolio has over20 licensed designer brands, including some well-known and prestigious names inthe global fashion and luxury industries. With our manufacturing know-how,capillary distribution and direct retail operations supported by targetedadvertising and our experience in international markets, our goal is to be theideal partner for fashion houses and stylists seeking to translate their styleand values into successful premium quality eyewear collections.  We differentiate each designer’s offering asmuch as possible, meticulously segmenting it by type of customer and geographicalmarket, to produce a broad range of models capable of satisfying the mostdiverse tastes and tendencies and to respond to the demands and characteristicsof widely differing markets.

 

During 2009, we renewed our partnerships with Salvatore Ferragamo, oneof our oldest licenses, dating back to 1998, Donna Karan, whose first eyewearcollection was launched by us in 2005, and Versace, extending our licenses from2011 to 2013, from 2014 to 2019 and from 2012 to 2022, respectively.

 

In addition, we signed an exclusive license agreement with Tory BurchLLC for the design, manufacture and worldwide distribution of prescriptionframes and sunglasses under Tory Burch and TT, two emerging American fashionand lifestyle brands. We launched the first eyewear collection under the ToryBurch name in November 2009 and it is currently distributed in the UnitedStates through Tory Burch boutiques, select department stores and independentoptical locations, as well as our retail chains in North America. Thiscollection will be extended across Europe and the rest of the world in 2011.The agreement, which runs for six years and is renewable for an additionalfive, is consistent with the 10-year average duration of our licenses withfashion houses and stylists, allowing for improved investment planning andgreater realization of the value of collections. Finally, we also launched thefirst Stella McCartney sunglass collection in November 2009 in Europe andthe United States.

 

The following tablepresents the respective percentages of our consolidated total unit (a “unit”represents an eyeglass frame or pair of sunglasses and excludes sales of othermaterials) sales comprised by our designer and house brands during the periodsindicated:

 
| ** **      | ** ** | **Year  Ended December 31,**         | ** ** |
|-----------------|------------|-------------------------------------------|------------|
| ** **      | ** ** | **2009**                                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **      | ** ** | **(as a percentage of total unit sales)** | ** ** |
| Designer brands |       | 28.3                                      |       | 33.0 |   | 42.7 |   | 41.2 |   | 35.9 |   |
| House brands    |       | 71.7                                      |       | 67.0 |   | 57.3 |   | 58.8 |   | 64.1 |   |

 

The following tablepresents the respective percentages of our total sales comprised by ourprescription frames and lenses and sunglasses for the periods indicated:

 
| ** **                     | ** ** | **Year  Ended December 31,**                          | ** ** |
|--------------------------------|------------|------------------------------------------------------------|------------|
| ** **                     | ** ** | **2009**                                                   | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                     | ** ** | **(as a percentage of total sales of frames and  lenses)** | ** ** |
| Prescription frames and lenses |       | 51.5                                                       |       | 52.8 |   | 57.7 |   | 60.7 |   | 61.6 |   |
| Sunglasses                     |       | 48.5                                                       |       | 47.2 |   | 42.3 |   | 39.3 |   | 38.4 |   |

 

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**House Brands**

 

In 2009, we developed approximately 500 distinct new styles within ourhouse brands, of which approximately 300 are optical and 200 are sun. Eachstyle is typically produced in two sizes and five colors.

 

*Ray-Ban*

Style, tradition andfreedom of expression are the key values underpinning the philosophy of Ray-Ban,a leader in sun and prescription eyewear for generations. Debuting in 1937 withthe Aviator model created for American Air Force pilots, Ray-Ban joinedLuxottica’s brand portfolio in 1999. Ray-Ban is recognized for the quality andauthenticity of its eyewear and is worn by countless celebrities andtrendsetters all over the world.

 

*Oakley*

Acquired by Luxottica in2007, Oakley is a leading sports eyewear brand, known for its blend oftechnology, design and art across all its products. In addition to its sun andprescription eyewear and ski goggles, it offers branded apparel, footwear andaccessories in collections addressing specific consumer categories:Sport/Active, Lifestyle and Women. Oakley is also well-known for its lenstechnologies and especially its High Definition Optics® (HDO®).

 

*Arnette*

Launched in California in1992, Arnette was acquired by us in 1999, and combines the comfort andfunctionality demanded by extreme sports enthusiasts.

 

*EyeSafety Systems*

Acquired by us in 2007, *ESS*designs,**develops andmarkets advanced eye protection systems for military, firefighting and lawenforcement professionals and is a leading supplier of protective eyewear tothe U.S. military and firefighting markets.

 

*K&L*

Created in 1989, KillerLoop joined our brand portfolio in 1999. It gradually evolved from a generalsports style to embody a more “urban” spirit. In 2008 it took on a new name,K&L, and launched a project for collections specifically addressing thepreferences of consumers in emerging markets while maintaining globaldistribution.

 

*Luxottica*

Launched in 1967, ouroriginal line best conveys the experience and tradition that are its essence.The brand broadened its range with Luxottica Titanium, a collection for peoplewho prefer super-lightweight frames of elegant design.

 

*MosleyTribes*

Launched in 2005 and partof our brand portfolio since 2007, Mosley Tribes combines design and aestheticswith a vision of the urban lifestyle and sports performance worlds. The sleekand stylish frames use titanium and injected plastic for a lightweight design,ideal for active individuals. Most frames feature advanced lens technology.

 

*OliverPeoples*

Acquired by Luxottica in2007, Oliver Peoples began in 1987 with the introduction of a retro-inspiredeyewear collection created by designer and optician Larry Leight. All eyewearis handcrafted from the finest quality materials, in colors exclusive to OliverPeoples. Frames are manufactured in limited quantity and with deliberateanti-logo labeling so that only people “in the know” will recognize them.

 

*Persol*

Persol made its debut in1917 and was acquired by us in 1995. With its evocative name, meaning “for sun”,it is the proud heir to a culture of excellence and craftsmanship, a perfectalchemy of aesthetics and technology. The high quality makes the brand afavorite among celebrities.

 

*Revo*

Created in 1985 andacquired by us in 1999, REVO is characterized by an innovative lens based on atechnology that NASA developed for satellite portholes, offering maximumprotection against ultraviolet and infrared light.

 

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*Sferoflex*

Sferoflex, which joinedour portfolio in 1981, takes its name from the patented flexible hinge enablingthe temples to conform to the shape and size of the face, thus increasing theresilience of the frame itself and ensuring perfect fit.

 

*Vogue*

Launched in 1973 underthe same name as the famous fashion magazine, the Vogue brand was acquired byus in 1990. Vogue models speak through their innovative designs, their varietyof colors and frames and the detailing on the temples.

 

**Licensed Designer Brands**

 

Our designer lines are produced and distributed through license agreementswith major fashion houses. The license agreements are exclusive contracts andtypically have terms of between three and ten years. See “—License Agreements.”Designer collections are developed through the collaborative efforts of ourin-house design staff and the brand designers. Our designer lines presentlyfeature approximately 1,145 different styles.

 

*Anne Klein*

This product line targets successful professionalwomen who place an emphasis on quality and image. The license dates back to2002.

 

*Brooks Brothers*

Characterized by lightweight materials and a slenderline, the Brooks Brothers collections reflect the iconic features of the styleof this American brand. This is an affordable product line with classic stylethat delivers functionality, lightness and high quality. We entered into theoriginal license agreement in 1992.

 

*Bvlgari*

Under license since 1997, Bvlgari eyewear isdistinguished by the high quality of its materials, attention to detail andelegant design. This product line addresses a clientele who seek a distinctiveand exclusive product.

 

*Burberry*

The Burberry license agreement was signed in 2005,with the launch of the first eyewear collection in 2006. This collectionfeatures the brand’s core values of form and function, innovation and theessence of classic style.

 

*Chanel*

In 1999, Luxottica was the first company licensed toproduce Chanel eyewear products. The Chanel product line, targetingluxury-oriented consumers, reflects the essential characteristics of the brand:style, elegance and class.

 

*Dolce & Gabbana*

Under license since 2005, Dolce & Gabbanaeyewear collections are characterized by modern, fashionable shapes, prestigematerials and sumptuous detailing, such as logos in Swarovski crystals orelegant metal circles.

 

*D&G*

The D&G eyewear collection has a youthful,innovative and unconventional spirit. The eyewear collection emphasizes thespirit of the brand: innovative, provocative and cosmopolitan.

 

*Donna Karan*

This product line reflects the design sensibility andspirit of the Donna Karan collection, offering women sophisticated styling inmodern and lightweight materials.

 

*DKNY*

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

 

*Fox*

Fox Eyewear collections are the result of a multi-yearlicensing agreement with Fox Head, Inc., a leading motocross and actionsport brand based in California. Fox eyewear and ski goggles have been on themarket for over five years and are currently the only brand other than Oakleyto use High Definition Optics® (HDO®) technology. Fox Eyewear joined Luxottica’sbrand portfolio at the end of 2007.

 

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*Miu Miu*

The Miu Miu brand addresses a sophisticated,free-and-easy clientele particularly attentive to new trends and expressesMiuccia Prada’s vision of an alternative style, always characterized by astrong personality.

 

*Paul Smith*

The Paul Smith Spectacles brand, which launched in1994, includes prescription and sun eyewear featuring the whimsical yet classicdesigns and attention to detail that are synonymous with one of Britain’sleading fashion designers.

 

*Polo Ralph Lauren: Polo RalphLauren is comprised of six collections:*

 

*Chaps*

Chaps features easy-to-wear designs in the classictradition of Polo Ralph Lauren. The line offers a designer name to the youngconsumer of competitively priced sportswear.

 

*Club Monaco*

Club Monaco offers quality eyewear of style andaffordable luxury. The styling targets men and women between 20 and 40 who areurban professionals and other style enthusiasts who appreciate design atmid-level prices.

 

*POLO*

The Polo collection focuses on refined designs,inspired by the heritage of Polo Ralph Lauren apparel. This collection featuresemblematic models that are classic and never out of style.

 

*RALPH*

This women’s line is anexpression of the Ralph Lauren spirit at an accessible price point. It featuresthe latest looks and trends, as well as some more classic looks, and vibrantcolors for a feminine, flirty and fun look.

 

*Ralph Lauren Purple Label*

The exclusive Purple Label eyewear collection combinesthe elegance of tradition with the requirements of the modern gentleman: highquality, precious materials, details and style.

 

*RALPH LAUREN*

The Ralph Lauren eyewear collection embraces ayouthful sophisticated elegance that mixes refined luxury with cinematicglamour and an air of mystery.

 

*PRADA*

The Prada license agreement was signed in 2003. Pradacollections offer a range of optical frames and sunglass collections, as wellas a series of models created for leisure, identified by the brand’sunmistakable red stripe.

 

*Salvatore Ferragamo*

Salvatore Ferragamo collections are characterized bylavish attention to detail, original use of materials and creative choice ofcolors. The eyewear collection is inspired by the tradition of craftsmanship ofthis fashion house, reinterpreted in a contemporary mode.

 

*Stella McCartney*

Stella McCartney eyewear reflects the sense ofmodernity and innovation that the stylist shows in her creation of desirablefashion, combining everyday functionality with a strong fashion sensibility.

 

*TIFFANY & CO.*

For 169 years, Tiffany & Co. has designed andproduced standard-setting jewelry and accessories. The first collection ofTiffany & Co. eyewear, launched exclusively by Luxottica in early2008, remains true to the brand’s highest standards.

 

*Tory Burch*

Under license since 2009, Tory Burch is an attainableluxury lifestyle brand defined by classic American sportswear with an eclecticsensibility, which embodies the personal style and spirit of its co-founder andcreative director, Tory Burch.

 

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*VERSACE*

Versace, under license since 2003, is a lifestylebrand for modern men and women who choose to express strength, confidence anduniqueness through a bold and distinctive personal style.

 

*VERSUS*

While staying true to the essence of the Versacebrand, Versus, under license since 2003, embodies a younger, edgier take onthose themes.

 

**MANUFACTURING**

 

**Plants and Facilities**

 

Our primary manufacturingfacilities are located in Italy, China and the United States. In 2009, 2008 and 2007, our manufacturingfacilities produced a combined total of approximately 48.7 million, 50.1million and 41.8 million prescription frames and sunglasses, respectively.

 

We have six manufacturingfacilities in Italy: five in northeastern Italy, the area in which most of thecountry’s optical industry is based, and one near Turin. All of thesefacilities are highly automated, which has made it possible for us to maintaina high level of production without significant capital outlay.

 

Over the years, we haveconsolidated our manufacturing processes by concentrating a specific productiontechnology in each of the Italian facilities. This consolidation has enabled usto improve both the productivity and quality of our manufacturing operations.We make plastic frames in the Agordo, Sedico, Pederobba and Laurianofacilities, while we produce metal frames in Agordo and Rovereto. We producecertain metal frame parts in the Cencenighe plant. The Lauriano facility alsomakes crystal and polycarbonate lenses for sunglasses.

 

In 2006, we modernized our operations in Italy bybuilding a new approximately 32,000 square-meter manufacturing facility toproduce acetate frames and sunglasses for a total investment of approximatelyEuro 20.0 million. In 2007, we further expanded our manufacturingfacilities in Italy by approximately 28,000 square meters in order torationalize the product production flow, for a total investment ofapproximately Euro 23.4 million. We were able to re-dedicate one of our formerfacilities to our logistics operation for a total investment of Euro 6.2million.

 

From 1998 to 2001, we operated, through our 50percent-owned joint venture (Tristar Optical Company Ltd.) with a Japanesepartner, a facility in China to manufacture prescription frames. In 2001, weacquired the remaining 50 percent interest in this Chinese manufacturer. In2006, we increased our manufacturing capacity in China through the constructionof a new approximately 26,000 square-meter manufacturing facility to produceboth metal and plastic frames for a total investment of approximately Euro 20.0million. After the construction of this new facility, our annual averagedaily production in China increased by approximately 80 percent compared to2005.  In 2007, we further expanded ourmanufacturing capacity in China by approximately 74,000 square meters, for atotal investment of approximately Euro 7.2 million. The percentage of privatelabel products produced at our facilities in China has been decreasing in favorof increased production of certain of our core, fashion and North Americanbrands.

 

Our Dongguan plants, in China’sGuangdong province, make both plastic and metal frames.

 

Our Foothill Ranch facility inCalifornia manufactures high-performance sunglasses and prescription frames andlenses and assembles most of Oakley’s eyewear products, while Oakley’smanufacturing center in Dayton, Nevada produces the frames used in its X Metal®(a proprietary alloy) eyewear products. We also operate a small plant in Indiaserving the local market.

 

In 2009, approximately 46percent of all frames manufactured by us were metal-based, and the remainderwas plastic.

 

The manufacturing process forboth metal and plastic frames begins with the fabrication of precision toolingand molds based on prototypes developed by in-house designers and engineeringstaff. We seek to use our manufacturing capacity to reduce the lead time forproduct development and thereby adapt quickly to market trends and to containproduction costs, as well as maintain smaller and more efficient productionruns so that we can better respond to the varying needs of different markets.

 

The manufacturing process formetal frames has approximately 70 phases, beginning with the production ofbasic components such as rims, temples and bridges, which are produced througha molding process. These components are then 

 

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welded together to form framesover numerous stages of detailed assembly work. Once assembled, the metalframes are treated with various coatings to improve their resistance andfinish, and then prepared for lens fitting and packaging.

 

We manufacture plastic framesusing either a milling process or injection molding. 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 into molds. The plastic parts are then assembled, coated, finishedand packaged.

 

We engage in research and development activities relating to ourmanufacturing processes on an on-going basis. As a result of such activities,we have invested and will continue to invest in automation and in innovativetechnologies, thus increasing efficiency while improving quality. Costsassociated with research and development activities are expensed when incurredand are not significant.

 

We utilize third-partymanufacturers to produce Oakley apparel, footwear, watches,electronically-enabled eyewear and certain goggles.

 

**Suppliers**

 

The principal rawmaterials and parts purchased for the manufacturing process include plasticresins, metals, lenses and frame parts.

 

We purchase asubstantial majority of raw materials in Europe and, to a lesser extent, inAsia and the United States. In addition, we use certain external suppliers forframes, lenses, eyeglass/frame cases and packaging materials.

 

Historically, prices ofthe principal raw materials used in our manufacturing process have been stable.

 

We have built strongrelationships with our major suppliers. With most suppliers, we maintainagreements that prohibit disclosure of our proprietary information ortechnology to third parties. Although our Oakley subsidiary relies on outsidesuppliers for most of the specific molded components of its glasses, goggles,watches and footwear, it generally retains ownership of the molds used in theproduction of the components. We believe that most of the components can be obtainedfrom one or more alternative sources within a relatively short period of time,if necessary or desired. In addition, to further mitigate risk, we havedeveloped an in-house injection molding capability for sunglass lenses.

 

Essilor S.A**.** has become one of the largest suppliers of our retailoperations, accounting for 9% of our total merchandise purchases in 2009 and12% in 2008. Although we do not have formal, long-term contracts with Essiloror any of our other suppliers, we have not experienced any significantinterruptions in our supplies. We believe that the loss of Essilor S.A. or anyof our other vendors would not have a significant impact on our futureoperations as we could replace them quickly with other third-party suppliers.For additional information, see Note 14 to our Consolidated FinancialStatements included in Item 18 of this annual report.

 

**Quality Control**

 

The “Made in Italy” feature of Luxottica products represents the “cultureof quality” that has been central to our organization.

 

Most of the manufacturing equipment that we use is specially designedand adapted for our manufacturing processes. This helps us to respond morequickly to customer demand and adhere to strict quality-control standards.

 

Quality and process control teams regularly inspect semi-finishedproducts during the various phases of production, verifying the feasibility ofprototypes in the design phase, controlling standards across the spectrum ofproducts in the production phase, and subsequently checking for resistance towear and tear and reviewing optical properties in relation to type of use. Themanufacturing processes and materials used by primary suppliers are alsocontrolled and certified. Through ongoing verification of precision andexpertise in all phases of production, we seek to manufacture products of thehighest quality.

 

Wedesign products to meet or exceed relevant industry standards for safety,performance and durability. Throughout the development process, our opticsproducts undergo extensive testing against standards established specificallyfor eyewear by ANSI (Z.80.3), ASTM, Standards Australia Limited (AS 1067) andEU (EN 1836 and ISO EN 12870). These 

 

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standardsrelate to product safety and performance and provide quantitative measures ofoptical quality, UV protection, light transmission and impact resistance.

 

Due to the efficiency ofour quality controls, the return rate for defective merchandise manufactured byus is approximately one percent**.**

 

**DISTRIBUTION**

 

We operate in all the world’s major eyewear markets and continue toexpand in emerging markets.

 

Direct distribution in key markets makes it possible for us to maintainclose contact with clients and maximize the image and visibility of our brands.Further, our experience in direct operation of stores in certain of our moreimportant markets has given us a unique understanding of the world’s eyewearmarkets. All this makes it possible to achieve tight control and strategicoptimization of brand diffusion, both house brands and licensed designerbrands.

 

In emerging markets, we have made substantial investments in the lastfew years and intend to expand and strengthen our distribution platform.

 

**Our Principal Markets**

 

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

 
| ** **              | ** ** | **Year  Ended December 31,** | ** ** |
|-------------------------|------------|-----------------------------------|------------|
| ** **              | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **              | ** ** | **(In thousands of Euro)**        | ** ** |
| European Retail         |       | 92,054                            |       | 64,572 |   | 57,973 |   |
| European Wholesale      |       | 980,359                           |       | 1,067,893 |   | 1,006,601 |   |
| North America Retail    |       | 2,591,689                         |       | 2,599,003 |   | 2,744,454 |   |
| North America Wholesale |       | 474,248                           |       | 497,517 |   | 297,224 |   |
| Asia-Pacific Retail     |       | 442,105                           |       | 435,859 |   | 453,220 |   |
| Asia-Pacific Wholesale  |       | 199,552                           |       | 209,980 |   | 143,004 |   |
| Other Retail            |       | 13,131                            |       | 9,711 |   | 6,667 |   |
| Other Wholesale         |       | 301,181                           |       | 317,076 |   | 256,911 |   |
| Total                   |       | 5,094,318                         |       | 5,201,611 |   | 4,966,054 |   |

 

**Logistics**

 

Our distribution system isglobally integrated and supplied by a centralized manufacturing programmingplatform. The network linking the logistics and sales centers to the productionfacilities in Italy and China also provides daily monitoring of global salesperformance and inventory levels so that manufacturing resources can be programmedand warehouse stocks re-allocated to meet local market demand. This integratedsystem serves both the retail and wholesale businesses and is one of the mostefficient and advanced logistics systems in the industry, with 23 distributioncenters worldwide, of which 10 are in the Americas, 8 are in the Asia-Pacificregion and 5 are in the rest of the world.

 

We have three maindistribution centers (hubs) in strategic locations serving our major markets:Sedico in Europe, Atlanta in the Americas and Dongguan in the Asia-Pacificregion. They operate as centralized facilities, offering customers a highlyautomated order management system that reduces delivery times and keeps stocklevels low.

 

The Sedico hub was opened in2001 and updated with a new automated system in 2006. It currently manages over24,400 orders per day, including eyeglasses and spare parts. Sedico ships over145,200 units daily to customers in Europe, the Middle East and Africa and toour distribution centers in the rest of the world, from which they are thenshipped to local customers.

 

The Sedico hub enabled us to close the local warehouses throughoutEurope that characterized the previous distribution system, improving the speedand efficiency of our distribution, as well as eliminating unnecessaryoverhead. During 2009, the information system SAP (Systems, Applications andProducts in Data Processing) was implemented in the Sedico distributioncenter.  The new system has allowed us to efficiently control and allocateour customers’ orders.

 

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We plan to implement the SAP system in our Chinese distribution centerin 2010 and to our remaining warehouses around the world in 2011.

 

The Atlanta facility, openedin 1996, has consolidated several North America-based facilities into a singlestate-of-the-art distribution center located close to one of the major airporthubs of the United States. This facility has a highly advanced cross-beltsorting system that can move up to 140,000 frames per day at a conveyor beltspeed of 1.5 meters a second. In late 2009, the facility, which was originallya retail-only distribution center, started serving both our retail andwholesale businesses in the North American market.

 

**Wholesale Distribution**

 

Our wholesale distributionstructure covers more than 130 countries, with 43 directly controlled ormajority-owned operations in the major markets and approximately 100 independentdistributors in other markets. Each wholesale subsidiary operates its ownnetwork of sales representatives who are normally retained on a commissionbasis. Relationships with large international, national and regional accountsare generally managed and serviced by employees.

 

Customers of our wholesale business are mostlyretailers of mid- to premium-priced eyewear, such as independent opticians,optical retail chains, specialty sun retailers and duty-free shops. In NorthAmerica and other areas, the main customers also include independentoptometrists and ophthalmologists and premium department stores.

 

We also distribute certain brands, includingOakley, to sporting goods stores and specialty sports stores, including bike,surf, snow, skate, golf and motor sports stores.

 

We seek to provide ourwholesale customers with pre- and post-sale services to enhance their business.These services are designed to provide customers with the best product and in atime frame and manner that best serve our customers’ needs.

 

Wemaintain close contact with our distributors in order to monitor sales andcontrol the quality of the points of sale that display our products. Wetypically enter into distribution agreements with importers and distributorsthat establish minimum annual purchases and impose territorial limitations. Inaddition, to the extent permitted by law, we allow distribution only throughspecifically authorized retail channels and qualified sales agents. No single customer or group of related customersaccounted for more than five percent of our consolidated net sales in any ofthe past three years. We do not believe that the loss of any single customerwould have a material adverse effect on our financial condition or results ofoperations.

 

**Retail Distribution**

 

With a strong portfolio of retail brands, we are well positioned to reachdifferent segments of the market. The retail portfolio offers a variety ofdifferentiation points for consumers, including the latest in designer andhigh-performance sun frames, advanced lens options, advanced eye care, everydayvalue, and high-quality vision care health benefits.

 

As of March 31, 2010, our retail business consisted of 5,809corporate stores and 536 franchised or licensed locations as follows:

 

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| ** **                           | ** ** | **North  America** | ** ** | **Asia-  Pacific** | ** ** | **China /  Hong  Kong** | ** ** | **Europe** | ** ** | **Africa  and  Middle  East** | ** ** | **South  Africa** | ** ** | **Central  and  South  America** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|--------------------|------------|--------------------|------------|-------------------------|------------|------------|------------|-------------------------------|------------|-------------------|------------|----------------------------------|------------|-----------|------------|
| LensCrafters                         |       | 953                |       |               |       | 236                     |       |       |       |                          |       |              |       |                             |       | 1,189     |       |
| Pearle  Vision                       |       | 392                |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 392       |       |
| Sunglass  Hut (1)                    |       | 1,780              |       | 259                |       | 5                       |       | 76         |       |                          |       | 89                |       |                             |       | 2,209     |       |
| Ilori and The Optical Shop of Aspen  |       | 46                 |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 46        |       |
| Oliver Peoples                       |       | 6                  |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 6         |       |
| Oakley  retail locations (2)         |       | 114                |       | 15                 |       |                    |       | 12         |       |                          |       | 2                 |       | 4                                |       | 147       |       |
| Sears  Optical                       |       | 852                |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 852       |       |
| Target  Optical                      |       | 312                |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 312       |       |
| OPSM                                 |       |               |       | 347                |       |                    |       |       |       |                          |       |              |       |                             |       | 347       |       |
| Laubman &  Pank             |       |               |       | 85                 |       |                    |       |       |       |                          |       |              |       |                             |       | 85        |       |
| Budget  Eyewear                      |       |               |       | 99                 |       |                    |       |       |       |                          |       |              |       |                             |       | 99        |       |
| Bright  Eyes                         |       |               |       | 55                 |       |                    |       |       |       |                          |       |              |       |                             |       | 55        |       |
| David  Clulow                        |       |               |       |               |       |                    |       | 70         |       |                          |       |              |       |                             |       | 70        |       |
| Franchised  or licensed locations(3) |       | 374                |       | 113                |       |                    |       | 11         |       | 34                            |       |              |       | 4                                |       | 536       |       |
|                                 |       | 4,829              |       | 973                |       | 241                     |       | 169        |       | 34                            |       | 91                |       | 8                                |       | 6,345     |       |

 

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(1)    Includes Sunglass Icon locations.

 

(2)    Includes Oakley “O” Stores andVaults.

 

(3)    Includes primarily franchised andlicensed locations for Pearle Vision (363 locations) and Bright Eyes (84locations), with the remaining locations for Budget Eyewear, David Clulow,Sunglass Hut, Oakley “O” Stores and Vaults, Oliver Peoples and otherChinese brands.

 

Our retail stores sellnot only prescription frames and sunglasses that we manufacture but also a widerange of prescription frames, lenses and other ophthalmic products manufacturedby other companies. In 2009, units manufactured with our own brand names or ourlicensed designer brands represented approximately 77.1 percent of the totalsales of frames based on units sold by the retail division (72.4% in 2008).

 

Our optical retail operations are anchored by leading brands such asLensCrafters and Pearle Vision in North America, and OPSM, Laubman &Pank and Budget Eyewear, which are active throughout Australia and New Zealand.We also have a major retail presence in China, where we operate in the premiumeyewear market with LensCrafters. Due to the fragmented nature of the Europeanretail market, we do not have a significant retail presence in Europe outsideof the United Kingdom, where in 2008 we increased our stake in the David Clulowchain, which sells both prescription and sun products. As of March 31,2010, our optical retail business consisted of approximately 6,300 retaillocations globally.

 

*LensCrafters*

 

As of March 31, 2010, we operated a retail network of 1,189LensCrafters stores, of which 953 are in North America and 236 stores are inChina. LensCrafters is currently the largest optical retailer in North Americain terms of sales. LensCrafters stores offer a wide selection of prescriptionframes and sunglasses, mostly made by Luxottica, in addition to a wide range oflenses and optical products made by other suppliers. LensCrafters’ products include innovativelenses, such as FeatherWates® (lightweight, thin and impact-resistant lenses),DURALENS® (super scratch-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). Points of sale are normally inhigh-traffic commercial malls and shopping centers and have an on-siteoptometrist (sometimes a Luxottica employee) so that customers can have more immediateeye examinations. Most LensCrafters stores in North America also include a lensfinishing laboratory, which improves the customer service level. During thelast few years, we have invested in the premium aspects of the LensCraftersbrand, adding additional elements such as an exclusive new store conceptcurrently being implemented in store renovations across North America,associate training and advertising and marketing, which together represent thepremium brand and future direction of LensCrafters. The aim of our new focus onprescription frames as fashion objects and not mere instruments is also toshorten the consumer’s purchase cycle, which is typically two to three years.

 

In 2006, we began to expand the LensCrafters brand in China byrebranding most of our stores there, which were acquired through theacquisition of three retail chains. As of March 31, 2010, we operated 236stores in China and Hong Kong. Hong Kong is one of China’s most significantluxury markets, and launching LensCrafters as a premium brand in Hong Kong wasimportant for increasing awareness and consumer demand for Luxottica productsand services.

 

*Pearle Vision*

 

Pearle Vision is one of the largest optical retail chains in NorthAmerica. Although LensCrafters and Pearle Vision both address the mid- tohigh-end customer bracket, their positioning is complementary. Pearle Visionfocuses on the factors that made the brand a success: customers’ trust in thedoctor’s experience and the quality of service they receive. Pearle

 

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Vision stores are mostlylocated in strip malls instead of the conventional malls where mostLensCrafters and Sunglass Hut stores are located. The successful relaunching ofthe Pearle Vision brand in 2004 and 2005 was centered on a return to itsoriginal values, which had made Pearle Vision the “Home of Trusted Eyecare” forgenerations of Americans. A product mix increasingly geared to high quality hassought to restore strong customer relationships, as has the emphasis on doctorsin advertising campaigns.

 

In order to centralizeservices and achieve economies of scale at Pearle locations, all in-store labswere closed and their work was transferred to nearby LensCrafters labs or toone of Luxottica’s six central lens finishing facilities. As of March 31,2010, Pearle Vision operated 392 corporate stores and had 363 franchiselocations throughout North America.

 

We also operate a network ofretail locations in North America operating as Sears Optical and TargetOptical, our “Licensed Brands”, which use the brand names of their respectivehost American department store.  Thesepoints of sale offer consumers the convenience of taking care of their opticalneeds while shopping at these department stores. Both brands have a precisemarket positioning that we have reinforced by improving service levels whilestrengthening their fashion reputation by offering brands such as Ray-Ban andVogue. As of March 31, 2010, we operated 852 Sears Optical and 312 TargetOptical locations throughout North America.

 

*OPSM*

 

OPSM, the largest of the threeoptical chains we operate in Australia and New Zealand, is a leading eyewearretail brand for luxury and fashion-minded customers. In 2009, OPSM continuedits “Accelerated Fashion” program to highlight key fashion positioningfeaturing bright modern stores and bold fashion walls in stores to highlightLuxottica’s range of products. While it has a full range of eyewear products,OPSM continues to be identified as the leader in the luxury and fashionsegments. As of March 31, 2010, we owned 305 OPSM corporate storesthroughout Australia and had 1 franchise location. OPSM also has 42corporate-owned stores in New Zealand, mainly in large urban areas.

 

*Laubman & Pank*

 

Laubman & Pank iswell-known for its high-quality assortment and services. Laubman &Pank’s target segment is the “independent” optical shopper looking for qualityeyecare and service. During the year, we continued to enhance our marketpositioning to ensure that the retail brand locations are appropriate for theirlocal demographics and markets. Through this review, 10 Laubman & Pankstores were rebranded to OPSM and 11 to Budget Eyewear. As of March 31,2010, we owned 85 Laubman & Pank corporate stores throughoutAustralia.

 

*Budget Eyewear*

 

Budget Eyewear focuses on theprice-conscious shopper and offers an easy selection process for frames andlens packages in a bright and modern store environment. As of March 31,2010, we owned 99 Budget Eyewear corporate stores throughout Australia and had11 franchise locations.

 

*EyeMedVision Care*

 

EyeMed Vision Care is one ofthe largest managed vision care operators in the United States, serving over 26million subscribers in large and medium size companies and government entitiesand through insurance companies. EyeMed has a network of over 22,000 points ofsale, including opticians, ophthalmologists, optometrists and chains operatedby Luxottica.

 

EyeMed Vision Care seeks tooffer quality, choice, value and service excellence - all priority concerns foremployers shopping for vision care programs, especially for large groups.Customers using such services benefit from the quality of the products and thewide reach of the distribution network, enjoying a broad range of choices amongthe numerous stores in the Group’s chains and independent optical retailers.

 

*Online Retail for Contact Lenses*

 

In December 2009, weentered into a strategic multi-year e-commerce alliance to expand online accessto contact lenses in the North American market with drugstore.com, inc., aleading online retailer of health, beauty, vision and pharmacy products.

 

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Under this exclusiveagreement, Vision Direct, Inc., a leading online contact lens retailer anda wholly-owned subsidiary of drugstore.com, inc., will collaborate with us todevelop branded contact lens e-commerce sites for our North American retailbusiness and provide customer care and fulfillment services. The alliance willenable us, starting with our retail brands, to offer a comprehensive platformfor consumers to conveniently purchase contact lenses in person, by telephoneor online. In addition, the two companies will pursue synergies, such aspurchasing contact lenses on behalf of the alliance, and cooperate in a numberof other related areas, including our North America-based wholesale business.

 

*Lens Laboratories*

 

Together with LensCrafters’ approximately 900 in-store labs, we operatesix central lens finishing labs in North America. Combining a broad presence inthe market with the capacity for handling lens finishing reduces the time andcost of lens finishing work and improves quality of service. All the labs usehighly advanced technologies to meet growing demand. The six centrallaboratories serve all the Pearle Vision stores, the Licensed Brands stores,LensCrafters and a number of franchises. The labs in LensCrafters stores havebeen upgraded to help Sears and Pearle Vision stores (including those underfranchise) to handle peak demand.

 

In addition, we operateOakley optical lens laboratories in the United States, Ireland and Japan. 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.

 

Most of our Australian laboratory needs are provided by the EyebizLaboratory. In February 2010, Luxottica and Essilor International formed along-term joint venture for the Australian and New Zealand markets. The jointventure will manage Eyebiz Pty Limited, Luxottica’s Sydney-based optical lensfinishing laboratory, which, as a result of this alliance, will bemajority-controlled by Essilor. Eyebiz will continue tosupply all of Luxottica’s retail optical outlets in Australia and New Zealand:OPSM, Budget Eyewear and Laubman & Pank.

 

*Sunglass Hut*

 

Since the acquisition of Sunglass Hut in 2001, we have become a worldleader in the specialty sunglass retail business. As of March 31, 2010,Sunglass Hut had 2,209 stores worldwide. In addition to 1,780 retaillocations in North America, Sunglass Hut now has 259 corporate stores inAsia-Pacific, 76 in Europe, 89 in South Africa and 33 franchise locations inthe Middle East.

 

Founded in the United States in 1971 to operate in department stores,Sunglass Hut gradually expanded its base of stores and kiosks in shopping mallsto new retail locations on city shopping streets and in airports. Over theyears, Sunglass Hut focused increasingly on selling premium sunglasses. In2007, we developed an exclusive new store concept, which is now being extendedto all prime Sunglass Hut locations around the world. This repositioning wasmade possible by substantial changes to the product mix allowing the chain tofocus more on fashion and luxury brands, especially for women, whilemaintaining a varied selection of lifestyle, sport and performance sunglasses.

 

The chain has recently reinforced its presence in the department storechannel through long-term strategic agreements with Myers in Australia, Edgardsin South Africa and Macy’s in the United States.

 

On December 4, 2009,we entered into an agreement with Macy’s Inc. to open additional SunglassHut points of sale in approximately 430 Macy’s department stores in the UnitedStates. When the rollout is complete, Sunglass Hut will be the exclusiveoperator of Macy’s in-store sunglass departments and Macy’s department storeswill be the exclusive U.S. department store with Sunglass Hut locations.Together with the over 240 Sunglass Hut departments already operating in Macy’s,this new agreement will bring the total number of in-store Sunglass Hutlocations to approximately 670. New locations, which will operate as leaseddepartments, will begin rolling out in spring 2010, with completion scheduledfor spring 2011.

 

*ILORI*

 

ILORI is Luxottica’s high-endfashion sunwear retail brand, with 23 stores in North America as of March 31,2010, including flagship stores in the SoHo neighborhood of New York City andin Beverly Hills, California.  ILORIcaters to a different, more exclusive clientele than Sunglass Hut, offering aricher purchasing experience in prestige locations, featuring sophisticatedluxury collections, exclusive niche brands and highly personalized service.

 

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*The Optical Shop of Aspen*

 

Founded in the 1970s, The Optical Shop of Aspen isknown in the optical industry for its luxury brands for both prescription andsun and its first-class customer service. As of March 31, 2010, weoperated 23 stores in some of the most upscale and exclusive locationsthroughout the United States.

 

*Oliver Peoples*

 

We operate six luxury retail stores under the Oliver Peoples brand. TheOliver Peoples brand retail stores only offer Oliver Peoples, Mosley Tribes andPaul Smith branded optical products. An additional Oliver Peoples retaillocation is operated under license in Tokyo.

 

*David Clulow*

 

In Europe, we operate David Clulow, a premium opticalretailer operating in the United Kingdom and Ireland, predominantly in Londonand the South East of the United Kingdom. The brand emphasizes service, qualityand fashion and our marketing is targeted to reinforce these brand values andbuild long-term relationships with our customers. In addition to operatingoptical stores, David Clulow operates a number of sunglass concessions inupmarket department stores, further reinforcing our position as a premium brandin the United Kingdom. As of March 31, 2010, David Clulow operated 38corporate-owned locations (including 8 joint ventures), 5 franchise locationsand 32 sun stores/concessions.

 

*Bright Eyes*

 

First established in 1985,Bright Eyes is one of Australia’s largest and fastest-growing sunglass chains,with over 139 sunglass stores across the continent. As of March 31, 2010,Bright Eyes operated 55 corporate store locations and 84 franchise locations,mostly in tourist resorts and high-traffic areas.

 

*Oakley Stores and Vaults*

 

As of March 31, 2010, weoperated 147 Oakley “O” Stores and Vaults worldwide, offering a full range ofOakley products including sunglasses, apparel, footwear and accessories. Thesestores are designed and merchandised to immerse consumers in the Oakley brandthrough innovative use of product presentation, graphics and original audio andvisual elements. In the United States, Oakley “O” Stores are in major shoppingcenters. Oakley’s retail operations also are located in Mexico, Europe and theAsia-Pacific region.

 

*e-Commerce Sites*

 

Another important saleschannel is e-commerce, including the Oakley and the Ray-Ban websites(www.oakley.com, www.Ray-Ban.com), which are complementary to the retailoperations and international distribution. The websites allow consumers topurchase Oakley and Ray-Ban products as efficiently as possible, increasingawareness of both brands, improving customer service and communicating thebrands’ values and essence.

 

**MARKETING**

 

Our marketing andadvertising activities are designed primarily to enhance our image and ourbrand portfolio and to drive traffic into our retail locations.

 

Advertising expensesamounted to approximately six percent of our net sales in 2009.

 

**Marketing Strategy for OurWholesale Business**

 

Our marketing strategyfor the wholesale business is focused on promoting our extensive brandportfolio, our corporate image and the value of our products. Advertising isextremely important in supporting our marketing strategy, and therefore weengage in extensive advertising activities, both through various media (print,radio and television, as well as billboard advertising and digital media)directed at the end consumer of our products and at the point-of-sale(displays, counter cards, catalogs, posters and product literature).

 

In addition, weadvertise in publications targeted to independent practitioners and other market-specificmagazines and participate in major industry trade fairs, where we promote someof our new collections.

 

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We also benefit frombrand-name advertising carried out by licensors of our designer brands intendedto promote the image of the eyewear collections. Our advertising and promotional efforts in respect ofour licensed designer brands are developed in coordination with our licensors.We contribute to the designer a specified percentage of our sales of thedesigner line to be devoted to its advertising and promotion.

 

For our Oakley brand,we also use less conventional marketing methods, including sports marketing,involvement in grass-roots sporting events and targeted productallocations. The exposure generated by athletes wearing Oakley productsduring competition and in other media appearances serves as a more powerfulendorsement of product performance and style than traditional commercialendorsements and results in strong brand recognition and authenticity on aglobal level.

 

**Marketing Strategy for OurRetail Business**

 

We engage inpromotional and advertising activities through our retail business with theobjectives of attracting customers to the stores, promoting sales, building ourimage and the visibility of our retail brands throughout the world andencouraging customer loyalty and repeat purchases.

 

The “O” Stores andVaults are designed and merchandised to immerse the consumer in the Oakleybrand through innovative use of product presentation, graphics and originalaudio and visual elements.

 

A considerable amountof our retail marketing budget is dedicated to direct marketing activities,such as communications with customers (e.g., mailings and catalogs). Our directmarketing activities benefit from our large database of customer informationand investment in customer relationships, marketing technologies and skills inthe United States and in Australia. Another significant portion of themarketing budget is allocated to broadcast and print media (e.g., television,radio and magazines) designed to reach the broad markets in which we operatewith image-building messages about our retail business.

 

**ANTI-COUNTERFEITING POLICY**

 

Intellectual property is one of our most important assets.  We protect it through the registration andenforcement of our trademarks and patents around the world. Our commitment tomaintaining and strengthening our anti-counterfeiting program is demonstratedthrough the strength of our anti-counterfeiting and brand protection team,which leverages the strengths of our global organization. This allows us, amongother things, to implement a global anti-counterfeiting program to combat thewidespread phenomenon of counterfeit goods, sending a strong message to theinfringers that we will exercise our rights against both the retailers ofcounterfeit eyewear, such as street vendors, and those that supply thesesellers. Through our strong investigative network, especially in China, we havebeen able to identify key sources of counterfeit goods, organize raids on theirpremises in cooperation with local law enforcement and file legal actionsagainst the counterfeiters.

 

Additionally, we continue to consolidate and strengthen our cooperationwith customs organizations around the world, which have helped us to stop,seize and destroy hundreds of thousands of counterfeit goods each year. Wededicate considerable efforts to monitoring the trafficking of counterfeitgoods through the internet, in order to remove the offers for counterfeiteyewear from certain popular on-line auction platforms and shut down thewebsites that violate our intellectual property rights through the sale ofcounterfeit products or the unauthorized use of our trademarks.

 

**TRADEMARKS, TRADE NAMES AND PATENTS**

 

Our principal trademarks or trade names include *Luxottica, Ray-Ban, Oliver Peoples, Oakley, Persol,Vogue, Arnette, Revo, LensCrafters, Sunglass Hut, ILORI, Pearle Vision, OPSM,Laubman & Pank, Budget Eyewear* and the Oakley ellipsoid*“O”*and square*“O”*logos. Our principal trademarks are registeredworldwide. Other than *Luxottica, Ray-Ban,Oakley, LensCrafters, Sunglass Hut, Pearle Vision*, *OPSM*and the Oakley ellipsoid*“O”*and square*“O”*logos, we do not believe that any single trademark ortrade name is material to our business or results of operations. The collectionof *Oakley* and *Ray-Ban* products accounted forapproximately 11.5 percent and 17.8 percent, respectively, of our net sales in2009. 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, identifyingour brands and distinguishing our products from those of our competitors.Therefore, we utilize a combination of trademarked logos, names and otherattributes on nearly all of our products.

 

LensCrafters has introduced several trademarked lensesthat contain innovative technology, such as AVP® and AVP Advanced View Progressives® (multi-focal lenses with a wider view ofvision), FEATHERWATES® (lightweight,thin and impact resistant lenses), DURALENS® (super scratch-resistant lenses), INVISIBLES® (anti-reflective lenses), MVP® and MVP Maximum View Progressives® (multi-focal lenses without visible lines) andSUPERVIEW® (advanced A/Rlenses). LensCrafters 

 

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purchases these lenses under non-exclusivearrangements with third parties. The names of the lenses used by LensCraftersare typically trademarked, and the trademarks are typically owned by us. OPSMhas trademarked several lenses in recent years that it uses in its advertising.They include ActiviseTM for contact lenses, ActiveTM for polycarbonate eyeglasslenses.

 

We utilize patented and proprietary technologies andprecision manufacturing processes in the production of our products. As of March 31,2010, we held a portfolio of over 600 Oakley-related patents worldwide thatprotect our designs and innovations. Some of the most important of these patents relate to the followingcategories: innovations in lens technology and the associated optical advances;electronically enabled eyewear; innovations in frame design and functionality;biased, articulating and dimensionally stable eyewear; and interchangeablelenses.

 

See Item 3 —“Key Information—Risk Factors—If we areunable to protect our proprietary rights, our sales might suffer, and we mayincur significant costs to defend such rights.”

 

**LICENSE AGREEMENTS**

 

We have entered into license agreements tomanufacture and distribute prescription frames and sunglasses with numerousdesigners. These license agreements typically have terms ranging from three toten years, but may be terminated early by either party for a variety ofreasons, including non-payment of royalties, failure to meet minimum salesthresholds, product alteration and, under certain agreements, a change incontrol of Luxottica Group S.p.A.

 

Under these license agreements, we are requiredto pay a royalty which generally ranges from five percent to 14 percent of thenet sales of the relevant collection, which may be offset by any guaranteedminimum royalty payments. The license agreements also provide for a mandatorymarketing contribution that generally amounts to between five and ten percentof net sales.

 

We believe that early termination of one or a smallnumber of the current license agreements would not have a material adverseeffect on our results of operations or financial condition. Upon any earlytermination of an existing license agreement, we expect that we would seek toenter into alternative arrangements with other designers to reduce any negativeimpact of such a termination.

 

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,  2022                                           |
| Jones  Investment Co. Inc.      |       | Anne  Klein New York  Lion Head Design  AK Anne Klein |       | Worldwide  exclusive licenses      |       | December 31,  2012                                           |
| Paul  Smith Limited             |       | Paul  Smith  PS Paul Smith                            |       | Worldwide  exclusive license       |       | December 31,  2013                                           |
| Prada  S.A.                     |       | Prada                                                 |       | Worldwide  exclusive license       |       | December 31,  2013                                           |

 

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|                                     |   | Miu  Miu                                                                                                                                                                                                  |   |                                                                                                                                                                                                  |   | (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,  2014                                           |
| Salvatore Ferragamo Italia S.p.A.        |   | Salvatore  Ferragamo  Ferragamo                                                                                                                                                                           |   | Worldwide  exclusive license                                                                                                                                                                          |   | December 31,  2011  (renewable until December 31, 2013) |
| 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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*          RetailBrand Alliance, Inc. is indirectly owned and controlled by one of ourdirectors.

**        Japanonly.

***      United States,Canada, Mexico and Japan only.

 

**REGULATORY MATTERS**

 

Our products are subject to governmental health andsafety regulations in most of the countries where they are sold, including theUnited States. We regularly inspect our production techniques and standards toensure compliance with applicable requirements. Historically, compliance withsuch requirements has not had a material effect on our operations.

 

In addition, governments throughout the world imposeimport duties and tariffs on products being imported into their countries.Although in the past we have not experienced situations in which the duties ortariffs imposed materially impacted our operations, we can provide no assurancesthat this will be true in the future.

 

Our past and present operations, including owned andleased real property, are subject to extensive and changing environmental lawsand regulations pertaining to the discharge of materials into the environment, thehandling and disposition of waste or otherwise relating to the protection ofthe environment. 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 underenvironmental statutes and regulations with respect to contamination of sitesformerly or currently owned or operated by us (including contamination causedby prior owners and operators of such sites) and the off-site disposal ofhazardous substances.

 

Our retail operations are also subject to variouslegal requirements in the United States, Australia, Canada, New Zealand, HongKong, Singapore and Malaysia that regulate the permitted relationships betweenlicensed optometrists or 

 

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ophthalmologists, who primarily perform eyeexaminations and prescribe corrective lenses, and opticians, who fill suchprescriptions and sell eyeglass frames.

 

Through our acquisition of Oakley, we produce and sellto the U.S. government, including the U.S. military, and to internationalgovernments, certain Oakley and Eye Safety Systems protective eyewear products. As a result, our operations are subject to various regulatoryrequirements, including the necessity of obtaining government approvals forcertain products,  country-of-originrestrictions on materials in certain products, U.S.-imposed restrictions onsales to specific countries, foreign import controls, expropriation of assetsand various decrees, laws, taxes, regulations, interpretations and courtdecisions that are not always fully developed and that may be retroactively orarbitrarily applied.  Additionally, we could be subject to periodic auditsby U.S. government personnel for contract and other regulatory compliance.

 

**COMPETITION**

 

We believe that our integrated business model,innovative technology and design, integrated sunglass manufacturingcapabilities, effective brand and product marketing efforts and vigorousprotection of our intellectual property rights are important aspects ofcompetition and are among our primary competitive advantages.

 

The prescription frame and sunglasses industry ishighly competitive and fragmented. As we market our products throughout theworld, we compete with many prescription frame and sunglass companies invarious local markets. The major competitive factors include fashion trends,brand recognition, marketing strategies, distribution channels and the numberand range of products offered. We believe that some of our largest competitorsin the design, manufacturing and wholesale distribution of prescription framesand 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 andViva International Group.

 

Several of our most significant competitors in themanufacture and distribution of eyewear are significant vendors to our retaildivision. Our success in these markets will depend on, among other things, ourability to manage an efficient distribution network and to market our productseffectively as well as the popularity and market acceptance of our brands. SeeItem 3—“Key Information—Risk Factors—If we are unable to successfully introducenew products, our future sales and operating performance will suffer” and “—Ifwe fail to maintain an efficient distribution network in our highly competitivemarkets, our business, results of operations and financial condition couldsuffer.”

 

The highly competitive optical retail market in NorthAmerica includes a large number of small independent competitors and severalnational and regional chains of optical superstores. In recent years, a numberof factors, including consolidation among retail chains and the emergence ofoptical departments in discount retailers, have resulted in significantcompetition within the optical retailing industry. We compete against severallarge optical retailers in North America, including Wal-Mart and Eye CareCenters of America, and, in the sunglasses area, department stores and numeroussunglass retail chains and outlet centers. Our optical retail operationsemphasize product quality, selection, customer service and convenience. We donot compete primarily on the basis of price.

 

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

 

The managed vision care market is highly competitive.EyeMed has a number of competitors, including Vision Service Plan (VSP), DavisVision and Spectera. While VSP was founded almost 55 years ago and is thecurrent market leader, EyeMed’s consistent year-over-year growth has enabled usto become the second-largest market competitor in terms of funded lives. EyeMedcompetes based on its ability to offer a network and plan design with the goalof delivering overall value based on the price, accessibility andadministrative services provided to clients and their members.

 

**SEASONALITY**

 

We have also historically experienced sales volumefluctuations by quarter due to seasonality associated with the sale ofsunglasses, which represented 64.2 percent and 59.6 percent of our units soldin 2009 and 2008, respectively. As a result, our net sales are typically higherin the second quarter, which includes increased sales to wholesale customersand increased sales in our Sunglass Hut stores, and lower in the first quarter,as sunglass sales are lower in the cooler climates of North America, Europe andNorthern Asia. These seasonal variations could affect the comparability of ourresults from period to period. Our retail fiscal year is either a 53-week yearor a 52-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. In 2008, the fiscal year for the Retail Division inNorth America and the United Kingdom included 53 weeks; in 2009, the fiscal 

 

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year for the Retail Division in Asia-Pacific, GreaterChina (mainland China and Hong Kong) and South Africa included 53 weeks. A53-week year occurs in five- to six-year intervals and will occur again infiscal 2014 in North America and the United Kingdom and in fiscal 2015 inAsia-Pacific, Greater China and South Africa.

 

**ORGANIZATIONAL STRUCTURE**

 

We are a holding company, and the majority of ouroperations are conducted through our wholly-owned subsidiaries. We operate intwo industry segments: (i) manufacturing and wholesale distribution; and (ii) retaildistribution. In the retail segment, we primarily conduct our operationsthrough LensCrafters, Sunglass Hut, Pearle Vision, Cole Licensed Brands andOPSM.  In the manufacturing and wholesale distribution segment, we operatethrough 11 manufacturing plants and 43 geographically-oriented wholesaledistribution subsidiaries. See “—Distribution” for a breakdown of thegeographic 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                           | %          |
| Luxottica Retail North  America Inc. (1)   |       | United States                      |       | 100                           | %          |
| Sunglass Hut Trading,  LLC                 |       | United States                      |       | 100                           | %          |
| OPSM Group Limited                         |       | Australia                          |       | 100                           | %          |
| Luxottica Trading and  Finance Ltd.        |       | Ireland                            |       | 100                           | %          |
| **Holding  companies**                     |       |                               |       |                          |       |
| Luxottica U.S. Holdings  Corp.             |       | United States                      |       | 100                           | %          |
| Luxottica South Pacific  Holdings Pty Ltd. |       | Australia                          |       | 100                           | %          |
| Luxottica (China)  Investment Co. Ltd.     |       | China                              |       | 100                           | %          |
| Oakley, Inc.(2)                       |       | United States                      |       | 100                           | %          |
| Arnette Optic  Illusions, Inc.        |       | United States                      |       | 100                           | %          |
| The United States Shoe  Corporation        |       | United States                      |       | 100                           | %          |

 

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(1)              Successor by merger to our LensCrafters, Cole andPearle subsidiaries.

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

 

**PROPERTY, PLANT AND EQUIPMENT**

 

Our corporate headquarters is located at Via C. Cantù2, Milan 20123, Italy. Information regarding the location, use and approximatesize of our principal offices and facilities as of March 31, 2010 is setforth below:

 
| **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 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 facility and  ophthalmic laboratory |       | 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                                          |       |

 

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| 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 |   | 3,031,502 |   |
| Shanghai, China                      |   | Offices, fitting  laboratory                                               |   | Leased |   | 23,180    |   |
| Tokyo, Japan (4)                     |   | Japan corporate  headquarters                                              |   | Leased |   | 13,149    |   |
| Bhiwadi, India (5)                   |   | Manufacturing facility,  administrative offices                            |   | Leased |   | 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)(6)               |   | 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)                                  Such facility is comprised of severaldifferent premises located within the same municipality.

 

(2)                                  Such facility is comprised of severaldifferent premises located in Foothill Ranch and Lake Forest, California,United States. The premises in Lake Forest (116,626 square feet) are leased.

 

(3)                                  Such facility consists of 578,180 squarefeet dedicated to offices and manufacturing and the rest consists ofdormitories, related facilities and undeveloped land. We have leased thisfacility for 50 years.

 

(4)                                  On April 20, 2010, the corporateheadquarters in Japan will be reduced to 8,766 square feet.

 

(5)                                  We have leased such facility for 99years.

 

(6)                                  25,963 square feet of this facility areleased.

 

Substantially all of our retail stores areleased.  See “—Distribution —Retail Distribution” above for moreinformation about our retail locations and a breakdown of the geographicregions. All of our leases expire between 2010 and 2025 and have terms that webelieve are generally reasonable and reflective of market conditions.

 

We believe that our current facilities (including ourmanufacturing facilities) are adequate to meet our present and reasonablyforeseeable needs. There are no encumbrances on any of our principal ownedproperties.

 

**ITEM 4A. UNRESOLVED STAFF COMMENTS**

 

None.

 

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**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 and, through Oakley, of performance opticsproducts. We operate in our retail segment principally through our retailbrands, which include, among others, LensCrafters, Sunglass Hut, Pearle Vision,ILORI, The Optical Shop of Aspen, OPSM, Laubman & Pank, Budget Eyewear,Bright Eyes, Oakley “O”Stores and Vaults, David Clulow, and our Licensed Brands (Sears Optical and TargetOptical). As of December 31, 2009, the retail segment consisted of 5,682corporate-owned retail locations and 535 franchised or licensed locations asfollows:

** **
| ** **                           | ** ** | **North  America** | ** ** | **Asia-  Pacific** | ** ** | **China /  Hong  Kong** | ** ** | **Europe** | ** ** | **Africa  and  Middle  East** | ** ** | **South  Africa** | ** ** | **Central  and  South  America** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|--------------------|------------|--------------------|------------|-------------------------|------------|------------|------------|-------------------------------|------------|-------------------|------------|----------------------------------|------------|-----------|------------|
| LensCrafters                         |       | 955                |       |               |       | 242                     |       |       |       |                          |       |              |       |                             |       | 1,197     |       |
| Pearle  Vision                       |       | 401                |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 401       |       |
| Sunglass  Hut (1)                    |       | 1,624              |       | 260                |       | 6                       |       | 66         |       |                          |       | 78                |       |                             |       | 2,034     |       |
| Ilori  and The Optical Shop of Aspen |       | 48                 |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 48        |       |
| Oliver  Peoples                      |       | 6                  |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 6         |       |
| Oakley  retail locations (2)         |       | 112                |       | 15                 |       |                    |       | 14         |       |                          |       | 2                 |       | 4                                |       | 147       |       |
| Sears  Optical                       |       | 866                |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 866       |       |
| Target  Optical                      |       | 337                |       |               |       |                    |       |       |       |                          |       |              |       |                             |       | 337       |       |
| OPSM                                 |       |               |       | 332                |       |                    |       |       |       |                          |       |              |       |                             |       | 332       |       |
| Laubman &  Pank             |       |               |       | 104                |       |                    |       |       |       |                          |       |              |       |                             |       | 104       |       |
| Budget  Eyewear                      |       |               |       | 87                 |       |                    |       |       |       |                          |       |              |       |                             |       | 87        |       |
| Bright  Eyes                         |       |               |       | 55                 |       |                    |       |       |       |                          |       |              |       |                             |       | 55        |       |
| David  Clulow                        |       |               |       |               |       |                    |       | 68         |       |                          |       |              |       |                             |       | 68        |       |
| Franchised  or licensed locations(3) |       | 374                |       | 110                |       |                    |       | 11         |       | 34                            |       |              |       | 6                                |       | 535       |       |
|                                 |       | 4,723              |       | 963                |       | 248                     |       | 159        |       | 34                            |       | 80                |       | 10                               |       | 6,217     |       |

 

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(1)             Includes Sunglass Icon locations.

(2)             Includes Oakley “O” Stores and Vaults.

(3)             Includes primarily franchised and licensed locationsfor Pearle Vision (363 locations) and Bright Eyes (84 locations), with theremaining locations for Budget Eyewear, David Clulow, Sunglass Hut, Oakley “O”Stores and Vaults, Oliver Peoples and other Chinese brands.

 

LensCrafters,ILORI, Pearle Vision, our Licensed Brands (Sears Optical and Target Optical), Oakley (Oakley “O”Stores and Vaults), Sunglass Icon, The Optical Shop of Aspen and Oliver Peoples have retaildistribution operations located throughout the United States, Canada and PuertoRico, while OPSM, Laubman & Pank, Budget Eyewear and Bright Eyesoperate retail outlets located in Australia and New Zealand. Sunglass Hut is aleading retailer of sunglasses worldwide based on sales.  In 2006, we began operating retail locationsin mainland China and currently we have rebranded 164 locations to our premiumLensCrafters brand in mainland China and Hong Kong.  In 2008, weacquired David Clulow, a premium optical retailer operating in the UnitedKingdom and Ireland. Our net sales consist of direct sales of finished productsmanufactured with our own brand names or our licensed designer brands toopticians and other independent retailers through our wholesale distributionchannel and sales directly to consumers through our retail division.

 

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 consumerpreferences, our sales of premium products and profitability will suffer.” Wehave also historically 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.

 

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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. $1.3705 in 2007 to Euro 1.00 = U.S. $1.4707 in 2008 to Euro1.00 = U.S. $1.3947 in 2009. Additionally, with the acquisition of OPSMand Bright Eyes (acquired through Oakley), our results of operations have beenrendered susceptible to currency fluctuations between the Euro and theAustralian dollar. Although we engage in certain foreign currency hedgingactivities to mitigate the impact of these fluctuations, they have impacted ourreported revenues and expenses during the periods discussed herein. SeeItem 11—“Quantitative and Qualitative Disclosures About MarketRisk—Foreign Exchange Sensitivity” and Item 3—“Key Information—RiskFactors—If the Euro strengthens relative to certain other currencies, ourprofitability as a consolidated group will 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 themerger agreement, Oakley’s outstanding shares of common stock were convertedinto the right to receive U.S. $29.30 per share in cash and Oakley became anindirect wholly-owned subsidiary of Luxottica.  The merger was accounted for as a businesscombination for accounting purposes.

 

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

 

Since theconsummation of the acquisition, we have implemented our strategic integrationplan with respect to Oakley.  Weimmediately 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.

 

Our integration withOakley has resulted in synergies in the following areas:

 

·       international wholesale development;

 

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

 

·       sourcing retail operations synergies in the keymarkets of North America and Asia-Pacific; and

 

·       general and administrative expenses.

 

Currently, all integration projects aresubstantially complete according to the plan. In particular, we have completedthe integration of the retail operations in North America, the integration ofthe Oakley dedicated sales force and marketing within the Luxottica commercialinfrastructure in selected European countries and joint sourcing initiatives.

 

Wehave realized our initial estimate of efficiencies except for certain operatingefficiencies driven by revenue, which were lower than anticipated due to theworldwide financial crisis.

 

**CriticalAccounting Policies****and Estimates**

 

Weprepare our consolidated financial statements in accordance with accountingprinciples generally accepted in the United States, which require management tomake estimates, judgments and assumptions that affect the amounts reported inthe consolidated financial statements and the accompanying notes. We believethat our most critical accounting policies and estimates relate to thefollowing:

 

·        Revenue Recognition;

 

·        Income Taxes;

 

·        Inventories; and

 

·        Goodwill and Other Intangible Assets and Impairmentof Long-Lived Assets.

 

*RevenueRecognition*

 

Revenuesinclude sales of merchandise (both wholesale and retail), insurance andadministrative fees associated with the Company’s managed vision care business,eye exams and related professional services and sales of merchandise tofranchisees, along with other revenues from franchisees such as royalties basedon sales and initial franchise fee revenues.

 

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Revenueis recognized when it is realized or realizable and earned. Revenue isconsidered to be realized or realizable and earned when there is persuasiveevidence of an arrangement, delivery has occurred, the sales price is fixed ordeterminable and collectability is reasonably assured.

 

Insome countries, the wholesale and retail divisions offer the customer the rightto return products for a limited period of time after the sale. However, suchright of return does not impact the timing of revenue recognition as allconditions of Accounting StandardsCodification (“ASC”) No. 605 (formerly SFAS No. 48), *Revenue Recognition*, are satisfied at the date of sale. Wehave estimated and accrued for the amounts to be returned in the subsequentperiod. This estimate is based on our right of return policies and practicesalong with historical data, sales trends and the timing of returns from theoriginal transaction date when applicable. Changes to these policies andpractices or a change in the trend of returns could lead to actual returnsbeing different from the amounts estimated and accrued.

 

Alsoincluded in retail division revenues are managed vision care revenuesconsisting of (i) insurance revenues which are recognized when earned overthe 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 based on an estimate of uncollectible amounts. Our insurancecontracts require us to estimate the potential costs and exposures over thelife of the agreement such that the amount charged to the customers will coverthese costs. To mitigate the exposure risk, these contracts are usuallyshort-term in nature. However, if we do not accurately estimate the futureexposure and risks associated with these contracts, we may suffer losses as wewould not be able to cover our costs incurred with revenues from the customer.

 

*IncomeTaxes*

 

Incometaxes are recorded in accordance with ASC No. 740 (formerly SFAS No. 109),*Income Taxes*, which requires recognitionof deferred tax assets and liabilities for the expected future tax consequencesof events that have been included in our consolidated financial statements ortax returns. Under this method, deferred tax liabilities and assets aredetermined based on the difference between the consolidated financial statementand tax basis of assets and liabilities using enacted tax rates in effect forthe year in which the differences are expected to reverse. A valuationallowance is recorded for deferred tax assets if it is determined that it ismore likely than not that the asset will not be realized. These estimated taxrates and the deferred tax assets, including valuation allowances placed uponthose deferred tax assets, and liabilities recorded are based on informationavailable at the time of calculation. This information is subject to change dueto subsequent tax audits performed by different taxing jurisdictions andchanges in corporate structure not contemplated at the time of calculation, aswell as various other factors.

 

Asof January 1, 2007, we adopted ASC No. 740. ASC No. 740 providesthat a tax benefit from an uncertain tax position may be recognized when it ismore likely than not that the position will be sustained upon examination,including resolutions of any related appeals or litigation processes, based onthe technical merits. In addition, it provides additional requirementsregarding measurement, de-recognition, disclosure, interest and penalties andclassification. ASC No. 740 must be applied to all existing tax positions forall open tax periods as of the date of adoption (see Note 8 to our ConsolidatedFinancial Statements included in Item 18 of this annual report for a tabularreconciliation of uncertain tax positions). The cumulative effect of adoptionof ASC No. 740 of Euro 8.1 million was recorded as a reduction to retainedearnings on the date of adoption.

 

*Inventories*

 

Ourmanufactured inventories were approximately 58.2 percent and 66.1 percent oftotal frame inventory for 2009 and 2008, respectively. All inventories at December 31,2009 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 factors includingsales volume, historical shrink results, changes in market conditions andcurrent trends. In addition, production schedules are made on similar factorswhich, if not estimated correctly, could lead to the production of potentiallyobsolete inventory. As such, actual results could differ significantly from theestimated amounts.

 

*Goodwilland Other Intangible Assets and Impairment of Long-Lived Assets*

 

Inconnection with various acquisitions, we have recorded as intangible assetscertain goodwill, trade names and certain other identifiable intangibles. At December 31,2009, the aggregate carrying value of intangibles, including goodwill, wasapproximately Euro 3.9 billion or approximately 54 percent of total assets.

 

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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 ASC No. 850(formerly SFAS No. 141(R)), *Business Combinations*,which requires us to determine the value of assets and liabilities based on afull fair value measurement approach. In addition, acquisition related expensesare to be expensed as incurred and not included in the purchase priceallocation, and contingent liabilities are to be separated into two categories,contractual and non-contractual, and accounted for based on which category thecontingency falls into. Since we participate in business combinations, webelieve this statement could have a significant effect on future results ofoperations.

 

ASCNo. 350 (formerly SFAS No. 142), *Intangibles -**Goodwill and Other*, sets forth requirements relating toaccounting for ongoing intangibles. Under ASC No.  350, goodwill andintangible assets deemed to have an indefinite life are no longer amortized inthe same manner as under the previous standards, but rather are tested forimpairment annually and, under certain circumstances, between annual periods.An impairment charge will be recorded if the fair value of goodwill and otherintangible assets is less than the carrying value. The calculation of fairvalue may be based on, among other items, estimated future cash flows if quotedmarket prices in active markets are not available. We test our goodwill forimpairment annually as of December 31 of each year and any other time acondition arises that may cause us to believe that an impairment has occurred.Since impairment tests use estimates of the impact of future events, actualresults may differ and we may be required to record an impairment in futureyears.

 

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 impairment by comparing the carrying valueof the long-lived asset to the estimated undiscounted future cash flowsexpected to result from the use of the assets and their eventual disposition.If the sum of the expected undiscounted future cash flows were less than thecarrying amount of the assets, we would recognize an impairment loss, ifdetermined to be necessary. Actual results may differ from our currentestimates.

 

**RecentAccounting Pronouncements**

 

SeeNote 1 to our Consolidated Financial Statements included in Item 18 ofthis annual report for a discussion ofthe impact of recent accounting pronouncements on our financial condition andresults of operations, including the expected dates of adoption and estimatedeffects on our financial position, statement of cash flows and results ofoperations.

 

**Overview of 2009 Results of Operations**

 

Our business issubject to global economic cycles and retail industry conditions. In 2009, thedeclining values in real estate, reduced credit lending by banks, solvencyconcerns of major financial institutions, increases in unemployment levels andrecent significant declines and volatility in the global financial marketsnegatively impacted the level of consumer spending, which negatively affectedconsumer demand for our products.

 

Because of ourworldwide operations, our results of operations are affected by foreignexchange rate fluctuations.  In 2009, thestrengthening of the U.S. dollar against the Euro, which is our reportingcurrency, increased net sales by Euro 129.3 million, primarily in the retaildistribution segment.

 

Notwithstandingthe economic environment in 2009, we achieved sales of Euro 5.1 billion.

 

In 2008 and 2009, we had the following non-recurringitems which affected our financial results:

 

·                  A 53-week year for the retail division in NorthAmerica in 2008 and a 53-week year for the retail division in Asia Pacific,Greater China and South Africa in 2009

·                  Capital loss of Euro 22.8 million (Euro 15 millionnet of tax) in the fourth quarter of 2008 due to the sale of a note related tothe sale of Things Remembered in September 2006

·                  Restructuring costs of Euro 7.4 million in the fourthquarter of 2009 mainly associated with severance for employees in the retaildistribution segment

·                  Non-recurring income in 2008 of approximately Euro 8million related to the collection of an insurance claim.

 

Thisdiscussion should be read in conjunction with Item 3 — “Key Information — RiskFactors” and the consolidated financial statements and the related notesattached thereto included in Item 18.

 

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**Resultsof Operations**

 

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

 
| ** **                                               | ** ** | **2009** | ** ** | **2008(1)** | ** ** | **2007(1)** | ** ** |
|----------------------------------------------------------|------------|----------|------------|-------------|------------|-------------|------------|
| Net Sales                                                |       | 100.0    | %          | 100.0       | %          | 100.0       | %          |
| Cost of Sales                                            |       | 34.7     |       | 33.7        |       | 31.7        |       |
| Gross Profit                                             |       | 65.3     |       | 66.3        |       | 68.3        |       |
| Operating Expenses:                                      |       |     |       |        |       |        |       |
| Selling and Advertising                                  |       | 41.3     |       | 40.8        |       | 41.7        |       |
| General and Administrative                               |       | 12.5     |       | 11.1        |       | 9.8         |       |
| Total                                                    |       | 53.8     |       | 51.9        |       | 51.5        |       |
| Income from Operations                                   |       | 11.4     |       | 14.4        |       | 16.8        |       |
| Other Income (Expense)-Net                               |       | (1.7     | )          | (3.1        | )          | (1.1        | )          |
| Provision for Income Taxes                               |       | (3.3     | )          | (3.7        | )          | (5.5        | )          |
| Net Income                                               |       | 6.4      |       | 7.6         |       | 10.2        |       |
| Net Income Attributable to Non-Controlling  Interest     |       | (0.2     | )          | (0.3        | )          | (0.3        | )          |
| Net Income Attributable to Luxottica Group  Stockholders |       | 6.2      |       | 7.3         |       | 9.9         |       |

 

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(1)                                  Prior yearamounts have been reclassified to conform with the 2009 presentation. Foradditional detail, please refer to Note 1 “Reclassifications” and “Recentaccounting pronouncements” to our Consolidated Financial Statements included inItem 18 of this annual report.

 

Foradditional financial information by operating segment and geographic region,see Note 13 to our Consolidated Financial Statements included inItem 18 of this annual report. This includes a reclassification of prioryear amounts as described in Note 13.

 

**Comparison of the fiscal year ended December 31,2009 to the fiscal year ended December 31, 2008**

 

**Net Sales**. Net sales decreased by Euro 107.3 million, or 2.1percent, to Euro 5,094.3 million in 2009 from Euro 5,201.6 million in 2008.Euro 137.2 million of such decrease is attributable to the decreased sales ofthe manufacturing and wholesale distribution segment in 2009 as compared to thesame period in 2008, which was partially offset by the increase in the retaildistribution segment of Euro 29.9 million. The decrease in sales in themanufacturing and wholesale distribution segment was mainly attributable todecreased sales of most of our designer brands, which was partially offset byincreased sales of our Ray-Ban and Oakley brands. The increase in sales in theretail distribution segment includes positive effects from currencyfluctuations between the Euro, which is our reporting currency, and othercurrencies in which we conduct business, in particular due to a stronger U.S.dollar compared to the Euro. The favorable exchange rate fluctuations increasednet sales by Euro 124.3 million, primarily in the retail distribution segment.

 

In2008, the fiscal year for the retail distribution segment in North Americaincluded 53 weeks; in 2009, the fiscal year for the retail distribution segmentsin Asia Pacific, China and South Africa included 53 weeks. On a comparablebasis, i.e. adjusted for the additional week of sales in 2008 and 2009, netsales in 2009 decreased by Euro 68.9 million or 1.3 percent, to Euro 5,086.7million in 2009 as compared to Euro 5,155.6 million in 2008. The table belowsets forth the impact on our net sales of the additional week of sales in 2008and 2009:

 
| ** **                       | ** ** | **2009**    | ** ** | **2008**    | ** ** | **Difference** | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|----------------|------------|
|                             |       |        |       |        |       |           |       |
| **Net Sales - Total Group**      |       |        |       |        |       |           |       |
| *Amount in Euro/millions*        |       |        |       |        |       |           |       |
|                             |       |        |       |        |       |           |       |
| Net Sales - as  reported         |       | 5,094.3     |       | 5,201.6     |       | (2.1           | )%         |
|                             |       |        |       |        |       |           |       |
| Additional week of  sales        |       | (7.6        | )          | (46.0       | )          |           |       |
|                             |       |        |       |        |       |           |       |
| **Net Sales — as adjusted** | ** ** | **5,086.7** | ** ** | **5,155.6** | ** ** | **(1.3**       | **)%**     |

 

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Netsales for the retail distribution segment increased by Euro 29.9 million, or1.0 percent, to Euro 3,139.0 million in 2009 from Euro 3,109.1 million in 2008.The increase in net sales for the period is attributable to the strengtheningof the U.S. dollar against the Euro, which increased net sales for the periodby Euro 124.3 million. This increase was partially offset by a 4.8 percentdecrease in comparable store sales for the North American retail operations,which reflects the change in sales from one period to another that, forcomparison purposes, includes in the calculation only stores open in the morerecent period that also were open during the comparable prior period in thesame geographic area, and applies to both periods the average exchange rate forthe prior period.

 

Ona comparable basis, i.e. adjusted for the additional week of sales, net salesin 2009 in the retail distribution segment increased by Euro 68.1 million, or2.2 percent, to Euro 3,131.3 million in 2009, as compared to Euro 3,063.2million in 2008. The table below sets forth the impact on our net sales of theadditional week of sales in 2008 and 2009:

 
| ** **                       | ** ** | **2009**    | ** ** | **2008**    | ** ** | **Difference** | ** ** |
|----------------------------------|------------|-------------|------------|-------------|------------|----------------|------------|
|                             |       |        |       |        |       |           |       |
| **Net sales — Retail**      |       |        |       |        |       |           |       |
| *Amount in Euro/millions*        |       |        |       |        |       |           |       |
|                             |       |        |       |        |       |           |       |
| Net Sales - as  reported         |       | 3,139.0     |       | 3,109.1     |       | 1.0            | %          |
|                             |       |        |       |        |       |           |       |
| Additional week of  sales        |       | (7.6        | )          | (46.0       | )          |           |       |
|                             |       |        |       |        |       |           |       |
| **Net sales — as adjusted** | ** ** | **3,131.3** | ** ** | **3,063.2** | ** ** | **2.2**        | **%**      |

 

Netsales to third parties in the manufacturing and wholesale distribution segmentdecreased by Euro 137.2 million, or 6.6 percent, to Euro 1,955.3 million in2009 from Euro 2.092.5 million in 2008. This decrease is mainly attributable todecreased sales of most of our designer brands, which was partially offset byincreased sales of our Ray-Ban and Oakley brands. These sales volume decreasesoccurred in almost all of our key markets, with the exception of France andBrazil. These negative effects were partially offset by positive currencyfluctuations, in particular due to a stronger U.S. dollar compared to the Euro,which caused an increase in net sales to third parties in the manufacturing andwholesale distribution segment of Euro 5.0 million.

 

In2009, net sales in the retail distribution segment accounted for approximately61.6 percent of total net sales, as compared to approximately 59.8 percent oftotal net sales for 2008. This increase in sales as a percentage of total netsales for the retail distribution segment is primarily attributable to: (i) a6.6 percent decrease in net sales to third parties in our manufacturing andwholesale distribution segment compared to 2008; and (ii) positivecurrency exchange rate effects, which more heavily impacted net sales for theretail distribution segment because of the heavy concentration of our retailbusiness in North America, where the Euro is not the functional currency.

 

In2009, net sales to third parties in our manufacturing and wholesaledistribution segment in Europe was Euro 980.4 million, comprising 50.1 percentof our total net sales in this segment, compared to Euro 1,067.9 million during2008, or 51.0 percent of total net sales. The decrease of Euro 87.5 million in2009 compared to 2008 constituted an 8.2 percent decrease in net sales to thirdparties in Europe, due to reductions in orders by wholesale customersresponding to reduced consumer demand in this market as a result of the globalfinancial crisis. Net sales to third parties in our manufacturing and wholesaledistribution segment in the United States and Canada were U.S. $661.4 millionand comprised 24.3 percent of our total net sales in this segment in 2009,compared to U.S. $731.7 million in 2008, or 23.8 percent of total net sales.The decrease of U.S. $70.3 million in 2009 compared to 2008 constituted a decrease,in U.S. dollars, of 9.6 percent in net sales in this segment in the UnitedStates and Canada, due to the global financial crisis that caused reductions inorders by wholesale customers referred to above. In Euro, net sales in theUnited States and Canada decreased by 4.7 percent due to the strengthening ofthe U.S. dollar as compared to the Euro. In 2009, net sales to third parties inour manufacturing and wholesale distribution segment in the rest of the worldwere Euro 500.7 million, comprising 25.6 percent of our total net sales in thissegment, compared to Euro 527.1 million in 2008, or 25.2 percent of our netsales. The decrease of Euro 26.4 million in 2009 compared to 2008 constituted a5.0 percent decrease in this segment in the rest of the world due to thereductions in orders by wholesale customers referred to above.

 

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In2009, net sales in our retail distribution segment in the United States andCanada comprised 82.6 percent of our total net sales in this segment ascompared to 83.6 percent of our total net sales in 2008. In U.S. dollars,retail net sales in the United States and Canada decreased by 5.4 percent toU.S. $3,614.5 million in 2009 from U.S. $3,822.3 million for 2008. In Euro,retail net sales in the United States and Canada decreased by only 0.3 percentto Euro 2,591.7 million in 2009 from Euro 2,599.0 million in 2008, mainly dueto the strengthening of the U.S. dollar compared to the Euro and thesignificant portion of the retail business that was generated in U.S. dollars.During 2009, net sales in the retail segment in the rest of the world(excluding the United States and Canada) comprised 17.4 percent of our totalnet sales in the retail distribution segment and constituted an increase of 7.3percent to Euro 547.3 million in 2009 from Euro 510.1 million for 2008.

 

**Cost of Sales**. Cost of sales increased by Euro 17.2million, or 1.0 percent, to Euro 1,768.4 million in 2009 from Euro 1,751.3million in 2008. As a percentage of net sales, cost of sales increased to 34.7percent in 2009, as compared to 33.7 percent in 2008, mainly due to the impactof fixed costs on declining volumes. In 2009, the average number of framesproduced daily in our facilities decreased to approximately 207,700, ascompared to 213,100 in 2008, which was attributable to decreased production inthe Italian manufacturing facilities in response to the overall decrease indemand.

 

**Gross Profit**. Our gross profit decreased by Euro 124.5 million,or 3.6 percent, to Euro 3,325.9 million in 2009 from Euro 3,450.4 million in2008. As a percentage of net sales, gross profit decreased to 65.3 percent in2009 from 66.3 percent in 2008, due to the factors noted above for cost ofsales.

 

**Operating Expenses**. Total operating expensesincreased by Euro 42.1 million, or 1.6 percent, to Euro 2,742.7 million in 2009from Euro 2,700.6 million in 2008. As a percentage of net sales, operatingexpenses increased to 53.8 percent in 2009 from 51.9 percent in 2008 primarilydue to the increase in general and administrative expenses.

 

Sellingand advertising expenses (including royalty expenses) decreased by Euro 18.1million, or 0.9 percent, to Euro 2,106.4 million in 2009 from Euro 2,124.4million in 2008, due to the decreases in advertising expenses of Euro 27.1million and in royalty expenses of Euro 15.0 million, partially offset by anincrease in selling expenses of Euro 24.1 million. As a percentage of netsales, selling and advertising expenses increased to 41.3 percent in 2009compared to 40.8 percent for 2008.

 

Generaland administrative expenses, including intangible asset amortization, increasedby Euro 60.2 million, or 10.4 percent, to Euro 636.3 million in 2009 from Euro576.2 million in 2008. The increase is mainly due to (i) the negativeimpact of foreign currency fluctuations, (ii) non-recurring income in 2008of approximately Euro 8.0 million for the collection of an insurance claim, (iii) non-recurringexpenses in 2009 in the amount of Euro 7.4 million resulting from the personnelrestructuring of the retail distribution segment and (iv) increase indepreciation expense by approximately Euro 10.0 million in 2009. As apercentage of net sales, general and administrative expenses increased to 12.5percent in 2009 compared to 11.1 percent for 2008.

 

**Income from Operations**. For the reasons describedabove, income from operations decreased by Euro 166.6 million, or 22.2 percent,to Euro 583.2 million in 2009 from Euro 749.8 million in 2008. As a percentageof net sales, income from operations decreased to 11.4 percent in 2009 from14.4 percent in 2008.

 

Ona comparable basis, i.e. adjusted for the additional week of sales in 2008 and2009, for the non-recurring costs in the retail distribution segment resultingfrom the 2009 personnel restructuring of Euro 7.4 million in 2009 and for thenon-recurring income in 2008 of approximately Euro 8.0 million related to thecollection of an insurance claim, income from operations in 2009 decreased byEuro 143.6 million, or 20.5 percent, to Euro 588.0 million in 2009 as comparedto Euro 731.7 million in 2008. The table below sets forth the impact on ourincome from operations of the items described above:

 
| ** **                                    | ** ** | **2009**  | ** ** | **% on  Net  Sales** | ** ** | **2008**  | ** ** | **%on  Net  Sales** | ** ** | **Difference  in basis  points** | ** ** |
|-----------------------------------------------|------------|-----------|------------|----------------------|------------|-----------|------------|---------------------|------------|----------------------------------|------------|
|                                          |       |      |       |                 |       |      |       |                |       |                             |       |
| **Income from Operations - Total Group**      |       |      |       |                 |       |      |       |                |       |                             |       |
| *Amount in Euro/millions*                     |       |      |       |                 |       |      |       |                |       |                             |       |
|                                          |       |      |       |                 |       |      |       |                |       |                             |       |
| Income from Operations -  as reported         |       | 583.2     |       | 11.4                 | %          | 749.8     |       | 14.4                | %          | (300                             | )          |
|                                          |       |      |       |                 |       |      |       |                |       |                             |       |
| Additional week of  sales                     |       | (2.6      | )          |                 |       | (10.1     | )          |                |       |                             |       |
|                                          |       |      |       |                 |       |      |       |                |       |                             |       |
| Non-recurring costs                           |       | 7.4       |       |                 |       |      |       |                |       |                             |       |
|                                          |       |      |       |                 |       |      |       |                |       |                             |       |
| Insurance  reimbursement                      |       |      |       |                 |       | (8.0      | )          |                |       |                             |       |
| **Income from Operations — as adjusted** | ** ** | **588.0** | ** ** | **11.6**             | **%**      | **731.7** | ** ** | **14.2**            | **%**      | **(260**                         | **)**      |

 

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**Other Income (Expense)****— Net.**Other income (expense) - net was Euro (88.9) million in 2009 compared to Euro(159.9) million in 2008. Net interest expense decreased to Euro 84.7 million in2009 compared to Euro 122.0 million in 2008, mainly attributable to a decreasein interest rates on our outstanding floating interest rate indebtedness. Other- net was an expense of Euro 4.2 million in 2009 and Euro 37.9 million in 2008.The change was due to a one-time loss of approximately Euro 22.8 millionrelated to the sale in 2008 of a note we received in 2006 as part of the saleof the Things Remembered business.

 

**Net Income**. Income before taxes decreased by Euro 95.6million, or 16.2 percent, to Euro 494.3 million in 2009 from Euro 589.9 millionin 2008 for the reasons described above. As a percentage of net sales, incomebefore taxes decreased to 9.7 percent in 2009 from 11.3 percent in 2008. Netincome attributable to non-controlling interests decreased to Euro 12.1 millionin 2009 from Euro 15.5 million in 2008. Our effective tax rate was 33.9 percentin 2009, compared to 33.0 percent in 2008.

 

Netincome attributable to Luxottica Group stockholders decreased by Euro 65.0million, or 17.1 percent, to Euro 314.8 million in 2009 from Euro 379.7 millionin 2008 for the reasons described above. Net income attributable to LuxotticaGroup stockholders as a percentage of net sales decreased to 6.2 percent in2009 from 7.3 percent in 2008.

 

Basicearnings per share were Euro 0.69 in 2009 as compared to Euro 0.83 in 2008.Diluted earnings per share were Euro 0.69 in 2009 compared to Euro 0.83 in2008.

 

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

 

***NetSales***. Netsales increased by Euro 235.5 million, or 4.7 percent, to Euro 5,201.6 millionduring 2008 from Euro 4,966.1 million in 2007. Euro 638.4 million of suchincrease is attributable to the inclusion of net sales generated by Oakley fora full year in 2008 as compared to 2007, when Oakley net sales were onlyincluded from and after the acquisition date on November 14, 2007. Thispositive effect was partially offset by (i) negative currency fluctuationeffects, in particular due to a weaker U.S. dollar compared to the Euro, whichreduced net sales by Euro 294.2 million, primarily in the retail distributionsegment, (ii) a soft performance of the retail distribution segment(excluding Oakley retail-related sales), which caused a reduction in net salesof Euro 95.9 million, and (iii) a soft performance of the manufacturingand wholesale distribution segment (excluding Oakley wholesale-related sales),which caused a reduction in net sales of Euro 12.7 million.  The table below sets forth the effect on ournet sales of (i) the Oakley acquisition as if Oakley had been acquired on January 1,2007, and (ii) exchange rate fluctuations:

 
| ** **                                                           | ** ** | **2008**    | ** ** | **2007**    | ** ** | **Difference** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|-------------|------------|----------------|------------|
| ** **                                                           | ** ** | ** **  | ** ** | ** **  | ** ** | ** **     | ** ** |
| **Net Sales - Total Group**                                          |       |        |       |        |       |           |       |
| *Amounts in millions 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(1)                                              |       | 294.2       |       |        |       |           |       |
| **Pro Forma Net Sales at constant exchange rates(2)**                | ** ** | **5,495.8** | ** ** | **5,539.0** | ** ** | **(0.8**       | **)%**     |

 

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(1)                                Calculated using the average exchangerates between the Euro and the relevant currencies of the various markets inwhich we operated for the twelve-month period ended December 31, 2007.

 

(2)                                Pro forma data reflects the inclusion ofthe consolidated results of Oakley, Inc., a subsidiary that was acquiredin November 2007, as if it was acquired on January 1, 2007.

 

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 

 

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beencompleted as of January 1, 2007, and should not be taken as representativeof our future sales or operating margin. The financial information included inthese tables should be read in conjunction with the information contained inthe consolidated financial statements and related notes included in this annualreport.

 

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 exchangerate fluctuations:

 
| ** **                                                           | ** ** | **2008**    | ** ** | **2007**    | ** ** | **Difference** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|-------------|------------|----------------|------------|
|                                                                 |       |        |       |        |       |           |       |
| **Net Sales — Retail**                                          |       |        |       |        |       |           |       |
| *Amounts in millions 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(1)                                              |       | 228.3       |       |        |       |           |       |
| **Pro Forma Net Sales at constant exchange rates (2)**               | ** ** | **3,337.4** | ** ** | **3,407.9** | ** ** | **(2.1**       | **)%**     |

 

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(1)                                Calculated using the average exchangerates between the Euro and the relevant currencies of the various markets inwhich we operated for the twelve-month period ended December 31, 2007.

 

(2)                                Pro forma data reflects the inclusion ofthe consolidated results of Oakley, Inc., a subsidiary that wasacquired in November 2007, as if it was acquired on January 1, 2007.

 

Net sales to third parties in the manufacturing andwholesale distribution segment increased by Euro 388.7 million, or 22.8percent, to Euro 2,092.5 million in 2008 from Euro 1,703.8 million in 2007.This increase was due to the inclusion of Euro 467.4 million of net salesgenerated by Oakley’s manufacturing and wholesale business for 2008, as well asincreased sales of our house brands, such as *Ray-Ban*.These volume increases occurred primarily in the European and North Americanmarkets, which together accounted for approximately 74.8 percent and 76.5percent of the net sales to third parties in our manufacturing and wholesaledistribution segment in 2008 and 2007, respectively. This increase waspartially offset by the decrease in the net sales of the designer brands in themanufacturing and wholesale distribution segment and by negative currencyfluctuations, in particular a weaker U.S. dollar compared to the Euro, whichcaused a reduction in net sales to third parties in the manufacturing andwholesale distribution segment of Euro 65.9 million. The table below sets forththe effect on our net sales of (i) the Oakley acquisition as if Oakley hadbeen acquired on January 1, 2007, and (ii) exchange rate fluctuations:

 
| ** **                                                           | ** ** | **2008**    | ** ** | **2007**    | ** ** | **Difference** | ** ** |
|----------------------------------------------------------------------|------------|-------------|------------|-------------|------------|----------------|------------|
|                                                                 |       |        |       |        |       |           |       |
| **Net Sales - Wholesale to third parties**                           |       |        |       |        |       |           |       |
| *Amounts in millions 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(1)                                              |       | 65.9        |       |        |       |           |       |
| **Pro Forma Net Sales at constant exchange rates(2)**                | ** ** | **2,158.4** | ** ** | **2,131.1** | ** ** | **1.3**        | **%**      |

 

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(1)                                       Calculated using the average exchangerates between the Euro and the relevant currencies of the various markets inwhich we operated for the twelve-month period ended December 31, 2007.

 

(2)                                       Pro forma data reflects the inclusion ofthe consolidated results of Oakley, Inc., a subsidiary that wasacquired in November 2007, as if it was acquired on January 1, 2007.

 

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 

 

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segment as a percentage of total net sales isprimarily attributable to (i) a significant increase in net sales to thirdparties in our manufacturing and wholesale distribution segment, which, asnoted above, grew by 22.8 percent in 2008 compared to 2007, as a result of theacquisition of Oakley, which is primarily a wholesale business and (ii) negativecurrency exchange rate effects, which more heavily impacted net sales for theretail distribution segment, because of the heavy concentration of our retailbusiness in North America, Australia and China, where the Euro is not thefunctional currency.

 

On a geographicbasis, combined retail and manufacturing and wholesale operations in the UnitedStates and Canada comprised Euro 3,096.5 million, or 59.5 percent, of total netsales in 2008, which increased as compared to net sales in the United Statesand Canada of Euro 3,041.7 million, or 61.2 percent of total net sales in 2007.Net sales for operations in “Asia-Pacific” increased from Euro 596.2 million,or 12.0 percent of total net sales, in 2007 to Euro 645.8 million, or 12.4percent of total net sales, in 2008.  This was primarily due to the inclusion of thenet sales generated by Oakley. Net sales for the rest of the world comprised28.1 percent of total net sales and accounted for Euro 1,459.3 million of netsales during 2008, which represented an increase in net sales of Euro 131.1million, or 9.9 percent, as compared to 2007. The increase in net sales for therest of the world was due to the inclusion of the net sales generated byOakley.

 

During 2008, net sales tothird parties in our manufacturing and wholesale distribution segment in Europewere Euro 1,067.9 million, comprising 51.0 percent of our total net sales inthis segment as compared to Euro 1,006.6 million during 2007, or 59.1 percentof total net sales. The increase of Euro 61.3 million, or 6.1 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 67.4 percent to Euro 497.5 million in 2008 from Euro 297.2 millionin 2007. Net sales to third parties in the United States and Canada were U.S.$731.7 million and comprised 23.8 percent of our total manufacturing andwholesale distribution segment net sales in 2008, as compared to U.S. $407.3million, or 17.4 percent, of total segment net sales in 2007. The increase ofU.S. $324.4 million, or 79.6 percent, in 2008 as compared to 2007 in ourmanufacturing and wholesale distribution segment net sales in the United Statesand Canada was primarily driven by the inclusion of the Oakley business and thestrong performance of certain of our house brands, such as *Ray-Ban*and *Vogue*. During 2008, net sales to thirdparties in our manufacturing and wholesale distribution segment in the rest ofthe world were Euro 527.1 million, comprising 25.2 percent of our total netsales in this segment, as compared to Euro 399.9 million during 2007, or 23.5percent of our net sales. The increase of Euro 127.1 million, or 31.8 percent,in 2008 as compared to 2007 in manufacturing and wholesale distribution netsales in the rest of the world was primarily driven by the inclusion of theOakley 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 the inclusionof the dollar-denominated Oakley retail business, retail distribution segmentnet sales in the United States and Canada decreased by 5.4 percent, from Euro2,744.4 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. $3,761.3 million in 2007 to U.S. $3,822.5 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 175.6 million, or 11.2 percent, to Euro 1,751.3million in 2008 from Euro 1,575.6 million in 2007, primarily attributable toour overall sales growth. As apercentage of net sales, cost of sales increased to 33.7 percent in 2008, ascompared to 31.7 percent in 2007, mainly due to the significant impact ofcurrency fluctuations on our net sales, a significant portion of which isgenerated in U.S. dollars, as compared to the cost of sales, a significantportion of which is generated in Euros. In2008, the average number of frames produced daily in our facilities increasedto approximately 213,100, as compared to 175,800 in 2007, which wasattributable to the addition of approximately 41,300 frames produced daily inOakley’s manufacturing facilities, which were not included for most of 2007,offset, by a slight decrease in production volumes at the Italian and Chinesemanufacturing facilities.

 

***GrossProfit.***Our grossprofit increased by Euro 60.0 million, or 1.8 percent, to Euro 3,450.4 million in 2008 from Euro3,390.4 million in 2007. As a percentage of net sales, gross profitdecreased to 66.3 percent in 2008 from 68.3 percent in 2007, due to the factors noted above forcost of sales.

 

***OperatingExpenses.*****Totaloperating expenses increased by Euro 143.5 million, or 5.6 percent, to Euro2,700.6 million in 2008 from Euro 2,557.1 million in 2007.******As apercentage of net sales, operating expenses increased to 51.9 percent in 2008from 51.5 percent in 2007.

 

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Selling and advertisingexpenses (including royalty expenses) increased by Euro 55.1 million, or 2.7percent, to Euro 2,124.4 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 40.8 percent in2008 compared to 41.7 percent in 2007.

 

General andadministrative expenses, including intangible asset amortization, increased byEuro 88.4 million, or 18.1 percent, to Euro 576.2 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 Oakley trademark intangibles of Euro 26.5 million in2008 as compared to Euro 4.1 million in 2007. These increases were partiallyoffset by savings related to the completion of the amortization of certaintrade names of approximately Euro 6.3 million and by other savings in generaland administrative expenses in 2008 as compared to 2007, including cost reduction initiatives put in place as of the first quarter of2008 in the retail distribution segment. As a percentage of net sales, generaland administrative expenses increased to 11.1 percent in 2008 as compared to9.8 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 forththe effect on our operating margin of (i) the Oakley acquisition as ifOakley had been acquired on January 1, 2007 and (ii) thenon-recurring gain resulting from the sale of real estate in Italy in May 2007described above:

 
| ** **                                              | ** ** | **Net Sales** | ** ** | **Income  from  Operations** | ** ** | **% of  Sales** | ** ** |
|---------------------------------------------------------|------------|---------------|------------|------------------------------|------------|-----------------|------------|
|                                                    |       |          |       |                         |       |            |       |
| **Total Group**                                         |       |          |       |                         |       |            |       |
| *Amounts in millions of Euro*                           |       |          |       |                         |       |            |       |
| 2007 as reported                                        |       | 4,966.1       |       | 833.3                        |       | 16.8            | %          |
| Oakley -  January 1 through November 13, 2007 |       | 572.9         |       | 44.8                         |       |            |       |
| Less non-recurring  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. Net interest expense was Euro 122.0 million in 2008 ascompared to Euro 72.4 million in 2007, attributable to the increase inoutstanding indebtedness borrowed in connection with the acquisition of Oakley,which was outstanding for the full year 2008. Other — net was an expense ofEuro 37.9 million in 2008 as compared to income of Euro 19.8 million in 2007.The decrease in other — net was due to a one-time loss of approximately Euro22.8 million related to the sale in 2008 of a note we received in 2006 as partof the sale of the Things Remembered business.

 

***NetIncome***.Income before taxes decreased by Euro 190.8 million, or 24.4 percent, to Euro589.9 million in 2008 from Euro 780.7 million in 2007. As a percentage of netsales, income before taxes decreased to 11.3 percent in 2008 from 15.7 percentin 2007. Minority interests increased to Euro 15.5 million in 2008 from Euro15.0 million in 2007. Our effective tax rate was 33.0 percent in 2008, ascompared to 35.0 percent in 2007.

 

Net income attributableto Luxottica Group stockholders decreased by Euro 112.5 million, or 22.9percent, to Euro 379.7 million in 2008 from Euro 492.2 million in 2007 for thereasons described above. Netincome as a percentage of net sales decreased to 7.3 percent in 2008 from 9.9percent in 2007. Excluding the non-recurring gain and loss that occurred in2007 and 2008, respectively, net income as a percentage of net sales would havebeen 7.6 percent (instead of 7.3 percent) in 2008 and net income would havedecreased 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.

 

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**Taxes**

 

Our effective tax rates forthe fiscal years ended December 31, 2009, 2008 and 2007 were approximately33.9 percent, 33.0 percent and 35.0 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 tax benefit of 5.3 percent related tothe business reorganization of certain Italian companies resulting in therelease of deferred tax liabilities, which was partially offset by an increaseof 2.1 percent in our 2007 tax liability due to the change in the Italianstatutory tax rates.

 

**Liquidityand Capital Resources**

 

***Cash Flows***

*** ***

*OperatingActivities**.*  The Company’snet cash provided by operating activities was Euro 897.2 million, Euro 578.9million and Euro 330.8 million for 2009, 2008 and 2007, respectively. The Euro318.3 million increase in 2009 as compared to 2008 was primarily attributableto stronger performance by the Group on all components of working capital. TheEuro 248.1 million increase in 2008 as compared to 2007 was primarilyattributable to the fact that the Company did not make any advance payments in2008 to certain designers for future contracted minimum royalties, which advancepayments had totaled U.S. $199 million in 2007.

 

Depreciation andamortization were Euro 285.9 million in 2009 as compared to Euro 264.9 millionin 2008 and Euro 232.8 million in 2007. The increase in depreciation expense in2009 as compared to 2008 was primarily attributable to increased fixed assetsdue to the acquisition of new stores that occurred in 2008 and new investments(mainly leasehold improvements) in the wholesale segment. The increase in 2008compared to 2007 was primarily attributable to amortization of the acquired Oakley trademarks of Euro 26.5 million in 2008as compared to Euro 4.1 million in 2007.

 

Deferred taxes were Euro18.1 million in 2009 as compared to Euro 4.9 million in 2008 and Euro (45.0)million in 2007. The increase in 2009 as compared to 2008 is mainly due to thenew stock option plans granted in 2009. The change in 2008 as compared to 2007was primarily 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. Non-cash stock-based compensation expense was Euro 16.2million in 2009 as compared to Euro 10.4 million in 2008 and Euro 42.1 millionin 2007. The decrease in 2008 as compared to 2007 in non-cash expense wasprimarily attributable to the change in the vesting period for the 2006performance plans (expense associated with these plans was Euro 3.0 million in2008 and Euro 34.1 million in 2007).

 

The change in accountsreceivable was Euro 25.7 million in 2009 as compared to Euro 27.9 million in2008 and Euro (55.7) million in 2007. The significant increase in accounts receivablein 2008 as compared to 2007 was mainly due to the improvement of the Company’sdays-of-sales-outstanding resulting from an initiative in this area thatstarted in late 2007 and continued the positive improvement throughout 2008.The inventory change was Euro 46.5 million in 2009 as compared to Euro 1.4million in 2008 and Euro (41.9) million in 2007. The change in 2009 as comparedto 2008 and 2007 was mainly due to the improvements in production planning thatwere implemented in 2008, which optimized inventory levels by more clearlyaligning stock on hand and volumes of sales. The change in prepaid expenses andother was Euro 140.9 million in 2009 as compared to Euro (26.1) million in 2008and Euro (220.7) million in 2007. The change in 2009 as compared to 2008 ismainly due to the collection of certain U.S. tax receivables for approximatelyEuro 44.5 million (USD 62.0 million) and the utilization of tax prepayments ofEuro 57.8 million to offset the tax payments which came due during 2009. Thechange in 2008 as compared to 2007 was due to advance payments to certaindesigners for future contracted minimum royalties, which totaled U.S. $199million in 2007. The change in accounts payable was Euro 27.4 million in 2009as compared to Euro (19.4) million in 2008 and Euro 33.0 million in 2007. Thechange in 2009 as compared to 2008 was mainly due to better payment terms withthe vendors in 2009. The change in 2008 as compared to 2007 was mainlyattributable to improved payment terms with vendors that were negotiated in2006 as well as an overall decrease in purchases in 2008 as compared to 2007.The change in accrued expenses was Euro 20.2 million in 2009 as compared toEuro (110.4) million in 2008 and Euro (9.4) million in 2007. The reasons forthe change in 2009 as compared to 2008 and 2008 as compared to 2007 include (i) thepayments in 2008 of certain advisors’ fees associated with the Oakleyacquisition accrued in 2007, and (ii) the completion in 2008 of therestructuring of Oakley’s European business.****Thechange in income tax payable of Euro (16.7) million in 2009 as compared to Euro2.9 million in 2008  and Euro (92.1)million in 2007 was primarily attributable to the timing of the bulk of our taxpayments in different tax jurisdictions.

 

*Investing Activities.*The Company’s net cash used in investing activitieswas Euro 224.0 million, Euro 322.6 million and Euro 1,788.0 million in 2009,2008 and 2007, respectively. The decrease of Euro 98.6 million in 2009 ismainly due to 

 

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the lower capital expenditures for the production sites in Italy andChina, which were limited to those strictly necessary and related to theoptimization of the production process. The decrease of Euro 1,465.4 million in2008 as compared to 2007 mainly related to the numerous business acquisitionsthat occurred in 2007. In 2008, the Company’s acquisitions of businesses usedcash in the amount of Euro 13.3 million. In 2007, the Company’s acquisitions ofbusinesses used cash in the amount of Euro 1,491.1 million. These acquisitionsincluded the Oakley business for a total purchase price of U.S. $2.1 billion,D.O.C Optics and its affiliates, an optical retail business with approximately100 stores located primarily in the Midwest United States, for approximatelyEuro 83.7 million (U.S. $110.2 million) in cash, two prominent specialty sunchains in South Africa with a total of 65 stores for approximately Euro 10million, and some minor acquisitions in the retail segment in Australia and NewZealand.

 

Our capital expenditures, excluding acquisitions, which were Euro 200.4million in 2009 as compared to Euro 296.4 million in 2008 and Euro 334.8 millionin 2007, primarily related to the investment in IT infrastructure in 2009 andin each year to investment in manufacturing facilities for the manufacturingand wholesale segment and the opening, remodeling and relocation of stores inthe retail division. Capital expenditures were Euro 31.7 million in thethree-month period ended March 31, 2010. It is our expectation that 2010net capital expenditures will be approximately Euro 210 million, not includinginvestmentsfor any acquisitions. TheCompany will pay for these future capital expenditures with its currentlyavailable borrowing capacity and available cash.

 

Net cash provided by disposals of property, plant and equipment wasinsignificant in 2009 and 2008 as compared to Euro 29.7 million in 2007. In 2007,the cash provided by the disposal of fixed assets was primarily attributable tothe sale of a building located in Milan. Acquisitions of other intangibleassets resulted in a use of cash of Euro 3.4 million in 2009 as compared toEuro 4.6 million in 2008 and Euro 3.9 million in 2007. Investments in equityinvestees resulted in cash used of Euro 20.7 million in 2009 and related to thefirst installment of the acquisition of a 40 percent participation inMultiopticas Internacional S.L.

 

*FinancingActivities.*The Company’snet cash provided by/(used in) financing activities was Euro (598.8) million,Euro (256.2) million and Euro 1,427.2 million in 2009, 2008 and 2007,respectively. Cash used in financing activities in 2009 mainly related to therepayment of maturing outstanding debt and aggregate dividend payments tostockholders of Euro 103.5 million. Cash used in financing activities in 2008mainly related to the repayment of maturing outstanding debt, including aportion of the bridge loan entered into in connection with the acquisition ofOakley in 2007 and aggregate dividend payments to stockholders of Euro 223.6million. Cash provided by financing activities in 2007 mainly related to thelong-term loan of Euro 2.1 billion used to finance the Oakley acquisition,partially offset by the aggregate dividend payments to stockholders of Euro191.1 million and the repayment of Euro 675.8 million of maturing debt whichexpired in 2007.

 

***Our Indebtedness***

 

We have relied primarily upon internally generated funds, trade creditand committed bank facilities to finance our operations and expansion.  We do not typically raise capital through theissuance of stock; rather, we use debt financing to lower our overall cost ofcapital and increase our return on shareholders’ equity. Notwithstanding thecredit crisis, we have not seen a worsening of our credit conditions and wecontinue to have access to capital markets at what management believes arefavorable market conditions.  We continueto monitor the credit crisis in order to take appropriate actions.

 

We manage our financing requirements by maintaining an adequate levelof liquidity and committed and uncommitted financing facilities.  To this end, we take a series of actions toensure compliance with these financing requirements.  In particular:

 

·                          Our treasurydepartment monitors our cash flow forecast in conjunction with our liquidityand financing credit lines;

 

·                          We utilize debtinstruments and other credit lines in order to obtain funding for ouroperations;

 

·                          We maintainadequate access to liquidity in our bank accounts; and

 

·                          We monitor ourliquidity risk in order to avoid unacceptable concentrations of such risk.

 

Ourdebt agreements contain certain covenants, including covenants that restrictour ability to incur additional indebtedness. We do not currently expect torequire any additional financing that would require us to obtain consents orwaivers of any existing restrictions on additional indebtedness set forth inour debt agreements.

 

Ourlong-term credit facilities contain certain financial covenants includingratios of Net Financial Position (“NFP”) (as defined in the agreements) toEBITDA (earnings before interest, taxes and depreciation as defined in theagreements) and 

 

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EBITDAto net financial charges (as defined in the agreements).  As of March 31, 2010, and December 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.

 

The financial and operating covenants included in the above long-termdebt are as follows (such terms are defined in our applicable debt agreements):

 

1.                                       Consolidated TotalNet Debt shall not be equal to or exceed 3.5 times the Consolidated EBITDA; and

 

2.                                       ConsolidatedEBITDA shall not be less than five times the Consolidated Net FinanceCharges.

 

Our total indebtedness was Euro 2,339.3 millionas of December 31, 2009. Available additional borrowings under creditfacilities as of such date were Euro 892.8 million.

 

Foradditional information, see Note 9 to our Consolidated FinancialStatements included in Item 18 of this annual report.

 

*BankOverdrafts*

 

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.

 

*Our Credit Facilities*

 

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

 

OnJune 3, 2004, we and our subsidiary U.S. Holdings entered into a creditfacility with a group of banks providing for loans in the aggregate principalamount of Euro 740 million and U.S. $325 million. The facility consists ofthree tranches (Tranche A, Tranche B and Tranche C). On March 10, 2006,this agreement was amended to increase the available Tranche C borrowings toEuro 725 million, decrease the interest margin and define a new maturity dateof 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 the term and revolvingfacility to extend the maturity date of Tranches B and C to March 2013.Tranche A was a Euro 405 million amortizing term loan requiring repayment ofnine equal quarterly installments of principal of Euro 45 million beginning in June 2007,which was to be used for general corporate purposes, including the refinancingof our existing debt as it matured. Tranche A expired on June 3, 2009 andwas repaid in full.  Tranche B is a termloan of U.S. $325 million which was drawn upon on October 1, 2004 by U.S.Holdings to finance the purchase price for the acquisition of Cole National.Amounts borrowed 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 andre-borrowed with all outstanding balances maturing in March 2013. As of December 31,2009, Euro 525 million had been drawn 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, 2009was 0.634 percent for Tranche B and 0.829 percent for Tranche C. As of December 31,2009, Euro 751.8 million was borrowed under this credit facility.  For additional information, see Note 9to our Consolidated Financial Statements included in Item 18 of thisannual 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 expired on June 3, 2009. The Club Deal Swaps wereentered into as a cash flow hedge on Tranche A of the credit facility discussedabove.

 

During the third quarter of2007, 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.

 

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

 

Tofinance the acquisition of Oakley, on October 12, 2007, we and oursubsidiary 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.  We exercised the first option to extend thefinal maturity of this facility by one year to October 12, 2013. The termloan 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 U.S. Holdings, and Facility E consists of abullet term loan in an aggregate amount of U.S. $500 million. We borrowed U.S.$500 million under Facility E. Each facility has a five-year term, with optionsto extend the maturity on two occasions for one year each time.

 

The term loan has a spread of between 20 and 40 basispoints over LIBOR, depending on the Group’s ratio of debt to EBITDA. Interestaccrues on the term loan at LIBOR (as defined in the agreement) plus 0.35percent (0.634 percent for Facility D and 0.604 percent for Facility E on December 31,2009). The final maturity of the credit facility is October 12, 2013.

 

During the third 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 4.26percent perannum.

 

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”), which matches the scheduled maturity of the hedgeddebt. These swaps will expire on October 12, 2012. The Tranche D Swapswere entered into as a cash flow hedge on Facility D of the credit facilitydiscussed above. The Tranche D Swaps exchange the floating rate of LIBOR for anaverage fixed rate of 2.423 percent per annum.

 

The short term bridge loan facility is for anaggregate principal amount of U.S. $500 million and is guaranteed by us and oursubsidiary Luxottica S.r.l. The final maturity of the credit facility was eightmonths from the first utilization date. On April 29, 2008, we and oursubsidiary U.S. Holdings entered into an amendment and transfer agreement tothis facility. The terms of such amendment and transfer agreement, among otherthings, reduced the total facility amount from U.S. $500 million to U.S. $150million, effective July 1, 2008, and provided for a final maturity datethat is eighteen (18) months from the effective date of the agreement. On November 27,2009, we and U.S. Holdings amended this facility to, among other things, reducethe total facility amount from U.S. $150 million to U.S. $75 million effective November 30,2009 and provide for a final maturity date of November 30, 2011. The newterms also provide for the repayment of U.S. $25 million on November 30,2010 and the remaining principal at the final maturity date. As of December 31,2009, interest accrues on this facility at LIBOR (as defined in the agreement)plus 1.90 percent (2.157 percent as of December 31, 2009). As of December 31,2009, U.S. $75.0 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. Thisfacility 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. Interestaccrued at EURIBOR plus 0.375 percent. We could select interest periods of one,three or six months. In June 2009, we renegotiated this credit facility.The new facility consists of a 2-year unsecured credit facility that is arevolving loan providing borrowing availability of up to Euro 150.0 million.Interest accrues on this facility at EURIBOR plus 1.90 percent. We can selectinterest periods of one, three or six months. The final maturity of the creditfacility is July 13, 2011. As of December 31, 2009, no amounts weredrawn under this facility.

 

*The Euro 250 MillionRevolving Credit Facility and Related Interest Rate Swaps*

 

On May 29, 2008, we entered into a Euro250 million revolving credit facility agreement, guaranteed by our subsidiary, U.S.Holdings, with 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. The final maturity of the credit facility is May 29,2013. The credit facility 

 

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requires repayment of equal quarterlyinstallments of principal of Euro 30 million starting August 29, 2011 anda last repayment of Euro 40 million on the final maturity date. Interestaccrues at EURIBOR (as defined in the agreement) plus a margin between 0.40percent and 0.60 percent based on the “Net Debt/EBITDA” ratio, as defined inthe agreement (1.267 percent as of December 31, 2009).  As of December 31, 2009, Euro 250.0million was borrowed under this credit facility.

 

In June and July 2009,we entered into eight interest rate swap transactions with an aggregate initialnotional amount of Euro 250.0 million with various banks (“Intesa Swaps”). The Intesa Swaps will decrease theirnotional amount on a quarterly basis, following the amortization schedule ofthe underlying facility, starting on August 29, 2011. The Intesa Swapswill expire on May 29, 2013. The Intesa Swaps were entered into as a cashflow hedge on the Intesa Sanpaolo S.p.A. credit facility discussed above.The Intesa Swaps exchange the floating rate of EURIBOR for an average fixedrate of 2.25 percent per annum.

 

*The Euro 300 Million ClubDeal*

 

OnNovember 11, 2009, we entered into a Euro 300 million Term FacilityAgreement, guaranteed by our subsidiaries U.S. Holdings and Luxottica S.r.l.,with Mediobanca — Banca di Credito Finanziario S.p.A., as agent, and Mediobanca— Banca di Credito Finanziario S.p.A., Deutsche Bank S.p.A., Calyon S.A. MilanBranch and Unicredit Corporate Banking S.p.A., as lenders. The final maturityof the Term Facility is November 30, 2012. Interest will accrue at EURIBOR(as defined in the agreement) plus a margin between 1.75 percent and 3.00percent based on the “Net Debt/EBITDA”ratio, as defined in the agreement. Interest currently accrues at EURIBOR plusa margin of 2.50 percent, as defined in the agreement (2.98 percent as of December 31, 2009).  As of December 31,2009, Euro 300.0 million was borrowed under this credit facility.

 

*Our Other Debt Financings*

 

*The U.S. $300 MillionSenior Unsecured Guaranteed Notes of U.S. Holdings*

 

OnSeptember 3, 2003, our subsidiary, Luxottica U.S. Holdings Corp. (“U.S.Holdings”), closed a private placement of U.S. $300 million of senior unsecuredguaranteed notes, issued in three series (Series A, Series B and Series C).The Series A and Series B Notes matured on September 3, 2008 andhave been repaid in full.  Interest onthe Series C Notes accrues at 4.45 percent per annum and they mature on September 3,2010. The Series C Notes required annual prepayments beginning on September 3,2006 through the applicable dates of maturity. The Notes are guaranteed on asenior unsecured basis by us and Luxottica S.r.l., our wholly-owned subsidiary.The Notes can be prepaid at U.S. Holdings’ option under certain circumstances.The proceeds from the Notes were used for the repayment of outstanding debt andfor other working capital needs. The Notes contain certain financial andoperating covenants.

 

*The U.S. $275 MillionSenior Unsecured Guaranteed Notes of U.S. Holdings*

 

On July 1, 2008, U.S. Holdings closed aprivate placement of U.S. $275 million of senior unsecured guaranteed notes,issued in three series (Series A, Series B and Series C).  The aggregate principal amounts of the Series A,Series B and Series C Notes are U.S. $20 million, U.S. $127 millionand U.S. $128 million, respectively. The Series A Notes mature on July 1,2013, the Series B Notes mature on July 1, 2015 and the Series CNotes mature on July 1, 2018. Interest on the Series A Notes accruesat 5.96 percent per annum, interest on the Series B Notes accrues at 6.42percent per annum and interest on the Series C Notes accrues at 6.77percent per annum. The proceeds from the Notes were used to repay a portion ofthe bridge loan facility that expired on July 1, 2008.

 

*The U.S. $175 MillionSenior Unsecured Guaranteed Notes of U.S. Holdings*

 

On January 29, 2010,U.S. Holdings closed a private placement of U.S. $175 million of seniorunsecured guaranteed notes, issued in three series (Series D, Series Eand Series F).  The aggregateprincipal amount of each of the Series D and Series E Notes is U.S.$50 million and the aggregate principal amount of the Series F Notes isU.S. $75 million. The Series D Notes mature on January 29, 2017, the Series ENotes mature on January 29, 2020 and the Series F Notes mature on January 29,2019. Interest on the Series D Notes accrues at 5.19 percent per annum,interest on the Series E Notes accrues at 5.75 percent per annum andinterest on the Series F Notes accrues at 5.39 percent per annum. Theproceeds from the Notes were used for general corporate purposes.

 

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***Outstanding Standby Letters of Credit***

 

CertainU.S. subsidiaries have obtained various standby and trade letters of creditfrom banks that aggregated Euro 29.9 million and Euro 34.2 million as of December 31,2009 and 2008, 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 and are generally outstanding for a period that is less than sixmonths. Substantially all the fees associated with maintaining the letters ofcredit fall within the range of 50 to 100 basis points annually.

 

***Concentrationof Credit Risk***

 

Financialinstruments which potentially expose us to concentration of credit risk consistprimarily of cash, investments and accounts receivable. We attempt to limit ourcredit risk associated with cash equivalents by placing our cash balances andinvestments with highly-rated banks and financial institutions. However, at anytime, amounts invested at these banks may be in excess of the amount ofinsurance provided on such deposits. With respect to accounts receivable, welimit our credit risk by performing ongoing credit evaluations, and certaincustomers may be required to post security in the form of letters of credit. Asof December 31, 2009 and 2008, no single customer’s balance comprised 10percent or more of the overall accounts receivable balance. However, includedin accounts receivable as of December 31, 2009 and 2008, was approximatelyEuro 13.0 million and Euro 12.3 million, respectively, due from the host storesof our Licensed Brands retail division. These receivables represent cashproceeds from sales deposited into the host stores’ bank accounts, which aresubsequently forwarded to us on a weekly or monthly basis depending on ourcontract with the particular host store and are based on short term contractarrangements.

 

***Our Working Capital***

 

Setforth below is certain information regarding our working capital (total currentassets minus total current liabilities):

 
| ** **          | ** ** | **As of December 31,**    | ** ** |
|---------------------|------------|------------------------------------------|------------|
| ** **          | ** ** | **2009**                                 | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **          | ** ** | **(In millions of Euro)** | ** ** |
| Current Assets      |       | 1,833.5                                  |       | 1,940.6 |   | 1,910.6 |   |
| Current Liabilities |       | (1,271.0                                 | )          | (1,574.1 | ) | (2,159.2 | ) |
| Working Capital     |       | 562.5                                    |       | 366.5 |   | (248.6 | ) |

 

In2007, working capital decreased due to an increase in the current portion oflong-term debt scheduled to mature in 2008. In 2008, working capital increaseddue to a decrease in the current portion of long-term debt scheduled to maturein 2009. That decrease was caused by the refinancing of maturing debt and bythe repayment of maturing debt using cash provided by operations for the year.The increase in 2009 is primarily attributable to stronger performance by theGroup on all components of working capital.

 

Webelieve that the financial resources available to us will be sufficient to meetour currently anticipated working capital and capital expenditure requirementsfor the next 12 months.

 

Wedo not believe that the relatively moderate rates of inflation which have beenexperienced in the geographic markets where we compete have had a significanteffect on our net sales or profitability. In the past, we have been able tooffset cost increases by increasing prices, although we can give no assurancethat we will be able to do so in the future.

 

**Off-BalanceSheet 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.

 

Weuse, from time to time, derivative financial instruments, principally interestrate and currency swap agreements, as part of our risk management policy toreduce our exposure to market risks from changes in foreign exchange rates andinterest rates (See Note 16 to our Consolidated Financial Statements includedin Item 18 of this annual report). Although we have not done so in the past, wemay enter into other derivative financial instruments when we assess that therisk can be hedged effectively.

 

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**ContractualObligations and Commercial Commitments**

 

Weare party to numerous contractual arrangements consisting of, among otherthings, 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.

 

Thefollowing table summarizes the scheduled maturities of our long-term debt,minimum lease commitments under non-cancelable operating leases, minimum paymentsunder non-cancelable royalty arrangements, purchase commitments (includinglong-term) and endorsement contracts as of December 31, 2009. The tabledoes not include pension liabilities or liabilities for uncertain tax payments.We cannot make a reasonable and reliable estimate of when or if the uncertaintax payments will be made. Our pension plans are discussed in Note 10 toour Consolidated Financial Statements included in Item 18 of this annualreport.

 
| ** **                                  | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|
| **(in millions of Euro)**    | ** ** | ** **                                | ** ** | **1 to 3** | ** ** | **3 to 5** | ** ** | **After 5** | ** ** | ** ** | ** ** |
| **Contractual Obligations**            | ** ** | **1 Year**                           | ** ** | **Years** | ** ** | **Years** | ** ** | **Years** | ** ** | **Total** | ** ** |
| Long-Term Debt and Current Maturities(1)(2) |       | 166.3                                     |       | 1,081.6 |   | 1,144.7 |   | 177.9 |   | 2,570.5 |   |
| Interest Payments(3)                        |       | 71.2                                      |       | 122.5 |   | 25.0 |   | 24.4 |   | 243.1 |   |
| Operating Leases                            |       | 272.4                                     |       | 429.2 |   | 299.3 |   | 303.4 |   | 1,304.3 |   |
| Minimum Royalty Arrangements(4)             |       | 48.4                                      |       | 60.3 |   | 39.6 |   | 62.8 |   | 211.1 |   |
| Long-Term Purchase Commitments(5)           |       | 6.3                                       |       | 1.6 |   | 0.0 |   | 0.0 |   | 7.8 |   |
| Endorsement Contracts(6)                    |       | 5.9                                       |       | 3.8 |   | 0.0 |   | 0.0 |   | 9.8 |   |
| Other Commitments (7)                       |       | 7.9                                       |       | 9.7 |   | 0.1 |   | 0.0 |   | 17.7 |   |
| Total                                       | ** ** | **578.4**                                 | ** ** | **1,708.7** | ** ** | **1,508.7** | ** ** | **568.5** | ** ** | **4,364.3** | ** ** |

 

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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, 2009 and expect to bein compliance for the foreseeable future. Certain covenants require the acceleration of maturities if the Companyis not in compliance.

 

(2)                    The calculation of Long-TermDebt and Current Maturities includes capital lease obligations, pursuant towhich the following amounts are scheduled to become due and payable: Euro 1.0million (less than 1 year), Euro 1.6 million (1 to 3 years) and Euro 0.3million (3 to 5 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 31,2009 and assume that we make all scheduled principal payments as they mature.

 

(4)                    These amounts representobligations under our license agreements with designers, some of which requireus to make annual guaranteed minimum payments.

 

(5)                    These amounts representobligations under our supplier commitments with various suppliers.

 

(6)                    These amounts representobligations under our endorsement contracts with selected athletes and otherswho endorse Oakley products, certain of which require us to pay specifiedannual minimum commitments and sometimes additional amounts based onperformance goals.

 

(7)                    Other commitments mainlyinclude auto, machinery and equipment lease commitments as well as commitmentsto open additional Sunglass Hut points of sale in approximately 430 Macy’sdepartment stores in the United States.

 

AtDecember 31, 2009, we had available funds of approximately Euro 542.8million under our unused short-term lines of credit. Substantially all of theselines have terms of less than one year, but they have been renewed annually inprior 

 

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years.For additional information, see Note 15 to our Consolidated FinancialStatements included in Item 18 of this annual report.

 

**ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

 

**Directorsand Senior Management**

 

TheBoard of Directors of Luxottica Group S.p.A. currently consists of 15 members,each of whom was appointed at the stockholders’ meeting held on April 29,2009.

 

Thecurrent term of the Board of Directors expires at the time of the approval ofthe statutory financial statements as of and for the year ended December 31,2011.

 

Setforth below is certain information regarding the directors and seniormanagement of Luxottica Group S.p.A.:

 
| ** **                | ** ** | ** ** | ** ** | **Senior  Manager or** | ** ** | ** **                                                                                                  | ** ** |
|---------------------------|------------|------------|------------|-----------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | ** ** | ** ** | **Director (1)**            | ** ** | ** **                                                                                                  | ** ** |
| **Name**                  | ** ** | **Age**    | ** ** | **Since**                   | ** ** | **Position**                                                                                                | ** ** |
| Leonardo Del Vecchio      |       | 75         |       | 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           |       | 63         |       | 2006                        |       | Director                                                                                                    |       |
| Mario Cattaneo            |       | 79         |       | 2003                        |       | Director                                                                                                    |       |
| Enrico Cavatorta          |       | 48         |       | 1999/2003                   |       | Chief  Financial Officer and Director                                                                       |       |
| Roberto Chemello          |       | 55         |       | 1979/1985                   |       | Director                                                                                                    |       |
| Claudio Costamagna        |       | 54         |       | 2006                        |       | Director                                                                                                    |       |
| Claudio Del Vecchio       |       | 53         |       | 1978/1986                   |       | Director                                                                                                    |       |
| Sergio Erede              |       | 69         |       | 2004                        |       | Director                                                                                                    |       |
| Sabina Grossi             |       | 44         |       | 2003                        |       | Director                                                                                                    |       |
| Ivanhoe Lo Bello (2)      |       | 49         |       | 2009                        |       | Director                                                                                                    |       |
| Marco Mangiagalli (2)     |       | 61         |       | 2009                        |       | Director                                                                                                    |       |
| Gianni Mion               |       | 66         |       | 2004                        |       | Director                                                                                                    |       |
| Marco Reboa (2)           |       | 55         |       | 2009                        |       | Director                                                                                                    |       |
| Paolo Alberti             |       | 47         |       | 2009                        |       | Executive  V.P., Wholesale                                                                                  |       |
| Colin Baden               |       | 48         |       | 1999                        |       | President  and CEO Oakley                                                                                   |       |
| Frank Baynham             |       | 56         |       | 1987                        |       | Executive  V.P., Licensed Brands, Real Estate, Store Design and Eyecare Development,  Luxottica Retail N.A. |       |
| Chris Beer                |       | 44         |       | 2003                        |       | Chief  Operating Officer, Luxottica Optical Retail Australasia and Greater China                            |       |
| Michael A. Boxer          |       | 48         |       | 1993                        |       | Senior  V.P. and General Counsel N.A.                                                                       |       |
| Kerry Bradley             |       | 53         |       | 1988                        |       | President, Luxottica Retail N.A.                                                                            |       |
| Tom Coleman               |       | 62         |       | 1987                        |       | Executive  Vice President, General Manager, LensCrafters                                                    |       |
| Alessandro Curotti        |       | 50         |       | 2007                        |       | Group  General Counsel and Corporate Secretary                                                              |       |
| Fabio D’Angelantonio |       | 40         |       | 2005                        |       | Retail  Luxury and Sun Business Director and Chief Marketing Officer                                        |       |
| Ivan Dompé           |       | 37         |       | 2008                        |       | Corporate  Communications Director                                                                          |       |
|                      |       |       |       |                        |       |                                                                                                        |       |
| Valerio Giacobbi          |       | 45         |       | 1991                        |       | Group  Business Development Director                                                                        |       |
| Seth McLaughlin           |       | 48         |       | 1994                        |       | Senior  V.P. and General Manager, Pearle Vision, Retail N.A.                                                |       |
| Antonio Miyakawa          |       | 43         |       | 1993                        |       | Executive  Vice President, Marketing, Style & Product                                              |       |
| Mario Pacifico            |       | 47         |       | 2003                        |       | Shared  Services Director                                                                                   |       |
| Nicola Pelà          |       | 47         |       | 2005                        |       | Group  Human Resources Director                                                                             |       |
| Carlo Privitera           |       | 40         |       | 2005                        |       | Chief  Information Technology Officer                                                                       |       |
| Alessandra Senici         |       | 42         |       | 2000                        |       | Investor  Relations Director                                                                                |       |

 

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(1)                    For our senior managers, the periods listed in thetable reflect periods of affiliation with Luxottica Group S.p.A. or any of itspredecessors and affiliates, and not necessarily the period since they wereappointed to their current position. 

 

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When two years areindicated, the former is the first year of affiliation with Luxottica GroupS.p.A. or any of its predecessors and affiliates and the latter is the year ofappointment as a director.

 

(2)                    Mr. Lo Bello was nominated byminority stockholders. Messrs. Reboa and Mangiagalli and the remainingtwelve directors were nominated by our controlling stockholder Delfin S.a.r.l. Messrs. LoBello, Reboa and Mangiagalli were first elected directors at the stockholders’meeting held on April 29, 2009.

 

Executiveofficers serve at the discretion of the Board of Directors. Messrs. Cattaneo, Chemello, Mion, Abravanel,Costamagna, Claudio Del Vecchio, Erede, Mangiagalli, Reboa, Lo Bello and Ms. Grossiare all non-executive directors. Inaddition, Messrs. Cattaneo, Mion, Abravanel, Costamagna, Mangiagalli,Reboa and Lo Bello are also independent directors under Italian law.

 

Pursuantto Italian law andour By-laws, a list for the appointment of the Board of Directors can bepresented only by stockholders who hold the minimum percentage of the sharecapital established annually by Consob. For 2009, this was equal to 1% of theshare capital of the Company. All directors except Mr. Lo Bello wereappointed by Delfin S.a.r.l., our controlling stockholder.**** Mr. Lo Bello was appointed by minoritystockholders.

 

Pursuantto Italian law, we maintain a Board of Statutory Auditors, elected at thestockholders’ meeting, composed of three experts in accounting matters who arerequired to have no other affiliation with Luxottica Group S.p.A. and who mustsatisfy certain professional and other standards. The Board of StatutoryAuditors is required to verify that we: (i) comply with applicable law andour bylaws; (ii) respect the principles of correct administration; (iii) maintainadequate organizational structure, internal controls and administrative andaccounting systems; (iv) ensure that our accounting system represents thefacts in a fair and true manner; (v) comply with the Italian Code ofCorporate Governance; and (vi) give adequate instructions to oursubsidiaries.  Although members of theBoard of Statutory Auditors are required to attend the meetings of the Board ofDirectors and of the stockholders, they are not deemed to be members of theBoard of Directors and do not vote on matters submitted to such meetings.Effective as of April 29, 2009, the members of the Board of StatutoryAuditors are Francesco Vella, Chairman, Enrico Cervellera and Alberto Giussani.As of April 29, 2009, there were also two alternate members of the Boardof Statutory Auditors, Mario Magenes and Alfredo Macchiati.  On May 29,2009, Mr. Magenes died. Giorgio Silva was appointed to succeed Mr. Magenesat the stockholders’ meeting held on October 29, 2009. The alternatemembers will replace current members who leave their position during thecurrent term. Francesco Vella and Alfredo Macchiati were selected from a listsubmitted by the minority stockholders referred to above. Enrico Cervellera,Alberto Giussani and Mario Magenes were selected from a list submitted byDelfin S.a.r.l. Giorgio Silva was appointed by the majority of ourstockholders.  The current term of theBoard of Statutory Auditors expires at the time of the approval of thestatutory financial statements as of and for the year ended December 31,2011.

 

SeeItem 16G—“Corporate Governance - Summary of the Significant Differences BetweenOur Corporate Governance Practices and the Corporate Governance Standards ofthe New York Stock Exchange” for more information regarding the designation ofthe Board of Statutory Auditors to act as our audit committee.

 

Pursuant to the Italian Codeof Corporate Governance, issued by Borsa Italiana, we also maintain a HumanResources Committee, elected within the members of the Board of Directors. TheHuman Resources Committee has verification, advisory and proposal-makingfunctions, including: (i) recommending to the Board the remunerationpayable to the Company’s Directors with additional responsibilities and determiningthe remuneration criteria for the top management of the Company and of theentire Group; and (ii) reviewing the Luxottica Group employees’ incentiveplans. Effective as of April 29, 2009, the members of the Human ResourcesCommittee are non-executive directors Gianni Mion, Roger Abravanel, ClaudioCostamagna, who acts as Chairman, and Sabina Grossi, three of whom areindependent. The term of the Human Resources Committee is co-extensive with theterm of our Board of Directors since its members are also members of our Boardof Directors.

 

We also maintain an Internal Control Committee elected fromthe members of the Board of Directors. The Internal Control Committee is responsible for performinginvestigations, providing advice and submitting proposals to the Board ofDirectors. In particular, it performs the following activities: (i) assiststhe Board of Directors in the execution of its internal controls tasks andmandates; (ii) evaluates the planned initiatives and projects of theInternal Control Officer (“ICO”); (iii) reviewsand assesses the regular reports issued by the ICO; (iv) assesses,together with the manager responsible for the preparation of the Company’saccounting records and the managers and the auditors, the proper use andapplication of accounting principles; (v) assesses the results of theactivities performed by the Internal Auditing function; (vi) monitors theeffectiveness of the auditing process; and (vii) expresses opinionsconcerning the identification of corporate risks as well as the planning,implementation and management of the internal control system.

 

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SeeItem 16G—“Corporate Governance - Summary of the Significant Differences BetweenOur Corporate Governance Practices and the Corporate Governance Standards of theNew York Stock Exchange” for more information regarding the designation of theHuman Resources Committee to act as our compensation committee.

 

Ashort biography of each of our Directors and executive officers is set forthbelow:

 

**Leonardo Del Vecchio** is the founder of ouroperations and has been Chairman of the Board since the Group was formed in1961. In 1986, the President of the Republic of Italy conferred on Mr. DelVecchio the honor of Cavaliere dell’Ordine al “Merito del Lavoro” (Knight ofthe Order for Labor Merit). In May 1995, he received an honorary degree inBusiness Administration from the Venice Ca’ Foscari University. In 1999, hereceived a Master “honoris causa” in International Business from MIB-Management School in Trieste, and in 2002, he received an honorary degree inManagerial Engineering from the University of Udine. In March 2006, Mr. DelVecchio received another honorary degree in Materials Engineering fromPolitecnico of Milan. Mr. DelVecchio is also a director of Assicurazioni Generali S.p.A., Beni StabiliS.p.A., GiVi Holding S.p.A., and Gianni Versace S.p.A., vice chairman of theSurveillance Committee of Fonciere des Regions and a director of DelfinS.a.r.l., Aterno S.a.r.l. and Luxottica UK.

 

**Luigi Francavilla** joined the Group in 1968, has been Directorsince 1985, Deputy Chairman since 1991, and is the Chief Quality Officer of theGroup. From 1977 until May 2009, he was Group Product and Design Director.From 1972 to 1977, Mr. Francavilla was General Manager of Luxottica S.r.l.and, from 1969 to 1971, he served as Technical General Manager of LuxotticaS.r.l. In addition, he is Chairman of Luxottica S.r.l., our principal operatingsubsidiary. Mr. Francavillais also a Director in the Venice branch of the Bank of Italy. In April 2000,he received an honorary degree in Business Administration from ConstantinianUniversity in Cranston, Rhode Island, U.S.A.

 

**Andrea Guerra** was appointed a Director and Chief ExecutiveOfficer of the Company on July 27, 2004. Prior to joining the Company, Mr. Guerrawas with Merloni Elettrodomestici since 1994, where, from 2000, he was itsChief Executive Officer. Prior to being at Merloni, Mr. Guerra worked forMarriott Italia where he became Director of Marketing. He received a degree inBusiness Administration 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., Luxottica Retail North AmericaInc. and of Oakley, Inc., all of which belong to Luxottica Group. He isalso member of the Board of Directors of Parmalat S.p.A. and DEACapital S.p.A.

 

**Roger Abravanel**has been a director since 2006. He worked atMcKinsey & Company from 1972 until June 2006. Mr. Abravanelis also involved in international consulting projects, advising on strategic,organizational and operational development issues. He graduated with a degreein Engineering from the Politecnico di Milano and received a Masters inBusiness Administration from INSEAD in Fontainebleau (with HighDistinctions).  He is the author ofseveral studies and articles on business organization. He is a member of the Board of Directorsof Teva Pharmaceutical Industries LTD, Banca Nazionale delLavoro 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 SamiS.p.A. and a member of the Supervisory Board of UBI Banca S.C.p.A.

 

**Enrico Cavatorta** has been a Director of the Group since 2003.He has been Chief Financial Officer since he joined the Group in 1999, and heis a director of the principal subsidiaries of the Company, including Luxottica U.S. Holdings Corp.,Luxottica S.r.l., OPSM Group Pty Ltd., Luxottica Retail North AmericaInc. and Oakley, Inc. Prior to joining Luxottica, Mr. Cavatortawas with Piaggio S.p.A., most recently as Group Controller, responsible forplanning and control. From 1993 to 1996, Mr. Cavatorta was a consultantwith 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** has been a Director since 1985. He holds adegree in Corporate Finance from the Cà Foscari University in Venice. He joinedthe Group in 1979. Until 1985 he was Chief Financial Officer of the Company.Between 1985 and 2004 he was Chief Executive Officer of Luxottica. He then tookover the position of Chief Operations Officer, which he held until July 2008,when he left all operational positions held in Luxottica. In 2007, he acquiredcontrol of Woodn S.r.l., a company that specializes in the manufacturing andmarketing of wood-based composites, where he holds the position of Chairman ofthe Board of Directors. In 2008, he was appointed Chairman of the Board ofDirectors of the Chinese 

 

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company,Sunbow Environmental Decoration Material Co Ltd, fully owned by Woodn S.r.l.,which manufactures wooden composites for distribution both in China andinternationally. In 2008, he was appointed member of the Board of Directors ofthe Entrepreneurs’ Association of the Belluno Province. He is a director ofStefanel SpA.

 

**Claudio Costamagna** has been aDirector 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. and MandelPartners S.A. He is also Chairman of the Associazione Alumni Bocconi(association of graduates from Bocconi University).

 

**Claudio Del Vecchio,** a son of Leonardo DelVecchio, joined the Group in 1978 and has been a Director since 1986. From 1979to 1982, he managed our Italian and German distribution operations. From 1982until 1997, he was responsible for all business operations of the Group inNorth America. He also serves as a Director of U.S. Holdings, a key subsidiaryin North America. Claudio Del Vecchio is Chairman and Chief Executive Officerof Retail Brand Alliance, Inc., the owner of Brooks Brothers.

 

**Sergio Erede** has been a Director since 2004. Mr. Eredegraduated magna cum laude from the University of Milan in 1962 with a degree injurisprudence and obtained an LL.M. from Harvard Law School in 1964. From 1965to 1969, he was head of the legal department of IBM Italia S.p.A. Prior to suchtime, Mr. Erede was an attorney at the law firm of Sullivan &Cromwell from 1964 to 1965, and the law firm of Hale & Dorr from 1963to 1964. In 1999, he founded the law firm of Bonelli, Erede &Pappalardo (which is the successor by merger to the firm of Erede e Associati),a leading firm in Italian financial transactions. Additionally, he is a memberof the Board of Directors of Interpump Group S.p.A., Gruppo Editoriale L’EspressoS.p.A., Manifatture Lane Gaetano Marzotto & Figli S.p.A., SocietàItalo Britannica L. Manetti - H. Roberts S.p.A., Manuli Rubber IndustriesS.p.A., Gruppo IPG Holding S.r.l. (Gruppo Interpump) and Sintonia S.A.Additionally, Mr. Erede is Chairman of AON Italia S.p.A., vice chairman ofthe Board of Directors of Banca Nazionale del Lavoro S.p.A. and a member of theSurveillance Committee and of the Audit Committee of Fonciere des Regions.

 

**Sabina Grossi** has been a Director since 2003. She joinedLuxottica Group S.p.A. in 1996 and was Head of Investor Relations, a positionwhich she held from 1996 until 2004. Prior to joining Luxottica Group S.p.A.,she was a financial analyst with Caboto Sim S.p.A. from 1994 until 1996. From1991 to 1993, Ms. Grossi was an associate professor in the school ofengineering of the La Sapienza University in Rome, where she taughtundergraduate courses as well as published papers on mathematics andstatistics. Ms. Grossi, who is a C.P.A. in Italy, graduated with thehighest honors from the LUISS University in Rome with a bachelor’s degree inBusiness Administration. Ms. Grossi is currently a member of the Board ofDirectors of Molmed S.p.A. and Oliver Twist Onlus. She is also the chairpersonof the OneSight foundation in Italy.

 

**Ivanhoe Lo Bello**became a Director on April 29, 2009. Hehas been Chairman of the Board of Directors of Banco di Sicilia S.p.A. — GruppoUnicredit since April 2008. From January 2008 to April 2008, hewas Vice President of Banco di Sicilia S.p.A. — Gruppo Unicredit. From 1998 to2001 and again since January 2008, he has been a member of the Board ofDirectors of Banco di Sicilia S.p.A. From 2004 to 2008, he was Director of theSyracuse branch of the Bank of Italy. He is President of Cofindustria Siciliaand the Chamber of Commerce of Syracuse. Mr. Lo Bello graduated magna cumlaude from the University of Catania in 1989 with a degree in jurisprudence.

 

**Marco Mangiagalli**became a Director on April 29,2009. Mr. Mangiagalli received a degree in Political Economy from the “LuigiBocconi” University in 1973. Most of his career has been with Eni Group; healso has had working experience with Barclays Group in Italy and the NuovoBanco Ambrosiano Group. He has served as a member of the Board for Agip S.p.A.,Polimeri Europa S.p.A., Nuovo Pignone S.p.A., Snamprogetti S.p.A., SaipemS.p.A., Eni International Holding B.V., Albacom S.p.A., Emittenti Titoli S.p.A.and Oil Investment Corp. He also has been Chairman of Eni Coordination CenterS.A., Eni Bank Ltd/Banque Eni S.A. and of Enifin S.p.A. Since August 2008he has been Chairman of the Board of Directors for Saipem S.p.A.

 

**Gianni Mion** has been a Director since 2004. He is ChiefExecutive Officer of Edizione S.r.l.,a position he has held since 1986. Priorto joining Edizione S.r.l., Mr. Mion was the Chief Financial Officer ofMarzotto S.p.A. from 1985 to 1986, Managing Director of Fintermica S.p.A. from1983 to 1985, Vice President of Gepi S.p.A. from 1974 to 1982, controller ofMcQuay Europa S.p.A. from 1972 to 1974 and an auditor at the accounting firm ofKPMG from 1967 to 1972. He has been chief executive officer of Edizione HoldingS.p.A. since 1986 and prior to that he was the chief executive officer ofSintonia S.p.A. Mr. Mion is Chief Executive Officer of Edizione S.r.l. andalso sits on the Board of Directors of Benetton Group S.p.A., Autogrill S.p.A.,Atlantia S.p.A., Sintonia, S.A. and Burgo Group S.p.A. Mr. Mion graduatedfrom the Venice University Ca’ Foscari with a degree in Business Administrationand is a Certified Public Accountant.

 

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**Marco Reboa**became a Director on April 29, 2009. Mr. Reboareceived a degree in Business Economics from Universita Commerciale L. Bocconiin Milan, Italy in 1978. He has been registered in the Register of CharteredAccountants of Milan since 1982 and he is an auditor pursuant to MinisterialDecree since 1995. He is currently a professor at the Faculty of Law at theLibero Istituto Universitario Carlo Cattaneo in Castellanza, Italy and works inprivate practice in Milan, specializing in extraordinary financialtransactions. Mr. Reboa has published books and articles on financialstatements, economic appraisals and corporate governance.  He is editor-in-chief of the Magazine ofChartered Accountants.  Mr. Reboawas the Chairman of the Luxottica Group S.p.A. Board of Statutory Auditors fromJune 14, 2006 until April 29, 2009. He is a member of the Board of Directors of Eni S.p.A. and Interpump GroupS.p.A., Chairman of the Board of Auditors of Mediobanca S.p.A. and Auditor ofGruppo Lactalis Italia S.p.A.

 

**Paolo Alberti** joined Luxottica Group in May 2009 asExecutive Vice President, Wholesale. Prior to joining Luxottica, he wasExecutive VP at Bulgari Parfums where he was responsible for the development,marketing, logistics and commercialization of Bulgari Perfumes and Cosmetics.He was also responsible for the Bulgari eyewear license with Luxottica. Priorto being at Bulgari, he was General Manager at L’Oréal, Consumer Division,Director at Johnson & Johnson and Advertising Brand Manager at Procter &Gamble. Mr. Alberti holds a B.S. in Civil Management Engineering from theUniversity of the Pacific (California, USA) and a Master in Business Administrationfrom Bocconi University.

 

**Colin Baden** became Chief Executive Officer of Oakley in July 2009.He joined Oakley in February 1996 as Director of Design and served as VicePresident of 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** has been Executive Vice President, LuxotticaRetail North America since January 2010 with responsibility for the RetailNorth American Licensed Brands, eyecare development and real estate, amongother things.  From March 2008through December 2009, Mr. Baynham was the Executive Vice Presidentand General Manager for LensCrafters. From 1999 to March 2008, he servedas Executive Vice President, Stores of Retail North America. Mr. Baynhamhas held various other senior executive roles since joining LensCrafters in1987. Prior to 1987, he worked in marketing for Procter & Gamble andwas a captain in the U.S. Army. Mr. Baynham graduated with a degree inFinance from Murray State University.

 

**Chris Beer**became Chief Operating Officer of Luxottica OpticalRetail Australasia and Greater China in June 2009. Previously, he held theposition of Chief Operating Officer of Asia-Pacific and China retail operationsof Luxottica Group, from 2003, having had 22 years of experience with the OPSMGroup (later acquired by Luxottica). He held senior executive positions insales and operations before being appointed International HR Manager for theOPSM Group in 1999 and General Manager Retail for OPSM Australia in 2001. Mr. Beeroversees group operations, marketing, merchandise, distribution andmanufacturing for the Australia/NZ Region.

 

**Michael A. Boxer** has been the Senior Vice President, GeneralCounsel - North America since September 2005. Mr. Boxer isresponsible for overseeing all legal matters for the Company’s North Americanretail and wholesale operations. Mr. Boxer has held various otherexecutive roles since joining the Company in 1993. Prior to joining Luxotticain 1993, Mr. Boxer served as a corporate attorney with the law firm ofWinston & Strawn in New York. He received his undergraduate degreefrom Columbia University and his law degree from the New York University Schoolof Law.

 

**Kerry Bradley** became President of Luxottica Retail NorthAmerica in February 2009, and prior to that he served as Chief OperatingOfficer of Retail North America since 2002. From 1998 to 2002 he held theposition of Executive Vice President of LensCrafters. Mr. Bradley isresponsible for all LensCrafters, Cole and EyeMed sales, marketing andoperations. Mr. Bradley has held various other senior executive rolessince joining LensCrafters in 1988. Mr. Bradley has a Master’s degree inBusiness from the University of Edinburgh, Scotland and a B.S. degree inBusiness from Auburn University in Alabama.

 

**Tom Coleman** has been ExecutiveVice President and General Manager, LensCrafters since January 2010.  During 2008 and 2009, Mr. Coleman servedas the Executive Vice President, Licensed Brands & Retail Development.**** From 2003 to 2008,he was Executive Vice President Retail Asia-Pacific, responsible for allactivities of the Group in the Asia-Pacific region, which includes Australia,New Zealand, Hong Kong, Singapore and Malaysia. Prior to this, he served asExecutive Vice President of LensCrafters since 1997. Mr. Coleman has heldvarious other senior executive roles since joining LensCrafters in 1987.

 

**Alessandro Curotti**joined the Group as GeneralCounsel and Corporate Secretary in 2007. Prior to joining Luxottica he servedas a corporate lawyer at companies such as Telecom Italia, Telecom ItaliaMobile and Montedison. He received his law degree from the University of Siena.

 

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**Fabio D’Angelantonio**was appointed to lead theRetail Luxury and Sun Business at the beginning of 2009, while maintaining therole of Chief Marketing Officer that he has held since 2005. After experiencewith the European Union and in the Olivetti Marketing Department in Brusselsand Madrid, Mr. D’Angelantonio led the international department from 1995to 2000 for the Belgian publishing house Editions Hemma (part of theHavas-Vivendi group). At the beginning of 2000, Mr. D’Angelantonio joinedCiaoweb (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.

 

**Ivan Dompé** joined Luxottica Group in 2008 as CorporateCommunications Director. From 2005 to 2008, he was Media Relations and InternetCommunications Director at Edison, an Italian utility company.  From 2000 to 2005, he served various roles inthe Pirelli Group (in its business: tires, cables and real estate divisions),leaving the company as Head of the media relations department. Previously, hespent over three years in PR consultancy firms Ketchum and Burson Marstellerand began his career as a journalist in 1995. Mr. Dompé received a degreein Economics from Bocconi University in Milan.

 

**Valerio Giacobbi** is currently Group Business DevelopmentDirector. He was the Executive Vice President Retail North America from 2001until March 2009. Prior to 2001, he was General Affairs Manager ofLuxottica Group S.p.A. since 1991. Mr. Giacobbi graduated with a degree inBusiness Administration from the Ca’ Foscari University in Venice.

 

**Seth McLaughin** has beenSenior Vice President and General Manager Pearle Vision, Luxottica Retail NorthAmerica since March 2008. From October 2004 to March 2008, heserved as Senior Vice President, Consumer Marketing of Luxottica Retail NorthAmerica. From July 1998 to October 2004, he served as Vice President,Consumer Marketing. Prior to joining the Luxottica Group he worked at BostonConsulting Group, from 1990 to 1994, and in strategic consulting for Procter &Gamble, from 1984 to 1990. Mr. McLaughin has a Bachelor of Science degreefrom Iowa State University.

 

**Antonio Miyakawa** is currently the Executive Vice President ofMarketing, Style & Product for Luxottica Group S.p.A. From 2003 until May 2009,he was Executive Vice President of Wholesale and Marketing for Luxottica GroupS.p.A. Previously he was also head of our Asian wholesale operations, aposition he held since 1999. Prior to this he served as Executive VicePresident of Luxottica’s Japanese operations. Prior to joining Luxottica GroupS.p.A., Mr. Miyakawa was a junior consultant for Compact S.r.l. (anItalian consulting firm) working on various Luxottica matters.

 

**Mario Pacifico**became Shared Services Director in May 2009.He joined the Group as Head of Internal Auditing in 2003. Prior to joiningLuxottica, he was VP of Internal Auditing of Prada Group. From 1990 to 2000, Mr. Pacificowas Controller of Eni’s Italy Division, Chief Financial Officer of Agip TradingB.V. and Audit Manager for Agip S.p.A. Mr. Pacifico graduated from BocconiUniversity in Milan with a degree in Business Administration.

 

**Nicola Pelà** has been Group Human Resources Director since 2005.Before joining Luxottica, he held a number of HR positions in Olivetti, Fiat,Barilla and SmithKline Beecham. He has lived and worked in Italy, the UnitedStates and Belgium. Mr. Pelà has a bachelor’s degree in Law with honorsand a master’s degree in Business Administration from CUOA (CentroUniversitario di Organizzazione Aziendale).

 

**Carlo Privitera**joined Luxottica in 2005 as Group Industrial SupplyChain Director.  Since January 2008,he has been the Chief Information Technology Officer. From December 2001to February 2005, Mr. Privitera served in various capacities,including Planning Manager and Production Control & Logistic Directorof Fiat Group and its subsidiaries. From 1996 to 2001, he served as SeniorManager in Efeso Consulenze. Mr. Privitera has a bachelor degree inEngineering from the Politecnico in Milan. He also holds a master’s degree fromOsaka University.

 

**Alessandra Senici** has served as the Investor RelationsDirector at Luxottica Group since May 2007.  Ms. Senici joined the Group in February 2000.She was previously an Equity Analyst with Rasfin Sim and Cariplo S.p.a., whereshe also worked on primary and secondary offerings together with the corporatefinance and equity capital markets teams. She has also worked in currencytrading. Ms. Senici holds a Bachelor’s Degree in Business Administrationfrom the University of Brescia and is a member of A.I.R., the ItalianAssociation of Investor Relations Officers.

 

**Compensation**

 

Setforth below is information regarding total compensation paid to the members ofour Board of Directors and our Board of Statutory Auditors for servicesrendered to Luxottica Group S.p.A. and our subsidiaries during 2009:

 

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| **Name**                                                         | ** ** | **Base  Compensation  (Euro)** | ** ** | **Other  Compensation  (Euro)** | ** ** | **Total  Compensation  (Euro)** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Leonardo Del Vecchio*Chairman of the Board of Directors*         |       | 684,083                        | (1)        | 544,306                         | (2)        | 1,228,389                       |       |
| Luigi Francavilla (3)*Chief Quality Officer and Deputy Chairman* |       | 139,200                        | (3)        | 1,026,542                       | (2)(4)(5)  | 1,165,742                       |       |
| Andrea Guerra*Chief Executive Officer and Director*              |       | 900,000                        | (6)        | 1,219,365                       | (4)(5)     | 2,119,365                       |       |
| Enrico Cavatorta*Chief Financial Officer and Director*           |       | 81,198                         |       | 549,339                         | (4)(5)     | 630,537                         |       |
| Roberto Chemello*Director*                                       |       | 81,198                         |       | 2,570,000                       | (7)        | 2,651,198                       |       |
| Roger Abravanel*Director*                                        |       | 91,198                         | (8)        | —                          |       | 91,198                          |       |
| Tancredi Bianchi (9)*Director*                                   |       | 33,411                         | (10)       | —                          |       | 33,411                          |       |
| Mario Cattaneo*Director*                                         |       | 104,531                        | (11)       | —                          |       | 104,531                         |       |
| Claudio Costamagna*Director*                                     |       | 94,531                         | (12)       | —                          |       | 94,531                          |       |
| Claudio Del Vecchio*Director*                                    |       | 81,198                         |       | —                          |       | 81,198                          |       |
| Sergio Erede*Director*                                           |       | 81,198                         |       | —                          |       | 81,198                          |       |
| Sabina Grossi*Director*                                          |       | 87,929                         | (13)       | 307                             |       | 88,236                          |       |
| Ivanhoe Lo Bello*Director*                                       |       | 63,178                         | (14)       | —                          |       | 63,178                          |       |
| Marco Mangiagalli*Director*                                      |       | 68,114                         | (10)       | —                          |       | 68,114                          |       |
| Gianni Mion*Director*                                            |       | 87,929                         | (13)       | —                          |       | 87,929                          |       |
| Marco Reboa*Director*                                            |       | 68,114                         | (10)       | —                          |       | 68,114                          |       |
| Lucio Rondelli (9)*Director*                                     |       | 35,059                         | (15)       | —                          |       | 35,059                          |       |
| Francesco Vella*Chairman of the Board of Statutory Auditors*     |       | 70,583                         |       | —                          |       | 70,583                          |       |
| Marco Reboa (16)*Chairman of the Board of Statutory Auditors*    |       | 34,709                         |       | —                          |       | 34,709                          |       |
| Enrico Cervellera*Member of the Board of Statutory Auditors*     |       | 70,000                         |       | —                          |       | 70,000                          |       |
| Giorgio Silva (16)*Member of the Board of Statutory Auditors*    |       | 42,822                         | (17)       | —                          |       | 42,822                          |       |
| Alberto Giussani*Member of the Board of Statutory Auditors*      |       | 46,667                         |       | —                          |       | 46,667                          |       |

 

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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.

 

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(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; the other part of the indemnity was paid during 2008.

 

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

 

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

 

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

 

(11)Compensation paid as Director, member of the Internal Control Committee and,beginning on April 29, 2009, Chairman of the Internal Control Committee.

 

(12)     Compensationpaid as Director, member of the Human Resources Committee and, beginning on April 29,2009, Chairman of the Human Resources Committee.

 

(13) Compensation paid as Director and, beginning on April 29,2009, as a member of the Human Resources Committee.

 

(14) Compensation paid as Director and member of the Internal ControlCommittee beginning on July 28, 2009.

 

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

 

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

 

(17)     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 our seniormanagement (who are not directors) as a group (17 people) was approximatelyEuro 7.6 million in 2009, of which approximately Euro 1.2 million representedprovision for termination indemnities and social security charges required byItalian law. Members of this group were also granted options to purchase anaggregate of 3,250,000 of our ordinary shares at a weighted average exerciseprice of Euro 14.13 per share in 2009. These options will expire on differentdates from March 31, 2017 to June 12, 2018. The aggregate amount setaside or accrued during the year ended December 31, 2009 to provide pensionand retirement benefits for our directors who are also members of ourmanagement was Euro 0.8 million. Our directors who are not members ofmanagement do not receive such benefits.

 

With the exception of termination benefits providedfor Mr. Guerra, our Chief Executive Officer, and Mr. Chemello, asdescribed below, none of our directors have service contracts with the Companyor any of its subsidiaries providing for benefits upon termination ofemployment.

 

In case of termination other than for good cause, wewill pay our Chief Executive Officer a separation allowance, in addition toproviding for termination indemnities provided by Italian law, in the amount oftwo times the sum of:

 

·                 annual base salary, provided as a sum ofannual base remuneration and director’s emoluments; and

 

·                 variable pay, corresponding to the averagebonus compensation received in the three years (or shorter period, as the casemay be) preceding his termination.

 

This separation allowance is also due in the case oftermination for cause or in the case our Chief Executive Officer terminates theemployment relationship within the 60 days following one of the events listedbelow that leads to a reduction in responsibilities and tasks assigned:

 

·                 substantial change to the authority given tothe Chief Executive Officer; and

 

·                 change of control.

 

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In July 2008, Mr. Chemello’s position asChief 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 rights underthe Performance Shares Plan. Part of the indemnity due to Mr. Chemellowas paid in 2009.

 

**Employees**

 

As of December 31, 2009, we employedapproximately 60,800 employees worldwide, of whom approximately 38,100 wereemployed in the United States and Canada, 7,300 were employed in Italy, 12,500were employed in Asia-Pacific, 2,100 were employed in Europe and 800 wereemployed in subsidiaries located in other countries. As of such date,approximately 19,200 were employed in our manufacturing and wholesale segment,approximately 40,500 were employed in our retail segment and approximately1,100 were employed at corporate. Substantially all of our employees in Italyare covered by collective bargaining agreements. Other than those employees inPearle Vision stores subject to collective bargaining agreements describedbelow, none of our employees in the United States are covered by collectivebargaining agreements. We have enjoyed generally good relations with ouremployees.

 

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 7,500 of our employees. This agreementwas renewed in 2010 resulting in an average wage increase rate of approximatelytwo 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 termination ofemployment, employees are entitled to receive certain compulsory severancepayments based on their compensation levels and length of employment. As of December 31,2009, we had established a reserve of Euro 47.8 million for such severancepayments, which is reflected in our consolidated financial statements.

 

Pearle Vision is currently aparty to three collective bargaining agreements. Pearle Vision’s collectivebargaining agreement with Local 108, Retail, Wholesale and Department Storeunion covers approximately 41 employees holding the positions of Lab Associate,Lead Lab Associate and Sales Associate. The agreement was extended until April1, 2010, to allow the parties to negotiate a new agreement, which is not yetfinalized. There is currently no collective bargaining agreement in effect. PearleVision’s collective bargaining agreement with Local 84932 of the CommunicationsWorkers of America has a term that runs through May 31, 2010, and coversapproximately 65 Pearle Vision employees holding the positions of Optician, LabAssociate, Lead Lab Associate and Sales Associate. Pearle Vision’s collectivebargaining agreement with Local 888, United Food and Commercial Workers hasbeen extended by agreement while the parties negotiate a new agreement andcovers approximately 15 Pearle Vision employees holding the positions of LabAssociate, Lead Lab Associate and Sales Associate.

 

**Share Ownership**

 

Setforth below is certain information concerning the beneficial ownership of ourordinary shares as of April 20, 2010**,** by each ofour directors and executive officers who beneficially owns in excess of one percentof our outstanding ordinary shares.

 
| **Stockholder**      | ** ** | **Issuer**             | ** ** | **Shares owned as of  April 20, 2010** | ** ** | **Percentage  Ownership** | ** ** |
|----------------------|------------|------------------------|------------|------------------------------------------------------------|------------|---------------------------|------------|
| Leonardo Del Vecchio |       | Luxottica Group S.p.A. |       | 314,203,339                                                | (1)        | 67.6                      | %          |
| Luigi Francavilla    |       | Luxottica Group S.p.A. |       | 5,575,500                                                  | (2)        | 1.2                       | %          |

 

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(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 (a) 70,100shares held by Mr. Francavilla, 70,100 shares held by his wife and3,364,800 shares held in usufruct with his wife; (b) 2,000,000 sharescurrently held by Delfin S.a.r.l. that can be purchased under the Delfin plan(for a 

 

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description of the plan, seeNote 11 to the Consolidated Financial Statements included in Item 18 of thisannual report) and (c) 70,500 issuable upon exercise of vested stock options.

 

Except as otherwise indicated above, each of ourdirectors and our executive officers owns less than one percent of ouroutstanding ordinary 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:

 
| **Stockholder**             | ** ** | **Shares held at the  beginning of 2009** | ** ** | **Shares bought  during  2009** | ** ** | **Shares sold  during 2009** | ** ** | **Shares held at********the end of 2009** | ** ** |
|-----------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                  | ** ** | ** **                                                         | ** ** | ** **                           | ** ** | ** **                             | ** ** | ** **                                                         | ** ** |
| Leonardo Del Vecchio        |       | 314,403,339                                                        | (1)        |                                 |       |                                   |       | 314,403,339                                                        | (1)        |
| Luigi Francavilla           |       | 3,505,000                                                          | (2)        |                                 |       |                                   |       | 3,505,000                                                          | (2)        |
| Roberto Chemello            |       | 1,077,875                                                          | (3)        |                                 |       |                                   |       | 1,077,875                                                          | (3)        |
| Claudio Del Vecchio         |       | 3,381,000                                                          | (4)        |                                 |       |                                   |       | 3,381,000                                                          | (4)        |
| Sabina Grossi               |       | 62,600                                                             |       |                                 |       |                                   |       | 62,600                                                             |       |
| Senior Managers as  a group |       | 200,605                                                            |       | 10,000                               |       |                                   |       | 210,605                                                            |       |

 

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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 power over these shares. 70,100 shares are held by hiswife directly.

 

(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/orincentive stock options. Under the plan, the Board of Directors may not grantan option for a term of more than nine years from the date of grant, or for aterm that expires after March 31, 2011. The exercise price of theseoptions is equal to the market value of the underlying ordinary shares on thedate of grant, defined as the higher of (i) the closing market price ofour ADRs on the business 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 became exercisable in three equal installments beginning on January 31of the year after the date of grant and expired nine years after such date.****All the options granted under this plan have either beenexercised or have expired.

 

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 sharespreviously held through La Leonardo Finanziaria S.r.l (subsequently merged intoDelfin S.a.r.l), a holding company of the Del Vecchio family, representing 2.07percent (or 9.6 million shares) of the Company’s authorized and issued sharecapital as of April 20, 2010, to a stock option plan for our topmanagement at an exercise price of Euro 13.67 per share (see Note 11 tothe Consolidated Financial Statements included in Item 18 of this annualreport). The stock options to be issued under the 

 

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stockoption plan vested upon the achievement of certain economic objectives as of June 30,2006, and, as such, the holders of these options became entitled to exercisesuch options beginning on that date until their termination in 2014. No optionswere exercised in 2008 and 2009. As of December 31, 2009, 9.2 millionoptions were outstanding.

 

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) the arithmeticaverage of the official market price of our ordinary shares on the MTA duringthe month ending on the day prior to the date of grant or (2) the officialmarket price of our ordinary shares on the MTA on the trading day immediatelypreceding the date of grant. Options granted under the plan generally becomeexercisable three years after the date of grant and expire nine years aftersuch date.

 

In May 2008, a performance shares plan for our top managers as identified bythe Board (the “PSP Plan”) was adopted.The PSP Plan is intended to strengthen the loyalty of our key employees and torecognize their contributions to our success on a medium- to long-term basis.The beneficiaries of the PSP Plan will be granted the right to receive ordinaryshares (“Units”), without consideration, at the end of a three-year vestingperiod and subject to achievement of certain Company performance targets to bedetermined by our Board. The PSP Plan will have a term of five years, duringwhich the Board may resolve to issue different grants to the PSP Plan’sbeneficiaries. The PSP Plan covers a maximum of 6,500,000 ordinary shares. Eachannual grant will not exceed 2,000,000 Units. On May 13, 2008, the Board ofDirectors granted a total maximum amount of 1,203,600 Units. On May 7,2009, the Board of Directors granted a total maximum amount of 1,793,750 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. Asof December 31, 2009, there were outstanding 1,125,600 units under the2008 grant and 1,793,750 units under the 2009 grant.

 

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.  The new options will vest in 2012, and, onlyfor the May 7, 2009 extraordinary grant, will be subject to theachievement of certain Company financial performance targets.

 

In connection with the reassignment of optionsto employees not domiciled in the United States:

 
|   | 1.     | 85 employee-beneficiaries of the 2006 and 2007 stock option grants  surrendered the options previously granted to them under the abovementioned  grants in order to be assigned new options granted by the Board of Directors  on May 7, 2009. Each such beneficiary was assigned options granting the  right to purchase the same number of Luxottica Group ordinary shares that  were subject to the options he or she previously held pursuant to the abovementioned  grants, for a total amount of 2,060,000 options. The new options were granted  under the 2006 stock option plan at an exercise price of Euro 13.45 per  share.                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | 2.     | 10 employee-beneficiaries of the 2006 3-year extraordinary stock option  grant surrendered the options previously granted to them under the  abovementioned grant in order to be assigned new options granted by the Board  of Directors on May 7, 2009. Each such beneficiary was assigned options  granting the right to purchase the same number of Luxottica Group ordinary  shares that were subject to the options he or she previously held pursuant to  the abovementioned grant, reduced by 50%, for a total amount of 4,250,000  options. The new performance options were granted under the 2006 stock 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 were 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, 

 

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while 2,900,000 shareswere 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 (equal to half theperformance options previously granted). As of December 31, 2009, 5,000 ofthe 825,000 options issued under the Luxottica 2001 Stock Option Plan had beenforfeited and all remaining options were outstanding.

 

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.

 

At the Board of Directors meeting held on May 7,2009, a total of 1,050,000 stock options were awarded under the 2006 StockOption Plan to our employees and the employees of our subsidiaries. As of December 31,2009, 20,000 of these stock options had been forfeited.

 

As of December 31, 2009, the following grantswere outstanding as detailed below:

 
| ** **                                                   | ** ** | **Number of  ordinary shares  underlying  options granted(1)** | ** ** | **Exercise  Price(1)** | ** ** | **Expiration Date** | ** ** | **Options held  by officers  and directors** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|-------------------------------------------------------------|------------|
|                                                         |       |                                                                          |       |                   |       |                     |       |                                                        |       |
| **2001 Grant**                                               |       | 2,079,300                                                                     |       | U.S. $15.20            |       | January 31, 2010    |       | —                                                      |       |
| **2002 Grant**                                               |       | 2,348,400                                                                     |       | U.S. $17.80            |       | January 31, 2011    |       | 14,100                                                      |       |
| **2003 Grant**                                               |       | 2,397,300                                                                     |       | Euro 10.51             |       | January 31, 2012    |       | 10,100                                                      |       |
| **2004 Grant**                                               |       | 2,035,500                                                                     |       | Euro 13.79             |       | January 31, 2013    |       | 426,800                                                     |       |
| **2004 Performance Grant**                                   |       | 1,000,000                                                                     |       | U.S. $18.59            |       | January 31, 2012    |       | 255,000                                                     |       |
| **2004 Stockholder Grant**                                   |       | 9,600,000                                                                     |       | Euro 13.67             |       | December 31, 2014   |       | 9,200,000                                                   |       |
| **2005 Grant**                                               |       | 1,512,000                                                                     |       | Euro 16.89             |       | January 31, 2014    |       | 117,000                                                     |       |
| **2006 Grant(1)**                                            |       | 1,725,000                                                                     |       | Euro 22.19             |       | January 31, 2015    |       | 70,000                                                      |       |
| **2006 Performance Grant 1(1)**                              |       | 3,500,000                                                                     |       | Euro 22.09             |       | July 27, 2015       |       | —                                                      |       |
| **2006 Performance Grant 2(1)**                              |       | 9,500,000                                                                     |       | Euro 20.99             |       | July 27, 2015       |       | 1,100,000                                                   |       |
| **2007 Grant(1)**                                            |       | 1,745,000                                                                     |       | Euro 24.05             |       | March 6, 2016       |       | —                                                      |       |
| **2008 Grant**                                               |       | 2,020,500                                                                     |       | Euro 18.08             |       | March 14, 2017      |       | 105,000                                                     |       |
| **2008 PSP Grant**                                           |       | 1,203,600                                                                     |       | N/A                    |       | N/A                      |       | 810,000                                                     |       |
| **2009 Non U.S. Grant**                                      |       | 378,000                                                                       |       | Euro 13.45             |       | May 7, 2018         |       | 20,000                                                      |       |
| **2009 U.S. Grant**                                          |       | 672,000                                                                       |       | Euro 14.99             |       | May 7, 2018         |       | —                                                      |       |
| **2009 Non U.S. Residents  Reassignment, Ordinary**          |       | 2,060,000                                                                     |       | Euro 13.45             |       | May 7, 2018         |       | 365,000                                                     |       |
| **2009 U.S. Residents  Reassignment, Ordinary**              |       | 825,000                                                                       |       | Euro 15.03             |       | March 31, 2017           |       | 240,000                                                     |       |
| **2009 Non U.S. Residents  Reassignment, Performance Grant** |       | 4,250,000                                                                     |       | Euro 13.45             |       | May 7, 2018         |       | 4,075,000                                                   |       |
| **2009 U.S. Residents  Reassignment, Performance Grant**     |       | 1,450,000                                                                     |       | Euro 15.11             |       | June 12, 2018       |       | 1,100,000                                                   |       |
| **2009 PSP Grant**                                           |       | 1,793,750                                                                     |       | N/A                    |       | N/A                      |       | 1,237,500                                                   |       |

 

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(1)           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  2009** | ** ** | **Options  granted during 2009** | ** ** | **Options exercised during 2009** | ** ** | **Options  expired/waived  during 2009** | ** ** | **Options  held at the end of 2009** | ** ** |
|-------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|------------------------------------------|------------|--------------------------------------|------------|
| **Name**          | ** ** | **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** | ** ** |
|              |       |                                         |       |                                        |       |                             |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Luigi Francavilla |       | Vice Chairman                                |       | 140,500                                     |       | €                           | 17.98      |                              | 2014       |                                     | 70,000     |                                 | €     | 13.45 |   | 2018 |   |   |   |   |   |   |   | 70,000 | (**) | 140,500 |   | € | 13.62 |   | 2016 |   |
|              | 2,000,000  |                                         | €     | 13.67                                       |       | 2014 (*)                         |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   | 2,000,000 |   | € | 13.67 |   | 2014 (*) |   |
|              | 1,500,000  |                                         | €     | 20.99                                       |       | 2015 (*)                         |       | 750,000                           |       | €                                   | 13.45      |                                 | 2018       |   |   |   |   |   |   |   | 1,500,000 | (**) | 750,000 |   | € | 13.45 |   | 2018 (*) |   |
|              |       |                                         |       |                                        |       |                             |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Andrea Guerra     |       | Chief Executive Officer                      |       | 2,000,000                                   |       | €                           | 13.67      |                              | 2014 (*)   |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   | 2,500,000 | (**) | 2,000,000 |   | € | 13.67 |   | 2014 (*) |   |
|              | 2,500,000  |                                         | €     | 20.99                                       |       | 2015 (*)                         |       | 1,250,000                         |       | €                                   | 13.45      |                                 | 2018       |   |   |   |   |   |   |   |   |   | 1,250,000 |   | € | 13.45 |   | 2018 (*) |   |
|              |       |                                         |       |                                        |       |                             |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Enrico Cavatorta  |       | Chief Financial Officer and Director         |       | 93,500                                      |       | €                           | 20.08      |                              | 2014       |                                     | 70,000     |                                 | €     | 13.45 |   | 2018 |   |   |   |   |   |   |   | 70,000 | (**) | 93,500 |   | € | 13.54 |   | 2016 |   |
|              | 1,200,000  |                                         | €     | 13.67                                       |       | 2014 (*)                         |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   | 1,200,000 |   | € | 13.67 |   | 2014 (*) |   |
|              | 1,100,000  |                                         | €     | 20.99                                       |       | 2015 (*)                         |       | 550,000                           |       | €                                   | 13.45      |                                 | 2018       |   |   |   |   |   |   |   | 1,100,000 | (**) | 550,000 |   | € | 13.45 |   | 2018 (*) |   |
|              |       |                                         |       |                                        |       |                             |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Roberto Chemello  |       | Director                                     |       | 140,500                                     |       | €                           | 17.98      |                              | 2014       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   | 140,500 |   | € | 17.98 |   | 2014 |   |
|              | 2,000,000  |                                         | €     | 13.67                                       |       | 2014 (*)                         |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   | 2,000,000 |   | € | 13.67 |   | 2014(*) |   |
|              | 1,100,000  |                                         | €     | 20.99                                       |       | 2015 (*)                         |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   | 1,100,000 |   | € | 20.99 |   | 2015(*) |   |
|              |       |                                         |       |                                        |       |                             |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |       | Senior Managers employed in the Company (10) |       | 571,100                                     |       | €                           | 19.61      |                              | n.a.       |                                     | 355,000    |                                 | €     | 13.45 |   | 2018 |   |   |   |   |   |   |   | 335,000 | (**) | 591,100 |   | € | 14.20 |   | n.a. |   |
|              | 2,000,000  |                                         | €     | 13.67                                       |       | 2014 (*)                         |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   | 2,000,000 |   | € | 13.67 |   | 2014 (*) |   |
|              | 2,800,000  |                                         | €     | 20.99                                       |       | 2015 (*)                         |       | 1,400,000                         |       | €                                   | 13.45      |                                 | 2018       |   |   |   |   |   |   |   | 2,800,000 | (**) | 1,400,000 |   | € | 13.45 |   | 2018 (*) |   |
|              |       |                                         |       |                                        |       |                             |       |                              |       |                                     |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |       | Senior Managers employed in subsidiaries (7) |       | 609,700                                     |       | €                           | 17.82      |                              | n.a.       |                                     | 270,000    |                                 | €     | 14.85 |   | 2018 |   | 58,300 |   | € | 9.91 |   | € | 16.58 |   | 279,000 | (**) | 542,400 |   | € | 14.98 |   | n.a. |   |
|              |       |                                         | 2,740,000  |                                        | €     | 20.99                            |       | 2014 (*)                          |       | 1,225,000                                |       | €                               | 14.94      |   | 2018 |   | 35,000 |   | € | 12.64 |   | € | 18.51 |   | 2,450,000 | (**) | 1,480,000 |   | € | 14.54 |   | 2016 (*) |   |

 

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* Options are exercisablesubject to the achievement of certain financialperformance targets

** Options waived under the 2009 reassignment program

 

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Set forth below is certaininformation regarding the PSP Units held by our directors and our seniormanagers (who are not directors) as a group as of December 31, 2009:

 
| ** **        | ** ** | ** **                                   | ** ** | **Units  held at the beginning of   2009** | ** ** | ** Units granted during 2009** | ** ** | **Units exercised during 2009**     | ** ** | **Units   expired   during   2009** | ** ** | **Units  held at the end of 2009** | ** ** |
|-------------------|------------|----------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|
| **Name**          | ** ** | **Position**                                 | ** ** | **Number  of Units**                       | ** ** | **Average   exercise   price**      | ** ** | **Average   expiration  date** | ** ** | **Number   of Units**               | ** ** | **Average  exercise  price**       | ** ** | **Average  expiration  date** | ** ** | **Number  of Units** | ** ** | **Average  exercise  price** | ** ** | **Average  market  price at  exercise** | ** ** | **Number   of Units** | ** ** | **Number  of Units** | ** ** | **Average  exercise  price** | ** ** | **Average  expiration  date*** | ** ** |
|              |       |                                         |       |                                       |       |                                |       |                                |       |                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Luigi Francavilla |       | Vice Chairman                                |       | 120,000                                    |       | —                              |       | 2010                                |       | 212,500                             |       | —                             |       | 2011 |   | — |   | — |   | — |   | — |   | 332,500 |   | — |   | — |   |
|              |       |                                         |       |                                       |       |                                |       |                                |       |                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Andrea Guerra     |       | Chief Executive Officer                      |       | 240,000                                    |       | —                              |       | 2010                                |       | 375,000                             |       | —                             |       | 2011 |   | — |   | — |   | — |   | — |   | 615,000 |   | — |   | — |   |
|              |       |                                         |       |                                       |       |                                |       |                                |       |                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Enrico Cavatorta  |       | Chief Financial Officer and Director         |       | 96,000                                     |       | —                              |       | 2010                                |       | 112,500                             |       | —                             |       | 2011 |   | — |   | — |   | — |   | — |   | 208,500 |   | — |   | — |   |
|              |       |                                         |       |                                       |       |                                |       |                                |       |                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |       | Senior Managers employed in the Company (10) |       | 174,000                                    |       | —                              |       | 2010                                |       | 331,250                             |       | —                             |       | 2011 |   | — |   | — |   | — |   | — |   | 505,250 |   | — |   | — |   |
|              |       |                                         |       |                                       |       |                                |       |                                |       |                                |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              |       | Senior Managers employed in subsidiaries (7) |       | 180,000                                    |       | —                              |       | 2010                                |       | 206,250                             |       | —                             |       | 2011 |   | — |   | — |   | — |   | — |   | 386,250 |   | — |   | — |   |

 

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* Each grant is subject to a 3-year vesting period. At the end of therespective vesting period, the Board will evaluate the achievement of certainfinancial performance targets established by the Board for the purposes of thePerformance Shares Plan.

 

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

 

**Major Stockholders**

 

The following table sets forth, as of April 20,2010, the beneficial ownership of ordinary shares by each person beneficiallyowning two percent or more of the outstanding ordinary shares (includingordinary shares represented by ADSs) known to us based on their most recent publicfilings or communications with us.

** **
| **Identity of Person or Group** | ** ** | **Amount of  Shares Owned** | ** ** | **Percent of  Class** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|----------------------------|------------|
| Leonardo Del Vecchio                                |       | 314,203,339                           |       | 67.601                     | %          |
| Giorgio Armani                                      |       | 22,724,000                            | (1)        | 4.889                      | %          |

 

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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.

 

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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 March 31,2010, approximately 7.425 percent of our ordinary shares were held in the formof ADSs by approximately 15,300 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 worldwideexclusive license agreement to manufacture and distribute ophthalmic productsunder the Brooks Brothers name. The Brooks Brothers trade name is owned byRetail Brand Alliance, Inc. (“RBA”), which is controlled by Claudio DelVecchio, one of our directors. The license expires on December 31, 2014.Royalties paid to RBA for such agreement were Euro 0.3 million, Euro 0.8million and Euro 0.9 million in the years ended December 31, 2009, 2008and 2007, respectively.

 

Management believes that the terms of this licenseagreement were fair to the Company.

 

*Service Revenues*

 

During the years ended December 31, 2009, 2008and 2007, 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 0.1 million and Euro 0.2million, 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 authorizedand issued share capital as of April 20, 2010, to a stock option plan forour top management. See Item 6 — “Directors, Senior Management and Employees — ShareOwnership.”

 

**ITEM 8. FINANCIAL INFORMATION**

 

**Financial Statements**

 

See Item 18—“Financial Statements.”

 

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**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.

 

*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 plaintiff asserted various claims relating to theconfidentiality of medical information and the operation of Pearle Visionstores in California, including violations of California laws governingrelationships among opticians, optical retailers, manufacturers of frames andlenses, and optometrists, and other unlawful or unfair business practices. Theparties entered into a settlement agreement, which provides for a store voucherat Pearle Vision or LensCrafters for each class member and the payment of attorneys’fees and costs. On December 19, 2008, the court granted final approval ofthe settlement and entered final judgment. The settlement became final on March 17,2009.

 

Amounts paid to settle this litigation and relatedcosts incurred for the years ended December 31, 2009, 2008 and 2007 werenot material.

 

*OakleyStockholder 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, Inc. (“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 appealed the Court’s May 29, 2008 ruling and the July 11,2008 order. On January 11, 2010, the appellate court affirmed the trialCourt’s decision in all respects. The plaintiff has filed a petition with the CaliforniaSupreme Court requesting review of the appellate court’s decision.

 

Costs associated with this litigation incurred forthe years ended December 31, 2009, 2008 and 2007, were not material.Management believes that no estimate of the range of 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. The plaintiffbrought suit on behalf of a class of Oakley’s customers. Oakleydenied any liability, and later entered into a settlement arrangement with theplaintiff 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. The settlement became finalon January 15, 2009.

 

Amounts paid to settle this litigation andrelated costs incurred for the years ended December 31, 2009, 2008 and2007 were not material.

 

*Texas LensCrafters Class ActionLawsuit*

 

In May 2008, twoindividual optometrists commenced an action against LensCrafters, Inc.(now Luxottica Retail North America Inc.) and Luxottica Group S.p.A. in theUnited 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 

 

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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.  The court did not address that motion.Thecase was transferred to the Western District of Texas, Austin Division, in January 2009,pursuant to the defendants’ motion to transfer venue.  On January 11, 2010, plaintiffs filed amotion requesting that the court permit the case to proceed as a class actionon behalf of all optometrists who sublease from LensCrafters in Texas.

 

On February 8, 2010,the parties reached an agreement to settle the litigation on confidentialterms. On March 8, 2010, the court dismissed the case with prejudice.

 

Amounts paid to settle this litigation will not bematerial. Costs associated with this litigation for the years ended December 31,2009 and 2008 were not material.

 

*****

 

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 adversely determined, may have a material adverse effecton our business, results of operations and financial condition. See Item 3—“KeyInformation—Risk Factors—If we become subject to adverse judgments ordeterminations in legal proceedings to which we are, or may become, a party,our future profitability could suffer through a reduction of sales or increasedcosts.”

 

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—Rights Attaching to Ordinary Shares—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.

 

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**ITEM 9. THE OFFER ANDLISTING**

 

Our ordinary shares wereapproved for trading on the Milan Stock Exchange on December 4, 2000. OurADSs were admitted for trading on the NYSE on January 24, 1990. Our ADSsare evidenced by ADRs issuable by Deutsche Bank Trust Company Americas, asdepositary, pursuant to a Deposit Agreement.

 

The table below sets forth,for the periods indicated, 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** | ** ** |
|                             |       |                                       |       |                               |       |   |   |   |   |
| **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 |   |
| **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**                         |       |                                       |       |                               |       |   |   |   |   |
| First Quarter                    |       | 18.60                                      |       | 11.88                              |       | 13.49 |   | 9.61 |   |
| Second Quarter                   |       | 21.91                                      |       | 15.78                              |       | 15.96 |   | 11.85 |   |
| Third Quarter                    |       | 26.73                                      |       | 19.90                              |       | 18.25 |   | 14.23 |   |
| Fourth Quarter                   |       | 26.91                                      |       | 24.14                              |       | 18.19 |   | 16.34 |   |
| November 2009               |       | 25.90                                      |       | 24.14                              |       | 17.33 |   | 16.34 |   |
| December 2009               |       | 26.35                                      |       | 24.94                              |       | 18.19 |   | 16.81 |   |
| Year 2009                   |       | 26.91                                      |       | 11.88                              |       | 18.25 |   | 9.61 |   |
| **2010**                         |       |                                       |       |                               |       |   |   |   |   |
| January 2010                |       | 27.59                                      |       | 25.96                              |       | 19.24 |   | 18.34 |   |
| February 2010               |       | 26.58                                      |       | 24.22                              |       | 19.20 |   | 17.91 |   |
| March 2010                  |       | 26.94                                      |       | 25.46                              |       | 20.09 |   | 18.65 |   |
| Through April 23, 2010 |       | 29.42                                      |       | 26.68                              |       | 21.89 |   | 19.87 |   |

 

The high and low closing prices of the ADSs on theNYSE for the first quarter of 2010 were U.S. $27.59 and U.S. $24.22,respectively. The high and low closing prices of the ordinary shares on the MilanStock Exchange for the first quarter of 2010 were Euro 20.09 and Euro 17.91,respectively.

 

**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 

 

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theordinary stockholders at the annual meeting of stockholders. The compensationof directors who also serve as executive officers is determined by the Board ofDirectors with the favorable opinion of the 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 other directorsand to the Board of Statutory Auditors any transactions involving the Companyin which such director or a party affiliated with such director may havean interest. Our directors usually abstain from voting on matters in which theyhave an interest (including their compensation), but there is no requirementunder 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 dependupon, among other things, our earnings, financial position and capitalrequirements, applicable legal restrictions and such other factors as the Boardof Directors and stockholders may determine. Dividends are usually paid inaccordance with the dates set annually by Borsa Italiana S.p.A. Dividends whichare not collected within five years of the date on which they become payableare forfeited in favor of the Company. Dividends are paid to those persons whohold the ordinary shares through an intermediary on a dividend payment datedeclared at 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. Consob may, in order to protect investors and theefficiency and transparency of the capital markets, impose, for a limitedperiod of time, a threshold lower than two percent in the voting shares ofa listed company with an elevated current market value and a particularlywidely held stock. 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.

 

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.

 

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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 to buy or exchange 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, the filing of theagreement with the Register of Enterprises and notice of such agreement to thecompanies, the shares of which are the subject of such agreement within fivedays of the date of the agreement. These disclosure obligations shall not applyto agreements regarding shareholdings representing less than two percent of thevoting shares of the listed company. Failure to comply with the foregoingrequirements will render the agreement null and void and the voting rights ofthe 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 “la Repubblica” at least 30 daysbefore the date fixed for the meeting. Deutsche Bank Trust Company Americaswill mail to all record holders of ADRs a notice containing a summary of theinformation 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 

 

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areport by the Board 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 Consobpursuant to article 147ter subparagraph 1 Legislative Decree 58/98. For 2009,the percentage 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.

 

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’’).

 

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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 a minimumnumber of 147ter Independent Directors. The candidate listed first on theMajority 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.

 

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 identity of thestockholders who have filed the list, indicating the percentage of theircombined shareholding and documents giving evidence of the lawful title oftheir shareholding;

 

(ii)   representations of stockholders differentfrom the ones who hold, separately or jointly, a controlling interest or asimple majority interest in the share capital of the Company, stating the lackof affiliation as per section 144 quinquies of the Consob regulations; and

 

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(iii)  detailed information on personal andprofessional qualifications of each candidate as well as a declaration by thecandidate confirming the existence of the qualifications required by law, theacceptance 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 one alternate auditorshall be taken from the list which has obtained the highest number of votes(hereinafter the “Majority List”), on the basis of the descending numericalorder by which the candidates are listed; and

 

(ii)   one regular auditor, who will also be theChairman 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 suchcase the Chairman of the Board of the Statutory Auditors shall be the firstregular statutory 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.

 

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 for meetings convened at the request of minoritystockholders and meetings convened to resolve upon Luxottica Group S.p.A.’sdissolution, and 15 days for meetings convened pending a public tenderoffer launched with respect to our ordinary shares. The notice may specify adate for a second meeting in the event that a quorum is not obtained at thefirst meeting. Notice of any subsequent meeting that must be held within30 days from the previously adjourned meeting, must be published at leasteight days prior to the date of the meeting. In addition, a meeting will bedeemed duly convened if stockholders representing 100 percent of LuxotticaGroup S.p.A.’s share capital, together with a majority of the members ofthe Board of Directors and the Board of Statutory Auditors, are present at themeeting.

 

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

 

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themeeting. Such statements may be obtained by beneficial owners of the ordinaryshares through the intermediaries associated with Monte Titoli (or suchauthorized centralized securities custody and administration system with whichtheir accounts are held). Alternatively, beneficial owners may instruct therelevant intermediary to procure the admission tickets and proxy 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’ associationprovided that such association has been formed by certified private agreement,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 the solicitationand 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.

 

On January 27, 2010, the Italian Governmentapproved a legislative decree implementing Directive 2007/36/EC of the EuropeanParliament and of the Council of July 11, 2007 regarding the exercise ofcertain rights of stockholders in listed companies (the “Legislative Decree onSHR”) amending the Italian Civil Code and legislative decree n. 58/98. TheLegislative Decree on SHR was published in the Gazzetta Ufficiale of theItalian Republic on March 5, 2010, and became effective 15 days later.

 

The new regulation will apply to all stockholders’meetings convened after October 31, 2010. The relevant provisions of the Italian Civil Code and legislativedecree n. 58/98 shall be amended accordingly. The regulationsimplementing the provisions contained in the Legislative Decree on SHR shall beissued within six months after the date on which the Legislative Decree on SHRbecame effective, which is 15 days after its publication in the GazzettaUfficiale.The Legislative Decree on SHR introduces significant new rules on,among other things: (i) identification of stockholders entitled to attendand vote at a general meeting and the setting of a record date; (ii) theobligation of the issuer to update its stockholders’ ledger within 30 days fromreceipt of the notice from the intermediary; (iii) procedures and termsfor convening a general meeting and providing information to stockholders priorto such meeting; (iv) certain rights of minority stockholders, such as theright to submit queries to the board prior to a general meeting with regard toitems on the meeting agenda; and (v) stockholder proxies and proxycollection.

 

*Option Rights*

 

Pursuant to Italian law, holders of ordinary sharesare entitled to subscribe for issuances of shares, debentures convertible intoshares and rights to subscribe for shares in proportion to their holdings,unless such option rights are waived or limited by a stockholders’ resolutionadopted by the affirmative vote of holders of more than 50 percent of theordinary shares and such waiver or limitation is in the interest of LuxotticaGroup S.p.A. Particular Italian regulations set forth the procedures to befollowed by Italian listed companies in such circumstances.

 

It is likely that the option rights generallyavailable to holders of ordinary shares may not be fully available to 

 

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holdersof ADRs. See “ —Description of American Depositary Receipts—Share Dividends andOther Distributions.”

 

Pursuant to Decree n. 58/98, in the event that: (i) thenewly issued shares are offered for subscription to our employees or employeesof our subsidiaries; and (ii) the new shares to be issued by us forsubscription by the aforementioned parties do not exceed one percent of ourshare capital, the resolution excluding option rights is to be approved bystockholders representing the majority required for extraordinary meetings.

 

Pursuant to Italian law, such option rights may beeliminated in certain other cases including contributions in kind.

 

*Preferential Shares*

 

Under Italian law, a company such as ours may issueshares that have a preference over ordinary shares with respect to thedistribution of dividends or surplus assets. At present, we have no suchpreferential shares outstanding and any issuance of such shares would besubject to approval by a majority of stockholders.

 

*Rights on Liquidation*

 

On a liquidation or winding-up of the company, subjectto the preferential rights of holders of any outstanding preferential shares,holders of ordinary shares will be entitled to participate in any surplusassets remaining after payment of the creditors. Shares rank *pari passu* among themselves in liquidation.

 

*Purchase of Shares by LuxotticaGroup S.p.A.*

 

We and our subsidiaries maypurchase up to an aggregate of ten percent of our ordinary shares, subject tocertain conditions and limitations provided by Italian law, including that thepurchase be approved by stockholders. Shares may only be purchased out ofprofits available for dividends and distributable reserves as appearing in thelatest stockholder-approved unconsolidated financial statements. Further, wemay only repurchase fully paid shares. As long as such shares are owned by us,they would not be entitled to dividends nor to subscribe for new ordinaryshares in the case of capital increases, and their voting rights would besuspended. A corresponding reserve must be created in our balance sheet whichis not available for distribution.

 

Decree n. 58/98 provides that the purchase by alisted company of its own shares and the purchase of shares of a listed companyby its subsidiary must take place by way of a public offer or on the market ina manner agreed with Borsa Italiana S.p.A. which must ensure the equality oftreatment among stockholders, subject to certain limitations. The foregoingdoes not apply to shares being purchased by a listed company from its employeesor employees of its parent company or subsidiaries under certain circumstances.

 

See Item 16E - “Purchases of EquitySecurities by the Issuer and Affiliated Purchasers.”

 

*Minority Stockholders’ Rights*

 

An absent or dissenting stockholder (representing1/1000 of the share capital of the Company) may, within three months, ask acourt to annul stockholders’ resolutions taken in violation of applicable lawsor our By-laws. Any stockholders may bring to the attention of the Board ofStatutory Auditors facts or acts which are deemed wrongful. If suchstockholders represent more than 1/50 percent of our share capital, the Boardof Statutory Auditors must investigate without delay and report its findingsand recommendations at the stockholders’ meeting.

 

Stockholders representing more than 1/20 of ourshare capital have the right to report major irregularities to the relevantcourt. In addition, stockholders representing at least 1/40 of our sharecapital may initiate a liability suit against the directors, Statutory Auditorsand general managers of Luxottica Group S.p.A. We may waive or settle the suitonly if less than five percent of the stockholders vote against such waiver orsettlement. We will reimburse the legal costs of such action in the event thatthe claim of such stockholders is successful and (i) the court does notaward such costs against the relevant directors, Statutory Auditors or generalmanagers, or (ii) such costs cannot be recovered from such directors,Statutory Auditors or general managers. In compliance with decree n. 58/98, ourBy-laws give minority stockholders the right to appoint directors and oneStatutory Auditor as chairman and one Alternate Auditor to the Board ofStatutory Auditors. See Item 6—“Directors, Senior Management andEmployees—Directors and Senior Management.”

 

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*Italian Tender Offer Rules*

 

Under legislative decree n. 58/98, a public tenderoffer is required to be launched by any person that through share purchasesholds more than 30 percent of the voting stock of an Italian listed company.The public tender offer must cover the whole voting stock of the company.Similarly, under Consob rules, a public tender for the entire voting stock of alisted company must be made by any person owning more than a 30 percentinterest in the voting securities of a company (but does not exercise majorityvoting rights at an ordinary stockholders’ meeting) and purchases or acquires,directly or indirectly, also through the exercise of subscription or conversionrights, during a 12-month period more than five percent of the ordinary capitalwith voting rights. The offer must be launched within 20 days from the date onwhich the relevant threshold was exceeded, and must be made at a price for eachclass of securities at least equal to the highest price paid by the offeror,and/or by parties acting in concert with the offeror, for the purchase of therelevant class of the target company’s securities over a 12-month periodpreceding the announcement of the compulsory bid. If no purchases for value ofthe relevant class of securities have been made in the relevant period, theoffer price will be equal to the weighted average market price of the targetsecurities over the previous 12 months (or, if a market price for the relevantclass of securities has not been available for the whole of this period, oversuch shorter period for which a market price has been available).

 

Consob regulates these provisions in greater detailthrough a number of exemptions from the duty to launch a tender offer. Suchexemptions include, among others: (i) when another person or personsjointly control the company; (ii) when a party exceeds the threshold as aresult of shares transferred to it by a related party; and (iii) when thethreshold is exceeded by a party following the exercise of pre-emption orconversion rights to which such party was entitled. Article 107 of thelegislative decree further provides that the acquisition of an interest above30 percent of the voting stock of a company does not trigger the obligation tolaunch a 100 percent tender offer if the person concerned has exceeded thethreshold as a result of a public tender offer launched on 60 percent or moreof the voting stock of the company. This provision is available only (i) ifthe 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 persons acting inconcert with the offeror), (ii) if the offeror (including the personsacting in concert with the offeror) has not acquired more than one percent ofthe voting stock of the company in the preceding 12 months and during the offerperiod and (iii) upon receipt of an exemption granted by Consob providedthat the terms of (i) and (ii) have complied with Consob rules thata mandatory bid need not be made. “Persons acting in concert” with the offerorshall mean any person cooperating with another on the basis of a specific ortacit agreement, verbal or in writing, regardless of whether such agreement isinvalid or without effect, for the purpose of acquiring, maintaining orstrengthening control over the issuer or to defend against a public tenderoffer (including, in any case,  theofferor’s subsidiaries, controlling persons, related companies and otherpersons connected to it by virtue, among other things, of a stockholders’agreement, the offeror’s directors, members of the management board, orsupervisory board or general managers). However, after the offer has beencompleted the offeror nevertheless becomes subject to the duty to launch an offerfor 100 percent of the voting stock if, in the course of the subsequent 12months, (i) it (including the persons or entities acting in concert withthe offeror) has purchased more than one percent of the voting stock of thecompany, or (ii) the company has approved a merger or spin-off. Finally,anyone holding 90 percent or more of the voting stock of a company must grantto all other stockholders the right to sell off their remaining shares, unlessan adequate distribution of the shares is resumed so as to ensure propertrading within a period of three months. Moreover, any person who, following a tender offer for 100 percent ofthe voting stock, purchases more than 95 percent of the voting stock: (i) mustgrant to all other stockholders the right to sell their voting shares or (ii) alternatively,and provided that it has stated its intention to do so in the offeringdocumentation, is entitled to acquire all remaining voting shares of thecompany (squeeze-out) within three months following the conclusion of thetender offer. Shares held in breach of these rules cannot bevoted and must be sold within 12 months.

 

*Derivative Suits*

 

Under Italian law, action against members of theBoard of Directors, members of the Board of Statutory Auditors and General Managersof a company may be brought on behalf of the company if authorized by aresolution adopted at an ordinary meeting of stockholders. In respect of listedcompanies, Italian law provides for a form of stockholders’ action againstmembers of a board of directors, which may be brought by holders of at least1/40 of the outstanding shares. We are allowed not to commence, or to settle,the suit provided that stockholders representing at least five percent of theissued and outstanding shares do not vote against a resolution to this effect.We will reimburse the legal costs of such action in the event that the claim ofsuch stockholders is successful and (i) the court does not award thesecosts as part of the judgment against the relevant directors, StatutoryAuditors or general managers or (ii) these costs cannot be recovered fromsuch directors, Statutory Auditors or general managers. In addition, Italianlaw permits a stockholder acting alone to bring an action against members of aboard of directors in the event that such stockholder has suffered damagesdirectly related to negligence or willful misconduct.

 

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*No Limitation of Ownership*

 

Neither Italian law nor any of our constituentdocuments impose any limitations on the right of non-resident or foreignstockholders to hold or exercise voting rights on our ordinary shares or theADSs.

 

**Description of American Depositary Receipts**

 

The following is a summary of certain provisions ofthe Amended and Restated Deposit Agreement (the “Deposit Agreement”), dated asof March 30, 2006, among Deutsche Bank Trust Company Americas, asdepositary, the owners and holders from time to time of ADRs issued thereunderand us. This summary does not purport to be complete and is qualified in itsentirety by reference to the Deposit Agreement, a copy of which has been filedas an exhibit 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.

 

ADRs are issued by Deutsche Bank Trust CompanyAmericas. Each ADR evidences an ownership interest in a number of AmericanDepositary Shares, each of which represents one ordinary share deposited withDeutsche Bank Milan, as custodian under the Deposit Agreement. Each ADR willalso represent securities, cash or other property deposited with Deutsche BankTrust Company Americas but not distributed to ADR holders. Deutsche Bank TrustCompany Americas’ Corporate Trust Office is located at 60 Wall Street, NewYork, New York 10005, and its principal executive office is located at 60 WallStreet, New York, New York 10005.

 

*Share Dividends and OtherDistributions*

 

Deutsche Bank Trust CompanyAmericas has agreed to pay to ADR holders the cash dividends or otherdistributions it or the custodian receives on ordinary shares or otherdeposited securities, after deducting its fees and expenses.

 

*Cash*

 

Deutsche Bank Trust Company Americas converts anycash dividend or other cash distribution we pay on the ordinary shares intoU.S. dollars, if it can do so on a reasonable basis and can transfer the U.S.dollars to the United States. If it is not possible for Deutsche Bank TrustCompany Americas to convert foreign currency in whole or in part into U.S.dollars, or if any approval or license of any government is needed and cannotbe obtained, Deutsche Bank Trust Company Americas may distribute the foreigncurrency to, or in its discretion may hold the foreign currency uninvested andwithout liability for interest for the accounts of, ADR holders entitled toreceive the same.

 

*Shares*

 

Deutsche Bank Trust Company Americas will, unlessotherwise requested by us, distribute new ADRs representing any shares we maydistribute as a dividend or free distribution. Deutsche Bank Trust CompanyAmericas will only distribute whole ADRs. It will sell shares which wouldrequire it to issue a fractional ADR and distribute the net proceeds in thesame way as it does with dividends or distributions of cash. If Deutsche BankTrust Company Americas does not distribute additional ADRs, each ADR will alsorepresent the additional deposited shares.

 

*Rights to Receive Additional Shares*

 

If we offer holders of our ordinary shares anyrights to subscribe for additional ordinary shares or any other rights,Deutsche Bank Trust Company Americas may make these rights available to ADRholders. We must first instruct Deutsche Bank Trust Company Americas to do soand furnish it with satisfactory evidence that it is legal to do so. If we donot furnish this evidence and/or give these instructions, or if Deutsche BankTrust Company Americas determines in its reasonable discretion that it is notlawful and feasible to make such rights available to all or certain owners,Deutsche Bank Trust Company Americas may sell the rights and allocate the netproceeds to holders’ accounts. Deutsche Bank Trust Company Americas may allowrights that are not distributed or sold to lapse. In that case, ADR holderswill receive no value for them.

 

If Deutsche Bank Trust Company Americas makes rightsavailable to ADR holders, upon instruction from such holders it will exercisethe rights and purchase the shares on behalf of the ADR holders.

 

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*Deposit, Withdrawal and Cancellation*

 

ADRs may be turned in at the Corporate Trust Officeof Deutsche Bank Trust Company Americas. Upon payment of its fees and expensesand of any taxes or charges, such as stamp taxes or stock transfer taxes orfees, Deutsche Bank Trust Company Americas will deliver the depositedsecurities underlying the ADRs at the office of the custodian, except thatDeutsche Bank Trust Company Americas may deliver at its Corporate Trust Officeany dividends or distributions with respect to the deposited securitiesrepresented by the ADRs, or any proceeds from the sale of any dividends,distributions or rights, which may be held by Deutsche Bank Trust CompanyAmericas. Alternatively, at the request, risk and expense of the applicable ADRholder, Deutsche Bank Trust Company Americas will deliver the depositedsecurities at its Corporate Trust Office.

 

*Voting Rights*

 

ADR holders may instruct Deutsche Bank Trust CompanyAmericas to vote the shares underlying ADRs but only if we ask Deutsche BankTrust Company Americas to ask for such instructions. Otherwise, ADR holderswill not be able to exercise their right to vote unless such holders withdrawthe ordinary shares underlying the ADRs. However, an ADR holder may not know abouta meeting at which such holder may be entitled to vote enough in advance towithdraw the shares.

 

If we ask for instructions of an ADR holder,Deutsche Bank Trust Company Americas will notify the ADR holder of the upcomingvote and arrange to deliver voting materials. The materials will (1) describethe matters to be voted on and (2) explain how ADR holders, on a certaindate, may instruct Deutsche Bank Trust Company Americas to vote the shares orother deposited securities underlying the ADRs as directed. For instructions tobe valid, Deutsche Bank Trust Company Americas must receive them on or beforethe date specified. Deutsche Bank Trust Company Americas will try, as far aspractical, subject to Italian law and the provisions of our articles of association,to vote or to have its agents vote the shares or other deposited securities asinstructed by the ADR holder. Deutsche Bank Trust Company Americas will onlyvote or attempt to vote as instructed by the ADR holder and will not vote anyof such holder’s shares or other deposited securities except in accordance withsuch instructions.

 

Deutsche Bank Trust Company Americas shall fix arecord date whenever:

 

·                 any cash dividend ordistribution shall become payable;

 

·                 any distribution otherthan cash shall be made;

 

·                 rights shall be issuedwith respect to the deposited securities;

 

·                 Deutsche Bank TrustCompany Americas, for any reason, causes a change in the number of ordinaryshares that are represented by each ADS; or

 

·                 Deutsche Bank TrustCompany Americas receives notice of any meeting of holders of ordinary sharesor other deposited securities.

 

The purpose of fixing arecord date is to determine which ADR holders are:

 

·                 entitled to receivesuch dividend, distribution or rights;

 

·                 entitled to receivethe net proceeds from the sale of such dividend, distribution or rights; and

 

·                 entitled to giveinstructions for the exercise of voting rights at any such meeting.

 

**Material Contracts**

 

The contracts described below have been entered intoby Luxottica Group S.p.A. and/or its subsidiaries since April 30, 2008and, as of the date of this annual report, contain provisions under which we orone or more of our subsidiaries has an obligation or entitlement which is ormay be material to us. This discussion is not complete and should be read inconjunction with the agreements described below, each of which has been filedwith the SEC as an exhibit to this annual report.

 

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*ContractsRelating to the Company’s Indebtedness*

 

For a discussion of ourmaterial credit agreements and financings entered into or amended since April 30,2008, see “— Our Credit Facilities — The U.S. $1,500 Million Credit Facility,U.S. $500 Million Bridge Loan and Related Interest Rate Swaps,” “— Our CreditFacilities — The Euro 250 Million Revolving Credit Facility and RelatedInterest Rate Swaps,” “— Our Other Debt Financings — The U.S. $275 Million SeniorUnsecured Guaranteed Notes of U.S. Holdings,” “— Our Credit Facilities —TheEuro 300 Million Club Deal” and “— Our Other Debt Financings — The U.S. $175Million Senior Guaranteed Notes of U.S. Holdings” in Item 5 — “Operating andFinancial Review and Prospects — Liquidity and Capital Resources — OurIndebtedness.”

 

*LuxotticaGroup S.p.A. Performance Shares Plan*

 

In May 2008, a performance shares plan for the top managers of the Company and othercompanies directly or indirectly controlled by the Company to be identified bythe Board wasadopted. For further information onthis plan, see Item 6—“Directors, Senior Management and Employees—Share Ownership.”

 

**Italian Exchange Controls**

 

The following is a summary of relevant Italian lawsin force as at the date of this annual report but does not purport to be acomprehensive description of all exchange control considerations that may berelevant.

 

There are no exchange controls in Italy. Residentsand non-residents of Italy may effect any investments, disinvestments and othertransactions that entail a transfer of assets to or from Italy, subject only tothe reporting, record-keeping and disclosure requirements described below. Inparticular, residents of Italy may hold foreign currency and foreign securitiesof any kind, within and outside Italy, while non-residents may invest inItalian securities without restriction and may export from Italy cash,instruments of credit or payment and securities, whether in foreign currency orEuro, representing interest, dividends, other asset distributions and theproceeds of dispositions.

 

Regulations concerning updated reporting,record-keeping, and restrictions on the use of cash and securities arecontained in Legislative Decree Nos. 231 dated November 21, 2007 (“Decree231/2007”), which implements the Anti-Money Laundering Directives Nos.2005/60/CE and 2006/70 CE.

 

Article 49 of the Decree 231/2007 provides thattransfers of cash, bearer bank or postal passbooks, in Euro or foreigncurrency, effected for any reason between different parties (resident ornon-resident), are forbidden when the total amount is equal to or greater thanEuro 12,500. The transfer may only be executed through banks, electronic moneyinstitutions and “Poste Italiane S.p.A.” (Italian Mail) (collectively, the “AuthorisedOperators”). Within 30 days of their knowledge, the Authorised Operators mustpromptly notify the Ministry of Finance of any breach of the provisions set outin Art. 49 of Decree 231/2007.

 

In addition, the Authorised Operators effecting suchtransactions, are required to: (i) duly identify the customer and theeffective current account holder on the basis of documents, data or informationderiving from an independent and reliable source; (ii) set up a “DataProcessing Archive” (Archivio Unico Informatico) which contains a copy of anydocument required for the customer’s identification; (iii) notify theFinancial Intelligence Unit (Unità di Informazione Finanziaria) of anysuspicious operation, where possible, before carrying out the transaction; and (iv) maintainrecords of similar transactions that occurred in the last ten years. The breachof dispositions of Decree 231/2007 involves criminal and administrativesanctions: criminal sanctions are imposed for, among other things, breach ofcustomer identification obligations and recording duties, and failure todisclose the fact that a suspicious transaction was reported; administrativesanctions are imposed for, among other things, failure to set up the DataProcessing Archive and to report the suspicious transactions to the FinancialIntelligence Unit.

 

The Financial Intelligence Unit must maintainreports for a period of ten years and may use them, directly or through othergovernment offices, to police money laundering, tax evasion and any other crimeor violation.

 

Individuals, non-profit entities and certainpartnerships that are resident in Italy must disclose on their annual taxdeclarations all investments held outside Italy and foreign financial assetsheld at the end of a taxable period through which foreign source income taxablein Italy may be derived as well as the total amount of transfers effectedduring a taxable period to, from, within and between countries other than Italyrelating to such foreign investments or financial assets, even if at the end ofthe taxable period such persons no longer owned such foreign investments orfinancial assets. No such disclosure is required if the total value of theforeign investments and financial assets held at the end of a taxable periodand the total 

 

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amountof the related transfers effected during the taxable period are not greaterthan Euro 10,000 in the aggregate. In addition, no such disclosure is requiredin respect of securities deposited for management with qualified Italianfinancial intermediaries 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.

 

There can be no assurance that the presentregulatory environment in or outside Italy will continue or that particularpolicies presently in effect will be maintained, although Italy is required tomaintain certain regulations and policies by virtue of its membership in theEuropean Union and other international organizations and its adherence tovarious bilateral and multilateral international agreements.

 

**Taxation**

 

The following summary contains a description of theprincipal United States federal and Italian income tax consequences of theownership and disposition of ADSs or ordinary shares by U.S. holders (asdefined below) resident in the United States for tax purposes. The followingdescription does not purport to be a complete analysis of all possible taxconsiderations that may be relevant to a U.S. tax resident holder of ADSs orordinary shares, and U.S. tax resident holders are advised to consult theiradvisors as to the overall consequences of their individual circumstances. Inparticular, this discussion does not address all material tax consequences ofowning ordinary shares or ADSs that may apply to special classes of holders,some of whom may be subject to different rules, including:

 

·                 partnerships and other pass-through entities;

 

·                 tax-exempt entities;

 

·                 certain banks,financial institutions and insurance companies;

 

·                 broker-dealers;

 

·                 traders in securitiesthat elect to mark to market;

 

·                 investors liable foralternative minimum tax;

 

·                 investors thatactually or constructively own ten percent or more of the voting stock ofLuxottica Group S.p.A.;

 

·                 investors that holdordinary shares or ADSs as part of a straddle or a hedging or conversiontransaction;

 

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

 

·                 investors who do nothold the ordinary shares or ADSs as capital assets within the meaning of theInternal Revenue Code of 1986, as amended (the “Code”).

 

In addition, the following summary does not discussthe tax treatment of ordinary shares or ADSs that are held in connection with apermanent establishment or fixed base through which a U.S. holder carries onbusiness or performs personal services in Italy.

 

Furthermore, certain persons that may not be U.S.holders but who may otherwise be subject to United States federal income taxliability will also be subject to United States federal as well as Italian taxconsequences due to their ownership and disposition of ADSs or ordinary shares.Such investors should consult with their own advisors as to the particularconsequences associated with their investment.

 

This discussion is basedon the tax laws of Italy and of the United States, including the Code, itslegislative history, existing and proposed regulations, and published rulingsand court decisions, as currently in effect, as well as on the currentlyapplicable Convention Between the United States of America and Italy for theAvoidance of Double Taxation with respect to Taxes on Income and the Preventionof Fraud or Fiscal Evasion and Protocol Between the United States and Italy(collectively, the “New Treaty”) and the Convention Between the United Statesof America and the Italian Republic for the Avoidance of Double Taxation andthe Prevention of Fiscal Evasion with respect to Taxes on Estates andInheritances (the 

 

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“Estate Tax Convention”).These laws are subject to change, possibly on a retroactive basis that couldaffect the tax consequences described below. The New Treaty was signed on August 25,1999, ratified by Italy pursuant to Law 3 March 2009, No. 20, andentered into force on December 16, 2009, replacing the then-applicable taxtreaty and protocol between the United States and Italy (collectively, the “OldTreaty”). The New Treaty includes an anti-abuse provision and a provisionlimiting treaty benefits to individuals, qualified governmental entities,companies that are publicly traded or that satisfy certain share ownershiprequirements, certain pension plans and other tax-exempt entities, and certainother persons meeting prescribed anti-treaty shopping requirements.

 

The New Treaty alsoclarifies the availability of treaty benefits to entities that are treated asfiscally transparent under United States or Italian law.

 

In respect of tax withheld at the source, the NewTreaty is effective for amounts paid or credited on or after February 1,2010.  In respect of other taxes, the NewTreaty is effective for taxable periods beginning on or after January 1,2010.  However, if a person who wasentitled to benefits under the Old Treaty would have been entitled to any greaterrelief from tax under the Old Treaty than under the New Treaty, such person maymake an election for the Old Treaty to continue to apply in its entirety for anadditional twelve-month period.

 

In addition, this section is based in part upon therepresentations of the depositary and the assumption that each obligation inthe Deposit Agreement and any related agreement will be performed in accordancewith its terms.

 

This discussion addresses only Italian incometaxation, gift and inheritance taxation and capital gains taxation and UnitedStates federal income and estate taxation.

 

For purposes of the Old Treaty, the New Treaty, theEstate Tax Convention and the Code, U.S. holders of ADSs will be treated as theowners of the underlying ordinary shares represented by such ADSs. Exchanges ofordinary shares for ADSs and ADSs for ordinary shares generally will not besubject to Italian tax or United States federal income tax.

 

*Italian Tax 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. Reducedrates (normally 15 percent) of withholding tax (or substitute tax) on dividendsapply to non-Italian resident beneficial owners of ordinary shares or ADSs whoare entitled to and timely comply with procedures for claiming benefits underan applicable income tax treaty entered into by Italy. Italy has concludedincome tax treaties with over 60 foreign countries, including all EuropeanUnion member states, Argentina, Australia, Brazil, Canada, Japan, New Zealand,Norway, Switzerland, the United States and some countries in Africa, the MiddleEast and East Asia. It should be noted that in general the income tax treatiesare not applicable if the beneficial owner is a tax-exempt entity or, with afew exceptions, a partnership or a trust.

 

Under the New Treaty, Italian withholding tax (orsubstitute tax) at a reduced rate of 15 percent will generally apply todividends paid by an Italian corporation to a U.S. resident entitled to Treatybenefits who timely complies with the procedures for claiming such benefits,provided the dividends are not effectively connected with a permanentestablishment in Italy through which the U.S. resident carries on a business orwith a fixed base in Italy through which the U.S. resident performs independentpersonal services.

 

The Italian 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 substitute tax on dividends paid by an Italian corporationout of profits accrued from January 1, 2008 (for entities ending their taxyear on December 31) to non-resident beneficiary entities (i) subjectto corporate taxation and (ii) resident in an EU Member State or in otherstates (excluding the United States) which adhere to the “Accordo sullo spazioeconomico europeo,” which are included in an *ad hoc*“white list” still to be released with a proper decree. Provisional disposalsprovide that, in the meantime, reference is to be made to the Decree dated September 4,1996, which reports the list of countries allowing an adequate exchange ofinformation with the Italian tax authority.

 

The currently applicable Italian domesticlegislation provides for the application of a reduced 11 percent withholdingtax or substitute tax on dividends paid starting from July 29, 2009 by anItalian corporation to non-Italian resident pension funds established in an EUMember State or in other countries (excluding the United States) which adhereto the “Accordo sullo Spazio Economico Europeo,” which are included in theabove-mentioned “white list” of countries 

 

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allowingan adequate exchange of information with the Italian tax authority.

 

Under Italian law, in general, shares of Italiancompanies listed on the Milan Stock Exchange have to be registered in thecentralized deposit system managed by *Monte Titoli*.Dividends paid on shares held in the *Monte Titoli*system(including our shares and our ADSs) to non-Italian beneficial owners without apermanent establishment in Italy are subject to a substitute tax on the sameconditions and at the same rate as the withholding tax mentioned above, butwhich may be reduced under an applicable double-taxation treaty. Thissubstitute tax will be levied by the Italian authorized intermediary thatparticipates 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.

 

For a non-Italian resident beneficial owner of theordinary shares or ADSs to obtain a reduced rate of substitute tax on dividendspursuant to an applicable income tax treaty entered into by Italy, includingthe Treaty, the following procedure must be followed. The intermediary withwhom the shares are deposited must timely receive:

 

·                  a declaration by thebeneficial owner of ordinary shares or ADSs that contains all the dataidentifying this person as the beneficial owner and indicates the existence ofall the conditions necessary for the application of the relevant income taxtreaty, as well as the elements that are necessary to determine the applicabletreaty substitute tax rate; and

 

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

 

The intermediary must keep the foregoingdocumentation for the entire period in which the Italian tax authorities areentitled to issue an assessment with respect to the tax year in which thedividends are paid and, if an assessment is issued, until the assessment issettled. If the intermediary with which the shares are deposited is notresident in Italy, the aforesaid duties and obligations must be carried out by (i) abank or an investment services company that is a resident in Italy or (ii) apermanent establishment in Italy of a non-resident bank or investment servicescompany, appointed by the foreign intermediary as its fiscal representative inItaly.

 

A non-Italian resident beneficial owner of ordinaryshares or ADSs can obtain application of substitute tax on dividends of Italiansource at a reduced rate of 1.375 percent or 11 percent, as applicable, fromthe intermediary with which the shares are deposited by promptly submitting *ad hoc* request, together with proper documentation attestingto the residence and status of the beneficial owner (including a certificate oftax residence from the competent foreign tax authorities).

 

As an alternative to the application of the more favorabletreaty rate of substitute tax on dividends or where an income tax treaty doesnot apply, and except for entities that benefit from the above-mentioned 1.375percent or 11 percent substitute tax, under domestic Italian law non-residentstockholders can claim a refund of an amount up to four-ninths of the 27percent substitute tax on dividend income from Italian tax authorities providedthat (i) they implement an *ad hoc* refundprocedure in accordance with the terms and conditions established by law, and (ii) theyprovide evidence that this dividend income was subject to income tax in theircountry of 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.

 

Distributions of newly issued ordinary shares tobeneficial owners with respect to their shares or ADSs that are made as part ofa pro rata distribution to all stockholders based on a gratuitous increase ofthe share capital through transfer of reserves or other provisions to sharecapital generally will not be subject to Italian tax. However, distributions ofdividends in kind will be subject 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.) 

 

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isdefined to occur when a stockholder (i) owns shares, ADSs and/or rightsthrough which shares may be acquired representing in the aggregate more thanfive percent of the share capital or two percent of the shares with votingrights at an ordinary stockholders’ meeting of the corporation and (ii) inany twelve-month period following the date the ownership test under (i) ismet, 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 realizedby non-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 investment portfolio)regime, respectively, provided for by arts. 6 and 7 of Italian LegislativeDecree 21 November 1997, No. 461 applies to them. Upon disposal of a “qualified”shareholding, non-Italian resident stockholders are in principle subject toItalian ordinary taxation on 49.72 percent of the capital gain realizedstarting from January 1, 2009.

 

The above is subject to any provisions of anapplicable income tax treaty entered into by the Republic of Italy, if theincome tax treaty provisions are more favorable. The majority of double taxtreaties entered into by Italy, in accordance with the OECD Model taxconvention, provide that capital gains realized from the disposition of Italiansecurities are subject to taxation only in the country of residence of the seller.Therefore, the capital gains realized by a non-Italian resident entitled to thebenefits of a treaty entered into by Italy in accordance with the OECD Model inrespect of taxation of capital gains from the disposition of Italian securitieswill not be subject to Italian taxation on such capital gains, regardless ofwhether the shareholding disposed of is qualified or non-qualified. Non-Italianresidents who dispose of shares or ADSs may be required to timely provideappropriate documentation establishing that the conditions of non-taxability ofcapital gains realized pursuant to the applicable income tax treaties have beensatisfied (including a certificate of tax residence issued by the competentforeign tax authorities), in the case that the “risparmio amministrato”(non-discretionary investment portfolio) or “risparmio gestito” (discretionaryinvestment portfolio) regime, respectively, provided for by arts. 6 and 7 ofItalian Legislative Decree 21 November 1997, No. 461 applies to them.

 

Under the Old Treaty and the New Treaty, a personwho is considered a U.S. resident for purposes of the Old Treaty and the New Treatyand is fully entitled to benefits under the Old Treaty and the New Treaty willnot incur Italian capital gains tax on disposal of ordinary shares or ADSs,unless the ordinary shares or ADSs form part of a business property of apermanent establishment of the holder in Italy or pertain to a fixed baseavailable to a holder in Italy for the purpose of performing independentpersonal services. In order to benefit from this exemption, U.S. residents whosell ordinary shares or ADSs may be required to timely produce appropriatedocumentation establishing that the above-mentioned conditions fornon-taxability of capital gains under the Old Treaty and the New Treaty havebeen satisfied (including a certificate of tax residence issued by thecompetent U.S. tax authorities).

 

*Inheritanceand Gift Tax.* Subject to certain exceptions, Italian inheritance and gifttax is generally payable on transfers of ordinary shares and/or ADSs of anItalian resident corporation by reason of death or donation, regardless of theresidence of the deceased or donor and regardless of whether the ordinaryshares or ADSs are held outside Italy.

* *

In particular, transfersof assets and rights (including ordinary shares and/or ADSs) on death or bygift are generally subject to Italian inheritance and gift tax:

 

(i)    at a rateof 4 percent in the case of transfers made to the spouse or relatives in directline, 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 a rateof 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 ofthe global net value of the transferred assets (including ordinary shares andADSs), if any, exceeding, for each beneficiary, Euro 100,000); and

 

(iii)  at a rateof 8 percent, in any other case.

 

Inheritance or gift taxespaid in a jurisdiction outside of Italy relating to the same estate on assets(including ordinary shares and ADSs) existing in that jurisdiction aredeductible, in whole or in part, from the Italian inheritance and gift tax duewith respect to the estate.

 

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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 UnitedStates;

 

·                  a corporation or other entitytaxable as a corporation organized under the laws of the United States or anystate thereof;

 

·                  an estate whose income is subjectto United States federal income tax regardless of its source; or

 

·                  a trust if a United States courtcan exercise primary supervision over the trust’s administration and one ormore United States persons are authorized to control all substantial decisionsof the trust.

 

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 or accumulatedearnings and profits, as determined for United States federal income taxpurposes. Such holder must also include any Italian tax withheld from thedividend payment in this gross amount even though the holder does not in factreceive such amounts withheld. The dividend is ordinary income that must beincluded in income when the U.S. holder, in the case of ordinary shares, or thedepositary, 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 excess of current and accumulatedearnings and profits, as determined for United States federal income taxpurposes, will be treated as a return of capital to the extent of the U.S.holder’s basis in the shares or ADSs and thereafter as capital gain.

 

Subjectto certain generally applicable limitations, the Italian withholding orsubstitute tax imposed on dividends in accordance with the Old Treaty or theNew Treaty and paid over to Italy will be creditable against a U.S. holder’sUnited States federal income tax liability. To the extent a refund of the taxwithheld is available to the U.S. holder under Italian law or under the OldTreaty or the New Treaty, the amount of tax withheld that is refundable willnot be eligible for credit against such holder’s United States federal incometax liability. See “—Italian Tax Law—Withholding or 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 taxedat the rate applicable to long-term capital gains (generally at a maximumincome tax 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 

 

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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 taxedat this 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. Thedeductibility of capital losses is subject to limitations. Capital gain of anon-corporate U.S. holder, recognized in taxable years which begin before January 1,2011, is generally taxed at a maximum rate of 15 percent for property held morethan one year. Additionally, gain or loss will generally be from sources withinthe 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 incomeis “passive income,” or (b) the average percentage of the gross value ofits assets that produce “passive income” or are held for the production ofpassive income is at least 50 percent. Passive income for this purposegenerally includes dividends, interest, royalties, rents and gains fromcommodities and securities transactions. Under a special “look-through” rule,in determining whether it is a PFIC, a foreign corporation is required to takeinto account a pro rata portion of the income and assets of each corporation inwhich it owns, directly or indirectly, at least a 25 percent interest. Wherethe “look-through” rule applies, there is eliminated from thedetermination of the status of the foreign corporation as a PFIC stock and debtinstruments issued by such a 25 percent-owned subsidiary as well as dividendsand interest received from such a 25 percent-owned subsidiary. Based on ouraudited financial statements, we strongly believe that we are not a PFIC forU.S. federal income tax purposes for 2009. Based on our audited financialstatements and our current expectations regarding the value and nature of ourassets and the sources and nature of our income, we do not expect to become aPFIC for U.S. federal income tax purposes for future years. Nonetheless, giventhat our PFIC status will be determined by reference to the assets and incometests applied annually, with the assets test being applied by reference to theaverage of the fair market value of our assets at the end of each quarter, andthe income test being applied by reference to our income at the end of thetaxable year, we cannot provide complete assurance that we will not be a PFICfor either the current taxable year or for any subsequent taxable year. If weare classified as a PFIC in any year that a U.S. holder is a stockholder, wegenerally will continue to be treated as a PFIC for that U.S. holder in allsucceeding years, regardless of whether we continue to meet the income or assettest described above. If we are classified as a PFIC in any year, certainmaterially adverse consequences could result for U.S. holders of ordinaryshares or ADSs. Such adverse consequences could, however, be materiallylessened if the U.S. holders timely file either a qualified electing fund or amark-to-market election. In addition, if we were classified as a PFIC, in ataxable year in which we pay a dividend or the prior taxable year, we would notbe a qualified foreign corporation (as described in “—Taxation of Dividends”),and our dividends would not be eligible for the reduced 15 percent U.S. incometax 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 accuratetaxpayer identification number;

 

·                  is notified by the IRS that he hasfailed to report all interest or dividends required to be shown on his federalincome tax returns and the payor of the interest or dividends is notified bythe IRS of the underreporting; or

 

·                  in certain circumstances, fails tocomply with applicable certification requirements.

 

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

 

AfterDecember 31, 2010, the backup withholding rate will increase to 31 percentunder the sunset provisions of 

 

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currentlyapplicable 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,under penalties of perjury, that such seller is a non-U.S. person (or otherwiseestablishes an exemption). Special rules apply where ordinary shares orADSs are sold through a non-U.S. office of a non-U.S. broker and the saleproceeds are paid outside the United States.

 

*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 SECat 100 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 in English(or a translation or summary in English of the Italian reports) that includeunaudited interim financial information prepared in conformity with U.S. GAAP.If requested by us, Deutsche Bank Trust Company Americas arranges for themailing of such reports to registered holders of ADSs. We also furnish toDeutsche Bank Trust Company Americas, in English, all notices of stockholders’meetings and other reports and communications that are made generally availableto our stockholders. To the extent permitted by law, Deutsche Bank TrustCompany Americas makes such notices, reports and communications available toholders of ADSs in such manner as we request and mails to holders of ADSs anotice containing the information (or a summary thereof in a form provided byus) contained in any notice of a stockholders’ meeting received by DeutscheBank Trust Company Americas. As a foreign private issuer, we are exempt fromthe rules under the Securities Exchange Act of 1934 prescribing thefurnishing and content of proxy statements.

 

**ITEM 11. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

**InterestRate Sensitivity**

 

At December 31, 2009 and 2008, ourinterest rate sensitivity was limited to the amount of our unhedged variablerate outstanding debt under our credit facilities and bank overdraftfacilities.

 

Included in this amount are:

 

·                  Tranche B andTranche C borrowings on our subsequently amended credit facility with a groupof banks, of Euro 1,130 million and U.S. $325 million (of which Euro 525million and Euro 677.9 million were borrowed under Tranche C as of December 31,2009 and 2008, respectively, and U.S. $325 million was borrowed under Tranche Bas of December 31, 2009 and 2008). However, in 2007, we entered intointerest rate swaps to effectively hedge the floating rate to a fixed rate forTranche B. As of December 31, 2009, this credit facility bore interest atEURIBOR on Euro-denominated loans and LIBOR on U.S. $-denominated loans, plus amargin between 0.20 and 0.40 percent based on the Net Debt/ EBITDA ratio asdefined in the agreement (0.829 percent on Tranche C for amounts borrowed inEuro, as of December 31, 2009).

 

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·                  Our Euro 150million credit facility, of which Euro 0 million was borrowed as of December 31,2009. This credit facility accrues interest at EURIBOR plus 1.90 percent.

 

·                    Our Euro 250 million creditfacility (of which Euro 250.0 million was borrowed as of December 31,2009). This credit facility accrues interest at EURIBOR plus a margin between0.40 percent and 0.60 percent based on the “Net Debt/EBITDA” ratio, as definedin the agreement (1.267 percent as of December 31, 2009). In 2009, weentered into interest rate swaps for a notional amount of Euro 250.0 million thateffectively hedge the floating rate to a fixed rate for this credit facility.

 

·                  Our Tranche D U.S. $1.0 billion credit facility, ofwhich U.S $950 million was borrowed as of December 31, 2009 (U.S. $1.0billion in 2008). This credit facility accrues interest at LIBOR plus a marginbetween 0.20 and 0.40 percent based on the Net Debt/EBITDA ratio as defined inthe agreement (0.634 percent as of December 31, 2009). In 2008 and 2009 weentered into interest rate swaps for a notional amount of U.S. $700 millionthat effectively hedge the floating rate to a fixed rate for a portion of TrancheD.

 

Theeffect of a ten percent change in interest rates (upward or downward) at December 31,2009 and 2008, would not have had a material effect on our future annual pretaxearnings and cash flows, based on our expected future pretax earning and cash flowswith an interest rate adjustment of ten percent above and below the rates ineffect as of December 31, 2009 and 2008. We calculated this effect both ona single year basis and an accumulated basis using a present value calculationfor all variable-rate debt instruments. For U.S. $-denominated activities, weused an exchange rate of Euro 1.00 = U.S. $1.45 as of both December 31,2009 and December 31, 2008.

 

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 45 interest rate derivativesoutstanding as of December 31, 2009:

 

·                  During the third quarter of 2007, weentered into 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 wereentered into as a cash flow hedge on Tranche B of the credit facility discussedabove. See Item 5—“Operating and Financial Review and Prospects—Liquidity andCapital Resources—Our Indebtedness—Our Credit Facilities—Amended Euro 1,130Million and U.S. $325 Million Credit Facility and Related Interest Rate Swaps.”The Tranche B Swaps exchange the floating rate of LIBOR for an average fixedrate of 4.62 percent per annum.

 

·                  During the third quarter of 2007, weentered into ten interest rate swap transactions with an aggregate initialnotional amount of U.S. $500 million with various banks (“Tranche E Swaps”).These swaps will expire on October 12, 2012. The Tranche E Swaps wereentered into as a cash flow hedge on Tranche E of the credit facility discussedabove. See Item 5—“Operating and Financial Review and Prospects—Liquidity andCapital Resources—Our Indebtedness—Our Credit Facilities — The U.S. $1,500Million Credit Facility, U.S. $500 Million Bridge Loan and Related InterestRate Swaps.”  The Tranche E Swapsexchange the floating rate of LIBOR for an average fixed rate of 4.26 percentper annum.

 

·                  During the fourth quarter of 2008 and the first quarter of 2009, weentered into fourteen 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 Tranche D of thecredit facility discussed above. See Item 5—  “Operatingand Financial Review and Prospects —Liquidity and Capital Resources — OurIndebtedness — Our CreditFacilities — 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.

 

·                  In June and July2009, we entered into eight interest rate swap transactions with an aggregateinitial notional amount of Euro 250 million with various banks (“IntesaSwaps”). The Intesa Swaps will decrease their notional amount on a quarterlybasis, following the amortization schedule of the underlying facility, startingon August 29, 2011. The Intesa Swaps will expire on May 29, 2013. The IntesaSwaps were entered into as a cash flow hedge on the Intesa Sanpaolo S.p.A.credit facility discussed above. See Item 5 – “Operating and Financial Reviewand Prospects – Liquidity and Capital Resources – Our Indebtedness - Our CreditFacility – The Euro 250 Million Revolving Credit Facility and Related InterestRate Swaps.”

 

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**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 Oakley manufacturingfacilities in the U.S. offset the reduced margins of our Italy-manufacturedproducts, the costs of which are in Euro, as we expand Oakley’s sales inEuro-denominated countries.  We expectthat the weakening of the Euro will have the reverse effect.  In addition, to the extent that ourreceivables and payables are denominated in different currencies, exchange ratefluctuations could further impact our reported results of operations. However,our production cycles are relatively short and our receivables and payables aregenerally short-term in nature. As a result, we do not believe that wecurrently have significant exposure in this area. We will, if we believe it isnecessary, enter into foreign exchange contracts to hedge certain of thesetransactions, which could include sales, receivables and/or payables balances.

 

EffectiveJanuary 1, 2001, we adopted ASC No. 815 (formerly SFAS No. 133),as amended and interpreted, which establishes accounting and reportingstandards for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities. ASC No. 815requires that all derivatives, whether designated as a hedging relationship ornot, be recorded on the balance sheet at fair value regardless of the purposeor intent for holding them. If a derivative is designated as a fair-valuehedge, changes in the fair value of the derivative and the related change inthe hedge item are recognized in operations. If a derivative is designated as acash-flow hedge, changes in the fair value of the derivative are recorded inother comprehensive income in the consolidated statement of shareholders’equity and are recognized in the consolidated statements of income when thehedged item affects operations. For a derivative that does not qualify as ahedge, changes in fair value are recognized in operations.

 

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 December 31,2009, 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, 2009 and 2008, andis not meant to be a tabular disclosure of market risk:

 
| **2009**                     | ** ** | **U.S. Dollars** | ** ** | **Euro** | ** ** | **Other** | ** ** | **Total** | ** ** |
|------------------------------|------------|------------------|------------|----------|------------|-----------|------------|-----------|------------|
| Revenues                     |       | 59.5             | %          | 18.6     | %          | 21.9      | %          | 100       | %          |
| Costs and Operating expenses |       | 58.3             | %          | 25.3     | %          | 16.4      | %          | 100       | %          |

 
| **2008**                     | ** ** | **U.S. Dollars** | ** ** | **Euro** | ** ** | **Other** | ** ** | **Total** | ** ** |
|------------------------------|------------|------------------|------------|----------|------------|-----------|------------|-----------|------------|
| Revenues                     |       | 59.0             | %          | 19.3     | %          | 21.7      | %          | 100       | %          |
| Costs and Operating expenses |       | 57.4             | %          | 26.8     | %          | 15.8      | %          | 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, translation risk could have a material effect on ourreported financial position and results of operations. The effect of a tenpercent weakening of the U.S. $ against the Euro as compared to the actual 2009and 2008 average exchange rate between the U.S. $ and Euro would have been adecrease in income before taxes of Euro 30.1 million and of Euro 36.2 million,respectively. In addition, a significant change in the mix of revenues or 

 

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expensesbetween or among geographic or operating segments could increase or decreaseour exposure to other currency exchange rate fluctuations. We will continue tomonitor our exposure to exchange rate fluctuations and enter into hedgingarrangements if and 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 OFSECURITIES OTHER THAN EQUITY SECURITIES**

 

Personsdepositing shares in our deposit facility with Deutsche Bank Trust CompanyAmericas are charged a fee for each issuance of ADSs, including issuancesresulting from distributions of shares, share dividends, share splits, bonusand rights distributions and other property, and for each surrender of ADSs inexchange for deposited shares. Persons depositing shares also may be chargedthe following expenses:

 

1.Expenses incurred by the depositary, the custodian or their respective agentsin connection with inspections of the relevant share register maintained by thelocal registrar and/or performing due diligence on the central securitiesdepository for Italy: an annual fee of U.S. $1.00 per 100 ADSs (such fee to beassessed against holders of record as at the date or dates set by thedepositary as it sees fit and collected at the discretion of the depositary,subject to the Company’s prior consent, by billing such holders for such fee orby deducting such fee from one or more cash dividends or other cashdistributions);

 

2.Taxes and other governmental charges incurred by the depositary or thecustodian on any ADS or ordinary shares underlying an ADS, including anyapplicable interest and penalties thereon, and any share transfer or othertaxes and other governmental charges;

 

3.Cable, telex, electronic transmission and delivery expenses;

 

4. Transfer orregistration fees for deposited securities on any applicable register in connectionwith the deposit or withdrawal of deposited securities including those of acentral depository for securities (where applicable);

 

5. Expensesof the depositary in connection with the conversion of foreign currency intoU.S. dollars;

 

6. Feesand expenses incurred by the depositary in connection with compliance withexchange control regulations and other regulatory requirements applicable tothe shares, deposited securities and ADSs; and

 

7. Anyother fees, charges, costs or expenses that may be incurred by the depositaryfrom time to time.

 

Ifany tax or other governmental charge is payable by the holders and/orbeneficial owners of ADSs to the depositary, the depositary, the custodian orthe Company may withhold or deduct from any distributions made in respect ofdeposited securities and may sell for the account of the holder and/orbeneficial owner any or all of the deposited securities and apply suchdistributions and sale proceeds in payment of such taxes (including applicableinterest and penalties) or charges, with the holder and the beneficial ownerthereof remaining fully liable for any deficiency.

 

SinceJanuary 1, 2009, we received the following direct and indirect paymentsfrom Deutsche Bank Trust Company Americas in the aggregate amount of $539,382(including $476,512 of reimbursements to cover expenses incurred in the pastthree years)for expenses relating to the ADRprogram, including:

 

1.               NYSElisting fees in relation to the listing of the ADRs

2.               Legalfees

3.               Auditorfees

4.               Roadshowexpenses

5.               Financialprinter costs

6.               Productionof annual reports and Form 20-F filings

7.               Productionof investor targeting, peer analysis and stockholder identification reports

8.               Postagefor mailing annual and interim reports and other communications to ADR holders

 

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9.               Costsof retaining third-party public relations, investor relations, and/or corporatecommunications advisory firms in the United States

10.         Subscriptionfees for CRM (customer relationship management) and other online electroniccommunications systems

11.         Mailingof proxy materials for meetings of stockholders

 

**PART II**

 

**ITEM 13. DEFAULTS, DIVIDEND ARREARAGESAND DELINQUENCIES**

 

None.

 

**ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE 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,and that 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 andoperation of our disclosure controls and procedures as of December 31,2009. Based upon that evaluation, our principal executive officer and ourprincipal financial officer have concluded that the design and operation of ourdisclosure controls and procedures provide reasonable assurance that, as of December 31,2009, the disclosure 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 overfinancial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of our consolidatedfinancial statements for external reporting purposes in accordance withaccounting principles 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.

 

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 31,2009.

 

Our independent registered public accounting firm hasaudited and issued its report on the effectiveness of our internal control overfinancial reporting as of December 31, 2009, which appears in Item 18 ofthis annual 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.

 

**ITEM 16. [RESERVED]**

 

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**ITEM 16A. Audit Committee FinancialExpert**

 

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 16G—“Corporate Governance—Summary of theSignificant Differences Between Our Corporate Governance Practices and theCorporate Governance Standards of the New York Stock 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 materialnon-public information is promptly and adequately disclosed to the public andin compliance with the fundamental principles of transparency and truthfulness.We also 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, 2009 and 2008. Due to thenature of our operations, numerous Deloitte & Touche entities andaffiliates perform numerous other accounting, tax and consulting tasks for usaround the world. The Board of Directors is the corporate body competent topre-approve, with the favorable opinion of the Board of Statutory Auditors, allaudit services for the annual audit of Luxottica Group S.p.A.’s own financialstatements and for the audit of the consolidated financial statements ofLuxottica Group S.p.A. and its subsidiaries, and to pre-approve all non-auditservices permissible for all entities in the group, although pre-approval ofsuch services may not always be possible based on the nature of the service.Each pre-approval is typically given for a one-year period and is detailed bycategory and budgeted cost.

 

Thefollowing table sets forth the aggregate fees paid by the Company to Deloitte &Touche for 2009 and 2008:

 
| **Thousands  of Euro**                                                                                 | ** ** | **2009  Fees** | ** ** | **2008  Fees** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------|------------|----------------|------------|
| Audit fees (including annual financial statement  audit, semi-annual reviews and Sarbanes-Oxley audit) |       | 5,079          |       | 4,608          |       |
| Audit related fees (including benefit plan audits  and acquisition due diligence)                      |       | 148            |       | 88             |       |
| Tax fees (including compliance and planning)                                                           |       | 36             |       | 127            |       |
| All other fees                                                                                         |       | 63             |       | 402            |       |
| Total fees                                                                                             |       | 5,326          |       | 5,225          |       |

 

OurBoard of Statutory Auditors has approved all of the audit and non-audit fees ofDeloitte & Touche for the year 2009 in accordance with thepre-approval policy set forth above. The percentage of audit work performed bypersons other than full-time permanent employees of Deloitte & Toucheis less than 50 percent.

 

**ITEM 16D. Exemptions from theListing 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 EquitySecurities by the Issuer and Affiliated Purchasers**

 

From January 1, 2009to September 21, 2009, no purchases were made by or on behalf of theCompany or any affiliated purchaser of ordinary shares or ADSs.

 

OnMay 13, 2008, our stockholders approved a program authorizing therepurchase and disposal of up to a maximum of 18,500,000 of our ordinary sharesuntil November 13, 2009, for a maximum cost of up to Euro 370,000,000. The2008 buyback program was intended to provide us with treasury shares toefficiently manage our capital and to implement our performance share planapproved by stockholders at the meeting held on May 13, 2008.  On October 29, 2009, our stockholdersapproved a second program authorizing the repurchase and disposal of up to amaximum of 18,500,000 Luxottica Group ordinary shares during the 18 months followingsuch date or, if earlier, the date of approval of the 2010 financialstatements, for a maximum cost of up to Euro 370,000,000.

 

In parallel with ourpurchases of shares under these programs, our subsidiary, Arnette OpticIllusions, Inc., has sold on the MTA Luxottica ordinary shares that itowns.In 2009,Arnette sold on the MTA an aggregate of 2,764,824 ordinary shares, at anaverage price of Euro 17.25, for an aggregate amount of Euro 47,683,618. In2010, through April 20, 2010, Arnette sold on the MTA 755,000 shares at anaverage price of Euro 18.95 for an aggregate amount of Euro 14,306,901.

 

Themaximum and minimum price of the share repurchases under both buyback programsis equal to the market price of our ordinary shares on the MTA on the daypreceding the relevant purchase, increased or decreased by 10%,respectively.  The repurchases of ordinaryshares have been and will continue to be carried out in compliance withprovisions set forth in article 2357 of the Italian Civil Code within thelimits of retained earnings and available reserves as recorded in our financialstatements.

 
| **Luxottica Group  S.p.A. Purchases of  our Ordinary Shares  by Month** | ** ** | **(a) Total  Number of  Ordinary Shares Purchased** | ** ** | **b)  Average  Price Paid per  Ordinary Share  (in Euro)** | ** ** | **(c) Total  Number of Ordinary  Shares Purchased as Part of  Publicly Announced  Programs (1)** | ** ** | **(d) Maximum  Number of Ordinary  Shares that Remain Subject to  Repurchase (at the end of the period)  Under the 2009 Program (2)** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| September 21, 2009  to September 30, 2009                     |       | 230,000                                                  |       | 17.857                                                     |       | 230,000                                                                                                    |       | Not applicable  (3)                                                                                                                        |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| October 1, 2009 to  October 31, 2009                          |       | 335,916                                                  |       | 17.702                                                     |       | 335,916                                                                                                    |       | Not applicable  (3)                                                                                                                        |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| November 1, 2009 to  November 30, 2009 (1)               |       | 1,430,000                                                |       | 16.778                                                     |       | 1,430,000                                                                                                  |       | 17,070,000                                                                                                                                 |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| December 1, 2009 to  December 31, 2009                        |       | 682,154                                                  |       | 17.348                                                     |       | 682,154                                                                                                    |       | 16,387,846                                                                                                                                 |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| January 1, 2010 to  January 31, 2010                          |       | 262,000                                                  |       | 18.583                                                     |       | 262,000                                                                                                    |       | 16,125,846                                                                                                                                 |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| February 1, 2010 to  February 28, 2010                        |       | 0                                                        |       | Not applicable                                             |       | 0                                                                                                          |       | 16,125,846                                                                                                                                 |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| March 1, 2010 to  March 31, 2010                              |       | 284,712                                                  |       | 19.01                                                      |       | 284,712                                                                                                    |       | 15,841,134                                                                                                                                 |       |
|                                                                    |       |                                                     |       |                                                       |       |                                                                                                       |       |                                                                                                                                       |       |
| April 1, 2010 to  April 28, 2010                              |       | 0                                                        |       | 0                                                          |       | 0                                                                                                          |       | 15,841,134                                                                                                                                 |       |

 

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(1)   Purchases from November 1, 2009 to November 13,2009 were made under the 2008 buyback program and purchases from November 16,2009 to November 30, 2009 were made under the 2009 buyback program.

 

(2)   Shares purchased under the 2009 buyback programare also subject to a maximum cost of Euro 370 million.

 

(3)   The 2008 buyback program expired on November 13,2009.

 

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**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 preclude independence.In addition, non-management directors of a U.S. listed company are required tomeet at regularly scheduled executive sessions without management.

 

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 or else we have to disclose the reason they did not meet in our AnnualReport on Corporate Governance.

 

Basedon standards under the Italian Corporate Governance Policies, our Board ofDirectors has determined that, among its 15 members, 7 directors areindependent: Messrs. Abravanel, Cattaneo, Costamagna, Lo Bello,Mangiagalli, Mion and Reboa. This number of independent directors complies withthe “adequate number” of non-management directors recommended by the ItalianCorporate Governance Policies. During 2009, our non-management directors didnot schedule 

 

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executivesessions without management, as our Lead Independent Director (until April 29,2009, Lucio Rondelli, and since October 29, 2009, Ivanhoe Lo Bello)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 requires 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 recommends the selection by the board of directorsof, director nominees for the next ordinary meeting of stockholders, a majorityof this committee be comprised of non-executive directors. The Company haselected not to appoint a committee to select, or recommend the selection of,director nominees.

 

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 the members of the Human Resources Committee from amongnon-executive members of the Board, three of whom 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 fourindependent 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 Committee,appointed by the Board of Directors on April 29, 2009, are Mario Cattaneo,Chairman, Marco Mangiagalli, Marco Reboa and Ivanhoe Lo Bello, each anindependent director.

 

*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.

 

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 

 

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tonotify Consob if we 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, directorcompensation, director orientation and continuing education, managementsuccession and an annual performance evaluation of the Board of Directors. Inaddition, the chief executive officer of a U.S. listed company must certify tothe NYSE annually that he or she is not aware of any violations by the companyof the NYSE’s corporate governance listing standards. The certification must bedisclosed 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*.

 

**PART III**

 

**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, 2009 and 2008                                                   | F-5        |
| Consolidated  Statements of Income for the Years Ended December 31, 2009, 2008 and  2007                   | F-7        |
| Consolidated Statements of Shareholders’ Equity for  the Years Ended December 31, 2009, 2008 and 2007 | F-8        |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and  2007               | F-10       |
| Notes to Consolidated Financial Statements                                                                      | F-12       |
|                                                                                                            |       |
| **Consolidated  Financial Statement Schedules**                                                                 | ** ** |
| Valuation and Qualifying Accounts                                                                               | F-58       |

 

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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 accompanying consolidated balance sheets of Luxottica GroupS.p.A. (an Italian corporation) and subsidiaries (the “Company”) as of December 31,2009 and 2008, and the related consolidated statements of income, shareholders’equity, comprehensive income and cash flows for each of the three years in theperiod ended December 31, 2009. Our audits also included the financialstatement schedule listed in the Index at Item 18. These financial statementsand financial 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 the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonablebasis 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, 2009 and 2008, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2009, in conformity with accounting principles generallyaccepted in the United States of America. Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all material respects,the information set forth therein.

 

As discussed in Note 10 to the consolidatedfinancial statements, effective December 31, 2008 the Company adopted theprovisions of accounting guidance for the change in measurement date related tothe accounting for pension and postretirement plans. As discussed in Note 1 tothe consolidated financial statements, effective January 1, 2009 theCompany adopted the provisions of accounting guidance on noncontrollinginterests and applied the new guidance to all periods presented in theaccompanying consolidated financial statements.

 

Ancona Bari Bergamo BolognaBrescia Cagliari Firenze Genova Milano Napoli Padova Parma Perugia

Roma Torino Treviso Verona

 

Sede Legale: Via Tortona, 25 -20144 Milano - Capitale Sociale: Euro 10.328.220.00 i.v.

Codice Fiscale/Registro delleImprese Milano n. 03049560166 - R.E.A. Milano n. 1720239

Partita IVA: IT 03049560166

 

Member of Deloitte Touche Tohmatsu

 

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We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of December 31,2009, based on the criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission and our report dated April 21, 2010 expressed an unqualifiedopinion on the Company’s internal control over financial reporting.

 

 

Milan,Italy

April 21,2010

 

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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, 2009, based onthe criteria 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.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’s principal executive andprincipal financial officers, or persons performing similar functions, andeffected by the company’s board of directors, management, and other personnelto provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertainto the 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 preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Ancona Bari Bergamo BolognaBrescia Cagliari Firenze Genova Milano Napoli Padova Parma Perugia

Roma Torino Treviso Verona

 

Sede Legale: Via Tortona, 25 -20144 Milano - Capitale Sociale: Euro 10.328.220.00 i.v.

Codice Fiscale/Registro delleImprese Milano n. 03049560156 - R.E.A. Milano n. 1720239

Partita IVA - IT 03049560166

 

Member of Deloitte Touche Tohmatsu

 

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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.

 

Inour opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2009, basedon the criteria established in Internal Control — Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedule as of andfor the year ended December 31, 2009 of the Company and our report dated April 21,2010 expressed an unqualified opinion on those financial statements andfinancial statement schedule, and included an explanatory paragraph for thechange in measurement date related to the accounting for pension andpostretirement plans effective December 31, 2008 and for noncontrollinginterests effective January 1, 2009.

 
|                     |   |
|---------------------|--------|
|                |   |
| Milan, Italy        |   |
| April 21, 2010 |   |

 

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LUXOTTICAGROUP SPA

 

**CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2009 AND 2008(*)**

 
| ** **                                                                                       | ** ** | **2009**       | ** ** | **2008**      | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------|------------|---------------|------------|
|                                                                                             |       | **(Euro/000)** |       |
|                                                                                             |       | ** **     |       |          |       |
| **ASSETS**                                                                                       |       |           |       |          |       |
|                                                                                             |       |           |       |          |       |
| CURRENT ASSETS:                                                                                  |       |           |       |          |       |
| Cash and cash equivalents                                                                        |       | 380,081        |       | 288,450       |       |
| Marketable securities                                                                            |       | –         |       | 23,550        |       |
| Accounts receivable - net                                                                        |       |           |       |          |       |
| (Less allowance for doubtful accounts, Euro 30.9  million in 2009 and Euro 29.1 million in 2008) |       | 618,884        |       | 630,018       |       |
| Sales and income taxes receivable                                                                |       | 59,516         |       | 151,609       |       |
| Inventories - net                                                                                |       | 526,548        |       | 570,987       |       |
| Prepaid expenses and other                                                                       |       | 137,604        |       | 144,054       |       |
| Deferred tax assets - net                                                                        |       | 110,910        |       | 131,907       |       |
|                                                                                             |       |           |       |          |       |
| **Total current assets**                                                                         | ** ** | **1,833,543**  | ** ** | **1,940,575** | ** ** |
|                                                                                             |       |           |       |          |       |
| PROPERTY, PLANT AND EQUIPMENT - net                                                              |       | 1,148,916      |       | 1,170,698     |       |
|                                                                                             |       |           |       |          |       |
| OTHER ASSETS:                                                                                    |       |           |       |          |       |
| Goodwill                                                                                         |       | 2,700,203      |       | 2,694,774     |       |
| Intangible assets - net                                                                          |       | 1,156,774      |       | 1,234,030     |       |
| Investments                                                                                      |       | 45,677         |       | 5,503         |       |
| Other assets                                                                                     |       | 153,506        |       | 176,199       |       |
| Deferred tax assets - net                                                                        |       | 97,437         |       | 83,447        |       |
|                                                                                             |       |           |       |          |       |
| **Total other assets**                                                                           | ** ** | **4,153,597**  | ** ** | **4,193,952** | ** ** |
| ** **                                                                                       | ** ** | ** **     | ** ** | ** **    | ** ** |
| **TOTAL ASSETS**                                                                                 | ** ** | **7,136,056**  | ** ** | **7,305,225** | ** ** |

 

----

(*) In accordance with US GAAP. See notes tothe consolidated financial statements.

 

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**CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2009 AND 2008 (*)**

 
| ** **                                                                                                                                                                                                                                           | ** ** | **2009**       | ** **    | **2008**      | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|---------------|---------------|------------|
| ** **                                                                                                                                                                                                                                           | ** ** | **(EURO/000)** | ** **    |
| **LIABILITIES  AND****SHAREHOLDERS’  EQUITY**                                                                                                                                                                                                   |       |           |          |          |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| CURRENT LIABILITIES:                                                                                                                                                                                                                                 |       |           |          |          |       |
| Bank overdrafts                                                                                                                                                                                                                                      |       |           | 148,951       |          |       | 432,465 |   |
| Current portion of long-term debt                                                                                                                                                                                                                    |       | 166,279        |          | 286,213       |       |
| Accounts payable                                                                                                                                                                                                                                     |       | 434,604        |          | 398,080       |       |
| Accrued expenses                                                                                                                                                                                                                                     |       |           |          |          |       |
| Payroll and related                                                                                                                                                                                                                                  |       | 155,101        |          | 131,630       |       |
| Customers’ right of return                                                                                                                                                                                                                      |       | 27,335         |          | 31,363        |       |
| Other                                                                                                                                                                                                                                                |       | 316,700        |          | 276,018       |       |
| Deferred tax liability - net                                                                                                                                                                                                                         |       | 10,813         |          |          |       |
| Income taxes payable                                                                                                                                                                                                                                 |       | 11,204         |          | 18,353        |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| **Total current  liabilities**                                                                                                                                                                                                                       | ** ** | **1,270,987**  | ** **    | **1,574,120** | ** ** |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| LONG-TERM DEBT                                                                                                                                                                                                                                       |       | 2,404,189      |          | 2,519,289     |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| LIABILITY FOR TERMINATION INDEMNITIES                                                                                                                                                                                                                |       | 54,608         |          | 55,522        |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| DEFERRED TAX LIABILITIES - NET                                                                                                                                                                                                                       |       | 236,140        |          | 233,551       |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| OTHER LONG-TERM LIABILITIES                                                                                                                                                                                                                          |       | 309,898        |          | 368,821       |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                        |       |           |          |          |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| SHAREHOLDERS’ EQUITY:                                                                                                                                                                                                                           |       |           |          |          |       |
| Capital stock par value Euro 0.06; 464,386,383  and 463,368,233 ordinary shares authorized and issued at December 31, 2009  and 2008, respectively; 458,038,351 and 456,933,447 shares outstanding at  December 31, 2009 and 2008, respectively |       | 27,863         |          | 27,802        |       |
| Additional paid-in capital                                                                                                                                                                                                                           |       | 346,309        |          | 301,529       |       |
| Retained earnings                                                                                                                                                                                                                                    |       | 3,003,823      |          | 2,789,894     |       |
| Accumulated other comprehensive loss, net  of tax                                                                                                                                                                                                    |       | (491,938       | )             | (542,646      | )          |
| Total                                                                                                                                                                                                                                                |       | 2,886,057      |          | 2,576,580     |       |
| Less treasury shares at cost; 6,348,032 and  6,434,786 shares at December 31, 2009 and 2008, respectively                                                                                                                                       |       | (82,713        | )             | (69,987       | )          |
| Total Luxottica Group shareholders’ equity                                                                                                                                                                                                      |       | 2,803,344      |          | 2,506,593     |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| Noncontrolling interests                                                                                                                                                                                                                             |       | 56,890         |          | 47,328        |       |
|                                                                                                                                                                                                                                                 |       |           |          |          |       |
| **Total Equity**                                                                                                                                                                                                                                     | ** ** | **2,860,234**  | ** **    | **2,553,921** | ** ** |
| ** **                                                                                                                                                                                                                                           | ** ** | ** **     | ** **    | ** **    | ** ** |
| **TOTAL LIABILITIES AND  SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                 | ** ** | ** **     | **7,136,056** | ** **    | ** ** | **7,305,225** | ** ** |

 

----

(*) In accordance with US GAAP. See notes tothe consolidated financial statements.

 

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**CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER31, 2009, 2008 AND 2007 (*)**

 
| ** **                                                 | ** ** | **2009**                                   | ** ** | **2008**       | ** ** | **2007**       | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|----------------|------------|----------------|------------|
| ** **                                                 | ** ** | **(Euro/000, unless otherwise indicated)** | ** ** |
|                                                       |       |                                       |       |           |       |           |       |
| NET SALES                                                  |       |                                       | 5,094,318  |           |       | 5,201,611      |       |   | 4,966,054 |   |
|                                                       |       |                                       |       |           |       |           |       |
| COST OF SALES                                              |       | (1,768,436                                 | )          | (1,751,251     | )          | (1,575,618     | )          |
|                                                       |       |                                       |       |           |       |           |       |
| GROSS PROFIT                                               |       | 3,325,882                                  |       | 3,450,360      |       | 3,390,436      |       |
|                                                       |       |                                       |       |           |       |           |       |
| OPERATING EXPENSES:                                        |       |                                       |       |           |       |           |       |
| Selling and advertising                                    |       | (2,106,360                                 | )          | (2,124,430     | )          | (2,069,280     | )          |
| General and administrative                                 |       | (636,320                                   | )          | (576,167       | )          | (487,843       | )          |
|                                                       |       |                                       |       |           |       |           |       |
| **Total**                                                  | ** ** | **(2,742,680**                             | **)**      | **(2,700,597** | **)**      | **(2,557,123** | **)**      |
|                                                       |       |                                       |       |           |       |           |       |
| INCOME FROM OPERATIONS                                     |       | 583,202                                    |       | 749,763        |       | 833,313        |       |
|                                                       |       |                                       |       |           |       |           |       |
| OTHER INCOME (EXPENSE):                                    |       |                                       |       |           |       |           |       |
| Interest income                                            |       | 6,887                                      |       | 13,265         |       | 17,087         |       |
| Interest expense                                           |       | (91,571                                    | )          | (135,267       | )          | (89,498        | )          |
| Other - net                                                |       | (4,235                                     | )          | (37,890        | )          | 19,780         |       |
|                                                       |       |                                       |       |           |       |           |       |
| Other expense - net                                        |       | (88,919                                    | )          | (159,892       | )          | (52,631        | )          |
|                                                       |       |                                       |       |           |       |           |       |
| INCOME BEFORE PROVISION FOR INCOME TAXES                   |       | 494,283                                    |       | 589,870        |       | 780,681        |       |
|                                                       |       |                                       |       |           |       |           |       |
| PROVISION FOR INCOME TAXES                                 |       | (167,416                                   | )          | (194,657       | )          | (273,501       | )          |
|                                                       |       |                                       |       |           |       |           |       |
| NET INCOME                                                 |       |                                       | 326,867    |           |       | 395,213        |       |   | 507,180 |   |
|                                                       |       |                                       |       |           |       |           |       |
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING  INTERESTS |       | (12,105                                    | )          | (15,492        | )          | (14,976        | )          |
|                                                       |       |                                       |       |           |       |           |       |
| NET INCOME ATTRIBUTABLE TO LUXOTTICA GROUP  SHAREHOLDERS   |       |                                       | 314,762    |           |       | 379,722        |       |   | 492,204 |   |
|                                                       |       |                                       |       |           |       |           |       |
| BASIC EARNINGS PER SHARE (Euro)                            |       | 0.69                                       |       | 0.83           |       | 1.08           |       |
|                                                       |       |                                       |       |           |       |           |       |
| FULLY DILUTED EARNINGS PER SHARE (Euro)                    |       | 0.69                                       |       | 0.83           |       | 1.07           |       |
|                                                       |       |                                       |       |           |       |           |       |
| WEIGHTED AVERAGE NUMBER OF SHARES  OUTSTANDING             |       |                                       |       |           |       |           |       |
| Basic                                                      |       | 457,270,491                                |       | 456,563,502    |       | 455,184,797    |       |
| Diluted                                                    |       | 457,942,618                                |       | 457,717,044    |       | 458,530,609    |       |

 

----

(*) In accordance with US GAAP. See notes tothe consolidated financial statements.

 

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**CONSOLIDATED STATEMENTS OFSHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009 (*)**

 
| ** **                                                                                   | ** ** | **Luxottica Group shareholders** | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------|------------|----------------|------------|-------------------|------------|
| ** **                                                                                   | ** ** | ** **                                 | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                   | ** ** | ** **                                 | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                                                                                   | ** ** | **Common Stock**                      | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Treasury** | ** ** | **Noncontrolling** | ** ** | **Comprehensive** | ** ** | **Consolidated** | ** ** |
| ** **                                                                                   | ** ** | **Shares**                                 | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Loss** | ** ** | **Shares** | ** ** | **Interests** | ** ** | **Income** | ** ** | **Equity** | ** ** |
| ** **                                                                                   |       |                                       |       |        |       |           |       |              |       |   |   |   |   |   |   |   |   |   |   |
| BALANCES, JANUARY 1, 2007                                                               | ** ** | 460,216,248                                | ** ** | 27,613      | ** ** | 203,016        |       | 2,343,800         |       | (288,593 | ) | (69,987 | ) | 30,371 |   |   |   | 2,246,220 |   |
|                                                                                         | ** ** | ** **                                 | ** ** | ** **  | ** ** | ** **     |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Exercise of stock options                                                                    |       | 2,407,372                                  |       | 144         |       | 26,498         |       |              |       |   |   |   |   |   |   |   |   | 26,642 |   |
| Translation adjustment                                                                       | ** ** | ** **                                 | ** ** | ** **  |       |           |       |              |       | (90,881 | ) |   |   | 6,172 |   | (84,709 | ) | (84,709 | ) |
| Effect of adoption of FIN 48                                                                 | ** ** | ** **                                 | ** ** | ** **  |       |           |       | (8,060            | )          |   |   |   |   |   |   |   |   | (8,060 | ) |
| Non-cash 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          | )          |   |   |   |   | (10,422 | ) |   |   | (201,499 | ) |
| Net income                                                                                   | ** ** | ** **                                 | ** ** | ** **  |       |           |       | 492,204           |       |   |   |   |   | 14,976 |   | 507,180 |   | 507,180 |   |
|                                                                                         | ** ** | ** **                                 | ** ** | ** **  |       |           |       |              |       |   |   |   |   |   |   |   |   |   |   |
| BALANCES, DECEMBER 31, 2007                                                             |       | 462,623,620                                |       | 27,757      |       | 277,947        |       | 2,636,868         |       | (377,428 | ) | (69,987 | ) | 41,097 |   | 424,517 |   | 2,536,255 |   |
|                                                                                         | ** ** | ** **                                 | ** ** | ** **  | ** ** | ** **     |       |              |       |   |   |   |   |   |   |   |   |   |   |
| BALANCES, JANUARY 1, 2008                                                               | ** ** | 462,623,620                                | ** ** | 27,757      | ** ** | 277,947        |       | 2,636,868         |       | (377,428 | ) | (69,987 | ) | 41,097 |   |   |   | 2,536,255 |   |
|                                                                                         | ** ** | ** **                                 | ** ** | ** **  | ** ** | ** **     |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Exercise of stock options                                                                    |       | 744,613                                    |       | 45          |       | 7,081          |       |              |       |   |   |   |   |   |   |   |   | 7,126 |   |
| Translation adjustment                                                                       | ** ** | ** **                                 |       |        |       |           |       |              |       | (73,682 | ) |   |   | 3,709 |   | (69,973 | ) | (69,973 | ) |
| Non-cash stock-based compensation                                                            | ** ** | ** **                                 |       |        |       | 10,424         |       |              |       |   |   |   |   |   |   |   |   | 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            |       |              |       |   |   |   |   |   |   |   |   | 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          | )          |   |   |   |   | (12,969 | ) |   |   | (236,586 | ) |
| Net income                                                                                   | ** ** | ** **                                 |       |        |       |           |       | 379,722           |       |   |   |   |   | 15,491 |   | 395,213 |   | 395,213 |   |
|                                                                                         | ** ** | ** **                                 |       |        |       |           |       |              |       |   |   |   |   |   |   |   |   |   |   |
| BALANCES, DECEMBER 31, 2008                                                             |       | 463,368,233                                |       | 27,802      |       | 301,530        |       | 2,789,894         |       | (542,646 | ) | (69,987 | ) | 47,328 |   | 233,704 |   | 2,553,921 |   |
| ** **                                                                                   |       |                                       |       |        |       |           |       |              |       |   |   |   |   |   |   |   |   |   |   |
| BALANCES, JANUARY 1, 2009                                                               |       | 463,368,233                                |       | 27,802      |       | 301,530        |       | 2,789,894         |       | (542,646 | ) | (69,987 | ) | 47,328 |   |   |   | 2,553,921 |   |
|                                                                                         |       |                                       |       |        |       |           |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Exercise of stock options                                                                    |       | 1,018,150                                  |       | 61          |       | 11,437         |       |              |       |   |   |   |   |   |   |   |   | 11,498 |   |
| Translation adjustment                                                                       |       |                                       |       |        |       |           |       |              |       | 27,844 |   |   |   | 108 |   | 27,952 |   | 27,952 |   |
| Non-cash stock-based compensation                                                            |       |                                       |       |        |       | 16,291         |       |              |       |   |   |   |   |   |   |   |   | 16,291 |   |
| Adjustment to pension liability, net of taxes of Euro 8.1 million                            |       |                                       |       |        |       |           |       |              |       | 12,435 |   |   |   |   |   | 12,435 |   | 12,435 |   |
| Change in fair value of derivative instruments, net of taxes of 4.2  million                 |       |                                       |       |        |       |           |       |              |       | 10,429 |   |   |   |   |   | 10,429 |   | 10,429 |   |
| Investment in treasury Shares                                                                |       |                                       |       |        |       | 15,895         |       |              |       |   |   | (12,726 | ) |   |   |   |   | 3,169 |   |
| Dividends declared (Euro 0.22 per share)                                                     |       |                                       |       |        |       |           |       | (100,833          | )          |   |   |   |   | (2,651 | ) |   |   | (103,484 | ) |
| Excess tax benefit on stock options                                                          |       |                                       |       |        |       | 1,156          |       |              |       |   |   |   |   |   |   |   |   | 1,156 |   |
| Net income                                                                                   |       |                                       |       |        |       |           |       | 314,762           |       |   |   |   |   | 12,105 |   | 326,867 |   | 326,867 |   |
|                                                                                         |       |                                       |       |        |       |           |       |              |       |   |   |   |   |   |   |   |   |   |   |
| BALANCES, DECEMBER 31, 2009                                                             |       | 464,386,383                                |       | 27,863      |       | 346,309        |       | 3,003,823         |       | (491,938 | ) | (82,713 | ) | 56,890 |   | 377,683 |   | 2,860,233 |   |

 

----

(*) In accordance with US GAAP. See notes tothe consolidated financial statements.

 

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**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**FOR THE YEAR ENDED DECEMBER 31, 2009, 2008 AND 2007 (*)**

 
| ** **                                                                 | ** ** | **2009**       | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|----------------------------------------------------------------------------|------------|----------------|------------|-------------|------------|-------------|------------|
| ** **                                                                 | ** ** | **(Euro 000)** | ** ** |
|                                                                       |       |           |       |        |       |        |       |
| NET INCOME                                                                 |       | 326,867        |       | 395,213     |       | 507,180     |       |
| Other comprehensive income, net of taxes                                   |       |           |       |        |       |        |       |
|                                                                       |       |           |       |        |       |        |       |
| Adjustment to pension liability, net of taxes                              |       | 12,435         |       | (50,658     | )          | 9,688       |       |
|                                                                       |       |           |       |        |       |        |       |
| Change in fair value of derivative instruments, net of taxes               |       | 10,429         |       | (41,287     | )          | (6,062      | )          |
|                                                                       |       |           |       |        |       |        |       |
| Translation adjustment                                                     |       | 27,952         |       | (69,973     | )          | (84,709     | )          |
|                                                                       |       |           |       |        |       |        |       |
| Unrealized gain on available for sale securities, net of taxes             |       |           |       | 409         |       | (1,579      | )          |
|                                                                       |       |           |       |        |       |        |       |
| **Comprehensive income**                                                   | ** ** | **377,683**    | ** ** | **233,704** | ** ** | **424,517** | ** ** |
| ** **                                                                 | ** ** | ** **     | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Comprehensive income attributable to  noncontrolling interests**         | ** ** | **12,213**     | ** ** | **19,200**  | ** ** | **21,148**  | ** ** |
| ** **                                                                 | ** ** | ** **     | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Comprehensive income attributable  to the Luxottica Group shareholders** | ** ** | **365,470**    | ** ** | **214,504** | ** ** | **403,369** | ** ** |

 

----

(*) In accordance with US GAAP. See notes to theconsolidated financial statements.

 

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**CONSOLIDATED**

**STATEMENTS OF**

**CASH FLOWS**

**THE YEARS ENDED**

**DECEMBER 31, 2009,**

**2008 AND 2007 (*)**

 
| ** **                                                                           | ** ** | **2009**       | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------|------------|-------------|------------|-------------|------------|
| ** **                                                                           | ** ** | **(Euro/000)** | ** ** |
|                                                                                 |       |           |       |        |       |        |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                |       |           |       |        |       |        |       |
|                                                                                 |       |           |       |        |       |        |       |
| Net income                                                                           |       | 326,867        |       | 395,213     |       | 507,180     |       |
|                                                                                 |       |           |       |        |       |        |       |
| Adjustments to reconcile net income to net  cash provided by operating activitities: |       |           |       |        |       |        |       |
|                                                                                 |       |           |       |        |       |        |       |
| Stock-based compensation                                                             |       | 16,291         |       | 10,424      |       | 42,121      |       |
| Excess tax benefits from stock-based compensation                                    |       | (1,156         | )          | (631        | )          | (6,313      | )          |
| Depreciation and amortization                                                        |       | 285,923        |       | 264,938     |       | 232,813     |       |
| Benefit for deferred income taxes                                                    |       | 18,123         |       | 4,858       |       | (45,037     | )          |
| Net loss (gain) on disposals of fixed  assets and other                              |       | 11,231         |       | 2,048       |       | (19,337     | )          |
| Loss on sale of promissory note                                                      |       |           |       | 23,204      |       |        |       |
| Earnings from equity method investment                                               |       | 951            |       |        |       |        |       |
| Termination indemnities matured during the  year - net                               |       | (1,350         | )          | (1,472      | )          | (3,595      | )          |
|                                                                                 |       |           |       |        |       |        |       |
| Changes in operating assets and  liabilities, net of acquisition of businesses:      |       |           |       |        |       |        |       |
| Accounts receivable                                                                  |       | 25,660         |       | 27,875      |       | (55,707     | )          |
| Prepaid expenses and other                                                           |       | 140,872        |       | (26,145     | )          | (220,727    | )          |
| Inventories                                                                          |       | 46,544         |       | 1,368       |       | (41,916     | )          |
| Accounts payable                                                                     |       | 27,405         |       | (19,393     | )          | 32,989      |       |
| Accrued expenses and other                                                           |       | 20,235         |       | (110,386    | )          | (9,433      | )          |
| Accrual for customers’ right of return                                          |       | (3,723         | )          | 4,090       |       | 9,855       |       |
| Income taxes payable                                                                 |       | (16,681        | )          | 2,903       |       | (92,142     | )          |
|                                                                                 |       |           |       |        |       |        |       |
| Total adjustments                                                                    |       | 570,324        |       | 183,681     |       | (176,429    | )          |
|                                                                                 |       |           |       |        |       |        |       |
| **Cash provided by operating  activities**                                           | ** ** | **897,191**    | ** ** | **578,895** | ** ** | **330,751** | ** ** |

 

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**CONSOLIDATED STATEMENTS OF CASH FLOWS THE YEARS ENDED DECEMBER31, 2009, 2008 AND 2007 (*)**

 
| ** **                                                                    | ** ** | **2009**       | ** ** | **2008**     | ** ** | **2007**       | ** ** |
|-------------------------------------------------------------------------------|------------|----------------|------------|--------------|------------|----------------|------------|
| ** **                                                                    | ** ** | **(Euro/000)** | ** ** |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                         |       |           |       |         |       |           |       |
| Property, plant and equipment:                                                |       |           |       |         |       |           |       |
| Additions (1)                                                                 |       | (192,454       | )          | (311,540     | )          | (322,770       | )          |
| Disposals                                                                     |       |           |       |         |       | 29,700         |       |
| Investments in Equity Investees                                               |       | (20,683        | )          |         |       |           |       |
| Purchases of businesses net of cash  acquired                                 |       | (7,518         | )          | (13,288      | )          | (1,491,086     | )          |
| Proceeds from sale of Promissory note and  other                              |       |           |       | 6,880        |       |           |       |
| Additions of intangible assets                                                |       | (3,389         | )          | (4,636       | )          | (3,883         | )          |
|                                                                          |       |           |       |         |       |           |       |
| **Cash used in investing  activities of continuing operations**               | ** ** | **(224,044**   | **)**      | **(322,584** | **)**      | **(1,788,039** | **)**      |
|                                                                          |       |           |       |         |       |           |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                         |       |           |       |         |       |           |       |
| Long-term debt:                                                               |       |           |       |         |       |           |       |
| Proceeds                                                                      |       | 987,738        |       | 995,709      |       | 2,145,428      |       |
| Repayments                                                                    |       | (1,214,976     | )          | (1,005,453   | )          | (675,834       | )          |
| Repayment of acquired lines of credit                                         |       |           |       |         |       | (166,577       | )          |
| (Decrease) increase in overdraft balances                                     |       | (283,932       | )          | (30,570      | )          | 282,280        |       |
| Sale of Treasury shares                                                       |       | 3,169          |       |         |       |           |       |
| Exercise of stock options                                                     |       | 11,498         |       | 7,126        |       | 26,642         |       |
| Excess tax benefit from stock-based  compensation                             |       | 1,156          |       | 631          |       | 6,313          |       |
| Dividends                                                                     |       | (103,484       | )          | (223,617     | )          | (191,077       | )          |
|                                                                          |       |           |       |         |       |           |       |
| **Cash (used in)/provided  by financing activities of continuing operations** | ** ** | **(598,831**   | **)**      | **(256,174** | **)**      | **1,427,174**  | ** ** |
|                                                                          |       |           |       |         |       |           |       |
| INCREASE/(DECREASE) IN CASH AND CASH  EQUIVALENTS                             |       | 74,315         |       | 137          |       | (30,114        | )          |
|                                                                          |       |           |       |         |       |           |       |
| CASH AND EQUIVALENTS, BEGINNING OF YEAR                                       |       | 288,450        |       | 302,894      |       | 339,122        |       |
|                                                                          |       |           |       |         |       |           |       |
| Effect of exchange rate changes on cash and  cash equivalents                 |       | 17,315         |       | (14,582      | )          | (6,114         | )          |
|                                                                          |       |           |       |         |       |           |       |
| CASH AND EQUIVALENTS, END OF YEAR                                             |       | 380,081        |       | 288,450      |       | 302,894        |       |
|                                                                          |       |           |       |         |       |           |       |
|                                                                          |       |           |       |         |       |           |       |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS  INFORMATION:                           |       |           |       |         |       |           |       |
| Cash paid during the year for interest                                        |       | 94,095         |       | 121,181      |       | 73,202         |       |
| Cash paid during the year for income taxes                                    |       | 70,839         |       | 266,104      |       | 454,062        |       |
| Property and equipment purchases in  accounts payable                         |       | 19,671         |       | 11,716       |       | 26,820         |       |
| Acquisition of businesses:                                                    |       |           |       |         |       |           |       |
| Fair value of assets acquired                                                 |       |           |       | 9,308        |       | 545,129        |       |

 

----

(*) In accordance with US GAAP. See notes to theconsolidated financial statements.

(1) Additions, excluding the change in accounts payable related toProperty and equipment, are Euro 200,409,000, Euro 296,436,000 and Euro 334,769,000for years 2009, 2008 and 2007 respectively, as indicated in Note 13 “SegmentInformation”.

 

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**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.

 

Through itsretail operations, as of December 31, 2009, the Company owned and operated5,682 retail locations worldwide (5,695 locations at December 31, 2008)and franchised an additional 535 locations (560 locations at December 31,2008) principally through Luxottica Retail North America, Inc., Sunglass Hut Trading, LLC, OPSM Group Limited, and Oakley. The retail divisionof Oakley (“O” retail) consists of owned retail locations operating undervarious names including “O” stores which sell apparel and other Oakley brandedmerchandise 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 distribution 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.

 

Theretail division’s fiscal year is a 52- or 53-week period ending on the Saturdaynearest December 31. The accompanying consolidated financial statementsinclude the operations of the North America retail division for the 52-weekperiod ended January 2, 2010, for the 53-week period ended January 3,2009 and for the 52-week period ended December 29, 2007 respectively. In2009, the fiscal year for the retail distribution divisions in Asia-Pacific (China,Hong Kong, Australia, New Zealand, Thailand, India and the Philippines) andSouth Africa included 53 weeks.

 

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**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 AccountingStandards Codification (“ASC”) No. 810, *Consolidation*are considered when determining whether an entity is subject to consolidation.During 2008, the Company acquired through one of its subsidiaries an additional16 percent interest in an affiliated company in which it previously held a 50percent interest. Until the time that the Company became the majorityshareholder, this investment was accounted for under the equity method. During2009 the Company acquired 40% of Multiopticas Internacional S.L., a companythat owns over 390 eyewear stores operating under the GMO, Econoptics andSunPlanet retail brands in Chile, Peru, Ecuador and Colombia. This investment is accountedfor under the equity method in the consolidated financial statements.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 (“USGAAP”).

 

TheCompany accounts for all business combinations in accordance with ASC No. 805,*Business Combinations.* Furthermore, theCompany recognizes intangible assets apart from goodwill if they arise fromcontractual or legal rights or if they are separable from goodwill.

 

**Use of Estimates** - The preparation offinancial statements in conformity with US 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, inventoriesand 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 ASC No. 830, *Foreign Currency Matters*.The financial statements of foreign subsidiaries are translated into Euro,which is the functional currency of the parent company and the reportingcurrency of the Company. Assets and liabilities of foreign subsidiaries, whichuse the local currency as their functional currency, are translated at year-endexchange rates. Results of operations are translated using the average exchangerates prevailing throughout the year. The resulting cumulative translationadjustments are recorded as a separate component of “Accumulated othercomprehensive 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 2009, 2008 and 2007 were Euro 8.6 million, Euro (0.3)million and Euro 15.2 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 27.5million and Euro 16.7 million at December 31, 2009 and 2008, 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 from Luxottica Group. Interest rates on theselines of credit vary and can be used to obtain various letters of credit whenneeded.

 

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**Inventories** — Luxottica Group’s manufactured inventories,approximately 58.2 percent and 66.1 percent of total frame inventory for 2009and 2008, 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 over the value assigned to the net tangible and identifiableintangible assets acquired. The Company’s goodwill is tested annually for impairment as of December 31of each year in accordance with ASC No. 350, *Intangibles — Goodwill and Other*. 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 ASC No. 350.For the fiscal years 2009, 2008 and 2007, the Company did not recognize anygoodwill 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 tested for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable inaccordance with ASC No. 350. Aggregate amortization expense of trade namesand other intangibles for the fiscal years 2009, 2008 and 2007, was Euro 83.1million, Euro 73.9 million and Euro 69.5 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 the long-livedassets and their eventual disposition. If the sum of the expected undiscountedfuture cash flows is less than the carrying amount of the long-lived assets,the Company records an impairment loss, if determined to be necessary. Suchimpairment loss is measured as the amount by which the carrying amount of thelong-lived asset exceeds the fair value in accordance with ASC No. 360, *Property, Plant & Equipment*. The aggregateimpairment loss on certain non-performing long-lived assets charged to theconsolidated statements of income during fiscal years 2009, 2008 and 2007 wasnot material.

 

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**Store Opening and Closing Costs** - Store opening costs arecharged to operations as incurred in accordance with ASC No. 720, *Other Expenses*. The costs associated with closing stores orfacilities are recorded at fair value as the related liabilities are incurred.Store closing costs charged to the consolidated statements of income duringfiscal years 2009, 2008 and 2007 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, 2009 and 2008, self insurance accruals were Euro 39.7million and Euro 43.2 million, respectively.

 

**Income Taxes** - Income taxes are recorded in accordance with ASC No. 740,*Income Taxes*, which requiresrecognition of deferred tax assets and liabilities for the expected future taxconsequences of events that have been included in the Company’s consolidatedfinancial statements or tax returns. Under this method, deferred taxliabilities and assets are determined based on the difference between theconsolidated financial statement and tax basis of assets and liabilities usingenacted tax rates in effect for the year in which the differences are expectedto reverse. A valuation allowance is recorded for deferred tax assets if it isdetermined that it is more likely than not that the asset will not be realized.Changes in valuation allowances from period to period are included in the taxprovisions 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”), whichis now included in ASC No. 740. FIN 48 provides that a tax benefit from anuncertain tax position may be recognized when it is more likely than not thatthe position will be sustained upon examination, including resolutions of anyrelated appeals or litigation processes, based on the technical merits. Inaddition, it provides additional requirements regarding measurement,de-recognition, disclosure, interest and penalties and classification. FIN 48must be applied to all existing tax positions for all open tax periods as ofthe date of adoption (see Note 8 for a tabular reconciliation of uncertain taxpositions). The cumulative effect of adoption of FIN 48 of Euro 8.1 million wasrecorded as a reduction to retained earnings on 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 collectability isreasonably assured.

 

Manufacturing andwholesale distribution segment revenues are recognized from sales of productsat the time of shipment, as title and the risks and rewards of ownership of thegoods are assumed by the customer at such time. The products are not subject toformal customer acceptance provisions. In some countries, the customer has theright to return products for a limited period of time after the sale. However,such right of return does not impact the timing of revenue recognition as allconditions of ASC No. 605, *Revenue Recognition*,are satisfied at the date of sale. Accordingly, the Company has recorded anaccrual for the estimated amounts to be returned.  This estimate is based on the Company’s rightof return policies and practices along with historical data and salestrends.  

 

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There are no otherpost-shipment obligations. Revenues received for the shipping and handling ofgoods are included in sales and the costs associated with shipments tocustomers are included in operating expenses.

 

Retail distribution segment revenues are recognizedupon receipt by the customer at the retail location or, for internet andcatalogue sales, when goods are shipped directly to the customer. In somecountries, the Company allows retail customers to return goods for a period oftime and, as such, the Company has recorded an accrual for the estimated amountsto be returned. This accrual is based on the historical return rate as apercentage of net sales and the timing of the returns from the originaltransaction date. There are no other post-shipment obligations. As such, theright of return does not impact the timing of revenue recognition as allconditions of ASC No. 605, are satisfied at the date of sale.Additionally, the Retail Division enters into discount programs and similarrelationships with third parties that have terms of twelve or more months.Revenues under these arrangements are likewise recognized as transactions occurin the Company’s retail locations and customers take receipt of products andservices. Advance payments and deposits from customers are not recorded asrevenues until the product is delivered. At December 31, 2009 and 2008customer advances included in the consolidated balance sheet in “AccruedExpenses and Other” were Euro 31.1 million and Euro 23.0 million, respectively.Retail Division revenues also includes managed vision care revenues consistingboth fixed fee and fee for service managed vision care plans.  For fixed fee plans, the plan sponsor paysthe Company a monthly premium for each enrolled subscriber.  Premium revenue is recognized as earnedduring the benefit coverage period.   Premiums are generally billed in the month of benefit coverage.  Any unearned premium revenue is deferred andrecorded within accrued liabilities on the balance sheet.  For fee for service plans, the plan sponsorpays the Company a fee to process its claims. Revenue is recognized as the services are rendered.  This revenue is presented as third partyadministrative services revenue.  Forthese programs, the plan sponsor is responsible for funding the cost of claims.Accruals are established for amounts due under these relationships based on anestimate of 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 ourthird-party franchisees and licensors at December 31, 2009, 2008 and 2007,consist of the following (in thousand of Euros):

 
| ** **                           | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Initiation  fees                     |       | 2,384      |       | 754        |       | 456        |       |
| Royalties                            |       | 14,652     |       | 14,712     |       | 16,949     |       |
| Sales  of frames and other materials |       | 25,145     |       | 27,102     |       | 32,999     |       |
| Other  revenue                       |       | 2,606      |       | 455        |       | 750        |       |
|                                 |       |       |       |       |       |       |       |
| **Total**                            | ** ** | **44,787** | ** ** | **43,023** | ** ** | **51,154** | ** ** |

 

# **The Wholesale and Retail Divisions may offer certainpromotions during the year. Free frames given to customers as part of apromotional offer are recorded in cost of sales at the time they are deliveredto the customer.  Discounts and couponstendered by customers are recorded as a reduction of revenue at the date ofsale.**

# ** **

Total shippingcosts in fiscal years 2009, 2008 and 2007 for the Wholesale and Retaildivisions, associated with the sale of goods were Euro 14.5 million, Euro 14.2million and Euro 8.3 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 (“IBNR”), 

 

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with a highdegree of confidence. These estimates of IBNR are based on past experienceadjusted for current trends and changes to the contractual arrangements. Themethods and assumptions are continually reviewed. Claims are recorded as theyare incurred and certain other membership costs are amortized over the coveredperiod. Corresponding administrative costs to process outstanding claims areestimated and accrued as incurred.

 

**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 as the airtime or advertisingspace is used with the exception of certain direct response advertisingprograms. Costs for certain direct response advertising programs arecapitalized if such direct response advertising costs are expected to result infuture economic benefit and the primary purpose of the advertising is to elicitsales to customers who could be shown to have responded specifically to theadvertising.  Such costs related to thedirect response advertising are amortized over the period during which therevenues 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 2009, 2008 and 2007 were Euro 312.1million, Euro339.3 million and Euro 348.2 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 2009,2008 and 2007 for such reimbursement were Euro 14.4 million, Euro 15.1 millionand Euro 16.8 million, respectively.

 

**Earnings Per Share** — Luxottica Group calculates basic anddiluted earnings per share in accordance with ASC No. 260, *Earnings per Share*. Net income availableto shareholders is the same for the basic and diluted earnings per sharecalculations for the years ended December 31, 2009, 2008 and 2007. 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 or relate to performance share-based plansfor which the performance measure has not been met.. The following is areconciliation from basic to diluted shares outstanding used in the calculationof earnings per share:

 
| ** **                                                                                                                                                                                                          | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                                                                                                                                                                                |       |        |       |        |       |        |       |
| Weighted average shares outstanding — basic                                                                                                                                                                    |       | 457,270,491 |       | 456,563,502 |       | 455,184,797 |       |
|                                                                                                                                                                                                                |       |        |       |        |       |        |       |
| Effect of dilutive stock options                                                                                                                                                                                    |       | 672,127     |       | 1,153,542   |       | 3,345,812   |       |
|                                                                                                                                                                                                                |       |        |       |        |       |        |       |
| Weighted average shares outstanding — dilutive                                                                                                                                                                 |       | 457,942,618 |       | 457,717,044 |       | 458,530,609 |       |
|                                                                                                                                                                                                                |       |        |       |        |       |        |       |
| Options not included in calculation of  dilutive shares as the exercise price was greater than the average price  during the respective period or performance measures related to the awards  have not yet been met |       | 17,456,736  |       | 18,529,635  |       | 4,947,775   |       |

 

**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 

 

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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 ASC No. 815, *Derivatives and Hedging*.

 

ASC No. 815requires that all derivatives, whether or not designed in hedging relationships,be recorded on the balance sheet at fair value regardless of the purpose orintent for holding them. If a derivative is designated as a fair-value hedge,changes in the fair value of the derivative and the related change in the hedgeitem are recognized in operations. If a derivative is designated as a cash-flowhedge, changes in the fair value of the derivative are recorded in othercomprehensive income/(loss) (“OCI”) in the consolidated statements ofshareholders’ equity and are recognized in the consolidated statements ofincome when the hedged item affects operations. The Company records hedgeineffectiveness as gains or losses in the consolidated statements of income intheir respective measurement periods. The effect of these derivatives in the consolidatedstatements of income depends on the item hedged (for example, interest ratehedges are recorded in interest expense). For a derivative that does notqualify as a hedge, changes in fair value are recognized in the consolidatedstatements 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 2010 is approximately Euro23.2 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 Pension Plans -** 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 associated with the passage of time. Certain events, suchas 

 

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changes in employee base, plan amendments and changesin actuarial assumptions, result in a change in the benefit obligation and thecorresponding change in the gains and (losses) not affecting retained earnings.The result of these events is amortized as a component of net periodiccost/(income) over the service lives of the participants.

 

**Fair Value** — Effective January 1,2008, the Company adopted ASC No. 820, *Fair Value Measurementsand Disclosures*, and ASC No. 825, *FinancialInstruments*. ASC No. 820 does not require new fair valuemeasurements but clarifies the definition, method, and disclosure requirementsof previously issued standards that address fair value measurements. ASC No. 820establishes a definition of fair value (based on an exit price model),establishes a framework for measuring fair value, defines disclosures aboutfair value measurements and defines exceptions to the fair value model (for exampleleases and lease transactions). The Company adopted ASC No. 820(previously referred to as FASB Statements No.157 and No. 159 includingamendments and interpretations) in two steps: effective January 1, 2008for all financial instruments and non-financial instruments that are accountedfor at fair value on a recurring basis, and effective January 1, 2009 forall other non-financial instruments (see Note 16). ASC No. 825 allows theCompany to elect and record at fair value many financial assets and liabilitiesand certain other items with the change being recorded in earnings. This can bedone on an instrument by instrument basis in most circumstances, is irrevocableafter elected for that instrument and must be applied to the entire instrument.The adoption of both of these standards did not have a material effect on theconsolidated financial statements. See Note 16.

 

**Reclassifications**— The presentation of certain prior year informationhas been reclassified to conform to the current presentation. In particular theGroup made the following reclassifications:

 

1.               Euro 16.9 million have been reclassifiedfrom “other long term liabilities” into “other” within “Accrued expenses in currentliabilities”;

 

2.               Euro 6.3 million have been reclassifiedfrom “Selling and Advertising” into “Cost of Sales”;

 

3.               Euro 30.6 million have been reclassifiedfrom “Selling and Advertising expenses” into “General and Administrativeexpenses”.

 

**RecentAccounting Pronouncements —**

 

In January 2010, the FASB issued ASU 2010-6, Improving DisclosuresAbout Fair Value Measurements, which requires reporting entities to make newdisclosures about recurring or nonrecurring fair-value measurements includingsignificant transfers into and out of Level 1 and Level 2 fair-valuemeasurements and information on purchases, sales, issuances, and settlements ona gross basis in the reconciliation of Level 3 fair- value measurements. ASU2010-6 is effective for annual reporting periods beginning after December 15,2009, except for Level 3 reconciliation disclosures which are effective forannual periods beginning after December 15, 2010. The Company does notexpect the adoption of ASU 2010-6 to have a material impact on the consolidatedfinancial statements.

 

The FASB issued FASB ASC effective for financial statements issued afterSeptember 15, 2009.  The ASC is anaggregation of previously issued guidance reorganized into subject areas.  All other literature or guidance not includedin the codification becomes “non-authoritative”.  Upon adoption, the Company did not havenon-authoritative adjustments. Subsequent revisions to the codification will be incorporated throughAccounting Standards Updates (“ASU”).

 

In September 2009, the FASB issued ASU 2009-12 “*Fair Value Measurements and Disclosures of (Topic 820) — Investments inCertain Entities that Calculate Net Asset Value per Share (or its equivalent)*”which provides guidance on measuring fair value of certain alternativeinvestments including proper disclosure. If the investment qualifies, the Company may use the Net Asset Value asan estimate of its fair value.The Company adopted this standard in the fourthquarter of 2009 and the adoption did not have a material impact on theconsolidated financial statements.

 

In August 2009, FASB issued ASU 2009-05 “*Fair ValueMeasurements and Disclosures of (Topic 820) — Measuring Liabilities at FairValue*” which provides clarification for the fair value measurementsof certain liabilities and acceptable techniques to do so. It also confirmedthat certain of these techniques should be considered as Level 1 fair valuemeasurements. The guidance is effective in the first reporting period beginningafter issuance.

 

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In December 2009, the FASB issued Accounting Standards Update (“ASU”)2009-17, which codifies SFAS No. 167, Amendment to FASB interpretation No. 46(R), issued in June 2009. ASU 2009-17 requires a qualitative approach toidentify a controlling financial interest in a variable interest entities (“VIE”),and requires ongoing assessment to whether an entity is a VIE and whether aninterest in a VIE makes the holder the primary beneficiary of the VIE. ASU2009-17 is effective for annual reporting periods beginning after November 15,2009. The Company does not expect the adoption of ASU 2009-17 to have amaterial impact on the consolidated financial statements.

 

In December 2008, the FASB issued ASC No. 715, Retirement BenefitsTopic (formerly FSP 132(R)-1, *Employer’s DisclosuresAbout Postretirement Benefit Plan Assets*), which requires enhanceddisclosures on plan assets, including fair value measurements and categories ofassets, investment policies and strategies, and disclosures on concentration ofrisks. The enhanced disclosures are provided in Note 10. The disclosurerequirements are not required for earlier periods that are presented forcomparative purposes.

 

InDecember 2007, an update was made to ASC No. 810, Consolidation, (formerlyFASB Statement No. 160) establishing new accounting and reportingstandards for noncontrolling interests (formerly known as “minority interests”)in a subsidiary and, when applicable, how to account for the deconsolidation ofsuch subsidiary. The key differences include that non-controlling interestswill be recorded as a component of equity, the consolidated income statementsand statements of comprehensive income will be adjusted to include the non-controllinginterest and certain disclosures have been updated.  Beginning January 1,2009, Luxottica applied the new guidance to its accounting for noncontrollinginterests and its financial statement disclosures. The provisions of the newguidance have been applied to all periods presented in the accompanyingconsolidated financial statements.

 

**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.(subsequently merged into Delfin S.a.r.l.), a holding company of the DelVecchio family, representing at that time 2.11 percent (or 9.6 million shares)of the Company’s authorized and issued share capital, to a stock option planfor top management of the Company. The stock options to be issued under thestock option plan vested upon the meeting of certain economic objectives as of June 30,2006 and, as such, the holders of these options became entitled to exercisesuch options beginning on that date until their termination in 2014. In 2009and 2008, no options from this grant were exercised. In 2007, 400,000 optionswere exercised.

 

As of December 31, 2009,total receivables and payables from/to other related parties amounted to Euro2.5 million and Euro 0.5 million, respectively (Euro 3.6 million and Euro 0.9million as of December 31, 2008). The transactions related tothe above receivables were immaterial in amount and/or significance to theCompany.

 

**3.         INVENTORIES - NET**

 

Inventories— net consisted of the following (thousands of Euro):

 
| ** **                             | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|------------|
| Raw materials and packaging            |       | 112,760     |       | 112,693     |       |
| Work in process                        |       | 52,368      |       | 48,013      |       |
| Finished goods                         |       | 442,813     |       | 475,369     |       |
| Less: Inventory obsolescence  reserves |       | (81,393     | )          | (65,088     | )          |
| **Total**                              | ** ** | **526,548** | ** ** | **570,987** | ** ** |

 

**4.         SALE OF THINGS REMEMBERED NOTE**

 

On September 29, 2006,the Company sold its Things Remembered (“TR”) specialty gifts retail businessto a private equity consortium for net cash consideration of Euro 128.0 million(US$ 162.1 million including costs of US$ 5.3 million) and a promissory note(the “TR Note”) with a principal amount of Euro 20.6 million (US$ 26.1million). During 2008, the Company sold the TR Note without recourse to anindependent third party for approximately Euro 1.0 million.  The loss on the sale of the note of Euro 22.8million including Euro 0.4 million previously recorded in accumulated othercomprehensive income (loss) was included in other expense, net in theconsolidated statements of income.

 

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**5.****                           ****ACQUISITIONSAND INVESTMENTS**

 

**Acquisitions and investments:**

 

**a)****             ****Oakley**

 

On June 20,2007, the Company and Oakley entered into a definitive merger agreement withthe unanimous 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.

 

The purchase priceallocation was finalized in 2008 resulting in no material changes to the finalfair values allocated to inventories, intangible assets and accrued expensesfrom the purchase price allocation done in 2007. The main changes from the 2007allocation related to the restructuring of a part of the Retail North Americaoperations. The purchase price (including acquisition-related expenses) wasallocated based upon the fair value of the assets acquired and liabilitiesassumed 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 |   |

 

The followingtable sets forth the Company’s unaudited pro forma consolidated results ofoperations for 2007, assuming that the acquisition of Oakley was completed asof January 1, 2007 (in thousands of Euro except for earnings per sharedata):

 

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| ** **          | ** ** | **2007**  | ** ** |
|---------------------|------------|-----------|------------|
|                |       |      |       |
| Net sales           |       | 5,539,000 |       |
|                |       |      |       |
| Net income          |       | 470,363   |       |
|                |       |      |       |
| Earnings per  share |       |      |       |
| Basic               |       | 1.04      |       |
| Diluted             |       | 1.04      |       |

 

Pro forma datamay not be indicative of the results that would have been obtained had theseevents actually occurred at the beginning of the periods presented, nor does itintend to be a projection of future results.

 

**b)****             ****Other acquisitions**

 

The following is a description of other acquisitions and investments. No pro formafinancial information is presented, as these acquisitions were not material,individually or in aggregate, to the Company’s consolidated financialstatements.

 

OnJuly 16, 2009, the Company closed an agreement with MultiopticasInternacional S.L. (MOI), a company that owns over 390 eyewear stores operatingunder the GMO, Econoptics and SunPlanet retail brands in Chile, Peru, Ecuadorand Colombia, pursuant to which Luxottica acquired a 40 percent participationin MOI. The total consideration paid for the acquisition of MOI was Euro 41.4million. The purchase price was paid in two installments, each of them equal to50 percent of the purchase price. The first installment was paid on the closingdate on July 16, 2009, the second installment was paid in January 2010.Under the terms of the agreement, the Company has a call option for theremaining 60 percent of MOI. The call option will be exercisable by the Companybetween 2012 and 2014 at a price to be determined on the basis of MOI’s salesand EBITDA values at the time of the exercise. The difference between thecarrying amount and the amount of underlying equity in net assets was Euro 32.5million as of acquisition date and was mainly allocated to goodwill. There were no significantintangibles realized or other fair value adjustments associated with theacquisition.

 

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 “DavidClulow”. The total consideration exchanged for the OHL acquisition was Euro22.1 million (approximately GBP 17.5 million). OHL was a joint venture owned50% by the Company and 50% by a third party. Upon the completion of thistransaction the Company owns, directly and indirectly, approximately 66% of SGHand OHL (the “combined entity”). As a result of the acquisition the formershareholders of OHL received a minority stake of the combined entity of 34% anda put option to sell the shares to the Company, while the Company was granted acall option on the minority stake. The acquisition of the Company’s additionalinterest in OHL was accounted for as a business combination. The Company usedvarious methods to calculate the fair value of the assets acquired and theliabilities assumed. The goodwill recorded in the consolidated financialstatements as of December 31, 2008 totaled Euro 18.1 million. There were nosignificant intangibles realized or other fair value adjustments associatedwith 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 (US$ 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 totaled Euro 70.4 million, ofwhich Euro 64.9 million was 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 was completed in2008 resulting in no material differences from the purchase price allocationdone in 2007. The acquisition was made as a result of the Company’s strategy tocontinue expansion of its retail business in the United States of America.

 

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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$ 0.5 million in transaction costs). As of December 31,2008, the Company owned 88.2% of RBSO and the transaction increased goodwill byapproximately Euro 5.0 million (US$ 7.8 million). During 2009 the Companyincreased its ownership in RBSO to 93.3% of the fully paid up equity sharecapital. The transaction increased goodwill by approximately Euro 1.2 million(US$ 1.6 million).

 

In March 2007, the Company announcedthat it had acquired two prominent specialty sun chains in South Africa, with atotal of 65 stores. Luxottica Group’s total investment in the two transactionswas approximately Euro 10 million. The Company used variousmethods to calculate the fair value of the assets acquired and liabilitiesassumed. The excess of the purchase price over net assets acquired (“goodwill”)was recorded in the accompanying consolidated balance sheet. All valuations have been completedduring 2008 with no material differences from the purchase price allocationdone in 2007 which resulted in the recognition of goodwill of Euro 8.3 millionas of the date of acquisition.

 

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**6.****                           ****PROPERTY,PLANT AND EQUIPMENT — NET**

 

Property,plant and equipment-net consisted of the following (thousands of Euro):

 
| ** **                                           | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|------------------------------------------------------|------------|-----------|------------|-----------|------------|
| Land and buildings, including leasehold improvements |       | 766,150   |       | 755,254   |       |
| Machinery and equipment                              |       | 880,851   |       | 795,126   |       |
| Aircraft                                             |       | 39,814    |       | 40,018    |       |
| Other equipment                                      |       | 554,642   |       | 513,631   |       |
|                                                 |       | 2,241,457 |       | 2,104,029 |       |
| Less: accumulated depreciation and amortization      |       | 1,092,541 |       | 933,331   |       |
| Total                                                |       | 1,148,916 |       | 1,170,698 |       |

 

Depreciationand amortization expense relating to property, plant and equipment for theyears ended December 31, 2009, 2008 and 2007 was Euro 202.8 million, Euro191.0 million and Euro 163.3 million, respectively. Included in other equipmentis approximately Euro 41.4 million and Euro 79.7 million of construction inprogress as of December 31, 2009 and 2008, respectively. Construction in progressconsists mainly of the opening, remodeling and relocation of stores andthe construction of the new IT structure for the Group.

 

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 ANDINTANGIBLE****ASSETS** - **NET**

 

Thechanges in the carrying amount of goodwill for the years ended December 31,2009 and 2008, are as follows (thousands of Euro):

 
| ** **                                | ** ** | **Retail**    | ** ** | **Wholesale** | ** ** | **Oakley**  | ** ** | **Total**     | ** ** |
|-------------------------------------------|------------|---------------|------------|---------------|------------|-------------|------------|---------------|------------|
|                                      |       |          |       |          |       |        |       |          |       |
| **Balance as of January 1, 2008**    | ** ** | **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** | ** ** |
|                                      |       |          |       |          |       |        |       |          |       |
| Acquisitions (a)                          |       | 1,812         |       | 3,568         |       |        |       | 5,380         |       |
|                                      |       |          |       |          |       |        |       |          |       |
| Adjustments on  previous acquisitions (a) |       | (1,731        | )          |          |       |        |       | (1,731        | )          |
|                                      |       |          |       |          |       |        |       |          |       |
| Change in exchange  rates (b)             |       | 36,872        |       | (35,092       | )          |        |       | 1,780         |       |
|                                      |       |          |       |          |       |        |       |          |       |
| **Balance as of December 31, 2009**  | ** ** | **1,664,709** | ** ** | **1,035,494** | ** ** | ** **  | ** ** | **2,700,203** | ** ** |

 

----

(a)              Goodwill acquired in 2008 inthe retail distribution segment mainly consists of the acquisition of OHL.Goodwill acquired in 2008 in the manufacturing and wholesale distribution segmentmainly consists of the acquisition of the additional 17.7% of the net equity ofthe Indian subsidiary. The adjustments on previous acquisitions mainly refer tothe finalization of the Oakley fair value analysis. Oakley goodwill was allocated to the manufacturing and wholesale distributionand retail segments in 2008.

 

(b)             Certain goodwill balances aredenominated in currencies other than Euro (the reporting currency) and, assuch, balances may fluctuate due to changes in exchange rates.

 

Intangibleassets-net consist of the following (thousands of Euro):

 
| ** **                                 | ** ** | **2009**                    | ** ** | **2008**                      | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  depreciation** | ** ** | **Total** | ** ** | **Gross  carrying  amount** | ** ** | **Accumulated  depreciation** | ** ** | **Total** | ** ** |
| Tradenames and  Trademarks (a)             |       | 1,330,309                   |       | (457,603                      | )          | 872,706 |   | 1,318,737 |   | (394,612 | ) | 924,125 |   |
| Customer relation,  contracts and list (b) |       | 210,508                     |       | (34,390                       | )          | 176,118 |   | 215,868 |   | (20,206 | ) | 195,662 |   |
| Distributor Network  (b)                   |       | 78,278                      |       | (18,004                       | )          | 60,274 |   | 81,086 |   | (15,179 | ) | 65,907 |   |
| Franchise Agreements  (b)                  |       | 20,025                      |       | (4,760                        | )          | 15,265 |   | 20,619 |   | (3,870 | ) | 16,749 |   |
| Other (c)                                  |       | 57,124                      |       | (24,713                       | )          | 32,411 |   | 51,490 |   | (19,903 | ) | 31,587 |   |
|                                       |       |                        |       |                          |       |   |   |   |   |   |   |   |   |
| **Total**                                  | ** ** | **1,696,244**               | ** ** | **(539,470**                  | **)**      | **1,156,774** | ** ** | **1,687,800** | ** ** | **(453,770** | **)** | **1,234,030** | ** ** |

 

----

(a)              Trade namesincludes various trade names and trademarks acquired with the acquisitions ofLensCrafters, Sunglass Hut International, OPSM, Cole and Oakley. Trade namesare amortized on a straight-line basis over a period of 25 years (except forthe Ray-Ban trade names, which are amortized over a period of 20 years), as theCompany believes these trade names to be finite-lived assets. The weightedaverage amortization period is 24 years.

 

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(b)             Distributor network, customerrelation contracts and lists, and franchise agreements were identifiableintangibles recorded in connection with the acquisition of Cole in 2004 and ofOakley in 2007. These assets have finite lives and are amortized on astraight-line basis or on an accelerated basis (projected diminishing cashflows) over periods ranging between 3 and 25 years. The weighted averageamortization period is 20.6 years.

 

(c)              Other identifiableintangibles have finite lives ranging between 3 and 17 years and are amortizedon a straight line basis. The weighted average amortization period is 11.3years. Most of these useful lives were determined based on the terms of licenseagreements and non-compete agreements.

 

Certainintangible assets are maintained in currencies other than Euro (the reportingcurrency) and, as such, balances may fluctuate due to changes in exchangerates.

 

Amortizationexpense for 2009, 2008 and 2007 was Euro 83.1 million, Euro 73.9 million andEuro 69.6 million, respectively. Estimated annual amortization expense relatingto identifiable assets is shown below (thousands of Euro):

 
| **Years ending December 31,** |   |   |   |
|------------------------------------|--------|--------|--------|
| 2010                               |   | 83,593 |   |
| 2011                               |   | 82,457 |   |
| 2012                               |   | 80,445 |   |
| 2013                               |   | 79,640 |   |
| 2014                               |   | 74,907 |   |

 

**8.**                            **INCOMETAXES**

 

Incomebefore provision for income taxes and the provision for income taxes consistedof the following (thousands of Euro):

 
| ** **                                      | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|-------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                                      |       |        |       |        |       |        |       |
| **Income  before provision for income taxes**   |       |        |       |        |       |        |       |
| Italian companies                               |       | 185,243     |       | 199,793     |       | 317,637     |       |
| US companies                                    |       | 153,396     |       | 172,609     |       | 319,154     |       |
| Other foreign companies                         |       | 155,644     |       | 217,468     |       | 143,890     |       |
|                                            |       |        |       |        |       |        |       |
| Total income before  provision for income taxes |       | 494,283     |       | 589,870     |       | 780,681     |       |
|                                            |       |        |       |        |       |        |       |
| Provision for income taxes                      |       |        |       |        |       |        |       |
|                                            |       |        |       |        |       |        |       |
| *Current*                                       |       |        |       |        |       |        |       |
| Italian companies                               |       | 79,465      |       | 87,333      |       | 156,198     |       |
| US companies                                    |       | 48,016      |       | 29,975      |       | 116,785     |       |
| Other foreign companies                         |       | 42,404      |       | 55,985      |       | 61,742      |       |
|                                            |       |        |       |        |       |        |       |
| Total provision for  current income taxes       |       | 169,886     |       | 173,293     |       | 334,725     |       |
|                                            |       |        |       |        |       |        |       |
| *Deferred*                                      |       |        |       |        |       |        |       |
| Italian companies                               |       | (10,570     | )          | (7,757      | )          | (47,736     | )          |
| US companies                                    |       | 9,288       |       | 39,517      |       | (10,592     | )          |
| Other foreign companies                         |       | (1,187      | )          | (10,396     | )          | (2,896      | )          |
|                                            |       |        |       |        |       |        |       |
| **Total  provision for deferred income taxes**  | ** ** | **(2,469**  | **)**      | **21,364**  | ** ** | **(61,224** | **)**      |
|                                            |       |        |       |        |       |        |       |
| **Total taxes**                                 | ** ** | **167,416** | ** ** | **194,657** | ** ** | **273,501** | ** ** |

 

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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.

 

Reconciliationbetween the Italian statutory tax rate and the effective tax rate is asfollows:

 
| ** **                                                    | ** ** | **Year  ended December ****31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------|------------|
|                                                          | ** ** | **2009**                              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Italian statutory tax rate                                    |       | 31.4                                  | %          | 31.4 | % | 37.3 | % |
| Aggregate effect of different rates in  foreign jurisdictions |       | (0.3                                  | )%         | (1.7 | )% | (1.7 | )% |
| 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            |       | 0.1                                   | %          | 1.1 | % | 1.1 | % |
| Aggregate other  effects                                      |       | 2.7                                   | %          | 2.2 | % | 1.5 | % |
|                                                          |       |                                  |       |   |   |   |   |
| **Effective  rate**                                           | ** ** | **33.9**                              | **%**      | **33.0** | **%** | **35.0** | **%** |

 

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 of 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, 2009 and 2008,respectively, were comprised of (thousands of Euro):

 
| ** **                                               | ** ** | **2009**     | ** ** | **2008**     | ** ** |
|----------------------------------------------------------|------------|--------------|------------|--------------|------------|
| **Deferred  Income Tax Assets**                          | ** ** | ** **   | ** ** | ** **   | ** ** |
| Inventory                                                |       | 54,932       |       | 71,660       |       |
| Insurance and other reserves                             |       | 14,393       |       | 8,580        |       |
| Right of return reserve                                  |       | 8,085        |       | 14,471       |       |
| Net operating loss carryforwards                         |       | 43,499       |       | 50,565       |       |
| Occupancy reserves                                       |       | 17,979       |       | 19,630       |       |
| Employee-related reserves (including pension  liability) |       | 73,748       |       | 72,974       |       |
| Tradename                                                |       | 92,284       |       | 76,525       |       |
| Deferred tax on derivatives                              |       | 17,334       |       | 21,685       |       |
| Other                                                    |       | 34,134       |       | 54,819       |       |
| Fixed assets                                             |       | 16,568       |       | 29,684       |       |
| **Total  deferred income tax assets**                    | ** ** | **372,957**  | ** ** | **420,593**  | ** ** |
|                                                     |       |         |       |         |       |
| Valuation Allowance                                      |       | (21,500      | )          | (24,048      | )          |
|                                                     |       |         |       |         |       |
| **Net  deferred tax assets**                             | ** ** | **351,457**  | ** ** | **396,545**  | ** ** |
|                                                     |       |         |       |         |       |
| **Deferred  income tax liabilities**                     |       |         |       |         |       |
| Tradename                                                |       | (224,221     | )          | (241,409     | )          |
| Fixed assets                                             |       | (51,489      | )          | (32,919      | )          |
| Other intangibles                                        |       | (99,128      | )          | (115,031     | )          |
| Dividends                                                |       | (10,813      | )          | (13,316      | )          |
| Other                                                    |       | (4,412       | )          | (12,067      | )          |
| **Total  deferred income tax liabilities**               | ** ** | **(390,062** | **)**      | **(414,742** | **)**      |
|                                                     | ** ** | ** **   | ** ** | ** **   | ** ** |
| **Net  deferred income tax liabilities**                 | ** ** | **(38,605**  | **)**      | **(18,197**  | **)**      |

 

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Deferredincome tax assets and liabilities have been classified in the consolidatedfinancial statements as follows:

 
| **(Euro  000)**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Deferred income tax assets - current          |       | 110,910  |       | 131,907  |       |
| Deferred income tax assets - non current      |       | 97,437   |       | 83,447   |       |
| Deferred income tax liabilities - current     |       | (10,813  | )          | —   |       |
| Deferred income tax liabilities - non current |       | (236,140 | )          | (233,551 | )          |
| Net deferred income  tax liabilities          |       | (38,605  | )          | (18,197  | )          |

 

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 to determinethe amount of income tax liability that would result had such earnings actuallybeen distributed. In connection with the 2009 earnings of certain subsidiaries,the Company has provided for an accrual for income taxes related to declareddividends of earnings.

 

At December 31,2009, a US subsidiary of the Company had Federal net operating losscarry-forwards (NOLs) of approximately Euro 94.2 million which may be usedagainst income generated by certain subsidiary groups.  Substantially all of the NOLs begin expiringin 2019. Approximately Euro 235.8 thousand and Euro 231.1 thousand of theseNOLs were used in each of 2009 and 2008, respectively. The use of the NOL islimited due to restrictions imposed by US tax rules governing utilizationof loss carry-forwards following changes in ownership.  Approximately Euro 341.2 thousand of the netoperating losses expired in 2009 and none expired in 2008. As of December 31,2009, a US subsidiary of the Company had various state net operating losscarry-forwards (SNOLs), associated with individual states within the UnitedStates of America totaling approximately Euro 3.1 million. In 2009,approximately Euro 895.9 thousand of the SNOLs expired. The remaining SNOLs asof December 31, 2009 begin expiring in 2012. Due to the foreign operationsof the US subsidiary, as of December 31, 2009, such US subsidiary of theCompany has approximately Euro 4.8 million of non-US net operating losses andforeign tax credit carry-forwards, respectively. These foreign NOLs will beginto expire in 2012.

 

At December 31,2009 other foreign subsidiaries of the Company located outside the US had NOLsof approximately Euro 66.8 million. These NOLs expires in different yearsbetween 2010 and 2014.

 

As of December 31, 2009 and 2008, the Company hasrecorded an aggregate valuation allowance of Euro 21.5 million and Euro 24.1million, respectively, against deferred tax assets as it is more likely thannot that the above deferred income tax assets will not be fully utilized infuture periods. The amount of valuation allowance that would be allocateddirectly to capital in future periods, if reversed, is not material.

 

Areconciliation of the amount of unrecognized tax benefits is as follows(amounts in thousands of Euro):

 

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| Balance -  January 1, 2008                   |   | 56,591 |   |
|---------------------------------------------------|--------|--------|--------|
| Gross increase - tax positions in prior  periods  |   | 4,910  |   |
| Gross decrease - tax positions in prior periods   |   | (9,356 | )      |
| Gross increase - tax position in current  periods |   | 13,139 |   |
| Settlements                                       |   | (6,756 | )      |
| Lapse of statute of limitations                   |   | (2,296 | )      |
| Change in exchange rates                          |   | 1,901  |   |
|                                              |   |   |   |
| Balance - December 31, 2008                  |   | 58,133 |   |
|                                              |   |   |   |
| Gross increase - tax positions in prior  periods  |   | 999    |   |
| Gross decrease - tax positions in prior  periods  |   | (6,692 | )      |
| Gross increase - tax position in current  periods |   |   |   |
| Settlements                                       |   | (2,685 | )      |
| Lapse of statute of limitations                   |   | (1,261 | )      |
| Change in exchange rates                          |   | (1,426 | )      |
|                                              |   |   |   |
| Balance - December 31, 2009                  |   | 47,068 |   |

 

Includedin the balance of unrecognized tax benefits at December 31, 2009 and December 31,2008, are Euro 29.7 million and Euro 39.1 million of tax benefits,respectively, that, if recognized, would affect the effective tax rate.

 

TheGroup reasonably expects a reduction in the liability for unrecognized taxbenefits of approximately Euro 25.1 million within the next 12 months becauseof the expiration of statutes of limitations and settlements of tax audits.

 

TheGroup recognizes interest accrued related to unrecognized tax benefits andpenalties as income tax expense. Related to the uncertain tax benefits notedabove, the Company’s accrual for penalties and interest during 2009 and 2008was immaterial and, in total, as of December 31, 2009, the Company hasrecognized a liability for penalties of approximately Euro 2.5 million (Euro3.6 million as of December 31, 2008) and interest expense of approximatelyEuro 8.7 million (Euro 7.5 million as of December 31, 2008).

 

TheGroup is subject to taxation in Italy and foreign jurisdictions of which onlythe US federal taxation is significant.

 

Italian companies’ taxes are subject to reviewpursuant to Italian law. Asof December 31, 2009, tax years from 2004 through the most recent year wereopen for such review. As of December 31, 2009, no Italian companiesare subjected to a tax inspection.

 

TheGroup’s US federal tax years for 2005, 2006, 2007 and 2008 are subject toexamination by the tax authorities and the Company is under examination foryears 2007 and 2008.

 

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**9.         LONG-TERM DEBT**

 

Long-termdebt consists of the following:

 
| ** **                                                                                                           | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Euro 000)**                                                                                                       | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                                                                                                                 |       |                  |       |   |   |
| Luxottica Group S.p.A. credit agreement with various financial  institutions (a)                                     |       | 550,000               |       | 400,000 |   |
| Senior unsecured guaranteed notes (b)                                                                                |       | 199,501               |       | 213,196 |   |
| Credit agreement with various financial institutions (c)                                                             |       | 751,765               |       | 1,001,403 |   |
| Other loans with banks and other third parties, interest at various  rates, payable in installments through 2014 (d) |       | 4,180                 |       | 4,314 |   |
| Credit agreement with various financial institutions for Oakley  Acquisition (e)                                     |       | 1,064,052             |       | 1,185,482 |   |
| Capital lease obligations, payable in installments through 2010                                                      |       | 970                   |       | 1,107 |   |
|                                                                                                                 |       |                  |       |   |   |
| Total                                                                                                                |       | 2,570,469             |       | 2,805,502 |   |
|                                                                                                                 |       |                  |       |   |   |
| Current maturities                                                                                                   |       | 166,279               |       | 286,213 |   |
|                                                                                                                 |       |                  |       |   |   |
| Long-term debt                                                                                                       |       | 2,404,189             |       | 2,519,289 |   |

 

----

(a) InSeptember 2003, the Company acquired its ownership interest 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 ofprincipal of Euro 30 million starting on September 30, 2006 until thefinal maturity date. Interest accrued on the term loan at EURIBOR (as definedin the agreement) plus 0.55 percent. The revolving loan provided borrowingavailability of up to Euro 50 million; amounts borrowed under the revolvingportion could be borrowed and repaid until final maturity. Interest accrued onthe revolving loan at EURIBOR (as defined in the agreement) plus 0.55 percent.The Company could select interest periods of one, two or three months. Thefinal maturity of the credit facility was September 30, 2008, the creditfacility was re-paid in full. The credit facility contains certain financialand operating covenants. The Company was in compliance with those covenantsduring 2008, prior to the final maturity 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 new Euro 150.0 million unsecured credit facilitywith Banca Nazionale del Lavoro. This facility is an 18-month revolving creditfacility that provides borrowing availability of up to Euro 150.0 million. Theamounts borrowed under the revolving facility can be borrowed and repaid untilfinal maturity. Interest accrued at EURIBOR plus 0.375 percent. The Companycould select interest periods of one, three or six months. In June 2009,the Company renegotiated this credit facility. The new facility consists of a 2year unsecured credit facility that is a revolving loan that provides borrowingavailability of up to Euro 150.0 million. Amounts borrowed under the revolving loancan be borrowed and repaid until final maturity. Interest accrues at EURIBORplus 1.90 percent. The Company can select interest periods of one, three or sixmonths. The final maturity of the credit facility is July 13, 2011. As of December 31,2009 this facility was not used.

 

On May 29,2008, the Company entered into a Euro 250.0 million revolving credit facility,guaranteed by its subsidiary, Luxottica US 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 (1.267 percent as of December 31,2009). As of December 31, 2009, Euro 250.0 million was borrowed under thiscredit facility.

 

In June andJuly 2009, the Company entered into eight interest rate swap transactionswith an aggregate initial notional amount of Euro 250.0 million with variousbanks (“Intesa Swaps”). The Intesa Swaps will decrease their notional amount ona quarterly basis, following the amortization schedule of the underlyingfacility, starting on August 29, 2011. These Intesa Swaps will expire on May 29,2013. The Intesa Swaps were entered into as a cash flow hedge on the IntesaSanpaolo S.p.A. credit facility discussed above. The Intesa Swaps exchange thefloating rate of EURIBOR for an average fixed rate of 2.25 percent per annum.The ineffectiveness 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 (1.3) million,net of taxes, is included in other comprehensive income as of December 31,2009. Based on current interest rates and market conditions, the estimatedaggregate amount to be recognized as earnings from other comprehensive incomefor these cash flow hedges in fiscal 2010 is approximately Euro (1.9) million,net of taxes.

 

On November 11,2009, the Company entered into a Euro 300 million Term Facility Agreement,guaranteed by its subsidiaries US Holdings and Luxottica S.r.l., withMediobanca — Banca di Credito Finanziario S.p.A., as agent, and Mediobanca —Banca di Credito Finanziario S.p.A., Deutsche Bank S.p.A., Calyon S.A. MilanBranch and Unicredit Corporate Banking S.p.A., as lenders. The final maturityof the Term Facility is November 30, 2012. Interest will accrue at EURIBOR(as defined in the agreement) plus a margin between 1.75 percent and 3.00percent based on the “Net Debt/EBITDA” ratio (2.98 percent as of December 31,2009). As of December 31, 2009, Euro 300.0 million was borrowed under thiscredit facility.

 

(b) OnSeptember 3, 2003, US Holdings closed a private placement of US$ 300million (Euro 209.3 million at the exchange rate as of December 31, 2009)of senior unsecured guaranteed notes (the “Notes”), issued in three series (Series A,Series B and Series C). Interest on the Series A Notes accruedat 3.94 percent per annum and interest on Series B and Series C Notesaccrues at 4.45 percent per annum. The Series A and Series B Notesmatured on September 3, 2008 and the Series C Notes mature on September 3,2010. The Series A and Series C Notes require annual repaymentsbeginning on September 3, 2006 through the applicable dates of maturity.The Notes are guaranteed on a senior unsecured basis by the Company andLuxottica S.r.l., a wholly owned subsidiary. The Notes contain certainfinancial and operating covenants. US Holdings was in compliance with thosecovenants as of December 31, 2009. In December 2005, US Holdingsterminated three interest rate swaps that coincided with the Notes and, assuch, the final adjustment to the carrying amount of the hedgedinterest-bearing financial instruments is being amortized as an adjustment tothe fixed-rate debt yield over the remaining life of the debt. The effectiveinterest rate on the Series C Notes outstanding as December 31, 2009,is 5.44 percent for its remaining life. Amounts outstanding under these Noteswere Euro 7.7 million and Euro 15.8 million as of December 31, 2009 and2008, respectively.

 

On July 1,2008, US Holdings closed a private placement of US$ 275 million seniorunsecured guaranteed notes (the “2008 Notes”), issued in three series (Series A,Series B and Series C). The principal amounts of 

 

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Series A,Series B and Series C Notes are US$ 20 million, US$ 127 million andUS$ 128 million, respectively. Series A Notes mature on July 1, 2013,Series B Notes mature on July 1, 2015 and Series C Notes matureon July 1, 2018. Interest on the Series A Notes accrues at 5.96percent per annum, interest on the Series B Notes accrues at 6.42 percentper annum and interest on the Series C Notes accrues at 6.77 percent perannum. The proceeds from the 2008 Notes received on July 1, 2008, wereused to repay a portion of the Bridge Loan Facility which was amended on July 1,2008. In addition, US Holdings extended the amended Bridge Loan ( see (e) below)of US$ 150 million for a further 18 months starting from July 1, 2008.

 

(c) OnJune 3, 2004, as amended on March 10, 2006, the Company and USHoldings entered into a credit facility with a group of banks providing forloans in the aggregate principal amount of Euro 740 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. Tranche A is a Euro 405 million amortizingterm loan requiring repayment of nine equal quarterly installments of principalof Euro 45 million beginning in June 2007, which is to be used for generalcorporate purposes, including the refinancing of existing Luxottica GroupS.p.A. debt as it matures. Tranche A expired on June 3, 2009 and wasrepaid in full. Tranche B is a term loan of US$ 325 million which was drawnupon on October 1, 2004 by US Holdings to finance the purchase price ofthe acquisition of Cole.  Amountsborrowed under Tranche B will mature in March 2013. Tranche C is aRevolving Credit Facility of Euro 725 million-equivalent multi-currency(Euro/US Dollar). Amounts borrowed under Tranche C may be repaid and reborrowedwith all outstanding balances maturing in March 2013. The Company canselect interest periods of one, two, three or six months with interest accruingon Euro-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, 2009 was 0.634percent for Tranche B and 0.829 percent on Tranche C amounts borrowed in Euro.The credit facility contains certain financial and operating covenants. TheCompany was in compliance with those covenants as of December 31, 2009.Under this credit facility, Euro 751.8 million and Euro 1,001.4 million wasborrowed as of December 31, 2009 and 2008, respectively.

 

In June 2005,the Company 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 Club Deal Swaps expired on June 3, 2009.The Club Deal Swaps were entered into as a cash flow hedge on Tranche A of thecredit facility discussed above. The ineffectiveness of cash flow hedges wastested at the inception date and at least every three months. The results ofthe tests indicated that the cash flow hedges were highly effective.

 

Duringthe third quarter of 2007, the Group entered into 13 interest rate swaptransactions with an aggregate initial notional amount of US$ 325.0 millionwith various banks (“Tranche B Swaps”). These swaps will expire on March 10,2012. The Tranche B Swaps were entered into as a cash flow hedge on Tranche Bof the credit facility discussed above. The Tranche B Swaps exchange thefloating rate of LIBOR for an average fixed rate of 4.616 percent per annum.The ineffectiveness 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$ (12.8) million,net of taxes, is included in other comprehensive income as of December 31,2009. Based on current interest rates and market conditions, the estimatedaggregate amount to be recognized as earnings from other comprehensive incomefor these cash flow hedges in fiscal 2010 is approximately US$ (8.5) million,net of taxes.

 

(d) Otherloans consist of several small credit agreements. 

 

(e) OnNovember 14, 2007, the Group completed the merger with Oakley for a totalpurchase price of approximately US$ 2.1 billion. In order to finance theacquisition of Oakley, on October 12, 2007 the Company and US Holdingsentered into two credit facilities with a group of banks providing for certainterm loans and a bridge loan for an aggregate principal amount of US$ 2.0billion. The term loan facility is a term loan of US$ 1.5 billion, with afive-year term, with options to extend the maturity on two occasions for one

 

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year eachtime. The term loan facility is divided into two facilities, Facility D andFacility E. Facility D consists of an amortizing term loan in an aggregateamount of US$ 1.0 billion, made available to US Holdings, and Facility Econsists of a bullet term loan in an aggregate amount of US$ 500 million, madeavailable to the Company. Each facility has a five-year term, with options toextend the maturity date on two occasions for one year each time. Interestaccrues on the term loan at LIBOR plus 20 to 40 basis points based on “Net Debtto EBITDA” ratio, as defined in the agreement (0.634 percent for Facility D and0.604 percent for Facility E on December 31, 2009). On September 2008,the Company exercised an option included in the agreement to extend thematurity date of Tranches D and E to October 12, 2013. These creditfacilities contain certain financial and operating covenants. The Company wasin compliance with those covenants as of December 31, 2009. US$ 1,450.0million was borrowed under this credit facility as of December 31, 2009.

 

During thethird quarter of 2007 the Group entered into ten interest rate swaptransactions with an aggregate initial notional amount of US$ 500.0 millionwith various banks (“Tranche E Swaps”). These swaps will expire on October 12,2012. The Tranche E Swaps were entered into as a cash flow hedge on Facility Eof the credit facility discussed above. The Tranche E Swaps exchange thefloating rate of LIBOR for an average fixed rate of 4.26 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$ (21.8) million,net of taxes, is included in other comprehensive income as of December 31,2009. Based on current interest rates and market conditions, the estimatedaggregate amount to be recognized in earnings from other comprehensive incomefor these cash flow hedges in fiscal 2010 is approximately US$ (13.3) million,net of taxes.

 

During thefourth quarter of 2008 and the first quarter of 2009 US Holdings entered into14 interest rate swap transactions with an aggregate initial notional amount ofUS$ 700.0 million with various banks (“Tranche D Swaps”).The last maturity ofthese swaps will be October 12, 2012. The Tranche D Swaps were enteredinto as a cash flow hedge on Facility D of the credit facility discussed above.The Tranche D Swaps exchange the floating rate of LIBOR for an average fixedrate of 2.42 percent per annum. The ineffectiveness of cash flow hedges wastested at the inception date and at least every three months. The results ofthe tests indicated that the cash flow hedges are highly effective. As aconsequence approximately US$ (8.0) million, net of taxes, is included in othercomprehensive income as of December 31, 2009. Based on current interestrates and market conditions, the estimated aggregate amount to be recognized inearnings from other comprehensive income for these hedges in fiscal 2010 isapproximately US$ (8.7) million, net of taxes.

 

The short-termbridge loan facility was for an aggregate principal amount of US$ 500 million.Interest accrued on the short term bridge loan at LIBOR (as defined in theagreement) plus 0.15 percent. The final maturity of the credit facility waseight months from the first utilization date. On April 29, 2008, theCompany and its subsidiary US Holdings entered into an amendment and transferagreement to the US$ 500.0 million short-term bridge loan facility entered intoto finance the Oakley acquisition. The terms of this amendment and transferagreement, among other things, reduced the total facility amount from US$ 500.0million to US$ 150.0 million, effective on July 1, 2008, and provided fora final maturity date that is 18 months from the effective date of theagreement. From July 1, 2008, interest accrued at LIBOR (as defined in theagreement) plus 0.60 percent. On November 27, 2009, the Company and itssubsidiary, Luxottica US Holdings Corp., amended the US$ 150 million short-termbridge loan facility amended on April 29, 2008. The new terms, among otherthings, reduce the total facility amount from US$ 150 million to US$ 75million, effective November 30, 2009, and provide for a two year finalmaturity date of November 30, 2011. The new terms also provide for therepayment of US$ 25 million on November 30, 2010 and the remainingprincipal at the final maturity date. From November 30, 2009, interestaccrues at LIBOR (as defined in the agreement) plus 1.90 percent (2.157 percentas of December 31, 2009). Under this credit facility, US$ 75 million wasborrowed as of December 31, 2009.

 

The fair value of the long term debt is approximatelyEuro 2.6 billion as of December 31, 2009. The fair value of the long termborrowings equals the net present value of the future flows, calculated usingthe current  market rate available forsimilar debt facilities, adjusted to take into account  the Company’s credit worthiness.

 

The financialand operating covenants included in the above long term debt include thefollowing:

 

1.     Consolidated Total Net Debt shall not beequal to or exceed 3.5 times the Consolidated EBITDA

 

2.     Consolidated EBITDA  shall not be lessthan five times the Consolidated Net Finance Charges.

 

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Total NetDebt, EBITDA and Net Financial charges are all defined terms of the variouscredit agreements.

 

Long-termdebt, including capital lease obligations, matures in the years subsequent to December 31,2009 as follows (thousands of Euro):

 
| **Year ended  December 31** |       |          |       |
|-----------------------------|------------|---------------|------------|
|                        |       |          |       |
| 2010                        |       | 166,279       |       |
| 2011                        |       | 282,161       |       |
| 2012                        |       | 799,398       |       |
| 2013                        |       | 1,144,450     |       |
| 2014                        |       | 256           |       |
| There  after                |       | 177,925       |       |
|                        |       |          |       |
| **Total**                   | ** ** | **2,570,469** | ** ** |

 

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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 orother 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”which is now included in ASC No. 715, using the option to recordthe vested benefit obligation, which is the actuarial present value of the vestedbenefits to which the employee would be entitled if the employee retired,resigned or were terminated as of the date of the financial statements.

 

EffectiveJanuary 1, 2007, the TFR system was reformed, and under the new law,employees are given the ability to choose where the TFR compensation isinvested, whereas such compensation otherwise would be directed to the NationalSocial Security Institute or Pension Funds. As a result, contributions underthe reformed TFR system are accounted for as a defined contribution plan. Theliability accrued until December 31, 2006 continues to be considered adefined benefit plan, therefore each year, the Company adjusts its accrualbased upon headcount and inflation, excluding changes in compensation level.

 

Thereare also some termination indemnities in other countries which are providedthrough payroll tax and other social contributions in accordance with localstatutory requirements. The related charges to earnings for the yearsended December 31, 2009, 2008 and 2007 were Euro 17.7 million, Euro 17.9million and Euro 15.4 million respectively.

 

**QualifiedPension Plans** —During fiscal years 2009, 2008, and 2007, 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.

 

**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.

 

TheCompany sponsors for certain US entities a Supplemental Pension Plan. This planis a nonqualified unfunded SERP for certain participants of certain US entitiespension plan who were designated by the Board of Directors of those US entitieson the recommendation of former chief executive officer of those US entities atsuch time. This plan provides benefits in excess of amounts permitted under theprovisions of the 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.

 

As required byASC  715-30-35-62 (formerly FASBStatement No. 158), during fiscal 2008 the Company adopted a December 31measurement date for the pension and SERP plans. In accordance with such standard, the Company elected to useprior year measurements to calculate the effect of adoption. As a result ofthis change in measurement date, the adjustment to retained earnings net of taxrelated to the pension and SERP plans was a decrease of Euro 2.9 million andEuro 0.2 million, respectively. The impact on accumulated other comprehensiveincome net of tax related to the pension and SERP plans was an increase of Euro0.2 million and Euro 0.0 million, respectively.

 

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The following tables provide key informationpertaining to the Company’s pension plans and SERPs:

 
| **(Euro 000)**                                | ** ** | **Pension Plans** | ** ** | **SERP**    | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------|------------|
| ** **                                    | ** ** | **2009**          | ** ** | **2008**    | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                          |       |              |       |        |       |   |   |   |   |
| Change in benefit obligations:                |       |              |       |        |       |   |   |   |   |
| Benefit obligation — beginning of period |       | 313,520           |       | 266,786     |       | 12,015 |   | 10,095 |   |
| Service cost                                  |       | 18,443            |       | 21,666      |       | 466 |   | 543 |   |
| Interest cost                                 |       | 19,476            |       | 21,210      |       | 663 |   | 870 |   |
| Actuarial (gain)/loss                         |       | 1,952             |       | 55          |       | (1,142 | ) | 92 |   |
| Benefits paid                                 |       | (9,526            | )          | (11,111     | )          | (366 | ) | (294 | ) |
| Translation difference                        |       | (9,850            | )          | 14,913      |       | (338 | ) | 709 |   |
| **Benefit obligation — end of period**   | ** ** | **334,015**       | ** ** | **313,520** | ** ** | **11,298** | ** ** | **12,015** | ** ** |

 
| **(Euro 000)**                                       | ** ** | **Pension Plans** | ** ** | **SERP**     | ** ** |
|------------------------------------------------------|------------|-------------------|------------|--------------|------------|
| ** **                                           | ** ** | **2009**          | ** ** | **2008**     | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                 |       |              |       |         |       |   |   |   |   |
| Change in plan assets:                               |       |              |       |         |       |   |   |   |   |
| Fair value of plan assets — beginning of period |       | 184,379           |       | 226,575      |       |   |   |   |   |
| Actual return on plan assets                         |       | 38,994            |       | (55,679      | )          |   |   |   |   |
| Employer contribution                                |       | 31,267            |       | 16,318       |       | 366 |   | 294 |   |
| Benefits paid                                        |       | (9,526            | )          | (11,111      | )          | (366 | ) | (294 | ) |
| Translation difference                               |       | (6,945            | )          | 8,275        |       |   |   |   |   |
| **Fair value of plan assets — end of  period**  | ** ** | **238,168**       | ** ** | **184,379**  | ** ** | **0** | ** ** | **0** | ** ** |
|                                                 |       |              |       |         |       |   |   |   |   |
| **Funded status**                                    | ** ** | **(95,846**       | **)**      | **(129,141** | **)**      | **(11,298** | **)** | **(12,015** | **)** |

 

Amounts recognized in the consolidated balance sheetsas of December 31, 2009 and 2008, consist of the following:

 
| **(Euro 000)**                                | ** ** | **Pension Plans** | ** ** | **SERP**    | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------|------------|
| ** **                                    | ** ** | **2009**          | ** ** | **2008**    | ** ** | **2009** | ** ** | **2008** | ** ** |
| Liabilities:                                  |       |              |       |        |       |   |   |   |   |
| Current liabilities                           |       |              |       | —      |       | 627 |   | 443 |   |
| Noncurrent liabilities                        |       | 95,846            |       | 129,141     |       | 10,671 |   | 11,572 |   |
| **Total accrued pension liabilities**         | ** ** | **95,846**        | ** ** | **129,141** | ** ** | **11,298** | ** ** | **12,015** | ** ** |
|                                          |       |              |       |        |       |   |   |   |   |
| Other comprehensive income:                   |       |              |       |        |       |   |   |   |   |
| Net loss                                      |       | 90,295            |       | 104,015     |       | 2,436 |   | 3,566 |   |
| Prior service cost                            |       | 174               |       | 217         |       | 1 |   | 5 |   |
| Contributions after measurement date          |       |              |       | —      |       |   |   |   |   |
| **Accumulated other comprehensive****income** | ** ** | **90,469**        | ** ** | **104,232** | ** ** | **2,437** | ** ** | **3,571** | ** ** |

 

The accumulated benefit obligations for the pensionplans and SERPs as of December 31, 2009, 2008 and September 30,2007 were as follows (thousands of Euros):

 

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| ** **                                                                                              | ** ** | **Pension Plans** | ** ** | **SERP**   | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------|------------|
| ** **                                                                                              | ** ** | **2009**          | ** ** | **2008**   | ** ** | **2007** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                                    |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Accumulated  benefit obligations                                                                        |       | 315,846           |       | 288,828    |       | 245,829 |   | 11,057 |   | 10,124 |   | 7,989 |   |
|                                                                                                    |       |              |       |       |       |   |   |   |   |   |   |   |   |
| **Components of Net Periodic Benefit Cost and Other Amounts Recognized  in Other Comprehensive Income** |       |              |       |       |       |   |   |   |   |   |   |   |   |
| ** **                                                                                              |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Net  Periodic Benefit Cost:                                                                             |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Service  cost                                                                                           |       | 18,443            |       | 17,333     |       | 16,449 |   | 466 |   | 543 |   | 504 |   |
| Interest  cost                                                                                          |       | 19,476            |       | 16,968     |       | 15,606 |   | 662 |   | 696 |   | 589 |   |
| Expected  return on plan assets                                                                         |       | (20,060           | )          | (17,256    | )          | (16,703 | ) |   |   |   |   |   |   |
| Amortization  of actuarial loss                                                                         |       | 2,411             |       | 1,174      |       | 2,640 |   | 169 |   | 342 |   | 413 |   |
| Amortization  of prior service cost                                                                     |       | 54                |       | 52         |       | 547 |   | 4 |   | (9 | ) | 9 |   |
|                                                                                                    |       |              |       |       |       |   |   |   |   |   |   |   |   |
| **Net periodic benefit cost**                                                                           | ** ** | **20,324**        | ** ** | **18,271** | ** ** | **18,539** | ** ** | **1,301** | ** ** | **1,572** | ** ** | **1,515** | ** ** |
|                                                                                                    |       |              |       |       |       |   |   |   |   |   |   |   |   |
| 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)                                                                                        |       | (16,983           | )          | 77,303     |       | (9,191 | ) | (1,142 | ) | 92 |   | 1,871 |   |
| Prior  service cost                                                                                     |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Amortization  of actuarial loss                                                                         |       | (2,411            | )          | (1,467     | )          | (2,640 | ) | (169 | ) | (427 | ) | (413 | ) |
| Amortization  of prior service cost                                                                     |       | (54               | )          | (64        | )          | (547 | ) | (4 | ) | (11 | ) | (9 | ) |
|                                                                                                    |       |              |       |       |       |   |   |   |   |   |   |   |   |
| Total  recognized in other comprehensive income                                                         |       | (19,448           | )          | 75,772     |       | (12,378 | ) | (1,315 | ) | (346 | ) | 1,449 |   |
| ** **                                                                                              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **TOTAL**                                                                                               | ** ** | **876**           | ** ** | **98,611** | ** ** | **6,161** | ** ** | **(14** | **)** | **1,623** | ** ** | **2,964** | ** ** |

 

The estimated net loss and prior service cost for thedefined benefit pension plans that will be amortized from accumulated OCI intonet periodic benefit cost over the next fiscal year are Euro 3.0 million andEuro 0.0 million, respectively. The estimated net loss and prior service costfor the SERPs  that will be amortizedfrom accumulated OCI into net periodic benefit cost over the next fiscal yearare Euro 0.1 million and Euro 0.0 million, respectively.

 

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| ** **                                                                                                                | ** ** | **Pension Plans** | ** ** | **SERP** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------|------------|
| **Assumptions**                                                                                                           | ** ** | **2009**               | ** ** | **2008** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                                                      |       |                   |       |     |       |   |   |   |   |
| Weighted-average assumption used to determine benefit obligations:                                                        |       |                   |       |     |       |   |   |   |   |
|                                                                                                                      |       |                   |       |     |       |   |   |   |   |
| Discount  rate                                                                                                            |       | 6.15%                  |       | 6.30%    |       | 6.15% |   | 6.30% |   |
|                                                                                                                      |       |                   |       |     |       |   |   |   |   |
| Rate of  compensation increase                                                                                            |       | 4%/3%/1%               |       | 6%/5%/4% |       | 4%/3%/1% |   | 6%/5%/4% |   |
|                                                                                                                      |       |                   |       |     |       |   |   |   |   |
| Weighted-average assumption used to determine net periodic benefit  cost for years ended December 31, 2009 and 2008: |       |                   |       |     |       |   |   |   |   |
|                                                                                                                      |       |                   |       |     |       |   |   |   |   |
| Discount  rate                                                                                                            |       | 6.15%                  |       | 6.50%    |       | 6.15% |   | 6.50% |   |
|                                                                                                                      |       |                   |       |     |       |   |   |   |   |
| Expected  long-term return on plan assets                                                                                 |       | 8.00%                  |       | 8.00%    |       | 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 |   |

 

The Company’s assumed discount rate is developed usinga third party yield curve derived from non-callable bonds of at least an Aarating by Moody’s Investors Service or at least an AA rating by Standard &Poor’s. Each bond issue is required to have at least US$ 250 million paroutstanding.  The yield curve comparesthe future expected benefit payments of the Lux Plan to these bond yields todetermine an equivalent discount rate.

 

TheCompany uses an assumption for salary increases based on a graduated approachof historical experience. The Company’s experience shows salary increases thattypically vary by age.

 

Our actuaries use the RP-2000 Mortality Table, whichincludes death rates for each age, in estimating the amount of pension benefitsthat will become payable.

 

For2009, the Company’s long-term rate of return assumption on the pension plan’sassets was 8.00%. In developing this assumption, the Company used a variety ofanalysis tools. The Company analyzed historical rates of return being earnedfor each asset category over various periods of time. In addition, the Companyconsidered input from its third-party pension asset managers, investmentconsultants, and plan actuaries, including their review of asset class returnexpectations and long-term inflation assumptions. The resulting assumption wasalso benchmarked against the assumptions used by other US corporations asreflected in several surveys.

 

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**Plan Assets** — The Lux Plan’s investment policy is to invest planassets in a manner to ensure over a long-term investment horizon that the LuxPlan is adequately funded; maximize investment return within reasonable andprudent levels of risk; and maintain sufficient liquidity to make timelybenefit and administrative expense payments. This investment policy was developed to provide the framework withinwhich the fiduciary’s investment decisions are made, establish standards tomeasure investment manager’s and investment consultant’s performance, outlinethe roles and responsibilities of the various parties involved, and describethe ongoing review process. The investment policy identifies target assetallocations for the plan’s assets at 40% Large Cap US Equity, 10% Small Cap USEquity, 15% International Equity, and 35% Fixed Income Securities, but anallowance is provided for a range of allocations to these categories asdescribed in the table below.

 
| ** **           | ** ** | **Asset  Class as a Percent of** | ** ** |
|----------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **Total Assets**                      | ** ** |
| **Asset  Category**  | ** ** | **Total Assets**                      | ** ** | **Maximum** | ** ** |
|                 |       |                                  |       |   |   |
| Large Cap US Equity  |       | 37                                    | %          | 43 | % |
| Small Cap US Equity  |       | 8                                     | %          | 12 | % |
| International Equity |       | 13                                    | %          | 17 | % |
| Debt Securities      |       | 32                                    | %          | 38 | % |
| Cash and Equivalents |       | 0                                     | %          | 5 | % |

 

The actualallocation percentages at any given time may vary from the targeted amounts dueto changes in stock and bond valuations as well as timing of contributions to,and benefit payments from, the pension plan trusts.  The Lux Plan’s investment policy intends thatany divergence from the targeted allocations should be of a short duration, butthe appropriate duration of the divergence will be determined by the InvestmentSubcommittee of the Luxottica Group Employee Retirement Income Security Act of1974 (“ERISA”) Plans Compliance and Investment Committee with the advice ofinvestment managers and/or investment consultants based on current marketconditions.  During 2009, the Committeereviewed the Lux Plan’s asset allocation monthly and if the allocation was notwithin the above ranges, the Committee re-balanced the allocations based oncurrent market conditions.

 

Plan assetsare invested in diversified portfolios consisting of an array of asset classeswithin the above target allocations and using a combination of active strategies.Active strategies employ multiple investment management firms. Risk iscontrolled 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 excess return targets. Theinvestment managers are monitored on an ongoing basis to evaluate performanceagainst 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.

 

Quoted marketprices are used to measure the fair value of plan assets, when available.  Plan assets classified as Level 2measurements use net asset value of the fund to measure fair value.  For these measurements, the inputs utilizedby the fund manager to derive net asset value are observable and no significantadjustments to net asset value were necessary. Plan assets classified as Level 3 measurements use other non-observableinputs.  The Plan’s investment in thesefunds is expressed as a percentage of the fund’s capital.  The fair values of the Company’s pension planassets at December 31, 2009 by asset category are as follows (amounts in thousandsof US$):

 

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| ** **                         | ** ** | **Fair Value Measurements at** | ** ** |
|------------------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **December 31, 2009**     | ** ** |
| **Asset Category**                 | ** ** | **Total**                      | ** ** | **Quoted Prices in  Active Markets for  Identical Assets  (Level 1)** | ** ** | **Significant  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs  (Level 3)** | ** ** |
| Equity Securities:                 |       |                           |       |   |   |   |   |   |   |
| US large cap growth                |       | 44,361                         |       |   | 44,361 |   | — |   | — |   |
| US large cap value                 |       | 41,910                         |       | 41,910 |   | — |   | — |   |
| Investment Funds:                  |       |                           |       |   |   |   |   |   |   |
| US Small Cap Mutual Fund (a)       |       | 21,613                         |       | 21,613 |   | — |   | — |   |
| International Collective Trust (b) |       | 30,724                         |       | — |   | 30,724 |   | — |   |
| Fixed Income Mutual Fund (c)       |       | 81,274                         |       | 81,274 |   | — |   | — |   |
| Money Market Funds (d)             |       | 18,188                         |       |   |   | 18,188 |   | — |   |
| Limited Partnerships (e)           |       | 98                             |       | — |   | — |   | 98 |   |
| ** **                         |       |                           |       |   |   |   |   |   |   |
| **Total**                          | ** ** | **238,168**                    | ** ** | **189,158** | ** ** | **48,912** | ** ** | **98** | ** ** |
|                                    |            |                                |            |  |  |  |  |  |  |  |

 

----

| (a)    |   | This category  comprises a small cap US equity exchange-traded fund not actively managed  that tracks the Russell 2000 Stock Index.                                                                                                                                      |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                     |
| (b)    |   | This  category comprises investment in an equity fund that invests in international  core, large, and mid cap stocks with no more than 35% of the fund invested in  emerging markets.                                                                                    |
|   |   |                                                                                                                                                                                                                                                                     |
| (c)    |   | This  category comprises investment in a fixed income fund that invests in a  diversified portfolio of fixed income instruments such as U.S Treasuries,  TIPS, investment grade corporate bonds, mortgage backed securities, and  investment grade corporate securities. |
|   |   |                                                                                                                                                                                                                                                                     |
| (d)    |   | This  category comprises investments in money market funds with an amortized net  asset value of $1.00 per share.                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                     |
| (e)    |   | This  category includes two limited partnerships that invest in securities which  are not publicly traded.                                                                                                                                                               |

 

Areconciliation of the beginning and ending balance for plan assets classifiedas Level 3 measurements follows (amounts in thousands of Euros):

 
| ** **                                          | ** ** | **Fair Value Measurement  Using Significant  Unobservable Inputs  (Level 3)** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **Partnerships**                                                              | ** ** |
| Beginning balance at December 31, 2008         |       | 166                                                                           |       |
| Actual return on plan assets:                       |       |                                                                          |       |
| Relating to assets still held at the reporting date |       | (65                                                                           | )          |
| Relating to assets sold during the period           |       | —                                                                        |       |
| Purchases, sales, and settlements                   |       | —                                                                        |       |
| Transfers in and/or out of Level 3                  |       | —                                                                        |       |
| Translation difference                              |       | (3                                                                            | )          |
| Ending balance at December 31, 2009            |       | 98                                                                            |       |

 

**Benefit Payments** — The followingestimated future benefit payments, which reflect expected future service, areexpected to be paid in the years indicated (thousands of Euros):

 

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| **Years  Ending  December 31** | ** ** | **Pension********Plans** | ** ** | **Supplemental  Plans** | ** ** |
|-------------------------------------|------------|--------------------------|------------|-------------------------|------------|
|                                |       |                     |       |                    |       |
| 2010                                |       | 11,001                   |       | 627                     |       |
| 2011                                |       | 12,173                   |       | 627                     |       |
| 2012                                |       | 14,145                   |       | 1,003                   |       |
| 2013                                |       | 16,498                   |       | 1,244                   |       |
| 2014                                |       | 18,694                   |       | 961                     |       |
| 2015–2019                      |       | 136,840                  |       | 7,024                   |       |

 

**Contributions** — The Companyexpects to contribute Euro 27.0 million to its pension plan and Euro 0.6million to the SERP in 2010.

 

**Other Benefits** — The Companyprovides certain postemployment medical, disability, and life insurancebenefits. The Company’s accrued liability related to this obligation as of December 31,2009 and 2008, was Euro 1.4 million and Euro 1.6 million, respectively, and isincluded in “other long term liabilities” on the consolidated balance sheets.

 

The Company sponsors a tax incentive savingsplan covering all full-time employees. The Company makes quarterlycontributions in cash to the plan based on a percentage of employees’contributions. Additionally, the Company may make an annual discretionarycontribution to the plan, which may be made in the parent company’s ADRs orcash. Aggregate contributions made to the tax incentive savings plan by theCompany were Euro 0.0 million and Euro 8.8 million for fiscal 2009 and 2008,respectively. For fiscal 2009 and 2008, these contributions did not include adiscretionary match.

 

Upon the acquisition of Oakley, effective November 14,2007, the Company also sponsors a tax incentive savings plan for all UnitedStates Oakley associates with at least six months of service. This plan isfunded by employee contributions with the Company matching a portion of theemployee contribution. Company contributions to the plan for fiscal 2009 and2008 were Euro 1.3 million and Euro 1.2 million, respectively.

 

The Company sponsors thefollowing additional benefit  plans,which cover certain present and past employees of certain US entities:

 

·                                          certain US entities provide,under individual agreements, postemployment benefits for continuation of healthcare benefits and life insurance coverage to former employees after employment.As of December 31, 2009 and 2008, the accrued liability, related to thesebenefits, was Euro 0.6 million and Euro 0.7 million, respectively, and isincluded in “other long term liabilities” on the consolidated balance sheet.

 

·                                          certain US entitiesestablished and maintains the Cole National Group, Inc. Supplemental RetirementBenefit Plan, which provides supplemental retirement benefits for certainhighly compensated and management employees who were previously designated bythe former Board of Directors of Cole as participants. This is an unfundednoncontributory defined contribution plan. Each participant’s account iscredited with interest earned on the average balance during the year. This planwas frozen as to future salary credits on the effective date of the Coleacquisition in 2004. The plan liability of Euro 0.9 million and Euro 1.0million at December 31, 2009 and 2008, respectively, is included in “other longterm liabilities” on the consolidated balance sheets.

 

**Other Defined Contribution Plan *—***The Company continues to participate insuperannuation plans in Australia and Hong Kong.  The plans provide benefits on a definedcontribution basis for employees on retirement, resignation, disability ordeath. Contributions to defined contribution superannuation plans arerecognized as an expense as the contributions are paid or become payable to thefund.  Contributions are accrued based onlegislated rates and annual compensation.

 

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Certain employees of the Company locatedoutside the United States are covered by state sponsored postemployment benefitplans. These plans are generally funded in conformity with the applicable localgovernment regulations and amounts are expensed as contributions accrue. Theaggregate liability to the Company for these foreign postemployment benefitplans as of December 31, 2009 and 2008, was immaterial.

 

**Health Benefit Plans** —The Company partially subsidizes health care benefits for US eligible retirees.Employees generally become eligible for retiree health care benefits when theyretire from active service between the ages of 55 and 65. Benefits arediscontinued at age 65.During 2009, the Companyprovided for a one-time special election of early retirement to certainassociates age 50 or older with 5 or more years of service. Benefits for thisgroup are also discontinued at age 65 and the resulting special terminationbenefit is immaterial.

 

As of the Cole acquisition date, the Company assumed aliability for a postretirement benefit plan maintained by Cole in connectionwith its acquisition of Pearle in 1996. This plan was closed to newparticipants at the time of Cole’s acquisition of Pearle. Under this plan, theeligible former employees are provided life insurance and certain health carebenefits, which are partially subsidized by Cole. Medical benefits under thisplan can be maintained past age 65. Effective January 1, 2008, theCole postretirement benefit plan was merged into the Luxottica GroupPostretirement Medical Benefits Program (“Lux Postretirement Plan”). Theprojected benefit obligation transferred on such date was Euro 2.2 million.Upon the merger, there were no changes to provisions of the Lux PostretirementPlan.

 

Amounts recognized in theconsolidated balance sheets as of December 31, 2009 and 2008, consist ofthe following (thousands of Euros):

 
| ** **                                    | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|
| Liabilities:                                  |       |      |       |      |       |
| Current liabilities                           |       | 223       |       | 157       |       |
| Noncurrent liabilities                        |       | 3,259     |       | 2,773     |       |
| **Total  accrued postretirement liabilities** |       | **3,482** | ** ** | **2,930** |       |

 

Amounts recognized inaccumulated OCI are immaterial.

 

**Benefit Payments** —The following estimated future benefit payments for the health benefit plans,which reflect expected future service, are estimated to be paid in the yearsindicated (thousands of Euros):

 
| **Years Ending**     | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
| **December 31** | ** ** | ** ** | ** ** |
| 2010                 |       | 223        |       |
| 2011                 |       | 252        |       |
| 2012                 |       | 276        |       |
| 2013                 |       | 274        |       |
| 2014                 |       | 288        |       |
| 2015–2019       |       | 1,520      |       |

 

**Contributions** —The expected contributions for 2010 are expected to be immaterial for both theCompany and aggregate employee participants.

 

For 2009, a 10.5% (11.0% for2008) increase in the cost of covered health care benefits was assumed. Thisrate was assumed to decrease gradually to 5% for 2020 and remain at that levelthereafter. The health care cost trend rate assumption could have a significanteffect on the amounts reported. A 1% increase or decrease in the health caretrend rate would not have a material impact on the consolidated financialstatements. The weighted-average discount rate used in determining theaccumulated postretirement benefit obligation was 6.15% at December 31,2009 and 6.3% at December 31, 2008.

 

The weighted-average discountrate used in determining the net periodic benefit cost for 2009 and 2008, was6.3%, and 6.5%, respectively.

 

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**11.          STOCK OPTION AND INCENTIVE PLANS**

 

**Stock Option Plan**

 

Beginning in April 1998,certain officers and other key employees of the Company and its subsidiarieswere granted stock options of Luxottica Group S.p.A. under the Company’s stock optionplans (the “plans”). The aggregate number of shares permitted to be grantedunder these plans to the employees is 24,714,600. The Company believes that thegranting of options to these key employees strengthens their loyalty andrecognizes their contribution to the Group’s success. These options becomeexercisable in 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).

 

On May 7,2009, the Board of Directors authorized the reassignment of new options toemployees who were then beneficiaries of the Company’s 2006 and 2007 ordinaryplans, which, considering market conditions and the financial crisis, had anexercise price that was undermining the performance incentives that typicallyform the foundation of these plans. The new options’ exercise price wasconsistent with the market values of Luxottica shares being equal to thegreater of the stock price on the grant date of the new options or the previous30 day average. In connection with the reassignment of options, the employeeswho surrendered their options, received new options to purchase the same numberof Luxottica Group ordinary shares that were subject to the options he or shepreviously held for a total amount of 2,885,000 options. For the new optionsassigned to the US beneficiaries of the 2006 and 2007 plans, the Companyrecognized an incremental fair value per share of Euro 2.16 and Euro 2.20respectively. For the new options assigned to the non-US beneficiaries of the2006 and 2007 plans, the Company recognized an incremental fair value per shareof Euro 2.68 and Euro 2.77 respectively.

 

The Companyadopted*,* ASC 718, *StockCompensation (formerly*SFAS No. 123(R), *Share-BasedPayment*) as of January 1, 2006, and at such point beganexpensing stock options over their requisite service period based on their fairvalue as of the date of grant. For the years ended December 31, 2009, 2008and 2007, Euro 8.5 million, Euro 7.5 million and Euro 7.8 million,respectively, of compensation expense has been recorded for these plans.

 

A summary ofoption activity under the plans as of December 31, 2009, and changesduring the year then ended is as follows:

 

 
| ** **                           | ** ** | **Number of**   | ** ** | **Weighted average**  | ** ** | **Weighted average**      | ** ** | ** **          | ** ** |
|--------------------------------------|------------|-----------------|------------|-----------------------|------------|---------------------------|------------|---------------------|------------|
| ** **                           | ** ** | **options**     | ** ** | **exercise price in** | ** ** | **remaining contractual** | ** ** | **Aggregate**       | ** ** |
| ** **                           | ** ** | **outstanding** | ** ** | **Euro**              | ** ** | **term**                  | ** ** | **intrinsic value** | ** ** |
|                                 |       |            |       |                  |       |                      |       |                |       |
| Outstanding  as of December 31, 2008 |       | 10,161,000      |       | 13.89                 |       |                      |       |                |       |
| Granted                              |       | 3,935,000       |       | 14.04                 |       |                      |       |                |       |
| Forfeitures                          |       | (279,200        | )          | 17.75                 |       |                      |       |                |       |
| Modifications                        |       | (2,885,000      | )          | 23.12                 |       |                      |       |                |       |
| Exercised                            |       | (943,150        | )          | 11.41                 |       |                      |       |                |       |
| Outstanding as of December 31, 2009  |       | 9,988,650       |       | 14.99                 |       | 5.80                      |       | 32,852              |       |
|                                 |       |            |       |                  |       |                      |       |                |       |
| Exercisable as of December 31, 2009  |       | 4,015,650       |       | 14.15                 |       | 2.84                      |       | 16,725              |       |

 

The weighted-average fair value of grant-date fairvalue options granted during the years 2009, 2008 and 2007 was Euro 5.01, Euro 5.02and Euro 6.03, respectively.

 

The fair value of the stock options granted wasestimated at the date of grant using a binomial lattice model. The followingtable presents the weighted-average assumptions used in the valuation and theresulting weighted average fair value per option granted:

 

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| ** **                    | ** ** | **2009**               | ** ** | **2009**                 | ** ** | **2009**                  | ** ** | **2009**                      | ** ** | ** **   | ** ** | ** **   | ** ** |
|-------------------------------|------------|------------------------|------------|--------------------------|------------|---------------------------|------------|-------------------------------|------------|--------------|------------|--------------|------------|
| ** **                    | ** ** | **Ordinary  plan for** | ** ** | ** **               | ** ** | **Reassignment  of the**  | ** ** | **Reassignment  of the**      | ** ** | ** **   | ** ** | ** **   | ** ** |
| ** **                    | ** ** | **employees  not**     | ** ** | **Ordinary  plan for**   | ** ** | **2006/2007  ordinary**   | ** ** | **2006/2007  ordinary plans** | ** ** | **2008**     | ** ** | **2007**     | ** ** |
| ** **                    | ** ** | **domiciled  in the**  | ** ** | **employees  domiciled** | ** ** | **plans  for employees**  | ** ** | **for  employees not**        | ** ** | **Ordinary** | ** ** | **Ordinary** | ** ** |
| ** **                    | ** ** | **USA**                | ** ** | **in  the USA**          | ** ** | **domiciled  in the USA** | ** ** | **domiciled  in the USA**     | ** ** | **plan**     | ** ** | **plan**     | ** ** |
|                          |       |                   |       |                     |       |                      |       |                          |       |         |       |         |       |
| Dividend  yield               |       | 1.43                   | %          | 1.43                     | %          | 1.43                      | %          | 1.43                          | %          | 1.65         | %          | 1.43         | %          |
| Risk-free  interest rate      |       | 2.66                   | %          | 2.66                     | %          | 2.90                      | %          | 2.66                          | %          | 3.63         | %          | 3.91         | %          |
| Expected  option life (years) |       | 5.65                   |       | 5.65                     |       | 5.25                      |       | 5.65                          |       | 6.27         |       | 5.70         |       |
| Expected  volatility          |       | 35.59                  | %          | 35.59                    | %          | 36.14                     | %          | 35.59                         | %          | 26.93        | %          | 23.70        | %          |

 

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 US Federal Treasury or European government bond yield curve, asappropriate, in effect at the time of grant.

 

As of December 31, 2009 there was Euro 13.6 million of totalunrecognized compensation cost related to non-vested share-based compensationarrangements; that cost is expected to be recognized over a period of 1.95years.

 

**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, 2009, 2008 and 2007 Euro 0.0 million,Euro 0.0 million and Euro 0.2 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.

 

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. On May 7, 2009, the Board ofDirectors authorized the reassignment of new options to employees who were thenbeneficiaries of the above Company performance plan, which, considering marketconditions and the financial crisis, had an exercise price that was underminingthe performance incentives that typically form the foundation of these plans.The new options’ exercise price was consistent with the market values ofLuxottica shares, being equal to the greater of the stock price on the grantdate of the new options or the previous 30 day average. In connection with thereassignment of options the employees who have surrendered their options,received new options to purchase the same number of Luxottica Group ordinaryshares that were subject to the options he or she previously held pursuant tothe above-mentioned grant, reduced by 50%, for a total amount of 5,700,000options. Upon vesting, the employee will be able to exercise such options untilthey expire in 2018. Currently it is expected that these performance conditionswill be met. If these performance measures are not expected to be met, noadditional compensation costs will be recognized and previous compensationcosts recognized will be reversed. For the years ended December 31, 2009,2008 and 2007, Euro 3.4 million, Euro 3.0 million and Euro 34.1 million,respectively, of compensation expense has been recorded for these plans.

 

Therewere no performance grants issued in 2007. The weighted average grant-date fairvalue of options granted during the year 2009 was Euro 5.07.

 

In May 2008, a Performance Shares Plan for topmanagers within the Group as identified by the Board of Directors of the Group(the “Board”) (the “2008 PSP”) was adopted. The 2008 PSP is intended tostrengthen the loyalty of the Group’s key employees and to recognize theircontribution to the Group’s success on a medium-to long-term basis. Thebeneficiaries of the 2008 PSP are granted the right to receive ordinary shares,

 

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without consideration, at the end of the three-yearvesting period, and subject to achievement of certain financial target asdefined by the Board. The 2008 PSP has a term of five years, during which timethe Board may resolve to issue different grants to the 2008 PSP’sbeneficiaries. The 2008 PSP covers a maximum of 6,500,000 ordinary shares. Eachannual grant will not exceed 2,000,000 ordinary shares. On May 13, 2008,the Board granted 1,003,000 rights to receive ordinary shares. The rights canbe increased up to  1,203,600 providedthat at the end of the three year period (2008/2010) the performance targets asdefined by the plan will be achieved. Management believes that, based on thecurrent estimates, the Group performance targets as defined by the plan willnot be achieved. Accordingly, no compensation expense has been recorded in 2009and 2008 for this plan.

 

Pursuant to the PSPplan adopted in 2008, on May 7, 2009, the Board of Directors grantedcertain of our key employees 1,435,000 rights to receive ordinary shares (“PSP2009”). The rightscan be increased up to  1,793,750provided that at the end of the three year period (2009/2011), the performancetargets as defined by the plan will be achieved. For the year ended December 31,2009 Euro 4.4 million of compensation expense has been recorded for this plan.

 

The fair value ofthe 2009 and 2008 grants were Euro 14.22 and 17.67 respectively.

 

Asummary of option activity under the performance plans as of December 31,2009, and changes during the year then ended are as follows:

 
| ** **                           | ** ** | ** **      | ** ** | **Weighted**        | ** ** | ** **                 | ** ** | ** **           | ** ** |
|--------------------------------------|------------|-----------------|------------|---------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                           | ** ** | **Number  of**  | ** ** | **average**         | ** ** | **Weighted  average**      | ** ** | ** **           | ** ** |
| ** **                           | ** ** | **options**     | ** ** | **exercise  price** | ** ** | **remaining  contractual** | ** ** | **Aggregate**        | ** ** |
| ** **                           | ** ** | **outstanding** | ** ** | **in  Euro**        | ** ** | **term**                   | ** ** | **intrinsic  value** | ** ** |
| Outstanding  as of December 31, 2008 |       | 23,753,600      |       | 17.10               |       |                       |       |                 |       |
| Granted                              |       | 7,135,000       |       | 11.08               |       |                       |       |                 |       |
| Forfeitures                          |       | (478,000        | )          | 18.49               |       |                       |       |                 |       |
| Modifications                        |       | (11,400,000     | )          | 21.28               |       |                       |       |                 |       |
| Exercised                            |       | (75,000         | )          | 13.33               |       |                       |       |                 |       |
| Outstanding  as of December 31, 2009 |       | 18,935,600      |       | 12.30               |       | 5.49                       |       | 113,689              |       |
|                                 |       |            |       |                |       |                       |       |                 |       |
| Exercisable  as of December 31, 2009 |       | 9,575,000       |       | 13.66               |       | 4.56                       |       | 42,920               |       |

 

Thefair value of the stock options granted was estimated at the date of grantusing a binomial lattice model. The following table presents the weighted-averageassumptions used in the valuation and the resulting weighted average fair valueper option granted:

 
| ** **                    | ** ** | **2009**                | ** ** | **2009**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------|------------|-------------------------|------------|-------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | ** **              | ** ** | **Reassignment of the** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **Reassignment of the** | ** ** | **STR 2006 plan**       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **STR 2006 plan**       | ** ** | **employees not**       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **employees domiciled** | ** ** | **domiciled in the**    | ** ** | **2009**   | ** ** | **2008**   | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **in the USA**          | ** ** | **USA**                 | ** ** | **PSP**    | ** ** | **PSP**    | ** ** | **2007**   | ** ** |
|                          |       |                    |       |                    |       |       |       |       |       |       |       |
| Dividend  yield               |       | 1.43                    | %          | 1.43                    | %          | 1.43       | %          | 1.65       | %          | —     |       |
| Risk-free  interest rate      |       | 2.90                    | %          | 2.66                    | %          |       |       |       |       | —     |       |
| Expected  option life (years) |       | 5.65                    |       | 5.65                    |       | 3.00       |       | 2.1        |       | —     |       |
| Expected  volatility          |       | 35.52                   | %          | 35.59                   | %          | 43.03      | %          |       |       | —     |       |

 

As of December 31, 2009 there was Euro 33.3million of total unrecognizedcompensation cost related to non-vested share-based compensation arrangements;that cost is expected to be recognized over a period of 3.01years.

 

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 October 2009and May 2008, the Company’s Shareholders Meetings approved cash dividendsof Euro 100.8 million and 223.6 million, respectively. These amounts becamepayable in November 2009 and May 2008, 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 5.6 million at December 31, 2009 and 2008, respectively.

 

LuxotticaGroup’s legal reserve roll-forward for fiscal period 2007-2009 is detailed asfollows (thousands of Euro):

 
| January 1, 2007          |   | 5,513 |   |
|-------------------------------|--------|-------|--------|
| Increase in fiscal year  2007 |   | 23    |   |
| December 31, 2007        |   | 5,536 |   |
| Increase in fiscal year  2008 |   | 18    |   |
| December 31, 2008        |   | 5,554 |   |
| Increase in fiscal year  2009 |   | 7     |   |
| December 31, 2009        |   | 5,561 |   |

 

Previously the Board of Directors authorized USHoldings to repurchase through the open market up to 21,500,000 ADRs ofLuxottica Group S.p.A., representing at that time approximately 4.7 percent ofthe authorized and issued share capital. As of December 31, 2004, bothrepurchase programs expired and US Holdings purchased 6,434,786 ADRs (1,911,700in 2002 and 4,523,786 in 2003) at an aggregate purchase price of Euro 70.0million (US$73.8 million translated at the exchange rate at the time of thetransactions).

 

On November 13, 2009, the share buyback programapproved at the stockholders’ meeting on May 13, 2008 expired. The 2008program provided for the buyback of a maximum of 18,500,000 of the Company’sordinary shares for a period of 18 months. Under the 2008 program, launched on September 21,2009, the Company purchased an aggregate amount of 1,325,916 ordinary shares onthe Milan Stock Exchange’s Mercato Telematico Azionario (MTA) at an average unitprice of Euro 17.13, for an aggregate amount of Euro 22,714,251.

 

On November 13, 2009, the Company announced thelaunch on November 16, 2009 of the new share buyback program approved atthe stockholders’ meeting on October 29, 2009, which, like the 2008program, is intended to provide the Company with treasury shares to efficientlymanage its share capital and to implement its Performance Shares Plan. The 2009program provides for the buyback of a maximum of 18,500,000 of the Company’sordinary shares. Under the 2009 program the Company purchased an aggregateamount of 1,352,154ordinary shares on the MTA at an average unit price of Euro 17.13, foran aggregate amount of Euro 23,166,430.

 

In parallel with the purchases of shares by theCompany, Arnette Optic Illusions, Inc. (“Arnette”) sold on the MTA 2,764,824Luxottica Group shares at an average unit price of Euro 17.25, for an aggregateamount of Euro 47,683,618. Arnette intends to sell the remaining 3,669,962Luxottica Group shares it still owned as of December 31, 2009.

 

The shares still owned by Arnette and by the Companyare classified as treasury shares in the Company’s consolidated financialstatements. The market value of these shares based on the share price as listedon the Milan Stock Exchange at December 31, 2009, is approximately Euro115.1 million.

 

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**13**.                    **SEGMENTSAND RELATED INFORMATION**

 

In accordance with ASC 280, *SegmentReporting*, the Company operates in two industry segments: (1) manufacturingand wholesale distribution and (2) retail distribution. Through itsmanufacturing and wholesale distribution operations, the Company is engaged inthe design, manufacture, wholesale distribution and marketing of house brandand designer lines of mid- to premium-priced prescription frames andsunglasses. The Company operates in the retail segment through its RetailDivision, mainly consisting of LensCrafters, Sunglass Hut, Pearle Vision,Oakley and OPSM.

 

Following several changes over recent years within Luxottica Group’sorganizational structure described below, management has decided, beginning in2009, to use a different methodology to review the results of each segment forperformance evaluation purposes. In particular, the most significant changesincluded:

 

·                                          the recentintegration of Oakley has increased significantly the volume of inter-companytransactions from the Manufacturing and Wholesale to the Retail segment, buthas diminished the significance of those transactions for evaluating theperformance of the Manufacturing and Wholesale segment;

 

·                                          the increased useof full profitability measures (i.e. adding manufacturing profit to the retailprofit) when making decisions regarding product and brand allocation within theRetail Distribution segment.

 

Therefore it is the opinion of management that, for 2009, the priormethod for reporting disaggregated information by business segment is no longerfully aligned with the current method used to review the information.Accordingly, in 2009 and in compliance with ASC 280 requirements, the SegmentReporting information has changed as described below. Segment informationrelated to prior periods presented have been restated in accordance to the newmethodology.

 

Net sales and income from operations for each reporting segment iscalculated as follows:

 

1.                                       Manufacturing andWholesale Distribution:

 

·                                          Net Salesincludes sales to third-party customers only; inter-company sales to the RetailDistribution segment will not be included;

 

·                                          Therefore, Incomefrom Operations is related to net sales to third-party customers only; theso-called “manufacturing profit” generated on the inter-company sales to theRetail Distribution segment will not be included in this segment;

 

2.                                       RetailDistribution:

 

·                                          Net sales to theretail consumers are included;

 

·                                          Income fromOperations is related to the retail sales, and includes the cost of goodsacquired from the Manufacturing and Wholesale Distribution segment atmanufacturing cost, therefore including the so-called “manufacturing profit” ofthose sales, no longer reported under the Manufacturing and WholesaleDistribution segment’s income from operations;

 

3.                                       The Inter-SegmentTransactions and Corporate Adjustments:

 

·                                          Net sales becomenot applicable, since there will be no inter-company sales between thesegments. The sum of third-party wholesale sales and retail sales will matchthe consolidated net sales figures;

 

·                                          Income fromoperations is the sum of the following two different effects, since theprofit-in-stock will not be required to be eliminated in consolidation:

 

a)                                      corporate costsnot allocated to a specific segment;

 

b)                                     amortization ofacquired intangible assets.

 

The following tables summarize the segment and geographic informationdeemed essential by the Company’s management for the purpose of evaluating theCompany’s performance and for making decisions about future allocations ofresources.

 

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| **(Euro 000)**                        | ** ** | **Manufacturing  and  Wholesale** | ** ** | **Retail** | ** ** | **Inter-Segments  Transactions  and  Corporate  Adjustments** | ** ** | **Consolidated** | ** ** |
|---------------------------------------|------------|-----------------------------------|------------|------------|------------|---------------------------------------------------------------|------------|------------------|------------|
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| **2009**                              |       |                              |       |       |       |                                                          |       |             |       |
|                                  |       |                                   |       |       |       |                                                          |       |             |       |
| Net Sales                             |       | 1,955,340                         |       | 3,138,978  |       |                                                          |       | 5,094,318        |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Operating income                      |       | 355,507                           |       | 367,457    |       | (139,762                                                      | )          | 583,202          |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Capital Expenditure                   |       | 81,175                            |       | 119,234    |       |                                                          |       | 200,409          |       |
| Depreciation &  Amortization |       | 76,005                            |       | 129,261    |       | 80,657                                                        |       | 285,923          |       |
| Assets **(1)**                        |       | 1,700,672                         |       | 1,071,439  |       | 4,363,945                                                     |       | 7,136,056        |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| **2008**                              |       |                              |       |       |       |                                                          |       |             |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Net Sales                             |       | 2,092,465                         |       | 3,109,146  |       |                                                          |       | 5,201,611        |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Operating income                      |       | 439,957                           |       | 430,565    |       | (120,759                                                      | )          | 749,763          |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Capital Expenditure                   |       | 125,489                           |       | 170,947    |       |                                                          |       | 296,436          |       |
| Depreciation &  Amortization |       | 85,987                            |       | 123,129    |       | 55,822                                                        |       | 264,938          |       |
| Assets **(1)**                        |       | 1,823,950                         |       | 1,083,894  |       | 4,397,381                                                     |       | 7,305,225        |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| **2007**                              |       |                              |       |       |       |                                                          |       |             |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Net Sales                             |       | 1,703,662                         |       | 3,262,392  |       |                                                          |       | 4,966,054        |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Operating income                      |       | 425,143                           |       | 509,081    |       | (100,912                                                      | )          | 833,313          |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |
| Capital Expenditure                   |       | 118,558                           |       | 216,211    |       |                                                          |       | 334,769          |       |
| Depreciation &  Amortization |       | 75,304                            |       | 119,459    |       | 38,050                                                        |       | 232,813          |       |
| Assets **(1)**                        |       | 1,789,168                         |       | 1,044,893  |       | 4,323,205                                                     |       | 7,157,266        |       |
|                                  |       |                              |       |       |       |                                                          |       |             |       |

 

----

(1) Segment assetsare the total assets used in the operation of each segment. Corporate assetsare primarily intangible assets and deferred tax assets

 

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The geographic segments includeEurope, United States and Canada (which includes the United States of America,Canada and Caribbean islands), Asia Pacific (which includes Australia, NewZealand, China, Hong Kong and Japan) and Other (which includes all othergeographic locations including, South and Central America, and the MiddleEast). Sales are attributed to geographic segments based on the customer’slocation whereas fixed assets are the result of combination of legal entities located in the samegeographic area.

 
| **Year Ended  December 31,****(Euro 000)** | ** ** | **Europe  (2) (3)** | ** ** | **United  States and  Canada  (2)** | ** ** | **Asia  Pacific  (2)** | ** ** | **Other  (2)** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------------|------------|----------------|------------|------------------|------------|
| 2009                                            |       |                     |       |                                |       |                   |       |           |       |             |       |
| Net  sales                                      |       | 1,072,412                |       | 3,065,937                           |       | 641,657                |       | 314,311        |       | 5,094,318        |       |
| Long  lived assets, net                         |       | 362,525                  |       | 628,540                             |       | 150,126                |       | 7,726          |       | 1,148,916        |       |
|                                            |       |                     |       |                                |       |                   |       |           |       |             |       |
| 2008                                            |       |                     |       |                                |       |                   |       |           |       |             |       |
| Net  sales                                      |       | 1,132,465                |       | 3,096,520                           |       | 645,839                |       | 326,787        |       | 5,201,611        |       |
| Long  lived assets, net                         |       | 371,568                  |       | 652,851                             |       | 141,339                |       | 4,940          |       | 1,170,698        |       |
|                                            |       |                     |       |                                |       |                   |       |           |       |             |       |
| 2007                                            |       |                     |       |                                |       |                   |       |           |       |             |       |
| Net  sales                                      |       | 1,064,574                |       | 3,041,678                           |       | 596,223                |       | 263,578        |       | 4,966,054        |       |
| Long  lived assets, net                         |       | 346,081                  |       | 572,570                             |       | 135,676                |       | 3,455          |       | 1,057,782        |       |

 

----

(2)    No single customer represents five percentor more of sales in any year presented.

 

(3)   Fixed assets located in Italy represent 29percent, 30 percent and 31 percent of the total fixed assets in 2009, 2008 and2007, respectively.

 

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**14.****      ****FINANCIALINSTRUMENTS**

 

**Concentration of Credit Risk**

 

Financial instruments which potentially expose theCompany to concentration of credit risk consist primarily of cash, investmentsand accounts receivable. The Company attempts to limit its credit riskassociated with cash equivalents by placing the Company’s cash balances andinvestments with highly rated banks and financial institutions. However, at anytime amounts invested at these banks maybe in excess of the amount of insuranceprovided on such deposits. With respect to accounts receivable, the Companylimits its credit risk by performing ongoing credit evaluations and certaincustomers may be required to post security in the form of letters of credit. Asof December 31, 2009 and 2008, no single customer balances comprised 10percent or more of the overall accounts receivable balance. However, includedin accounts receivable as of December 31, 2009 and 2008, was approximatelyEuro 13.0 million and Euro 12.3 million, respectively, due from the host storesof the Company’s license brands retail division. These receivables representcash proceeds from sales deposited into the host stores’ bank accounts, whichare subsequently forwarded to the Company on a weekly or monthly basisdepending on the Company’s contract with the particular host store and arebased on contract arrangements that are short term 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 2009, 2008 and 2007fiscal years, Essilor S.A. accounted for approximately 9 percent, 12.0 percentand 15.0 percent of the Company’s total merchandise purchases, respectively.Management believes that the loss of this vendor would not have a significantimpact on the future operations of the Company as it could replace this vendorquickly with other third-party suppliers.

 

**15.****      ****COMMITMENTSAND CONTINGENCIES**

 

**Royalty Agreements**

 

LuxotticaGroup has entered into license agreements to manufacture, design and distributeprescription frames and sunglasses with selected fashion brands.

 

Underthese license agreements, which typically have terms ranging from three to tenyears, Luxottica Group is required to pay a royalty which generally ranges from5 percent to 14 percent of the net sales. Some of these agreements provide alsofor annual guaranteed minimum payments and for a mandatory marketingcontribution (that generally amounts to between five and ten percent of netsales). These license agreements may be terminated early by either party for avariety of reasons including, among others, non-payment of royalties, failureto meet minimum sales thresholds, product alteration and, under certainagreements, a change in control of Luxottica Group S.p.A.

 

On January 28,2009, Luxottica Group announced the signing of a license agreement for thedesign, manufacture and global distribution of sun and prescription eyewearunder the Tory Burch and TT brands. The agreement runs for six years startingin January 2009 and is renewable for an additional four years.

 

On January 30,2009, Luxottica Group announced a three-year extension of the license agreementfor the design, production and worldwide distribution of prescription framesand sunglasses under the Salvatore Ferragamo brand. The new agreement will runthrough December 2011, with an option for a further two-year extensionunder the same terms.

 

On April 9,2009, Luxottica Group announced a five-year extension of the license agreementfor the design, production and worldwide distribution of prescription framesand sunglasses under the Donna Karan and DKNY brands. The new agreement willrun through December 2014, with an option for a further five-yearextension.

 

On July 28,2009, Luxottica Group announced the renewal for a further period of 10 years ofthe license agreement with Gianni Versace S.p.A. for the design, manufactureand global distribution of sun and prescription eyewear under the Versace andVersus brands. Minimum payments required in each of the years subsequent to December 31,2009 are detailed as follows (thousands of Euro):

 

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| **Year Ending December 31** | ** ** | ** **  | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2010                                       |       | 48,440      |       |
| 2011                                       |       | 33,223      |       |
| 2012                                       |       | 27,050      |       |
| 2013                                       |       | 23,923      |       |
| 2014                                       |       | 15,631      |       |
| Thereafter                                 |       | 62,809      |       |
|                                       |       |        |       |
| **Total**                                  | ** ** | **211,076** | ** ** |

 

Totalroyalties and related advertising expenses for the fiscal years 2009, 2008 and2007 aggregated Euro 129.1 million, Euro 139.5 million and Euro 181.6 million,respectively.

 

Totalpayments for royalties and related advertising expenses for the fiscal years2009, 2008 and 2007 aggregated Euro 95.4 million, Euro 142.4 million and Euro278.2 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 2010and 2025, with options to renew at varying terms. The lease arrangements forthe Company’s US retail locations often include escalation clauses andprovisions requiring the payment of incremental rentals, in addition to anyestablished minimums contingent upon the achievement of specified levels ofsales volume. In addition, with the acquisition of Cole, the Company operatesdepartments in various host stores paying occupancy costs solely as apercentage of sales. Certain agreements which provide for operations ofdepartments in a major retail chain in the United States contain short-termcancellation clauses.

 

Totalrental expense for each year ended December 31 is as follows (thousands ofEuro):

 
| ** **      | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------|------------|----------|------------|----------|------------|----------|------------|
|            |       |     |       |     |       |     |       |
| Minimum rent    |       | 290,795  |       | 288,743  |       | 264,496  |       |
|            |       |     |       |     |       |     |       |
| Contingent rent |       | 57,700   |       | 55,464   |       | 60,177   |       |
|            |       |     |       |     |       |     |       |
| Sublease income |       | (28,517  | )          | (26,017  | )          | (38,806  | )          |
|            |       |     |       |     |       |     |       |
|            |       | 319,978  |       | 318,190  |       | 285,867  |       |

 

Futureminimum annual rental commitments are as follows (thousands of Euro):

 
| **Year Ending December 31** | ** ** | ** **    | ** ** |
|--------------------------------------------|------------|---------------|------------|
| 2010                                       |       | 272,444       |       |
| 2011                                       |       | 233,327       |       |
| 2012                                       |       | 195,864       |       |
| 2013                                       |       | 162,090       |       |
| 2014                                       |       | 137,180       |       |
| Thereafter                                 |       | 303,404       |       |
|                                       |       |          |       |
| **Total**                                  | ** ** | **1,304,309** | ** ** |

 

**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 

 

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selectedathletes and others who endorse Oakley products. Oakley is often required topay specified minimal annual commitments and, in certain cases, additionalamounts based on performance goals. Certain contracts provide additionalincentives based on the achievement of specified goals. Supplier commitmentshave been entered into with various suppliers in the normal course of business.Other commitments mainly include auto, machinery and equipment leasecommitments as well as commitments to open additional Sunglass Hut points ofsale in approximately 430 Macy’s department stores in the US pursuant to anagreement entered into with Macy’s Inc. on December 4, 2009.

 

Futureminimum amounts to be paid for endorsement contracts and supplier purchasecommitments at December 31, 2009 are as follows (thousands of Euro):

 
| **Year ending  December 31** | ** ** | **Endorsement  contracts** | ** ** | **Supplier  commitments** | ** ** | **Other  commitments** | ** ** |
|------------------------------|------------|----------------------------|------------|---------------------------|------------|------------------------|------------|
|                         |       |                       |       |                      |       |                   |       |
| 2010                         |       | 5,935                      |       | 6,274                     |       | 7,907                  |       |
| 2011                         |       | 2,916                      |       | 1,568                     |       | 5,819                  |       |
| 2012                         |       | 906                        |       |                      |       | 3,865                  |       |
| 2013                         |       |                       |       |                      |       | 96                     |       |
| Thereafter                   |       |                       |       |                      |       | 11                     |       |
| **Total**                    | ** ** | **9,757**                  | ** ** | **7,842**                 | ** ** | **17,698**             | ** ** |

 

**Guarantees-**

 

The United States ShoeCorporation, a wholly owned subsidiary of the Company, remains contingentlyliable on six store leases in the United Kingdom. These leases were previouslytransferred to third parties. The third parties have assumed all futureobligations of the leases from the date each agreement was signed. However,under the common law of the United Kingdom, the lessor still has the right toseek payment of certain amounts from the Company if unpaid by the new obligor.If the Company is required to pay under these guarantees, it has the right torecover amounts from the new obligor. These leases will expire during variousyears until December 31, 2017. At December 31, 2009, the maximumamount for which the Company’s subsidiary is contingently liable is GBP 4.3million (Euro 4.7 million).

 

A US subsidiary hasguaranteed future minimum lease payments for certain store locations leaseddirectly by franchisees. These guarantees aggregated approximately Euro 3.8million at December 31, 2009. Performance under a guarantee by the USsubsidiary is triggered by default of a franchisee on its lease commitment.Generally, these guarantees also extend to payments of taxes and other expensespayable under the leases, the amounts of which are not readily quantifiable.The terms of these guarantees range from one to seven years. Many are limitedto periods less than the full term of the lease involved.  Under the terms of the guarantees, the USsubsidiary has the right to assume the primary obligation and begin operatingthe store. In addition, as part of the franchise agreements, US subsidiary mayrecover any amounts paid under the guarantee from the defaulting franchisee.The Company has accrued a liability at December 31, 2005 for the estimatesof the fair value of the Company’s obligations from guarantees entered into ormodified after December 31, 2002, using an expected present valuecalculation. Such amount is immaterial to the consolidated financial statementsas of December 31, 2009 and 2008.

 

**Short-Term Credit Facilities-**

 

As of December 31,2009 and 2008, Luxottica Group had unused short-term lines of credit ofapproximately Euro 542.8 million and Euro 230.5 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 391.8 million (Euro 374.8 million at December 31, 2008). These linesof credit are renewable annually, can be cancelled at short notice and have nocommitment fees. At December 31, 2009 and 2008, these credit lines wereutilized for Euro 2.0 million and Euro 252.4 million, respectively.

 

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USHoldings maintains three unsecured lines of credit with three separate banksfor an aggregate maximum credit of Euro 108.1 million (US$ 155.0 million).These lines of credit are renewable annually, can be cancelled at short noticeand have no commitment fees. At December 31, 2009, there were Euro 89.5million (US$ 128.2 million) of borrowings outstanding and there were Euro 18.7million 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 0.90 percent.

 

**Outstanding Standby Letters of Credit -**

 

A USsubsidiary has obtained various standby and trade letters of credit from banksthat aggregated Euro 29.9 million and Euro 34.2 million as of December 31,2009 and 2008, 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 and are generally outstanding for a period that is less than sixmonths. Substantially all the fees associated with maintaining the letters ofcredit fall within the range of 50 to 100 basis points annually.

 

**Litigation -**

 

TheCompany and its subsidiaries are involved in the following legal and regulatoryproceedings of which 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.

 

**Cole Consumer Class ActionLawsuit**

 

In June 2006,Cole and its subsidiaries were sued by a consumer in a class action thatalleged various statutory violations related to the operations of Pearle Vision, Inc.and Pearle Vision Care, Inc. in California. The plaintiff asserted variousclaims relating to the confidentiality of medical information and the operationof Pearle Vision stores in California, including violations of California lawsgoverning relationships among opticians, optical retailers, manufacturers offrames and lenses, and optometrists, and other unlawful or unfair businesspractices. The parties entered into a settlement agreement, which provides fora store voucher at Pearle Vision or LensCrafters for each class member and thepayment of attorneys’ fees and costs. On December 19, 2008, the courtgranted final approval of the settlement and entered final judgment. Thesettlement became final on March 17, 2009.

 

Amountspaid to settle this litigation and related costs incurred for the years ended December 31,2009, 2008 and 2007 were not material.

 

**Oakley Shareholder Lawsuit**

 

On June 26,2007, the Pipefitters Local No. 636 Defined Benefit Plan filed a classaction complaint, 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 approvingOakley’s merger with Luxottica and claimed that the price per share fixed bythe merger agreement was inadequate and unfair. The defendants filed demurrersto the complaint, 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.

 

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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 the defendants’demurrer to the amended complaint. On July 11, 2008, the Court entered anorder dismissing the action with prejudice and denying the plaintiff’s motionfor attorneys’ fees and expenses.  Theplaintiff appealed the Court’s May 29, 2008 ruling and the July 11,2008 order. On January 11, 2010, the appellate court affirmed the trialcourt’s decision in all respects. The plaintiff has filed a petition with theCalifornia Supreme Court requesting review of the appellate court’s decision. Costsassociated with this litigation incurred for the years ended December 31,2009, 2008 and 2007 were not material. Management believes that no estimate ofthe range of 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, allegingwilful violations of the Fair and Accurate Credit Transactions Act related tothe inclusion of credit card expiration dates on sales receipts. The plaintiffbrought suit on behalf of a class of Oakley’s customers. Oakley denied anyliability, and later entered into a settlement arrangement with the plaintiffthat resulted in a complete release in favor of the Oakley defendants, with nocash payment to the class members but rather an agreement by Oakley to issuevouchers for the purchase of products at Oakley retail stores during a limitedperiod of time. The settlement also provided for the payment of attorneys’ feesand claim administration costs by the Oakley defendants. An order approvingthis settlement was entered on November 24, 2008. The settlement becamefinal on January 15, 2009.

 

Amountspaid to settle this litigation and related costs incurred for the years ended December 31,2009, 2008 and 2007, were not material.

 

**Texas LensCrafters Class ActionLawsuit**

 

In May 2008,two individual optometrists commenced an action against LensCrafters, Inc.(now Luxottica Retail North America Inc.) and Luxottica Group S.p.A. in theUnited 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 suitalleges that LensCrafters has attempted to control the optometrists’professional judgment and that certain terms of the optometrists’ sub-leaseagreements with LensCrafters violate the TOA. The suit seeks recovery of acivil penalty of up to US$ 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 a secondamended complaint seeking to certify the case as a class action on behalf ofall current and former LensCrafters’ sub-lease optometrists. Luxottica GroupS.p.A. filed a motion to dismiss for lack of personal jurisdiction in October 2008.The court did not address that motion.. The case was transferred to the WesternDistrict of Texas, Austin Division, in January 2009, pursuant to thedefendants’ motion to transfer venue. On January 11, 2010 plaintiffs fileda motion requesting that the court permit the case to proceed as a class actionon behalf of all optometrists who sublease from Lenscrafters in Texas.

 

On February 8,2010, the parties reached an agreement to settle the litigation on confidentialterms. On March 8, 2010, the court dismissed the case with prejudice. Amountspaid to settle this litigation will not be material. Costs associated with thelitigation for the years ended December 31, 2009 and 2008 were notmaterial.

 

**Other**

 

TheCompany is a defendant in various other lawsuits arising in the ordinary courseof business. It is the opinion of the management of the Company that it hasmeritorious defenses against all such outstanding claims, which the Companywill vigorously pursue, and that the outcome of such claims, individually or inthe aggregate, will not have a material adverse effect on the Company’sconsolidated financial position or results of operations.

 

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**16.****         ****FAIR VALUES**

 

Certain assets and liabilitiesof the Company are recorded at fair value on a recurring basis while others arerecorded at fair value based on specific events. ASC No. 820*,**Fair Value Measurementsand Disclosures,* specifies ahierarchy of valuation techniques consisting of three levels:

 
| · | Level  1 – Inputs are quoted prices in an active market for identical assets or  liabilities                                                                                                                                                                                                                                                                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                             |
| · | Level  2 – Inputs are quoted for similar assets or liabilities in an active market,  quoted prices for identical or similar assets and liabilities in markets that  are not active, inputs other than quoted prices that are observable (for  example interest rates and yield curves observable at common quoted  intervals) or market-corroborated inputs |
|   |                                                                                                                                                                                                                                                                                                                                                             |
| · | Level 3 – Unobservable inputs used when observable  inputs are not available in situations where there is little, if any market  activity for the asset or liability                                                                                                                                                                                        |

 

At December 31, 2009 and2008 the fair value of the Company’s financial assets and liabilities measuredon a recurring basis are as follows (thousands of Euros):

 
| ** **                 | ** ** | ** **                             | ** ** | ** **                  | ** ** | **Fair  Value Measurements at  Reporting Date Using** | ** ** |
|----------------------------|------------|----------------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|
| **Description**            | ** ** | **Balance Sheet  Classification** | ** ** | **December 31,  2009** | ** ** | **Level 1**                                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Foreign Exchange Contracts |       | Prepaid  Expenses and Other            |       | 971                         |       |                                                  |       | 971 |   |   |   |
| Interest Rate Derivatives  |       | Other  Long Term Liabilities           |       | 48,642                      |       |                                                  |       | 48,642 |   |   |   |
| Foreign Exchange Contracts |       | Other  Accrued Expenses                |       | 3,705                       |       |                                                  |       | 3,705 |   |   |   |

 
| ** **                 | ** ** | **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, 2009, the Company didnot have any Level 3 fair value measurements.

 

The Company maintains policies and procedureswith the aim of valuing the fair value of assets and liabilities using the bestand most relevant data available.

 

The fair value of the marketable securities arebased on quoted prices that are observable in active markets such as bondprices, including both corporate and government bonds.

 

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The Company portfolio of foreign exchangederivatives includes only foreign exchange forward contracts on the most tradedcurrency pairs with maturity less than one year. The fair value of theportfolio is valued using internal models that use market observable inputsincluding Yield Curves, Spot and Forward prices.

 

The fair value of the interest rate derivativesportfolio is calculated using internal models that maximize the use of marketobservable inputs including Interest Rates, Yield Curves and Foreign ExchangeSpot prices.

 

The fair value of the TR Note as of December 31,2007 was based on discounted projected cash flows utilizing an expected yieldand disclosed as “Other Assets” on the consolidated balance sheet. During 2008,the Company sold such note to a third party (see Note 4 “Sale of ThingsRemembered”).

 

ASC No. 825, *FinancialInstruments*, allows the Company to elect on a financial instrumentbasis to measure the fair value of such instrument with changes in its fairvalue recorded into operations during the period of change. As of December 31,2009 and for the year then ended, the Company has not elected to account for anyof its financial instruments under ASC 825.

 

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**17.****         ****SUBSEQUENT EVENTS**

 

On January 4,2010, the minority shareholders of Luxottica Gözlük Endüstri ve Ticaret AnonimŞirketi, a Turkey — based subsidiary of the Company, notified theirintention to exercise the put option over the 35.16% shareholding stake. Theexercise of the options will result in the Group owning 100% of the Turkeysubsidiary. The purchase price is approximately Euro 61.5 million. The sale isnot yet effective as it is subject to the prior approval of the Turkishantitrust authority.

 

On January 29,2010, our subsidiary US Holdings closed a private placement of US$ 175 millionof senior unsecured guaranteed notes, issued in three series (Series D, Series Eand Series F).  The aggregateprincipal amount is US$ 50 million for each of Series D and Series Eand US$ 75 million for Series F. The Series D Notes mature on January29, 2017, the Series E Notes mature on January 29, 2020 and the Series Fmature on January 29, 2019. Interest on the Series D Notes accrues at 5.19percent per annum, interest on the Series E Notes accrues at 5.75 percentper annum and interest on the Series F Notes accrues at 5.39 percent perannum. The proceeds from the Notes were used for general corporate purposes.

 

On February 8,2010, Luxottica Group SpA and Essilor International announced that the twocompanies have formed a long-term joint-venture for the Australian and New Zealandmarkets. Under the terms of the agreement, the joint-venture will manage EyebizPty Limited, Luxottica’s Sydney-based optical lens finishing laboratory, which,as a result of this alliance, will be majority-controlled by Essilor. Eyebizwill continue to supply all of Luxottica’s retail optical outlets in Australiaand New Zealand: OPSM, Budget Eyewear and Laubman & Pank.

 

On March 31,2010, Luxottica Group S.p.A. announced a three-year renewal of its exclusivelicense agreement with Jones Apparel Group for the design, production andglobal distribution of prescription frames and sunglasses under the Anne KleinNew York brand. The new agreement, which is substantially unchanged from theprevious agreement, extends the license through December 2012, with aprovision for a further renewal.

 

On March 31,2010, Retail Brand Alliance, Inc., and Luxottica Group S.p.A. announced afive-year extension of the licence agreement for the design, production andworldwide distribution of prescription frames and sunglasses under the BrooksBrothers brand. The new agreement will run through December 2014, with anoption for a further five-year extension under the same terms. The terms weresubstantially unchanged from those of the previous agreement.

 

In the firstthree months of 2010,  in connection withthe share buyback program approved at the Shareholders’ Meeting on October 29,2009 and launched on November 16, 2009, the Company purchased under thatbuyback program an aggregate amount of 546,712 treasury shares on the MilanStock Exchange’s Mercato Telematico Azionario (MTA) at an average unit price ofEuro 18.8 for an aggregate amount of Euro 10,280,809.

 

In parallel,Arnette sold during the same period on the MTA an aggregate amount of705,000  treasury shares, at an averageunit price of Euro 18.87, for an aggregate amount of Euro 13,303,645.

 

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| **Luxottica Group S.p.A. and Subsidiaries** | ** ** |
|---------------------------------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **VALUATION AND QUALIFYING ACCOUNTS**       | ** ** |
|                                             |            |  |  |  |  |  |  |  |  |  |  |

** **
| **ALLOWANCE FOR DOUBTFUL ACCOUNTS**          | ** ** |
|----------------------------------------------|------------|
| **(Amounts expressed in thousands of Euro)** | ** ** |
| ** **                                   | ** ** | **Balance at beginning of period** | ** ** | **Charged to costs and expenses** | ** ** | **Other (1)** | ** ** | **Deductions** | ** ** | **Balance at end of period** | ** ** |
| 2007                                         |       | 22,691 |   | 2,157 |   | 8,499 |   | (7,804) |   | 25,543 |   |
| 2008                                         |       | 25,543 |   | 15,250 |   | (386) |   | (11,338) |   | 29,069 |   |
| 2009                                         |       | 29,069 |   | 1,417 |   | 1,765 |   | (1,314) |   | 30,937 |   |

** **

** **
| **ALLOWANCE FOR INVENTORY RESERVE  ACCOUNTS** | ** ** |
|-----------------------------------------------|------------|
| **(Amounts expressed in thousands of  Euro)** | ** ** |
| ** **                                    | ** ** | **Balance at beginning of period** | ** ** | **Charged to costs and expenses** | ** ** | **Other (2)** | ** ** | **Deductions** | ** ** | **Balance at end of period** | ** ** |
| 2007                                          |       | 45,253 |   | 58,057 |   | 26,837 |   | (43,002) |   | 87,146 |   |
| 2008                                          |       | 87,146 |   | 39,075 |   | (976) |   | (60,157) |   | 65,088 |   |
| 2009                                          |       | 65,088 |   | 48,857 |   | 11,745 |   | (44,297) |   | 81,393 |   |

** **

** **
| **VALUATION ALLOWANCE**                       | ** ** |
|-----------------------------------------------|------------|
| **(Amounts expressed in thousands of  Euro)** | ** ** |
| ** **                                    | ** ** | **Balance at beginning of period** | ** ** | **Charged to costs and expenses** | ** ** | **Other (1)** | ** ** | **Deductions** | ** ** | **Balance at end of period** | ** ** |
| 2007                                          |       | 29,781 |   | 9,391 |   | (1,051) |   | (11,033) |   | 27,088 |   |
| 2008                                          |       | 27,088 |   | 1,292 |   | 503 |   | (4,835) |   | 24,048 |   |
| 2009                                          |       | 24,048 |   |   |   | 2,299 |   | (4,847) |   | 21,500 |   |

----

| (1)    | Other includes translation differences of the  period. |
|--------|--------------------------------------------------------|
|   |                                                   |
| (2)    | Other includes:                                        |
|   | a)                                                     | 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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**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). |

 

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| 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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| 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).                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.20   |   | Euro  300,000,000 Term Facility Agreement, dated November 11, 2009, between  Luxottica Group S.p.A. as Borrower, Luxottica U.S. Holdings Corp. and  Luxottica S.r.l. as Original Guarantors, Calyon S.A., Milan Branch, Deutsche  Bank S.p.A., Mediobanca — Banca di Credito Finanziario S.p.A., UniCredit  Corporate Banking S.p.A. as Mandated Lead Arrangers, Bookrunners and Original  Lenders and Mediobanca — Banca di Credito Finanziario S.p.A. as Agent  (incorporated herein by reference to our Report on Form 6-K, as filed  with the Commission on November 19, 2009). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.21   |   | Amendment  Agreement, dated November 27, 2009, for Luxottica U.S. Holdings Corp.,  as Borrower, arranged by Banc of America Securities Limited, acting as Agent,  relating to the Bridge Facility Agreement, dated October 12, 2007, as  amended on April 29, 2008 (incorporated herein by reference to our  Report on Form 6-K, as filed with the Commission on January 4,  2010).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.22   |   | Form of  Note Purchase Agreement, dated as of January 29, 2010, 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 February 11, 2010).                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.23   |   | Form of  Parent Guarantee, dated as of January 29, 2009, granted by Luxottica  Group S.p.A. (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on February 11, 2010).                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.24   |   | Form of  Subsidiary Guarantee, dated as of January 29, 2010, granted by Luxottica  S.r.l. (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on February 11, 2010).                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

102

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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:  April 29, 2010 |

 

103

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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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

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|   |   | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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|   |   | reference  to our Report on Form 6-K, as filed with the Commission on July 11,  2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.20   |   | Euro  300,000,000 Term Facility Agreement, dated November 11, 2009, between  Luxottica Group S.p.A. as Borrower, Luxottica U.S. Holdings Corp. and  Luxottica S.r.l. as Original Guarantors, Calyon S.A., Milan Branch, Deutsche  Bank S.p.A., Mediobanca — Banca di Credito Finanziario S.p.A., UniCredit Corporate  Banking S.p.A. as Mandated Lead Arrangers, Bookrunners and Original Lenders  and Mediobanca — Banca di Credito Finanziario S.p.A. as Agent (incorporated  herein by reference to our Report on Form 6-K, as filed with the  Commission on November 19, 2009). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.21   |   | Amendment  Agreement, dated November 27, 2009, for Luxottica U.S. Holdings Corp.,  as Borrower, arranged by Banc of America Securities Limited, acting as Agent,  relating to the Bridge Facility Agreement, dated October 12, 2007, as  amended on April 29, 2008 (incorporated herein by reference to our  Report on Form 6-K, as filed with the Commission on January 4,  2010).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.22   |   | Form of  Note Purchase Agreement, dated as of January 28, 2010, 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 February 11, 2010).                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.23   |   | Form of  Parent Guarantee, dated as of January 29, 2010, granted by Luxottica  Group S.p.A. (incorporated herein by reference to our Report on  Form 6-K, as filed with the Commission on February 11, 2010).                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.24   |   | Form of  Subsidiary Guarantee, dated as of January 29, 2010, granted by Luxottica  S.r.l. (incorporated herein by reference to our Report on Form 6-K, as  filed with the Commission on February 11, 2010).                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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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