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Annual
Report
2011

Table of contents

  • Page 1
    Annual Report 2011

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  • Page 3
    A N N UA L฀R EV I EW฀ 2 011

  • Page 4

  • Page 5
    3

  • Page 6
    All pictures in this Annual Review are from OneSight and are portraits of some of the thousands of people worldwide who received free eyecare from the Foundation in 2011. Further information on OneSight can be found on www.onesight.org.

  • Page 7
    ... Mission฀and฀strategy฀ 2.3฀ History฀ 2.4฀ Design฀and฀product฀development฀ 2.5฀ Operations฀ 2.6฀ Brand฀portfolio฀ 2.7฀ Distribution฀ 2.8฀ OneSight฀ ACTION฀PLANS฀FOR฀2012฀ GROUP฀TRENDS฀IN฀2011฀ HUMAN฀RESOURCES฀ OTHER฀INFORMATION฀ 7 8 10...

  • Page 8

  • Page 9
    ...from Ray-Ban to Oakley and LensCrafters to Sunglass Hut - made significant contributions to these results. Exceptional work by our businesses in various regions including the United States, emerging markets and Europe were drivers of Luxottica's successful 2011 performance. Net sales in 2011 reached...

  • Page 10
    ... ฀฀฀3,388 ฀฀฀3,453 ฀฀฀3,332 ฀฀฀3,808 ฀฀฀4,054 0 1,000 2,000 3,000 4,000 5,000 2009 2010 2011 RETAIL 2010-2011: NET SALES BY GEOGRAPHICAL AREA >฀North฀America >฀Asia-Pacifi ฀c >฀Europe >฀Other ฀฀3% ฀฀2% 15% ฀฀3% ฀฀14% 80% ฀฀83...

  • Page 11
    ...600 800 1,000 OPERATING INCOME (millions of Euro) 2009 2010 2011 2007 2008 ฀฀฀490 ฀฀฀390 ฀฀฀299 ฀฀฀402 ฀฀฀452 0 100 200 300 400 500 NET INCOME (Luxottica Group stockholders, millions of Euro) 2009 2010 2011 >฀North฀America >฀Asia-Pacifi ฀c >฀Europe...

  • Page 12

  • Page 13
    11 2 Luxottica฀Group 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Profile Mission฀and฀strategy History Design฀and฀product฀development Operations Brand฀portfolio Distribution OneSight 13 17 21 25 27 31 39 51

  • Page 14

  • Page 15
    ... sports sunglasses production facility in the United States. Luxottica also has a small plant in India serving the local market. In 2011, production reached approximately 64.5 million units. In 2012, Luxottica will benefit from the addition of a production facility in Campinas, Brazil, acquired in...

  • Page 16

  • Page 17
    ... the Middle East, mainly through the Sunglass Hut brand. In North America, Luxottica operates points of sale for its licensed brands under the Sears Optical and Target Optical brands. In addition, Luxottica is one of the largest managed vision care operators in the United States, through EyeMed, and...

  • Page 18

  • Page 19
    17 2.2 Mission฀and฀strategy VERTICAL INTEGRATION BRAND PORTFOLIO MANAGEMENT DESIGN AND TECHNOLOGICAL INNOVATION MARKET EXPANSION FINANCIAL DISCIPLINE LUXOTTICANS Luxottica produces and distributes sun and prescription eyewear of high technical and stylistic quality with the goal of improving ...

  • Page 20
    ... until it had an integrated manufacturing structure capable of producing a finished pair of glasses. In 1971, Luxottica's first collection of prescription eyewear was presented at Milan's MIDO (an international optics trade fair), marking Luxottica's definitive transition from contract manufacturer...

  • Page 21
    ...Vision, and an extensive Licensed Brands store business (Target Optical and Sears Optical). In 2005, the Company began its retail expansion into China, where LensCrafters has since become a leading brand in the country's high-end market. In the same year the Group also started to expand Sunglass Hut...

  • Page 22
    ... opportunities FINANCIAL DISCIPLINE The Company has a strong focus on operating profitability and cash generation to sustain growth. LUXOTTICANS Highly qualified, motivated and committed employees are critical to the long-term success of the Company. Luxottica carefully manages the hiring...

  • Page 23
    ... RETAIL MARKET 2003 2000 LISTING ON BORSA ITALIANA 2001 ENTRY INTO SUN RETAIL: SUNGLASS HUT OPSM IN AUSTRALIA AND NEW ZEALAND ACQUISITION OF PERSOL 1999 ACQUISITION OF VOGUE 1998 ENTERING THE MANAGED VISION CARE BUSINESS IN US 1995 1990 LISTING ON NYSE ENTRY INTO OPTICAL RETAIL: LENSCRAFTERS...

  • Page 24
    2.3฀History 50 YEARS OF EXCELLENCE

  • Page 25
    ...'s success. During 2011, Luxottica added approximately 5,600฀new฀styles to its eyewear collections. The design of the Group's products is the focal point where vicreativity converge. Ever in search of innovation and originality, the sion, technology and crea designers "see" eyewear as art, as...

  • Page 26

  • Page 27
    ... facility in the United States dedicated to producing Oakley frames and lenses located in Foothill Ranch, California, a small plant in India dedicated to serving the local market and a newly acquired manufacturing facility in Campinas, Brazil, part of the Grupo Tecnol acquisition. Luxottica has six...

  • Page 28
    ...ANNUAL REVIEW 2011 The manufacturing process for both metal and plastic frames begins with the fabrication of precision tooling and molds based on prototypes developed by in-house designers and engineering staff. The Group seeks to use its manufacturing capacity to reduce the lead time for product...

  • Page 29
    ...counterfeit goods through the internet, and works actively to remove counterfeit eyewear from certain popular on-line auction platforms and shut down the websites that violate its intellectual property rights, through the sale of counterfeit products or the unauthorized use of Luxottica's trademarks...

  • Page 30

  • Page 31
    ... 2013. In January 2012, Coach eyewear collections commenced distribution through Coach stores across the world, in select department stores primarily in North America, Japan, China and East Asia as well as through select travel retail locations, independent optical locations and Luxottica's retail...

  • Page 32
    ..., Ray-Ban joined Luxottica's brand portfolio in 1999. RayBan is recognized for the quality and authenticity of its eyewear and is worn by celebrities all over the world. OAKLEY Acquired by Luxottica in 2007, Oakley is a leading sports eyewear brand, known for its blend of technology, design and...

  • Page 33
    ... and stylish frames use titanium and injected plastic for a lightweight design, ideal for active individuals. Most frames utilize advanced lens technology. OLIVER PEOPLES Acquired by Luxottica in 2007, Oliver Peoples began in 1987 with the introduction of a retro- inspired eyewear collection created...

  • Page 34
    ... marketer of fine accessories and gifts for women and men. Coach offers premium lifestyle products to a loyal and growing customer base and provides consumers with fresh, relevant and innovative products made with a broad range of high quality leathers, fabrics and materials. DOLCE & GABBANA Dolce...

  • Page 35
    ... motocross and action sport brand based in California. Fox eyewear and ski goggles have been on the market for over six years and it is currently the only brand other than Oakley to use High Definition Optics® (HDO®) technology. Fox Eyewear joined Luxottica's brand portfolio at the end of 2007...

  • Page 36
    36 ANNUAL REVIEW 2011 Ralph Lauren Group Under license since 2007, the Ralph Lauren Group includes the following collections: RALPH LAUREN PURPLE LABEL The Ralph Lauren Purple Label eyewear collection is the ultimate expression of modern elegance, reflecting an impeccable sense of high quality, ...

  • Page 37
    ...look. TIFFANY & CO. Founded in 1837 in New York City, Tiffany has a rich heritage filled with celebrated events, artists and milestones that live on today in legendary style. Luxottica was the first company licensed to produce Tiffany's eyewear collection that takes inspiration from the most iconic...

  • Page 38

  • Page 39
    ... markets. All this makes it possible to achieve tig tion of brand diffusion, both house and license. Luxottica's distribution structure is one of the Group's main strengths. It is global, embracing retail stores and serving a wholesale distribution network of third party stores and chains. In 2011...

  • Page 40
    ... as centralized facilities, offering customers a highly automated order management system that reduces delivery times and keeps stock levels low. The Sedico hub was opened in 2001 and is state of the art in the sector. In 2011, it managed over 14,000 orders per day, including eyeglasses and spare...

  • Page 41
    ... with large international, national and regional accounts are generally managed by employees. Customers of the wholesale business are mostly retailers of mid to premium-priced eyewear, such as independent opticians, prescription retail chains, specialty sun retailers, department stores and duty...

  • Page 42
    ... Turkey United Kingdom 39% 61% RETAIL 7,042 stores (of which 531 in franchising) NORTH AMERICA Prescription LensCrafters Pearle Vision (of which 352 in franchising) Sears Optical Target Optical The Optical Shop of Aspen Prescription/Sun Oliver Peoples (of which 1 in franchising) Sun Sunglass Hut...

  • Page 43
    INDIA EUROPE NORTH AMERICA CHINA SOUTH AFRICA CENTRAL AMERICA ASIA-PACIFIC AFRICA MIDDLE-EAST SOUTH AMERICA 2.7 DISTRIBUTION 43

  • Page 44
    ..., advanced eye care, everyday value and high-quality vision care health benefits. As of December 31, 2011, Luxottica's฀retail฀business consisted฀of฀7,042฀stores. OPTICAL RETAIL Luxottica's optical retail operations are anchored by leading brands such as LensCrafters and Pearle Vision in...

  • Page 45
    ... December 31, 2011, Pearle Vision operated 310 corporate stores and had 352 franchise locations throughout North America. Since 2004, Luxottica also operates a network of retail locations in North America operating as Sears Optical and Target Optical, known as "Licensed Brands," which use the brand...

  • Page 46
    ... and chains operated by Luxottica. EyeMed seeks to offer quality, choice, value and service excellence -- all priority concerns for employers shopping for vision care programs, especially for large groups. Customers using such services benefit from the quality of the products and the wide...

  • Page 47
    ...United States in 1971 to operate in department stores, Sunglass Hut gradually expanded its base of stores and kiosks in shopping malls to new retail locations on city shopping streets and in airports. Over the years, Sunglass Hut focused increasingly on selling premium sunglasses. In 2007, Luxottica...

  • Page 48

  • Page 49
    ... service, quality and fashion. Its marketing is targeted to reinforce these brand values and build long-term relationships with customers. In addition to operating optical stores, David Clulow operates a number of sunglass concessions in upmarket department stores, further reinforcing its position...

  • Page 50

  • Page 51
    ...฀people through the direct service delivery of eye care and eyewear and granted millions of dollars towards research and education. During outreach activities, Luxottica employees volunteer to use their business expertise in eye care, delivering free screenings and eyewear to disadvantaged people...

  • Page 52

  • Page 53

  • Page 54
    ... Regional Clinics in North America and with Vision Vans, which are complete optical labs on wheels, free eye exams and new eyewear were provided to 21,000 children across 35 cities. Volunteers and doctors provided eye care assistance in Luxottica retail stores and free vision care to schools and...

  • Page 55
    ... to help build sustainable long-term vision care solutions for underprivileged communities around the globe. During the course of 2012, OneSight is planning 12 projects in six countries including a return visit to The Gambia to continue work with SightSavers International. Volunteers will also be...

  • Page 56

  • Page 57
    57 3฀Action฀plans฀for฀2012 In฀2012,฀ Luxottica฀will฀develop฀ its฀action฀plans฀guided฀by฀ three฀main฀principles: Grow,฀Simplify,฀Connect

  • Page 58
    ... best opportunities wherever they appear. Additionally, Luxottica's plans for growth in the emerging markets are based on the continued roll-out of Sunglass Hut stores in this area, performance of the newly acquired GMO chain (since 2011) in Latin America and continued excellent results from China...

  • Page 59
    ... a positive year for the Retail Division in Australia, with comparable store sales1 increasing by approximately 10% in the fourth quarter of 2011. During 2012, Luxottica aims to further strengthen the market position of OPSM, the main eyewear chain in the region, through a plan that foresees 50 new...

  • Page 60

  • Page 61
    61 4฀Group฀trends฀in฀2011

  • Page 62
    ... the year, total net sales for 2011 exceeded Euro 6.2 billion, an unprecedented result for Luxottica, as compared to the previous record of Euro 5.8 billion in 2010 (+7.3% at current exchange rates and 9.9% at constant exchange rates3). (millions of Euro) Net sales Operating income Operating income...

  • Page 63
    ... 0.99. By carefully controlling working capital, the Group generated strong free cash flow, reaching approximately Euro 500 million during the year. As a result, net debt2 as of December 31, 2011 decreased further, falling to Euro 2,032 million (Euro 2,111 million at the end of 2010), and the ratio...

  • Page 64

  • Page 65
    65 5฀Human฀resources GROUP HEADCOUNT ORGANIZATIONAL DEVELOPMENT RETAIL WHOLESALE OPERATIONS CORPORATE SERVICES MANAGEMENT AND DEVELOPMENT OF HUMAN RESOURCES

  • Page 66
    ...for ophthalmic lenses. As for the Sun Retail business, Latin America also saw Luxottica acquire two major local chains in Mexico which have been swiftly rebranded into Sunglass Hut and integrated into the general retail distribution organization. This acquisition, along with the opening of stores in...

  • Page 67
    ... on a global scale and the creation of a head office position in charge of corporate functions. The Business Development, Human Resources and Risk Management and Compliance functions benefited from important professional investments during the year. Lastly, 2011 saw the launch of the ''Zero฀Waste...

  • Page 68
    68 ANNUAL REVIEW 2011 MANAGEMENT AND DEVELOPMENT OF HUMAN RESOURCES Once again in 2011 the Group sought to improve its unique ''value฀ proposition,'' making Luxottica a great place to work with the ability for individuals to realize many differing expectations and aspirations. With the aim of ...

  • Page 69

  • Page 70
    70 ANNUAL REVIEW 2011

  • Page 71
    71 Other information 2000-2011 EVOLUTION OF NUMBER OF STORES SHARE CAPITAL AND DIVIDEND PER SHARE NOTES 1990-2011 LUXOTTICA SHARE PERFORMANCE

  • Page 72
    ... OF NUMBER OF STORES At December 31, LensCrafters Pearle Vision Licensed brands Sears Optical Target Optical BJ's Optical The Optical Shop of Aspen Oliver Peoples Sun North America (of which Ilori) Oakley Stores and Vaults NORTH AMERICA Prescription Australia & New Zealand Sunglass Hut Bright Eyes...

  • Page 73
    ... certain of Luxottica's assets in Australia; and the release in 2010 of a provision for taxes of approximately Euro 20 million related to the sale of the Things Remembered retail business in 2006. (3) 2010 and 2011 figures at constant exchange rates are calculated using the average exchange rates in...

  • Page 74
    ...ANNUAL REVIEW 2011 1990-2011 LUXOTTICA SHARE PERFORMANCE LUXOTTICA NYSE (US$) Year 1990 (a) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011...502 29.991 Closing 1.019 2.750...stock split which was effective April 16, 1998, and the two-for-one stock...

  • Page 75
    ... (rebased) S&P 500 (rebased) 22-year low US$ 0.7938 on November 7, 1990 22-year high US$ 39.38 on July 12, 2007 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 12-year high Euro 28.79 on July 9, 2007 35 30 25 20 15 10 5 0 Ordinary share MTA (Euro) S&P MIB (rebased) Eur...

  • Page 76
    76 ANNUAL REVIEW 2011 LUXOTTICA GROUP S.P.A. REGISTERED OFFICE AND HEADQUARTERS Via C. Cantù, 2 - 20123 Milan - Italy Tel. +39 02 86334.1 - Fax +39 02 8633 4636 E-mail: [email protected] Fiscal code and Milan company register no. 00891030272 VAT no. 10182640150 MEDIA RELATIONS Via C. Cantù, 2 ...

  • Page 77
    ANNUAL REPORT 2011 Fiscal year ended December 31, 2011

  • Page 78

  • Page 79
    ... of comprehensive income Consolidated statement of stockholders' equity Consolidated statement of cash flows Notes Certification of the consolidated financial statements Report of the Independent Auditors Board of Directors' proposal Report of the Statutory Auditors Corporate information 5 44 53 97...

  • Page 80
    >4| ANNUAL REPORT 2011

  • Page 81
    MANAGEMENT REPORT |5> Management฀report

  • Page 82
    ... of the year, total net sales for 2011 exceeded Euro 6.2 billion, an unprecedented result for Luxottica, as compared to the previous record of Euro 5.8 billion in 2010 (+7.3 percent at current exchange rates and 9.9 percent at constant exchange rates (1)). The year's operating performance once again...

  • Page 83
    ... The original maturity date of the credit line was July 13, 2011. February On February 17, 2011, the Group announced that it had entered into agreements pursuant to which the Group subsequently acquired two sunglass specialty retail chains totaling more than 70 stores in Mexico for a total amount of...

  • Page 84
    ... the activities of Luxottica S.r.l., which started in 2007 and is aimed at focusing the business of this company on manufacturing activities. The demerger, was not subject to the Group's Procedure for Operations with Related Parties and was based upon the financial statements as of June 30, 2011 of...

  • Page 85
    ..., Sunglass Hut, Pearle Vision, OPSM, Laubman & Pank, Bright Eyes, Oakley "O" Stores and Vaults, David Clulow, Multiopticas and our Licensed Brands (Sears Optical and Target Optical). As a result of our numerous acquisitions over the years and the subsequent expansion of our business activities in...

  • Page 86
    ...(thousands of Euro) Net sales Cost of sales Gross profit 2011 6,222,483 2,168,065 4,054,419 % of net sales 100.0% 34.8% 65.2% 2010 5,798,035 1,990,205 3,807,830 % of net sales 100.0% 34.3% 65.7% Selling Royalties Advertising General and administrative Total operating expenses 1,994,979 106,322 408...

  • Page 87
    ... loss related to the reorganization of the Australian business Selling - - 2.9 - Advertising - 5.7 - - During the year ended December 31, 2010, the Group recorded the following items characterized as extraordinary or non-recurring in its financial results: (i) an impairment charge totaling...

  • Page 88
    ... mainly attributable to increased sales of most of our house brands, in particular Ray-Ban, Oakley and Persol, and of some designer brands such as Tiffany, Ralph Lauren and Burberry. These sales volume increases occurred in most of the geographic markets in which the Group operates. These positive...

  • Page 89
    ... sales, selling and advertising expenses decreased to 40.3 percent in 2011, compared to 40.8 percent in 2010, mainly due to the increase in net sales in relation to the fixed portion of selling expenses, such as occupancy costs. Adjusted selling and advertising expenses (including royalty expenses...

  • Page 90
    ... 2010. Discontinued operations were Euro 19.9 million in 2010 and related to certain contingent liabilities originally recorded as part of the sale of our Things Remembered retail business in 2006, which expired. Our effective tax rate was 34.1 percent and 36.0 percent in 2011 and 2010, respectively...

  • Page 91
    ... 31, (thousands of Euro) Net sales Cost of sales Gross profit 2011 1,509,030 546,281 962,748 % of net sales 100.0% 36.2% 63.8% 2010 1,346,492 460,810 885,682 % of net sales 100.0% 34.2% 65.8% Selling Royalties Advertising General and administrative Total operating expenses 509,192 26,200 101,712...

  • Page 92
    ...ANNUAL REPORT 2011 The following table sets forth the non-recurring income and expense items discussed above as allocated among the appropriate line items of the Group's Consolidated Statement of Income: General and administrative 1.9 (0.5) 9.6 Selling Extraordinary gain related to the acquisition...

  • Page 93
    ... 2010. This increase was mainly attributable to increased sales of most of our house brands, in particular Ray-Ban, Oakley and Persol, and of some designer brands such as Tiffany, Burberry and MiuMiu. These sales volume increases occurred in most of the geographic markets in which the Group operates...

  • Page 94
    > 18 | ANNUAL REPORT 2011 the three-month period ended December 31, 2011, compared to US$ 157.1 million, or 22.4 percent of total net sales in the segment, in the same period of 2010. The increase in net sales in the United States and Canada of US$ 26.1 million, or 16.6 percent, during the three-...

  • Page 95
    ... 31, 2011, compared to Euro 0.9 million in the same period of 2010. Discontinued operations were Euro 19.9 million in 2010 and related to certain contingent liabilities originally recorded as part of the sale of our Things Remembered retail business in 2006, which expired. Our effective tax rate was...

  • Page 96
    ... net income attributable to Luxottica Group stockholders as a percentage of net sales increased to 4.8 percent during the three-month period ended December 31, 2011, from 4.1 percent in the same period of 2010. Basic and diluted earnings per share from continuing operations were Euro 0.14 during...

  • Page 97
    ... compared to Euro 32.5 million in 2010. The change in 2011 as compared to 2010 was primarily attributable to the timing of our tax payments in the different jurisdictions in which the Group operates. Investing activities. The Company's net cash used in investing activities was Euro (459.9) and Euro...

  • Page 98
    > 22 | ANNUAL REPORT 2011 OUR CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - IN ACCORDANCE WITH IAS/IFRS (thousands of Euro) ASSETS December 31, 2011 December 31, 2010 CURRENT ASSETS: Cash and cash equivalents Accounts receivable - net Inventories - net Other assets Total current assets ...

  • Page 99
    MANAGEMENT REPORT | 23 > (thousands of Euro) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings Current portion of long-term debt Accounts payable Income taxes payable Other liabilities Total current liabilities NON-CURRENT LIABILITIES: Long-term debt Liability for...

  • Page 100
    ... mainly in the Group's manufacturing facilities during 2011 and to the currency fluctuation effect. Our net financial position as of December 31, 2011 and December 31, 2010 was as follows: December 31, (thousands of Euro) Cash and cash equivalents Short-term borrowings Current portion of long-term...

  • Page 101
    ... in 2010) and related, for both 2011 and 2010, to the opening of new stores, the remodeling of older stores whose leases were extended during the year, and to projects for upgrading the management information system. The intangible assets of Euro 4,441.5 million reported in the financial statements...

  • Page 102
    ... markets and shared commercial planning and customer management services received special attention and added new experienced members to its ranks. In December 2011, Luxottica finalized the acquisition of Grupo Tecnol in Brazil. The integration of the two organizations has started immediately...

  • Page 103
    ... Waste" program aimed at promoting initiatives to reduce the environmental cost of manufacturing and distribution activities. MANAGEMENT AND DEVELOPMENT OF HUMAN RESOURCES Once again in 2011 the Group sought to improve its unique "value proposition", making Luxottica a great place to work with the...

  • Page 104
    ... of Luxottica's role as a benchmark organization in the management and development of human capital. 6. CORPORATE GOVERNANCE Information about ownership structure and corporate governance is contained in a specific document forming an integral part of the Annual Financial Report. 7. PERSONAL...

  • Page 105
    ... of ensuring efficient management of capital and of executing the "Performance Shares Plan". Under the 2008 Program, completed on November 13, 2009, the Company purchased a total of 1,325,916 shares on the Milan Stock Exchange's Mercato Telematico Azionario (MTA) at an average unit price of Euro 17...

  • Page 106
    ... or if the counterparties to its credit facilities or its derivative transactions do not perform their obligations, the Group's business, results of operations, financial condition and cash flows could be materially adversely affected. b) If business of the Group suffers due to changing local...

  • Page 107
    ... financial condition. RISKS RELATING TO GROUP BUSINESS AND OPERATIONS e) If the Group is unable to successfully introduce new products and develop its brands, its future sales and operating performance may suffer The mid- and premium-price categories of the prescription frame and sunglasses markets...

  • Page 108
    ... to deliver products to its customers in a timely and efficient manner. The Group must also continuously develop new product designs and features, expand its information systems and operations, and train and manage an increasing number of management level and other employees. If the Group is unable...

  • Page 109
    ... could suffer The Group has entered into license agreements that enable it to manufacture and distribute prescription frames and sunglasses under certain designer names, including Chanel, Prada, Miu Miu, Dolce & Gabbana, D&G, Bvlgari, Tiffany & Co., Versace, Burberry, Polo Ralph Lauren, Donna Karan...

  • Page 110
    > 34 | ANNUAL REPORT 2011 there can be no assurance that Group's employees, contractors or agents will not violate such laws and regulations or its policies. Any such violations could individually, or in the aggregate, materially adversely affect its financial condition or operating results. ...

  • Page 111
    ... markets, its business, results of operations and financial condition could suffer The mid- and premium-price categories of the prescription frame and sunglasses markets in which the Group operates are highly competitive. The Group believes that, in addition to successfully introducing new products...

  • Page 112
    ..., and increased costs of operating business of the Group The Group relies on information technology systems both managed and outsourced to third parties, across its operations, including for management of its supply chain, point-of-sale processing in its stores and various other processes and...

  • Page 113
    ... Group procedures designed to comply with Section 404 of the Sarbanes-Oxley Act of 2002 cause the Group to identify material weaknesses in its internal control over financial reporting, the trading price of its securities may be adversely impacted The management of the Group evaluated its internal...

  • Page 114
    ...and the Euro. As its international operations grow, future changes in the exchange rate of the Euro against the US Dollar and other currencies may negatively impact its reported results, although the Group has in place policies designed to manage such risk. u) If economic conditions around the world...

  • Page 115
    ... best opportunities wherever they appear. Additionally, Luxottica's plans for growth in the emerging markets are based on the continued roll-out of Sunglass Hut stores in this area, performance of the newly acquired GMO chain (since 2011) in Latin America and continued excellent results from China...

  • Page 116
    ... year for the Retail Division in Australia, with comparable store sales (11) increasing by approximately 10 percent in the fourth quarter of 2011. During 2012, Luxottica aims to further strengthen the market position of OPSM, the main eyewear chain in the region, through a plan that foresees 50 new...

  • Page 117
    .... On January 24, 2012 the Board of Directors of Luxottica approved the reorganization of the retail business in Australia. As a result of this reorganization the Group will close about 10 percent of its Australian and New Zealand stores, redirecting resources into its market leading OPSM brand. As...

  • Page 118
    ...in the corporate governance report; 5. the Company has made a world-wide and national group tax election (sections 117129 of the Italian Tax Code) starting from fiscal year 2004 and subsequently extended for another three years in 2007 and in 2010. Under this election, Luxottica Group S.p.A., as the...

  • Page 119
    ... of Euro) Parent company financial statements Elimination of intragroup dividends Trademarks and other intangible assets (net of tax effect) Elimination of internal profits on inventories (net of tax effect) Difference between value of investments in consolidated companies and related share of...

  • Page 120
    ...; (e) the release in 2010 of a provision for taxes of Euro 19.9 million related to the sale of Things Remembered retail business in 2006 and (f) a non-recurring impairment charge recorded in the fourth quarter of 2010 of approximately Euro 20 million related to certain of the Company assets in the...

  • Page 121
    ... - - N/A FY 2010 Income before provision for income taxes 605.6 20.4 - 626.0 Net income attributable to Luxottica stockholders 402.2 20.4 (19.9) 402.7 (millions of Euro) Reported Adjustments for goodwill impairment loss Adjustment for discontinued operations Adjusted Net sales 5,798.0 - - 5,798...

  • Page 122
    ...- - N/A 4Q 2010 Income before provision for income taxes 68.1 20.4 - 8.7% - 88.5 Net income attributable to Luxottica stockholders 55.1 20.4 (19.9) 55.6 (millions of Euro) Reported Adjustments for goodwill impairment loss Adjustment for discontinued operations Adjusted Net sales 1,346.5 - - 1,346...

  • Page 123
    ... taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to the overall operating performance of a company's business. EBITDA and EBITDA margin are not measures of performance under IAS/IFRS. We include them in this Management Report...

  • Page 124
    .../(loss) (+) Discontinued operations (-) Net income attributable to non-controlling interest (+) Provision for income taxes (+) Other (income)/expense (+) Depreciation & amortization (+) EBITDA (=) Net sales (/) EBITDA margin (=) 4Q 2010 55.1 (19.9) 0.9 32.0 28.1 76.2 172.3 1,346.5 12.8% 4Q 2011 64...

  • Page 125
    ...) in working capital over the prior period, less capital expenditures, plus or minus interest income/(expense) and extraordinary items, minus taxes paid. We believe that free cash flow is useful to both management and investors in evaluating our operating performance compared with other companies in...

  • Page 126
    ... the interest rates charged by the Company's lenders. EBITDA and ratio of net debt to EBITDA are not measures of performance under International Financial Reporting Standards as issued by the International Accounting Standards Board (IAS/IFRS). We include them in this Management Report in order to...

  • Page 127
    ... the reader in better understanding the operational performance of the Company. The Company cautions that these measures are not defined terms under IAS/IFRS and their definitions should be carefully reviewed and understood by investors. Investors should be aware that Luxottica Group's method of...

  • Page 128
    ... relating to our industry and general economic conditions, our business and operations and financial risks and include, but are not limited to, our ability to manage the effect of the uncertain current global economic conditions on our business, our ability to successfully acquire new businesses...

  • Page 129
    REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE | 53 > Report฀on Corporate฀Governance and฀ownership฀structure pursuant฀to฀article123-bis฀of฀the฀Italian consolidated฀financial฀law฀

  • Page 130
    ... 2011 and includes the most relevant subsequent events up to the date of its approval. SECTION I - GENERAL INFORMATION AND OWNERSHIP STRUCTURE I. INTRODUCTION The group of companies controlled by Luxottica Group S.p.A., a world leader in eyewear, is driven by a single business strategy implemented...

  • Page 131
    ... and the New York Stock Exchange ("NYSE"), according to the highest standards of corporate governance. The values established in the Code of Ethics of Luxottica Group bind all employees to ensure that the activities of the Group are performed in compliance with applicable law, in the context of fair...

  • Page 132
    ... there is no common managing interest between Luxottica Group and the parent company, nor between Luxottica Group and the other affiliates of Delfin. (1) The shares held by Deutsche Bank Trust Company Americas represent ordinary shares that are traded in the US financial market through issuance by...

  • Page 133
    ... CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE | 57 > Information on the stock option plans, the share capital increases approved by stockholders and reserved to stock option plans, and the performance share plan assigned to employees is available in the notes to the separate consolidated financial...

  • Page 134
    ... Del Vecchio family gains control of at least 50 percent of the Company shares. On September 30, 2010 Luxottica Group S.p.A. made a private placement of notes on the U.S. market for a total amount of Euro 100 million with the following expiry dates: Euro 50 million on September 15, 2017; and Euro 50...

  • Page 135
    ..., and October 29, 2009, the Company purchased a total of 6,500,000 Luxottica Group shares on the market. Of these, 313,575 shares were allotted as a bonus for employees of the Italian companies of the Group, approved by the Board of Directors on August 31, 2011, to celebrate the 50th anniversary of...

  • Page 136
    ... | ANNUAL REPORT 2011 SECTION II - INFORMATION ON THE IMPLEMENTATION OF THE PROVISIONS OF THE CODE OF CONDUCT I. BOARD OF DIRECTORS Role and duties The Board of Directors plays a central role in Luxottica's corporate governance. It has the power and responsibility to direct and manage the Company...

  • Page 137
    REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE | 61 > through the examination of a report prepared each fiscal year. The Board of Directors reviews and approves the Company's governance code also in connection with the Group structure. The Board of Directors grants and revokes managing ...

  • Page 138
    ... to make informed decisions. Meeting days were organized for the Group's senior management and the Company Directors in January and July 2011 in order to promote a more in-depth knowledge of the business operations of the Company. In January 2012, the Company issued the calendar of corporate events...

  • Page 139
    ... his long career in the Group he was Group's Product & Design Director, Group's Chief Quality Officer and Technical General Manager. He is the Chairman of Luxottica S.r.l., one of the major subsidiary companies of the Group. In April 2000, he was awarded an honorary business administration degree...

  • Page 140
    ... and General Manager of Central Corporate Functions since 2011. He held the position as Chief Financial Officer since he joined Luxottica Group in 1999 until March 2011. He is a member of the Board of Directors of the leading subsidiaries of the Group. Before joining Luxottica Group, he was Planning...

  • Page 141
    ... to 1997, he was in charge of the Group business in North America. He is Chairman and Chief Executive Officer of Brooks Brothers Group Inc. He is also a Director in Luxottica U.S. Holdings Corp. Sergio Erede Mr. Erede has been a member of the Board of Directors of the Company since 2004. He holds...

  • Page 142
    ... | ANNUAL REPORT 2011 Sabina Grossi Ms. Grossi has been a member of the Board of Directors of the Company since 2003. She holds a degree in Business and Economics and is a certified public accountant registered in the Auditors Register. Since 2005, she has also been a member of the Human Resources...

  • Page 143
    REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE | 67 > Gianni Mion Mr. Mion has been member of the Board of Directors of the Company since 2004. He holds a degree in Business Administration and is a certified public accountant and auditor. He has been Chief Executive Officer of Edizione ...

  • Page 144
    .... The Chief Executive Officer has been granted all the powers to manage the Company by virtue of the resolution adopted by the Board of Directors on April 29, 2009, with the exception of the following powers: a) to approve strategic agreements and agreements with a financial value exceeding Euro...

  • Page 145
    ..., General Manager, have been granted the powers to perform transactions with a value not exceeding Euro 10 million. Mr. Luigi Francavilla, Mr. Andrea Guerra and Mr. Enrico Cavatorta, also hold offices in companies controlled by Luxottica Group. The Board of Directors, therefore, has four Executive...

  • Page 146
    ... 2011 the Lead Independent Director did not deem it necessary to convene a meeting with the independent directors only. Appointment of Directors The Board of Directors was appointed by the meeting of April 29, 2009, according to the list-based voting system. The minimum percentage of share capital...

  • Page 147
    ... is required in order to be able to submit the lists, is determined by taking the number of registered shares of the shareholders submitting the list into consideration on the day the list is submitted to the Company and based on the subscribed share capital on that date. The relevant certification...

  • Page 148
    ... structure. Remuneration of Directors and Directors with Strategic Responsibilities The general principles adopted by the Group on remuneration are defined in the Remuneration Policy approved on October 24, 2011 by the Board of Directors of the Company on the proposal of the Human Resources...

  • Page 149
    ... approve the statutory financial statements for the year ended December 31, 2011. Please refer to the report on remuneration published in accordance with article 123-ter of Italian Consolidated Financial Law for more detailed information. Human Resources Committee The Board of Directors of April 29...

  • Page 150
    ... set by the Board, by planning, implementing and managing the internal control system, and regularly assessing its overall adequacy, efficiency and effectiveness. The Chief Executive Officer is also responsible for the adjustment of the system to the changes in the operational conditions and of the...

  • Page 151
    ... process of adapting the Internal Control System and Risk Management to the developments in operating conditions and legal and regulatory frameworks, in October 2011 the Board of Directors revised the Financial Risk Policy applicable to all the companies of the Luxottica Group, already introduced in...

  • Page 152
    ... Committee performs the following activities: • assists the Board in the execution of its tasks regarding internal controls; • evaluates (i) the work program of the Internal Control Officer and the regular reports issued, (ii) the correct use of accounting principles, together with the manager...

  • Page 153
    ... and has direct access to any information useful for the performance of these duties. The Internal Control Officer has been identified by the Board of Directors, upon the proposal of the Chief Executive Officer, as the Internal Auditing Manager of Luxottica Group, Mr. Luca Fadda. The guidelines...

  • Page 154
    ... fiscal year, the Internal Control Officer has performed his role through the implementation of an activities and verifications plan, related to the Company and its main subsidiaries. Such actions, which the Officer periodically has reported to the Chairman, the Chief Executive Officer and the Board...

  • Page 155
    ... funds, totaling Euro 50,000, in order to provide the Supervisory Board with adequate financial resources to perform its duties for the 2011 fiscal year. On the basis of the guidelines provided by the Parent Company and of the risk assessment performed, the subsidiary companies Luxottica S.r.l. and...

  • Page 156
    ... statements (Internal Control Over Financial Reporting-ICFR). The disclosure controls and procedures are designed to ensure that the financial information is adequately collected and communicated to the Chief Executive Officer (CEO) and to the Chief Financial Officer (CFO), so that they may make...

  • Page 157
    ... for all of the most important companies of the Group. The Board of Statutory Auditors The Board of Statutory Auditors currently in office for the duration of three fiscal years, until the approval of the financial statements as at December 31, 2011 is composed of Francesco Vella, Chairman, Alberto...

  • Page 158
    ..., which is required in order to be able to submit the lists, is determined by taking the number of registered shares of the shareholders submitting the list into consideration on the day the list is submitted to the Company compared to the total subscribed share capital on that date. The relevant...

  • Page 159
    ... Legislative Decree 39/2010, supervises the financial information process, the efficiency of the internal auditing system, the auditing of accounts and the independence of the legal auditor. Each Auditor reports to the other Auditors and to the Board of Directors on Company transactions in which...

  • Page 160
    ... the requests to make use of the auditing company appointed to perform the auditing of the balance sheet for permitted non-audit services and expresses their opinion on the matter to the Board of Directors; • approves the procedures prepared by the Internal Auditing manager for the preemptive...

  • Page 161
    ... no. 148, paragraph 3, of the Italian Consolidated Financial Law. Below is some background information on the members of the Board of Statutory Auditors currently in office and on the main offices held in other companies as at December 31, 2011. Francesco Vella - Chairman An attorney at law, Mr...

  • Page 162
    ... and relating to the accounting report, including half-year reports, of the Company; and (iii) the issue, together with the Chief Executive Officer, of certificates pursuant to article 154-bis paragraph 5, of the Italian Consolidated Financial Law, with reference to the separate financial statements...

  • Page 163
    REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE | 87 > III. BY-LAWS, CODE OF CONDUCT AND PROCEDURES By-laws The current Company by-laws were most recently amended on the resolution of the Board of Directors on October 25, 2010 for the purpose of adapting the by-laws to the provision of ...

  • Page 164
    ... - namely directors, auditors of the Company and seven managers with strategic functions (pursuant to article 152-sexies letter c2) - inform the Company, CONSOB and the public about any transactions involving the purchase, sale, subscription or exchange of Luxottica shares or financial instruments...

  • Page 165
    ..., the Board of Directors approved the "Group Procedure for the Appointment of External Auditors", in order to protect the independence of the external auditor, which is the fundamental guarantee of the reliability of the accounting information regarding the appointing companies. This policy was last...

  • Page 166
    ... | ANNUAL REPORT 2011 The parent company's external auditor is the main auditor for the entire Luxottica Group. The limitations on the appointment contained in this policy derive from current regulations in Italy and in the United States, by virtue of the fact that the Company's shares are listed...

  • Page 167
    ... of accounts for the 2012-2020 fiscal years. V. INVESTOR RELATIONS An investor relations team, directly reporting to the Chief Executive Officer, is dedicated to relations with the national and international financial community, with investors and analysts, and with the market. The Company set...

  • Page 168
    .... After closing the 2011 fiscal year, the Board of Directors: (a) in accordance with the Application Criteria 1.C.1. (a) and 1.C.1. (b) of the Code of Conduct, approved the annual report concerning the organizational and accounting corporate structure of Luxottica Group, identifying strategically...

  • Page 169
    REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE | 93 > DIRECTORS IN OFFICE Number of other offices (**) 4 1 2 4 7 - 1 4 1 6 1 2 7 4 X X X X 1. COMPOSITION OF THE BOARD OF DIRECTORS AND OF THE COMMITTEES - FISCAL YEAR 2011 Internal Control Committee (***) (*) Human Resources Committee (***)...

  • Page 170
    ... Number of other positions in office held (*) 3 - 1 of which listed 8 - 5 of which listed 7 - 3 of which listed Number of meetings during the 2011 fiscal year: 8 (*) Indicates the number of offices as director or auditor performed by the interested party in other listed companies indicated...

  • Page 171
    ... found and downloaded on the website www.luxottica.com Internal Control Did the Company appoint internal control officers? Are the officers independent from managers of operational areas? Organization department responsible for internal control YES YES Internal Auditing Investor relations Did the...

  • Page 172

  • Page 173
    CONSOLIDATED FINANCIAL STATEMENTS | 97 > Consolidated financial฀statements

  • Page 174
    ... 2011 Consolidated statements฀of฀financial฀position CONSOLIDATED STATEMENTS OF FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (*) At 31 december (thousands of Euro) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable - net Inventory - net Other assets Total...

  • Page 175
    ... FINANCIAL STATEMENTS - CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | 99 > At 31 december (thousands of Euro) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings Current portion of long-term debt Accounts payable Income taxes payable Other liabilities Total...

  • Page 176
    ...100 | ANNUAL REPORT 2011 Consolidated฀statement฀of฀income CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (*) (thousands of Euro) (1) Net sales Cost of sales Gross profit Selling Royalties Advertising General and administrative Total operating expenses Income...

  • Page 177
    ... - net of tax Total comprehensive income for the period Attributable to: - Luxottica Group stockholders' equity - Non-controlling interests Total comprehensive income for the period (*) In accordance with IAS/IFRS. See notes to the consolidated financial statements. 2011 458,300 2010 407,258 21...

  • Page 178
    > 102 | ANNUAL REPORT 2011 Consolidated฀statement of฀stockholders'฀equity CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (*) Capital stock (thousands of Euro) Balance as of January 1, 2010 Net income Other comprehensive income: Translation ...

  • Page 179
    ... gains/(losses) - net of taxes of Euro 22.9 million Total comprehensive income as of December 31, 2011 Exercise of Stock Options Non-cash Stock based compensation Excess tax benefit on Stock Options Investments in treasury shares Gifting of shares to employees Chage in the consolidation perimeter...

  • Page 180
    ...) (459,881) (230,358) - (121,761) 5,520 (20,684) - (367,283) Long-term debt: - Proceeds - Repayments Increase (decrease) in short-term lines of credit Exercise of stock options Sale of treasury shares Dividends Cash used in financing activities 250,610 (230,447) 3,699 18,210 (10,473) (206,617) (175...

  • Page 181
    ... Other non-cash items include deferred taxes for Euro 15.5 million (Euro 31.5 million in 2010), gain on sale of business for Euro 0.0 million (Euro (8.2) million in 2010), income from acquisition of business for Euro (19.3) million in 2011 (Euro 0 million in 2010), the reversal of some contingent...

  • Page 182
    ... distribution and marketing of house brand and designer lines of mid to premium-priced prescription frames and sunglasses, as well as of performance optics products. Through its retail operations, as of December 31, 2011, the Company owned and operated approximately 6,511 retail locations worldwide...

  • Page 183
    ... by the International Accounting Standards Board ("IASB") as of the date of approval of these consolidated financial statements by the Board of Directors of the Company. IFRS are all the international accounting standards ("IAS") and all the interpretations of the International Financial Reporting...

  • Page 184
    ...arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes...

  • Page 185
    ... measured at fair value. Translation of the financial statements of foreign companies The Group records transactions denominated in foreign currency in accordance with IAS 21 - The Effect of Changes in Foreign Exchange Rates. The results and financial position of all the Group entities (none...

  • Page 186
    ... income. Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The exchange rates used in translating foreign operations are reported in the Exchange Rates Attachment to the...

  • Page 187
    ... term. Assets held for sale are measured at the lower of their carrying amount and their fair value, less costs to sell. Finance and operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments...

  • Page 188
    ...useful life of the asset and the lease term. Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested at least annually...

  • Page 189
    ...the Group fall into the following categories: (a) Financial assets at fair value through profit and loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in...

  • Page 190
    .... The fair value of listed financial instruments is based on the quoted price on an active market. If the market for a financial asset is not active (or if it refers to non-listed securities), the Group defines the fair value by utilizing valuation techniques. These techniques include using recent...

  • Page 191
    ... equity at that time remains in equity, and is recognized when the economic effect arising from the hedged item affects income. The Group utilizes derivative financial instruments, primarily Interest Rate Swap and Currency Swap contracts, as part of its risk management policy in order to reduce its...

  • Page 192
    ...liabilities if payment is due within one year or less from the reporting date. If not, they are presented as non-current liabilities. Accounts payable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. Long-term debt Long-term debt...

  • Page 193
    ...-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate...

  • Page 194
    ... in accordance with IAS 18 - Revenue. Revenue includes sales of merchandise (both wholesale and retail), insurance and administrative fees associated with the Group's managed vision care business, eye exams and related professional services, and sales of merchandise to franchisees along with other...

  • Page 195
    ... during the year. Free frames given to customers as part of a promotional offer are recorded in cost of sales at the time they are delivered to the customer. Discounts and coupons tendered by customers are recorded as a reduction of revenue at the date of sale. Use of accounting estimates The...

  • Page 196
    ... to an annual impairment test. This calculation requires management's judgment based on information available within the Group and the market, as well as on past experience; and (f) benefit plans. The Group participates in benefit plans in various countries. The present value of pension liabilities...

  • Page 197
    ...-based payment transactions with share-based payment transactions of the acquirer in accordance with the method set forth in IFRS 2 at the acquisition date. The amendment had no significant effects on the Group's consolidated financial statements as of December 31, 2011. IAS 24 (revised) - Related...

  • Page 198
    ... policies, changes in accounting estimates and errors. The amendment had no significant effect on the Group's consolidated financial statements as of December 31, 2011. IFRS 7 - Financial Instruments: Disclosures. The amendment, applicable to annual periods beginning on or after July 1, 2010...

  • Page 199
    ... the basis of the model which a company has adopted in order to manage its financial activities and on the basis of the cash flows from financing activities; (ii) initially measured at fair value plus any transaction costs in the case of financial assets not measured at fair value through profit and...

  • Page 200
    ... operations are required to recognise their share of the assets, liabilities, revenues and expenses in accordance with applicable IFRS. The new standard is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted so long as IFRS 10, IFRS 12, IAS 27 (2011...

  • Page 201
    ...entity reduces significantly the number of employees. Curtailment gains/ losses are accounted for as past-service costs. Annual expense for a funded benefit plan will include net interest expense or income, calculated by applying the discount rate to the net defined benefit asset or liability. There...

  • Page 202
    ... statements. 3. FINANCIAL RISKS The assets of the Group are exposed to different types of financial risk: market risk (which includes exchange rate risks, interest rate risk relative to fair value variability and cash flow uncertainty), credit risk and liquidity risk. The risk management strategy...

  • Page 203
    CONSOLIDATED FINANCIAL STATEMENTS - NOTES | 127 > (b) Price risk The Group is generally exposed to price risk associated with investments in bond securities which are classified as assets at fair value through profit and loss. As of December 31, 2011 and 2010, the Group investment portfolio was ...

  • Page 204
    ... with the insurance company Euler Hermes Siac in order to cover the credit risk associated with customers of Luxottica Trading and Finance Ltd. in those countries where the Group is not present directly. c2) With regard to credit risk related to the management of financial resources and cash...

  • Page 205
    ... financial charges; monitors, through the Treasury Department, forecasts on the utilization of liquidity reserves of the Group based on expected cash flows. The following tables include a summary, by maturity date, of assets and liabilities at December 31, 2011 and December 31, 2010. The reported...

  • Page 206
    > 130 | ANNUAL REPORT 2011 (thousands of Euro) As of December 31, 2010 Debt owed to banks and other financial institutions Derivatives payable Accounts payable Other current liabilities Less than 1 year From 1 to 3 years From 3 to 5 years Beyond 5 years 428,385 44,951 537,742 440,590 1,321,...

  • Page 207
    ..., 2011 Financial assets at fair value through profit and loss - - 668 Financial liabilities at fair value through profit and loss 3,890 - - (thousands of Euro) Cash and cash equivalents Accounts receivable Other current assets Other non-current assets Short-term borrowings Current portion of long...

  • Page 208
    ... ANNUAL REPORT 2011 December 31, 2010 Financial assets at fair value through profit and loss - - 1,484 Financial liabilities at fair value through profit and loss 4,689 - - (thousands of Euro) Cash and cash equivalents Accounts receivable Other current assets Other non-current assets Short-term...

  • Page 209
    ...traded by the Group. The models applied to value the instruments are based on a calculation obtained from the Bloomberg information service. The input data used in these models are based on observable market prices (the Euro and US$ interest rate curves as well as official exchange rates on the date...

  • Page 210
    ... Forward prices. The fair value of the interest rate derivatives portfolio is calculated using internal models that maximize the use of observable market inputs including Interest Rates, Yield Curves and Foreign Exchange Spot prices. 4. BUSINESS COMBINATIONS On June 16, 2009, the Company closed an...

  • Page 211
    ... in MOI totals Euro 95.4 million and was determined on the basis of MOI's sales and EBITDA values at the acquisition date. The acquisition furthers the Company's strategy of continued expansion of its retail business in Latin America. The Company uses various methods to calculate the fair value of...

  • Page 212
    > 136 | ANNUAL REPORT 2011 The following table summarizes the consideration paid, the fair value of assets acquired and liabilities assumed at the acquisition date: Cash Fair value of the investment in MOI held before the business combination Total consideration 95,401 63,613 159,014 Recognized ...

  • Page 213
    ... (which includes Australia, New Zealand, China, Hong Kong and Japan) and Other (which includes all other geographic locations, including South and Central America and the Middle East). Sales are attributed to geographic segments based on the customer's location, whereas long-lived assets, net are...

  • Page 214
    ... as of December 31, 2010). Write-downs of accounts receivable are determined in accordance with the Group credit policy described in note 3 - Financial Risks. Accruals and reversals of the allowance for doubtful accounts are recorded within selling expenses in the consolidated statement of income.

  • Page 215
    ...of the reporting date, was represented by the fair value of accounts receivable which approximates their carrying amount. The Group believes that its exposure to credit risk does not call for other guarantees or credit enhancements. The table below summarizes the quantitative information required by...

  • Page 216
    ... as other financial assets of the North America retail division totaling Euro 13.2 million as of December 31, 2011 (Euro 8.7 million as of December 31, 2010). The decrease in sales taxes receivable is mainly due to certain actions put in place during 2011 by the Italian companies which significantly...

  • Page 217
    ... royalties totaling Euro 29.7 million as of December 31, 2011 (Euro 16.8 million as of December 31, 2010). Prepaid expense mainly relates to the timing of payments of monthly rental expenses incurred by the Group's North America and Asia-Pacific retail divisions. The net book value of financial...

  • Page 218
    ...,959) 467,325 234,297 30,627 363,954 1,096,204 Increases Decreases Business Combinations Translation difference and other Depreciation expense Total balance as of December 31, 2011 Of which: Historical cost Accumulated depreciation Total 64,466 (6,812) 6,124 19,158 (55,420) 494,841 107,992...

  • Page 219
    ... in 2010) in general and administrative expenses. Other equipment includes Euro 54.5 million for assets under construction as of December 31, 2011 (Euro 91.3 million as of December 31, 2010) mainly relating to the opening and renovation of North America retail stores. Leasehold improvements totaled...

  • Page 220
    ... as of December 31, 2010 and 2011 were as follows: (thousands of Euro)0 As of January 1, 2009 Historical cost Accumulated amortization Total Goodwill Trade names and trademarks Distribution network Customer relations, contracts and lists Franchise agreements Other Total 2,727,445 (38,610...

  • Page 221
    ... main assumptions for determining the value in use are reported below and refer to both cash-generating units: • Growth rate: 2.0 percent; • Discount rate: 8.1 percent. This growth rate is in line with the expected growth rate related to the last year included in the plan prepared by management...

  • Page 222
    ... | ANNUAL REPORT 2011 The recoverable amount of cash-generating units has been determined by utilizing posttax cash flow forecasts based on the three-year plan for the 2012-2014 period, prepared by management on the basis of the results attained in previous years as well as management expectations...

  • Page 223
    ... of Euro) Inventories Insurance and other reserves Net operating loss carry forwards Rights of return Deferred tax on derivatives Employee related reserves (including pension liability) Occupancy reserves Trade names Fixed assets Other Total deferred tax assets As of December 31 2011 78,264 10,923...

  • Page 224
    ...,742 The carrying value of accounts payable is approximately equal to their fair value. 18. INCOME TAXES PAYABLE The balance of income taxes payable is detailed below: (thousands of Euro) Current year income taxes payable fund Income taxes advance payment Total As of December 31 2011 59,310 (19...

  • Page 225
    ...ordinary course of business totaling Euro 4.9 million as of December 31, 2011 (Euro 5.2 million as of December 31, 2010). Long-term debt consists of the following: As of December 31 (thousands of Euro) Luxottica Group S.p.A. credit agreements with various financial institutions (a) Senior unsecured...

  • Page 226
    ... 31, 2011. Based on current interest rates and market conditions, the estimated aggregate amount to be recognized as earnings from other comprehensive income for these cash flow hedges in fiscal year 2012 is approximately Euro (0.5) million, net of taxes. On November 11, 2009, the Company entered...

  • Page 227
    ... contain certain financial and operating covenants. The Group was in compliance with those covenants as of December 31, 2011. The proceeds from the January 2010 Notes received on January 29, 2010, were used for general corporate purposes. On September 30, 2010, the Company closed a private placement...

  • Page 228
    ..., net of taxes. (d) On November 14, 2007, the Group completed the merger with Oakley for a total purchase price of approximately US$ 2.1 billion. In order to finance the acquisition of Oakley, on October 12, 2007, the Company and US Holdings entered into two credit facilities with a group of banks...

  • Page 229
    ... 12, 2013. These credit facilities contain certain financial and operating covenants. The Company was in compliance with those covenants as of December 31, 2011. US$ 1.0 billion was borrowed under this credit facility as of December 31, 2011. During the third quarter of 2007, the Group entered into...

  • Page 230
    ....7 million. The fair value of the debts was equal to the present value of future cash flows, calculated by utilizing the market rate that is currently available for similar debt and modified in order to take into account the credit rating of the Company. As of December 31, 2011, the Group had unused...

  • Page 231
    ... equal to Euro 45.3 million (Euro 45.4 million as of December 31, 2010). This item primarily includes the liabilities related to the post-employment benefits of the Italian companies' employees (hereinafter "TFR"), accounted for in accordance with article 2120 of the Italian Civil Code. Effective...

  • Page 232
    ... for the years 2011 and 2010, respectively. In application of IAS 19, the valuation of TFR liability accrued as of December 31, 2006 was based on the Projected Unit Credit Cost method. The main assumptions utilized are reported below: As of December 31 Economic assumptions Discount rate Annual TFR...

  • Page 233
    ... the change in the software presentation within the consolidated statements of financial position discussed in note 11 "Property, plant and equipment - net," in the above table the 2010 comparative information on software related deferred tax liabilities, amounting to Euro 43.7 million, have been...

  • Page 234
    ... designated by the Board of Directors of Cole on the recommendation of Cole's chief executive officer at such time. This plan provides benefits in excess of amounts permitted under the provisions of the prevailing tax law. The pension liability and expense associated with this plan are accrued using...

  • Page 235
    ... 11,340 Pension Plan 2011 2010 SERPs 2011 2010 (thousands of Euro) Change in plan assets: Fair value of plan assets - beginning of period Expected return on plan assets Actuarial gain/(loss) on plan assets Employer contribution Direct benefit payments made by the Company Benefits paid Settlements...

  • Page 236
    ...REPORT 2011 Amounts to be recognized in the statement of financial position and statement of income along with actual return on assets were as follows: Pension Plan (thousands of Euro) Amounts recognized in the statement of financial position: Liabilities: Present value of the obligation Fair value...

  • Page 237
    ...FINANCIAL STATEMENTS - NOTES | 161 > The following tables show the main assumptions used to determine the period benefit cost and the benefit obligation. Lux Plan 2011 Weighted-average assumptions used to determine benefit obligations: Discount rate Rate of compensation increase Expected long-term...

  • Page 238
    ... to ensure over a long-term investment horizon that the plan is adequately funded; maximize investment return within reasonable and prudent levels of risk; and maintain sufficient liquidity to make timely benefit and administrative expense payments. This investment policy was developed to provide...

  • Page 239
    ... and excess return targets. The investment managers are monitored on an ongoing basis to evaluate performance against the established market benchmarks and return targets. Quoted market prices are used to measure the fair value of plan assets, when available. If quoted market prices are not...

  • Page 240
    ...31, 2011 and 2010 was Euro 5,149 thousand and Euro 3,642 thousand, respectively, and is included in other long-term liabilities in the consolidated statement of financial position. Health Benefit Plans - US Holdings partially subsidizes health care benefits for eligible retirees. Employees generally...

  • Page 241
    ...and 5.5 percent at December 31, 2010. The weighted-average discount rate used in determining the net periodic benefit cost for 2011 and 2010 was 5.5 percent and 6.15 percent, respectively. CAPITAL STOCK The share capital of Luxottica Group S.p.A., as of December 31, 2011, amounts to Euro 28,041,100...

  • Page 242
    ... the Company with treasury shares to efficiently manage its share capital and to implement its Performance Share Plan. Under the 2009 Program, the Company purchased in 2010 on the Milan Stock Exchange's Mercato Telematico Azionario (MTA) an aggregate amount of 3,355,726 shares at an average price of...

  • Page 243
    ...derivatives Other interest expense Total interest expense 2011 (2,024) (110,343) (6,541) (2,159) (121,067) 2010 (1,776) (99,028) (3,950) (2,233) (106,987) 26. INFORMATION ON THE CONSOLIDATED STATEMENT OF INCOME Interest income (thousands of Euro) Interest income on bank accounts Interest income on...

  • Page 244
    ... the Company has provided for an accrual for income taxes related to declared dividends of earnings. For further information on the changes occurred in 2011 as compared to 2010 please refer to note 3 of the management report on the consolidated financial statements as of December 31, 2011 "Financial...

  • Page 245
    ... sales volume. The Group also operates departments in various host stores, paying occupancy costs solely as a percentage of sales. Certain agreements which provide for operations of departments in a major retail chain in the United States contain short-term cancellation clauses. Total rental expense...

  • Page 246
    .... A liability has been accrued using an expected present value calculation. Such amount is immaterial to the consolidated financial statements as of December 31, 2011 and 2010. CREDIT LINES As of December 31, 2011 and 2010, the Company had unused short-term lines of credit of approximately Euro 747...

  • Page 247
    ... November 7, 2011, the Company acquired a building next to its registered office in Milan for a purchase price of Euro 21.4 million from "Partimmo S.r.l.," a company indirectly controlled by the Company's Chairman of the Board of Directors. The purchase price is in line with the fair market value of...

  • Page 248
    ...as of December 31, 2011 and 2010 is provided below. In 2011 the Group completed the acquisition of Multiopticas which is no longer considered as a related party as of December 31, 2011. Please refer to note 4 "business combinations" for further details. The below table reports the revenues and costs...

  • Page 249
    ...FINANCIAL STATEMENTS - NOTES | 173 > The table reported below provides the reconciliation between the average weighted number of shares utilized to calculate basic and diluted earnings per share: Weighted average shares outstanding - basic Effect of dilutive stock options Weighted average shares...

  • Page 250
    ... the Board of Directors to effectively execute, in one or more installments, the stock capital increases and to grant options to employees. The Board can also: • establish the terms and conditions for the underwriting of the new shares; • request the full payment of the shares at the time of...

  • Page 251
    ... price was consistent with the market values of Luxottica shares being equal to the greater of the stock price on the grant date of the new options or the previous 30-day average. In connection with the reassignment of options related to the Company's 2006 and 2007 ordinary plans, the employees...

  • Page 252
    ...the 2006 performance plans to US domiciled beneficiaries 2010 Ordinary Plan 2011 Ordinary Plan Total (*) The plan was reassigned in 2009. On May 13, 2008, a Performance Shares Plan for senior managers within the Company as identified by the Board of Directors of the Company (the "Board") (the "2008...

  • Page 253
    ... earning per share targets are achieved over the three-year period from 2010-2012. Management expects that the target will be met. As of December 31, 2011, 50,000 units of the 865,000 granted were forfeited. Pursuant to the PSP plan adopted in 2008, on April 29, 2011, the Board of Directors granted...

  • Page 254
    ...ANNUAL REPORT 2011 The information requested by IFRS 2 on stock option plans is reported below. The fair value of the stock options was estimated on the grant date using the binomial model and following weighted average assumptions: 2011 Ordinary Plan - for citizens resident in the USA Share price...

  • Page 255
    CONSOLIDATED FINANCIAL STATEMENTS - NOTES | 179 > Movements reported in the various stock option plans in 2011 are reported below: No. of options outstanding as of December 31, 2010 101,900 496,200 839,723 140,000 895,500 140,000 1,100,000 85,000 1,730,500 352,000 569,000 1,930,000 725,...

  • Page 256
    ... of 2011, the weighted average share price of the shares in 2011 was equal to Euro 21.53. The Group has recorded an expense for the ordinary stock option plans of Euro 9.7 million and Euro 8.6 million in 2011 and 2010, respectively. For the performance plans, including the 2006 performance plans and...

  • Page 257
    ... FINANCIAL STATEMENTS - NOTES | 181 > Trends in stock option plans during the course of 2011: Options granted as of January 1, 2010 1998 Plan 1999 Plan 2000 Plan 2001 Plan 2001 Performance Plan 2002 Plan 2003 Plan 2004 Plan 2005 Plan Extraordinary Plan 2004 2006 Plan 2006 Performance plan...

  • Page 258
    ...of the 2001 Plan, as well as the 2001 Performance Plan, the 2002 Plan and the 2004 Performance Plan are reported in US$, as determined by the Board of Directors. (1) Official price on the MTA as of January 3, 2011, Euro 23.04. (2) Official price on the MTA as of April, 28, 2011, date of grant, equal...

  • Page 259
    ... interests totals Euro 4.1 million. 33. DIVIDENDS For further details on events occurring after December 31, 2011, refer to the Section 12 in the Management Report. 34. SUBSEQUENT EVENTS * Milan, February 28, 2012 * * On behalf of the Board of Directors Andrea Guerra Chief Executive Officer

  • Page 260
    > 184 | ANNUAL REPORT 2011 Attachment EXCHANGE RATES USED TO TRANSLATE FINANCIAL STATEMENTS PREPARED IN CURRENCIES OTHER THAN EURO Average exchange rate as of December 31, 2011 1.3920 1.2326 0.8679 2.3265 110.9586 1.3761 17.2877 9.0298 1.3484 5.7450 10.0970 4.9775 10.8362 2.3378 7.7934 4.2558 42....

  • Page 261
    ... year ending December 31, 2011. 2. The assessment of the adequacy of the administrative and accounting procedures for the preparation of the consolidated financial statements as of December 31, 2011 was based on a process developed by Luxottica Group S.p.A. in accordance with the model of Internal...

  • Page 262
    ... included within the scope of consolidation; a description of the primary risks and uncertainties to which the Group is exposed is also included. Milan, February 28, 2012 Andrea Guerra (Chief Executive Officer) Enrico Cavatorta (Manager in charge with preparing the Company's financial reports)

  • Page 263
    CONSOLIDATED FINANCIAL STATEMENTS - REPORT OF THE INDEPENDENT AUDITORS | 187 > Report฀ of฀the฀Independent฀Auditors

  • Page 264
    > 188 | ANNUAL REPORT 2011

  • Page 265
    ...tax year ended December 31, 2007. Having taken into account the calendar approved by Borsa Italiana S.p.A., the Board of Directors recommends that the payment date of the dividend is set for May 24, 2012, with its ex-dividend date on May 21, 2012. Having taken into consideration the number of shares...

  • Page 266
    ... activities of Luxottica S.r.l., aimed at focusing the company business on manufacturing activities; 2) on January 2011, the Group terminated the revolving credit line with Banca Nazionale del Lavoro totaling Euro 150 million (credit line undrawn as of December 31, 2010). The original maturity date...

  • Page 267
    ... which the Group subsequently acquired two sunglass specialty retail chains in Mexico for a total amount of Euro 19.5 million. Furthermore, the Group and Grupo Tecnol Ltda signed an agreement to acquire 80 percent of Grupo Tecnol capital. As a result of this acquisition, Luxottica will significantly...

  • Page 268
    ... Exchange Commission of the United States since 2010 fiscal year. No significant problems were found to be remarked; h) we did not find any atypical or unusual transactions that were set with companies of the Group, third parties or related parties. In its Management Report the Board of Directors...

  • Page 269
    ... statement and review of the regular keeping of company accounts during the fiscal year): Fees paid in 2011 11 647 519 52 62 37 (thousands of Euro) Certification services Entity providing service Deloitte & Touche Deloitte & Touche S.p.A Deloitte network Entity receiving service Luxottica GroupS...

  • Page 270
    ..., to the approval of the financial statements together with the Management Report for the 2011 fiscal year as presented by the Board of Directors, and to the consequent proposal, made by the Board itself, for a net income distribution of Euro 180,9 millions. Number of appointments held by...

  • Page 271
    STATUTORY FINANCIAL STATEMENTS - REPORT OF THE STATUTORY AUDITORS

  • Page 272
    ...ANNUAL REPORT 2011 Corporate information LUXOTTICA GROUP S.P.A. REGISTERED OFFICE AND HEADQUARTERS Via C. Cantù, 2 - 20123 Milan - Italy Tel. +39 02 86334.1 - Fax +39 02 8633 4636 E-mail: [email protected] Fiscal code and milan company register no. 00891030272 VAT no. 10182640150 MEDIA RELATIONS...

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