LensCrafters 2013 Annual Report Download

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ANNUAL REPORT
As of December 31, 2013
Luxottica Group S.p.A., Via Cantù, 2, 20123 Milano - C.F. Iscr. Reg. Imp. Milano n. 00891030272 - Partita IVA 10182640150
IAS/IFRS

Table of contents

  • Page 1
    ANNUAL REPORT As of December 31, 2013 IAS/IFRS Luxottica Group S.p.A., Via Cantù, 2, 20123 Milano - C.F. Iscr. Reg. Imp. Milano n. 00891030272 - Partita IVA 10182640150

  • Page 2
    ... TO ART.154 OF THE LEGISLATIVE DECREE 58/98 11. AUDITORS' REPORT 12. BOARD OF DIRECTORS PROPOSAL 13. BOARD OF STATUTORY AUDITORS' REPORT ON THE STATUTORY AND CONSOLIDATED FINANCIAL STATEMENTS Luxottica Group S.p.A., Via Cantù, 2, 20123 Milano - C.F. Iscr. Reg. Imp. Milano n. 00891030272 - Partita...

  • Page 3
    ... director ** General Manager - Central Corporate Functions *** In office until March 13, 2014 Human Resources Committee Claudio Costamagna (Presidente) Roger Abravanel Anna Puccio Internal Control Committee Mario Cattaneo (Presidente) Elisabetta Magistretti Marco Mangiagalli Marco Reboa Board...

  • Page 4
    Officer Responsible for Preparing the Company's Financial Reports Enrico Cavatorta Auditing Firm Until approval of the financial statements as of and for the year ending December 31, 2020. PricewaterhouseCoopers SpA

  • Page 5
    1. MANAGEMENT REPORT

  • Page 6
    Luxottica Group S.p.A. Headquarters and registered office â- Via C. Cantù 2, 20123 Milan, Italy Capital Stock â,¬ 28,653,640.38 authorized and issued MANAGEMENT REPORT AS OF DECEMBER 31, 2013 1. OPERATING PERFORMANCE FOR THE YEAR AND THE THREE MONTH PERIOD ENDED DECEMBER 31, 2013 The Group's ...

  • Page 7
    ... the Italian optical retailer. The transaction is valued at Euro 45 million and was announced on November 27, 2012. As a result of this transaction, the Group became a financial partner of Salmoiraghi & Viganò S.p.A. In March 2013, Standard & Poor's confirmed the Group's long-term credit rating of...

  • Page 8
    ... premium-priced prescription frames and sunglasses. We operate our retail distribution segment principally through our retail brands, which include, among others, LensCrafters, Sunglass Hut, OPSM, Laubman & Pank, Oakley "O" Stores and Vaults, David Clulow, GMO and our Licensed Brands (Sears Optical...

  • Page 9
    ...DECEMBER 31, 2013 AND 2012 Years ended December 31, % of net sales 2012* % of net sales (Amounts in thousands of Euro) 2013 Net sales Cost of sales Gross profit Selling Royalties Advertising General and administrative Total operating expenses Income from operations Other income/(expense) Interest...

  • Page 10
    ... in 2012. This increase was mainly attributable to increased sales of most of our proprietary brands, in particular Ray-Ban and Oakley, and of some designer brands such as Prada, Tiffany and the additional sales related to the Armani brands, which were launched during 2013. This positive impact...

  • Page 11
    ... 839.4 million in 2012. The increase was mainly driven by the new companies acquired in 2013 which account for 24.7 million of the increase. As a percentage of net sales, general and administrative expenses increased to 11.9% in 2013, compared to 11.8% in 2012. Adjusted general and administrative...

  • Page 12
    ... or 1.9%, to Euro 544.7 million in 2013 from Euro 534.4 million in 2012. Net income attributable to Luxottica Group stockholders as a percentage of net sales decreased to 7.4% in 2013 from 7.5% in 2012. Adjusted net income attributable to Luxottica Group stockholders16 increased by Euro 57.7 million...

  • Page 13
    ... in the table below. (Amounts in millions of Euro) 2013 2012 Net income attributable to Luxottica Group stockholders > Adjustment for Alain Mikli reorganization > Adjustment for the cost of the tax audit relating to Luxottica S.r.l. (fiscal year 2007) > Adjustment for the accrual for the tax audit...

  • Page 14
    ... 31, % of net sales 2012* (Amounts in thousands of Euro) 2013 % of net sales Net sales Cost of sales Gross profit Selling Royalties Advertising General and administrative Total operating expenses Income from operations Other income/(expense) Interest income Interest expense Other-net Income...

  • Page 15
    ... same period in 2012. This growth was mainly attributable to increased sales of most of our proprietary brands, in particular Ray-Ban, and of some licensed brands such as Chanel, Tiffany, Tory Burch and the new Armani brands, which were launched in 2013. Almost all of the primary geographic markets...

  • Page 16
    ... for the same period of 2012. As a percentage of net sales, gross profit increased to 64.1 percent in the three months ended December 31, 2013 as compared to 65.3 percent for the same period of 2012, due to the factors noted above. Operating Expenses. Total operating expenses decreased by Euro...

  • Page 17
    ...was Euro (30.4) million in 2013 as compared to Euro 51.3 million in 2012. The change in 2013 as compared to 2012 was primarily driven by the decrease in the liability to employees in the retail division in North America due to the timing in payment of salaries to store personnel (Euro (16.0) million...

  • Page 18
    ...2013 mainly related to repayment of maturing outstanding debt for Euro 327.1, aggregate dividend payments to stockholders of Euro 273.7 which were partially offset by cash proceeds from the exercise of stock options totaling Euro 75.3 million. Cash used in financing activities in 2012 mainly related...

  • Page 19
    ...and other charges Other liabilities Total current liabilities NON-CURRENT LIABILITIES: Long-term debt Employee benefits Deferred tax liabilities Long term provisions for risks and other charges Other liabilities Total non-current liabilities STOCKHOLDERS' EQUITY: Luxottica Group stockholders' equity...

  • Page 20
    ...to (i) the reduction of the liability to the employees in the retail division in North America due to the timing of payment of salary to store personnel, and (ii) the decrease in bonus accruals. Our net financial position as of December 31, 2013 and December 31, 2012 was as follows: December 31...

  • Page 21
    .... Central Corporate services represent 0.5% of the Group's total workforce. In terms of the geographic distribution, 57.8% of Luxottica's employees are in North America, 13.1% are in Europe, 21.3% are in Asia Pacific and 6.6% are in South America. Business Area Retail Wholesale Operations Corporate...

  • Page 22
    ...Development In 2013, the implementation of the "Corporate Planning of Professional Requirements and Development of Technical and Managerial Careers Process" was completed. Promoted by the Human Resources Committee and directly coordinated by the CEO, the Process seeks to satisfy the growing need for...

  • Page 23
    ... credit markets, unemployment, negative financial news and/or declines in income or asset values, which could have a material adverse effect on demand for our products and services. Discretionary spending is affected by many factors, including general business conditions, inflation, interest rates...

  • Page 24
    ...of our wholesale distribution business to obtain credit to finance purchases of our products, restructurings, bankruptcies, liquidations and other unfavorable events for our consumers, customers, vendors, suppliers, logistics providers, other service providers and the financial institutions that are...

  • Page 25
    ... financial condition. Risks Relating to Our Business and Operations If we are unable to successfully introduce new products and develop and defend our brands, our future sales and operating performance may suffer. The mid- and premium-price categories of the prescription frame and sunglasses markets...

  • Page 26
    ... and profitability of premium-priced product categories difficult during such downturns. Therefore, future economic downturns or uncertainties could have a material adverse effect on our business, results of operations and financial condition, including sales of our designer and other premium brands...

  • Page 27
    ...our business, results of operations and financial condition could suffer. The mid- and premium-price categories of the prescription frame and sunglasses markets in which we operate are highly competitive. We believe that, in addition to successfully introducing new products, responding to changes in...

  • Page 28
    ... to properly process information and increased costs of operating our business. We rely on information technology systems both managed internally and outsourced to third parties across our operations, including for management of our supply chain, point-of-sale processing in our stores and various...

  • Page 29
    ...particularly between the U.S. dollar and the Euro. • As our international operations grow, future changes in the exchange rate of the Euro against the U.S. dollar and other currencies may negatively impact our reported results, although we have in place policies designed to manage such risk. 24

  • Page 30
    ... result in increased costs due to additional reserves for doubtful accounts and a reduction in sales to customers experiencing credit - related issues. A substantial majority of our outstanding trade receivables are not covered by collateral or credit insurance. While we have procedures to monitor...

  • Page 31
    ...increased number of luxury stores and brand recognition represent Group opportunities in the emerging markets. In 2013 the Group's performance in the merging markets was strong with an increase in net sales of more than 20% as compared to 2012 at constant exchange rates. In 2014, the Group forecasts...

  • Page 32
    ...July 28, 2006, were undertaken during 2013. The information required by Section 123-bis par.1 of Italian Legislative Decree 58 dated February 29, 1998, is disclosed in the corporate governance report forming an integral part of the annual financial report. The Company is not subject to direction and...

  • Page 33
    ... 31, 2013 2,535,649 (844,648) (165,757) In thousands 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...

  • Page 34
    ... by the International Accounting Standards Board and endorsed by the European Union. The Group believes that these adjusted measures are useful to both management and investors in evaluating the Group's operating performance compared with that of other companies in its industry in order to provide...

  • Page 35
    ...) Adjusted Luxottica Group 4Q 2013 Income before provision for income Net taxes Income 139.9 25.9 Luxottica Group Millions of Euro Net EBITDA sales EBITDA Margin 1,645.9 256.4 15.6% Operating Income 164.1 Operating Margin 10.0% Reported Base EPS 0.05 Diluted EPS 0.05 > Adjustment for the cost...

  • Page 36
    ... those of other companies without giving effect to financing, income 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. For additional information on Group's non-IFRS...

  • Page 37
    ... provision for income taxes (+) Other (income)/expense (+) Depreciation and amortization (+) Adjusted EBITDA (=) Net sales (/) Adjusted EBITDA margin (=) The adjusted figures exclude the following: (1) 4Q 2012(1) 4Q 2013(2) FY 2012(1)(3) FY 2013 (2)(4) 84.9 92.6 559.6 617.3 0.5 44.9 30...

  • Page 38
    ...strategic opportunities during the period and any impact of the exchange rate changes; and Free cash flow can be subject to adjustment at our discretion if we take steps or adopt policies that increase or diminish our current liabilities and/or changes to working capital. • We compensate for the...

  • Page 39
    ... IFRS and their definitions should be carefully reviewed and understood by investors. Investors should be aware that Luxottica Group's method of calculating EBITDA and the ratio of net debt to EBITDA may differ from methods used by other companies. The Group recognizes that the usefulness the ratio...

  • Page 40
    ... in millions of Euro) Long-term debt (+) Current portion of long-term debt (+) Bank overdrafts (+) Cash (-) Net debt (=) LTM Adjusted EBITDA Net debt/LTM Adjusted EBITDA Net debt @ avg. exchange rates(1) Net debt @ avg. exchange rates(1)/LTM EBITDA (1) (2) FY 2013 (2) FY 2012(3) 1,716.4 318.1 44...

  • Page 41
    ... fluctuations in exchange rates, changes in local conditions, our ability to protect our proprietary rights, our ability to maintain our relationships with host stores, any failure of our information technology, inventory and other asset risk, credit risk on our accounts, insurance risks, changes in...

  • Page 42
    2. REPORT ON CORPORATE GOVERNANCE

  • Page 43
    REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE PURSUANT TO ARTICLE 123-BIS OF THE ITALIAN CONSOLIDATED FINANCIAL LAW YEAR 2013 APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 27, 2014 TRADITIONAL ADMINISTRATION AND CONTROL SYSTEM LUXOTTICA GROUP S.P.A. REGISTERED OFFICE: MILAN, VIA CANTÙ 2...

  • Page 44
    ... Group," the "Group" or the "Company"). Luxottica complies, as illustrated below, with the Code of Conduct prepared by the committee for corporate governance of listed companies promoted by Borsa Italiana S.p.A. (hereinafter the "Code of Conduct", the text of which is available on the website...

  • Page 45
    ... Middle East. Its operations are particularly significant in terms of product turnover and personnel in Europe, North America, Australia and China. Luxottica Group S.p.A. is listed on the New York Stock Exchange and on the telematic stock exchange ("MTA") organized and managed by Borsa Italiana and...

  • Page 46
    ... 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 47
    ... Civil Code. The Board of Directors made its last assessment in this respect on February 13, 2014, as it deemed that the presumption indicated in Article 2497-sexies was overcome, as Delfin S.Ã r.l. 1 The shares held by Deutsche Bank Trust Company Americas represent ordinary shares that are traded...

  • Page 48
    acts as Group parent company and from an operational and business perspective there is no common managing interest between Luxottica Group and the parent company, nor between Luxottica Group and the other affiliates of Delfin. Information on the stock option plans, the share capital increases ...

  • Page 49
    ... investment grade credit rating. As previously stated, on January 20, 2014 the rating agency Standard & Poor's awarded a Long Term Credit Rating of "A-" to the Company. On February 10, 2014 the Company issued a bond listed on the Luxembourg Stock Exchange (code ISIN XS1030851791) for a total amount...

  • Page 50
    ... capital by a maximum of Euro 1,200,000 (one million two hundred thousand) in one or several tranches by June 30, 2021 through the issue of new ordinary shares to be offered exclusively in subscription to employees of the Company and/or its subsidiaries. On the approval date of this Report Luxottica...

  • Page 51
    Please note that the information concerning the characteristics of the risk management and internal control system are listed below in Section II, which describes the Risk Management and Internal Control System. 9

  • Page 52
    ... BOARD OF DIRECTORS Role and duties The Board of Directors (hereinafter also the "Board") plays a central role in Luxottica's corporate governance. It has the power and responsibility to direct and manage the Company, with the objective of maximizing value for stockholders in the medium to long-term...

  • Page 53
    ... taking into account the information supplied by the CEO, who on the basis of the guidelines issued by the Board, supervises all business structures and formulates proposals to be submitted to the Board with regard to the organizational structure of the Company and of the Group, the general...

  • Page 54
    ... day for the Group's senior management, the Company Directors and the Statutory Auditors was organized in July 2013 in order to promote a more in-depth knowledge of the business operations and dynamics of the Company. In January 2014, the Company issued the calendar of corporate events for the 2014...

  • Page 55
    ... Executive Officer Member of the Human Resources Committee Chairman of the Control and Risk Committee General Manager Central Corporate Functions Chairman of the Human Resources Committee Member of the Control and Risk Committee Member of the Control and Risk Committee Member of the Human Resources...

  • Page 56
    ... 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 57
    ... has been a member of the Board of Directors since 2003 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. Before joining Luxottica Group, he was Planning and Control Officer for the...

  • Page 58
    ... 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 59
    ...of Managing Director until 2006. Ms. Puccio was the Senior Strategy Advisor for Accenture Mobility Operative Services from 2008 until 2009. Since 2010, she has been the General Manager of CGM, the Italian Cooperative Group of Social Enterprises. Between 2006 and 2012 she was a member of the Board of...

  • Page 60
    ...only positions to be taken into consideration are those as member of the Board of Directors or auditor for companies listed on regulated markets (domestic and foreign), in banks, insurance companies, or companies of a significant size, which are defined as companies with a total value of business or...

  • Page 61
    ...credit lines in general, to issue financial debt under any form, for an amount exceeding Euro 15 million per transaction; d) to issue debt (other than intra-group transactions and those transactions for payment of tax and employees' wages) on current accounts of the Company in banks and post offices...

  • Page 62
    ..., administration and accounting structure of the Company is suitable to its nature and size. The Chief Executive Officer is also the director responsible for the internal control and risk management system. Mr. Luigi Francavilla, Vice Chairman, and Director Enrico Cavatorta, General Manager, are...

  • Page 63
    ... paid to Directors, Auditors and other Managers with Strategic Responsibilities is provided in the Company's Remuneration Report, as prescribed by Article 123-ter of the Italian Consolidated Financial Law. Human Resources Committee The Board of Directors in office as of April 27, 2012 appointed the...

  • Page 64
    ... of Article 2381 of the Italian Civil Code, on the basis of the information received by the appointed bodies responsible for ensuring that the organizational, administrative and accounting structure is suitable to the nature and size of the business, the Board of Directors establishes guidelines...

  • Page 65
    ... structures. The Chief Risk and Compliance Officer (CR&CO) of the Group, who reports directly to the Chief executive Officer, was appointed in 2010, and is called upon to (i) work together with the corporate functions of the Group through his/her organizational structure in order to guarantee...

  • Page 66
    ...by the Board of Directors in February 2013, and is applicable to all the companies of the Luxottica Group. The policy sets forth the principles and rules for the management and monitoring of financial risk and pays particular attention to the activities carried out by the Luxottica Group to minimize...

  • Page 67
    ... unpaid/expired credits; management and control of legal actions; management and control of the appropriations and losses on credits; determination and control of terms of payment in the various markets; and control over warranty terms. The Board of Directors annually assesses the adequacy...

  • Page 68
    ...the Company functions necessary for the performance of its task as well as to work with external consultants. The Board of Directors approved the allocation of funds totaling Euro 50,000 to the Committee for the 2013 fiscal year in order to provide it with the adequate financial resources to perform...

  • Page 69
    ... fiscal year, the Internal Audit Manager performed his role through the implementation of an activities and verification plan which is related to the Company and its main subsidiaries. Such actions, which the Chairman, the Chief Executive Officer and the Board were informed of, through the Control...

  • Page 70
    ... Board in office until the approval of the financial statements as of December 31, 2014 is composed of two external professionals, Mr. Giorgio Silva and Mr. Ugo Lecis, and by the Internal Audit Manager, Mr. Alessandro Nespoli. The Board of Directors, at the time of its appointment on April 27, 2012...

  • Page 71
    ... funds, totaling Euro 50,000, in order to provide the Supervisory Board with adequate financial resources to perform its duties for the 2013 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 72
    ... (Public Company Accounting Oversight Board), a process for the evaluation and rationalization of the controls is in place, which allows the Company, on the one hand, to eliminate any redundant controls that burden operations without offering a real benefit in terms of strengthening of the internal...

  • Page 73
    ..., are available for review on the Company's website under the Company/Governance/General Meeting/Archive section. The procedures for the appointment of auditors are governed by Article no. 27 of the Company by-laws; for more information, please refer to the Company's by-laws. The Board of Statutory...

  • Page 74
    ...firm on the conclusions of the management in compliance with section 404 of the Sarbanes Oxley Act; • examines the reports of the Chief Executive Officer and Chief Financial Officer on any significant point of weakness in the planning or in the performance of internal controls which is reasonably...

  • Page 75
    ... in the Form 20-F, including the audited financial statements, the management report, selected financial information and information on market risk, together with the company management and auditing firm; • reviews the assessment of the quality and acceptability of accounting principles, the...

  • Page 76
    ... a member of the Board of Certified Accountants in Genoa, as well as member of the national assembly of delegates of the "Cassa Nazionale di Previdenza e Assistenza dei dottori Commercialisti", in which she currently holds the position of director. She has been a statutory auditor of Luxottica Group...

  • Page 77
    ... of Directors which appointed him; (b) dismissal from the office; or (c) revocation of the office by the Board itself. The appointed manager has been granted all the powers and resources necessary to perform his duties according to the applicable regulations of the Italian Consolidated Financial Law...

  • Page 78
    ... of the Board of Statutory Auditors. The Code of Ethics is available on www.luxottica.com, in the Company/Our Way/Our way of doing Business section. Procedure for transactions with related parties On October 25, 2010 the Board of Directors voted unanimously to adopt a new procedure to regulate...

  • Page 79
    ... reach a total equivalent value of a further Euro 5,000 by the end of the year do not need to be reported. The procedure provides for black-out periods during which the interested parties are not allowed to trade any Luxottica securities. The Procedure is available on the website Company/Governance...

  • Page 80
    ... 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 both on the MTA, organized and managed by Borsa Italiana, and on the New York Stock Exchange...

  • Page 81
    ... on the website www.luxottica.com, Company/Governance/Documents and Procedures section. IV. STOCKHOLDERS' MEETINGS in the The Board of Directors determines the venue, date and time of the stockholders' meeting in order to facilitate the participation of stockholders. The Luxottica Directors and...

  • Page 82
    ... 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 up a specific Investors section on its website to provide information...

  • Page 83
    ... events have already been described in the paragraphs above. After closing the 2013 fiscal year, the Board of Directors: (a) approved the annual report concerning the organizational and accounting corporate structure of Luxottica Group, prescribed by paragraph 3 of Article 2381 of the Civil Code...

  • Page 84
    compliance with the requirements for each individual auditor as outlined by the Code of Conduct. Milan, February 27, 2014 42

  • Page 85
    ... of participation of the Directors in the meetings of the Board of Directors and of the Committees. **Lists the number of offices as director or auditor performed by the directors in office in other listed companies, banks, financial, insurance companies or companies of a significant size, in...

  • Page 86
    ... VI and VII of the Italian Civil Code, with the number of offices held in listed companies. Pursuant to Article 27 of the Company by-laws, a candidate list for the appointment of the Board of Statutory Auditors may be submitted by any stockholder who, at the time of submission, owns, on its own or...

  • Page 87
    ... Code's recommendations YES YES YES YES YES YES YES YES Procedures of the most recent appointment of Directors and Auditors Were the candidacies for the office of director submitted at least ten days in advance? Were the candidacies for the office of director accompanied by extensive information...

  • Page 88
    ... They may be found and downloaded on the website www.luxottica.com in the Company/Governance/Documents and Procedures section Internal Control Did the Company appoint internal control officers? Are the officers independent from managers of operational areas? Organization department responsible for...

  • Page 89
    Organization department and contact details (address/telephone/fax/e-mail) of the investor relations manager Investor Relations Director Alessandra Senici Via Cantù 2, Milano Fax: 02.8633.4092 Tel: 02.8633.4662 [email protected] 47

  • Page 90
    3. CONSOLIDATED FINANCIAL STATEMENTS

  • Page 91
    ...-CURRENT LIABILITIES: Long-term debt Employee benefits Deferred tax liabilities Long-term provisions for risks and other charges Other liabilities Total non-current liabilities STOCKHOLDERS' EQUITY: Capital stock Legal reserve Reserves Treasury shares Net income Luxottica Group stockholders' equity...

  • Page 92
    ...2012 Restated (*) Related parties (note 29) Amounts in thousands of Euro (1) 2013 Net sales Cost of sales - Of which non recurring 27 27 7,312,611 2,524,006 - 16,406 46,081 - 7,086,142 2,435,993 1,360 1,841 45,051 - Gross profit Selling -Of which non recurring Royalties Advertising General...

  • Page 93
    ...benefit plans-net of tax of Euro 39.9 million and Euro 9.0 million as of December 31, 2013 and 2012, respectively Total items that will not be reclassified to profit or loss Total other comprehensive income/(loss)-net of tax Total comprehensive income for the period Attributable to: -Luxottica Group...

  • Page 94
    ... reserve Balance as of December 31, 2012 Restated Total Comprehensive Income as of December 31, 2013 Exercise of stock options Non-cash stock-based compensation Excess tax benefit on stock options Granting of treasury shares to employees Change in the consolidation perimeter Dividends (Euro 0.58...

  • Page 95
    ...assets Financial expenses Other non-cash items(*) Changes in accounts receivable Changes in inventories Changes in accounts payable Changes in other assets/liabilities Total adjustments Cash provided by operating activities Interest paid Taxes paid Net Cash provided by operating activities Additions...

  • Page 96
    ... THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (*) Other non-cash items in 2012 included expenses incurred for the reorganization of the Australian business for Euro 14.2 million. Purchases of businesses-net of cash acquired in 2013 included the purchase of Mikli International for Euro (71.9) million...

  • Page 97
    ********** Milan, February 27, 2014 Luxottica Group S.p.A. On Behalf of the Board of Directors Andrea Guerra Chief Executive Officer Financial statements as of December 31, 2013 Page 7 of 7

  • Page 98
    4. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  • Page 99
    ... distribution and marketing of proprietary brands 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, 2013, the Company owned and operated 6,472 retail locations worldwide and...

  • Page 100
    ... the date that control ceases. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is measured as the fair value of the assets transferred, the liabilities incurred and the equity interests issued...

  • Page 101
    ... are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Investments in associates are tested for impairment in case there...

  • Page 102
    ... finished goods which are considered obsolete or slow moving are computed taking into account their expected future utilization and their realizable value. The realizable value represents the estimated sales price, net of estimated sales and distribution costs. Property, plant and equipment Property...

  • Page 103
    ... 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 104
    ... using the straight-line method to allocate the cost of trademarks and licenses over their estimated useful lives. Contractual customer relationships acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relations have a finite useful life...

  • Page 105
    ... or management intends to dispose of it within 12 months of the end of the reporting period. Financial assets available for sale are initially measured at their fair value plus transaction costs. After initial recognition, financial assets available for sale are carried at fair value. Any changes in...

  • Page 106
    ... to market at the end of each reporting period, with changes in fair value are recognized in the consolidated statement of income. • Accounts payable and other payables Accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from...

  • Page 107
    ...-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 108
    ... goods are included in sales and the costs associated with shipments to customers are included in operating expenses. Retail division revenues are recognized upon receipt by the customer at the retail location. In some countries, the Group allows retail customers to return goods for a period of time...

  • Page 109
    ... a annual basis; and (g) Benefit plans. The Group participates in benefit plans in various countries. The present value of pension liabilities is determined using actuarial techniques and certain assumptions. These assumptions include the discount rate, the expected return on plan assets, the rates...

  • Page 110
    ...the financial statements issued after the applicable effective date. New standards and amendments which are effective for reporting periods beginning on or after January 1, 2013. Amendments to IAS 19-Employee benefits. The amendments to the standard require that the expense for a funded benefit plan...

  • Page 111
    ...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 loss...

  • Page 112
    ... hedging activities, in compliance with the Financial Risk Management Policy guidelines approved by the Board of Directors, and in accordance with the Group operational units. The Policy defines the guidelines for any kind of risk, such as the exchange rate risk, the interest rate risk, credit risk...

  • Page 113
    ... with an insurance company in order to cover the credit risk associated with customers of Luxottica Trading and Finance Ltd. in those countries where the Group does not have a direct presence. c2) With regards to credit risk related to the management of financial resources and cash availabilities...

  • Page 114
    ... as in terms of financing sources; utilizes different sources of bank financing but also a liquidity reserve in order to promptly meet any cash requirements; implements systems to concentrate and manage the cash liquidity (Cash Pooling) in order to more efficiently manage the Group financial flows...

  • Page 115
    ...7 requirements is reported below (in thousands of Euro): Financial assets at fair value through profit and loss December 31, 2013 Cash and cash equivalents Accounts receivable Other current assets Other non-current assets Short-term borrowings Current portion of long-term debt Accounts payable Other...

  • Page 116
    ...period of 15 business days from the date of reporting such default. Compliance with these covenants is monitored by the Group at the end of each quarter and, as of December 31, 2013, the Group was fully in compliance with these covenants. The Group also analyzes the trend of these covenants in order...

  • Page 117
    ...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 USD interest rate curves as well as official exchange rates on the date...

  • Page 118
    ... stake. The exercise price of the options was estimated based on the expected EBITDA, net sales and net financial position at the end of the lock-up period identified in the contract. The acquisition of the Company's interest in Devlyn was accounted for as a business combination in accordance with...

  • Page 119
    ... (2) Retail Distribution. The criteria applied to identify the reporting segments are consistent with the way the Group is managed. In particular, the disclosures are consistent with the information periodically analyzed by the Group's Chief Executive Officer, in his role as Chief Operating Decision...

  • Page 120
    ...in 2013 and 2012, respectively. Net sales recorded in Italy were Euro 0.3 billion in 2013 and 2012, respectively. Long-lived assets, net located in the United States represented 45% and 47% of the Group's total fixed assets in 2013 and 2012, respectively. Net sales recorded in the United States were...

  • Page 121
    ...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. The maximum exposure to credit risk, as of the end of the reporting date, was represented by the fair value...

  • Page 122
    ... as of December 31, 2012). The Group does not expect any additional losses over amounts already provided for. 8. INVENTORIES Inventories are comprised of the following items (amounts in thousands of Euro): As of December 31 2013 2012 Raw materials Work in process Finished goods 163,809 36,462 612...

  • Page 123
    ... certain designers for future contracted minimum royalties totaling Euro 30.6 million as of December 31, 2013 (Euro 18.2 million as of December 31, 2012). Prepaid expenses mainly relate to the timing of payments of monthly rental expenses incurred by the Group's North America and Asia-Pacific retail...

  • Page 124
    ...in 2012) in general and administrative expenses. Capital expenditures in 2013 and 2012 mainly relate to routine technology upgrades to the manufacturing infrastructure, opening of new stores and the remodeling of older stores where the leases were extended during the period. Other equipment includes...

  • Page 125
    ...: Trade names and trademarks Customer relations, contracts and lists Goodwill Franchise agreements Other Total As of January 1, 2012 Historical cost Accumulated amortization Total Increases Decreases Business combinations Translation difference and other Impairment and amortization expense...

  • Page 126
    ...2012) Discount rate: 7.5% ( 7.8% as of December 31, 2012) The above long-term average growth rate does not exceed the rate which is estimated for the products, industries, and countries in which the Group operates. The discount rate has been determined on the basis of market information on the cost...

  • Page 127
    ... fair value and this value also corresponds to the Group's maximum exposure to credit risk. The Group does not have guarantees or other instruments for managing credit risk. Other assets primarily include advance payments made to certain licensees for future contractual minimum royalties totaling...

  • Page 128
    ...) Inventories Self-insurance reserves Net operating loss carry-forwards Rights of return Deferred tax on derivatives Employee-related reserves Occupancy reserves Trade names Fixed assets Other As of January 1, 2013 103,056 11,343 6,459 16,082 38 104,408 18,366 82,425 14,229 43,759 Exchange rate...

  • Page 129
    ... Fixed assets Other intangibles Other Total As of January 1, 2013 5,563 233,957 55,491 151,842 11,454 458,307 Exchange rate difference and other movements - (17,321) (9,181) 2,214 8,125 (16,163) Business combinations - 11,529 41 - (18) 11,552 As of Tax charged/(credited) December 31, Income to...

  • Page 130
    ...related to guarantees on these lines of credit. The blended average interest rate on these lines of credit is approximately LIBOR plus spread that my range from 0% to 0.20%, depending on the different lines of credit. The book value of short-term borrowings is approximately equal to their fair value...

  • Page 131
    ... 31 2013 2012 Premiums and discounts Leasing rental Insurance Sales taxes payable Salaries payable Due to social security authorities Sales commissions payable Royalties payable Derivative financial liabilities Other liabilities Total financial liabilities Deferred income Advances from customers...

  • Page 132
    ...,624 2,362,178 The Group uses debt financing to raise financial resources for long-term business operations and to finance acquisitions. The Group continues to seek debt refinancing at favorable market rates and actively monitors the debt capital markets in order to take action to issue debt, when...

  • Page 133
    ... Medium Term Note Programme" pursuant to which Luxottica Group S.p.A. may from time to time offer notes to investors in certain jurisdictions (excluding the United States, Canada, Japan and Australia). The notes issued under this program are expected to be listed on the Luxembourg Stock Exchange. On...

  • Page 134
    ... the net financial position above and the net financial position presented in the Management Report is as follows: (Amounts in thousands of Euro) December 31, 2013 December 31, 2012 Net Financial Position, as presented in the Notes Hedging instruments on foreign exchange rates Hedging instruments...

  • Page 135
    ... was based on the Projected Unit Credit Cost method. The main assumptions utilized are reported below: 2013 2012 ECONOMIC ASSUMPTIONS Discount rate Annual TFR increase rate Death probability: Retirement probability: 3.15% 3.00% Those determined by the General Accounting Department of the Italian...

  • Page 136
    ... Service Cost Interest expense/(income) Remeasurement: Unexpected return on plan assets (Gain)/loss from financial assumption changes (Gain)/loss from demographic assumption changes Experience (gains)/losses Employer contributions Benefit payment Translation difference At December 31, 2013 Benefit...

  • Page 137
    ... January 1, 2013 Service Cost Interest expense/(income) Remeasurement: Unexpected return on plan assets (Gain)/loss from financial assumption changes (Gain)/loss from demographic assumption changes Experience (gains)/losses Employer contributions Benefit payment Settlements Translation difference At...

  • Page 138
    ... Luxottica Group Employee Retirement Income Security Act of 1974 ("ERISA") Plans Compliance and Investment Committee with the advice of investment managers and/or investment consultants, taking into account current market conditions. During 2013, the Committee reviewed the Lux Pension Plan's asset...

  • Page 139
    ... retirees. Employees generally become eligible for retiree health care benefits when they retire from active service between the ages of 55 and 65. Benefits are discontinued at age 65. During 2009, U.S. Holdings provided for a one-time special election of early retirement to certain associates age...

  • Page 140
    ...(ii) accruals for decommissioning the costs of certain subsidiaries of the Group operating in the Retail Segment of Euro 3.1 million (Euro 2.8 million as of December 31, 2012). The Company is self-insured for certain types of losses (please refer to Note 19 "Short-term Provisions for Risks and Other...

  • Page 141
    ...as a result of the Group having achieved the financial targets identified by the Board of Directors under the 2010 PSP. As a result of these equity grants, the number of Group treasury shares was reduced from 4,681,025 as of December 31, 2012 to 4,157,225 as of December 31, 2013. 26. NON-CONTROLLING...

  • Page 142
    ... 2013 2012 Interest expense on bank overdrafts Interest expense on loans Financial expense on derivatives Other interest expense Total interest expense INTEREST INCOME (213) (2,869) (87,650) (121,049) (7,548) (7,684) (6,721) (6,539) (102,132) (138,140) 2013 2012 Interest income on bank accounts...

  • Page 143
    ... the production, design and distribution of sunglasses and prescription frames. Under these licensing agreements-which typically have terms ranging from 3 to 10 years-the Group is required to pay a royalty generally ranging from 5% to 14% of net sales. Certain contracts also provide for the payment...

  • Page 144
    ...,521 The Group is committed to pay amounts in future periods for endorsement contracts, supplier purchase and other long-term commitments. Endorsement contracts are entered into with selected athletes and others who endorse Oakley products. Oakley is often required to pay specified minimal annual...

  • Page 145
    ... The Group executed an exclusive worldwide license for the production and distribution of Brooks Brothers brand eyewear. The brand is held by Brooks Brothers Group, Inc. ("BBG"), which is owned and controlled by a director of the Company, Claudio Del Vecchio. The license expires on December 31, 2014...

  • Page 146
    ... 2012 Weighted average shares outstanding-basic Effect of dilutive stock options Weighted average shares outstanding-dilutive Options not included in calculation of dilutive shares as the average value was greater than the average price during the respective period or performance measures related...

  • Page 147
    ...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 closed approximately 10% of its Australian and New Zealand stores, redirecting resources into its market leading OPSM brand. As a result...

  • Page 148
    ...the three-year period from 2012 through 2014. Management expects that the target will be met. As of December 31, 2013, 67,200 unites granted had been forfeited. On April 29, 2013, a Performance Shares Plan for senior managers within the Company as identified by the Board (the "2013 PSP") was adopted...

  • Page 149
    ... 433,000 274,660 1,220,000 517,500 1,362,000 586,000 7,973,360 Options exercisable on December 31, 2013 are summarized in the following table: Number of options exercisable as of December 31, 2013 2005 Plan 2007 Plan 2008 Plan 2009 Ordinary plan-for citizens not resident in the U.S. 2009 Ordinary...

  • Page 150
    ...cash and cash equivalents Net financial position Total equity Capital Gearing ratio 37. SUBSEQUENT EVENTS 2,079.4 (618.0) 1,461.4 4,149.9 5,611.3 26.0% 2,452.5 (790.1) 1,662.4 3,993.2 5,655.6 29.3% On January 20, 2014 the Group received an upgrade of its long-term credit rating from BBB+ to A- by...

  • Page 151
    On February 10, 2014, the Group completed an offering in Europe to institutional investors of Euro 500 million of senior unsecured guaranteed notes due February 10, 2024. Interest on the notes accrues at 2.625% per annum (ISIN XS1030851791). The bond received a rating A-.

  • Page 152
    5. ATTACHEMENTS

  • Page 153
    ... exchange rate Average exchange rate Final exchange rate as of December 31, 2013 as of December 31, 2013 as of December 31, 2012 as of December 31, 2012 Argentine Peso Australian Dollar Brazilian Real Canadian Dollar Chilean Peso Chinese Renminbi Colombian Peso Croatian Kuna Great Britain Pound Hong...

  • Page 154
    6. CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PERSUANT TO ARTICLE 154 BIS OF THE LEGISLATIVE DECREE 58/98

  • Page 155
    ... of December 31, 2013 was based on a process developed by Luxottica Group SpA in accordance with the model of Internal Control - Integrated Framework issued by the Committee of Sponsoring organizations of the Tradeway Commission which is a framework generally accepted internationally. 3. It is also...

  • Page 156
    Milano, February 27, 2014 Andrea Guerra (Chief Executive Officer) Enrico Cavatorta (Manager in charge with preparing the Company's financial reports) Certification of the consolidated financial statements as of December 31, 2013 Page 2 of 2

  • Page 157
    7. AUDITOR'S REPORT

  • Page 158
    ...of Luxottica Group as of 31 December 2013 comply with the International Financial Reporting Standards as adopted by the European Union, and with the regulations issued to implement article 9 of Legislative Decree No. 38/2005; accordingly, they have been prepared clearly and give a true and fair view...

  • Page 159
    ... article 123-bis of Legislative Decree No. 58/98 presented in the report on corporate governance and ownership structure, with the financial statements, as required by law. For this purpose, we have performed the procedures required under Italian Auditing Standard 1 issued by the Italian Accounting...

  • Page 160
    8. STATUTORY FINANCIAL STATEMENTS

  • Page 161
    Luxottica Group S.p.A. Registered office in Via Cantù 2 - 20123 Milan (Italy) Capital stock Euro 28,653,640.38 authorized and issued STATUTORY FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 STATEMENT OF FINANCIAL POSITION (in euro) ASSETS Notes 12/31/2013 of which related parties 12/31/2012 ...

  • Page 162
    ... OF INCOME Revenues Other revenue and income Changes in inventories Cost of goods purchased Service costs Costs of third-party assets Depreciation and amortization expenses Employee expenses Other operating expenses Income from operations Dividend income Finance income Finance expense Gains on...

  • Page 163
    .../(losses) on defined benefit pension plans Of which fiscal effect 317,770 120,533 84,010 31,866 7,505,759 3,581,032 (3,152) (1,195) 12/31/2013 454,366,669 12/31/2012 354,027,383 Total other comprehensive income - net of tax 401,780 7,502,607 Comprehensive income for the period 454,768,449 361...

  • Page 164
    ...2012 Balances at January 1, 2013 Net income for the period Total comprehensive income for the period Change in fair value of financial instruments with maturity date in the year 2013 Actuarial gains/losses Total other comprehensive income at December 31, 2013 Capital increase Figurative stock option...

  • Page 165
    ... Amortization Financial Charges Financial income Changes in accounts receivable Changes in accounts payable Changes in other receivables/payables Changes in inventory Total non-cash adjustments Interest paid Interest received Taxes paid Dividend income A Cash Provided by operating activities...

  • Page 166
    Milano, February 27, 2014 Luxottica Group S,p.A. Andrea Guerra Cheif Executive Officer Separate financial Statements as of December 31,2013 Page 6 of 6

  • Page 167
    9. FOOTNOTES TO THE STATUTORY FINANCIAL STATEMENT

  • Page 168
    ...and issued FOOTNOTES TO THE STATUTORY FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013 GENERAL INFORMATION Luxottica Group S.p.A. (the "Company") is a corporation listed on the Italian Stock Exchange and on the New York Stock Exchange, with its registered office located at Via C. Cantù 2, Milan (Italy...

  • Page 169
    ... the items needed for production. On January 23, 2013, Luxottica Group S.p.A. completed the acquisition of 100% of Alain Mikli International, a French luxury eyewear company. The acquisition is part of the Group's strategy to strengthen its brand portfolio. On March 25, 2013, the Company completed...

  • Page 170
    ... reporting structure for its financial statements: • statement of financial position: assets and liabilities are classified according to current and non-current criteria; • statement of income: costs are presented according to the nature of expense, in view of the type of business conducted...

  • Page 171
    ... March 3, 2010 concerning disclosures in financial reports about impairment tests, terms of credit agreements, debt restructuring and the "fair value hierarchy". • Bank of Italy/Consob/Isvap joint statement no. 5 dated May 15, 2012 concerning the accounting treatment of deferred tax assets arising...

  • Page 172
    ... recognized in profit or loss on a straight-line basis over the vesting period, with a matching increase recorded in equity; this cost is estimated by management, taking account of any vesting conditions. The fair value of stock options is determined using the binomial model. The Company has applied...

  • Page 173
    ...fair value through profit or loss. Subsequent measurement is always at fair value; fair value adjustments are recognized through profit or loss, except for interest rate swaps designated as cash flow hedges and currency risk hedges entered into with Luxottica Trading and Finance Ltd, a Group company...

  • Page 174
    ...credit lines as of December 31, 2013; • is not subject to significant concentrations of liquidity risk, either in terms of financial assets or sources of financing; • utilizes different sources of bank financing, but also keeps a reserve of liquidity for promptly satisfying cash needs; • takes...

  • Page 175
    ... carrying amount of the related liabilities since the effect of present value discounting is insignificant. Market risk The Company is exposed to two types of risk: a) Interest rate risk The interest rate risk to which the Company is exposed mainly originates from its long-term debt, which carries...

  • Page 176
    ... 50,261 At December 31, 2013 Long-term debt Finance lease liabilities Derivative financial instruments Accounts payable Other current liabilities At December 31, 2012 Long-term debt Finance lease liabilities Derivative financial instruments Accounts payable Other current liabilities Within 1 year...

  • Page 177
    Market risk The Company is exposed to two types of risk: a) Interest rate risk The interest rate risk to which the Company is exposed mainly originates from its long-term debt, which carries both fixed and variable interest rates. The Company does not operate any particular hedging policies with ...

  • Page 178
    ... of long-term debt Accounts payable Other current liabilities Current derivative financial instruments (liabilities) 4 5 9 8 14 15 17 20 19 21 75,949 320,958 401,869 22,856 3,086 (92,905) (229,661) (261,771) (1,976) (1,452,418) b) Currency risk The main foreign exchange rate to which the Company...

  • Page 179
    ... it does not return within these limits in the agreed period of 15 business days commencing from the date of reporting such non-compliance. The Group monitors the amount of the covenants at the end of every quarter and was in full compliance with them at December 31, 2013. The Company also forecasts...

  • Page 180
    ... obtained from the info provider Bloomberg, which mostly consist of observable market data (Euro and USD yield curves and official exchange rates at the valuation date). The Company adopted the amendments to IFRS 7 for financial instruments measured at fair value effective January 1, 2009. These...

  • Page 181
    ...31-2012 3,086 Fair Value at the reporting date using: Level 1 Level 2 3,086 Level 3 1,977 1,977 As of December 31, 2013, none of the Company's financial instruments were valued using Level 3 fair value measurements. The Company maintains policies and procedures that aim at valuing the fair value...

  • Page 182
    ... exposure ZAR contro EUR The following disclosures report about the typology: 2013 Liabilities 2012 Assets Liabilities (438,303) (1,538,258) (1,976,561) Assets Interest rate swap - cash flow hedge Forward Contracts - cash flow hedge Forward Contracts Total 1,833,643 1,833,643 (489,945) 489,945...

  • Page 183
    ... Tax effect of fair value adjustment of designated cash flow hedges Transfers to profit or loss Tax effect of transfers to profit or loss (12,890,723) 120,533 23,856,981 (3,581,032) (317,770) (93,354)) 567,067 (155,943) Balance at Dec-31-2013 - Footnotes to the statutory financial statements as...

  • Page 184
    ... Group and on the market, as well as past experience; • Pension plans. The present value of the pension liabilities depends on a number of factors that are determined using actuarial techniques based on certain assumptions. These assumptions relate to the discount rate, the expected return on plan...

  • Page 185
    • Stock options. The total cost of stock option plans is determined on the basis of the fair value of the options granted. At each reporting date, the Company revises its estimates of the number of options that are expected to vest based on non-market vesting conditions. Any changes compared with ...

  • Page 186
    ... at banks and post offices Cash and equivalents on hand Total 12/31/2013 137,055,271 2,882 137,058,153 12/31/2012 320,951,806 5,837 320,957,643 We maintain that the value of cash and cash equivalents are reported at their respective fair value as of the balance sheet date. 5. ACCOUNTS RECEIVABLE...

  • Page 187
    ... Balance at 12/31/2013 33,084,451 Balance at 12/31/2012 21,087,117 "Taxes receivable" mainly consist of Euro 11,364,415 for the transfer to the Company of Luxottica S.r.l.'s credit for IRES (Italian corporate income tax) arising on the deduction of IRAP (Italian regional business tax) paid in...

  • Page 188
    ...207,637 Balance at 12/31/2012 58,157,657 This balance comprises: Description IRES receivable from subsidiaries Sales taxes transferred by subsidiaries Sundry receivables Sundry advances Accrued income Prepaid expenses Cash pooling receivables Total Balance at 12/31/2013 22,620,500 4,837,289 1,852...

  • Page 189
    ... Balance at 12/31/2012 238,663 65,538 3,817,241 4,121,442 "Other prepaid expenses" include Euro 983,814 in finance expense, with the remainder of this balance relating to costs, mainly for sports sponsorship and advertising contracts, that will be expensed to income in 2014 and 2015. Footnotes to...

  • Page 190
    ... 84,853,732 Description Balance at 12/31/2012 Increases in year Decreases in year Transfers in year Amortization expense Balance at 12/31/2013 Plant Machinery and equipment Industrial equipment Other Construction in progress and advances Totale and commercial 66,727,971 9,296,105 563,904...

  • Page 191
    ... to the purchase of new equipment. "Other transfers" relate to the reversal of "Construction in progress" reported at the end of the previous year following completion of work on industrial and commercial equipment. Footnotes to the statutory financial statements as of December 31, 2013 Page 24 of...

  • Page 192
    ...end, for completion of work done on industrial and commercial equipment. Other Description Historical cost Accumulated depreciation Balance at 12/31/2011 Additions in year Additions from demerger Disposals in year Other transfers Depreciation expense Balance at 12/31/2012 Additions in year Decrease...

  • Page 193
    ... for Euro 11,000; general installations in Milan for Euro 129,890. No borrowing costs have been capitalized (since none were incurred) and no property, plant and equipment has been provided as collateral. The above depreciation rates have been reviewed once again in 2013 to confirm their adequacy...

  • Page 194
    ... Industrial Equipment Non industrial equipment Rate 12% 3% 10% 20% 10% 8% 20% 30% 25% 25% 6% The depreciation rate has been valuated also in the year 2013 in order to confirm the adecuacy. 11. INTANGIBLE ASSETS Balance at 12/31/2013 303,272,742 Balance at 12/31/2012 317,288,845 Total movements...

  • Page 195
    ... been accounted for as a finance lease (IAS 17); the difference between the present value of the lease payments and their nominal value is not regarded as significant. Increases in software consist of: Euro 8,637,146 for general software; Euro 671,529 for PLM software (Product Life Cycle Management...

  • Page 196
    ... LTDA LUXOTTICA CANADA INC LUXOTTICA FASHION BRILLEN VERTRIEBS GMBH LUXOTTICA FRAMES SERVICE SA DE CV LUXOTTICA FRANCE SAS LUXOTTICA GOZLUK ENDUSTRI VE TICARET ANONIM SIRKETI LUXOTTICA HELLAS AE LUXOTTICA HOLLAND BV LUXOTTICA IBERICA SA LUXOTTICA ITALIA SRL LUXOTTICA KOREA LTD LUXOTTICA LEASING SRL...

  • Page 197
    ...,820,353 12,243,145 (5,593,119) 3,200,624,793 Balance at 12/31/2012 Increases in year for capitalization/acquisition Increases for stock options (IFRS 2) Decrease for stock options (IFRS 2) Balance at 12/31/2013 Footnotes to the statutory financial statements as of December 31, 2013 Page 30 of 71

  • Page 198
    ... stock options recognized in "Investments in subsidiaries" reflect adjustments of the value of investments in subsidiaries in accordance with IFRS 2. 12.2 Investments in associates Balance at 12/31/2013 45,000,000 Balance at 12/31/2012 - The increase of Euro 45,000,000 relates to the acquisition...

  • Page 199
    ... assets and liabilities and consequent effects: 2013 Amount of temporary differences Deferred tax assets: Other Exchange rate derivatives Devaluation of Trademarks Inventory devaluation Provision of risks Trademarks Employee benefits Total deferred tax assets Deferred tax liabilities: Revaluation...

  • Page 200
    ... amount that will be expensed to income in 2014. The increase in "Advances on royalties" is due to the payment of Euro 12 million during the year in accordance with the license agreement. "Other" consists entirely of security deposits. "Long-term financial receivables - subsidiaries" represent the...

  • Page 201
    ...to banks and Euro 22,904,983 repaid to Luxottica Leasing. 16. PROVISIONS FOR RISK Balance at 12/31/2013 4,468,246 Balance at 12/31/2012 11,325,338 The balance consists of: Description Risk provision - client returns Provision for future licensing obligations Other short term risk provisions Total...

  • Page 202
    ... Total 130,798,704 98,862,447 229,661,151 "Accounts payable to subsidiaries" mostly comprise Euro 7.4 million owing to Luxottica Leasing S.r.l., Euro 52.5 million owing to Luxottica S.r.l., Euro 21.5 million owing to Luxottica Trading & Finance, Euro 4.2 million owing to Alain Mikli International...

  • Page 203
    ... of the fair value of intercompany derivative forward contracts . Further information can be found in the second paragraph of the section on "Derivative financial instruments". 20. OTHER LIABILITIES Balance at 12/31/2013 145,501,870 Balance at 12/31/2012 261,770,834 Other liabilities are stated at...

  • Page 204
    ... follows: Subsidiary Luxottica S.r.l. Luxottica Trading & Finance Ltd Luxottica Trading & Finance Ltd Luxottica Leasing S.r.l. Luxottica Italia S.r.l. Sunglass Hut Mexico SA DE CV Sunglass Frames Service, SA CV Luxottica Frames S.A. de C.V. Total Nature Other liabilities Sales taxes transferred by...

  • Page 205
    ... note on "Long-term debt" in the Notes to the Consolidated Financial Statements. The change in this balance is mainly due to the reclassification of Euro 300 million as short-term debt. The net financial position, inclusive of intragroup balances, at December 31, 2013 and December 31, 2012, was as...

  • Page 206
    ... is due to this liability's annual inflation related adjustment and movements for staff transferred to other Group companies. The decrease reflects payments to staff that left the Company during 2011 and the transfer of indemnities maturing in 2013 to alternative pension funds or to INPS (Italian...

  • Page 207
    ...Retirement rate: In order to take into account the current uncertainty of the financial markets, the Company has decided to use a discount rate for the valuation of liabilities at December 31, 2013, that is based on the iBoxx Eurozone Corporates AA 10+ index at the valuation date. More information...

  • Page 208
    ...,027,383 2,254,709,315 24.1 Capital stock 2013 28,653,640 2012 28,394,292 The capital stock is composed: Shares Ordinarie Numbers 477,560,673 Nominal value (Euro) 0.06 Of the 4,322,476 options exercised, 21,300 refer to the 2004 Plan, 198,000 refer to the 2005 Plan, 1,100,000 refer to the 2006...

  • Page 209
    ... 2012 to 4,157,225 as of December 31, 2013. Other reserves The change reflects Euro 28,110,598 for accounting for stock options in accordance with IFRS 2, Euro 84,010 in net actuarial gains/losses recognized in equity under IAS 19, and Euro 317,770 for fair value adjustments to financial instruments...

  • Page 210
    ... amount of Euro 18,318 refers to the residual amount required to be allocated to the legal reserve to make it equal to 20% of capital stock. Footnotes to the statutory financial statements as of December 31, 2013 Page 43 of 71

  • Page 211
    ...with Oakley Inc. for the use of house brands (Ray Ban, Arnette, Persol, Vogue, Killer Loop, Luxottica and Sferoflex). More details about these licenses can be found in the introductory part of these notes Euro 36,223,727 in recharges of IT costs; Euro 5,227,163 in administrative services charged to...

  • Page 212
    27. CHANGES IN INVENTORIES 2013 16,489,074 2012 25,150,163 Change (8,661,089) Changes in inventory are divided as follows: Description Finished products Spare parts Advertising materials Samples Accessories Raw materials Total 2013 14,747,921 (1,563,251) 643,840 276,386 (237,084) 2,621,262 16,489,...

  • Page 213
    ...of marketing costs relating to OPSM trademarks, as prescribed by license contracts with Luxottica Retail Australia PTY Ltd, as well as the Ray-Ban, Arnette, Persol, Vogue, Killer Loop, Sferoflex and Luxottica trademarks, owned by Luxottica Group S.p.A., as of June 2007. Other service costs primarily...

  • Page 214
    ...PAYROLL COSTS 2013 128,178,826 2012 113,901,254 Change 14,277,572 Details of these costs are provided below. "Non-cash stock-based compensation" reflects the cost for the year of stock options granted to the Company's top management. Description Wages and salaries Non-cash stock-based compensation...

  • Page 215
    ... the cost of consumption materials and Euro 2,410,538 in nondeductible expenses. 34. DIVIDEND INCOME 2013 96,630,998 2012 73,415,833 Change 23,215,165 "Dividend income" is analyzed as follows: Subsidiary Luxottica Trading & Finance Luxottica Italia S.r.l. Luxottica Iberica S.A. Luxottica France...

  • Page 216
    ...36. FINANCE EXPENSE 2013 69,271,971 2012 85,354,905 Change (16,082,934) Description Bank interest Cash pooling finance expense Finance expense on guarantees Interest on loans from Group companies Loan interest Derivatives interest expense Other finance expense Impairment of investments Total 2013...

  • Page 217
    ...289,330 Gains realized from entering exchange rate hedging derivatives, both with financial counterparties and the subsidiary Luxottica Trading and Finance Ltd., offset the losses associated particularly with the receipt of foreign currency dividends and the payment of interest expense in USD. 38...

  • Page 218
    ... permanent differences Real tax charge (%) 3.90% (0.60)% 1.00% 4.30% 3.90% (0.60)% 1.40% 4.70% 39. COMMITMENTS, RISKS, GUARANTEES AND CONTINGENT LIABILITIES Description Risks assumed by the company for sureties Minimum royalty and advertising contributions Finance lease payments Total 2013 996...

  • Page 219
    ... the production, design and distribution of sunglasses and eyeglasses. Under these licensing agreements, which typically have a duration from 4 to 10 years, Luxottica Group is required to pay royalties between 6% and 14% of net sales. Certain contracts also provide for the payment of the guaranteed...

  • Page 220
    ... end with subsidiaries, associates, parents and other Group companies are as follows: Trade and other transactions and balances 2013 Costs 2013 Payables 56,169 52,980,935 7,374,421 701,845,387 Goods Company Consorzio Rayban Air Luxottica S.r.l. (*) Luxottica Leasing S.r.l. (*) Receivables 2,979...

  • Page 221
    ...Luxottica Italia S.r.l. (*) Luxottica Australia Pty Ltd Luxottica Argentina Srl OPSM Group Pty Ltd Lenscrafters International Inc. Luxottica Poland Sp Zoo 300,000 17,200...394,903) 2,471,621 109,261,277 8,394,295 Luxottica Gozluk Endustri Ve Ticaret Anonim Sirketi Sunglass Hut Turkey Gozluk Ticaret...

  • Page 222
    Luxottica Sun Corporation Luxottica Optics Ltd Luxottica U.S. Holdings Corp Luxottica Trading and Finance Limited Luxottica Middle East Fze Luxottica South East Asia Pte Ltd 1,668 2,843,016 388,851 21,464,228 96,213 1,871,514 2,181,900 27,465,021 364,465,686 (...

  • Page 223
    ...,527 124,926 Sunglass Hut (South East Asia) Pte Ltd Sunglass Hut Iberia S.L. Luxottica Retail Hong Kong Ltd Sunglass Hut Airports South Africa (Pty) Ltd Sunglass Hut Retail South Africa (PTY) Ltd Oakley INC Alain Mikli International Sas Mikli Diffusion France Sas Mikli Asia Ltd Mikli Japon KK Mde...

  • Page 224
    ... amounts reported in the "Costs" column refer to intercompany recharges of goods/services purchased from third parties. * These amounts mostly originate from transfers of IRES (Italian corporate income tax) and Italian sales tax from subsidiaries to Luxottica Group S.p.A. under the group income...

  • Page 225
    ... Ming Long Optical Technology Co Ltd Lenscrafters International Inc Luxottica South Eastern Europe Ltd Luxottica India Eyewear Private Ltd Rayban Sun Optics India Ltd SPV ZETA Optical Trading (Beijing) Co ltd SPV ZETA Optical Commercial and Trading (Shanghai) Co Ltd Luxottica Tristar Optical Co...

  • Page 226
    ... Long Optical Technology Co. Ltd, , SPV Zeta Optical Commercial and Trading (Shanghai) Co. Ltd., Luxottica Shanghai Trading Co. Ltd and Luxottica Commercial Service Co. Ltd.. Transactions between Luxottica Group companies do not include any transactions falling outside the normal course of business...

  • Page 227
    ... of Italy's Consolidated Law on Finance. 42. INFORMATION PURSUANT TO ARTICLE 149 REGULATION OF COMPANIES The following table was prepared pursuant to article 2427, n, 16 bis, of C.C., furnishing the fees for the year 2013 for audit services and for services other than those pertaining to the review...

  • Page 228
    ...and management side and to support the technological and competitive development of the Italian eyewear companies. The platform see that the commercial and supply chain events will be accepted quickly by the total productive process and that every critical situation, related to planning changes, has...

  • Page 229
    ... break down of payables at December 31, 2013, by geographical area, is provided in the following table: Description Long term debt Current portion of long term debt Accounts payable (current) Other payables (current) Current tax liabilities Total Europe 1,100,000,000 Italy 35,679,172 324,079,228 54...

  • Page 230
    ...MIKLI INTERNATIONAL SAS SPV ZETA Optical Trading (Beijing) Co Ltd LUXOTTICA RETAIL AUSTRALIA PTY LTD BUDGET EYEWEAR AUSTRALIA PTY LTD THE UNITED STATES SHOE CORPORATION EYEMED VISION CARE LLC LUXOTTICA GROUP SPA LUXOTTICA RETAIL UK LTD LUXOTTICA RETAIL UK LTD LUXOTTICA RETAIL UK LTD LUXOTTICA RETAIL...

  • Page 231
    ...INC LUXOTTICA RETAIL NORTH AMERICA INC OAKLEY INC LUXOTTICA RETAIL AUSTRALIA PTY LTD LUXOTTICA US HOLDINGS CORP THE UNITED STATES SHOE CORPORATION EYEMED VISION CARE LLC LUXOTTICA RETAIL NORTH AMERICA INC EYEMED VISION CARE LLC THE UNITED STATES SHOE CORPORATION EYEMED VISION CARE LLC OPSM GROUP PTY...

  • Page 232
    ...E ESPORTIVOS LTDA LUXOTTICA CANADA INC LUXOTTICA CENTRAL EUROPE KFT LUXOTTICA COMMERCIAL SERVICE (DONGGUAN) CO LTD Luxottica ExTrA Limited LUXOTTICA FASHION BRILLEN VERTRIEBS GMBH LUXOTTICA FRAMES SERVICE SA DE CV LUXOTTICA FRAMES SERVICE SA DE CV LUXOTTICA FRANCE SAS LUXOTTICA FRANCHISING AUSTRALIA...

  • Page 233
    ...LUXOTTICA SRL OPSM GROUP PTY LIMITED THE UNITED STATES SHOE CORPORATION LUXOTTICA RETAIL NORTH AMERICA INC LENSCRAFTERS INTERNATIONAL INC LUXOTTICA RETAIL AUSTRALIA PTY LTD PROTECTOR SAFETY INDUSTRIES PTY LTD PROTECTOR SAFETY INDUSTRIES PTY LTD THE UNITED STATES SHOE CORPORATION SUNGLASS HUT TRADING...

  • Page 234
    ... GROUP SPA LUXOTTICA HOLLAND BV ALAIN MIKLI INTERNATIONAL SAS LUXOTTICA GROUP SPA OLIVER PEOPLES INC OAKLEY INC OAKLEY SALES CORP OAKLEY INC 100,00 100,00 232.797.001,00 AUD 232.797.001,00 LUXOTTICA SOUTH PACIFIC PTY LIMITED LUXOTTICA SRL LUXOTTICA SUN CORPORATION LUXOTTICA TRADING AND FINANCE...

  • Page 235
    ... INC OAKLEY INC LUXOTTICA TRADING AND FINANCE LIMITED LUXOTTICA US HOLDINGS CORP OAKLEY INC OAKLEY INC OAKLEY INC OAKLEY ICON LIMITED OPSM GROUP PTY LIMITED OAKLEY ICON LIMITED OAKLEY INC LUXOTTICA RETAIL AUSTRALIA PTY LTD OAKLEY INC LUXOTTICA SOUTH PACIFIC PTY LIMITED LUXOTTICA RETAIL NORTH AMERICA...

  • Page 236
    ...AND FINANCE LIMITED ARNETTE OPTIC ILLUSIONS INC LUXOTTICA US HOLDINGS CORP LUXOTTICA HOLLAND BV LUXOTTICA SUN CORPORATION SUNGLASS HUT TRADING LLC LUXOTTICA SRL LUXOTTICA GROUP SPA SUNGLASS HUT TRADING LLC LUXOTTICA GROUP SPA LUXOTTICA TRADING AND FINANCE LIMITED LUXOTTICA GROUP SPA LUXOTTICA RETAIL...

  • Page 237
    ...(PTY) LTD SUNGLASS HUT RETAIL SOUTH AFRICA (PTY) LTD SUNGLASS HUT TRADING LLC SUNGLASS HUT TURKEY GOZLUK TICARET ANONIM SIRKETI SUNGLASS TIME (EUROPE) LIMITED SUNGLASS WORLD HOLDINGS PTY LIMITED THE OPTICAL SHOP OF ASPEN INC THE UNITED STATES SHOE CORPORATION WAS BE RETAIL PTY LTD WINDHOEK CAPE TOWN...

  • Page 238
    Milan, February 27, 2014 Luxottica Group S.p.A. Chief Executive Officer Andrea Guerra Footnotes to the statutory financial statements as of December 31, 2013 Page 71 of 71

  • Page 239
    10. CERTIFICATION OF THE STATUTORY FINANCIAL STATEMENTS PERSUANT TO ARTICLE 154 BIS OF THE LEGISLATIVE DECREE 58/98

  • Page 240
    ... accounting procedures for the preparation of the financial report as of December 31, 2013 was based on a process developed by Luxottica Group S.p.A. in accordance with the model Internal Control - Integrated Framework as issued by the Committee of Sponsoring organizations of the Tradeway Commission...

  • Page 241
    Milan, February 27, 2014 Andrea Guerra (Chief executive officer) Enrico Cavatorta (Manager charged with preparing the Company's financial reports) Certification of the financial statements as of December 31, 2013 Page 2 of 2

  • Page 242
    11. AUDITOR'S REPORT

  • Page 243
    ... a true and fair view of the financial position, result of operations and cash flows of Luxottica Group SpA for the year then ended. The Directors of Luxottica Group SpA are responsible for the preparation of the management report and of the report on corporate governance and ownership structure in...

  • Page 244
    ... article 123-bis of Legislative Decree No. 58/98 presented in the report on corporate governance and ownership structure, with the financial statements, as required by law. For this purpose, we have performed the procedures required under Italian Auditing Standard 1 issued by the Italian Accounting...

  • Page 245
    12. BOARD OF DIRECTORS PROPOSAL

  • Page 246
    Luxottica Group S.p.A. Registered office at via C. Cantù 2 - 20123 Milan Share capital â,¬ 28,653,640.38 Authorized and issued Board of Directors proposal The Board of Directors, in consideration of the prospects for the Group development and its expectations of future income, recommends the ...

  • Page 247
    Milan, February 27, 2013 Luxottica Group S.p.A. On behalf of the Board of Directors Andrea Guerra Chief Executive Officer Board of Directors proposal as of December 31, 2012 Page 2of 2

  • Page 248
    13. BOARD OF STATUTORY AUDITORS' REPORT ON THE STATUTORY AND CONSOLIDATED FINANCIAL STATEMENTS

  • Page 249
    ... the Italian optical retailer. The transaction is valued at Euro 45 million. 3) 4) On March Standard & Poor's confirmed its long-term credit rating of BBB+ and revised its outlook on the Group from stable to positive. On April 25th, 2013 Sun Glass Hut Mexico acquired the sun business of group Devlyn...

  • Page 250
    ... fairly represent operating events. This was achieved through: i) the review of reports issued by the manager responsible for the preparation of the Company's accounting records according to the provisions stated in article 154-bis of Italian Legislative Decree 58/98; ii) the review of the internal...

  • Page 251
    ...attention to the services provided outside the auditing process. It has to be noted, for what concerns financial information, that the Company also adopted the international accounting principles (IAS/IFRS) in preparing its reports for the Security Exchange Commission of the United States since 2010...

  • Page 252
    ...its network by Luxottica Group S.p.A. and the other companies of the Group, there are no aspects that give the Board of Statutory Auditors reason to doubt the independence of PricewaterhouseCoopers S.p.A.; q) During the 2013 fiscal year the Board of Auditors met ten times, the Board of Directors met...

  • Page 253
    the Board of Directors, and to the consequent proposal, made by the Board itself, for a net income distribution of 454 Millions Euro. Milan, 4 April 2014