Luxottica Continues to Show Strong Growth in 3Q10

Net income for third quarter exceeded euro 100 million, net sales approach euro 1.5 billion

Oct 25, 2010, 11:38 ET from Luxottica Group S.p.A.

MILAN, Oct. 25 /PRNewswire-FirstCall/ -- The Board of Directors of Luxottica Group S.p.A. (MTA: LUX; NYSE: LUX), a global leader in the design, manufacture and distribution of fashion, luxury and sports eyewear, met today and approved the consolidated results for the third quarter and first nine months of the year ended on September 30, 2010, in accordance with IAS/IFRS.

Third quarter 2010(1) – IAS/IFRS

(In millions of Euro)

Q3 2010

Q3 2009

Change

Net sales

1,464.7

1,223.3

+19.7% (+8.6% at constant exchange rates(2))

Operating income

186.4

139.6

+33.6%

Net income

101.9

75.8

+34.5%

Earnings per share

0.22

0.17

+34.1%

                    in US$

0.29

0.24

+21.1%

First nine months of 2010(1) – IAS/IFRS

(In millions of Euro)

9M 2010

9M 2009

Change

Net sales

4,451.5

3,937.2

+13.1% (+7.3% at constant exchange rates(2))

Operating income

616.0

497.0

+23.9%

Net income

347.1

269.9

+28.6%

Earnings per share

0.76

0.59

+28.2%

                    in US$

0.99

0.81

+23.4%

Operating performance for the third quarter of 2010

During the third quarter of 2010, Luxottica’s solid growth continued to contribute towards excellent results thanks to the intense work of both its Retail and Wholesale Divisions, the strength of its brands and the success of commercial initiatives in all the main geographic areas in which the Group operates. Net income for the quarter topped the euro 100 million mark, with net sales approaching euro 1.5 billion.

“Results achieved in the third quarter of 2010 were positive,” commented Andrea Guerra, Chief Executive Officer of Luxottica. “All our people were able to strongly react to and make the best of the opportunities offered by the New World in which we operate. Such results may be summarized in a solid growth in so-called mature markets – net sales in Europe were up by 12.7% and net sales in U.S. dollars in North America rose by 8.5% over the third quarter last year - as well as in a strong increase in key emerging markets, where net sales grew by 26% over last year.”

Sun season results were positive all over the world and Sunglass Hut, our specialty sun stores chain, posted successful performances both in the U.S., where comparable store sales(4) were up by 12.5%, and globally.”

Due attention must be given to the new growth trend of our premium and luxury brands: over the last two quarters, we have experienced a steady increase in the number of consumers again interested in these brands.”

I’m also really proud of our excellent positive free cash flow(3), equivalent to more than euro 250 million in the quarter, which confirmed the validity of our business model and the constant attention to working capital.”

The results achieved thus far allow us to look optimistically toward a year-end that, if we continue to work with the determination and passion shown in recent months, may allow us to reach the threshold of euro 400 million of net income.”

During the third quarter of the year, Luxottica successfully achieved very positive results in most of the geographic regions in which it operates. The Wholesale Division made a decisive contribution to these results with its continued growth in both more mature markets, such as the United States and Europe, and in emerging markets, where net sales increased by more than 20% for the fourth consecutive quarter, with increases of approximately 40% seen in India and South Korea.

The Group also posted very positive results at LensCrafters, which returned to its position as a leader in the North American optical retail sector, and at Sunglass Hut, today more than ever, the world’s leading sun specialty stores chain.

Consolidated results

In the third quarter of 2010, net sales rose by 19.7% at current exchange rates and by +8.6% at constant exchange rates(2) to euro 1,464.7 million, from euro 1,223.3 million in the third quarter of 2009. In the first nine months, net sales rose by 13.1% to euro 4,451.5 million, from euro 3,937.2 million in the first nine months of 2009.

EBITDA(3) grew over the previous year by +25.6% to euro 263.5 million, from euro 209.8 million in the third quarter of 2009. In the first nine months, EBITDA(3) increased from euro 711.3 million for the first nine months of 2009 to euro 841.5 million (+18.3%) for the same period in 2010.

Operating income was euro 186.4 million for the third quarter of 2010 (euro 139.6 million for the same period last year, +33.6%), while the Group’s operating margin improved from 11.4% in the third quarter of 2009 to 12.7% for the same period in 2010. In the first nine months of the year, operating income amounted to euro 616.0 million, up 23.9% from the euro 497.0 million posted for the same period last year.

Net income for the third quarter of 2010 increased to euro 101.9 million (up by +34.5% from euro 75.8 million for the same period in 2009), resulting in earnings per share (EPS) of euro 0.22 (at an average Euro/Dollar exchange rate of 1.2910).  In the first nine months of the year, net income amounted to euro 347.1 million, up 28.6% from the euro 269.9 million posted for the same period last year, resulting in EPS of euro 0.76 (at an average Euro/Dollar exchange rate of 1.3145).

For the third quarter of 2010, once again, the Group generated excellent positive free cash flow(3) (more than euro 250 million). Net debt(3) as of September 30, 2010, amounted to euro 2,269 million (euro 2,337 million at the end of 2009), with a ratio of net debt to EBITDA(3) of 2.3X as compared with 2.7X at the end of 2009.

Overview of performance at the Wholesale Division

During the third quarter, the Wholesale Division continued to record excellent results thanks to the continued success of commercial initiatives, the great appreciation by customers of collections and initiatives such as the Buying Days, along with positive results from all Group brands. Particularly noteworthy, for the second quarter in a row, the premium and luxury brands accelerated their improvement trend, marking an approximate 20% increase in net sales. Ray-Ban and Oakley continued their double-digit growth, with great success enjoyed by the optical collections. In terms of sales performance in the main geographical areas, Luxottica saw very positive results in emerging markets, in particular in Brazil, China and India, as well as in Europe.

The Division's net sales rose to euro 518.3 million in the third quarter of 2010, from euro 429.5 million in the third quarter of 2009 (+20.7% at current exchange rates and +12.4% at constant exchange rates(2)). In the first nine months of 2010, net sales were euro 1,722.9 million, up 14.4% from the euro 1,506.5 million recorded for the first nine months of 2009 (+9.5% at constant exchange rates(2)).

Operating income for the Wholesale Division amounted to euro 94.9 million in the third quarter of 2010, up by 53.8% compared with euro 61.7 million for the third quarter of 2009. The operating margin rose to 18.3% during the third quarter of 2010, from 14.4% for the third quarter of 2009, confirming the effectiveness of the measures taken to recover margins and a better price point/product mix effect. In the first nine months of 2010, the operating margin was 21.6% (19.7% in the same period of 2009).

Overview of performance at the Retail Division

During the third quarter, the Retail Division posted good results, boosted by positive performances at LensCrafters and Sunglass Hut. In particular, comparable store sales(4) at LensCrafters were up by 8.4% for the third quarter of 2010 over the same period last year, thanks to the strong efforts of the entire organization and the solid trend of both “plano” and prescription sunglass sales, as well as the positive results seen in sales during the back-to-school period.

Sunglass Hut also posted very positive results in terms of margins, with overall comparable store sales(4) up 9.6% as compared to last year, with a very positive trend in the United States (+12.5%).

On the other hand, comparable store sales(4) were negative in Australia, where the retail market scenario is still challenging.  In this market, the Group is reacting with new initiatives aimed at increasing consumer traffic at the store level and at further improving the buying experience.  Early results in the current quarter are positive.

Net sales for the Retail Division therefore rose to euro 946.5 million in the third quarter of 2010, from euro 793.8 million in the third quarter of 2009 (+19.2% at current exchange rates, +6.5% at constant exchange rates(2)). In the first nine months of 2010, net sales were euro 2,728.6 million, up 12.3% on the euro 2,430.8 million recorded for the first nine months of 2009 (+5.9 at constant exchange rates(2)).

The Division’s operating income grew by +13.5% to euro 129.3 million, from euro 113.9 million in the third quarter of 2009. The operating margin for the third quarter of 2010 decreased from 14.3% during the same period last year to 13.7%. In the first nine months of 2010, the operating margin was 13.0% (12.8% in the first nine months of 2009).

The Board of Directors also resolved to amend the Company’s by-laws, in order to meet the new criteria introduced by Italian Legislative Decree no. 27/2010, implementing Directive 2007/36/EC on shareholder rights.   

In line with the provisions of Consob Regulation no. 17221/2010, and with the favorable recommendation of the Internal Control Committee, whose members are exclusively independent directors, the Board of Directors approved the new procedure on transactions with related parties.

The results of the third quarter and first nine months of 2010 will be discussed today at 6:00 p.m. (CET) during a conference call with the financial community. The presentation will be available via webcast directly from the website at www.luxottica.com.

In accordance with subsection 2 of Article 154-bis of the Italian Consolidated Finance Law, the Director appointed to prepare the company’s accounts, Enrico Cavatorta, hereby declares that the accounting disclosure contained in this release complies with the results of the accounting records, books and registers of the Group.

(1) All comparisons, including percentage changes, are between the three and nine-month periods ended September 30, 2010 and September 30, 2009, as indicated, in accordance with IAS/IFRS.

(2) Figures given at constant exchange rates have been calculated using the average exchange rate of the respective comparative period in the previous year. For further information, please refer to the attached tables.

(3) EBITDA, free cash flow, net debt and the ratio of net debt to EBITDA are not measures in accordance with IAS/IFRS. For further information on such non-IAS/IFRS measures, please see the attached tables.

(4) Comparable store sales reflect the change in sales from one period to another that, for comparison purposes, includes in the calculation only stores open in the more recent period that also were open during the comparable prior period, and applies to both periods the average exchange rate for the prior period and the same geographic area.

Luxottica Group S.p.A.

Luxottica Group is a global leader in premium fashion, luxury and sports eyewear with more than 6,300 optical and sun retail stores in North America, Asia-Pacific, China, South Africa and Europe and a strong and well-balanced brand portfolio. Luxottica’s key house brands include Ray-Ban, the best-known sun eyewear brand in the world, Oakley, Vogue, Persol, Oliver Peoples, Arnette and REVO, while license brands include Bvlgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Prada, Salvatore Ferragamo, Tiffany and Versace. In addition to a global wholesale network covering 130 different countries, the Group manages leading retail brands such as LensCrafters, Pearle Vision and ILORI in North America, OPSM and Laubman & Pank in Asia-Pacific, LensCrafters in China and Sunglass Hut globally. The Group's products are designed and manufactured at its six manufacturing plants in Italy, two wholly-owned plants in China and a sport sunglass production facility in the US. In 2009, Luxottica Group posted consolidated net sales of euro 5.1 billion. Additional information about the Group is available at www.luxottica.com.

Safe Harbor Statement

Certain statements in this press release may constitute “forward looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those which are anticipated. Such risks and uncertainties 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 and integrate their operations, our ability to predict future economic conditions and changes in consumer preferences, our ability to successfully introduce and market new products, our ability to maintain an efficient distribution network, our ability to achieve and manage growth, our ability to negotiate and maintain favorable license arrangements, the availability of correction alternatives to prescription eyeglasses, 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 tax laws, as well as other political, economic, legal and technological factors and other risks and uncertainties described in Luxottica Group’s filings with the U.S. Securities and Exchange Commission. These forward-looking statements are made as of the date hereof and Luxottica Group does not assume any obligation to update them.

- TABLES FOLLOW –

LUXOTTICA GROUP

CONSOLIDATED FINANCIAL HIGHLIGHTS

FOR THE THREE-MONTH PERIODS ENDED

SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

In accordance with IAS/IFRS

KEY FIGURES IN THOUSANDS OF EURO (1)

2010

2009

% Change

NET SALES

1,464,732

1,223,272

19.7%

NET INCOME

101,934

75,784

34.5%

BASIC EARNINGS PER SHARE (ADS) (2):

0.22

0.17

34.1%

KEY FIGURES IN THOUSANDS OF U.S. DOLLARS (1) (3)

2010

2009

% Change

NET SALES

1,890,969

1,749,646

8.1%

NET INCOME

131,597

108,394

21.4%

BASIC EARNINGS PER SHARE (ADS) (2):

0.29

0.24

21.1%

Notes :

2010

2009

(1)  Except earnings per share (ADS), which are expressed in Euro and U.S. Dollars, respectively

(2)  Weighted average number of outstanding shares

458,527,966

457,214,454

(3)  Average exchange rate (in U.S. Dollars per Euro)

1.2910

1.4303

LUXOTTICA GROUP

CONSOLIDATED FINANCIAL HIGHLIGHTS

FOR THE NINE-MONTH PERIODS ENDED

SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

In accordance with IAS/IFRS

KEY FIGURES IN THOUSANDS OF EURO (1)

2010

2009

% Change

NET SALES

4,451,542

3,937,233

13.1%

NET INCOME

347,077

269,869

28.6%

BASIC EARNINGS PER SHARE (ADS) (2)

0.76

0.59

28.2%

KEY FIGURES IN THOUSANDS OF U.S. DOLLARS (1) (3)

2010

2009

% Change

NET SALES

5,851,552

5,379,048

8.8%

NET INCOME

456,233

368,695

23.7%

BASIC EARNINGS PER SHARE (ADS)(2)

0.99

0.81

23.4%

Notes :

2010

2009

(1)  Except earnings per share (ADS), which are expressed in Euro and U.S. Dollars, respectively

(2)  Weighted average number of outstanding shares

458,544,153

457,108,193

(3)  Average exchange rate (in U.S. Dollars per Euro)

1.3145

1.3662

LUXOTTICA GROUP

CONSOLIDATED INCOME STATEMENT

FOR THE THREE-MONTH PERIODS ENDED

SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

In accordance with IAS/IFRS

In thousands of Euro  (1)

3Q 10

% of sales

3Q 09

% of sales

% Change

NET SALES

1,464,732

100.0%

1,223,272

100.0%

19.7%

COST OF SALES

(499,849)

(420,784)

GROSS PROFIT

964,883

65.9%

802,488

65.6%

20.2%

OPERATING EXPENSES:

SELLING EXPENSES

(490,264)

(412,049)

ROYALTIES

(22,012)

(20,342)

ADVERTISING EXPENSES

(89,967)

(73,246)

GENERAL AND ADMINISTRATIVE EXPENSES

(154,907)

(137,217)

TRADEMARK AMORTIZATION

(21,297)

(20,072)

TOTAL

(778,447)

(662,925)

OPERATING INCOME

186,436

12.7%

139,563

11.4%

33.6%

OTHER INCOME (EXPENSE):

INTEREST EXPENSES

(26,929)

(29,663)

INTEREST INCOME

2,543

954

OTHER - NET

(1,120)

2,087

OTHER INCOME (EXPENSES)-NET

(25,507)

(26,621)

INCOME BEFORE PROVISION FOR INCOME TAXES

160,929

11.0%

112,941

9.2%

42.5%

PROVISION FOR INCOME TAXES

(58,229)

(36,142)

NET INCOME

102,700

76,800

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

(766)

(1,016)

NET INCOME ATTRIBUTABLE TO LUXOTTICA GROUP SHAREHOLDERS

101,934

7.0%

75,784

6.2%

34.5%

BASIC EARNINGS PER SHARE (ADS):

0.22

0.17

FULLY DILUTED EARNINGS PER SHARE (ADS):

0.22

0.17

WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES  

458,527,966

457,214,454

FULLY DILUTED AVERAGE NUMBER OF SHARES  

460,152,396

458,303,432

Notes :

(1) Except earnings per share (ADS), which are expressed in Euro

LUXOTTICA GROUP

CONSOLIDATED INCOME STATEMENT

FOR THE NINE-MONTH PERIODS ENDED

SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

In accordance with IAS/IFRS

In thousands of Euro  (1)

2010

% of sales

2009

% of sales

% Change

NET SALES

4,451,542

100.0%

3,937,233

100.0%

13.1%

COST OF SALES

(1,529,395)

(1,352,480)

GROSS PROFIT

2,922,148

65.6%

2,584,752

65.6%

13.1%

OPERATING EXPENSES:

SELLING EXPENSES

(1,427,794)

(1,281,290)

ROYALTIES

(74,512)

(74,509)

ADVERTISING EXPENSES

(286,455)

(245,410)

GENERAL AND ADMINISTRATIVE EXPENSES

(454,547)

(425,227)

TRADEMARK AMORTIZATION

(62,829)

(61,266)

TOTAL

(2,306,136)

(2,087,703)

OPERATING INCOME

616,012

13.8%

497,049

12.6%

23.9%

OTHER INCOME (EXPENSE):

INTEREST EXPENSES

(78,500)

(79,307)

INTEREST INCOME

5,824

4,322

OTHER - NET

(5,872)

(1,905)

OTHER INCOME (EXPENSES)-NET

(78,548)

(76,890)

INCOME BEFORE PROVISION FOR INCOME TAXES

537,464

12.1%

420,159

10.7%

27.9%

PROVISION FOR INCOME TAXES

(186,202)

(145,308)

NET INCOME

351,262

274,852

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

(4,185)

(4,983)

NET INCOME ATTRIBUTABLE TO LUXOTTICA GROUP SHAREHOLDERS

347,077

7.8%

269,869

6.9%

28.6%

BASIC EARNINGS PER SHARE (ADS):

0.76

0.59

FULLY DILUTED EARNINGS PER SHARE (ADS):

0.75

0.59

WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES  

458,544,153

457,108,193

FULLY DILUTED AVERAGE NUMBER OF SHARES  

460,249,173

457,661,787

Notes :

(1) Except earnings per share (ADS), which are expressed in Euro

LUXOTTICA GROUP

CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

In accordance with IAS/IFRS

In thousands of Euro

September 30, 2010

December 31, 2009

CURRENT ASSETS:

CASH AND CASH EQUIVALENTS

482,943

380,081

MARKETABLE SECURITIES

25,330

ACCOUNTS RECEIVABLE - NET

665,332

618,884

SALES AND INCOME TAXES RECEIVABLE

24,512

59,516

INVENTORIES - NET

562,047

524,663

PREPAID EXPENSES AND OTHER

143,404

138,849

DEFERRED TAX ASSETS - CURRENT

TOTAL CURRENT ASSETS

1,903,577

1,721,993

PROPERTY, PLANT AND EQUIPMENT - NET

1,167,933

1,149,972

OTHER ASSETS

INTANGIBLE ASSETS - NET

3,992,926

3,838,715

INVESTMENTS

51,454

46,317

OTHER ASSETS

147,893

146,626

SALES AND INCOME TAXES RECEIVABLE

1,191

965

DEFERRED TAX ASSETS - NON-CURRENT

380,304

356,706

TOTAL OTHER ASSETS

4,573,768

4,389,329

TOTAL  

7,645,278

7,261,294

CURRENT LIABILITIES:

BANK OVERDRAFTS

221,956

148,951

CURRENT PORTION OF LONG-TERM DEBT

135,142

166,279

ACCOUNTS PAYABLE

415,576

434,604

ACCRUED EXPENSES AND OTHER

483,752

526,801

ACCRUAL FOR CUSTOMERS' RIGHT OF RETURN

31,335

27,334

INCOME TAXES PAYABLE

88,044

11,204

TOTAL CURRENT LIABILITIES

1,375,805

1,315,174

LONG-TERM LIABILITIES:

LONG-TERM DEBT

2,394,627

2,401,796

LIABILITY FOR TERMINATION INDEMNITIES

42,755

44,633

DEFERRED TAX LIABILITIES - NON-CURRENT

403,224

396,048

OTHER LONG-TERM LIABILITIES

315,495

350,028

TOTAL LIABILITIES

4,531,905

4,507,679

EQUITY:

465,222,483 ORDINARY SHARES AUTHORIZED AND ISSUED  -  458,768,198 SHARES OUTSTANDING

27,913

27,863

NET INCOME ATTRIBUTABLE TO LUXOTTICA GROUP SHAREHOLDERS

347,077

299,122

RETAINED EARNINGS

2,726,292

2,410,253

TOTAL LUXOTTICA GROUP SHAREHOLDERS' EQUITY

3,101,281

2,737,239

NONCONTROLLING INTEREST

12,091

16,376

TOTAL EQUITY

3,113,373

2,753,615

TOTAL

7,645,278

7,261,294

LUXOTTICA GROUP

CONSOLIDATED FINANCIAL HIGHLIGHTS

FOR THE NINE-MONTH PERIODS ENDED

SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

- SEGMENTAL INFORMATION -

In accordance with IAS/IFRS

In thousands of Euro

Manufacturing and Wholesale

Retail

Inter-Segment Transactions and Corporate Adj.

Consolidated

2010

Net Sales

1,722,947

2,728,595

4,451,542

Operating Income

372,235

353,877

(110,101)

616,012

% of sales

21.6%

13.0%

13.8%

Capital Expenditures

59,556

79,709

139,264

Depreciation & Amortization

58,297

104,317

62,829

225,442

2009

Net Sales

1,506,468

2,430,764

3,937,233

Operating income

296,069

310,707

(109,726)

497,049

% of sales

19.7%

12.8%

12.6%

Capital Expenditures

52,490

78,578

131,068

Depreciation & Amortization

55,915

97,031

61,266

214,212

Major currencies

Three months ended

Nine Months ended

Twelve months ended

Three months ended

Nine months ended

September 30, 2009

September 30, 2009

December 31, 2009

September 30, 2010

September 30, 2010

Average exchange rates

per euro 1

US$

1.43030

1.36618

1.39467

1.29104

1.31453

AUD

1.71689

1.82338

1.77281

1.42885

1.46555

GBP

0.87161

0.88633

0.89104

0.83305

0.85730

CNY

9.77019

9.33414

9.52693

8.73875

8.94742

JPY

133.81712

129.50037

130.31404

110.67500

117.66057

Non-IAS/IFRS Measure: EBITDA and EBITDA margin

EBITDA represents net income before non-controlling interest, taxes, other income/expense, depreciation and amortization. EBITDA margin means EBITDA divided by net sales.  

The Company believes that EBITDA is useful to both management and investors in evaluating the Company's operating performance compared with that of other companies in its industry.

Our calculation of EBITDA allows us to compare our operating results with 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

EBITDA and EBITDA margin 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 presentation in order to:

*    improve transparency for investors;

*    assist investors in their assessment of the Company's operating performance and its ability to refinance its debt as it matures and incur additional indebtedness to invest in new business opportunities;

*    assist investors in their assessment of the Company's cost of debt;

*    ensure that these measures are fully understood in light of how the Company evaluates its operating results and leverage;

*    properly define the metrics used and confirm their calculation; and

*    share these measures with all investors at the same time.

EBITDA and EBITDA margin are not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with IAS/IFRS.    

Rather, these non-IAS/IFRS measures should be used as a supplement to IAS/IFRS results to assist 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 calculating EBITDA may differ from methods used by other companies.  The Company recognizes that the usefulness of EBITDA has certain limitations, including:

*    EBITDA does not include interest expense.  Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate profits and cash flows.  

Therefore, any measure that excludes interest expense may have material limitations;

*    EBITDA does not include depreciation and amortization expense.  Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits.

Therefore, any measure that excludes depreciation and expense may have material limitations;  

*    EBITDA does not include provision for income taxes.  Because the payment of income taxes is a necessary element of our costs, any measure that excludes tax expense may have material limitations;

*    EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;

*    EBITDA does not reflect changes in, or cash requirements for, working capital needs;

*    EBITDA does not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss.

We compensate for the foregoing limitations by using EBITDA as a comparative tool, together with IAS/IFRS measurements, to assist in the evaluation of our operating performance and leverage.

See the tables on the following pages for a reconciliation of EBITDA to net income, which is the most directly comparable IAS/IFRS financial measure, as well as the calculation of EBITDA margin on net sales.

Non-IAS/IFRS Measure: EBITDA and EBITDA margin

 Millions of Euro

3Q 2010

3Q 2009

9M 2010

9M 2009

FY09

LTM September 30, 2010

Net income/(loss)

101.9

75.8

347.1

269.9

299.1

376.3

(+)

Net income attributable to non-controlling interest

0.8

1.0

4.2

5.0

5.8

5.0

(+)

Provision for income taxes

58.2

36.1

186.2

145.3

159.9

200.8

(+)

Other (income)/expense

25.5

26.6

78.5

76.9

106.3

108.0

(+)

Depreciation & amortization

77.0

70.2

225.4

214.2

285.4

296.7

(+)

EBITDA

263.5

209.8

841.5

711.3

856.5

986.7

(=)

Net sales

1,464.7

1,223.3

4,451.5

3,937.2

5,094.3

5,608.6

(/)

EBITDA margin

18.0%

17.1%

18.9%

18.1%

16.8%

17.6%

(=)

Non-IAS/IFRS Measure: Net Debt to EBITDA ratio

       Net debt to EBITDA ratio:  Net debt means the sum of bank overdrafts, current portion of long-term debt and long-term debt, less cash.  EBITDA represents net income before non-controlling interest, taxes, other income/expense, depreciation and amortization. 

       The Company believes that EBITDA is useful to both management and investors in evaluating the Company's operating performance compared with that of other companies in its industry.

       Our calculation of EBITDA allows us to compare our operating results with 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.  The ratio of net debt to EBITDA is a measure used by management to assess

       the Company's level of leverage, which affects our ability to refinance our debt as it matures and incur additional indebtedness to invest in new business opportunities.

       The ratio also allows management to assess the cost of existing debt since it affects 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 presentation in order to:

   *      improve transparency for investors;

   *      assist investors in their assessment of the Company's operating performance and its ability to refinance its debt as it matures and incur additional indebtedness to invest in new business opportunities;

   *      assist investors in their assessment of the Company's cost of debt;

   *      ensure that these measures are fully understood in light of how the Company evaluates its operating results and leverage;

   *      properly define the metrics used and confirm their calculation; and

   *      share these measures with all investors at the same time.

       EBITDA and ratio of net debt to EBITDA are not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with IAS/IFRS.        

      Rather, these non-IAS/IFRS measures should be used as a supplement to IAS/IFRS results to assist 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 calculating EBITDA and the ratio of net debt to EBITDA may differ from methods used by other companies.

      The Company recognizes that the usefulness of EBITDA and the ratio of net debt to EBITDA as evaluative tools may have certain limitations, including:

   *   EBITDA does not include interest expense.  Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate profits and cash flows.

     Therefore, any measure that excludes interest expense may have material limitations;

   *   EBITDA does not include depreciation and amortization expense.  Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits.  

           Therefore, any measure that excludes depreciation and expense may have material limitations;

   *   EBITDA does not include provision for income taxes.  Because the payment of income taxes is a necessary element of our costs, any measure that excludes tax expense may have material limitations;

   *   EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;

   *   EBITDA does not reflect changes in, or cash requirements for, working capital needs;

   *   EBITDA does not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss; and

   *   The ratio of net debt to EBITDA is net of cash and cash equivalents, restricted cash and short-term investments, thereby reducing our debt position.  

     Because we may not be able to use our cash to reduce our debt on a dollar-for-dollar basis, this measure may have material limitations.

       We compensate for the foregoing limitations by using EBITDA and the ratio of net debt to EBITDA as two of several comparative tools, together with IAS/IFRS measurements, to assist in the evaluation of our operating performance and leverage.

       See the tables on the following pages for a reconciliation of net debt to long-term debt, which is the most directly comparable IAS/IFRS financial measure, as well as the calculation of the ratio of net debt to EBITDA.

        For a reconciliation of EBITDA to net income, which is the most directly comparable IAS/IFRS financial measure, see the tables on the preceding pages.

Non-IAS/IFRS Measure: Net debt and Net debt / EBITDA 

Millions of Euro

September 30, 2010

December 31, 2009

Long-term debt

2,394.6

2,401.8

(+)

Current portion of long-term debt (+)

135.1

166.3

(+)

Bank overdrafts (+)

222.0

149.0

Cash (-)

(482.9)

(380.1)

Net debt (=)

2,268.8

2,336.9

LTM EBITDA

986.7

856.5

Net debt/LTM EBITDA

2.3x

2.7x

Net debt @ avg. exchange rates (1)

2,274.7

2,381.7

Net debt @ avg. exchange rates (1)/LTM EBITDA

2.3x

2.8x

1. Net debt figures are calculated using the average exchange rates used to calculate the EBITDA figures

Non-IAS/IFRS Measures: Free Cash Flow

    Free cash flow net represents net income before non-controlling interest, taxes, other income/expense, depreciation and amortization (i.e. EBITDA – see table on the earlier page) plus or minus the decrease/(increase) in working capital over the prior period, less capital expenditures, plus or minus interest income/(expense) and extraordinary items, minus taxes paid. The Company believes that free cash flow is useful to both management and investors in evaluating the Company's operating performance compared with other companies in its industry.  In particular, our calculation of free cash flow provides a clearer picture of the Company's ability to generate net cash from operations, which is used for mandatory debt service requirements, to fund discretionary investments, pay dividends or pursue other strategic opportunities.

    Free cash flow is not a measure of performance under International Financial Reporting Standards as issued by the International Accounting Standards Board (IAS/IFRS).

    We include it in this presentation in order to:

      * Improve transparency for investors;

      * Assist investors in their assessment of the Company's operating performance and its ability to generate cash from operations in excess of its cash expenses;

      * Ensure that this measure is fully understood in light of how the Company evaluates its operating results;

      * Properly define the metrics used and confirm their calculation; and

      * Share this measure with all investors at the same time.

    Free cash flow is not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with IAS/IFRS.    

    Rather, this non-IAS/IFRS measure should be used as a supplement to IAS/IFRS results to assist the reader in better understanding the operational performance of the Company.

    The Company cautions that this measure is not a defined term under IAS/IFRS and its definition should be carefully reviewed and understood by investors.

    Investors should be aware that Luxottica Group's method of calculation of free cash flow may differ from methods used by other companies.

    The Company recognizes that the usefulness of free cash flow as an evaluative tool may have certain limitations, including:

      • The manner in which the Company calculates free cash flow may differ from that of other companies, which limits its usefulness as a comparative measure;

      • Free cash flow does not represent the total increase or decrease in the net debt balance for the period since it excludes, among other things, cash

       used for funding discretionary investments and to pursue strategic opportunities during the period and any impact of the exchange rate changes; and

      • Free cash flow can be subject to adjustment at the Company's discretion if the Company takes steps or adopts policies that increase or diminish its current liabilities and/or changes to working capital.

      We compensate for the foregoing limitations by using free cash flow as one of several comparative tools, together with IAS/IFRS measurements, to assist in the evaluation of our operating performance.

     See the table on the following page for a reconciliation of free cash flow to EBITDA and the table on the earlier page for a reconciliation of EBITDA to net income, which is the most directly comparable IAS/IFRS financial measure.

Non-IAS/IFRS Measure: Free cash flow

 Millions of Euro

3Q 2010

EBITDA (1)

263.5

Change in working capital

90.7

Capex

(56.4)

Operating cash flow

297.8

Financial charges (2)

(24.4)

Taxes

(20.1)

Extraordinary charges (3)

(1.1)

Free cash flow

252.2

1. EBITDA is not an IAS/IFRS measure; please see table on the earlier page for a reconciliation of EBITDA to net income

2. Equals interest income minus interest expense

3. Equals extraordinary income minus extraordinary expense

www.luxottica.com

SOURCE Luxottica Group S.p.A.



RELATED LINKS

http://www.luxottica.com