Luxottica Group, S.p.A. (LUX)

Cash Flows

Operating Activities.  The Company’s net cash provided by operating activities was Euro 578.9 million, Euro 330.8 million and Euro 599.0 million for 2008, 2007 and 2006, respectively. The Euro 268.2 million decrease in 2007 as compared to 2006 was primarily attributable to advance payments of U.S.$199 million made in January 2007 by the Company to certain designers for future contracted minimum royalties. The Company did not make such advance payments to designers for future contracted minimum royalties in 2008, which accounted for the Euro 248.1 million increase in net cash in 2008 as compared to 2007.

Depreciation and amortization were Euro 264.9 million in 2008 as compared to Euro 232.8 million in 2007 and Euro 220.8 million in 2006. The increase in 2008 compared to 2007 was primarily attributable to amortization of the acquired Oakley trademarks of Euro 26.5 million in 2008 as compared to Euro 4.1 million in 2007. The increase in depreciation expense in 2007 as compared to 2006 was primarily attributable to increased fixed assets due to the acquisition of new stores that occurred in 2007, new investments (mainly leasehold improvements) in the wholesale segment and the acquisition of Oakley during 2007, which accounted for a Euro 7.7 million of the increase.

Deferred taxes were Euro 4.9 million in 2008 as compared to Euro (45.0) million in 2007 and Euro (72.5) million in 2006. The change in 2008 as compared to 2007 was primarily attributable to the business reorganization of certain Italian companies within the Group which resulted in the release of deferred tax liabilities partially offset by the increase in the 2007 tax charge due to a change in the Italian statutory tax rates which resulted in the reduction of deferred tax assets. The change in 2007 as compared to 2006 was primarily due to a benefit recorded in 2006 related to the revaluation of certain tangible and intangible assets in the retail division in Australia. Non-cash stock-based compensation expense was Euro 10.4 million in 2008 as compared to Euro 42.1 million in 2007 and Euro 48.0 million in 2006. The decrease in 2008 as compared to 2007 in non-cash expense was primarily attributable to the change in the vesting period for the 2006 performance plans (expense associated with these plans was Euro 3.0 million in 2008 and Euro 34.1 million in 2007). The decrease in 2007 as compared to 2006 in non-cash stock-based compensation was primarily attributable to the adoption of SFAS No. 123(R) for stock compensation expense with respect to two performance stock option grants in 2006. The change in accounts receivable of Euro 27.9 million in 2008 compared to Euro (55.7) million in 2007 and Euro (83.1) million in 2006 was mainly due to the improvement of the Company’s days-of-sales-outstanding resulting from an initiative in this area that started in late 2007 and continued the positive improvement throughout 2008. The inventory change was Euro 1.4 million in 2008 as compared to Euro (41.9) million in 2007 and Euro (27.7) million in 2006. The change in 2008 as compared to 2007 was mainly due to the Company’s focus on the planning of the production process to align production with the sales trend which led to a reduction in inventory on hand. The change in 2007 as compared to 2006 was primarily attributable to the growing inventory level experienced in 2006 to support the business. The change in accounts payable was Euro (19.4) million in 2008 as compared to Euro 33.0 million in 2007 and Euro 71.7 million in 2006. The change in 2008 compared to 2007 was mainly attributable to improved payment terms with vendors that were negotiated in 2006 as well as an overall decrease in purchases in 2008 as

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Cash Flows

Operating Activities.  The Company’s cash provided by operating activities was Euro 342.8 million, Euro 603.3 million and Euro 605.7 million for 2007, 2006 and 2005, respectively. The Euro 260.5 million decrease in 2007 as compared to 2006 was primarily attributable to advance payments from us of U.S.$199.0 million to a certain designer for future contracted minimum royalties in January 2007 and to payments for income taxes which in 2007 generated a cash out-flow of approximately Euro 92.1 million in 2007. The Euro 2.4 million decrease in 2006 as compared to 2005 was primarily attributable to increased net income, partially offset by advance payments we made to a certain designer for future contracted minimum royalties, increases in accounts receivable and inventory and tax payments to comply with an Italian tax law allowing for the step-up in tax basis of certain intangible assets.

Depreciation and amortization were Euro 232.8 million in 2007 as compared to Euro 220.8 million in 2006. This increase was primarily attributable to increased fixed assets due to the acquisition of new stores that occurred in 2007, new investments (mainly leasehold improvements) in the wholesale segment and the acquisition of Oakley, which accounted for a Euro 7.7 million increase from the acquisition date.

Deferred taxes were Euro 45.0 million in 2007 as compared to Euro 72.5 million in 2006. This decrease was primarily attributable to the reorganization of certain Italian subsidiaries which resulted in the release of deferred tax liabilities, partially offset by the increase in our 2007 tax liability due to the change in the Italian statutory tax rates, which resulted in the reduction of deferred tax assets. Non-cash stock-based compensation expenses were Euro 42.1 million as compared to Euro 48.0 million in 2006. The decrease was primarily attributable to the completion in 2006 of the vesting period of the 2004 performance plan (expenses associated with this plan were none in 2007 and Euro 24.5 million in 2006), partially offset by the recognition of a full year of expense for the two 2006 performance plans granted in the second half of 2006 (expenses associated with these plans were Euro 34.1 million in 2007 and Euro 17.6 million in 2006). The lower increase in accounts receivable of Euro 55.7 million in 2007 as compared to Euro 83.1 million in 2006 was mainly due to the improvement of DSO (days of sale outstanding) in the wholesale segment. The inventory increase of Euro 41.9 million in 2007 (Euro 27.7 million in 2006) was mainly due to the growth in the inventory level caused by the slowdown in net sales experienced in the last months of the year. The decrease in accounts payable by Euro 31.0 million in 2007 was mainly caused by an improvement in the payment terms negotiated in 2006 with some vendors which accounted for the 2006 increase in accounts payable. Accrued expenses and other were Euro 9.4 million in 2007 as compared to Euro 25.2 million in 2006. The decrease was mainly due to the discontinuance in 2006 of the extended warranty sold separately by the retail division in North America. The decrease in income tax payable of Euro 92.1 million (increase of Euro 5.9 million in 2006) was primarily attributable to the timing of tax payments executed in 2007 as compared to 2006.

Investing Activities.  The Company’s cash used in investing activities was Euro 1,800.0 million, Euro 263.7 million and Euro 166.4 million in 2007, 2006 and 2005, respectively. The increase of Euro 1,536.3 million in 2007 as compared to 2006 was primarily attributable to the acquisition of Oakley which occurred in November 2007, for a total purchase price of US $2.1 billion, partially offset by the sale of Things Remembered, which occurred in 2006 and which generated a cash inflow of approximately Euro 128 million in 2006. Total 2007 acquisitions, net of the acquired cash and cash equivalents, generated a cash outflow of Euro 1,491.1 million and was mainly due to the Oakley acquisition, as well as the acquisition of the D.O.C Optics optical retail business for approximately Euro 83.7 million (U.S.$110.2 million) in cash, the acquisition of two specialty sun chains in South Africa, for approximately Euro 10 million and some other minor acquisitions in the retail segment in Australia and New Zealand. Total 2006 acquisitions, net of acquired cash and cash equivalents, generated a cash outflow of Euro 134.1 million, mainly due to the acquisition of Shoppers Optical, a Canadian-based optical chain, for approximately Euro 48.7 million, the acquisition of Beijing Xueliang Optical Technology Co. Ltd. for approximately Euro 17.0 million, the acquisition of Ming Long Optical for approximately Euro 29.0 million and the acquisition of Modern Sight Optics for approximately Euro 14.0 million.

Our capital expenditures were Euro 334.8 million in 2007 as compared to Euro 272.2 million in 2006. The increase was primarily attributable to the investment in manufacturing facilities for the wholesale division and the opening, remodeling and relocation of stores in the retail division. Capital expenditures were Euro 49.7 million in the three-month period ended March 31, 2008. We believe that 2008 annual capital expenditures will be approximately Euro 300.0 million, in addition to investments for any acquisitions. We will pay for these future capital expenditures with our currently available borrowing capacity and available cash.

Cash received from disposals of property, plant and equipment was Euro 29.7 million in 2007 as compared to Euro 21.6 million in 2006. Cash provided by the disposal of fixed assets is primarily attributable to the sale of a building located in Milan in May 2007. Acquisitions of intangible assets resulted in a use of cash of Euro 3.9 million in 2007 compared to Euro 1.1 million in 2006.

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Our Cash Flows

        Operating Activities.    Our cash provided by operating activities was Euro 244.6 million for the first nine months of 2007 as compared to Euro 371.5 million for the same period of 2006. This Euro 126.9 million decrease in cash provided in operating activities is primarily attributable to advance payments of U.S. $199 million made by us to various companies of the Ralph Lauren Group in January 2007 for contracted future minimum royalties, included in "Prepaid expenses and other" within changes in operating assets and liabilities on the statements of consolidated cash flows. Depreciation and amortization were Euro 168.8 million for the first nine months of 2007 as compared to Euro 152.8 million for the same period of 2006. This increase in depreciation and amortization resulted from an increase in tangible assets associated with the acquisition of numerous retail locations over the 12-month period ended September 30, 2007, and from an increase in property, plant and equipment in the wholesale division from improvements made. Deferred taxes were a use of cash of Euro 44.8 million for the first nine months of 2007 compared to a use of cash of Euro 81.1 million for the same period of 2006. This change in deferred taxes is related to an extraordinary tax benefit in the 2006 income statement for certain foreign jurisdictions. Non-cash stock-based compensation expense increased in the first nine months of 2007 to Euro 36.4 million compared to Euro 28.7 million for the same period for 2006. This increase was primarily due to two new Company stock option performance grants in July 2006. Accounts receivable were a use of cash for the first nine months of 2007 of Euro 49.1 million as compared to a use of cash of Euro 88.6 million for the same period of 2006, primarily due to improved days-of-sales-outstanding of our manufacturing and wholesale segment. Inventories were a use of cash

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for the first nine months of 2007 of Euro 15.6 million compared to a use of cash of Euro 13.9 million for the same period of 2006. Cash provided by operating activities for accounts payable and accrued expenses and other decreased by Euro 53.4 million and increased by Euro 2.6 million, respectively, for the first nine months of 2007 as compared to the same period of 2006. The decrease in cash flows provided by accounts payable in 2007 were attributable to the timing of payments to certain vendors, in particular in the wholesale division. Income taxes payable were a use of cash of Euro 43.7 million for the first nine months of 2007 as compared to a source of cash of Euro 38.4 million for the same period of 2006. This change in cash used by income taxes payable was based on timing of tax payments made in 2006 as compared to 2007, including certain tax payments in Italy, which for 2006 included a one-time benefit for previous years' net operating losses.

        Investing Activities.    Our cash from investing activities was a use of Euro 287.6 million for the first nine months of 2007 as compared to a use of Euro 147.6 million for the same period of 2006. This decrease was due to the net proceeds of Euro 130.8 million from the sale in September 2006 of Things Remembered, a specialty gift retail business previously included in the Retail North America division. Purchases of businesses, net of cash acquired, were Euro 116.2 million for the first nine months of 2007, primarily attributable to the completion in February 2007 of the acquisition of the optical retail business of D.O.C Optics, with approximately 100 stores located primarily in Midwest United States, for approximately Euro 83.7 million (U.S. $110 million) in cash, the acquisitions of two specialty sun chains in South Africa, with a total of 65 stores, for approximately Euro 10 million, and certain business acquisitions in our retail division in Australia and New Zealand for approximately Euro 6 million. Purchases of businesses, net of cash acquired, were Euro 111.1 million in the first nine months of 2006, mainly due to the acquisitions of Shoppers Optical, a Canadian-based optical chain, for Euro 50.2 million, Beijing Xueliang Optical Technology Co. Ltd., for Euro 17.0 million and Guangzou Ming Long Optical Technology Co Ltd., for approximately Euro 29.0 million. Capital expenditures were Euro 198.3 million for the first nine months of 2007 as compared to Euro 161.7 million for the same period of 2006. This increase in capital expenditures is due to investment in the manufacturing facilities of the wholesale division and the opening, remodeling and relocation of stores in the retail division. Disposals of property, plant and equipment were a source of cash of Euro 28.6 million in the first nine months of 2007, mainly due to the sale of real estate in Milan, Italy in May 2007.

        Financing Activities.    Our cash provided by/(used in) financing activities for the first nine months of 2007 and 2006 was Euro 6.9 million and Euro (178.6) million, respectively. Cash provided by financing activities for the first nine months of 2007 consisted primarily of the proceeds of Euro 486.1 million from long-term debt and Euro 217.4 million from unsecured short-term credit lines, which were used to repay long-term debt expiring during the first nine months of 2007 and to pay Euro 191.1 million of dividends to our shareholders. Cash used in financing activities for the first nine months of 2006 consisted primarily of the proceeds of Euro 84.1 million from long-term debt and Euro 10.2 million from unsecured short-term credit lines, which were used to repay Euro 123.7 million of long term debt and to pay Euro 131.4 million of dividends to our shareholders.

        We have relied primarily upon internally generated funds, trade credit and bank borrowings to finance our operations and expansion.

        Bank overdrafts represent negative cash balances held in banks and amounts borrowed under various unsecured short-term lines of credit obtained by us and certain of our subsidiaries through local financial institutions. These facilities are usually short-term in nature or contain evergreen clauses with a cancellation notice period. Certain of these subsidiaries' agreements require a guarantee from Luxottica Group S.p.A. Interest rates on these lines vary based on the country of borrowing, among other factors. We use these short-term lines of credit to satisfy our short-term cash needs.

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        On September 3, 2003, Luxottica U.S. Holdings Corp. ("U.S. Holdings") closed a private placement of U.S. $300.0 million of senior unsecured guaranteed notes (the "Notes"), issued in three series (Series A, Series B and Series C). Interest on the Series A Notes accrues at 3.94 percent per annum and interest on each of the Series B and Series C Notes accrues at 4.45 percent per annum. The Series A and Series B Notes mature on September 3, 2008 and the Series C Notes mature on September 3, 2010. The Series A and Series C Notes require annual prepayments beginning on September 3, 2006 through the applicable dates of maturity. The Notes are guaranteed on a senior unsecured basis by the Company and Luxottica S.r.l., the Company's wholly owned subsidiary. The Notes can be prepaid at U.S. Holdings' option under certain circumstances. The proceeds from the Notes were used for the repayment of outstanding debt and for other working capital needs. The Notes contain certain financial and operating covenants. As of September 30, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In September 2003, the Company entered into a credit facility with Banca Intesa S.p.A. of Euro 200.0 million. The credit facility includes a Euro 150.0 million term loan, which will require repayment of equal semiannual installments of principal of Euro 30 million starting September 30, 2006 until the final maturity date. Interest accrues on the term loan at Euribor (as defined in the agreement) plus 0.55 percent (5.28 percent on September 30, 2007). The revolving loan provides borrowing availability of up to Euro 50 million; amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of September 30, 2007, Euro 25.0 million had been drawn from the revolving portion. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.55 percent (4.80 percent on September 30, 2007). The final maturity of the credit facility is September 30, 2008. The Company can select interest periods of one, two or three months. The credit facility contains certain financial and operating covenants. As of September 30, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable. Euro 85.0 million was borrowed under this credit facility as of September 30, 2007.

        In June 2005, the Company entered into four interest rate swap transactions with various banks with an aggregate initial notional amount of Euro 120.0 million which will decrease by Euro 30.0 million every six months starting on March 30, 2007 ("Intesa OPSM Swaps"). These swaps will expire on September 30, 2008. The Intesa OPSM Swaps were entered into as a cash flow hedge on a portion of the Banca Intesa Euro 200 million unsecured credit facility discussed above. The Intesa OPSM Swaps exchange the floating rate of Euribor for an average fixed rate of 2.45 percent per annum.

        On June 3, 2004, the Company and U.S. Holdings entered into a credit facility with a group of banks providing for loans in the aggregate principal amount of Euro 740.0 million and U.S. $325.0 million. The facility consists of three tranches (Tranche A, Tranche B and Tranche C). On March 10, 2006, this agreement was amended to increase the available borrowings, decrease the interest margin and define a new maturity date of five years from the date of the amendment for Tranche B and Tranche C. In February 2007, the Company exercised an option included in the amendment to the term and revolving facility to extend the maturity date of Tranches B and C to March 2012. Tranche A is a Euro 405.0 million amortizing term loan requiring repayment of nine equal quarterly installments of principal of Euro 45.0 million beginning in June 2007, which is to be used for general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of U.S. $325.0 million which was drawn upon on October 1, 2004 by U.S. Holdings to finance the purchase price for the acquisition of Cole. Tranche B will mature in March 2012. Tranche C is a revolving credit facility of Euro 725.0 million-equivalent multi-currency (Euro/U.S. dollar). Amounts borrowed under Tranche C may be repaid and reborrowed with all outstanding balances maturing in March 2012. On September 30, 2007, U.S. $370.0 million had been drawn from Tranche C by U.S. Holdings and U.S. $190.0 million by Luxottica Group S.p.A. The Company can select interest periods of one, two, three or six months with interest accruing on Euro-denominated loans based on the corresponding Euribor rate and U.S. dollar-denominated loans based on the corresponding LIBOR rate, both plus a margin between 0.20 percent

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and 0.40 percent based on the "Net Debt/EBITDA" ratio, as defined in the agreement. The interest rate on September 30, 2007 was 4.92 percent for Tranche A, 5.56 percent for Tranche B, 5.47 percent on Tranche C amounts borrowed in U.S. dollars. This credit facility contains certain financial and operating covenants. The Company was in compliance with those covenants as of September 30, 2007. Euro 937.8 million was borrowed under this credit facility as of September 30, 2007.

        In June 2005, the Company entered into nine interest rate swap transactions with an aggregate initial notional amount of Euro 405.0 million with various banks which decrease by Euro 45.0 million every three months beginning on June 3, 2007 ("Club Deal Swaps"). These swaps will expire on June 3, 2009. The Club Deal Swaps were entered into as a cash flow hedge on Tranche A of the credit facility discussed above. The Club Deal Swaps exchange the floating rate of Euribor for an average fixed rate of 2.47 percent per annum.

        In August 2004, OPSM re-negotiated its multicurrency (AUD/HKD) loan facility with Westpac Banking Corporation. This credit facility had a maximum available line of AUD 100 million, which was reduced to AUD 50.0 million in September 2005. The above facility expired on August 31, 2006. After negotiations, the credit facility was renewed for AUD 30.0 million with an expiration date of August 31, 2007 and, subsequently renewed for one additional year with a final maturity of October 1, 2008. The interest rate margin has been reduced to 0.275 percent. For borrowings denominated in Australian dollars, the interest accrues on the basis of BBR (Bank Bill Rate), and for borrowings denominated in Hong Kong dollars the rate is based on HIBOR (HK Interbank Rate) plus an overall 0.275 percent margin. At September 30, 2007, the interest rate was 5.38 percent on the borrowings denominated in Hong Kong dollars, and interest on such borrowings is payable monthly in arrears. The facility was utilized for an amount of HKD 125.0 million (AUD 18.39 million) and there was no drawdown in Australian dollars. The credit facility contains certain financial and operating covenants. As of September 30, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In December 2005, the Company entered into an unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L (LLC).The 18-month credit facility consisted of a revolving loan that provided borrowing availability of up to Euro 100.0 million. Amounts borrowed under the revolving portion could be borrowed and repaid until final maturity. The final maturity of the credit facility was June 1, 2007. We repaid the outstanding amount on the maturity date, with the proceeds of a new unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L. The new 18-month credit facility consists of a revolving loan that provides borrowing availability of up to Euro 100.0 million. Amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of September 30, 2007, Euro 100.0 million was borrowed under this credit facility. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.25 percent (4.50 percent on September 30, 2007). The Company can select interest periods of one, three or six months. The final maturity of the credit facility is December 3, 2008.

Our Cash Flows

        Operating Activities.    The Company's cash provided by operating activities was Euro 23.1 million for the first six months of 2007 as compared to Euro 184.5 million for the same period of 2006. This Euro 161.4 million decrease in cash provided in operating activities is primarily attributable to advance payments of U.S. $199 million made by the Company to various companies of the Ralph Lauren Group in January 2007 for contracted future minimum royalties, included in the "Prepaid expenses and other" figure within changes in operating assets and liabilities on the statements of consolidated cash flows. Depreciation and amortization were Euro 112.9 million for the first six months of 2007 as compared to Euro 99.1 million for the same period of 2006. This increase in depreciation and amortization resulted from an increase in tangible assets associated with the acquisition of numerous retail locations over the 12-month period ended June 30, 2007, and from an increase in property, plant and equipment in the wholesale division from improvements made. Deferred taxes were a use of cash of Euro 40.1 million for the first six months of 2007 compared to a use of cash of Euro 51.4 million for the same period of 2006. This change in deferred taxes is related to the increase in the elimination of intercompany gross profit on products manufactured by the Company included in ending inventory of our retail division, mostly due to the change in product mix. Non-cash stock-based compensation expense increased in the first six months of 2007 to Euro 24.1 million compared to Euro 21.8 million for the same period for 2006. This increase was primarily due to two new Company stock option performance grants in July 2006.

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Accounts receivable were a use of cash for the first six months of 2007 of Euro 206.1 million as compared to a use of cash of Euro 188.5 million for the same period of 2006, primarily due to the increase in sales of our manufacturing and wholesale segment. Inventories were a source of cash for the first six months of 2007 of Euro 11.9 million compared to a use of cash of Euro 1.2 million for the same period of 2006. This increase in cash flows provided by inventories resulted from improved inventory turnover and a decrease in inventory stock. Cash provided by operating activities for accounts payable and accrued expenses and other decreased by Euro 43.8 million and increased by Euro 32.1 million, respectively, for the first six months of 2007 as compared to the same period of 2006. The decrease in cash flows provided by accounts payable and the increase in cash flows provided by accrued expenses and other in 2007 were both attributable to the timing of payments to certain vendors, in particular in the wholesale division. Income taxes payable were a use of cash of Euro 62.8 million for the first six months of 2007 as compared to a source of cash of Euro 33.8 million for the same period of 2006. This change in cash used by income taxes payable was based on timing of tax payments made in 2006 as compared to 2007, including certain tax payments in Italy, which for 2006 included a one-time benefit for previous years, net operating losses.

        Investing Activities.    The Company's cash from investing activities was a use of Euro 208.7 million for the first six months of 2007 as compared to a use of Euro 183.2 million for the same period of 2006. Purchases of businesses, net of cash acquired, were Euro 108.6 million for the first six months of 2007, primarily attributable to the completion in February 2007 of the acquisition of the optical retail business of D.O.C Optics with approximately 100 stores located primarily in Midwest United States, for approximately Euro 83.7 million (U.S. $110 million) in cash, the acquisitions of two specialty sun chains in South Africa, with a total of 65 stores, for approximately Euro 10.0 million, and certain business acquisitions in our retail division in Australia and New Zealand for approximately Euro 6.0 million. Purchases of businesses, net of cash acquired, were Euro 83.7 million in the first six months of 2006 mainly due to the acquisitions of Shoppers Optical, a Canadian-based optical chain, for Euro 50.2 million and of Beijing Xueliang Optical Technology Co. Ltd. for Euro 17.0 million. Capital expenditures were Euro 124.0 million for the first six months of 2007 as compared to Euro 98.4 million for the same period of 2006. This increase in capital expenditures is due to investment in the manufacturing facilities of the wholesale division and the opening, remodeling and relocation of stores in the retail division. Disposals of property, plant and equipment were a source of cash of Euro 25.0 million in the first six months of 2007, due to the sale of real estate in Milan, Italy in May 2007.

        Financing Activities.    The Company's cash provided by/(used in) financing activities for the first six months of 2007 and 2006 was Euro 165.7 million and Euro (46.6) million, respectively. Cash provided by financing activities for the first six months of 2007 consisted primarily of the proceeds of Euro 375.3 million from long-term debt and Euro 266.8 million from unsecured short-term credit lines, which were used to repay long-term debt expiring during the first six months of 2007 and to pay Euro 191.1 million of dividends to the Company's shareholders. Cash used in financing activities for the first six months of 2006 consisted primarily of the proceeds of Euro 84.1 million from long-term debt and Euro 9.7 million from short-term credit lines, which were used to repay Euro 25.6 million of long term debt and to pay Euro 131.4 million of dividends to the Company's shareholders.

        The Company has relied primarily upon internally generated funds, trade credit and bank borrowings to finance its operations and expansion.

        Bank overdrafts represent negative cash balances held in banks and amounts borrowed under various unsecured short-term lines of credit obtained by the Company and certain of its subsidiaries through local financial institutions. These facilities are usually short-term in nature or contain evergreen clauses with a cancellation notice period. Certain of these subsidiaries' agreements require a guarantee from Luxottica Group S.p.A. Interest rates on these lines vary based on the country of borrowing, among other factors. The Company uses these short-term lines of credit to satisfy its short-term cash needs.

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        On September 3, 2003, Luxottica U.S. Holdings Corp. ("U.S. Holdings") closed a private placement of U.S. $300.0 million of senior unsecured guaranteed notes (the "Notes"), issued in three series (Series A, Series B and Series C). Interest on the Series A Notes accrues at 3.94 percent per annum and interest on each of the Series B and Series C Notes accrues at 4.45 percent per annum. The Series A and Series B Notes mature on September 3, 2008 and the Series C Notes mature on September 3, 2010. The Series A and Series C Notes require annual prepayments beginning on September 3, 2006 through the applicable dates of maturity. The Notes are guaranteed on a senior unsecured basis by the Company and Luxottica S.r.l., the Company's wholly owned subsidiary. The Notes can be prepaid at U.S. Holdings' option under certain circumstances. The proceeds from the Notes were used for the repayment of outstanding debt and for other working capital needs. The Notes contain certain financial and operating covenants. As of June 30, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In September 2003, the Company entered into a credit facility with Banca Intesa S.p.A. of Euro 200.0 million. The credit facility includes a Euro 150.0 million term loan, which will require repayment of equal semiannual installments of principal of Euro 30 million starting September 30, 2006 until the final maturity date. Interest accrues on the term loan at Euribor (as defined in the agreement) plus 0.55 percent (4.71 percent on June 30, 2007). The revolving loan provides borrowing availability of up to Euro 50 million; amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of June 30, 2007, Euro 25.0 million had been drawn from the revolving portion. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.55 percent (4.56 percent on June 30, 2007). The final maturity of the credit facility is September 30, 2008. The Company can select interest periods of one, two or three months. The credit facility contains certain financial and operating covenants. As of June 30, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable. Euro 115.0 million was outstanding under this credit facility as of June 30, 2007.

        In June 2005, the Company entered into four interest rate swap transactions with various banks with an aggregate initial notional amount of Euro 120.0 million which will decrease by Euro 30.0 million every six months starting on March 30, 2007 ("Intesa OPSM Swaps"). These swaps will expire on September 30, 2008. The Intesa OPSM Swaps were entered into as a cash flow hedge on a portion of the Banca Intesa Euro 200 million unsecured credit facility discussed above. The Intesa OPSM Swaps exchange the floating rate of Euribor for an average fixed rate of 2.41 percent per annum.

        On June 3, 2004, the Company and U.S. Holdings entered into a credit facility with a group of banks providing for loans in the aggregate principal amount of Euro 740.0 million and U.S. $325.0 million. The facility consists of three tranches (Tranche A, Tranche B and Tranche C). On March 10, 2006, this agreement was amended to increase the available borrowings, decrease the interest margin and define a new maturity date of five years from the date of the amendment for Tranche B and Tranche C. In February 2007, the Company exercised an option included in the amendment to the term and revolving facility to extend the maturity date of Tranches B and C to March 2012. Tranche A is a Euro 405.0 million amortizing term loan requiring repayment of nine equal quarterly installments of principal of Euro 45.0 million beginning in June 2007, which is to be used for general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of U.S. $325.0 million which was drawn upon on October 1, 2004 by U.S. Holdings to finance the purchase price for the acquisition of Cole. Tranche B will mature in March 2012. Tranche C is a revolving credit facility of Euro 725.0 million-equivalent multi-currency (Euro/U.S. dollar). Amounts borrowed under Tranche C may be repaid and reborrowed with all outstanding balances maturing in March 2012. On June 30, 2007, U.S. $380.0 million (Euro 281.1 million) had been drawn from Tranche C by U.S. Holdings and U.S. $195.0 million (Euro 144.4 million) by Luxottica Group S.p.A. The Company can select interest periods of one, two, three or six months with interest accruing on Euro-denominated loans based on the corresponding Euribor rate and U.S. dollar-denominated loans based on the corresponding LIBOR rate,

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both plus a margin between 0.20 percent and 0.40 percent based on the "Net Debt/EBITDA" ratio, as defined in the agreement. The interest rate on June 30, 2007 was 4.32 percent for Tranche A, 5.55 percent for Tranche B, 5.53 percent on Tranche C amounts borrowed in U.S. dollars. This credit facility contains certain financial and operating covenants. The Company was in compliance with those covenants as of June 30, 2007. Euro 1,025.8 million was outstanding under this credit facility as of June 30, 2007.

        In June 2005, the Company entered into nine interest rate swap transactions with an aggregate initial notional amount of Euro 405.0 million with various banks which decrease by Euro 45.0 million every three months beginning on June 3, 2007 ("Club Deal Swaps"). These swaps will expire on June 3, 2009. The Club Deal Swaps were entered into as a cash flow hedge on Tranche A of the credit facility discussed above. The Club Deal Swaps exchange the floating rate of Euribor for an average fixed rate of 2.43 percent per annum.

        In August 2004, OPSM re-negotiated its multicurrency (AUD/HKD) loan facility with Westpac Banking Corporation. This credit facility had a maximum available line of AUD 100 million, which was reduced to AUD 50.0 million in September 2005. The above facility expired on August 31, 2006. After negotiations, the credit facility was renewed for AUD 30.0 million, with an expiration date of August 31, 2007. This credit facility will be renewed for one year. The interest rate margin has been reduced to 0.275 percent. For borrowings denominated in Australian dollars, the interest accrues on the basis of BBR (Bank Bill Rate), and for borrowings denominated in Hong Kong dollars the rate is based on HIBOR (HK Interbank Rate) plus an overall 0.275 percent margin. At June 30, 2007, the interest rate was 5.125 percent on the borrowings denominated in Hong Kong dollars, and interest on such borrowings is payable monthly in arrears. The facility was utilized for an amount of HKD 125.0 million (AUD 19.15 million) and there was no drawdown in Australian dollars. The final maturity of all outstanding principal amounts and interest is August 31, 2007. The credit facility contains certain financial and operating covenants. As of June 30, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In December 2005, the Company entered into an unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L (LLC). The 18-month credit facility consisted of a revolving loan that provided borrowing availability of up to Euro 100.0 million. Amounts borrowed under the revolving portion could be borrowed and repaid until final maturity. The final maturity of the credit facility was June 1, 2007. We repaid the outstanding amount on the maturity date. In June 2007, the Company entered into a new unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L. to replace the December 2005 credit facility that expired on June 1, 2007. The 18-month credit facility consists of a revolving loan that provides borrowing availability of up to Euro 100.0 million. Amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of June 30, 2007, Euro 60.0 million was outstanding under this credit facility. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.25 percent (4.29 percent on June 30, 2007). The Company can select interest periods of one, three or six months. The final maturity of the credit facility is December 3, 2008.

Our Cash Flows

        Operating Activities.    The Company's cash provided by/(used in) operating activities was Euro (57.7) million in the first three months of 2007 as compared to Euro 9.7 million for the same period in 2006. This Euro 67.4 million increase in cash used in operating activities is primarily attributable to advance payments of U.S. $199 million made by the Company to Ralph Lauren in January 2007 for contracted future minimum royalties, included in the prepaid expenses and other line item under changes in operating assets and liabilities on the statements of consolidated cash flows. Depreciation and amortization were Euro 54.8 million in the first three months of 2007 as compared to Euro 49.7 million for the same period of 2006. This increase in depreciation and amortization resulted from an increase in tangible assets associated with the acquisition of the numerous retail locations over the 12-month period ended March 31, 2007, and from an increase in property, plant and equipment in the wholesale division from improvements made. Deferred taxes was a use of cash of Euro 34.3 million for the first three months of 2007 compared to a use of cash of Euro 26.5 million for the same period of 2006. Non-cash stock-based compensation expense increased in the first three months of 2007 to Euro 12.4 million compared to Euro 11.0 million for the same period for 2006. This increase was primarily due to two new Company stock option performance grants implemented in July 2006. Accounts receivable was a use of cash for the first three months of 2007 of Euro 141.6 million as compared to a use of cash of Euro 127.2 million for the same period of 2006, primarily due to the increase in sales of our manufacturing and wholesale segment. Inventories were a source of cash for the first three months of 2007 of Euro 22.6 million compared to a source of cash of Euro 4.0 million for the same period of 2006. This increase in cash flows provided by inventories resulted from improved inventory turnover and a decrease in inventory stock. Cash provided by operating activities for accounts payable and accrued expenses and other decreased by Euro 26.9 million and increased by Euro 50.2 million, respectively, for the first three months of 2007 as compared to the same period of 2006. The decrease in cash flows provided by accounts payable was attributable to the timing of payments of certain vendors by the wholesale division. The increase in cash flows provided by accrued expenses and other in 2007 was mainly attributable to accrued interests on advance payment to Ralph Lauren for minimum contracted royalties, while in the first three months of 2006 the decrease was mainly attributable to the timing of spending for both marketing and capital expenditures of the North American retail division. Income tax payable was a source of cash of Euro 76.2 million for the first three months of 2007 as compared to a source of cash of Euro 32.0 million for the same period of 2006 due to timing of tax payments.

        Investing Activities.    The Company's cash from investing activities was a use of Euro 138.6 million for the first three months of 2007 as compared to a use of Euro 41.0 million for the same period of 2006. This Euro 97.6 million decrease in cash flows from investing activities was primarily attributable to the completion in February 2007 of the acquisition of the optical retail business of D.O.C Optics, with approximately 100 stores located primarily in the midwest United States, for approximately Euro 83.7 million (U.S. $110 million) in cash. Capital expenditures were Euro 53.5 million for the first three months of 2007 as compared to Euro 39.7 million for the same period of 2006. This increase is due to investment in the manufacturing facilities of the wholesale division and the opening, remodeling and relocation of stores in the retail division.

        Financing Activities.    The Company's cash provided by financing activities for the first three months of 2007 and 2006 was Euro 207.3 million and Euro 7.8 million, respectively. Cash provided by financing activities for the first three months of 2007 consisted primarily of the proceeds of Euro 315.3 million from long-term debt and Euro 74.1 million from unsecured short-term credit lines, which

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were used to repay long-term debt expiring during the first three months of 2007. Cash provided by financing activities for the first three months of 2006 consisted primarily of the proceeds of Euro 32.5 million from unsecured short term credit lines, Euro 16.5 million of which was used to repay long-term debt.

        The Company has relied primarily upon internally generated funds, trade credit and bank borrowings to finance its operations and expansion.

        Bank overdrafts represent negative cash balances held in banks and amounts borrowed under various unsecured short-term lines of credit obtained by the Company and certain of its subsidiaries through local financial institutions. These facilities are usually short-term in nature or contain evergreen clauses with a cancellation notice period. Certain of these subsidiaries' agreements require a guarantee from Luxottica Group S.p.A. Interest rates on these lines vary based on the country of borrowing, among other factors. The Company uses these short-term lines of credit to satisfy its short-term cash needs.

        On September 3, 2003, Luxottica U.S. Holdings Corp. ("U.S. Holdings") closed a private placement of U.S. $300 million of senior unsecured guaranteed notes (the "Notes"), issued in three series (Series A, Series B and Series C). Interest on the Series A Notes accrues at 3.94 percent per annum and interest on each of the Series B and Series C Notes accrues at 4.45 percent per annum. The Series A and Series B Notes mature on September 3, 2008 and the Series C Notes mature on September 3, 2010. The Series A and Series C Notes require annual prepayments beginning on September 3, 2006 through the applicable dates of maturity. The Notes are guaranteed on a senior unsecured basis by the Company and Luxottica S.r.l., the Company's wholly owned subsidiary. The Notes can be prepaid at U.S. Holdings' option under certain circumstances. The proceeds from the Notes were used for the repayment of outstanding debt and for other working capital needs. The Notes contain certain financial and operating covenants. As of March 31, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In September 2003, the Company entered into a credit facility with Banca Intesa S.p.A. of Euro 200 million. The credit facility includes a Euro 150 million term loan, which will require repayment of equal semiannual installments of principal of Euro 30 million starting September 30, 2006 until the final maturity date. Interest accrues on the term loan at Euribor (as defined in the agreement) plus 0.55 percent (4.46 percent on March 31, 2007). The revolving loan provides borrowing availability of up to Euro 50 million; amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of March 31, 2007, Euro 25 million had been drawn from the revolving portion. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.55 percent (4.32 percent on March 31, 2007). The final maturity of the credit facility is September 30, 2008. The Company can select interest periods of one, two or three months. The credit facility contains certain financial and operating covenants. As of March 31, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable. Euro 115 million was outstanding under this credit facility as of March 31, 2007.

        In June 2005, the Company entered into four interest rate swap transactions with various banks with an aggregate initial notional amount of Euro 120 million which will decrease by Euro 30 million every six months starting on March 30, 2007 ("Intesa OPSM Swaps"). These swaps will expire on September 30, 2008. The Intesa OPSM Swaps were entered into as a cash flow hedge on a portion of the Banca Intesa Euro 200 million unsecured credit facility discussed above. The Intesa OPSM Swaps exchange the floating rate of Euribor for an average fixed rate of 2.38 percent per annum.

        On June 3, 2004, the Company and U.S. Holdings entered into a credit facility with a group of banks providing for loans in the aggregate principal amount of Euro 740 million and U.S. $325 million. The facility consists of three tranches (Tranche A, Tranche B and Tranche C). On March 10, 2006, this agreement was amended to increase the available borrowings, decrease the interest margin and define a new maturity date of five years from the date of the amendment for Tranche B and Tranche C. In

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February 2007, the Company exercised an option included in the amendment to the term and revolving facility to extend the maturity date of Tranches B and C to March 2012. Tranche A is a Euro 405 million amortizing term loan requiring repayment of nine equal quarterly installments of principal of Euro 45 million beginning in June 2007, which is to be used for general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of U.S. $325 million which was drawn upon on October 1, 2004 by U.S. Holdings to finance the purchase price for the acquisition of Cole. Amounts borrowed under Tranche B will mature in March 2012. Tranche C is a revolving credit facility of Euro 725 million-equivalent multi-currency (Euro/U.S. dollar). Amounts borrowed under Tranche C may be repaid and reborrowed with all outstanding balances maturing in March 2012. On March 31, 2007, U.S. $380.0 million (Euro 284.1 million) had been drawn from Tranche C by U.S. Holdings and U.S. $200 million (Euro 150.2 million) by Luxottica Group S.p.A. The Company can select interest periods of one, two, three or six months with interest accruing on Euro-denominated loans based on the corresponding Euribor rate and U.S. dollar denominated loans based on the corresponding LIBOR rate, both plus a margin between 0.20 percent and 0.40 percent based on the "Net Debt/EBITDA" ratio, as defined in the agreement. The interest rate on March 31, 2007 was 4.08 percent for Tranche A, 5.56 percent for Tranche B, 5.53 percent on Tranche C amounts borrowed in U.S. dollars. This credit facility contains certain financial and operating covenants. The Company was in compliance with those covenants as of March 31, 2007. Euro 1,082.3 million was outstanding under this credit facility as of March 31, 2007.

        In June 2005, the Company entered into nine interest rate swap transactions with an aggregate initial notional amount of Euro 405 million with various banks which decrease by Euro 45 million every three months beginning on June 3, 2007 ("Club Deal Swaps"). These swaps will expire on June 3, 2009. The Club Deal Swaps were entered into as a cash flow hedge on Tranche A of the credit facility discussed above. The Club Deal Swaps exchange the floating rate of Euribor for an average fixed rate of 2.40 percent per annum.

        In August 2004, OPSM re-negotiated its multicurrency (AUD/HKD) loan facility with Westpac Banking Corporation. This credit facility had a maximum available line of AUD 100 million, which was reduced to AUD 50 million in September 2005. The above facility expired on August 31, 2006. After negotiations, the credit facility was renewed for AUD 30 million and will expire on August 31, 2007. The interest rate margin has been reduced to 0.275 percent. For borrowings denominated in Australian dollars, the interest accrues on the basis of BBR (Bank Bill Rate), and for borrowings denominated in Hong Kong dollars the rate is based on HIBOR (HK Interbank Rate) plus an overall 0.275 percent margin. At March 31, 2007, the interest rate was 4.51 percent on the borrowings denominated in Hong Kong dollars, and interest on such borrowings is payable monthly in arrears. The facility was utilized for an amount of HKD 125.0 million (AUD 19.919 million) and there was no drawdown in Australian dollars. The final maturity of all outstanding principal amounts and interest is August 31, 2007. The credit facility contains certain financial and operating covenants. As of March 31, 2007, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In December 2005, the Company entered into an unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L. The 18-month credit facility consists of a revolving loan that provides borrowing availability of up to Euro 100 million. Amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of March 31, 2007, Euro 60 million had been drawn and was outstanding from the revolving loan. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.25 percent (4.11 percent on March 31, 2007). The final maturity of the credit facility was June 1, 2007. We repaid the outstanding amount on the maturity date.

        In June 2007, the Company entered into a new unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L. to replace the December 2005 credit facility that expired on June 1, 2007. The 18-month credit facility consists of a revolving loan that provides borrowing availability of up to

18

Euro 100 million. Amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.25 percent. The Company can select interest periods of one, three or six months. The final maturity of the credit facility is December 3, 2008.

Cash Flows

Operating Activities.  The Company’s cash provided by operating activities was Euro 603.3 million, Euro 605.7 million and Euro 508.3 million for 2006, 2005 and 2004, respectively. The Euro 2.4 million decrease in 2006 as compared to 2005 was primarily attributable to increased net income, partially offset by advance payments made by the Company to certain designers for future contracted minimum royalties, increases in accounts receivable and inventory and tax payments to comply with an Italian tax law allowing for the step-up in tax basis of certain intangible assets. The Euro 97.5 million increase in 2005 as compared to 2004 was primarily attributable to increased net income and additional depreciation and amortization resulting from the Cole acquisition, including Euro 17.3 million relating to the amortization of its intangible assets.

Depreciation and amortization were Euro 220.8 million in 2006 as compared to Euro 184.6 million in 2005. This increase was primarily attributable to increased fixed assets. Deferred taxes were Euro 72.5 million in 2006 as compared to Euro 91.3 million in 2005. This decrease was primarily attributable to the fact that deferred taxes in 2006 included a benefit due to the revaluation of certain tangible and intangible assets in the retail division in Australia, while in 2005 it included the effect of the adoption of an Italian tax law allowing for the step-up in tax basis of certain intangible assets. Non-cash stock-based compensation expenses were Euro 47.9 million in 2006 as compared to Euro 22.7 million in 2005. This increase was primarily attributable to the adoption of SFAS 123(R) for stock compensation expense on two new Company stock option performance plans implemented in July 2006. The use of cash associated with accounts receivable was Euro 83.1 million in 2006 as compared to Euro 33.6 million in 2005. The increase in accounts receivable balances, thus a use of cash, was primarily attributable to the increase in sales of our manufacturing and wholesale segment. Prepaid expenses and other was a source of cash of Euro 8.6 million in 2006, as compared to a use of cash of Euro 56.7 million in 2005, primarily attributable to advance payments of Euro 30.0 million made in 2005 by us to certain of our licensors and the timing of certain tax payments by foreign subsidiaries in 2005. Inventories were a use of cash in 2006 of Euro 27.7 million in 2006 compared to a source of cash of Euro 66.5 million in 2005, primarily attributable to growing inventory level to support the business. Cash provided by operating activities for accounts payable increased by Euro 26.4 million in 2006 as compared to the same period of 2005. The increase was primarily attributable to improved timing of payments. Cash provided by operating activities for accrued expenses decreased by Euro 6.7 million in 2006 as compared to the same period of 2005. The decrease was primarily attributable to a termination of sales of the retail division’s priced extended warranty contracts with terms of coverage of 12 months to 24 months in 2005. Income tax payable was a source of cash in 2006 of Euro 5.9 million as compared Euro 126.7 million for 2005. This decrease was primarily attributable to timing of tax payments, and to increased accruals for income taxes in 2005 due to the adoption of an Italian tax law to be paid in cash during fiscal 2006.

Investing Activities.  The Company’s cash used in investing activities was Euro 263.7 million, Euro 166.4 million and Euro 479.7 million in 2006, 2005 and 2004, respectively. The Euro 97.3 million increase in 2006 as compared to 2005 was primarily attributable to acquisitions of businesses and capital expenditures. In 2006, the Company’s acquisitions of businesses were Euro 134.1 million, net of cash acquired, and included Shoppers Optical, a Canadian-based optical chain, for approximately Euro 48.7 million, Beijing Xueliang Optical Technology Co. Ltd. for approximately Euro 17.0 million, the remaining 49 percent stake of the Turkish-based distributor Luxottica Gozluk Ticaret A.S. for approximately Euro 11.7 million, Ming Long Optical for approximately Euro 29.0 million, and Modern Sight Optics for approximately Euro 14.0 million.  Such increase was partially offset by the sale of Things Remembered, a specialty gifts retail business previously included in the North American retail division, with net proceeds of Euro 128.0 million. In 2005, the Company acquired the remaining minority stake of OPSM for Euro 61.9 million and also completed two asset acquisitions by the North American retail division for an aggregate amount of Euro 11.1 million and the acquisition of 27 stores in Canada for approximately Euro 13.8 million. These uses of cash from investing activities were partially offset by the sale of Pearle Europe, with net proceeds of Euro 144 million. The Euro 313.3 million decrease in 2005 as compared to 2004 was primarily attributable to the Cole acquisition in 2004, for an aggregate amount of Euro 363.0 million, net of cash acquired and including direct acquisition-related expenses.

Our capital expenditures were Euro 272.2 million in 2006 as compared to Euro 220.0 million in 2005. This increase was primarily attributable to the investment in manufacturing facilities for the wholesale division and the opening, remodeling and relocation of stores in the retail division, in addition to the costs associated with the expansion of the North American retail division’s home office. Capital expenditures were Euro 53.5 million in the three-month period ended March 31, 2007. It is our expectation that 2007 annual capital expenditures will be approximately Euro 300.0 million, in addition to

41

investments for any acquisitions. We will pay for these future capital expenditures with our currently available borrowing capacity and available cash.

Cash received from disposals of property, plant and equipment was Euro 21.6 million in 2006 as compared to Euro 1.0 million in 2005. This increase in cash provided by the disposal of fixed assets is primarily attributable to the sale of an obsolete aircraft in October 2006 for a net price of Euro 15.6 million, the sale of unused manufacturing facilities in the wholesale division in Italy and a building in the United Kingdom. Acquisitions of intangible assets resulted in a use of cash of Euro 1.1 million in 2006 compared to Euro 4.5 million in 2005.

Financing Activities.  The Company’s cash used in financing activities was Euro 349.9 million, Euro 350.0 million and Euro 67.5 million in 2006, 2005 and 2004, respectively. Cash used in financing activities in 2006 consisted primarily of the proceeds of Euro 84.1 million from long-term debt which were used to partially repay Euro 215.3 million of long-term debt. Cash used in financing activities for 2005 consisted primarily of net long term repayments on maturing debt of approximately Euro 254.4 million.  Dividends paid to the Company’s shareholders in 2006 and 2005 were Euro 131.4 million and Euro 103.5 million, respectively. In 2004, our cash used in financing activities consisted primarily of: (i) the net proceeds of Euro 88.6 million from all the credit facilities and (ii) Euro 446.9 million of proceeds of Tranche B and Tranche C of the credit facility, which we used in connection with the acquisition of Cole, including the repayment of Cole’s existing notes. We borrowed Euro 405.0 million in June 2004 (consisting of the proceeds of Tranche A of the credit facility) to repay Euro 400.0 million of long-term debt. Additionally, we used cash provided by financing activities to reduce bank overdrafts and to pay Euro 94.1 million of dividends to our shareholders.

Our Cash Flows

        Operating Activities—The Company's cash provided by/(used in) operating activities was Euro 371.5 million for the first nine months of 2006 as compared to Euro 423.4 million for the same period of 2005. This Euro 51.9 million decrease is primarily attributable to advance payments made by the Company to certain designers for future contracted minimum royalties, an increase in accounts receivable and in inventory, and tax payments to comply with an Italian tax law which was adopted in December 2005 allowing for the step-up in tax basis of certain intangible assets. The decrease was partially offset by an increase in net income. Depreciation and amortization were Euro 152.8 million for the first nine months of 2006 compared to Euro 136.6 million for the same period of 2005. Deferred taxes was a use of cash of Euro 81.1 million for the first nine months of 2006 compared to a use of cash of Euro 3.3 million for the same period of 2005. This change resulted from the reversal in 2005 of certain 2004 deferred taxes related to the net operating losses carried forward of certain Italian entities. Non-cash stock-based compensation expense increased in the first nine months of 2006 to Euro 28.7 million compared to Euro 16.6 million for the same period of 2005. This increase was mainly due to two new Company stock option performance plans implemented in July 2006. Accounts receivable was a use of cash for the first nine months of 2006 of Euro 88.6 million as compared to a use of cash of Euro 33.5 million for the same period of 2005, primarily due to the increase in sales of our manufacturing and wholesale segment. Inventories were a use of cash for the first nine months of 2006 of Euro 13.9 million compared to a source of cash of Euro 51.2 million for the same period of 2005, primarily due to growing inventory levels to support the business. The amount of cash provided by operating activities for accounts payable and accrued expenses decreased by Euro 5.7 million and increased by

18

Euro 15.8 million, respectively, for the first nine months of 2006 as compared to the same period of 2005. Both the decrease in accounts payable and the increase in accrued expenses are mainly attributable to the timing of payment of certain vendors in the North American retail division. Income tax payable was a source of cash for the first nine months of 2006 of Euro 38.4 million as compared to a source of cash of Euro 40.9 million for the same period of 2005 due to timing of tax payments.

        Investing Activities—The Company's cash from investing activities was a use of Euro 147.6 million for the first nine months of 2006 as compared to a use of Euro 87.6 million for the same period of 2005. This Euro 60.0 million decrease in cash flow from investment activities is primarily attributable to increased purchases of businesses and capital expenditures. Purchase of businesses, net of cash acquired, was Euro 111.1 million in the first nine months of 2006 mainly due to the acquisitions of Shoppers Optical, a Canadian-based optical chain, for approximately Euro 50.2 million, of Beijing Xueliang Optical Technology Co. Ltd. for approximately Euro 17.0 million, and of Ming Long Optical for approximately Euro 29 million. Purchase of businesses, net of cash acquired, was Euro 86.6 million in the first nine months of 2005, due to the Company's acquisition of the remaining minority stake of OPSM for Euro 62.0 million which was completed in February 2005, two asset acquisitions by the North American retail division for an aggregate amount of Euro 11.1 million, and the acquisition of 27 stores in Canada in September 2005 for approximately Euro 13.8 million. Capital expenditures were Euro 161.7 million for the first nine months of 2006 as compared to Euro 144.6 million for the same period of 2005. This increase is due to investment in the manufacturing facilities of the wholesale division and the opening, remodeling and relocation of stores in the retail division, in addition to the costs associated with the expansion of the North American retail division's home office. Net proceeds from sale of businesses were Euro 130.8 million in the first nine months of 2006, due to the sale in September 2006 of Things Remembered, Inc., a specialty gift retail business previously included in the North American Retail division, compared to Euro 144.0 million for the same period of 2005 due to the sale of our investment in Pearle Europe in January 2005.

        Financing Activities—The Company's cash provided by/(used in) financing activities for the first nine months of 2005 and 2006 was Euro (266.5) million and (178.8) million, respectively. Cash used by financing activities for the first nine months of 2005 consisted primarily of the proceeds of Euro 260.0 million from long-term debt and Euro 62.6 million from unsecured short-term credit lines, which were used to repay long-term debt expiring during the first nine months of 2005 and to pay Euro 103.5 million of dividends to the Company's shareholders. Cash used by financing activities for the first nine months of 2006 consisted primarily of the proceeds of Euro 84.1 million from long-term debt and the decrease of Euro 10.2 million from unsecured short-term credit lines, which where used to repay Euro 123.7 million of long-term debt and to pay Euro 131.4 million of dividends to the Company's shareholders.

        The Company has relied primarily upon internally generated funds, trade credit and bank borrowings to finance its operations and expansion.

        Bank overdrafts represent negative cash balances held in banks and amounts borrowed under various unsecured short-term lines of credit obtained by the Company and certain of its subsidiaries through local financial institutions. These facilities are usually short-term in nature or contain evergreen clauses with a cancellation notice period. Certain of these subsidiaries' agreements require a guarantee from Luxottica Group S.p.A. Interest rates on these lines vary based on the country of borrowing, among other factors. The Company uses these short-term lines of credit to satisfy its short-term cash needs.

        On September 3, 2003, Luxottica U.S. Holdings Corp. ("U.S. Holdings") closed a private placement of U.S. $300 million of senior unsecured guaranteed notes (the "Notes"), issued in three series (Series A, Series B and Series C). Interest on the Series A Notes accrues at 3.94 percent per annum and interest on each of the Series B and Series C Notes accrues at 4.45 percent per annum. The Series A and Series B Notes mature on September 3, 2008 and the Series C Notes mature on September 3, 2010. The

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Series A and Series C Notes require annual prepayments beginning on September 3, 2006 through the applicable dates of maturity. The Notes are guaranteed on a senior unsecured basis by the Company and Luxottica S.r.l., the Company's wholly owned subsidiary. The Notes can be prepaid at U.S. Holdings' option under certain circumstances. The proceeds from the Notes were used for the repayment of outstanding debt and for other working capital needs. The Notes contain certain financial and operating covenants. As of September 30, 2006, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In connection with the issuance of the Notes, U.S. Holdings entered into three interest rate swap agreements with Deutsche Bank AG (collectively, the "DB Swap"). The three separate agreements' notional amounts and interest payment dates coincide with those of the Notes. The DB Swap exchanged the fixed rate of the Notes for a floating rate of the six-month LIBOR rate plus 0.66 percent for the Series A Notes and the six-month LIBOR rate plus 0.73 percent for the Series B and Series C Notes. U.S. Holdings terminated all three agreements comprising the DB Swap in December 2005.

        In September 2003, the Company entered into a new credit facility with Banca Intesa S.p.A. of Euro 200 million. The credit facility includes a Euro 150 million term loan, which will require repayment of equal semiannual installments of principal of Euro 30 million starting September 30, 2006 until the final maturity date. Interest accrues on the term loan at Euribor (as defined in the agreement) plus 0.55 percent (3.926 percent on September 30, 2006). The revolving loan provides borrowing availability of up to Euro 50 million; amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of September 30, 2006, Euro 25 million had been drawn from the revolving portion. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.55 percent (3.691 percent on September 30, 2006). The final maturity of the credit facility is September 30, 2008. The Company can select interest periods of one, two or three months. The credit facility contains certain financial and operating covenants. As of September 30, 2006, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable. Under this credit facility, Euro 145 million was outstanding as of September 30, 2006.

        In June 2005, the Company entered into four interest rate swap transactions with various banks with an aggregate initial notional amount of Euro 120 million which will decrease by Euro 30 million every six months starting on March 30, 2007 ("Intesa OPSM Swaps"). These swaps will expire on September 30, 2008. The Intesa OPSM Swaps were entered into as a cash flow hedge on a portion of the Banca Intesa Euro 200 million unsecured credit facility discussed above. The Intesa OPSM Swaps exchange the floating rate of Euribor for an average fixed rate of 2.38 percent per annum.

        On June 3, 2004, the Company and U.S. Holdings entered into a new credit facility with a group of banks providing for loans in the aggregate principal amount of Euro 740 million and U.S. $325 million. The facility consists of three tranches (Tranche A, Tranche B and Tranche C). On March 10, 2006, this agreement was amended to increase the available borrowings, decrease the interest margin and to define a new maturity date of five years from the date of the amendment for Tranche B and Tranche C. Tranche A is a Euro 405 million amortizing term loan requiring repayment of nine equal quarterly installments of principal of Euro 45 million beginning in June 2007, which is to be used for general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of U.S. $325 million which was drawn upon on October 1, 2004 by U.S. Holdings to finance the purchase price of the acquisition of Cole. Amounts borrowed under Tranche B will mature in March 2011. Tranche C is a revolving credit facility of Euro 725 million-equivalent multi-currency (Euro/U.S. dollar). Amounts borrowed under Tranche C may be repaid and reborrowed with all outstanding balances maturing in March 2011. On September 30, 2006, U.S. $310.0 million (Euro 244.3 million) had been drawn from Tranche C by U.S. Holdings and Euro 100 million by Luxottica Group S.p.A. The Company can select interest periods of one, two, three or six months with interest accruing on Euro-denominated loans based on the corresponding Euribor rate and U.S. dollar denominated loans based on the corresponding LIBOR rate, both plus a margin between 0.20 percent and 0.40 percent

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based on the "Net Debt/EBITDA" ratio, as defined in the agreement. The interest rate on September 30, 2006 was 3.626 percent for Tranche A, 5.760 percent for Tranche B, 5.575 percent on Tranche C amounts borrowed in U.S. dollar and 3.606 percent on Tranche C amounts borrowed in Euro. This credit facility contains certain financial and operating covenants. The Company was in compliance with those covenants as of September 30, 2006. Under this credit facility, Euro 1,005.5 million was outstanding as of September 30, 2006.

        In June 2005, the Company entered into nine interest rate swap transactions with an aggregate initial notional amount of Euro 405 million with various banks which will decrease by Euro 45 million every three months starting on June 3, 2007 ("Club Deal Swaps"). These swaps will expire on June 3, 2009. The Club Deal Swaps were entered into as a cash flow hedge on Tranche A of the credit facility discussed above. The Club Deal Swaps exchange the floating rate of Euribor for an average fixed rate of 2.40 percent per annum.

        In August 2004, OPSM re-negotiated its multicurrency (AUD/HKD) loan facility with Westpac Banking Corporation. The credit facility had a maximum available line of AUD 100 million, which was reduced to AUD 50 million in September 2005. The above facility expired on August 31, 2006. After negotiations, the credit facility was renewed for AUD 30 million and will expire on August 31, 2007. The interest rate margin has been reduced to 0.275 percent. For borrowings denominated in Australian Dollars, the interest accrues on the basis of BBR (Bank Bill Rate), and for borrowings denominated in Hong Kong Dollars the rate is based on HIBOR (HK Interbank Rate) plus an overall 0.275 percent margin. At September 30, 2006, the interest rate was 4.520 percent on the borrowings denominated in Hong Kong Dollars, and interest on such borrowings is payable monthly in arrears. The facility was utilized for an amount of HKD 125.0 million (AUD 21.629 million) and there was no drawdown in Australian dollars. The final maturity of all outstanding principal amounts and interest is August 31, 2007. The credit facility contains certain financial and operating covenants. As of September 30, 2006, the Company was in compliance with all of its applicable covenants including calculations of financial covenants when applicable.

        In December 2005, the Company entered into a new unsecured credit facility with Banca Popolare di Verona e Novara Soc. Coop. a R.L. The 18-month credit facility consists of a revolving loan that provides borrowing availability of up to Euro 100 million. Amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. As of September 30, 2006, Euro 100 million had been drawn and was outstanding from the revolving loan. Interest accrues on the revolving loan at Euribor (as defined in the agreement) plus 0.25 percent (3.512 percent on September 30, 2006). The final maturity of the credit facility is June 1, 2007. The Company can select interest periods of one, three or six months.