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

The Oakley Merger

        On November 14, 2007, we completed the merger with Oakley, for a total purchase price of approximately U.S.$2.1 billion. In accordance with the terms of the merger agreement, Oakley's outstanding shares of common stock were converted into the right to receive U.S.$29.30 per share in cash and Oakley became an indirect wholly-owned subsidiary of Luxottica. The merger was accounted for as a business combination for accounting purposes.

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

        Since the consummation of the acquisition, we have begun to implement our strategic integration plan with respect to Oakley. We immediately launched a full portfolio of project tasks, with specific objectives, dedicated joint teams and designated accountabilities to address key integration and synergy areas, with direct significant involvement of our top management.

        We expect that our integration with Oakley will result in synergies in the following areas:

•

international wholesale development;



•

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

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•

sourcing retail operations synergies in the key markets of North America and Asia-Pacific; and



•

general and administrative expenses.

        Currently, all integration project activities are proceeding substantially according to the plan. In particular, specific integration tasks have been completed, including the integration of the retail operations in North America, the integration of the Oakley dedicated sales force and marketing within the Luxottica commercial infrastructure in selected European countries and joint sourcing initiatives, while others are in the implementation or detailed planning phase and are expected to be executed within the planned timeframe.

        We expect that the transaction will result in operating synergies, driven by revenue growth and efficiencies. We are currently on schedule to realize the initial estimate of efficiencies.

        The primary factors that may influence our ability to execute our integration plans and realize the anticipated cost savings include:

•

difficulty in integrating the newly-acquired business and operations in an efficient and effective manner;



•

inability to achieve strategic objectives, cost savings and other benefits from the acquisition;



•

the loss of key employees of the acquired business;



•

the diversion of the attention of senior management from our operations;



•

liabilities that were not known at the time of acquisition or the need to address tax or accounting issues;



•

difficulty integrating Oakley's human resources systems, operating systems, inventory management systems, and assortment planning systems with our systems; and



•

the cultural differences between our organization and Oakley's organization.

16

The Oakley Merger

On November 14, 2007, we completed the merger with Oakley, for a total purchase price of approximately U.S.$2.1 billion. In accordance with the terms of the merger agreement, Oakley’s outstanding shares of common stock were converted into the right to receive U.S.$29.30 per share in cash and Oakley became an indirect wholly-owned subsidiary of Luxottica.  The merger was accounted for as a business combination for accounting purposes.  For additional information, see Note 5 to our Consolidated Financial Statements included in Item 18 of this annual report.

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

Since the consummation of the acquisition, we have begun to implement our strategic integration plan with respect to Oakley.  We immediately launched a full portfolio of project tasks, with specific objectives, dedicated joint teams and designated accountabilities to address key integration and synergy areas, with direct significant involvement of our top management.

We expect that our integration with Oakley will result in synergies in the following areas:

·       international wholesale development;

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

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

·       general and administrative expenses.

Currently, all integration project activities are proceeding substantially according to the plan. In particular, specific integration tasks have been completed, including the integration of the retail operations in North America, the integration of the Oakley dedicated sales force and marketing within the Luxottica commercial infrastructure in selected European countries and joint sourcing initiatives, while others are in the implementation or detailed planning phase and are expected to be executed within the planned timeframe.

We expect that the transaction will result in operating synergies, driven by revenue growth and efficiencies. We are currently on schedule to realize the initial estimate of efficiencies.

36

The Oakley Merger

        On November 14, 2007, we completed the merger with Oakley, for a total purchase price of approximately U.S. $2.1 billion. In accordance with the terms of the merger agreement, Oakley's outstanding shares of common stock were converted into the right to receive U.S. $29.30 per share in cash and Oakley became an indirect subsidiary of the Company. The merger was accounted for as a business combination for accounting purposes. For more information on the Oakley merger, please see Item 5—"Operating and Financial Review and Prospects—The Oakley Merger" in our annual report on Form 20-F for the fiscal year ended December 31, 2007.

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

        Since the consummation of the acquisition, we have begun to implement our strategic integration plan with respect to Oakley. We immediately launched a full portfolio of project tasks, with specific objectives, dedicated joint teams and designated accountabilities to address key integration and synergy areas, with direct significant involvement of our top management.

        We expect that our integration with Oakley will result in synergies in the following areas:

•

International wholesale development;



•

Developments related to specific brands (especially Revo and Arnette);

14

•

Sourcing retail operations synergies in the key markets of North America and Asia Pacific; and



•

General and administrative expenses.

        Currently, all integration project activities are proceeding substantially according to plan. In particular, specific integration tasks have been completed, including namely, the integration of the retail operations in North America, the integration of the Oakley dedicated sales force and marketing personnel within the Luxottica commercial infrastructure in selected European countries and joint sourcing initiatives, while others are in their relevant implementation and/or detailed planning phase, and are expected to be executed within the planned timeframe.

        We expect that the transaction will result in approximately Euro 100 million per year in operating synergies within three years of the completion of the merger, driven by revenue growth and efficiencies. We expect to realize approximately Euro 20 million, Euro 60 million and Euro 100 million of operating synergies in 2008, 2009 and 2010, respectively. We are currently on schedule to realize the initial estimate of such operating synergies. In addition, we anticipate incurring approximately Euro 25 million in one-time charges related to the acquisition and integration, spread out over a two-year period, commencing in 2008. As of September 30, 2008, we have realized operating synergies of approximately Euro 13 million. Expected operating synergies are approximately Euro 7 million for the fourth quarter of 2008.

        The primary factors that may influence our ability to execute our integration plans and realize the anticipated cost savings include:

•

difficulty in integrating the Oakley business and operations in an efficient and effective manner;



•

inability to achieve strategic objectives, cost savings and other benefits from the acquisition;



•

the loss of key employees of the acquired business;



•

the diversion of the attention of senior management from our operations;



•

liabilities that were not known at the time of acquisition or the need to address tax or accounting issues;



•

difficulty integrating Oakley's human resources systems, operating systems, inventory management systems, and assortment planning systems with our systems; and



•

the cultural differences between our organization and Oakley's organization.

15

The Oakley Merger

        On November 14, 2007, we completed the merger with Oakley for a total purchase price of approximately U.S. $2.1 billion. In accordance with the terms of the merger agreement, Oakley's outstanding shares of common stock were converted into the right to receive U.S. $29.30 per share in cash and Oakley became an indirect subsidiary of the Company. The merger was accounted for as a business combination for accounting purposes. For more information on the Oakley merger, please see Item 5—"Operating and Financial Review and Prospects—The Oakley Merger" in our annual report on Form 20-F for the fiscal year ended December 31, 2007.

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

        Since the consummation of the acquisition, we have begun to implement our strategic integration plan with respect to Oakley. We immediately launched a full portfolio of project tasks, with specific objectives, dedicated joint teams and designated accountabilities to address key integration and synergy areas, with direct significant involvement of our top management.

        We expect that our integration with Oakley will result in synergies in the following areas:

•

International wholesale development;



•

Developments related to specific brands (especially Revo and Arnette);



•

Sourcing retail operations synergies in the key markets of North America and Asia Pacific; and



•

General and administrative expenses.

14

        Currently, all integration project activities are proceeding substantially according to plan. In particular, specific integration tasks have been completed, including namely, the integration of the retail operations in North America, the integration of the Oakley dedicated sales force and marketing personnel within the Luxottica commercial infrastructure in selected European countries and joint sourcing initiatives, while others are in their relevant implementation and/or detailed planning phase, and are expected to be executed within the planned timeframe.

        We expect that the transaction will result in approximately Euro 100 million per year in operating synergies within three years of the completion of the merger, driven by revenue growth and efficiencies. We expect to realize approximately Euro 20 million, Euro 60 million and Euro 100 million of operating synergies in 2008, 2009 and 2010, respectively. We are currently on schedule to realize the initial estimate of such operating synergies. In addition, we anticipate incurring approximately Euro 25 million in one-time charges related to the acquisition and integration, spread out over a two-year period, commencing in 2008. As of June 30, 2008, we have realized operating synergies of approximately Euro 7 million. Expected operating synergies are approximately Euro 6 million and Euro 7 million for the third and fourth quarters of 2008, respectively.

        The primary factors that may influence our ability to execute our integration plans and realize the anticipated cost savings include:

•

difficulty in integrating the newly-acquired business and operations in an efficient and effective manner;



•

inability to achieve strategic objectives, cost savings and other benefits from the acquisition;



•

the loss of key employees of the acquired business;



•

the diversion of the attention of senior management from our operations;



•

liabilities that were not known at the time of acquisition or the need to address tax or accounting issues;



•

difficulty integrating Oakley's human resources systems, operating systems, inventory management systems, and assortment planning systems with our systems; and



•

the cultural differences between our organization and Oakley's organization.

15

The Oakley Merger

On November 14, 2007, we completed the merger with Oakley, for a total purchase price of approximately U.S.$2.1 billion. In accordance with the terms of the merger agreement, Oakley’s outstanding shares of common stock were converted into the right to receive U.S.$29.30 per share in cash and Oakley became an indirect wholly-owned subsidiary of Luxottica.  The merger was accounted for as a business combination for accounting purposes.  For additional information, see Note 5 to our Consolidated Financial Statements included in Item 18 of this annual report.

We believe that our combination with Oakley will:

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

Since the consummation of the acquisition, we have begun to implement our strategic integration plan with respect to Oakley.  We immediately launched a full portfolio of project tasks, with specific objectives, dedicated joint teams and designated accountabilities to address key integration and synergy areas, with direct significant involvement of our top management.

We expect that our integration with Oakley will result in synergies in the following areas:

·       international wholesale development;

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

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

·       general and administrative expenses.

Currently, all integration project activities are proceeding substantially according to the plan. In particular, specific integration tasks have been completed, including the integration of the retail operations in North America, the integration of the Oakley dedicated sales force and marketing within the Luxottica commercial infrastructure in selected European countries and joint sourcing initiatives, while others are in the implementation or detailed planning phase and are expected to be executed within the planned timeframe.

We expect that the transaction will result in approximately Euro 100 million per year in operating synergies within three years of the completion of the merger, driven by revenue growth and efficiencies.  We expect to realize approximately Euro 20 million, Euro 60 million and Euro 100 million of operating synergies in 2008, 2009 and 2010, respectively.  We are currently on schedule to realize the initial estimate of such operating synergies. In addition, we anticipate incurring approximately Euro 30 million in one-time charges related to the acquisition and integration, spread out over a two-year period, beginning in 2008.

37

The Oakley Merger

        On November 14, 2007, we completed the merger with Oakley, for a total purchase price of approximately U.S. $2.1 billion. In accordance with the terms of the merger agreement, Oakley's outstanding shares of common stock were converted into the right to receive U.S. $29.30 per share in cash. As a result of the completion of the merger, Oakley is now a wholly-owned subsidiary within our Group and Oakley's shares have ceased to be traded on the New York Stock Exchange.

        We believe that our combination with Oakley will:

•

strengthen our retail operations through the optimization of sales of all our brands through Luxottica's and Oakley's retail chains and maximization of consumer reach through enhanced positioning of sun retail brands;



•

strengthen our international sales through significant emerging-market opportunities, complementary sales structures in many different markets and the realization of economies of scale in emerging markets;



•

strengthen our trade channels through Oakley active lifestyle and sports performance channels know-how and Luxottica's global key account and department store structure;



•

leverage our brand portfolio through true global exposure for all Oakley owned and licensed brands, by selectively applying performance know-how to luxury/fashion and luxury/fashion know-how to sports performance and active lifestyle and account merchandising optimization;



•

combine Luxottica's and Oakley's areas of expertise, expanding our women's and prescription eyewear expertise to Oakley brands, blending performance and luxury/fashion, creating new eyewear solutions to serve new customer needs and applying Oakley brand-building and grassroots marketing approaches to other portfolio brands;



•

improve lens technology through the extension of Oakley's best-in-class research and development capabilities, new opportunities in prescription sun lenses and sourcing benefits; and



•

strengthen our sourcing through greater scale, new worldwide opportunities and a faster time to market.

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

        We expect that the transaction will result in approximately Euro 100 million per year in operating synergies within three years of the completion of the merger, driven by such revenue growth and efficiencies.

        The primary factors that may influence our ability to execute our integration plans and realize the anticipated cost savings include:

•

difficulty in integrating the newly-acquired business and operations in an efficient and effective manner;



•

inability to achieve strategic objectives, cost savings and other benefits from the acquisition;



•

the loss of key employees of the acquired business;



•

the diversion of the attention of senior management from our operations;



•

liabilities that were not known at the time of acquisition or the need to address tax or accounting issues.



•

difficulty integrating Oakley's human resources systems, operating systems, inventory management systems, and assortment planning systems with our systems; and



•

the cultural differences between our organization and Oakley's organization.

13