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

12. SHAREHOLDERS’ EQUITY

In May 2008 and June 2007, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 223.6 million and Euro 191.1 million, respectively. These amounts became payable in May 2008 and June 2007, respectively. Italian law requires that five percent of net income be retained as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings were Euro 5.6 million and Euro 5.5 million at December 31, 2008 and 2007, respectively.

Luxottica Group’s legal reserve roll-forward for fiscal period 2006-2008 is detailed as follows (thousands of Euro):

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12.       SHAREHOLDERS’ EQUITY

In June 2007 and May 2006, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 191.1 million and Euro 131.4 million, respectively. These amounts became payable in June 2007 and May 2006, respectively. Italian law requires that five percent of net income be retained as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings were Euro 5.5 million at December 31, 2007 and 2006, respectively.

Luxottica Group’s legal reserve roll-forward for fiscal period 2005-2007 is detailed as follows (thousands of Euro):

Previously the Board of Directors authorized US Holdings to repurchase through the open market up to 21,500,000 ADRs of Luxottica Group S.p.A., representing at that time approximately 4.7 percent of the authorized and issued share capital. As of December 31, 2004, both repurchase programs expired and US Holdings purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003) ADRs at an aggregate purchase price of Euro 70.0 million (U.S. $73.8 million translated at the exchange rate at the time of the transactions). In connection with the repurchase, an amount of Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial statements. The market value of the stock based on the share price as listed on the Milan Stock Exchange at December 31, 2007, is approximately Euro 139.9 million (US $203.9 million).

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12. SHAREHOLDERS’ EQUITY

In June 2007 and May 2006, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 191.1 million and Euro 131.4 million, respectively. These amounts became payable in June 2007 and May 2006, respectively. Italian law requires that five percent of net income be retained as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings were Euro 5.5 million at December 31, 2007 and 2006, respectively.

Luxottica Group’s legal reserve roll-forward for fiscal period 2005-2007 is detailed as follows:

Previously the Board of Directors authorized US Holdings to repurchase through the open market up to 21,500,000 ADRs of Luxottica Group S.p.A., representing at that time approximately 4.7% of the authorized and issued share capital. As of December 31, 2004, both repurchase programs expired and US Holdings purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003) ADRs at an aggregate purchase price of Euro 70.0 million (US$ 73.8 million translated at the exchange rate at the time of the transactions). In connection with the repurchase, an amount of Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial statements. The market value of the stock based on the share price as listed on the Milan Stock Exchange at December 31, 2007, is approximately Euro 139.9 million (US$ 203.9 million).

12.       SHAREHOLDERS’ EQUITY

In June 2005 and June 2006, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 103.5 million and Euro 131.4 million, respectively. These amounts became payable in June 2005 and June 2006, respectively. Italian law requires that five percent of net income be retained as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings were Euro 8.6 million at December 31, 2005 and 2006, respectively. In addition Euro 5.3 million of other legal reserves of foreign entities is not available for dividends to the shareholders.

Luxottica Group’s legal reserve rollforward for fiscal period 2004-2006 is detailed as follows (in thousand of Euro):

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In accordance with SFAS No. 87, Employers’ Accounting for Pensions, Luxottica Group has recorded minimum pension liabilities for the underfunded U.S. defined benefit pension plans of Euro 32.2 million and Euro 29.6 million as of December 31, 2005 and 2006, respectively, representing the excess of unfunded accumulated benefit obligations over previously accrued pension liabilities.  An intangible asset equal to the amount of unrecognized prior service cost was also recorded. The amount by which the unfunded accumulated benefit obligations exceeded the intangible asset and accrued pension liability was charged directly to shareholders’ equity net of income taxes.  The principal cause of the increase in minimum liability in 2006 is due to the accumulated benefit obligations increasing more than the pension assets increased as a result of investment performance net of benefit payments and plan expenses.  As of December 31, 2006, the increase in the minimum liability plus the decrease in the intangible asset resulted in a decrease of Euro 0.6 million in shareholders’ equity. The liability recognition provision of SFAS No. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans was adopted for the year ended December 31, 2006.  As a result, there was an additional after tax charge to shareholders’ equity of Euro 8.4 million. This charge is because SFAS No. 158 requires the use of the higher projected benefit obligation amount, as compared to the accumulated benefit obligation, in determining the amount of pension liability that is required to be recognized on Luxottica’s balance sheet.

Previously the Board of Directors authorized US Holdings to repurchase through the open market up to 21,500,000 ADRs of Luxottica Group S.p.A., representing at that time approximately 4.7 percent of the authorized and issue share capital. As of December 31, 2004, both repurchase programs expired and US Holdings has purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003) ADRs at an aggregate purchase price of Euro 70.0 million (U.S.$73.8 million translated at the exchange rate at the time of the transactions). In connection with the repurchase, an amount of Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial statements. The market value of the stock based on the ADR price as listed on the New York Stock Exchange at December 31, 2006, is approximately  Euro 149.7 million (U.S.$197.6 million).

12. SHAREHOLDERS’ EQUITY

In June 2005 and June 2006, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 103.5 million and Euro 131.4 million, respectively. These amounts became payable in June 2005 and June 2006, respectively. Italian law requires that 5% of net income be retained as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings were Euro 8.6 million at December 31, 2005 and 2006, respectively. In addition Euro 5.3 million of other legal reserves of foreign entities is not available for dividends to the shareholders.

Luxottica Group’s legal reserve rollforward for fiscal period 2004-2006 is detailed as follows:

In accordance with SFAS no. 87, Employers’ Accounting for Pensions, Luxottica Group has recorded minimum pension liabilities for the underfunded U.S. defined benefit pension plans of Euro 32.2 million and Euro 29.6 million as of December 31, 2005 and 2006, respectively, representing the excess of unfunded accumulated benefit obligations over previously accrued pension liabilities. An intangible asset equal to the amount of unrecognized prior service cost was also recorded. The amount by which the unfunded accumulated benefit obligations exceeded the intangible asset and accrued pension liability was charged directly to shareholders’ equity net of income taxes. The principal cause of the increase in minimum liability in 2006 is due to the accumulated benefit obligations increasing more than the pension assets increased as a result of investment performance net of benefit payments and plan expenses. As of December 31, 2006, the increase in the minimum liability plus the decrease in the intangible asset resulted in a decrease of Euro 0.6 million in shareholders’ equity. The liability recognition provision of SFAS no. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans was adopted for the year ended December 31, 2006. As a result, there was an additional after tax charge to shareholders’ equity of Euro 8.4 million. This charge is because SFAS no. 158 requires the use of the higher projected benefit obligation amount, as compared to the accumulated benefit obligation, in determining the amount of pension liability that is required to be recognized on Luxottica’s balance sheet.

Previously the Board of Directors authorized US Holdings to repurchase through the open market up to 21,500,000 ADRs of Luxottica Group S.p.A., representing at that time approximately 4.7% of the authorized and issue share capital. As of December 31, 2004, both repurchase programs expired and US Holdings has purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003) ADRs at an aggregate purchase price of Euro 70.0 million (US$ 73.8 million translated at the exchange rate at the time of the transactions). In connection with the repurchase, an amount of Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial statements. The market value of the stock based on the ADR price as listed on the New York Stock Exchange at December 31, 2006, is approximately Euro 149.7 million (US$ 197.6 million).

11. SHAREHOLDERS’ EQUITY

In June 2004 and June 2005, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 94.1 million and Euro 103.5 million, respectively. These amounts became payable in July 2004 and June 2005, respectively. Italian law requires that five percent of net income be retained as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings at December 31, 2004 and 2005, aggregated Euro 8.4 million and Euro 8.6 million, respectively. In addition Euro 3.6 million of other legal reserves of foreign entities is not available for dividends to the shareholders.

Luxottica Group’s legal reserve rollforward for fiscal period from 2003–2005 is detailed as follows (in thousands of Euro):

In accordance with SFAS No. 87, Employers’ Accounting for Pensions, Luxottica Group has recorded a minimum pension liability for underfunded plan of Euro 30.7 million and Euro 30.9 million as of December 31, 2004 and 2005, respectively, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net obligation, in which case the offset to the increase in liability is charged directly to shareholders’ equity. The principal cause of the deterioration of the funded status in the pension liability in previous years was caused by negative returns from investments held in the international equity markets in those years. As of December 31, 2004 and 2005, a decrease of Euro 0.2 million and a decrease of Euro 2.5 million, respectively, in the excess minimum liability, net of income taxes, resulted in an increase in shareholders’ equity.

In September 2002, the Board of Directors authorized US Holdings to repurchase through the open market up to 11,500,000 ADRs of Luxottica Group, representing 2.5 percent of the authorized and issue share capital, during an 18-month period starting in September 2002. In March 2003, the Company announced that US Holdings had resolved to purchase up to an additional 10,000,000 ADRs of Luxottica Group, representing 2.2 percent of the authorized and issued share capital of the Company, over the 18-month period commencing on that date. As of December 31, 2004, both repurchase programs expired and US Holdings has purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003) ADRs at an aggregate purchase price of Euro 70.0 million (U.S. Dollar 73.8 million translated at the exchange rate at the time of the transaction). In connection with the repurchase, an amount of Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial statements.

11. SHAREHOLDERS’ EQUITY

In June 2003 and 2004, the Company’s Annual Shareholders Meetings approved cash dividends of Euro 95.4 million and Euro 94.1 million, respectively. These amounts became payable in July 2003 and 2004, respectively. Italian law requires that five percent of net income be retained, as a legal reserve until this reserve is equal to one-fifth of the issued share capital. As such, this legal reserve is not available for dividends to the shareholders. Legal reserves of the Italian entities included in retained earnings at December 31, 2003 and 2004 aggregated Euro 8.3 million and Euro 8.4 million, respectively. In addition, there is an amount of Euro 3.0 million, which represents other legal reserves of foreign entities, that is not available for dividends to the shareholders.

In accordance with SFAS No. 87, Employer’s Accounting for Pensions, Luxottica Group has recorded a minimum pension liability for underfunded plan of Euro 35.2 million and Euro 31.7 million as of December 31, 2003 and 2004, respectively, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net obligation, in which case the increase in liabilities is charged directly to shareholders’ equity. The principal cause of the deterioration of the funded status in the pension liability in previous years was caused by negative returns from investments held in the worldwide equity market in those years. As of December 31, 2003 and 2004, a decrease of Euro 1.2 million and an increase of Euro 0.2 million, respectively, in the excess minimum liability, net of income taxes, resulted in a charge to equity.

U.S. Holdings held at December 31, 2001, 1,205,000 of Luxottica Group S.p.A.’s ordinary shares, which had been previously purchased at a cost of U.S. Dollars 3.1 million (Euro 2.9 million at the December 31, 2002 noon buying rate). These shares were sold during 2002 for proceeds of U.S. Dollars 8.8 million (Euro 9.3 million). The after-tax net gain of U.S. Dollars 6.5 million (Euro 6.9 million) was recorded as an increase to the Company’s additional paid-in capital balance (Note 2).

In September 2002 the Board of Directors authorized U.S. Holdings to repurchase through the open market up to 11,500,000 ADRs of Luxottica Group S.p.A., representing 2.5 percent of the authorized and issue share capital, during an 18-month period starting in September 2002. In March 2003, the Company announced that U.S. Holdings had resolved to purchase up to an additional 10,000,000 ADRs of Luxottica Group S.p.A., representing 2.2 percent of the authorized and issued share capital of the Company, over the 18-month period commencing on that date. As of December 31, 2004, both repurchase programs expired and U.S. Holdings has purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003) ADRs at an aggregate purchase price of Euro 70.0 million (U.S. Dollars 88.1 million). In connection with the repurchase, an amount of Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial statements.