Earnings per share before trademark amortization

Earnings per share (EPS) before trademark amortization means earnings per share before trademark and other similar intangible asset amortization expense, net of taxes, per share. The Company believes that EPS before trademark amortization is useful to both management and investors in evaluating the Company’s operating performance and prospects compared to that of other companies in its industry. Our calculation of EPS before trademark amortization allows us to compare our earnings per share with those of other companies without giving effect to the accounting effects of the amortization of the Company’s trademarks and other similar intangible assets, which may vary for different companies for reasons unrelated to the overall operating performance of a company’s business.

EPS before trademark amortization is not a measure of performance under accounting principles generally accepted in the United States (U.S. GAAP). We include it in this presentation in order to:

• improve transparency for investors;
• assist investors in their assessment of the Company’s operating performance;
• ensure that this measure is fully understood in light of how the Company evaluates its operating results;
• properly define the metrics used and confirm their calculation; and
• share this measure with all investors at the same time.

EPS before trademark amortization is not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with U.S. GAAP. Rather, this non-GAAP measure should be used as a supplement to U.S. GAAP results to assist the reader in better understanding the operational performance of the Company. The Company cautions that this measure is not a defined term under U.S. GAAP and its definition should be carefully reviewed and understood by investors. Investors should be aware that Luxottica Group’s method of calculating EPS before trademark amortization may differ from methods used by other companies. The Company recognizes that the usefulness of EPS before trademark amortization as an evaluative tool may have certain limitations, including:

• EPS before trademark amortization does not include the effects of amortization of the Company’s trademarks and other intangible assets. Because trademarks and other intangible assets are important to our business and to our ability to generate sales, we consider trademark amortization expense as a necessary element of our costs. Therefore, any measure that excludes trademark amortization expense may have material limitations.

We compensate for these limitations by using EPS before trademark amortization as one of several comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of our operating performance.

See the tables on the following pages for a reconciliation of EPS before trademark amortization to EPS, which is the most directly comparable U.S. GAAP financial measure.

 

Non-U.S. GAAP Measures: EPS before Trademark Amortization

(Millions of Euro, unless otherwise noted)

	FY08(2)	FY07(1)	∆
Trademark amortization and other similar intangible assets  (+)	72	64
Taxes on trademark amortization and other similar intangible assets  (-)	(26)	(24)
Trademark amortization and other similar intangible assets, net of taxes  (=)	45	40
Average number of shares outstanding as of December 31 (in thousands)  (/)	456,564	455,185
Trademark amortization and other similar intangible assets, net of taxes, per share  (=)	0.10	0.09
EPS  (+)	0.87	1.05	-17.8%
EPS before trademark amortization and other similar intangible assets, net of taxes  (=)	0.96	1.14	-15.4%
€/US$ average exchange rate	1.4707	1.3705
EPS before trademark amortization and other similar intangible assets, net of taxes (in US$)	1.42	1.56	-9.2%

 

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⁽¹⁾ Excluding non-recurring gain related to the sale of a real estate property in 2Q 2007. The impact of the sale was a gain of approximately €20 million before taxes and approximately €13 million after taxes, equivalent to €0.03 at EPS level.
⁽²⁾ Excluding the write-off of credit related to the sale of the Things Remembered business. The impact of such write-off is a loss of approximately €15 million after tax or €0.03 per share. 

 

 

Non-U.S. GAAP Measures: EPS before Trademark Amortization

(Millions of Euro, unless otherwise noted)

	4Q08(1)	4Q07	∆
Trademark amortization and other similar intangible assets  (+)	19	20
Taxes on trademark amortization and other similar intangible assets  (-)	(7)	(8)
Trademark amortization and other similar intangible assets, net of taxes  (=)	12	13
Average number of shares outstanding as of December 31 (in thousands)  (/)	456,816	456,048
Trademark amortization and other similar intangible assets, net of taxes, per share  (=)	0.03	0.03
EPS  (+)	0.12	0.21	-44.3%
EPS before trademark amortization and other similar intangible assets, net of taxes  (=)	0.14	0.24	-39.7%
€/US$ average exchange rate	1.3180	1.4486
EPS before trademark amortization and other similar intangible assets, net of taxes (in US$)	0.19	0.35	-45.1%

 

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⁽¹⁾ Excluding the write-off of credit related to the sale of the Things Remembered business. The impact of such write-off is a loss of approximately €15 million after tax or €0.03 per share. 

 

EBITDA and EBITDA margin

EBITDA represents operating income before depreciation and amortization. EBITDA margin means EBITDA divided by net sales. The Company believes that EBITDA is useful to both management and investors in evaluating the Company’s operating performance compared to that of other companies in its industry. Our calculation of EBITDA allows us to compare our operating results with those of other companies without giving effect to financing, income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to the overall operating performance of a company’s business.

EBITDA and EBITDA margin are not measures of performance under accounting principles generally accepted in the United States (US GAAP).
We include them in this presentation in order to:

• improve transparency for investors;
• assist investors in their assessment of the Company’s operating performance and its ability to refinance its debt as it matures and incur additional indebtedness to invest in new business opportunities;
• assist investors in their assessment of the Company’s cost of debt;
• ensure that these measures are fully understood in light of how the Company evaluates its operating results and leverage;
• properly define the metrics used and confirm their calculation; and
• share these measures with all investors at the same time.

EBITDA and EBITDA margin are not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with US GAAP. Rather, these non-GAAP measures should be used as a supplement to US GAAP results to assist the reader in better understanding the operational performance of the Company. The Company cautions that these measures are not defined terms under US GAAP and their definitions should be carefully reviewed and understood by investors. Investors should be aware that Luxottica Group’s method of calculating EBITDA may differ from methods used by other companies. The Company recognizes that the usefulness of EBITDA has certain limitations, including:

• EBITDA does not include interest expense. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have material limitations;
• EBITDA does not include depreciation and amortization expense. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and expense may have material limitations;
• EBITDA does not include provision for income taxes. Because the payment of income taxes is a necessary element of our costs, any measure that excludes tax expense may have material limitations;
• EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;
• EBITDA does not reflect changes in, or cash requirements for, working capital needs;
• EBITDA does not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss.

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

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

 

 

Non-U.S. GAAP Measure: EBITDA and EBITDA margin

Millions of Euro

	4Q08	4Q07	4Q07 pro forma(1)
Operating income  (+)	117.4	151.7	150.6
Depreciation & amortization  (+)	68.6	64.0	73.2
EBITDA  (=)	186.1	215.7	223.8
Net sales  (/)	1,236.5	1,188.5	1,257.9
EBITDA margin  (=)	15.0%	18.1%	17.8%

 

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(1) These pro forma figures reflect the inclusion of the consolidated results of Oakley, Inc., a subsidiary that was acquired in November 2007, as if it was acquired on January 1, 2007

 

 

Non-U.S. GAAP Measures: EBITDA and EBITDA margin

Millions of Euro

	FY 2008	FY 2007 (2)	FY07 pro forma(1)(2)
Operating income  (+)	749.8	813.3	858.1
Depreciation & amortization  (+)	264.9	232.8	288.2
EBITDA  (=)	1,014.7	1,046.1	1,146.3
Net sales  (/)	5,201.6	4,966.1	5,539.0
EBITDA margin  (=)	19.5%	21.1%	20.7%

 

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⁽¹⁾ These pro forma figures reflect the inclusion of the consolidated results of Oakley, Inc., a subsidiary that was acquired in November 2007, as if it was acquired on January 1, 2007
⁽²⁾ Excluding non-recurring gain related to the sale of a real estate property in 2Q 2007. The impact of the sale was a gain of approximately €20 million before taxes and approximately €13 million after taxes, equivalent to €0.03 at EPS level.

 

Net debt to EBITDA ratio

Net debt means the sum of bank overdrafts, current portion of long-term debt and long-term debt, less cash. EBITDA represents operating income before depreciation and amortization. The Company believes that EBITDA is useful to both management and investors in evaluating the Company’s operating performance compared to that of other companies in its industry. Our calculation of EBITDA allows us to compare our operating results with those of other companies without giving effect to financing, income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to the overall operating performance of a company’s business. The ratio of net debt to EBITDA is a measure used by management to assess the Company’s level of leverage, which affects our ability to refinance our debt as it matures and incur additional indebtedness to invest in new business opportunities. The ratio also allows management to assess the cost of existing debt since it affects the interest rates
charged by the Company’s lenders.

EBITDA and the ratio of net debt to EBITDA are not measures of performance under accounting principles generally accepted in the United States (US GAAP).
We include them in this presentation in order to:

• improve transparency for investors;
• assist investors in their assessment of the Company’s operating performance and its ability to refinance its debt as it matures and incur additional indebtedness to invest in new business opportunities;
• assist investors in their assessment of the Company’s cost of debt;
• ensure that these measures are fully understood in light of how the Company evaluates its operating results and leverage;
• properly define the metrics used and confirm their calculation; and
• share these measures with all investors at the same time.

EBITDA and the ratio of net debt to EBITDA are not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with US GAAP. Rather, these non-GAAP measures should be used as a supplement to US GAAP results to assist the reader in better understanding the operational performance of the Company. The Company cautions that these measures are not defined terms under US GAAP and their definitions should be carefully reviewed and understood by investors. Investors should be aware that Luxottica Group’s method of calculating EBITDA and the ratio of net debt to EBITDA may differ from methods used by other companies. The Company recognizes that the usefulness of EBITDA and the ratio of net debt to EBITDA as evaluative tools may have certain limitations, including:

• EBITDA does not include interest expense. Because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate profits and cash flows. Therefore, any measure that excludes interest expense may have material limitations;
• EBITDA does not include depreciation and amortization expense. Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits. Therefore, any measure that excludes depreciation and expense may have material limitations;
• EBITDA does not include provision for income taxes. Because the payment of income taxes is a necessary element of our costs, any measure that excludes tax expense may have material limitations;
• EBITDA does not reflect cash expenditures or future requirements for capital expenditures or contractual commitments;
• EBITDA does not reflect changes in, or cash requirements for, working capital needs;
• EBITDA does not allow us to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss; and
• The ratio of net debt to EBITDA is net of cash and cash equivalents, restricted cash and short-term investments, thereby reducing our debt position. Because we may not be able to use our cash to reduce our debt on a dollar-for-dollar basis, this measure may have material limitations.

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

See the tables on the following pages for a reconciliation of net debt to long-term debt, which is the most directly comparable US GAAP financial measure, as well as the calculation of the ratio of net debt to EBITDA. For a reconciliation of EBITDA to operating income, which is the most directly comparable US GAAP financial measure, see the tables on the preceding pages.

 

 

Non-US GAAP Measures: Net debt and net debt/EBITDA

Millions of Euro

	Dec. 31, 2008	Dec. 31, 2007
Long-term debt  (+)	2,519.3	1,926.5
Current portion of long-term debt  (+)	286.2	792.6
Bank overdrafts  (+)	432.5	455.6
Cash  (-)	(288.5)	(302.9)
Net debt  (=)	2,949.5	2,871.8
EBITDA	1,014.7	1,066.1
Net debt/EBITDA	2.9x	2.7x
Net debt @ avg. exchange rates(1)	2,821.2	3,010.3
Net debt(1)/EBITDA	2.8x	2.8x

 

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⁽¹⁾ Calculated using the 12-month average exchange rate as of December 31, 2008 and December 31, 2007, respectively

 

Free cash flow

Free cash flow represents income from operations before depreciation and amortization (i.e. EBITDA, see appendix on page 56), plus or minus the decrease/(increase) in working capital over the prior period, less capital expenditures, plus or minus interest income/(expense) and net charges for extraordinary items, minus taxes paid. The Company believes that free cash flow is useful to both management and investors in evaluating the Company’s operating performance compared to other companies in its industry. In particular, our calculation of free cash flow provides a clearer picture of the Company’s ability to generate net cash from operations, which may be used, among other things, to fund discretionary investments, pay dividends or pursue other strategic opportunities.

Free cash flow is not a measure of performance under accounting principles generally accepted in the United States (US GAAP). We include it in this presentation in order to:

• Improve transparency for investors;
• Assist investors in their assessment of the Company’s operating performance and its ability to generate cash from operations in excess of its cash expenses;
• Ensure that this measure is fully understood in light of how the Company evaluates its operating results;
• Properly define the metrics used and confirm their calculation; and
• Share this measure with all investors at the same time.

Free cash flow is not meant to be considered in isolation or as a substitute for items appearing on our financial statements prepared in accordance with US GAAP. Rather, this non-GAAP measure should be used as a supplement to US GAAP results to assist the reader in better understanding the operational performance of the Company. The Company cautions that this measure is not a defined term under US GAAP and its definition should be carefully reviewed and understood by investors. Investors should be aware that Luxottica Group’s method of calculation of free cash flow may differ from methods used by other companies. The Company recognizes that the usefulness of free cash flow as an evaluative tool may have certain limitations, including:

• The manner in which the Company calculates free cash flow may differ from that of other companies, which limits its usefulness as a comparative measure;
• Free cash flow does not represent the total increase or decrease in the net debt balance for the period since it excludes, among other things, cash used for funding discretionary investments and to pursue strategic opportunities during the period and any impact of the exchange rate changes; and
• Free cash flow can be subject to adjustment at the Company’s discretion if the Company takes steps or adopts policies that increase or diminish its current liabilities and/or changes to working capital.

We compensate for the foregoing limitations by using free cash flow as one of several comparative tools, together with US GAAP measurements, to assist in the evaluation of our operating performance.
See tables on page 8 and page 56 for a reconciliation of free cash flow to EBITDA and EBITDA to income from operations, respectively, which is the most directly comparable US GAAP financial measure.