LensCrafters 2003 Annual Report Download - page 48

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earnings per share calculations for the years ended December 31, 2001, 2002, and 2003. Basic earnings per share
are based on the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share are based on the weighted average number of shares of common stock and common stock
equivalents (options and warrants) outstanding during the period, except when the common stock equivalents are
anti-dilutive. The following is a reconciliation from basic to diluted shares outstanding used in the calculation of
earnings per share:
(Thousands) 2001 2002 2003
Weighted average shares outstanding – basic 451,037.0 453,174.0 448,664.4
Effect of dilutive stock options 2,928.5 2,179.5 1,537.7
Weighted average shares outstanding – dilutive 453,965.5 455,353.5 450,202.1
Options not included in calculation of dilutive shares
as the exercise price was greater than the average
price during the respective period - 1,974.7 4,046.6
Fair Value of Financial Instruments - Financial instruments consist primarily of cash, marketable securities,
trade account receivables, accounts payable, long-term debt and derivative financial instruments. Luxottica Group
estimates the fair value of financial instruments based on interest rates available to the Company and by comparison
to quoted market prices. At December 31, 2002, and 2003, the fair value of the Company's financial instruments
approximated the carrying value except as otherwise disclosed.
Stock-based Compensation - The Company has elected to follow the accounting provisions of Accounting
Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, for stock-based compensation
and to provide the disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation, as
amended by SFAS No. 148, Accounting for Stock-based Compensation – Transition and Disclosure (Note 10). No
stock-based employee compensation cost is reflected in the net income, as all options granted under the plans have
an exercise price equal to the market value of the underlying stock on the date of the grant. The following table
illustrates the effect on the net income and earnings per share had the compensation costs of the plans been
determined under a fair value based method as stated in SFAS No. 123:
December 31, 2001 2002 2003
Net income (Thousands of Euro): As reported 316,373 372,077 267,343
Pro-forma (Unaudited) 307,345 362,718 256,216
Basic earnings per share (Euro): As reported 0.70 0.82 0.60
Pro-forma (Unaudited) 0.68 0.80 0.57
Diluted earnings per share (Euro): As reported 0.70 0.82 0.59
Pro-forma (Unaudited) 0.68 0.80 0.57
their eventual disposition. If the sum of the expected undiscounted future cash flows are less than the carrying amount
of the assets, the Company would recognize an impairment loss, if determined to be necessary. Such impairment loss
is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset in
accordance with SFAS No. 144. The Company determined that, for the years ended December 31, 2001, 2002, and
2003, there had been no impairment in the carrying value of its long-lived assets.
Accrual for Customers’ Right of Return - Luxottica Group records an accrual for estimated returns of
merchandise in connection with their conditions of sale. Such amount is included in the caption “Accrued expenses-
customers’ right of return.”
Store Opening and Closing Costs - Store opening costs are charged to operations as incurred in accordance
with Statement of Position No. 98-5, Accounting for the Cost of Start-up Activities. The costs associated with closing
stores or facilities are recorded at fair value as such costs are incurred.
Income Taxes - Income taxes are recorded in accordance with SFAS No. 109, Accounting for Income Taxes,
which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the Company's consolidated financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference between the consolidated financial
statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse.
Liability for Termination Indemnities - Termination indemnities represent amounts accrued for employees in
Australia, Austria, Greece, Israel, Italy and Japan, determined in accordance with labor laws and agreements in each
country (see Note 9).
Revenue Recognition - Revenues from sales of products are recognized at the time of shipment, when title and
the risks and rewards of ownership of the goods have been assumed by the customer, or upon receipt by the
customer, depending on the terms of the sales agreement. In connection with the conditions of sale in certain
countries, certain subsidiaries of the Company record as a liability an amount based on an estimate of anticipated
returns of merchandise by customers in subsequent periods. Such amount is included in the consolidated balance
sheets under the caption "Accrued expenses-customers’ right of return.” Revenues from retail sales, including Internet
and catalog sales, are recorded upon customer purchase.
Pervasiveness of Estimates - The preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ from those estimates.
Earnings per Share - Luxottica Group calculates the basic and diluted earnings per share in accordance with
SFAS No. 128, Earnings per Share. Net income available to shareholders is the same for the basic and diluted