LensCrafters 2005 Annual Report Download - page 118

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 117 <
Stock Option plan vest upon meeting certain economic objectives. As such, compensation expense is
recorded in accordance with variable accounting under APB 25 for the options issued to management
under the incentive plan based on the market value of the underlying ordinary shares only when the
number of shares to be vested and issued is known. During 2005, it became probable that the
incentive targets would be met and, as such, the Company recorded compensation expense of
approximately Euro 19.9 million net of taxes and recorded future unearned compensation expense in
equity of approximately Euro 45.8 million net of taxes, with an offsetting increase in additional paid-in
capital for such amounts. The expense if calculated under SFAS 123-R would have been
approximately Euro 16.9 million, net of taxes, and is included in pro forma net income and earnings per
share (see Note 1).
3. INVENTORIES
Inventories consisted of the following:
At December 31 - In thousands of Euro 2004 2005
Raw materials and packaging 50,656 43,191
Work in process 24,486 26,932
Finished goods 358,016 334,208
Total 433,158 404,331
4. ACQUISITIONS AND INVESTMENTS
a) OPSM
In May 2003, Luxottica Group formed an indirect wholly-owned subsidiary in Australia, Luxottica South
Pacific Pty Limited, for the purpose of making a cash offer for all outstanding shares, options and
performance rights of OPSM, a publicly traded company on the Australian Stock Exchange. The cash
offer commenced on June 16, 2003, acceptances were received which increased Luxottica’s relevant
interest in OPSM shares to 50.68% on August 8, 2003, and the offer was completed on September 3,
2003. At the close of the offer, Luxottica South Pacific Pty Limited held 82.57% of OPSM’s ordinary
shares. As a consequence of the acquisition, all options and performance rights were cancelled. As a
result of Luxottica South Pacific Pty Limited acquiring the majority of OPSM’s shares on August 8, 2003,
OPSM’s financial position and results of operations are reported in the Consolidated Financial
Statements since August 1, 2003. Results of operations for the seven-day period ended August 7, 2003
were immaterial. The acquisition was accounted for in accordance with SFAS 141 and, accordingly, the
purchase price of Euro 253.7 million or A$ 442.7 million (including approximately A$ 7.2 million of direct
acquisition-related expenses) was allocated to the assets acquired and liabilities assumed based on
their fair value at the date of the acquisition. The Company uses many different valuation techniques to
determine the fair value of the net assets acquired including but not limited to discounted cash flow and
present value projections. Intangible assets are recognized separate from goodwill if they arise from
contractual or other legal rights or if they do not meet the definition of separable as noted in SFAS 141.
The valuation of OPSM’s acquired assets and assumed liabilities was completed in June 2004 without
significant changes to the preliminary valuation. The excess of purchase price over the net assets
acquired (“goodwill”) has been recorded in the accompanying Consolidated Balance Sheet. The
acquisition of OPSM was made as a result of the Company’s strategy to expand its retail business in
Asia Pacific area.
The purchase price (including direct acquisition-related expenses) has been allocated based upon the
valuation of the Company’s acquired assets and liabilities, assumed as follows (reported at the
exchange rate on the date of acquisition):