LensCrafters 2006 Annual Report Download - page 147

Retail Division which vested and became exercisable on January 31, 2007 as certain financial
performance measures were met over the period ending December 2006. At December 31, 2005,
there were options to acquire 1,000,000 shares (the closing ADR price at December 31, 2005 on the
New York Stock Exchange was US$ 25.31 per share) at an exercise price of US$ 18.59 per share.
Prior to the adoption of SFAS 123(R) compensation expense was recorded in accordance with
variable accounting under APB 25 for the options issued under the incentive plan based on the
market value of the underlying ordinary shares when the number of shares to be issued is known
(“intrinsic value method”). During fiscal 2005, it became probable that the incentive targets would be
met and as such the Company has recorded approximately Euro 1.8 million (or US$ 2.2 million) of
compensation expense net of taxes during fiscal 2005 and recorded future unearned compensation
expense in equity of approximately Euro 2.7 million (US$ 3.2 million) with an offsetting increase in
additional paid-in capital for such amounts. Pro forma net income and earnings per share calculated
as if the compensation costs of the plans had been determined under a fair-value based method are
reported in Note 1.
In September 2004, the Company’s Chairman and majority shareholder, Mr. Leonardo Del Vecchio,
allocated shares held through La Leonardo Finanziaria S.r.l., an Italian holding company of the Del
Vecchio family, representing 2.11% (or 9.6 million shares) of the Company’s currently authorized and
issued share capital, to a stock option plan for top management of the Company at an exercise price
of Euro 13.67 per share (the closing stock price at December 31, 2005 on the Milan Stock Exchange
was Euro 21.43 per share). The stock options to be issued under the 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 has recorded compensation expense of approximately Euro 19.9,
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 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).
In July 2006, under a Company performance plan, the Company granted options to acquire an
aggregate of 13,000,000 shares of the Company to certain top management positions through out
the Company which vest and became exercisable as certain financial performance measures will be
met. Upon vesting the associate will be able to exercise such options until they expire in 2016.
Currently it is expected that these performance conditions will be met. If these performance
measures are not expected to be met no additional compensation costs will be recognized and
previous compensation costs recognized will be reversed.
For the year ended December 31, 2006 Euro 40.9 million of compensation expense has been
recorded for these plans.
NOTES TO CONSOLIDATED
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