LensCrafters 2007 Annual Report Download - page 132

2007 2006 2005
Weighted average shares outstanding - basic 455,184,797 452,897,854 450,179,073
Effect of dilutive stock options 3,345,812 3,287,796 3,124,353
Weighted average shares outstanding - dilutive 458,530,609 456,185,650 453,303,426
Options not included in calculation of dilutive
shares as the exercise price was greater than
the average price during the respective period 4,947,775 6,885,893 569,124
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 131 <
years 2007, 2006 and 2005 for such reimbursement were Euro 16.8 million, Euro 19.2 million and
Euro 15.5 million, respectively.
Earnings per share. Luxottica Group calculates 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 earnings per share calculations for the years ended December 31,
2007, 2006 and 2005. 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) 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:
Stock-based compensation. Stock-based compensation represents the cost related to stock-
based awards granted to employees. Stock-based compensation cost is measured at grant date
based on the estimated fair value of the award and recognizes the cost on a straight-line basis (net
of estimated forfeitures) over the employee requisite service period. The fair value of stock options
is estimated using a binomial lattice valuation technique. Deferred tax assets are recorded for
awards that result in deductions on income tax returns, based on the amount of compensation
cost recognized and the statutory tax rate in the jurisdiction in which the deduction will be received.
Differences between the deferred tax assets recognized for financial reporting purposes and the
actual tax deduction reported on the income tax return are recorded in Additional Paid-In Capital (if
the tax deduction exceeds the deferred tax asset) or in the consolidated statements of income (if
the deferred tax asset exceeds the tax deduction and no additional paid-in capital exists from
previous awards).
Fair value of financial instruments. Financial instruments consist primarily of cash and cash
equivalents, marketable securities, debt obligations, and derivative financial instruments which are
either accounted for as fair value or cash flow hedges, and starting in 2006, financial instruments
also include a note receivable from a third party for the sale of Things Remembered Inc. (“TR
Note”). Luxottica Group estimates the fair value of cash and cash equivalents and marketable
securities based on interest rates available to the Company and by comparison to quoted market
prices and its debt obligations, as there are no quoted market prices, based on interest rates
available to the Company. The fair value associated with financial guarantees has been accrued for
when applicable and is disclosed in Note 15. The fair values of letters of credit are not disclosed as
it is not practicable for the Company to do so and substantially all of these instruments are in place
for operational purposes such as security on leases and health benefits. The fair value of the TR
Note was based on discounted projected cash flows utilizing an expected yield.
At December 31, 2007 and 2006, the fair value of the Company's financial instruments
approximated the carrying value except as otherwise disclosed.