LensCrafters 2007 Annual Report Download - page 160

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 159 <
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 Dollar 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 Dollar 3.2 million)
with an offsetting increase in additional paid-in capital for such amounts. For the years ended
December 31, 2007 and 2006 Euro 0.2 million and Euro 1.9 million, respectively, of compensation
expense has been recorded for this plan.
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, at that time, 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 vested upon meeting certain economic objectives in June 2006. 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 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. For the years ended December
31, 2007 and 2006 Euro 0.0 million and Euro 21.4 million, respectively, of compensation expense
has been recorded for this plan.
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 throughout the
Company which vest and become 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 years ended December 31, 2007 and 2006, Euro 34.1 million
and Euro 17.6 million, respectively, of compensation expense has been recorded for these plans.
A summary of option activity under the performance plans as of December 31, 2007, and changes
during the year then ended are as follows:
Number Weighted average Weighted average Aggregate
of options exercise price remaining intrinsic value
outstanding (denominated contractual (Euro 000s)
in Euro) terms
Outstanding as of Dec. 31,2006 23,600,000 17.91
Granted
Forfeitures -
Exercised (930,000) 16.47
Outstanding as of Dec. 31, 2007 22,670,000 18.01 7.71 83,877
Exercisable at Dec. 31, 2007 9,670,000 13.62 6.54 77,512