LensCrafters 2009 Annual Report Download - page 67

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 65 <
2009 2008 2007
Weighted average shares outstanding - basic 457,270,491 456,563,502 455,184,797
Effect of dilutive stock options 672,127 1,153,542 3,345,812
Weighted average shares outstanding - dilutive 457,942,618 457,717,044 458,530,609
Options not included in calculation of dilutive shares as the
exercise price was greater than the average price during the
respective period or performance measures related to the
awards have not yet been met 17,456,736 18,529,635 4,947,775
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 jurisdic-
tion in which the deduction will be received. Differences between the deferred tax assets recognized for
fi nancial 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).
Derivative Financial Instruments - Derivative fi nancial instruments are accounted for in accordance with
ASC No. 815, Derivatives and Hedging.
ASC No. 815 requires that all derivatives, whether or not designed in hedging relationships, be recorded
on the balance sheet at fair value regardless of the purpose or intent for holding them. If a derivative is
designated as a fair-value hedge, changes in the fair value of the derivative and the related change in the
hedge item are recognized in operations. If a derivative is designated as a cash-fl ow hedge, changes in the
fair value of the derivative are recorded in other comprehensive income/(loss) ("OCI") in the consolidated
statements of shareholders’ equity and are recognized in the consolidated statements of income when the
hedged item affects operations. The Company records hedge ineffectiveness as gains or losses in the con-
solidated statements of income in their respective measurement periods. The effect of these derivatives
in the consolidated statements of income depends on the item hedged (for example, interest rate hedges
are recorded in interest expense). For a derivative that does not qualify as a hedge, changes in fair value
are recognized in the consolidated statements of income, under the caption "Other - net".
Designated hedging instruments and hedged items qualify for hedge accounting only if there is a formal
documentation of the hedging relationship at the inception of the hedge, the hedging relationship is
expected to be highly effective and effectiveness is tested at the inception date and at least every three
months.
Certain transactions and other future events, such as (i) the derivative no longer effectively offsetting
changes to the cash fl ow of the hedged instrument, (ii) the expiration, termination or sale of the derivative,
or (iii) any other reason of which the Company becomes aware that the derivative no longer qualifi es as a
cash fl ow hedge, would cause the balance remaining in other comprehensive income to be realized into
earnings prospectively. Based on current interest rates and market conditions, the estimated aggregate
amount to be recognized into earnings as additional expense from other comprehensive income relating
to these cash fl ow hedges in fi scal 2010 is approximately Euro 23.2 million, net of taxes.
Luxottica Group uses derivative fi nancial instruments, principally interest rate and currency swap agree-
ments, as part of its risk management policy to reduce its exposure to market risks from changes in interest