ANNUAL REPORT 2004 - Luxottica Group

In thousands
Weighted average shares outstanding -
basic
Effect of dilutive stock options
Weighted average shares outstanding -
dilutive
Options not included in calculation of
dilutive shares as the exercise price was
greater than the average price during the
respective period
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and
cash equivalents, marketable securities, trade account
receivables, accounts payable, long-term debt and
derivative financial instruments. Luxottica Group
estimates the fair value of financial instruments based
on interest rates available to the Company and by
comparison to quoted market prices, when available.
At December 31, 2003 and 2004, the fair value of the
Company’s financial instruments approximated the
carrying value.
STOCK-BASED COMPENSATION
The Company has elected to follow the accounting
provisions of Accounting Principles Board (“APB”)
Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”) for stock-based
2002
453,174.0
2,179.5
455,353.5
1,974.7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2003
448,664.4
1,537.7
450,202.1
4,046.6
2004
448,275.0
2,085.9
450,360.9
2,169.6
compensation and to provide the disclosures
required under SFAS No. 123, Accounting for Stock-
Based Compensation, as amended by SFAS No.
148, Accounting for Stock-based Compensation -
Transition and Disclosure (collectively, “SFAS 123”)
(see Note 10). No stock-based employee
compensation cost is reflected in net income, as all
options granted under the plans have an exercise
price equal to the market value of the underlying
stock on the date of the grant. The Company
changed its method to value options issued after
January 1, 2004 from the Black-Scholes model to a
binomial model as the Company believes a binomial
valuation technique will result in a better estimate of
the fair value of the options. The following table
illustrates the effect on net income and earnings per
share had the compensation costs of the plans been
determined under a fair-value based method as
stated in SFAS 123:
107