ANNUAL REPORT 2004 - Luxottica Group

STOCK INCENTIVE PLANS
Luxottica Group granted stock options to certain
employees under an incentive plan. These options
vest and became exercisable only if certain financial
performance measures were met over a three-year
period ending December 2004. As of December 31,
2003 and 2004, there were 970,000 options
outstanding at an exercise price of Euro 11.86 (US$
16.06) per share. Compensation expense will be
recognized 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. Subsequent to December 31, 2004,
these options were cancelled as the calculation for
the financial performance measurements were
finalized and the measures were not met.
Options granted in October 2004 under a Company
Incentive Plan (1,000,000 ordinary shares) vest and
become exercisable from January 31, 2007 only if
certain financial performance measures are met over
the period ending December 2006 and at such point
would become exercisable after January 31, 2007.
On September 14, 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. The stock options to
be issued under the stock option plan vest upon
meeting certain economic objectives. As such,
compensation expense will be recorded for the
options issued to management under this plan
based on the market value of the underlying ordinary
shares only when the number of shares to be vested
and issued is known.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SHAREHOLDERS’ EQUITY
In June 2003 and 2004, the Company’s Annual
Shareholders Meetings approved cash dividends of
Euro 95.4 million and Euro 94.1 million, respectively.
These amounts became payable in July 2003 and
2004, respectively. Italian law requires that 5% of net
income be retained, as a legal reserve until this
reserve is equal to one-fifth of the issued share capital.
As such, this legal reserve is not available for
dividends to the shareholders. Legal reserves of the
Italian entities included in retained earnings at
December 31, 2003 and 2004 aggregated Euro 8.3
million and Euro 8.4 million, respectively. In addition,
there is an amount of Euro 3.0 million, which
represents other legal reserves of foreign entities, that
is not available for dividends to the shareholders.
In accordance with SFAS No. 87, Employer’s
Accounting for Pensions, Luxottica Group has
recorded a minimum pension liability for underfunded
plan of Euro 35.2 million and Euro 31.7 million as of
December 31, 2003 and 2004, respectively,
representing the excess of unfunded accumulated
benefit obligations over previously recorded pension
cost liabilities. A corresponding amount is recognized
as an intangible asset except to the extent that these
additional liabilities exceed related unrecognized prior
service cost and net obligation, in which case the
increase in liabilities is charged directly to
shareholders’ equity. The principal cause of the
deterioration of the funded status in the pension
liability in previous years was caused by negative
returns from investments held in the worldwide equity
market in those years. As of December 31, 2003 and
2004, a decrease of Euro 1.2 million and an increase
of Euro 0.2 million, respectively, in the excess
minimum liability, net of income taxes, resulted in a
charge to equity.
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