LensCrafters 2003 Annual Report Download

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ANNUAL REPORT 2003
FISCAL YEAR ENDED DECEMBER 31,2003

Table of contents

  • Page 1
    ANNUAL REPORT 2003 FISCAL YEAR ENDED DECEMBER 31, 2003

  • Page 2
    ... ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROPOSED DIVIDEND FOR FISCAL YEAR 2003 LUXOTTICA GROUP - HISTORY AND OVERVIEW • A BRIEF HISTORY • COMPETITIVE ADVANTAGES • STRATEGY CORPORATE GOVERNANCE CAPITAL STOCK INFORMATION CONTACTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TABLES...

  • Page 3
    ... productivity. This confirmed that the strategy to invest in retail is rewarding for the long term. As a result, during 2003 we closed the acquisition of OPSM Group, an optical chain with stores in Australia, New Zealand, Hong Kong, Singapore and Malaysia, thus gaining an important market share...

  • Page 4
    ... costs, generating additional efficiencies in logistics worldwide and continual improvement in the level of pre- and post-sales customer service. As a result, today our Group looks to the future with a stronger and more efficient manufacturing, distribution and management structure than last year...

  • Page 5
    ... New York Stock Exchange (NYSE). On the last trading day of 2002, Luxottica Group's ordinary shares and ADSs had closed at â,¬ 12.576 and US$ 13.65, respectively, reflecting a market capitalization of â,¬ 5.7 billion and US$ 6.2 billion, respectively. May 5 The Group's Board of Directors approves...

  • Page 6
    ...MIB 30, the index of highest market capitalization stocks traded on the Italian Stock Exchange. September 29 July 28 Luxottica Group reports results for the second quarter with net sales of â,¬ 707.0 million, operating income of â,¬ 111.9 million, and earnings per share or ADS of â,¬ 0.15 (US$ 0.17...

  • Page 7
    ... the activity of Sunglass Hut International from the acquisition date (March 31, 2001) (8) These figures have been retroactively adjusted to reflect the two-for-one stock split which was effective June 26, 2000 (9) Figures for 2003 include results of OPSM Group's operations from August 1, 2003 (10...

  • Page 8
    ... a partner for the more prestigious designer brands that want to benefit from Luxottica Group's recognized leadership in design, production quality and global wholesale distribution. Listing on NYSE Acquistion of LensCrafters Acquistion of Ray-Ban Acquistion of Sunglass Hut International 14 15

  • Page 9
    ... the structure and increasing the use of information technology, all while keeping industrial costs for the year firmly under control. This resulted in improved service to customers, also in terms of after-sales support, and delivery lead-time. During the first half of the year, at the time of...

  • Page 10
    ... acquisition, as of December 31, 2003, Luxottica Group's retail division operated 3,382 stores in the U.S., Canada, Australia, New Zealand, Southeast Asia and Europe across three brands: LensCrafters in North America; Sunglass Hut International in North America, Australia and select European markets...

  • Page 11
    ... the benefits of offering a diverse selection of high quality Luxottica Group frames. The most popular selling brands As part of the ongoing quest for efficiencies and cost savings, in 2003 LensCrafters' distribution center, based in Cincinnati, Ohio, merged with Sunglass Hut International's North...

  • Page 12
    ...and Versace. For the first time, products from Luxottica Group's portfolio accounted for more than half of Sunglass Hut International's sun sales in U.S. Dollars in North America. Sunglass Hut International also benefited from the new collections launched in the first quarter of 2003. Ray-Ban Junior...

  • Page 13
    .... Through Gift of Sight programs, associates and doctors from LensCrafters, Sunglass Hut International, Watch Station, Watch World and EyeMed Vision Care hand-deliver free eye care to disadvantaged people in local communities in North America and in developing countries. In 2003, Luxottica Retail...

  • Page 14
    ...'s ADS (one ADS represents one ordinary share), representing 2.5 percent of Luxottica Group's authorized and issued share capital. Under this now-expired plan, purchases were to be made on the New York Stock Exchange over a period of 18 months beginning on the day of the approval. On March 20, 2003...

  • Page 15
    ..., Italy on each business day in such period or year, divided by the total number of such business days. The conversion of the statements of operations from Euro into U.S. Dollars at the average exchange rate for each period, rather than the period-end exchange rate (which Luxottica Group uses to...

  • Page 16
    ... method. As such, the results of the Ray-Ban business have been accounted for in the Company's consolidated financial statements since the date of acquisition. Since the acquisition, Luxottica Group has closed Ray-Ban's frame manufacturing facilities outside Italy and integrated these operations...

  • Page 17
    ...exchange rates comparison The 3.2 percent year-over-year decrease in consolidated net sales for 2003 on a consistent basis was mainly attributable to the termination in May of the Giorgio Armani and Emporio Armani license agreement. In 2003, net sales for Luxottica Group's retail division accounted...

  • Page 18
    ... FY 2003 average exchange rate of â,¬ 1.00 = US$ 1.1307. Differently from previous reconciliations on net sales, Luxottica Group is not calculating for income from operations the exchange rate effect. Operating margin for the Company's manufacturing and wholesale distribution division for the year...

  • Page 19
    ... Group's net financial position may differ from similarly titled financial measures used by other companies. During 2003, Luxottica Group has relied primarily upon internally generated funds, trade credit and bank borrowings to finance its operations and expansion. In June 1999, Luxottica Group...

  • Page 20
    ... San Paolo IMI S.p.A. Bank. This credit facility matured in June 2002, and the amount outstanding at that time was repaid in full. In March 2001, Luxottica Group entered into a credit facility with Banca Intesa S.p.A. to finance the acquisition of Sunglass Hut International. The credit facility was...

  • Page 21
    ...-term debt Long-term debt Net financial position, beginning of the year Net income Depreciation and amortization Change in net working capital Provision and other Operating cash flow Capital expenditure (Investments)/Disposal in intangible assets Purchase of business net of cash acquired Other Free...

  • Page 22
    ... 0.052 0.045 0.041 (*) Proposed by the Board of Directors and to be submitted for approval to the Annual Shareholders' Meeting on June 17, 2004 (1) One ADS = one ordinary share (2) Converted by The Bank of New York at the Lira/U.S. Dollar exchange rate on, respectively, July 8, 1994, July 6, 1995...

  • Page 23
    ... residents and do not have a permanent establishment in Italy, are subject to a 27 percent substitute tax rate. Accordingly, the amount of the dividend paid to The Bank of New York, depositary of Luxottica Group's ordinary shares represented by ADRs, through UniCredito Italiano S.p.A., as custodian...

  • Page 24
    ... to request more detailed information on the exact procedure to be followed from The Bank of New York (ADR Department, telephone +1-212-815-2367; fax +1-212-571-3050, attn. Patrick Mullaly) or directly from Luxottica Group's headquarters in Italy (Investor Relations Department - Dividends, telephone...

  • Page 25
    ... Australia with over 630 stores through the acquisition of OPSM Group in 2003. Luxottica Group designs and produces approximately 2,450 styles of prescription frames and sunglasses, available in a wide array of colors and sizes, and marketed under a variety of well-known brand names. Luxottica Group...

  • Page 26
    ... 31, 2003, OPSM operated 600 stores and employed nearly 4,000 people. OPSM stores, through their associated optometrists, provide a high standard of professional eye care and the wide range of frames, lenses and sunglasses in-store, ensures customers have the best choice in eyewear. Luxottica Group...

  • Page 27
    ... opportunity to interact directly with the end consumer to monitor changing fashion trends and consumer preferences. Through LensCrafters and Sunglass Hut International, Luxottica Group is the leader in the mid- to premium- priced categories of the North American optical retail market both in the...

  • Page 28
    ...to present. The acquisitions of Ray-Ban and Sunglass Hut International have positioned Luxottica Group as the world's leader in the production and marketing of mid- to premium-priced sunglasses. Luxottica Group believes that, over the coming years, the sun segment will show growth rates greater than...

  • Page 29
    ...IN ITALY CENCENIGHE LAURIANO ROVERETO GAZZADA AGORDO SEDICO AGORDO, BL - ITALY "Where it all began" GAZZADA,VA PEDEROBBA AGORDO, BL CENCENIGHE, BL SEDICO, BL CINCINNATI, OHIO - U.S.A. LUXOTTICA RETAIL HEADQUARTERS ROVERETO,TN PEDEROBBA,TV LAURIANO,TO MILAN - ITALY CORPORATE HEADQUARTERS...

  • Page 30
    ...% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% NORTH AMERICAN SUBSIDIARIES 100% 100% 100% LUXOTTICA U.S. HOLDING CORP. AVANT GARDE OPTICS LLC LUXOTTICA CANADA INC. LENSCRAFTERS INC. LUXOTTICA SUN CORP. SUNGLASS HUT INT. INC. 83% 100% 100% 75% 100% 100% 51% 100% 100% 51...

  • Page 31
    ... LTD LUXOTTICA OPTICS LTD LUXOTTICA GOZLUK Tic. A.S. LUXOTTICA NORGE A.S. LUXOTTICA GULF LLC LUXOTTICA MALAYSIA SDN BHD MIRARIAN MARKETING PTE LTD LUXOTTICA POLAND SP.ZO.O. RAYBAN SUN OPTICS INDIA LTD Valcozzena - 32021 Agordo (Belluno) - Italy 44 Harbor Park Drive - Port Washington - New York 11050...

  • Page 32
    ... U.S.A.F. pilots and was added to Luxottica Group's brand portfolio in 1999. Worn by countless movie and show business celebrities since day one, Ray-Ban's styles are sunglasses par excellence and by far the best-selling sunglasses in the world. Characterized by high-quality lenses and materials as...

  • Page 33
    ...American brand. A product with classic style and affordable to everyone that delivers functionality, lightness, and high quality. The license agreement between Emanuel Ungaro and Luxottica Group dates back to 1998. Ungaro eyewear stands out for its sensual, refined and at the same time unique style...

  • Page 34
    ... license agreement for the manufacturing and distribution of Versus eyewear was signed by Luxottica Group in early 2003, together with the agreement relating to the Versace brand. Versus is the "young" brand in the Versace "family". In fact, Versus eyewear is designed for young people who are price...

  • Page 35
    ... management and disclosure of confidential information and of price sensitive information" - the adoption of the Code of Conduct - Internal Dealing - for informing the market of trading in Luxottica Group shares by Significant Persons - the adoption of an internal procedure for approval of services...

  • Page 36
    ...: - the Corporate Area (Legal, Human Resources/Organization, Investor Relations/ Communication, Administration Finance and Control of Management, Information Technology) should report to the Chairman; - the Production Area (Production, Purchasing, Logistics, Planning, Product/Design, Quality Control...

  • Page 37
    ... function and of making proposals to the Board itself. A majority of its members are non-executive and independent directors, in line with the recommendation of the above-mentioned Corporate Governance Code of Listed Companies. As of the date of this report, the Internal Control Committee consisted...

  • Page 38
    ..., and makes these principles and rules compulsory for all employees of the Group. For additional information the Code of Ethics is available from Luxottica Group's website at www.luxottica.com. The Group's By-Laws requires that Statutory Auditors be appointed by means of a vote on a list that can...

  • Page 39
    ... INFORMATION • Luxottica Group S.p.A listed on the New York Stock Exchange (NYSE) on January 23, 1990. At the time of the Initial Public Offering, 10,350,000 ordinary shares were sold, equivalent to 5,175,000 American Depositary Shares (ADS) (one ADS equals two ordinary shares). The issue price...

  • Page 40
    ... share par value of the Group's ordinary shares is â,¬ 0.06, from Italian Lire 100. • On December 31, 2003, Luxottica Group's authorized share capital was â,¬ 27,268,621.98, equivalent to 454,477,033 ordinary shares. High High ON THE NYSE QUARTERLY ADS PRICES (U.S. Dollars) (1) 2003 Low Close...

  • Page 41
    CONTACTS NEW YORK STOCK EXCHANGE (U.S. Dollars) LUXOTTICA GROUP Investor Relations Department Via Cesare Cantù, 2 20123 Milano Italy Phone +39 (02) 8633 4665; Fax +39 (02) 8699 6550 E-mail: [email protected] Website: www.luxottica.com Other corporate websites: www.lenscrafters.com; ...

  • Page 42
    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS LUXOTTICA GROUP S.P.A. We have audited the accompanying consolidated balance sheets of Luxottica Group S.p.A. (an Italian corporation) and Subsidiaries (collectively, "the Company") as of December 31, 2002 and 2003 and the related statements of consolidated ...

  • Page 43
    ... 1 2003 (Thousands of Euro) 2003 (Thousands of U.S. Dollars)(1) Current liabilities Bank overdrafts Current portion of long-term debt Accounts payable Accrued expenses • Payroll and related • Customers' right of return • Other Income taxes payable Total current liabilities Long term debt...

  • Page 44
    ... SFAS No.142. For comparison among the fiscal years ended December 31, 2001, 2002, and 2003, on a pro-forma basis see Note 1 "Goodwill and Change in Accounting" (3) Results for fiscal year 2001 include the results of operations of Sunglass Hut International from March 31, 2001 (4) Results for fiscal...

  • Page 45
    ... for convenience at the New York City Noon Buying Rate as determined in Note 1 See notes to Consolidated Financial Statements (*) In accordance with U.S. GAAP (**) In 2003, the Company determined that the net change in bank overdrafts had to be classified as financing activity rather then netted...

  • Page 46
    ... LensCrafters operated 877 stores throughout the U.S. and Canada; Sunglass Hut International operated 1,905 stores located in North America, Europe and Australia; and, OPSM operated 600 stores trading under three brands across all states and territories in Australia as well as New Zealand, Hong Kong...

  • Page 47
    ...production and distribution of the Giorgio Armani and Emporio Armani lines, and in 2003, as required by the provisions of SFAS No.142. Such tests were performed at the reporting unit level. The result of this process was the determination that the carrying value of each reporting unit of the Company...

  • Page 48
    ..., 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. At December 31, 2002, and 2003, the...

  • Page 49
    ... in fair value are recognized in operations. Luxottica Group uses derivative financial instruments, principally interest rate and currency swap agreements as part of its risk management policy to reduce its exposure to market risks from changes in interest and foreign exchange rates. Although it...

  • Page 50
    ..., 2002, and 2003, respectively. On February 20, 2001, Luxottica Group formed an indirect wholly-owned U.S. subsidiary, Shade Acquisition Corp., for the purpose of making a tender offer for all the outstanding common stock of Sunglass Hut International, Inc. ("SGHI"), a publicly traded company on the...

  • Page 51
    ...finalized by June 2004. The acquisition of OPSM was made as result of the Company's strategy to expand its retail business in Australia and New Zealand and become a leading player in the Australian prescription segment. 2001 Sales Operating Income Net Income No. of Shares (Thousands) - Basic No. of...

  • Page 52
    ... (reported at the date of acquisition exchange rate): IC Optics On January 15, 2003, the Company announced the signing of a worldwide license agreement for the design, production and distribution of Versace, Versus and Versace Sport sunglasses and prescription frames. The initial ten-year agreement...

  • Page 53
    ... manufacturing and distribution of frames worldwide. Goodwill, which arose in connection with the acquisition of LensCrafters, (a). Goodwill, which arose in connection with the acquisition of Ray-Ban, (b). Goodwill, which arose in connection with the acquisition of Sunglass Hut International, (see...

  • Page 54
    ... a substantially different base for its computation as to IRPEG. (f) The LensCrafters, Ray-Ban, Sunglass Hut International and OPSM trade names are amortized on a straight-line basis over a period of 25 years, 20 years, 25 years and 25 years, respectively, as the Company believes these trade names...

  • Page 55
    ... tax reviews. As of December 31, 2003, the taxes that would be due on the distribution of retained earnings to the related parent company, including net earnings of the year, of subsidiaries for 2003 and prior years would approximate â,¬ 31.6 Italian statutory tax rate Aggregate effect of different...

  • Page 56
    ...full. In March 2001, the Company entered into a new credit facility with Banca Intesa S.p.A. to finance the acquisition of Sunglass Hut International, as described earlier. The credit facility was unsecured and on December 27, 2002, the amount outstanding at that date was repaid in full. In December...

  • Page 57
    ... of Sunglass Hut International to participate in the plan. The Company's funding policy is in accordance with minimum funding requirements of the U.S. Employee Retirement Income Security Act of 1974 as amended. No contributions were made in 2001, and 2002. Net periodic pension cost for the years...

  • Page 58
    ... Stock Option Plan - Beginning in April 1998, certain officers and other key employee of the Company and its subsidiaries were granted stock options of Luxottica Group under the Company's stock option plan. The stock options were granted at a price equal to the market value of the shares at the date...

  • Page 59
    ... New York City Noon Buying Rate in effect at the end of each year Stock options outstanding as of December 31, 2003, are summarized as follows: Exercise Price denominated in Euro (4) Number Outstanding Number Exercisable Remaining Life (Years) In accordance with SFAS No. 87, Employer's Accounting...

  • Page 60
    ... 2003, LensCrafters operated 877 stores throughout the U.S. and Canada; Sunglass Hut operated 1,905 stores located in North America, Europe and Australia; and, OPSM operated over 600 stores trading under three brands across all states and territories in Australia as well as in New Zealand, Hong Kong...

  • Page 61
    ... of sales (as defined) with, in certain agreements, minimum guaranteed payments in each year of the agreements. In the first half of 2003, the Company has terminated its license agreement for the production and distribution of the Giorgio Armani and Emporio Armani eyewear collections and has signed...

  • Page 62
    ... plaintiff commenced an action in the California Superior Court for the County of San Francisco against LensCrafters, the Company's subsidiary that operates as a licensed California vision health care service plan, certain of the Company's other subsidiaries and Luxottica Group S.p.A., alleging that...

  • Page 63
    ... with applicable antitrust clearance requirements. The transaction is expected to close in the second half of 2004. Cole National is a provider of vision care products and services, including managed vision care programs and personalized gifts, with 2,944 retail locations in the U.S., Canada and...

  • Page 64
    ... amounts are translated at the Euro/U.S. Dollar average exchange rate of the relevant period (for further information see table on page 29) Results for fiscal year 2002 have been reclassified to allow for comparison with results for fiscal year 2003 Except per ADS amounts which are in Euro and in...

  • Page 65
    PHOTOGRAPHY AND GRAPHIC ART BY LETIZIA MARINO PRINTED IN ITALY BY GRAFICHE ANTIGA