LensCrafters 2003 Annual Report Download - page 47

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The Company’s goodwill was tested for impairment during the first half of 2002, and, in November 2002, in
connection with the announcement of the termination of the license agreement for the 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 was not impaired and, as a result, the Company has not recorded an asset
impairment charge.
Actual results of operations for the year ended December 31, 2002, and 2003, and pro-forma results of operations
for the year ended December 31, 2001, had the Company applied the non-amortization provisions of SFAS No. 142
in those periods, follows (thousands of Euro, except per share amounts):
2001 2002 2003
Reported net income 316,373 372,077 267,343
Add: Goodwill amortization, net of tax 80,249 - -
Adjusted net income 396,622 372,077 267,343
Basic earnings per share (Euro):
Reported net income 0.70 0.82 0.60
Goodwill Amortisation 0.18 0.00 0.00
Adjusted net income 0.88 0.82 0.60
Diluted earnings per share (Euro):
Reported net income 0.70 0.82 0.59
Goodwill Amortisation 0.17 0.00 0.00
Adjusted net income 0.87 0.82 0.59
Trade Names - In connection with various acquisitions, Luxottica Group has recorded as intangible assets certain
trade names under the names of “LensCrafters”, “Ray-Ban”, “Sunglass Hut International” and “OPSM.” Trade names,
which the Company has determined have a finite life, continue to be amortized on a straight-line basis over periods
ranging from 20 to 25 years (see Note 6) and are subject to testing for impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Amortization of trade names for the years ended
December 31, 2001, 2002, and 2003, was 23.8 million, 36.1 million and 37.3 million, respectively.
Impairment of Long-Lived Assets - Luxottica Group’s long-lived assets, other than goodwill, are tested for
impairment whenever events or changes in circumstances indicate that the net carrying amount may not be
recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the
long-lived asset to the estimated undiscounted future cash flows expected to result from the use of the assets and
Realized foreign exchange gains or losses during the year are recognized in consolidated income in such year.
Cash and Cash Equivalents - Luxottica Group considers investments purchased with a remaining maturity of
three months or less to be cash equivalents.
Inventories - Luxottica Group’s manufactured inventories, approximately 82.5 percent and 76.9 percent of total
frame inventory for the years 2002 and 2003, respectively, are stated at the lower of cost, as determined under the
weighted-average method (which approximates the first-in, first-out method, “FIFO”), or market value. Retail inventory
not manufactured by the Company or its subsidiaries are stated at the lower of cost, as determined on a retail last-in,
first-out method (“LIFO”) or FIFO or weighted-average cost, or market value. The LIFO reserve was not material as of
December 31, 2002, and 2003.
Property, Plant and Equipment - Property, plant and equipment are stated at historical cost. Depreciation is
computed principally on the straight-line method over the estimated useful lives of the related assets as follows:
Estimated Useful Life
Buildings 19 to 40 years
Machinery and equipment 3 to 12 years
Aircraft 25 years
Other equipment 5 to 8 years
Leasehold improvements lesser of 10 years or the remaining life of the lease
Maintenance and repair expenses are expensed as incurred. Upon the sale or disposition of property and
equipment, the cost of the asset and the related accumulated depreciation and leasehold amortization are removed
from the accounts and any resulting gain or loss is included in the statements of income.
During 2003, management determined that the useful lives of certain machinery and equipment were longer than
originally expected based upon useful lives of similar fully amortized assets which are still in use. A change in
accounting estimate was recognized to reflect this decision, resulting in an immaterial increase of net income for the
period.
Goodwill and Change in Accounting - In July 2001, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 141, Business Combinations, which requires all business combinations initiated after June 30, 2001, to be
accounted for under the purchase method. SFAS No. 141 also sets forth guidelines for applying the purchase method
of accounting in the determination of intangible assets, including goodwill acquired in a business combination, and
expands financial disclosures concerning business combinations consummated after June 30, 2001. The application
of SFAS No. 141 did not affect any previously reported amounts included in goodwill.
Effective January 1, 2002, Luxottica Group adopted SFAS No. 142, Goodwill and Other Intangible Assets, which
established new accounting and reporting requirements for goodwill and other intangible assets. SFAS No. 142
requires that goodwill amortization be discontinued and replaced with periodic tests of impairment.