LensCrafters 2004 Annual Report Download - page 102

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101
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. ORGANIZATION AND
SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION
Luxottica Group S.p.A. and its subsidiaries (collectively
“Luxottica Group” or the “Company”) operate in two
industry segments: (1) manufacturing and wholesale
distribution and (2) retail distribution. Through its
manufacturing and wholesale distribution operations,
Luxottica Group is engaged in the design,
manufacturing, wholesale distribution and marketing of
house brand and designer lines of mid to premium-
priced prescription frames and sunglasses. The
Company operates in the retail segment through its
retail division, consisting of LensCrafters, Inc. and
other affiliated companies (“LensCrafters”), Sunglass
Hut International, Inc. and its subsidiaries (“Sunglass
Hut International”), OPSM Group Limited and its
subsidiaries (“OPSM”) since August 2003, and Cole
National Corporation and its wholly owned subsidiaries
(“Cole”) since October 4, 2004. As of December 31,
2004, LensCrafters operated 888 stores throughout
the United States of America and Canada; Sunglass
Hut operated 1,858 stores located in North America,
Europe and Australia; OPSM operated 598 stores
under three brands across states and territories in
Australia, New Zealand, Hong Kong, Singapore and
Malaysia; and Cole National operated 2,407 owned
stores and 472 franchised specialty retailers of optical
products and personalized gifts located in the United
States of America and Canada. Certain of the
Company’s U.S. subsidiaries also are engaged as
providers of managed vision care benefits and claims
payment administrators whose programs provide
comprehensive eyecare benefits primarily directed to
large employers and health maintenance
organizations.
PRINCIPLES OF CONSOLIDATION AND BASIS OF
PRESENTATION
The consolidated financial statements of Luxottica
Group include the financial statements of the parent
company and all wholly or majority-owned
subsidiaries. The Company’s investments in
unconsolidated subsidiaries which are at least 20%
owned and where the Company exercises significant
influence over operating and financial policies are
accounted for using the equity method. Luxottica
Group holds a 44% interest in an affiliated
manufacturing and wholesale distributor, located in
India, and a 50% interest in an affiliated company
located in Great Britain, which are both accounted for
under the equity method. The results of operations of
these investments are not material to the results of the
operations of the Company. Investments in other
companies in which the Company has less than a
20% interest are carried at cost. All significant
intercompany accounts and transactions are
eliminated in consolidation. Luxottica Group prepares
its consolidated financial statements in accordance
with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
The Company has included a variable interest entity
(the “Trust”), consisting of a synthetic operating lease,
for one of Cole’s facilities. The Trust is included in
these consolidated financial statements since the
Company is required to absorb any expected losses
from, and will receive the majority of expected returns
on, the activities of the Trust, and is the primary
beneficiary of the Trust. The assets of Euro 1.6 million
and liabilities of Euro 1.6 million have been
consolidated into the financial statements as of
December 31, 2004. Future operating results of the
Trust are not expected to have a material effect on the
Company’s financial position or operating results.
The North America retail division fiscal year is a 52- or
53-week period ending on the Saturday nearest
December 31. The accompanying consolidated
financial statements include the operations of the
North America retail division for the 53-week period
ended January 3, 2004 and the 52-week period
ended January 1, 2005.
FOREIGN CURRENCY TRANSLATION AND
TRANSACTIONS
Luxottica Group accounts for its foreign currency
denominated transactions and foreign operations in
accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 52, Foreign Currency
ANNUAL REPORT 2004