LensCrafters 2004 Annual Report Download - page 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
103
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 Consolidated
Income.
In 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 in net
income for the 2003 fiscal year.
CAPITALIZED LEASE PROPERTY
Capitalized leased assets are amortized using the
straight-line method over the term of the lease, or in
accordance with practices established for similar
owned assets if ownership transfers to the Company
at the end of the lease term.
GOODWILL
Goodwill represents the excess of the purchase
price (including acquisition-related expenses) over
the value assigned to the net tangible and
identifiable intangible assets acquired. The
Company’s goodwill is tested for impairment as of
December 31 of each year 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 collections. Such tests are
performed at reporting unit level which consists of
two units, wholesale and retail, as required by the
provisions of SFAS No.142, Goodwill and Other
Intangible Assets. For the years ended December
31, 2002, 2003 and 2004, 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 a
goodwill impairment charge.
TRADE NAMES AND OTHER INTANGIBLES
In connection with various acquisitions, Luxottica
Group has recorded as intangible assets certain
trade names and other intangibles which the
Company believes have a finite life. Trade names are
amortized on a straight-line basis over periods
ranging from 20 to 25 years (see Note 6). Intangibles
include among other items distributor networks,
customer lists and contracts, franchise agreements,
and license agreements and are amortized over the
respective useful lives. All intangibles are subject to
test for impairment in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of
Long-Lived Assets (“SFAS 144”). Aggregate
amortization expense of trade names and other
intangibles for the years ended December 31, 2002,
2003 and 2004 was Euro 42.2 million, Euro 42.6
million and Euro 51.6 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 their eventual disposition. If the sum
of the expected undiscounted future cash flows
were less than the carrying amount of the assets,
the Company would recognize an impairment loss, if
determined to be necessary. Such impairment loss
is measured as the amount by which the carrying
amount of the asset exceeds the fair value of the
asset in accordance with SFAS 144. The Company
determined that, for the years ended December 31,
2002, 2003 and 2004, there had been no
impairment in the carrying value of its long-lived
assets.