LensCrafters 2005 Annual Report Download - page 108

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| 107 <
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”) and Cole National
Corporation and its wholly owned subsidiaries (“Cole”). As of December 31, 2005, LensCrafters
operated 893 stores throughout the United States of America and Canada; Sunglass Hut
International operated 1,849 stores located in North America, Europe and Australia; OPSM operated
549 owned stores and 29 franchised stores under three brands across states and territories in
Australia, New Zealand, Hong Kong, Singapore and Malaysia; and Cole National operated 2,388
owned stores and 462 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, all wholly or majority-owned
subsidiaries and variable interest entities for which the Company is determined to be the primary
beneficiary. 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 and publicly traded 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 with no ability to exercise significant influence 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, 2005. 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’s 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
periods ended January 1, 2005 and December 31, 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
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS