LensCrafters 2005 Annual Report Download - page 111

> 110 | ANNUAL REPORT 2005
Store opening and closing costs - Store opening costs are charged to operations as incurred in
accordance with Statement of Position No. 98-5, Accounting for the cost of start-up activities. The costs
associated with closing stores or facilities are recorded at fair value as such costs are incurred. Store
closing costs charged to the consolidated statements of income during fiscal 2003, 2004 and 2005
were not material.
Self insurance - The Company is self insured for certain losses relating to workers’ compensation,
general liability, auto liability, and employee medical benefits for claims filed and for claims incurred but
not reported. The Company’s liability is estimated on an undiscounted basis using historical claims
experience and industry averages; however, the final cost of the claims may not be known for over five
years. As of December 31, 2004 and 2005, self insurance accruals were Euro 36.1 million and Euro
46.8 million, respectively.
Income taxes - Income taxes are recorded in accordance with SFAS No. 109, Accounting for income
taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the Company’s Consolidated Financial
Statements or tax returns. Under this method, deferred tax liabilities and assets are determined based
on the difference between the Consolidated Financial Statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. A
valuation allowance is recorded for deferred tax assets if it is determined that it is more likely than not
that the asset will not be realized. Changes in valuation allowances from period to period are included
in the tax provisions in the relevant period of change.
Liability for termination indemnities - The reserve for employee termination indemnities of Italian
companies is considered a defined benefit plan and is accounted for accordingly. Termination
indemnities in other countries are provided through payroll tax and other social contributions in
accordance with local statutory requirements (see Note 9).
Revenue recognition - Revenues include sales of merchandise (both wholesale and retail), insurance
and administrative fees associated with the Company’s managed vision care business, eye exams
and related professional services, and sales of merchandise to franchisees along with other revenues
from franchisees such as royalties based on sales and initial franchise fee revenues.
Wholesale division revenues are recognized from sales of products at the time of shipment, as title and
the risks and rewards of ownership of the goods are assumed by the customer at such time. The
products are not subject to formal customer acceptance provisions. In some countries, the customer
has the right to return products for a limited period of time after the sale. However, such right of return
does not impact the timing of revenue recognition as all conditions of SFAS No. 48, Revenue recognition
when right of return exists, are satisfied at the date of sale. Accordingly, the Company has recorded an
accrual for the estimated amounts to be returned. This estimate is based on the Company’s right of
return policies and practices along with historical data and sales trends. There are no other post-
shipment obligations. Revenues received for the shipping and handling of goods are included in sales
and the costs associated with shipments to customers are included in operating expenses. Total
shipping costs in fiscal 2003, 2004 and 2005 associated with the sale of goods in the Wholesale division
were Euro 6.5 million, Euro 6.2 million and Euro 6.0 million, respectively.
Retail division revenues, including internet and catalog sales, are recognized upon receipt by the customer
at the retail location, or when goods are shipped directly to the customer for internet and catalog sales. In
some countries, the Company allows retail customers to return goods for a period of time and as such the
Company has recorded an accrual for the estimated amounts to be returned. This accrual is based on the
historical return rate as a percentage of net sales and the timing of the returns from the original transaction