LensCrafters 2005 Annual Report Download - page 112

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 111 <
date. There are no other post-shipment obligations. Additionally, the retail division enters into discount
programs and similar relationships with third parties that have terms of twelve or more months. Revenues
under these arrangements are likewise recognized as transactions occur in the Company’s retail locations
and customers take receipt of products and services. Also included in retail division revenues are
managed vision care revenues consisting of (i) insurance revenues, which are recognized when earned
over the terms of the respective contractual relationships, and (ii) administrative services revenues, which
are recognized when services are provided during the contract period. Accruals are established for
amounts due under these relationships determined to be uncollectible.
Cole earns and accrues franchise revenues based on sales by franchisees which are accrued as
earned. Initial franchise fees are recorded as revenue when all material services or conditions relating to
the sale of the franchise have been substantially performed or satisfied by Cole and when the related
store begins operations. Accruals are established for amounts due under these relationships when they
are determined to be uncollectible.
The retail division also sells separately priced extended warranty contracts with terms of coverage of 12
to 24 months. Revenues from the sale of these warranty contracts are deferred and amortized over the
lives of the contracts, while costs to service the warranty claims are expensed as incurred.
A reconciliation of the changes in deferred revenue from the sale of warranty contracts and other
deferred items for the years ended December 31, 2004 and 2005, is as follows:
In thousands of Euro 2004 2005
Beginning balance 512 40,964
Translation difference (3,631) 1,901
Cole acquired balances 44,161 -
Warranty contracts sold 10,152 44,639
Other deferred revenues 3,922 2,528
Amortization of deferred revenues (14,152) (46,800)
Total 40,964 43,232
Current 31,948 37,465
Non-current 9,016 5,767
The wholesale and retail divisions may offer certain promotions during the year. Free frames given to
customers as part of a promotional offer are recorded in cost of sales at the time they are delivered to
the customer. Discounts and coupons tendered by customers are recorded as a reduction of revenue
at the date of sale.
Managed vision care underwriting and expenses - The Company sells vision insurance plans
which generally have a duration of up to two years. Based on its experience, the Company believes it
can predict utilization and claims experience under these plans, including claims incurred but not yet
reported, with a high degree of confidence. Claims are recorded as they are incurred and certain other
membership costs are amortized over the covered period.
Advertising and direct response marketing - Costs to develop and create newspaper, television,
radio and other media advertising are expensed as incurred, and the costs of the advertising are
expensed the first time the airtime or advertising space is used with the exception of certain direct
response advertising programs. Costs for certain direct response advertising programs are capitalized
if such direct response advertising costs are expected to result in future economic benefit and the
primary purpose of the advertising is to elicit sales to customers who could be shown to have