LensCrafters 2006 Annual Report Download - page 109

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|109 <
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. Through the Company’s
retail operations the Company owns and operates 5,280 retail locations worldwide and franchises an
additional 439 locations under certain of its owned trade names. At December 31, 2006 the Company’s
retail operations by geographic region and significant tradenames were as follows:
North America Europe Australia China Total
New Zealand Hong Kong
LensCrafters 902 75 977
Sunglass Hut 1,502 92 224 1,818
Pearle and Licensed Brands 1,781 1,781
Other 505 199 704
Franchised locations 417 22 439
4,602 92 751 274 5,719
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. A subsidiary of the Company located in the United States holds a 44%
interest in an affiliated manufacturing and wholesale distributor, located and publicly traded in
India, and the Company owns 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”).
In accordance with Financial Accounting Standard Board (“FASB”) Statement of Financial
Accounting Standard (“SFAS”) no. 141, Business Combinations,we account for all business
combinations under the purchase method. Furthermore, we recognize intangible assets apart from
goodwill if they arise from contractual or legal rights or if they are separable from goodwill.
The comparative figures include a variable interest entity (the “Trust”) consisting of a synthetic
operating lease for Cole’s former Things Remembered Specialty Gift Business (“TR”) of Cole
National Corporation (“Cole”) which was sold in September 2006 (see Note 4). The Trust was
included in these consolidated financial statements since the Company was required to absorb any
expected losses, received the majority of expected returns on the activities of the Trust, and was the
primary beneficiary of the Trust. Assets of Euro 1.6 million and liabilities of Euro 1.6 million were
consolidated into the financial statements as of December 31, 2005. In January 2006, the Company
reached an agreement with the Trust to allow for the acceleration of the purchase option and
acquired the facility for a purchase price of approximately Euro 1.5 million (the amount of the
underlying liability plus transaction costs). Therefore, the liability related to the Trust was included as
acurrent liability (“liabilities of discontinued operations”) as of December 31, 2005.
NOTES
TO CONSOLIDATED
FINANCIAL STATEMENTS