LensCrafters 2006 Annual Report Download - page 110

Download and view the complete annual report

Please find page 110 of the 2006 LensCrafters annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 166

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166

>110 | ANNUAL REPORT 2006
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 52-week periods ended January 1, 2005, December 31,
2005, and December 30, 2006.
Use of estimates -The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant
judgment and estimates are required in the determination of the valuation allowances against
receivables, inventory and deferred tax assets, calculation of pension and other long-term employee
benefit accruals, legal and other accruals for contingent liabilities and the determination of
impairment considerations for long-lived assets, among other items. Actual results could differ from
those estimates.
Foreign currency translation and transactions -Luxottica Group accounts for its foreign currency
denominated transactions and foreign operations in accordance with SFAS no. 52, Foreign
Currency Translation.The financial statements of foreign subsidiaries are translated into Euro, which
is the functional currency of the parent company and the reporting currency of the Company.Assets
and liabilities of foreign subsidiaries, which use the local currency as their functional currency, are
translated at year-end exchange rates. Results of operations are translated using the average
exchange rates prevailing throughout the year.The resulting cumulative translation adjustments
have been recorded as a separate component of “Accumulated Other Comprehensive Income
(Loss).”
Transactions in foreign currencies are recorded at the exchange rate in effect at the transaction
date. Gains or losses from foreign currency transactions, such as those resulting from the
settlement of foreign receivables or payables during the year, are recognized in consolidated
income in such year.Aggregate transaction gain/(loss) for the years ended December 31, 2004,
2005 and 2006, were Euro 12.5 million, Euro 9.5 million and Euro (19.9) million, respectively.
Cash and cash equivalents -Cash and cash equivalents includes cash on hand, demand deposits,
and highly liquid investments with an original maturity of three months or less, and amounts in-
transit from banks for customer credit card, and debit card transactions. Substantially all amounts
in transit from the banks are converted to cash within four business days from the time of sale.
Credit card and debit card transactions in transit were approximately Euro 14.1 million and
Euro 23.4 million at December 31, 2005 and 2006, respectively.
Bank overdrafts -Bank overdrafts represent negative cash balances held in banks and amounts
borrowed under various unsecured short-term lines of credit (see “Credit Facilities” included in Note
14 for further discussion of the short-term lines of credit) that the Company has obtained through
local financial institutions. These facilities are usually short-term in nature or may contain provisions
that allow them to renew automatically with a cancellation notice period. Certain subsidiaries’
agreements require a guarantee from Luxottica Group S.p.A. Interest rates on these lines of credit
vary and can be used to obtain various letters of credit when needed.
Inventories -Luxottica Group’s manufactured inventories, approximately 75.4% and 66.7% of total
frame inventory for 2005 and 2006, respectively,are stated at the lower of cost, as determined under
the weighted-average method (which approximates the first-in, first-out method, or “FIFO”), or
market value. Retail inventory not manufactured by the Company or its subsidiaries are stated at the
lower of cost, at FIFO or weighted-average cost, or market value. As of January 2, 2005, the