LensCrafters 2006 Annual Report Download - page 111

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |111 <
Company changed its method of valuing certain of its retail inventory from the last-in, first-out
method (“LIFO”) to FIFO in order to reduce the number of valuation methods among retail divisions.
The effect of the change in the inventory valuation method had an immaterial effect on the 2005
Statements of Consolidated Income. Inventories are recorded net of allowances for estimated
losses among other reserves. These reserves are calculated using various factors including sales
volume, historical shrink results and current trends.
Property, plant and equipment -Property, plant and equipment are stated at historical cost.
Depreciation is computed on the straight-line method over the estimated useful lives of the related
assets as follows:
Estimated useful life
Buildings and building improvements 19 to 40 years
Machinery and equipment 3 to 12 years
Aircraft 25 years
Other equipment 5 to 8 years
Leasehold improvements Lesser of 15 years or the remaining life of the lease
Maintenance and repair expenses are expensed as incurred. Upon the sale or disposition of
property and equipment, the cost of the asset and the related accumulated depreciation and
leasehold amortization are removed from the accounts and any resulting gain or loss is included in
the Statements of Consolidated Income.
Capitalized leased property -Capitalized leased assets are amortized using the straight-line
method over the term of the lease, or in accordance with practices established for similar owned
assets if ownership transfers to the Company at the end of the lease term.
Goodwill -Goodwill represents the excess of the purchase price (including acquisition-related
expenses) over the value assigned to the net tangible and identifiable intangible assets acquired.
The Company’s goodwill is tested annually for impairment as of December 31 of each year in
accordance with SFAS no. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Additional
impairment tests are performed if, for any reason, the Company believes that an event has occurred
that may impair goodwill. Such tests are performed at the reporting unit level which consists of two
units, Wholesale and Retail, as required by the provisions of SFAS 142. For the years ended
December 31, 2004, 2005 and 2006, the result of this process was the determination that the
carrying value of each reporting unit of the Company was not impaired and, as a result, the
Company has not recorded a goodwill impairment charge in such years.
Other trade names and intangibles -In connection with various acquisitions, Luxottica Group has
recorded as intangible assets certain trade names and other intangibles which the Company
believes have a finite life. Trade names are amortized on a straight-line basis over periods ranging
from 20 to 25 years (see Note 7). Other intangibles include, among other items, distributor networks,
customer lists and contracts, franchise agreements and license agreements, and are amortized
over the respective useful lives. All intangibles are subject to test for impairment in accordance with
SFAS no. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).
Aggregate amortization expense of trade names and other intangibles for the years ended
December 31, 2004, 2005 and 2006 was Euro 50.7 million, Euro 61.9 million and Euro 68.8 million,
respectively.
Impairment of long-lived assets -Luxottica Group’s long-lived assets, other than goodwill, are