LensCrafters 2006 Annual Report Download - page 113

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |113 <
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 2004, 2005 and 2006 associated with the sale of goods in the
Wholesale Division were Euro 6.2 million, Euro 6.0 million and Euro 7.3 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 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. Advance payments and deposits from customers are not
recorded as revenues until the product is delivered. At December 31, 2005 and 2006 customer
advances included in the consolidated balance sheet in “Accrued Expenses and Other” were Euro
22.3 million and Euro 21.8 million, respectively.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.
The Retail Division previously sold separately priced extended warranty contracts with terms of
coverage of 12 months (up to 24 months in 2005). 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.
Areconciliation of the changes in deferred revenue from the sale of warranty contracts and other
deferred items for the years ended December 31, 2005 and 2006 is as follows:
(Euro/000) 2005 2006
Beginning balance 37,362 41,099
Translation difference 5,247 (3,643)
Warranty contracts sold 42,677 30,151
Other deferred revenues 540 70
Amortization of deferred revenues (44,727) (51,879)
Total 41,099 15,798
Current 35,353 15,798
Non-current 5,746 -
The Company 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 the
Company and when the related store begins operations. Accruals are established for amounts due
under these relationships when they are determined to be uncollectible.