LensCrafters 2006 Annual Report Download - page 114

>114 | ANNUAL REPORT 2006
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 five 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. Costs to develop and create television
advertising are expensed the first time the airtime is used. The costs to communicate 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 responded specifically to the advertising. Such costs related to the direct response
advertising are amortized over the period during which the revenues are recognized, not to exceed
90 days. Generally,other direct response program costs that do not meet the capitalization criteria
are expensed the first time the advertising occurs. Advertising expenses incurred for the years
ended December 31, 2004, 2005 and 2006 were Euro 189.6 million, Euro 267.8 million and Euro
318.1 million, respectively,and no significant amount have been reported as assets.
The Company receives a reimbursement from its acquired franchisees for certain marketing costs.
Operating expenses in the Consolidated Statements of Income are net of amounts reimbursed by
the franchisees calculated based on a percentage of their sales. The amounts received in fiscal
2004, 2005 and 2006 for such reimbursement were Euro 4.2 million, Euro 15.5 million and Euro 19.2
million, respectively.
Earnings per share -Luxottica Group calculates basic and diluted earnings per share in
accordance with SFAS no. 128, Earnings per Share. Net income available to shareholders is the
same for the basic and diluted earnings per share calculations for the years ended December 31,
2004, 2005 and 2006. Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share are based on
the weighted average number of shares of common stock and common stock equivalents (options)
outstanding during the period, except when the common stock equivalents are anti-dilutive. The
following is reconciliation from basic to diluted shares outstanding used in the calculation of
earnings per share:
(thousands) 2004 2005 2006
Weighted average shares outstanding - basic 448,275.0 450,179.1 452,897.9
Effect of dilutive stock options 2,085.9 3,124.3 3,287.8
Weighted average shares outstanding - dilutive 450,360.9 453,303.4 456,185.7
Options not included in calculation of dilutive shares
as the exercise price was greater than the average
price during the respective period 2,169.6 569.1 6,885.9