LensCrafters 2006 Annual Report Download - page 117

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |117 <
these derivatives in the Statements of Consolidated Operations depends on the item hedged (for
example, interest rate hedges are recorded in interest expense). For a derivative that does not
qualify as a hedge, changes in fair value are recognized in the Statements of Consolidated
Operations, under the caption “Other, net”.
Designated hedging instruments and hedged items qualify for hedge accounting only if there is a
formal documentation of the hedging relationship at the inception of the hedge, hedging
relationship is expected to be highly effective and effectiveness is tested at least every three
months.
Certain transactions and other future events, such as (i) the derivative no longer effectively
offsetting changes to the cash flow of the hedged instrument, (ii) the expiration, termination or sale
of the derivative, or (iii) any other reason of which the Company becomes aware that the derivative
no longer qualifies as a cash flow hedge, would cause the balance remaining in other
comprehensive income to be realized immediately as earnings. Based on current interest rates
and market conditions, the estimated aggregate amount to be recognized as earnings from other
comprehensive income relating to these cash flow hedges in fiscal 2007 is approximately Euro 4.6
million, net of taxes.
Luxottica Group uses derivative financial instruments, principally interest rate and currency swap
agreements, as part of its risk management policy to reduce its exposure to market risks from
changes in interest and foreign exchange rates. Although it has not done so in the past, the
Company may enter into other derivative financial instruments when it assesses that the risk can
be hedged effectively.
Recent accounting pronouncements
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS no. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB no.
115,which allows the Company to record at fair value financial assets and liabilities with the
change being recorded in earnings. This can be done on an instrument by instrument basis in
most circumstances, is irrevocable after elected for that instrument and must be applied to the
entire instrument. The adoption of such standard is for fiscal years beginning after November 15,
2007. The adoption is not expected to have a material effect on the consolidated financial
statements.
In March 2006, FASB issued SFAS no. 156, Accounting for Servicing Financial Assets - an
amendment of FASB no. 140,with respect to accounting for separately recognized servicing assets
and servicing liabilities. The statement requires, among other things, that an entity use fair value to
intially measure these assets and liabilities., if practicable. The adoption of such standard is for
fiscal years beginning after September 15, 2006. The adoption is not expected to have a material
effect on the consolidated financial statements.
In September 2006, FASB issued SFAS no. 157, Fair Value Measurements,which establishes a
definition of fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. SFAS no. 157 does not require new fair value measurements but
clarifies the definition, method and disclosure requirements of previous issued standards that
address fair value measurements. The adoption of such standard is for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the accounting and disclosure
requirements and their effect on the consolidated financial statements.