LensCrafters 2006 Annual Report Download - page 125

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |125 <
•In July 2005, the Company announced that SPV Zeta S.r.l., a new wholly owned Italian
subsidiary, will acquire 100 percent of the equity interest in Beijing Xueliang Optical Technology
Co. Ltd. (“Xueliang Optical”) for a purchase price of Chinese Renminbi (“RMB”) 169 million
(approximately Euro 17 million), plus RMB 40 million (approximately Euro 4 million) in assumed
liabilities. Xueliang Optical has 79 stores in Beijing. The transaction was completed in April 2006
after the customary approvals by the relevant Chinese governmental authorities. The acquisition
was accounted for in accordance with SFAS 141 and, accordingly, the total consideration of
Euro 22.6 million has been allocated to the fair market value of the assets and liabilities of the
company as defined by the purchase agreement. All valuations of net assets including but not
limited to fixed assets and inventory have not been completed and are subject to change during
2007. The Company uses many different valuation techniques to determine the fair value of the
net assets acquired including but not limited to discounted cash flow and present value
projections. Intangible assets are recognized separate from goodwill if they arise from
contractual or other legal rights or if they do not meet the definition of separable as noted in
SFAS 141. Estimated preliminary goodwill in the amount of Euro 20.6 million in excess of the net
assets acquired has been recorded in the accompanying Consolidated Balance Sheets. The
acquisition was made as a result of the Company’s strategy to enter the retail business in The
People’s Republic of China. No pro forma financial information is presented, as the acquisition
was not material to the Company’s Consolidated Financial Statements.
•On July 1, 2006, the Company acquired certain assets and assumed certain liabilities from King
Optical Group Inc. consisting of its 74 Canadian optical store chain known as Shoppers Optical
(“SO”). The aggregate consideration paid by the Company to the former owners of SO was
approximately Canadian dollar (“CDN$”) 68.8 million (Euro 48.3 million converted using the June
30, 2006 Federal Reserve Bank of New York’s Noon Buying Rates (“NBR”) of 1 US$ = 1.115
CDN and 1 US$ = 1.2779 Euro) in cash. In connection with the acquisition, the Company
assumed no indebtedness. The purchase price of CDN$ 69.3 million (Euro 48.7 million
converted at the NBR) including approximately CDN$ 573 thousand (Euro 402.1 thousand
converted at the NBR) of direct acquisition-related expenses was allocated to the assets
acquired and liabilities assumed based on their fair value at the date of the acquisition. The
Company used various methods to calculate the fair value of the assets and liabilities and not all
valuations have been completed. The excess of purchase price over net assets acquired
(“goodwill”) has been recorded in the accompanying consolidated balance sheet.
Approximately CDN$ 44.5 million (Euro 31.3 million converted at the NBR) of goodwill will be
deductible for tax purposes. The acquisition of SO was made as a result of the Company’s
strategy to continue expansion of its retail business in Canada. The Company believes that the
preliminary allocation of the purchase price is reasonable, but it is subject to revisions upon
completion of the final valuation of certain assets and liabilities, which is expected to occur
during the first half of 2007. As such, the preliminary allocation set forth above may change
during 2007 to reflect final amounts. No pro forma financial information is presented, as the
acquisition was not material to the Company’s Consolidated Financial Statements.
•In October 2005, the Company announced that its new wholly owned Italian subsidiary,SPV Eta
S.r.l., will acquire 100% of the equity interests in Ming Long Optical, the largest premium optical
chain in the province of Guangdong, China, for a purchase price of RMB 290 million (approximately
Euro 29 million). In July 2006 the Company completed the transaction after receiving the customary
approvals by the relevant Chinese governmental authorities. Ming Long Optical operates a total of
278 locations in two of the top premium optical markets in mainland China, as well as in Hong
Kong. The acquisition was accounted for in accordance with SFAS 141 and, accordingly, the total
consideration of Euro 30.3 million has been allocated to the fair market value of the assets and
liabilities of the company as defined by the purchase agreement. All valuations of net assets