LensCrafters 2006 Annual Report Download - page 149

In accordance with SFAS no. 87, Employers’ Accounting for Pensions, Luxottica Group has
recorded minimum pension liabilities for the underfunded U.S. defined benefit pension plans of
Euro 32.2 million and Euro 29.6 million as of December 31, 2005 and 2006, respectively,
representing the excess of unfunded accumulated benefit obligations over previously accrued
pension liabilities. An intangible asset equal to the amount of unrecognized prior service cost was
also recorded. The amount by which the unfunded accumulated benefit obligations exceeded the
intangible asset and accrued pension liability was charged directly to shareholders’ equity net of
income taxes. The principal cause of the increase in minimum liability in 2006 is due to the
accumulated benefit obligations increasing more than the pension assets increased as a result of
investment performance net of benefit payments and plan expenses. As of December 31, 2006,
the increase in the minimum liability plus the decrease in the intangible asset resulted in a
decrease of Euro 0.6 million in shareholders’ equity. The liability recognition provision of SFAS no.
158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans was
adopted for the year ended December 31, 2006. As a result, there was an additional after tax
charge to shareholders’ equity of Euro 8.4 million. This charge is because SFAS no. 158 requires
the use of the higher projected benefit obligation amount, as compared to the accumulated benefit
obligation, in determining the amount of pension liability that is required to be recognized on
Luxottica’s balance sheet.
Previously the Board of Directors authorized US Holdings to repurchase through the open market
up to 21,500,000 ADRs of Luxottica Group S.p.A., representing at that time approximately 4.7% of
the authorized and issue share capital. As of December 31, 2004, both repurchase programs
expired and US Holdings has purchased 6,434,786 (1,911,700 in 2002 and 4,523,786 in 2003)
ADRs at an aggregate purchase price of Euro 70.0 million (US$ 73.8 million translated at the
exchange rate at the time of the transactions). In connection with the repurchase, an amount of
Euro 70.0 million is classified as treasury shares in the Company’s consolidated financial
statements. The market value of the stock based on the ADR price as listed on the New York Stock
Exchange at December 31, 2006, is approximately Euro 149.7 million (US$ 197.6 million).
13. SEGMENTS AND RELATED INFORMATION
In accordance with SFAS no. 131, Disclosures About Segments of an Enterprise and Related
Information, the Company operates in two industry segments:(1) manufacturing and wholesale
distribution and (2) retail distribution. Through its manufacturing and wholesale distribution operations,
the Company is engaged in the design, manufacture, wholesale distribution and marketing of house
brand and designer lines of mid- to premium-priced prescription frames and sunglasses. The
Company operates in the retail segment through its Retail Division, consisting of LensCrafters,
Sunglass Hut International, OPSM, Cole National, Xueliang, Ming Long and Modern Sight.
The following tables summarize the segmental and geographic information deemed essential by
the Company’s management for the purpose of evaluating the Company’s performance and for
making decisions about future allocations of resources.
The “Inter-segment transactions and corporate adjustments” column includes the elimination of
inter-segment activities which consist primarily of sales of product from the manufacturing and
wholesale segment to the retail segment and corporate related expenses not allocated to
reportable segments. This has the effect of increasing reportable operating profit for the
manufacturing and wholesale and retail segments. Identifiable assets are those tangible and
intangible assets used in operations in each segment. Corporate identifiable assets are principally
cash, goodwill and trade names.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |149 <