LensCrafters 2007 Annual Report Download - page 127

> 126 | ANNUAL REPORT 2007
which is accounted for under the equity method. Investments in other companies in which the
Company has less than a 20% interest with no ability to exercise significant influence are carried at
cost. All intercompany accounts and transactions are eliminated in consolidation. Luxottica Group
prepares its consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
In accordance with Financial Accounting Standard Board (“FASB”) Statement of Financial
Accounting Standard (“SFAS”) No. 141, Business Combinations, we account for all business
combinations under the purchase method. Furthermore, we recognize intangible assets apart from
goodwill if they arise from contractual or legal rights or if they are separable from goodwill.
Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Significant
judgment and estimates are required in the determination of the valuation allowances against
receivables, inventory and deferred tax assets, calculation of pension and other long-term
employee benefit accruals, legal and other accruals for contingent liabilities and the determination
of impairment considerations for long-lived assets, among other items. Actual results could differ
from those estimates.
Foreign currency translation and transactions. Luxottica Group accounts for its foreign currency
denominated transactions and foreign operations in accordance with SFAS No. 52, Foreign
Currency Translation. The financial statements of foreign subsidiaries are translated into Euro,
which is the functional currency of the parent company and the reporting currency of the
Company. Assets and liabilities of foreign subsidiaries, which use the local currency as their
functional currency, are translated at year-end exchange rates. Results of operations are translated
using the average exchange rates prevailing throughout the year. The resulting cumulative
translation adjustments are recorded as a separate component of “Accumulated other
comprehensive income (loss).”
Transactions in foreign currencies are recorded at the exchange rate in effect at the transaction
date. Gains or losses from foreign currency transactions, such as those resulting from the
settlement of foreign receivables or payables during the year, are recognized in the consolidated
statement of income in such year. Aggregate foreign exchange transaction gain/(loss) for the fiscal
years 2007, 2006 and 2005 were Euro 15.2 million, Euro (19.9) million and Euro 9.5 million,
respectively.
Cash and cash equivalents. Cash and cash equivalents includes cash on hand, demand
deposits, and highly liquid investments with an original maturity of three months or less, and
amounts in-transit from banks for customer credit card and debit card transactions. Substantially
all amounts in transit from the banks are converted to cash within four business days from the time
of sale. Credit card and debit card transactions in transit were approximately Euro 25.5 million and
Euro 23.4 million at December 31, 2007 and 2006, respectively.
Bank overdrafts. Bank overdrafts represent negative cash balances held in banks and amounts
borrowed under various unsecured short-term lines of credit (see “Credit Facilities” included in
Note 14 for further discussion of the short-term lines of credit) that the Company has obtained
through local financial institutions. These facilities are usually short-term in nature or may contain
provisions that allow them to renew automatically with a cancellation notice period. Certain
subsidiaries’ agreements require a guarantee from Luxottica Group. Interest rates on these lines of
credit vary and can be used to obtain various letters of credit when needed.