LensCrafters 2007 Annual Report Download - page 130

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 129 <
contribution plan. Termination indemnities in other countries are provided through payroll tax and
other social contributions in accordance with local statutory requirements (see Note 10).
Revenue recognition. Revenues include sales of merchandise (both wholesale and retail),
insurance and administrative fees associated with the Company’s managed vision care business,
eye exams and related professional services, and sales of merchandise to franchisees along with
other revenues from franchisees such as royalties based on sales and initial franchise fee
revenues. Excluded from revenues and recorded net in expenses when applicable are amounts
collected from customers and remitted to governmental authorities for taxes directly related to the
revenue-producing transaction.
Revenue is recognized when it is realized or realizable and earned. Revenue is considered to be
realized or realizable and earned when there is persuasive evidence of an arrangement, delivery has
occurred, the sales price is fixed or determinable and collectibility is reasonably assured.
Wholesale Division revenues are recognized from sales of products at the time of shipment, as title
and the risks and rewards of ownership of the goods are assumed by the customer at such time.
The products are not subject to formal customer acceptance provisions. In some countries, the
customer has the right to return products for a limited period of time after the sale. However, such
right of return does not impact the timing of revenue recognition as all conditions of SFAS No. 48,
Revenue Recognition When Right of Return Exists, are satisfied at the date of sale. Accordingly, the
Company has recorded an accrual for the estimated amounts to be returned. This estimate is based
on the Company’s right of return policies and practices along with historical data and sales trends.
There are no other post-shipment obligations. Revenues received for the shipping and handling of
goods are included in sales and the costs associated with shipments to customers are included in
operating expenses. Total shipping costs in fiscal years 2007, 2006 and 2005 associated with the
sale of goods in the Wholesale Division were Euro 8.3 million, Euro 7.3 million and Euro 6.0 million,
respectively.
Retail Division revenues, including internet and catalogue sales, are recognized upon receipt by the
customer at the retail location, or when goods are shipped directly to the customer for internet and
catalog sales. In some countries, the Company allows retail customers to return goods for a period
of time and, as such, the Company has recorded an accrual for the estimated amounts to be
returned. This accrual is based on the historical return rate as a percentage of net sales and the
timing of the returns from the original transaction date. There are no other post-shipment
obligations. As such, the right of return does not impact the timing of revenue recognition as all
conditions of Statement of Financial Accounting Standards (“SFAS”) No. 48, Revenue Recognition
When Right of Return Exists, are satisfied at the date of sale. Additionally, the Retail Division enters
into discount programs and similar relationships with third parties that have terms of twelve or more
months. Revenues under these arrangements are likewise recognized as transactions occur in the
Company’s retail locations and customers take receipt of products and services. Advance
payments and deposits from customers are not recorded as revenues until the product is delivered.
At December 31, 2007 and 2006 customer advances included in the consolidated balance sheet in
“Accrued Expenses and Other” were Euro 22.9 million and Euro 21.8 million, respectively. Also
included in Retail Division revenues are managed vision care revenues consisting of (i) insurance
revenues, which are recognized when earned over the terms of the respective contractual
relationships, and (ii) administrative services revenues, which are recognized when services are
provided during the contract period. Accruals are established for amounts due under these
relationships determined to be uncollectible.
Oakley licenses to third parties the rights to certain intellectual property and other proprietary
information and recognizes royalty revenues when earned.
The Retail Division previously sold separately priced extended warranty contracts with terms of