LensCrafters 2007 Annual Report Download - page 131

> 130 | ANNUAL REPORT 2007
coverage of 12 months. Revenues from the sale of these warranty contracts are deferred and
amortized over the lives of the contracts, while costs to service the warranty claims are expensed
as incurred.
A reconciliation of the changes in deferred revenue from the sale of warranty contracts and other
deferred items for the years ended December 31, 2007 and 2006, is as follows:
The Company earns and accrues franchise revenues based on sales by franchisees which are
accrued as earned. Initial franchise fees are recorded as revenue when all material services or
conditions relating to the sale of the franchise have been substantially performed or satisfied by the
Company and when the related store begins operations. These initial franchise fees were immaterial
for the fiscal years 2007, 2006 and 2005. Accruals are established for amounts due under these
relationships when they are determined to be uncollectible.
The Wholesale and Retail Divisions may offer certain promotions during the year. Free frames given
to customers as part of a promotional offer are recorded in cost of sales at the time they are
delivered to the customer. Discounts and coupons tendered by customers are recorded as a
reduction of revenue at the date of sale.
Managed Vision Care underwriting and expenses. The Company sells vision insurance plans
which generally have a duration of up to five years. Based on its experience, the Company
believes it can predict utilization and claims experience under these plans, including claims
incurred but not yet reported, with a high degree of confidence. Claims are recorded as they are
incurred and certain other membership costs are amortized over the covered period.
Advertising and direct response marketing. Costs to develop and create newspaper, radio and
other media advertising are expensed as incurred. Costs to develop and create television
advertising are expensed the first time the airtime is used. The costs to communicate the
advertising are expensed the first time the airtime or advertising space is used with the exception
of certain direct response advertising programs. Costs for certain direct response advertising
programs are capitalized if such direct response advertising costs are expected to result in future
economic benefit and the primary purpose of the advertising is to elicit sales to customers who
could be shown to have responded specifically to the advertising. Such costs related to the direct
response advertising are amortized over the period during which the revenues are recognized, not
to exceed 90 days. Generally, other direct response program costs that do not meet the
capitalization criteria are expensed the first time the advertising occurs. Advertising expenses
incurred during fiscal years 2007, 2006 and 2005 were Euro 348.2 million, Euro 318.1 million and
Euro 267.8 million, respectively, and no significant amounts have been reported as assets.
The Company receives a reimbursement from its acquired franchisees for certain marketing costs.
Operating expenses in the Consolidated Statements of Income are net of amounts reimbursed by
the franchisees calculated based on a percentage of their sales. The amounts received in fiscal
(Euro/000) 2007 2006
Beginning balance 15,798 41,099
Translation difference (586) (3,643)
Warranty contracts sold - 30,151
Other deferred revenues - 70
Amortization of deferred revenues (15,212) (51,879)
Total -15,798
Current - 15,798
Non-current --