LensCrafters 2008 Annual Report Download - page 62

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> 60 |ANNUAL REPORT 2008
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), included in Other Expense - net, for the fiscal
years 2008, 2007 and 2006 were Euro (0.3) million, Euro 15.2 million and Euro (19.9) million, respectively.
Cash and cash equivalents. Cash and cash equivalents includes cash on hand, demand deposits, 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 16.7 million and Euro 25.5 million at December 31, 2008 and 2007, respectively.
Bank overdrafts. Bank overdrafts represent negative cash balances held in banks and amounts borrowed
under various unsecured short-term lines of credit (see “Short Term Credit Facilities” included in Note 15
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.
Inventories. Luxottica Group’s manufactured inventories, approximately 83.7 percent and 66.2 percent of
total frame inventory for 2008 and 2007, respectively, are stated at the lower of cost, as determined under
the weighted-average method, or market value. Retail inventories not manufactured by the Company or
its subsidiaries are stated at the lower of cost as determined by the weighted-average cost method, or
market value. Inventories are recorded net of allowances for estimated losses. This reserve is calculated
using various factors including sales volume, historical shrink results and current trends.
Property, plant and equipment. Property, plant and equipment are stated at historical cost. Depreciation
is computed on the straight-line method over the estimated useful lives of the related assets as follows:
Estimated useful life
Buildings and building improvements 19 to 40 years
Machinery and equipment 3 to 12 years
Aircraft 25 years
Other equipment 5 to 8 years
Leasehold improvements Lesser of 15 years or the remaining life of the lease