LensCrafters 2008 Annual Report Download - page 65

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |63 <
2008 2007 2006
Initiation fees 754 456 170
Royalties 14,712 16,949 17,005
Sales of frames and other materials 27,102 32,999 35,940
Other revenue 455 750 781
Total 43,023 51,154 53,896
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
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 SFAS 48 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, 2008 and 2007
customer advances included in the consolidated balance sheet in “Accrued Expenses and Other” were
Euro 23.0 million and Euro 22.9 million, respectively. Retail Division revenues also include 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.
The Company licenses to third parties the rights to certain intellectual property and other proprietary
information and recognizes royalty revenues when earned.
Franchise revenues based on sales by franchisees (such as royalties) are accrued and recognized 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. Allowances are established for amounts due under these relationships when they are
determined to be uncollectible. Sales of ophthalmic products and other materials are recorded when the
goods are shipped direct to franchisees net of appropriate allowances.
Revenues associated with our third-party franchisees and licensors at December 31, 2008, 2007, and 2006,
consist of the following: