LensCrafters 2009 Annual Report Download - page 62

> 60 | ANNUAL REPORT 2009
required in the determination of the valuation allowances against receivables, inventories and deferred
tax assets, calculation of pension and other long-term employee benefi t 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 denomi-
nated transactions and foreign operations in accordance with ASC No. 830, Foreign Currency Matters. The
fi nancial 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 result-
ing 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 fi scal
years 2009, 2008 and 2007 were Euro 8.6 million, Euro (0.3) million and Euro 15.2 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 27.5 million and Euro 16.7 million at December 31, 2009 and 2008,
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
fi nancial 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 58.2 percent and 66.1 percent of
total frame inventory for 2009 and 2008, 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.