LensCrafters 2015 Annual Report Download - page 29

Management Report as of December 31, 2015 Page 25 of 35
inherent limitations on the effectiveness of internal controls, including collusion, management override and failure of human
judgment. In addition, control procedures are designed to reduce, rather than eliminate, business risks. Notwithstanding the
systems and procedures we have implemented to comply with these requirements, we may uncover circumstances that we
determine to be material weaknesses, or that otherwise result in disclosable conditions. Any identified material weaknesses
in our internal control structure may involve significant effort and expense to remediate, and any disclosure of such material
weaknesses or other conditions requiring disclosure may result in a negative market reaction to our securities.
Financial Risks
t) If the U.S. dollar or the Australian dollar weaken relative to the Euro or the Chinese Yuan strengthens relative
to the Euro, our profitability as a consolidated group could suffer.
Our principal manufacturing facilities are located in Italy and China. We also maintain manufacturing facilities in Brazil,
India and the United States as well as sales and distribution facilities throughout the world. As a result, our results of
operations could be materially adversely affected by foreign exchange rate fluctuations in two principal areas:
1 we incur most of our manufacturing costs in Euro and in Chinese Yuan, and receive a significant part of our
revenues in other currencies such as the U.S. dollar and the Australian dollar. Therefore, a strengthening of the
Chinese Yuan could negatively impact our consolidated results of operations; and
1 a substantial portion of our assets, liabilities, revenues and costs are denominated in various currencies other
than Euro, with a substantial portion of our revenues and operating expenses being denominated in
U.S. dollars. As a result, our operating results, which are reported in Euro, are affected by currency exchange
rate fluctuations, particularly between the U.S. dollar and the Euro.
As our international operations grow, future changes in the exchange rate of the Euro against the U.S. dollar and other
currencies may negatively impact our reported results, although we have in place policies designed to manage such risk.
u) If economic conditions around the world worsen, we may experience an increase in our exposure to credit risk
on our accounts receivable which may result in a higher risk that we are unable to collect payments from our
customers and, potentially, increased costs due to reserves for doubtful accounts and a reduction in sales to
customers experiencing credit-related issues.
A substantial majority of our outstanding trade receivables are not covered by collateral or credit insurance. While we have
procedures to monitor and limit exposure to credit risk on our trade and non-trade receivables, there can be no assurance
such procedures will effectively limit our credit risk and avoid losses, which could have a material adverse effect on our
results of operations.
9. 2016 OUTLOOK
We operate in an industry with significant opportunity for growth. Over the past few years, by capitalizing on available
opportunities and maintaining its strong competitive position, we have laid the foundation for long-term sustainable growth.