ANNUAL REPORT 2004 - Luxottica Group

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 have been recorded as a
separate component of accumulated other
comprehensive income (loss).
The Company has one subsidiary in a highly
inflationary country. However, the operations of such
subsidiary are currently not material to the Company’s
consolidated financial statements.
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 consolidated income in such year.
CASH AND CASH EQUIVALENTS
Luxottica Group considers investments purchased
with a remaining maturity of three months or less to be
cash equivalents.
BANK OVERDRAFTS
Bank overdrafts represent negative cash balances
held in banks and amounts borrowed under various
Buildings and building improvements
Machinery and equipment
Aircraft
Other equipment
Leasehold improvements
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unsecured short-term lines of credit (See “Credit
Facilities” included in Note 14 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 subsidiary
agreements require a guarantee from Luxottica Group
S.p.A. 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 76.9% and 65.0% of total frame
inventory for 2003 and 2004, respectively, are stated at
the lower of cost, as determined under the weightedaverage
method (which approximates the first-in, firstout
method, “FIFO”), or market value. Retail inventory
not manufactured by the Company or its subsidiaries
are stated at the lower of cost, as determined on a
retail last-in, first-out method (“LIFO”), FIFO or
weighted-average cost, or market value. The LIFO
reserve was not material as of December 31, 2003
and 2004.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical
cost. Depreciation is computed principally on the
straight-line method over the estimated useful lives of
the related assets as follows:
Estimated useful life
19 to 40 years
3 to 12 years
25 years
5 to 8 years
lesser of 10 years or the remaining life of the lease