LensCrafters 2005 Annual Report Download - page 145

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> 144 | ANNUAL REPORT 2005
contract has expired and the Company is currently negotiating a new contract. Management believes
that the loss of this vendor would not have a significant impact on the future operations of the
Company as it could replace this vendor quickly with other products manufactured by the Company
and other third-party suppliers.
As a result of the OPSM and Cole acquisitions, Essilor S.A. has become one of the largest suppliers to
the Company’s retail division. For the 2004 and 2005 fiscal years, Essilor S.A. accounted for
approximately 9.9% and 10.0% of the Company’s total merchandise purchases, respectively. The
Company has not signed any specific purchase contract with Essilor. Management believes that the
loss of this vendor would not have a significant impact on the future operations of the Company as it
could replace this vendor quickly with other third-party suppliers.
14. COMMITMENTS AND CONTINGENCIES
Royalty agreements
The Company is obligated under non-cancellable distribution agreements with designers, which expire
at various dates through 2015. In accordance with the provisions of such agreements, the Company is
required to pay royalties and advertising fees based on a percentage of sales (as defined) with, in
certain agreements, minimum guaranteed payments in each year of the agreements. In the first half of
2003, the Company terminated its license agreement for the production and distribution of the Giorgio
Armani and Emporio Armani eyewear collections and signed a ten-year worldwide license agreement
for the production and distribution of eyewear of Versace, Versus and Versace Sport frames. The
agreement is renewable at the Company’s discretion for an additional ten years. In the second half of
2003, a license agreement was signed for the production and distribution of products with the Prada
and Miu Miu trade names. The Prada license agreement expires in 2013. In June 2004, the Company
signed a new licensing agreement for the design, production and worldwide distribution of Donna
Karan and DKNY prescription frames and sunglasses. The initial term of the agreement is five years,
which began on January 1, 2005 and is renewable for an additional five years. In October 2004, the
Company signed a new licensing agreement for the design, production and worldwide distribution of
Dolce & Gabbana and D&G Dolce & Gabbana prescription frames and sunglasses. The initial term of
the agreement is five years, which began on January 1, 2006, with an automatically renewable
extension for an additional five years upon meeting certain targets. In October 2005, the Company
announced the signing of a 10-year license agreement for the design, production and worldwide
distribution of prescription frames and sunglasses under the Burberry name. The agreement began on
January 1, 2006.
Minimum payments required in each of the years subsequent to December 31, 2005 are detailed as
follows:
Year ending December 31 - In thousands of Euro
2006 47,682
2007 45,289
2008 43,514
2009 45,319
2010 36,627
Thereafter 153,337
Total 371,768