LensCrafters 2006 Annual Report Download - page 119

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |119 <
2. RELATED PARTY TRANSACTIONS
Fixed assets -In 2002, a subsidiary of the Company entered into an agreement with the
Company’s Chairman to lease to him a portion of a building for Euro 0.5 million annually. The
expiration date of this lease is 2010.
As of December 31, 2006 the receivable from the Company’s Chairman amounts to Euro 0.2
million (Euro 0.1 million as of December 31, 2005).
License agreement -The Company has a worldwide exclusive license agreement to manufacture
and distribute ophthalmic products under the name of Brooks Brothers. The Brooks Brothers trade
name is owned by Retail Brand Alliance, Inc. (“RBA”), which is owned and controlled by a Director
of the Company. The license agreement expires in 2009. Royalties paid to RBA for such agreement
were Euro 0.9 million, Euro 0.5 million and Euro 1.3 million in the years ended December 31, 2004,
2005 and 2006, respectively.
In July 2004, the Company signed a worldwide exclusive license agreement to manufacture and
distribute ophthalmic products under the name of Adrienne Vittadini. The Adrienne Vittadini trade
name was owned by RBA until November 2006 when the license was sold by RBA to a non-related
party to the Company. The license agreement was originally scheduled to expire on December 31,
2007. For the years ended December 31, 2004, 2005 and 2006, royalties paid to RBA for such
agreement were Euro 0.9 million, Euro 0.9 million, and Euro 1.0, respectively. On November 17,
2006, Adrienne Vittadini was transferred out of RBA and as of such date transactions relating to
this license agreement are no longer considered related party transactions.
As of December 31, 2006 the balance of accounts receivable and payable related to RBA
(including service revenues described in next paragraph) amount to Euro 0.1 million and Euro 0.7
million, respectively (Euro 0.1 million and Euro 0.4 million, as of December 31, 2005).
Service revenues -During the years ended December 31, 2004, 2005 and 2006 subsidiaries of
Luxottica U.S. Holdings Corp. (“US Holdings”) performed certain services for RBA. Amounts
received for the services provided were Euro 0.7 million, Euro 0.6 million and Euro 0.7 million in
fiscal 2004, 2005 and 2006, respectively.
Stock incentive plan -In September 2004, the Company’s Chairman and majority shareholder, Mr.
Leonardo Del Vecchio, allocated shares held through La Leonardo Finanziaria S.r.l., an Italian
holding company of the Del Vecchio family,representing 2.11% (or 9.6 million shares) of the
Company’s currently authorized and issued share capital, to a stock option plan for top
management of the Company at an exercise price of Euro 13.67 per share (the closing stock price
at December 31, 2005 on the Milan Stock Exchange was Euro 21.43 per share). The stock options
to be issued under the stock option plan vest upon meeting certain economic objectives. Prior to
2006 compensation expense was recorded in accordance with variable accounting under APB 25
for the options issued to management under the incentive plan based on the market value of the
underlying ordinary shares only when the number of shares to be vested and issued is known.
During 2005, it became probable that the incentive targets would be met and, as such, the
Company recorded compensation expense of approximately Euro 19.9 million net of taxes and
recorded future unearned compensation expense in equity of approximately Euro 45.8 million net
of taxes, with an offsetting increase in additional paid-in capital for such amounts. The expense for
2005, if calculated under SFAS 123 would have been approximately Euro 16.9 million, net of taxes,
and is included in pro forma net income and earnings per share in Note 1.