LensCrafters 2006 Annual Report Download - page 156

Download and view the complete annual report

Please find page 156 of the 2006 LensCrafters annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 166

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166

>156 | ANNUAL REPORT 2006
wrongdoing, to a full and final settlement and release (the “Settlement”) of all claims against the
Company, its acquisition subsidiary and Mr. Del Vecchio. The Settlement, which called for a
payment of Euro 11.6 million (or US$ 14.5 million), was included in 2005 operations on our
consolidated financial statements and has been approved by the Court and fully implemented by
the parties, with final judgment entered dismissing the case with prejudice. Costs associated with
the SGHI litigation incurred for the years ended December 31, 2004 and 2005 were approximately
Euro 3.2 million and Euro 5.8 million, respectively.
California vision health care service plan lawsuit
In March 2002, in Snow v. LensCrafters, Inc. et al. (Case. no. CGC-02-405544), an individual
commenced an action in the California Superior Court for the County of San Francisco against
Luxottica Group S.p.A. and certain of its subsidiaries, including LensCrafters, Inc. and EYEXAM of
California, Inc. The plaintiff, along with a second plaintiff named in an amended complaint, seeks
to certify this case as a class action. The claims have been partially dismissed. The remaining
claims, against LensCrafters and EYEXAM, allege various statutory violations relating to the
confidentiality of medical information and the operation of LensCrafters’ stores in California,
including violations of California laws governing relationships among opticians, optical retailers,
manufacturers of frames and lenses and optometrists, and other unlawful or unfair business
practices. The action seeks unspecified damages, statutory damages of US$ 1,000 per class
member,disgorgement, restitution of allegedly unjustly obtained sums, punitive damages and
injunctive relief,including an injunction that would prohibit defendants from providing eye
examinations or other optometric services at LensCrafters stores in California.
The ultimate outcomes of two other disputes pending in other California courts are expected to have an
impact on the outcome of the Snow case. First, on June 12, 2006, the California Supreme Court
decided People v. Cole, a case involving Cole and its subsidiaries (discussed below). The Supreme
Court held that optical stores must comply with various business practice restrictions on their
relationships with optometrists, including optometrists employed by Knox-Keene plans, such as
EYEXAM and Pearle VisionCare. The matter has been sent back to the trial court for further proceedings
to determine if, in fact, Pearle Vision’s operations in California comply with those restrictions.
Second, on December 6, 2006, the United States District Court for the Eastern District of California
decided NAOO v.Lockyer.In that case, LensCrafters had challenged the California regulatory
scheme governing relationships between optical retailers and optometrists under which
LensCrafters and EYEXAM had been sued. The district court found that statutory scheme to be
unconstitutional under the “commerce clause” of the United States Constitution. The Attorney
General of the State of California has since appealed that decision, which, if ultimately upheld,
should increase the likelihood of favorable outcomes for the Company in both the Snow case and
People v. Cole litigation.
Although we believe that our operational practices and advertising in California comply with
California law, an adverse decision in Snow or in the suit against Cole might cause LensCrafters
and EYEXAM to modify or cease their activities in California. In addition, LensCrafters and EYEXAM
might be required to pay damages and/or restitution, the amount of which might have a material
adverse effect on the Company’s consolidated financial statements. Costs associated with the
Snow litigation incurred for the years ended December 31, 2004, 2005 and 2006, were
approximately Euro 0.7 million, Euro 0.3 million, and Euro 0.7 million, respectively.
There were no related amounts recorded as liabilities reflected in the consolidated balance sheets
as of December 31,2005 and 2006, as the liability was not reasonably estimable and probable.