LensCrafters 2008 Annual Report Download - page 96

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> 94 |ANNUAL REPORT 2008
15. COMMITMENTS AND CONTINGENCIES
Royalty Agreements. Luxottica Group has entered into license agreements to manufacture, design and
distribute prescription frames and sunglasses with selected fashion brands.
Under these license agreements, Luxottica Group is required to pay a royalty which generally ranges from
five percent to 14 percent of the net sales (as identified in the relevant agreements). Some of these
agreements provide also for annual guaranteed minimum payments. Such license agreements also
provide for a mandatory marketing contribution that generally amounts to between five and ten percent
of net sales (as identified in the relevant agreements). These license agreements typically have terms
ranging from three to ten years, but may be terminated early by either party for a variety of reasons, inter
alia, non-payment of royalties, failure to meet minimum sales thresholds, product alteration and, under
certain agreements, a change in control of Luxottica Group S.p.A.
On April 17, 2008 Luxottica Group announced the signing of a 6-year license agreement for the design,
manufacture and distribution of sun eyewear under the Stella McCartney brand; it is renewable for further
5 years. The agreement began on January 1, 2009.
On January 31, 2008 Luxottica Group announced the extension of the license agreement for the design,
manufacture and distribution of sun and prescription eyewear under the Chanel brand for another 3 years
and it is renewable for an additional period of 3 years.
Minimum payments required in each of the years subsequent to December 31, 2008 are detailed as follows
(thousands of Euro):
Year ending December 31,
2009 56,862
2010 34,148
2011 26,291
2012 23,697
2013 24,141
Thereafter 96,872
Total 262,011
Total royalties and related advertising expenses for the fiscal years 2008, 2007 and 2006 aggregated 139.5
million, Euro 181.6 million and Euro 184.1 million, respectively.
Total payments for royalties and related advertising expenses for the fiscal years 2008, 2007 and 2006
aggregated Euro 142.4 million, Euro 278.2 million and Euro 225.1 million, respectively.
Leases. The Company leases through its worldwide subsidiaries various retail store, plant, warehouse and
office facilities, as well as certain of its data processing and automotive equipment under operating lease
arrangements expiring between 2008 and 2025, with options to renew at varying terms. The lease
arrangements for the Company’s U.S. retail locations often include escalation clauses and provisions
requiring the payment of incremental rentals, in addition to any established minimums contingent upon
the achievement of specified levels of sales volume. In addition, with the acquisition of Cole, the
Company operates departments in various host stores paying occupancy costs solely as a percentage of
sales. Certain agreements which provide for operations of departments in a major retail chain in the
United States contain short-term cancellation clauses.
Total rental expense for each year ended December 31 is as follows (thousands of Euro):