LensCrafters 2015 Annual Report Download - page 231

Notes to the separate financial statements as of December 31, 2015 Page 51 of 77
Minimum royalties and advertising contributions
Luxottica Group S.p.A. has entered into licensing agreements with various designers for the manufacture, design and
distribution of sunglasses and eyeglasses.
Under these licensing agreements, which typically have a term of between 4 and 10 years, Luxottica is required to pay a
royalty of between 6% and 14% of net sales. Certain agreements also provide for the payment of a guaranteed minimum
annual royalty and a mandatory marketing contribution (with the latter calculated at between 5% and 10% of net sales).
Typically, these agreements may be terminated by either party for a variety of reasons, including but not limited to,
non-payment of royalties, failure to achieve minimum sales targets, unauthorized modifications of the products and,
under certain conditions, the change in ownership of Luxottica Group S.p.A.
Contingent liabilities
The French subsidiaries Luxottica France SASU, Alain Mikli International SASU, Mikli Diffusion France SASU,
together with other major competitors in the French eyewear industry, have been the subject of an investigation by the
French Competition Authority ("FCA") concerning the existence of possible price fixing practices within this industry.
In May 2015, the Company received a Statement of Objections from the FCA. This document contains the FCA's
preliminary position on anti-competitive practices and it does not prejudice its final decision about the investigations
which are still ongoing.
During the month of August 2015, the Company filed its responses to the Statement of Objections. The Company will
vigorously defend itself against the allegations. At the start of 2016, the FCA requested further information, as typically
happens in this type of proceedings.
At the present stage of the proceedings it has not been possible to estimate the probability and amount of the potential
liability. As a result, no liability has been recorded in the present financial statements. This decision takes into account
the significant elements of uncertainty concerning some aspects of the FCA's position, with particular reference to the
period, the brands and sales channels in dispute, as well as mitigating or aggravating factors that could affect the FCA's
evaluations. If the FCA concludes that there has been a violation, it will impose a fine, which may be contested in court.
Such fine, assuming it is upheld by the court, could have a material effect on the Company's results of operations and
financial condition.
Given the complexity of the proceedings in progress, it is difficult to predict the timing of the actions taken by the FCA,
including the conclusion of the investigation and the quantification of any fines, which may occur in the course of 2016
or in subsequent years.
Other proceedings
The Company is a defendant in various other lawsuits arising in the ordinary course of business. It is the opinion of
management that it has meritorious defenses against all such outstanding claims, which the Company will vigorously