LensCrafters 2003 Annual Report Download - page 57

113112
9EMPLOYEE BENEFITS
Liability for Termination Indemnities - The liability for termination indemnities represents amounts accrued for
employees in Australia, Austria, Greece, Israel, Italy and Japan, determined in accordance with labor laws and labor
agreements in each respective country. Each year, the Company adjusts its accrual based upon headcount, changes
in compensation level and inflation. This liability is not funded. Therefore, the accrued liability represents the amount
that would be paid if all employees were to resign or be terminated as of the balance sheet date. This treatment is in
accordance with SFAS No. 112, Employers' Accounting for Post Employment Benefits, which requires employers to
expense the costs of benefit paid before retirement (i.e. severance) over the service lives of employees. The charge to
earnings during the years ended December 31, 2001, 2002, and 2003, aggregated 7.8 million, 5.7 million and
12.5 million, respectively.
Defined Benefit Plans - During 1998, U.S. Holdings merged all of its pension plans into a single plan sponsored
by a U.S. subsidiary. This plan covers substantially all employees of the U.S. subsidiaries and affiliates. This pension
plan was amended effective January 1, 2002, to allow the employees of Sunglass Hut International to participate in
the plan.
The Company’s funding policy is in accordance with minimum funding requirements of the U.S. Employee
Retirement Income Security Act of 1974 as amended. No contributions were made in 2001, and 2002. Net periodic
pension cost for the years ended December 31, 2001, 2002, and 2003, includes the following components
(thousands of Euro):
December 31,
2001 2002 2003
Service cost 9,777 11,670 11,805
Interest cost 12,902 13,501 12,025
Expeted return on plan assets (16,124) (16,279) (13,321)
Amortization of actuarial loss - - 294
Amortization of prior service cost 780 745 623
Net periodic pension cost 7,335 9,637 11,426
remains under certain defined thresholds and for the U.S. subsidiary to receive an interest payment of the three
months Libor rate as defined in the agreement. This amount is settled net every three months. This derivative
instrument does not qualify for hedge accounting under SFAS No. 133 and as such is marked to market with the
gain or losses from the change in value included in the consolidated income statements. A loss of 2.6 million
and a gain of 635 thousands are included in current operations in 2002, and 2003, respectively.
(c) On September 3, 2003, U.S. Holdings closed a private placement of US$ 300 million (238 million) of senior
unsecured guaranteed notes (the “Notes”), issued in three series (Series A, Series B and Series C). Interest on the
Series A Notes accrues at 3.94 percent per annum and interest on Series B and Series C Notes accrues at 4.45
percent per annum. The Series A and Series B Notes mature on September 3, 2008, and the Series C Notes
mature on September 3, 2010. The Series A and Series C Notes require annual prepayments beginning on
September 3, 2006, through the applicable Notes date of maturity. The Notes are guaranteed on a senior
unsecured basis by the Company and Luxottica S.r.l., a wholly-owned subsidiary. The Notes can be prepaid at
U.S. Holdings option under certain circumstances. The proceeds from the Notes were used for the repayment of
outstanding debt and for other working capital needs. The Notes contain certain financial and operating
covenants. The Company is in compliance with those covenants as of December 31, 2003.
In connection with the issuance of the Notes, U.S. Holdings entered into three interest rate swap agreements with
Deutsche Bank AG (the “DB Swap”). The three separate agreements, notional amounts, and interest payment
dates coincide with the Notes. The DB Swap exchanges the fixed rate of the Notes to a floating rate of the six
month Libor rate plus 0.6575 percent for the Series A Notes and to a floating rate of the six month Libor rate plus
0.73 percent for the Series B and Series C Notes. These swaps are treated as fair value hedges of the related
debt and qualify for the shortcut method of hedge accounting (assuming no ineffectiveness in a hedge in an
interest rate swap). Thus the interest income/expense on the swaps is recorded as an adjustment to the interest
expense on the debt effectively changing the debt from a fixed rate of interest to the swap rate.
Long-Term debt matures in the years subsequent to December 31, 2004, as follows (thousands of Euro):
Years ending December 31,
2005 404,525
2006 93,791
2007 123,339
2008 209,104
2009 10,510
Subsequent Years 21,223
TOTAL 862,492