LensCrafters 2004 Annual Report Download - page 127

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
126
Notes:
(a) In December 2002, the Company entered into a new unsecured credit facility with Banca Intesa S.p.A. The new unsecured credit facility provides borrowing
availability of up to Euro 650 million. This facility includes a term portion of Euro 500 million which required a balloon payment of Euro 200 million in June 2004
and equal quarterly installments of principal of Euro 50 million subsequent to that date. Interest accrues on the term portion based on EURIBOR as defined in the
agreement plus 0.45% (2.628% on December 31, 2004). The revolving portion provides borrowing availability of up to Euro 150 million. Amounts borrowed under
the revolving loan can be borrowed and repaid until final maturity. At December 31, 2004, Euro 75 million had been drawn under the revolving loan. Interest
accrues on the revolving loan at EURIBOR as defined in the agreement plus 0.45% (2.623% on December 31, 2004). The final maturity of all outstanding
principal amounts and interest is December 27, 2005. The Company has the option to choose interest periods of one, two or three months. The credit facility
contains certain financial and operating covenants. The Company was in compliance with these covenants as of December 31, 2004.
In December 2002, the Company entered into two interest rate swap transactions (the “Intesa Swaps”) beginning with an aggregate maximum notional amount
of Euro 250 million, which decreased by Euro 100 million on June 27, 2004 and by Euro 25 million in each subsequent three-month period. The Intesa Swaps will
expire on December 27, 2005. The Intesa Swaps were entered into as a cash flow hedge on a portion of the Banca Intesa Euro 650 million unsecured credit
facility discussed above. As such changes in the fair value of the Intesa Swaps are included in OCI until they are realized in the financial statements. The Intesa
Swaps exchange the floating rate based of EURIBOR for a fixed rate of 2.985% per annum.
As disclosed in Note 4(b), in September 2003, the Company acquired its ownership interest of OPSM and more than 90% of performance rights and options of
OPSM for an aggregate of A$ 442.7 million (Euro 253.7 million), including acquisition expenses. The purchase price was paid for with the proceeds of a new
credit facility with Banca Intesa S.p.A. of Euro 200 million, in addition to other short-term lines available. The new credit facility includes a Euro 150 million term
loan, which will require repayments of equal semi-annual installments of principal repayments of Euro 30 million starting September 30, 2006 until the final
maturity date. Interest accrues on the term loan at EURIBOR (as defined in the agreement) plus 0.55% (2.729% on December 31, 2004). The revolving loan
provides borrowing availability of up to Euro 50 million; amounts borrowed under the revolving portion can be borrowed and repaid until final maturity. At
December 31, 2004, Euro 25 million had been drawn from the revolving portion. Interest accrues on the revolving loan at EURIBOR (as defined in the agreement)
plus 0.55% (2.697% on December 31, 2004). The final maturity of the credit facility is September 30, 2008. The Company can select interest periods of one, two
or three months. The credit facility contains certain financial and operating covenants. The Company was in compliance with those covenants as of December
31, 2004.
In May 2003, the Company entered into an unsecured credit facility with Credito Emiliano (“Credem”) for a borrowing of Euro 25 million. This line of credit was
repaid in full when it expired on November 2004.
(b) In June 2002, a Luxottica U.S. Holdings Corp. (“U.S. Holdings”), a U.S. subsidiary entered into a US$ 350 million credit facility with a group of four Italian banks led by
UniCredito Italiano S.p.A. The credit facility is guaranteed by Luxottica Group and matures in June 2005. The term loan portion of the credit facility provided US$ 200
million of borrowing and requires equal quarterly principal installments beginning March 2003. The revolving loan portion of the credit facility allows for a maximum
borrowing of US$ 150 million. Interest accrues at LIBOR as defined in the agreement plus 0.5% (2.92% for the term loan portion and 2.917% for the revolving portion
on December 31, 2004) and the credit facility allows the Company to select interest periods of one, two or three months. The credit facility contains certain financial
and operating covenants. The Company is in compliance with those covenants as of December 31, 2004. Under this credit facility, Euro 125.6 million (US$ 170.0
million) was outstanding as of December 31, 2004.
The U.S. subsidiary entered into a Convertible Swap Step-Up (“Swap 2002”) with an initial notional amount of US$ 275 million which decreases by US$ 20 million
quarterly starting March 17, 2003. The Swap 2002 expiration date is June 17, 2005. The Swap 2002 was entered into to convert the UniCredito floating rate credit
agreement referred to the preceeding paragraph to a mixed position rate agreement by allowing U.S. Holdings to pay a fixed rate of interest if LIBOR remains
under certain defined thresholds and to receive an interest payment at the three months LIBOR rate (as defined in the agreement). These amounts are settled
net every three months until the final expiration of the Swap 2002 on June 17, 2005. The Swap 2002 does not qualify for hedge accounting under SFAS 133 and
as such is marked to market with the gains or losses from the change in value reflected in current operations. Losses of Euro 2.6 million and gains of Euro 0.6
million and Euro 1.5 million are included in current operations in the years ended December 31, 2002, 2003 and 2004, respectively.
(c) On September 3, 2003, U.S. Holdings closed a private placement of US$ 300 million (Euro 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% per annum and interest on Series B and Series C Notes
accrues at 4.45% 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 was in compliance with those covenants as of December 31, 2004.
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% for the Series A Notes and the six-month LIBOR rate plus 0.73% 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.
(d) On June 3, 2004, the Company and U.S. Holdings entered into a new credit facility with a group of banks providing for loans in the aggregate principal amount of
Euro 740 million and US$ 325 million. The five-year facility consists of three Tranches (Tranche A, Tranche B, Tranche C). Tranche A is a Euro 405 million
amortizing term loan requiring repayment of nine equal quarterly installments of principal of Euro 45 million beginning in June 2007, which is to be used for
general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of US$ 325 million which
was drawn upon on October 1, 2004 by U.S. Holdings to finance the purchase price of the acquisition of Cole. Amounts borrowed under Tranche B will mature in
June 2009. Tranche C is a Revolving Credit Facility of Euro 335 million-equivalent multi-currency (Euro/US$). Amounts borrowed under Tranche C may be repaid
and reborrowed with all outstanding balances maturing in June 2009. The Company can select interest periods of one, two, three or six months with interest
accruing on Euro-denominated loans based on the corresponding EURIBOR rate and U.S. Dollar denominated loans based on the corresponding LIBOR rate,
both plus a margin between 0.40% and 0.60% based on the “Net Debt/EBITDA” ratio, as defined in the agreement. The interest rate on December 31, 2004 was
2.628% for Tranche A, 2.456% for Tranche B, and 2.889% for Tranche C. The new credit facility contains certain financial and operating covenants. The Company
was in compliance with those covenants as of December 31, 2004. Under this credit facility, Euro 852 million was outstanding as of December 31, 2004.
(e) Other loans consist of numerous small credit agreements and a promissory note the most significant of which is OPSM’s renegotiated multicurrency loan facility
with Westpac Banking Corporation. This credit facility has a maximum available line of Euro 57.5 million (A$ 100 million). The base rate for the interest charged
varies depending on the currency borrowed; for borrowings denominated in Australian Dollars the interest accrues on the basis of BBR (Bank Bill Rate) and for
borrowings denominated in Hong Kong Dollars the rate is based on HIBOR (HK Interbank Rate) plus an overall 0.40% margin (at December 31 2004, the BBR
and HIBOR were 5.85% and 0.59%, respectively). At December 31, 2004, the facility was utilized for an amount of Euro 11.9 million (A$ 20.69 million). The final
maturity of all outstanding principal amounts and interest is August 31, 2006. OPSM has the option to choose weekly or monthly interest periods. The credit
facility contains certain financial and operating covenants. OPSM was in compliance with these covenants as of December 31, 2004.