LensCrafters 2005 Annual Report Download - page 130

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 129 <
facility was guaranteed by Luxottica Group. The term loan portion of the credit facility provided US$ 200
million of borrowing and required repayment of equal quarterly principal installments beginning in
March 2003. The revolving loan portion of the credit facility allowed for a maximum borrowing of US$
150 million. Interest accrued at LIBOR as defined in the agreement plus 0.5% and the credit facility
allowed the Company to select interest periods of one, two or three months. The credit facility
contained certain financial and operating covenants.
(c) On September 3, 2003, US Holdings closed a private placement of US$ 300 million (Euro 253.3
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 dates 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 contain certain financial and operating covenants. The Company was in compliance with those
covenants as of December 31, 2005. In December 2005, the Company terminated the fair value interest
rate swap agreement described below, and as such, the Company will amortize the final adjustment to
the carrying amount of the hedged interest-bearing financial instruments as an adjustment to the fixed-
rate debt yield over the remaining life of the debt. The effective interest rates on the Series A, B, and C
Notes for their remaining lives are 5.64%, 5.99%, and 5.44%, respectively.
In connection with the issuance of the Notes, US Holdings entered into three interest rate swap
agreements with Deutsche Bank AG (the “DB Swaps”). The three separate agreements’ notional
amounts and interest payment dates coincided with the Notes. The DB Swaps exchanged the fixed rate
of the Notes for 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 were treated as fair
value hedges of the related debt and qualified 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
was 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. In December 2005, the Company terminated the DB Swaps due
to rising interest rates. The Company paid the bank an aggregate of Euro 7.0 million (US$ 8.4 million),
excluding accrued interest, for the final settlement of the DB Swaps.
(d) On June 3, 2004, the Company and US Holdings entered into a 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 US 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, 2005 was
2.94% for Tranche A, 4.56% for Tranche B, 4.83% on Tranche C amounts borrowed in U.S. Dollar and
2.87% on Tranche C amounts borrowed in Euro. The credit facility contains certain financial and
operating covenants. The Company was in compliance with those covenants as of December 31,
2005. The Mandated Lead Arrangers and Bookrunners are ABN AMRO, Banca Intesa S.p.A., Bank of