LensCrafters 2005 Annual Report Download - page 68

MANAGEMENT’S
DISCUSSION AND ANALYSIS | 67 <
Luxottica Group S.p.A. Interest rates on these lines vary based on the country of borrowing, among
other factors. The Company uses these short-term lines of credit to satisfy its short-term cash needs.
In June 2002, 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 was guaranteed by Luxottica Group S.p.A. and matured in June 2005. The term loan portion of
the credit facility provided US$ 200 million of borrowing and required equal quarterly principal
installments beginning in March 2003. The revolving loan portion of the credit facility allowed for
maximum borrowings of US$ 150 million. Interest accrued under the credit facility at LIBOR (as defined
in the agreement) plus 0.5%. The credit facility allowed U.S. Holdings to select interest periods of one,
two or three months. The credit facility contained certain financial and operating covenants. In June
2005, the Company repaid in full all of the outstanding amounts under this credit facility.
In July 2002, U.S. Holdings entered into a Convertible Swap Step-Up (the “2002 Swap”), under which
the beginning and maximum notional amount was US$ 275 million, which decreased by US$ 20 million
quarterly starting with the quarter beginning March 17, 2003. The 2002 Swap was entered into to
convert the floating rate credit agreement referred to in the preceding 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-month LIBOR rate as defined in the
agreement. These amounts were settled net every three months until the final expiration of the 2002
Swap on June 17, 2005. The 2002 Swap did not qualify for hedge accounting under Statement of
Financial Accounting Standards No. 133, and as such was marked to market with the gains or losses
from the change in value reflected in current operations. In June 2005, the 2002 Swap expired.
In December 2002, the Company entered into an unsecured credit facility with Banca Intesa S.p.A. The
new unsecured credit facility provided borrowing availability of up to Euro 650 million. The facility
included a Euro 500 million term loan, which required a balloon payment of Euro 200 million in June
2004 and repayment of equal quarterly installments of principal of Euro 50 million subsequent to that
date. Interest accrued on the term loan at Euribor (as defined in the agreement) plus 0.45%. The
revolving loan provided borrowing availability of up to Euro 150 million; amounts borrowed under the
revolving loan could be borrowed and repaid until final maturity. The final maturity of all outstanding
principal amounts and interest was December 27, 2005. The Company had the option to choose
interest periods of one, two or three months. The credit facility contained certain financial and operating
covenants. In December 2005, the Company repaid in full all of the outstanding amounts under this
credit facility.
In December 2002, the Company entered into two interest rate swap transactions (“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. These
Intesa Swaps expired 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. The
Intesa Swaps exchanged the floating rate of Euribor for a fixed rate of 2.99% per annum. The Intesa
Swaps expired in December 2005.
On September 3, 2003, U.S. Holdings closed a private placement of US$ 300 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 each of the 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., the