LensCrafters 2006 Annual Report Download - page 134

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>134 | ANNUAL REPORT 2006
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 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. As such changes in the fair value of the Intesa Swaps were included in
OCI until they were recorded in the financial statements. The Intesa Swaps exchanged the floating
rate based on Euribor for a fixed rate of 2.985% per annum.
In September 2003, the Company acquired its ownership interest of OPSM and more than 90% of
the performance rights and options of OPSM for an aggregate of AU$ 442.7 million (Euro 253.7
million), including acquisition expenses. The purchase price was paid for with the proceeds of a
credit facility with Banca Intesa S.p.A. of Euro 200 million, in addition to other short-term lines
available. The credit facility includes a Euro 150 million term loan, which will require repayment of
equal semi-annual instalments of principal of Euro 30 million starting on September 30, 2006 until
the final maturity date. Interest accrues on the term loan at Euribor (as defined in the agreement)
plus 0.55% (4.272% on December 31, 2006). 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, 2006, 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%
(4.098% on December 31, 2006). 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, 2006. Under this credit facility Euro 175 million and Euro 145 million were
outstanding as of December 31, 2005 and 2006, respectively.
In June 2005, the Company entered into four interest rate swap transactions with various banks
with an aggregate initial notional amount of Euro 120 million which will decrease by Euro 30 million
every six months starting on March 30, 2007 (“Intesa OPSM Swaps”). These swaps will expire on
September 30, 2008. The Intesa OPSM Swaps were entered into as a cash flow hedge on a
portion of the Banca Intesa Euro 200 million unsecured credit facility discussed above. The Intesa
OPSM Swaps exchange the floating rate of Euribor for an average fixed rate of 2.38% per annum.
The ineffectiveness of cash flow hedges was tested both at the inception date and at each year
end. The results of the tests indicated that the cash flow hedges are highly effective and the
amounts of ineffectiveness, if any, on each date of testing were immaterial. As a consequence
approximately Euro 1.2 million, net of taxes, is included in Other Comprehensive Income as of
December 31, 2006. Based on current interest rates and market conditions, the estimated
aggregate amount to be recognized as earnings from other comprehensive income for these cash
flow hedges in fiscal 2007 is approximately Euro 0.95 million, net of taxes.
In December 2005, the Company entered into a new unsecured credit facility with Banco Popolare
di Verona e Novara. The 18-month credit facility consists of a revolving loan that provides
borrowing availability of up to Euro 100 million; amounts borrowed under the revolving portion can
be borrowed and repaid until final maturity. At December 31, 2006, Euro 100 million had been
drawn from the revolving portion. Interest accrues on the revolving loan at Euribor (as defined in
the agreement) plus 0.25% (3.89% on December 31, 2006). The final maturity of the credit facility is
June 1, 2007. The Company can select interest periods of one, three or six months. Under this
credit facility, Euro 100 million was outstanding as of December 31, 2006.
(b) In June 2002, US Holdings entered into a US$ 350 million credit facility with a group of four
Italian banks led by UniCredito Italiano S.p.A. which was paid in full upon its maturity in June 2005.