LensCrafters 2006 Annual Report Download - page 135

The credit 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
instalments 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. US Holdings was in compliance with those covenants as of December 31,
2006. In December 2005, US Holdings terminated the fair value interest rate swap agreement
described below,and as such, US Holdings 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.Under this credit facility
Euro 246.3 million and Euro 165.0 million were outstanding as of December 31, 2005 and 2006,
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. 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, as amended on March 10, 2006, 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 1,130 million and US$ 325 million. The five-year facility consists of three Tranches
(Tranche A, Tranche B, Tranche C). The March 2006 amendment increased the available
borrowings, decreased the interest margin and defined a new maturity date of five years from
the date of the amendment for Tranche B and Tranche C. Tranche A is a Euro 405 million
amortizing term loan requiring repayment of nine equal quarterly instalments 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
March 2011. Tranche C is a Revolving Credit Facility of Euro 725 million-equivalent multi-
currency (Euro/US$). Amounts borrowed under Tranche C may be repaid and reborrowed with
all outstanding balances maturing in March 2011. The Company can select interest periods of
one, two, three or six months with interest accruing on Euro-denominated loans based on the
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |135 <