LensCrafters 2006 Annual Report Download - page 60

>60 | ANNUAL REPORT 2006
LIQUIDITY AND FINANCIAL RESOURCES
The Company has relied primarily upon internally generated funds, trade credit and bank
borrowings to finance its operations and expansion.
Bank overdrafts represent negative cash balances held in banks and amounts borrowed under
various unsecured short-term lines of credit obtained by the Company and certain of its
subsidiaries through local financial institutions. These facilities are usually short-term in nature or
contain evergreen clauses with a cancellation notice period. Certain of these subsidiaries’
agreements require a guarantee from 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.
Group total indebtedness as of December 31, 2006 was Euro 1,487.6 million. Available additional
borrowing amounts under credit facilities as of such date were Euro 1,137.1 million.
On September 3, 2003, Luxottica U.S. Holdings Corp. (“US 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 Company’s wholly owned subsidiary. The Notes can be prepaid at
US 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. As of December 31, 2006, the Company was in compliance with all of its
applicable covenants including calculations of financial covenants when applicable.
In connection with the issuance of the Notes, US Holdings entered into three interest rate swap
agreements with Deutsche Bank AG (collectively, the “DB Swap”). The three separate agreements’
notional amounts and interest payment dates coincide with those of the Notes. The DB Swap
exchanged the fixed rate of the Notes for a floating rate of the six-month Libor rate plus 0.66% for
the Series A Notes and the six-month Libor rate plus 0.73% for the Series B and Series C Notes.
US Holdings terminated all three agreements comprising the DB Swap in December 2005.
In September 2003, the Company entered into a new credit facility with Banca Intesa S.p.A.of
Euro 200 million. The credit facility includes a Euro 150 million term loan, which will require
repayment of equal semi-annual installments of principal 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% (4.27% 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.As of 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% (4.1% 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. As of December 31, 2006, the Company was in
compliance with all of its applicable covenants including calculations of financial covenants when
applicable. Under this credit facility, Euro 145 million was outstanding as of December 31, 2006.
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 expire on
September 30, 2008. The Intesa OPSM Swaps were entered into as a cash flow hedge on a