LensCrafters 2006 Annual Report Download - page 61

MANAGEMENT’S
DISCUSSION AND ANALYSIS |61 <
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.
On June 3, 2004, the Company and US Holdings entered into a new credit facility with a group of
banks providing for loans in the aggregate principal amount of Euro 740 million and US$ 325 million.
The facility consists of three tranches (Tranche A, Tranche B and Tranche C). On March 10, 2006 this
agreement was amended to increase the available Tranche C borrowings to Euro 725 million,
decrease the interest margin and to define 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 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 March 2011. Tranche C is a revolving credit
facility of Euro 725 million-equivalent multi-currency (Euro/US$). Amounts borrowed under Tranche C
may be repaid and reborrowed with all outstanding balances maturing in March 2011. On December
31, 2006, US$ 190 million (Euro 144.0 million) had been drawn from Tranche C by US Holdings and
Euro 100 million by Luxottica Group S.p.A. 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. Dollars denominated loans based on the corresponding Libor rate, both plus a
margin between 0.20% and 0.40% based on the “Net debt/EBITDA”ratio, as defined in the
agreement. The interest rate on December 31, 2006 was 3.97% for Tranche A, 5.62% for Tranche B,
5.60% on Tranche C amounts borrowed in US Dollars and 3.96% on Tranche C amounts borrowed in
Euro. This 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 895.2
million was outstanding as of December 31, 2006.
In June 2005, the Company entered into nine interest rate swap transactions with an aggregate initial
notional amount of Euro 405 million with various banks which will decrease by Euro 45 million every six
months starting on June 3, 2007 (“Club Deal Swaps”). These swaps expire on June 3, 2009. The Club
Deal Swaps were entered into as a cash flow hedge on Tranche A of the credit facility discussed above.
The Club Deal Swaps exchange the floating rate of Euribor for an average fixed rate of 2.40% per annum.
In August 2004, OPSM re-negotiated its multicurrency (AU$/HK$) loan facility with Westpac Banking
Corporation. The credit facility had a maximum available line of AU$ 100 million, which was reduced to
AU$ 50 million in September 2005. The above facility expired on August 31, 2006. After negotiations,
the credit facility was renewed for AU$ 30 million and expires on August 31, 2007. The interest rate
margin has been reduced to 0.275%. For borrowings denominated in Australian Dollars, the interest
accrues on the basis of BBR (Bank Bill Rate), and for borrowings denominated in Hong Kong Dollars
the rate is based on Hibor (HK Interbank Rate) plus an overall 0.275% margin. At December 31, 2006,
the interest rate was 4.39% on the borrowings denominated in Hong Kong Dollars and is payable
monthly in arrears. The facility was utilized for an amount of HK$ 125.0 million (AU$ 20.2 million) and
there was no drawdown in Australian Dollars. 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.
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.