LensCrafters 2007 Annual Report Download - page 149

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> 148 | ANNUAL REPORT 2007
(c) 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. On February 2007, the Company exercised an option
included in the amendment to the term and revolving facility to extend the maturity date of
Tranches B and C to March 2012. 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 2012. Tranche C is a Revolving
Credit Facility of Euro 725 million-equivalent multi-currency (Euro/US Dollar). Amounts borrowed
under Tranche C may be repaid and reborrowed with all outstanding balances maturing in March
2012. 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 US Dollar
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, 2007 was 4.976% for Tranche A, 5.449% for Tranche B, 5.239% on Tranche C
amounts borrowed in US Dollars. The credit facility contains certain financial and operating
covenants. The Company was in compliance with those covenants as of December 31, 2006 and
2007. Under this credit facility, Euro 1,059.9 million and Euro 895.2 million was borrowed as of
December 31, 2007 and 2006, respectively.
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 three months starting on June 3, 2007 (the “Club Deal Swaps”). These swaps will 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 2.48% per annum. The ineffectiveness of cash flow hedges was tested at the
inception date and throughout the year. The results of the tests indicated that the cash flow hedges
are highly effective. As a consequence approximately Euro 2.9 million, net of taxes, is included in
other comprehensive income as of December 31, 2007. 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 2008 is approximately Euro 2.2 million,
net of taxes.
During the third quarter of 2007 the Group entered into 13 interest rate swap transactions with an
aggregate initial notional amount of US$ 325.0 million with various banks (“Tranche B Swaps”).
These swaps will expire on March 10, 2012. The Tranche B Swaps were entered into as a cash flow
hedge on Tranche B of the credit facility discussed above. The Tranche B Swaps exchange the
floating rate of Libor for an average fixed rate of 4.67% per annum. The ineffectiveness of cash flow
hedges was tested at the inception date and throughout the year. The results of the tests indicated
that the cash flow hedges are highly effective. As a consequence approximately US$ (4.5) million,
net of taxes, is included in other comprehensive income as of December 31, 2007. 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 2008 is approximately US$
(3.0) million, net of taxes.