LensCrafters 2008 Annual Report Download - page 98

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> 96 |ANNUAL REPORT 2008
from one to ten years. Many are limited to periods less than the full term of the lease involved. Under the
terms of the guarantees, Cole has the right to assume the primary obligation and begin operating the
store. In addition, as part of the franchise agreements, Cole may recover any amounts paid under the
guarantee from the defaulting franchisee. The Company has accrued a liability at December 31, 2005 for
the estimates of the fair value of the Company’s obligations from guarantees entered into or modified after
December 31, 2002, using an expected present value calculation. Such amount is immaterial to the
consolidated financial statements as of December 31, 2008 and 2007.
Short-Term credit facilities. As of December 31, 2008 and 2007, Luxottica Group had unused short-term
lines of credit of approximately Euro 230.5 million and Euro 291.4 million, respectively.
The Company and its wholly-owned Italian subsidiary Luxottica S.r.l. maintain unsecured lines of credit with
primary banks for an aggregate maximum credit of Euro 374.8 million (Euro 467.4 million at December 31,
2007). These lines of credit are renewable annually, can be cancelled at short notice and have no
commitment fees. At December 31, 2008 and 2007, these credit lines were utilized for Euro 252.4 million
and Euro 312.0 million, respectively.
US Holdings maintains four unsecured lines of credit with four separate banks for an aggregate maximum
credit of Euro 111.3 million (US$ 155.0 million). These lines of credit are renewable annually, can be
cancelled at short notice and have no commitment fees. At December 31, 2008, there were Euro 46.7
million (US$ 65.0 million) of borrowings outstanding and there were Euro 24.6 million in aggregate face
amount of standby letters of credit outstanding under these lines of credit (see below).
The blended average interest rate on these lines of credit is approximately LIBOR plus 0.25 percent.
Outstanding standby letters of credit. A U.S. subsidiary has obtained various standby and trade letters
of credit from banks that aggregated Euro 34.2 million and Euro 31.0 million as of December 31, 2008 and
2007, respectively. Most of these letters of credit are used for security in risk management contracts,
purchases from foreign vendors or as security on store leases. Most standby letters of credit contain
evergreen clauses under which the letter is automatically renewed unless the bank is notified not to
renew. Trade letters of credit are for purchases from foreign vendors and are generally outstanding for a
period that is less than six months. Substantially all the fees associated with maintaining the letters of
credit fall within the range of 50 to 100 basis points annually.
Litigation. The Company and its subsidiaries are involved in the following legal and regulatory
proceedings of which the timing and outcomes are inherently uncertain, and such outcomes could have a
material adverse effect on the Company’s business, financial position or operating results.
California Vision Health Care Service Plan lawsuit.
In March 2002, an individual commenced an action
in the California Superior Court for the County of San Francisco against the Company and certain of its
subsidiaries, including LensCrafters, Inc. and EYEXAM of California, Inc. The plaintiffs sought to certify
this case as a class action. The claims against LensCrafters and EYEXAM alleged various statutory
violations relating to the confidentiality of medical information and the operation of LensCrafters’ stores
in California, including violations of California laws governing relationships among opticians, optical
retailers, manufacturers of frames and lenses and optometrists, and other unlawful or unfair business
practices. The action sought unspecified damages, statutory damages of US$ 1,000 per class member,
return of profits, restitution of allegedly unjustly obtained sums, punitive damages and injunctive relief,
including an injunction that would prohibit defendants from providing eye examinations or other
optometric services at LensCrafters stores in California.
The parties reached a settlement that offers a range of benefits, including store vouchers and a cash
option, along with certain enhancements to LensCrafters’ business practices. The Court granted final
approval of the settlement, and final judgment was entered on August 7, 2008. The settlement became
final on October 6, 2008.