LensCrafters 2009 Annual Report Download - page 102

> 100 | ANNUAL REPORT 2009
by franchisees. These guarantees aggregated approximately Euro 3.8 million at December 31, 2009. Per-
formance under a guarantee by the US subsidiary is triggered by default of a franchisee on its lease com-
mitment. Generally, these guarantees also extend to payments of taxes and other expenses payable under
the leases, the amounts of which are not readily quantifi able. The terms of these guarantees range from one
to seven years. Many are limited to periods less than the full term of the lease involved. Under the terms of
the guarantees, the US subsidiary has the right to assume the primary obligation and begin operating the
store. In addition, as part of the franchise agreements, US subsidiary 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 modifi ed
after December 31, 2002, using an expected present value calculation. Such amount is immaterial to the
consolidated fi nancial statements as of December 31, 2009 and 2008.
Short-Term Credit Facilities
As of December 31, 2009 and 2008, Luxottica Group had unused short-term lines of credit of approximately
Euro 542.8 million and Euro 230.5 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 391.8 million (Euro 374.8 million at December 31,
2008). These lines of credit are renewable annually, can be cancelled at short notice and have no commit-
ment fees. At December 31, 2009 and 2008, these credit lines were utilized for Euro 2.0 million and Euro
252.4 million, respectively.
US Holdings maintains three unsecured lines of credit with three separate banks for an aggregate maxi-
mum credit of Euro 108.1 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, 2009, there were Euro 89.5
million (US$ 128.2 million) of borrowings outstanding and there were Euro 18.7 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 0.90 percent.
Outstanding Standby Letters of Credit
A US subsidiary has obtained various standby and trade letters of credit from banks that aggregated Euro
29.9 million and Euro 34.2 million as of December 31, 2009 and 2008, 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 automati-
cally renewed unless the bank is notifi ed 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, fi nancial position or operating results.
Cole Consumer Class Action Lawsuit
In June 2006, Cole and its subsidiaries were sued by a consumer in a class action that alleged various statu-
tory violations related to the operations of Pearle Vision, Inc. and Pearle Vision Care, Inc. in California. The
plaintiff asserted various claims relating to the confi dentiality of medical information and the operation of