LensCrafters 2010 Annual Report Download - page 160

ANNUAL REPORT 2010> 158 |
(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 740 million and US$ 325 million. The
five–year facility consisted of three Tranches (Tranche A, Tranche B and Tranche C). The March 10, 2006 amendment
increased the available borrowings to Euro 1,130 million and US$ 325 million, 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. In 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. In February 2008, 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 2013. Tranche A, which
was to be used for general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as
it matures, was a Euro 405 million amortizing term loan requiring repayment of nine equal quarterly installments of
principal of Euro 45 million beginning in June 2007. Tranche A expired on June 3, 2009 and was repaid in full. 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 National Corporation (“Cole”). Amounts borrowed under Tranche B will mature in March
2013. 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 2013. 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 percent and 0.40 percent based on the “Net Debt/EBITDA” ratio, as defined in the
agreement. The interest rate on December 31, 2010 was 0.589 percent for Tranche B while Tranche C was not used. The
credit facility contains certain financial and operating covenants. The Company was in compliance with those covenants
as of December 31, 2010. Under this credit facility, Euro 243.2 million was borrowed as of December 31, 2010.
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 4.62 percent per annum. The
ineffectiveness of cash flow hedges was tested at the inception date and at least every three months. The results of
the tests indicated that the cash flow hedges are highly effective. As a consequence, approximately US$ (9.1) million,
net of taxes, is included in other comprehensive income as of December 31, 2010. 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 2011 is approximately US$ (7.8) million, net of taxes.
(d) On November 14, 2007, the Group completed the merger with Oakley for a total purchase price of approximately US$
2.1 billion. In order to finance the acquisition of Oakley, on October 12, 2007, the Company and US Holdings entered
into two credit facilities with a group of banks providing for certain term loans and a short–term bridge loan for an
aggregate principal amount of US$ 2.0 billion. The term loan facility is a term loan of US$ 1.5 billion, with a five–year
term, with options to extend the maturity on two occasions for one year each time. The term loan facility is divided
into two facilities, Facility D and Facility E. Facility D is a US$ 1.0 billion amortizing term loan requiring repayments of
US$ 50 million on a quarterly basis starting from October 2009, made available to US Holdings, and Facility E consists
of a bullet term loan in an aggregate amount of US$ 500 million, made available to the Company. Interest accrues on
the term loan at LIBOR plus 20 to 40 bps based on “Net Debt to EBITDA” ratio, as defined in the facility agreement
(0.589 percent for Facility D and 0.602 percent for Facility E on December 31, 2010). In September 2008, the Company
exercised an option included in the agreement to extend the maturity date of Facilities D and E to October 12, 2013.
These credit facilities contain certain financial and operating covenants. The Company was in compliance with those
covenants as of December 31, 2010. US$ 1.2 billion was borrowed under this credit facility as of December 31, 2010.
During the third quarter of 2007, the Group entered into ten interest rate swap transactions with an aggregate initial
notional amount of US$ 500 million with various banks (“Tranche E Swaps”). These swaps will expire on October 12,
2012. The Tranche E Swaps were entered into as a cash flow hedge on Facility E of the credit facility discussed above.
The Tranche E Swaps exchange the floating rate of LIBOR for an average fixed rate of 4.26 percent per annum. The
ineffectiveness of cash flow hedges was tested at the inception date and at least every three months. The results of