LensCrafters 2010 Annual Report Download - page 174

ANNUAL REPORT 2010> 172 |
A wholly–owned U.S. subsidiary guaranteed future minimum lease payments for lease agreements on certain stores.
The lease agreements were signed directly by the franchisees as part of certain franchising agreements. Total minimum
guaranteed payments under this guarantee were Euro 1.5 million (US$ 2.0 million) at December 31, 2010 (Euro 3.8 million
at December 31, 2009). The commitments provided for by the guarantee arise if the franchisee cannot honor its financial
commitments under the lease agreements. A liability has been accrued using an expected present value calculation. Such
amount is immaterial to the consolidated financial statements as of December 31, 2010 and 2009.
Credit lines
As of December 31, 2010 and 2009, the Company had unused short–term lines of credit of approximately Euro 559.8
million and Euro 542.8 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 327.8 million. These lines of credit are renewable annually, can be
cancelled at short notice and have no commitment fees. At December 31, 2010, these credit lines were utilized for Euro
0.6 million.
US Holdings maintains unsecured lines of credit with three separate banks for an aggregate maximum credit of Euro 97.4
million (US$ 130.2 million). These lines of credit are renewable annually, can be cancelled at short notice and have no
commitment fees. At December 31, 2010, they were not used and there were Euro 34.0 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 0.40 percent.
Outstanding standby letters of credit
A US subsidiary has obtained various standby letters of credit from banks for an aggregate amount of Euro 34.0 million
and Euro 29.9 million, as of December 31, 2010 and 2009, 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 40 to 60 bps
annually.
Litigation
The Company and its subsidiaries are involved in the following legal and regulatory proceedings of which, unless already
settled or otherwise concluded, the timing and outcomes are inherently uncertain, and such outcomes could have a
material adverse effect on the Group’s business, financial 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 statutory violations
related to the operations of Pearle Vision, Inc. and Pearle Vision Care, Inc. in California. The plaintiff asserted various claims
relating to the confidentiality of medical information and the operation of Pearle Vision 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 parties entered into a settlement agreement, which
provided for a store voucher at Pearle Vision or LensCrafters for each class member and the payment of attorneys’ fees
and costs. On December 19, 2008, the court granted final approval of the settlement and entered final judgment. The
settlement became final on March 17, 2009. The effect of this settlement on the Group’s future operations and cash flow
is not material.