ANNUAL REPORT 2004 - Luxottica Group

The swap will expire on June 17, 2005. The 2002
Swap was entered into to convert the floating rate
agreement to a fixed rate agreement. The 2002 Swap
allows U.S. Holdings to pay a fixed rate of interest if
LIBOR remains under certain defined thresholds and
to receive an interest payment of the three months
LIBOR rate. This amount is settled net every three
months. This derivative instrument does not qualify
for hedge accounting under Financial Accounting
Standards No. 133, and, as such, requires the
recording of any gains or losses, calculated
according to “market value” of the transaction,
directly in the consolidated income statements. In the
2003 and 2004 consolidated income statements,
gains of Euro 635 thousand and Euro 1,491 million
were reported, respectively.
In December 2002, Luxottica Group entered into a
new credit facility agreement with Banca Intesa
S.p.A. This unsecured credit facility was for a Euro
650 million line of credit. This credit facility consists
of a Euro 500 million term loan, Euro 200 million of
which was repaid in June 2004 and the remainder of
which to be paid in quarterly installments of Euro 50
million from September 2004 with interest accruing
at EURIBOR plus 0.45% (2.628% on December
2004). The Euro 150 million revolving portion of the
loan may be borrowed and repaid until the facility
agreement’s final maturity on December 27, 2005.
As of December 31, 2004, Euro 75 million of the
revolving portion was utilized. The interest accrues at
EURIBOR plus 0.45% (2.623% on December 31,
2004). This facility agreement may be renewed per
periods of one, two, or three months per the Group’s
discretion. The credit facility contains certain
financial and operating covenants. Luxottica Group
was in compliance with these covenants as of
December 31, 2004.
In December 2002, Luxottica Group entered into two
Interest Swap transactions (the “Intesa Swaps”)
beginning with an aggregate maximum notional
amount of Euro 250 million, which decrease by Euro
100 million on June 27, 2004, and by Euro 25 million
in each subsequent three-months period. The Intesa
Swaps will expire on December 27, 2005. The Intesa
Swaps were entered into a cash flow hedge on a
portion of the Banca Intesa Euro 650 million
unsecured facility discussed above. As such
MANAGEMENT’S DISCUSSION AND ANALYSIS
changes in the fair value of the Intesa Swaps are
included in OCI until they are realized in the financial
statements. The Intesa Swaps exchange the floating
rate based on the EURIBOR for a fixed rate of
2.985% per annum.
On September 3, 2003 the U.S. Holdings subsidiary
closed a private placement of US$ 300 million of
senior unsecured guaranteed notes ("Notes"), issued
in three tranches (Series A, Series B, Series C).
Interest on the Series A Note accrues at 3.94% per
annum, while interest on Series B and Series C Notes
accrues at 4.45%. The Series A and Series B Notes
mature on September 3, 2008 and Series C Notes
mature on September 3, 2010. In accordance with
the terms of the Notes, Series A and Series C Notes
require annual repayment beginning September 3,
2006. The Notes are guaranteed by Luxottica Group
and Luxottica S.r.l., one of its subsidiaries. Under
certain circumstances, U.S. Holdings may opt to
prepay the Notes. Proceeds from the Notes were
used for the repayment of outstanding debt and for
other working capital needs.
In connection with the issue of these Notes, U.S.
Holdings entered into three Interest Rate Swaps with
Deutsche Bank AG (“DB Swap”). The notional
amounts and interest payment dates of the DB
Swaps coincide with each of the three tranches
issued. The DB Swaps were entered into to
exchange the Notes’ fixed interest rate to a floating
rate of 0.66% over the six-month LIBOR for Series A
Notes, and 0.73% over the six-month LIBOR for
Series B and Series C Notes.
In September 2003, Luxottica Group acquired
82.57% of OPSM Group ordinary shares and over
90% of the options for A$ 442.7 million (Euro 253.7
million). The purchase price was financed through
new credit facility agreements with Banca Intesa
S.p.A. for Euro 200 million, in addition to existing
lines of credit. This new financing agreement
consists of a long term loan for Euro 150 million, to
be reimbursed in Euro 30 million installments every
six months from September 30, 2006 until its final
maturity date. Interest accrues at 0.55% over the
EURIBOR (as defined in the agreement), (2.729% on
December 31, 2004). The remaining portion of the
loan consists of a revolving loan for Euro 50 million,
which may be repaid and borrowed until the
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