This excerpt taken from the LUX 20-F filed Jun 29, 2005.
The U.S. $350 Million Credit Facility and the Convertible Swap Step-Up
To refinance previously issued Eurobonds, in June 2002, U.S. Holdings, a U.S. subsidiary, entered into a U.S. $350 million credit facility with a group of four Italian banks led by UniCredito Italiano S.p.A. The new credit facility is guaranteed by Luxottica Group S.p.A. and matures in June 2005. The term loan portion of the credit facility provides U.S. $200 million of borrowing and requires equal quarterly principal installments beginning in March 2003. The revolving loan portion of the credit facility allows for maximum borrowings of U.S. $150 million; the revolving loan was partially drawn as of December 31, 2004, with outstanding borrowings of U.S. $130.0 million. Interest accrues under the credit facility at LIBOR (as defined in the agreement) plus 0.5 percent (2.920 percent on the term loan portion and 2.917 percent on the revolver portion on December 31, 2004) and the credit facility allows U.S. Holdings to select interest periods of one, two or three months. Under this credit facility, U.S. $170 million was outstanding as of December 31, 2004. The credit facility contains certain financial and operating covenants. We were in compliance with those covenants as of December 31, 2004.
In July 2002, U.S. Holdings entered into a Convertible Swap Step-Up (2002 Swap). The beginning and maximum notional amount of 2002 Swap is U.S. $275 million, which will decrease by U.S. $20 million quarterly, beginning with the quarter commencing on March 17, 2003. The 2002 Swap was entered into to convert the floating rate credit agreement referred to in the preceding paragraph to a mixed position rate agreement by allowing U.S. Holdings to pay a fixed rate of interest if LIBOR remains under certain defined thresholds and for U.S. Holdings to receive an interest payment at the three-month LIBOR rate as defined in the agreement. These amounts are settled net every three months until the final expiration of the 2002 Swap on June 17, 2005. The 2002 Swap does not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and, as such, is marked to market with the gains or losses from the change in value reflected in current operations. Gains of Euro 635,000 and Euro 1,491,000 are included in current operations in 2003 and 2004, respectively.