Estee Lauder 2010 Annual Report Download - page 103

102 THE EST{E LAUDER COMPANIES INC.
borrowing. There were no debt issuance costs incurred
related to this agreement. The outstanding balance at
June 30, 2010 ($4.6 million at the exchange rate at June
30, 2010) is classified as short-term debt in our consoli-
dated balance sheet.
We have a 1.5 billion Japanese yen ($16.9 million at
the exchange rate at June 30, 2010) revolving credit
facility that expires on March 31, 2011 and a 1.5 billion
Japanese yen ($16.9 million at the exchange rate at June
30, 2010) revolving credit facility that expires on March
31, 2012. The interest rates on borrowings under these
credit facilities are based on TIBOR (Tokyo Interbank
Offered Rate) plus .45% and .75%, respectively and the
facility fees incurred on undrawn balances are 15 basis
points and 25 basis points, respectively. At June 30, 2010,
no borrowings were outstanding under these facilities.
Total debt as a percent of total capitalization (exclud-
ing noncontrolling interest) decreased to 39% at June 30,
2010 from 46% at June 30, 2009, primarily as a result of
the debt extinguishment, as previously discussed, coupled
with an increase in stockholders’ equity, driven by higher
net earnings during fiscal 2010.
Cash Flows
Net cash provided by operating activities was $956.7 mil-
lion, $696.0 million and $690.1 million in fiscal 2010,
2009 and 2008, respectively. The increase in operating
cash flows in fiscal 2010 as compared with fiscal 2009
primarily reflected higher net earnings, an increase in
accounts payable due to the timing of payments and, to a
lesser extent, a decrease in accounts receivable. This
increase also reflected higher accrued employee compen-
sation and advertising, merchandising and sampling,
partially offset by higher cash paid in fiscal 2010 for
restructuring and severance. These changes were partially
offset by the building of safety stock for the April 2010
implementation of SAP at our North American manu-
facturing plants and the prior-year period impact of
significant inventory reductions. Also partially offsetting
the improvements were higher discretionary pension con-
tributions as described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources — Pension and Post-
retirement Plan Funding.” Approximately $60 million of
the change in deferred income taxes was offset by a
correlative change in noncurrent accrued income taxes,
reflecting the balance sheet presentation of unrecognized
tax benefits. The increase in operating cash flows in fiscal
2009 as compared with fiscal 2008 primarily reflected a
decrease in inventory, due in part to then-planned reduc-
tions in SKUs, as well as lower accounts receivable as a
result of lower sales and an improvement in days sales
of the last day of each fiscal quarter. The interest expense
coverage ratio is defined in the credit agreement as the
ratio of Consolidated EBITDA (which does not represent
a measure of our operating results as defined under U.S.
generally accepted accounting principles) to Consolidated
Interest Expense and is calculated as stipulated in the
agreement as follows:
Twelve Months Ended June 30, 2010(1)
($ in millions)
Consolidated EBITDA:
Net earnings attributable to
The Estee Lauder Companies Inc. $ 478.3
Add:
Provision for income taxes 205.9
Interest expense, net(2) 101.6
Depreciation and amortization(3) 260.9
Extraordinary non-cash charges(4)(5) 69.8
Less:
Extraordinary non-cash gains(5) —
$1,116.5
Consolidated Interest Expense:
Interest expense, net $ 101.6
Interest expense coverage ratio 11 to 1
(1) In accordance with the credit agreement, this period represents the
four most recent quarters.
(2) Includes interest expense, net and interest expense on debt
extinguishment.
(3) Excludes amortization of debt discount, and derivative and debt
issuance costs as they are already included in interest expense, net.
(4) Includes goodwill, other intangible asset and long-lived asset impair-
ments and non-cash charges associated with restructuring activities.
(5) As provided for in the credit agreement.
We have a fixed rate promissory note agreement with a
financial institution pursuant to which we may borrow up
to $150.0 million in the form of loan participation notes
through one of our subsidiaries in Europe. The interest
rate on borrowings under this agreement is at an all-in
fixed rate determined by the lender and agreed to by us at
the date of each borrowing. At June 30, 2010, no bor-
rowings were outstanding under this agreement. Debt
issuance costs incurred related to this agreement were
de minimis.
We have an overdraft borrowing agreement with a
financial institution pursuant to which our subsidiary in
Turkey may be credited to satisfy outstanding negative
daily balances arising from its business operations. The
total balance outstanding at any time shall not exceed
40.0 million Turkish lira ($25.3 million at the exchange
rate at June 30, 2010). The interest rate applicable to each
such credit shall be up to a maximum of 175 basis points
per annum above the spot rate charged by the lender or
the lender’s floating call rate agreed to by us at each