Estee Lauder 2010 Annual Report Download - page 105

104 THE EST{E LAUDER COMPANIES INC.
tional amounts based on the performance of the acquired
business. Since the size of each payment depends upon
performance of the acquired business, we do not expect
that such payments will have a material adverse impact on
our future results of operations or financial condition.
For additional contingencies refer to Legal Proceedings
in “Note 14 — Commitments and Contingencies” of Notes
to Consolidated Financial Statements.
lion and $41.8 million, respectively. We expect to make
contributions under these plans during fiscal 2011 of
approximately $21 million.
Commitments and Contingencies
Certain of our business acquisition agreements include
“earn-out” provisions. These provisions generally require
that we pay to the seller or sellers of the business addi-
Contractual Obligations
The following table summarizes scheduled maturities of our contractual obligations for which cash flows are fixed and
determinable as of June 30, 2010:
Payments Due in Fiscal
Total 2011 2012 2013 2014 2015 Thereafter
(In millions)
Debt service(1) $2,072.6 $ 84.1 $188.7 $ 67.2 $277.5 $ 35.1 $1,420.0
Operating lease commitments(2) 1,203.3 200.2 175.7 152.3 131.9 115.8 427.4
Unconditional purchase obligations(3) 2,212.9 1,302.3 214.6 204.1 94.8 96.2 300.9
Gross unrecognized tax benefits and
interest — current(4) 41.3 41.3 — — — — —
Total contractual obligations $5,530.1 $1,627.9 $579.0 $423.6 $504.2 $247.1 $2,148.3
(1) Includes long-term and short-term debt and the related projected interest costs, and to a lesser extent, capital lease commitments. Interest costs
on long-term and short-term debt are projected to be $60.6 million in fiscal 2011, $60.8 million in fiscal 2012, $53.6 million in fiscal 2013, $44.0
million in fiscal 2014, $35.0 million in fiscal 2015 and $619.8 million thereafter. Projected interest costs on variable rate instruments were calculated
using market rates at June 30, 2010. Refer to “Note 10 — Debt” of Notes to Consolidated Financial Statements.
(2) Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception
and primarily include rents based on a percentage of sales in excess of stipulated levels, as well as common area maintenance. These amounts are
excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the
expense has been incurred and the amount is reasonably measurable.
(3) Unconditional purchase obligations primarily include inventory commitments, estimated future earn-out payments, estimated royalty payments
pursuant to license agreements, advertising commitments, capital improvement commitments, planned funding of pension and other post-
retirement benefit obligations, commitments pursuant to executive compensation arrangements, obligations related to our cost savings initiatives
and acquisitions. In July 2010, we acquired Smashbox Beauty Cosmetics for a purchase price of approximately $250 million, which was funded by
cash provided by operations. Future earn-out payments and future royalty and advertising commitments were estimated based on planned future
sales for the term that was in effect at June 30, 2010, without consideration for potential renewal periods.
(4) Refer to “Note 8 — Income Taxes” of Notes to Consolidated Financial Statements for information regarding unrecognized tax benefits. During the
fourth quarter of fiscal 2010, we made a cash payment of $20.5 million to the U.S. Treasury as an advance deposit, which is not reflected as a
reduction to the $41.3 million. As of June 30, 2010, the noncurrent portion of our unrecognized tax benefits, including related accrued interest
and penalties was $152.7 million. At this time, the settlement period for the noncurrent portion of the unrecognized tax benefits, including related
accrued interest and penalties, cannot be determined and therefore was not included.
Derivative Financial Instruments and
Hedging Activities
We address certain financial exposures through a con-
trolled program of risk management that includes the use
of derivative financial instruments. We primarily enter into
foreign currency forward and option contracts to reduce
the effects of fluctuating foreign currency exchange rates
and interest rate derivatives to manage the effects of inter-
est rate movements on our aggregate liability portfolio.
We also enter into foreign currency forward and option
contracts, not designated as hedging instruments, to
mitigate the change in fair value of specific assets and
liabilities on the balance sheet. We do not utilize deriva-
tive financial instruments for trading or speculative
purposes. Costs associated with entering into these
derivative financial instruments have not been material to
our consolidated financial results.