Estee Lauder 2010 Annual Report Download - page 97

96 THE EST{E LAUDER COMPANIES INC.
Program and a more strategically focused approach to
spending, as well as significant improvement in cost of
sales from favorable product mix and enhanced inventory
management, resulting in significant improvements in
their operating income.
Operating income in the Americas increased 40%, or
$46.3 million, to $161.5 million, driven by the Program
and a more measured approach to spending, particularly
from our heritage brands and our makeup artist brands.
The increase also reflected a favorable comparison to the
prior year when we recorded an excess overhead charge
and a charge related to the degradation of a certain
retailer of approximately $27 million, combined. The
increase in profitability was partially offset by lower net
sales from the exit of the wholesale distribution of
Prescriptives products, higher charges for goodwill, other
intangible asset and long-lived asset impairments, and the
impact of the recent economic events in Venezuela, as
previously discussed.
In Europe, the Middle East & Africa, operating income
increased over 100%, or $271.1 million, to $500.8 million,
reflecting improvements in travel retail and virtually all
countries in the region. Higher results from our travel
retail business and in Spain, Russia, the United Kingdom,
Italy, France and Germany totaled approximately $243
million. While the current year results reflected a charge
of approximately $6 million related to other intangible
asset impairment, it was a favorable comparison to the
prior year when we recorded goodwill and other intangi-
ble asset impairment charges of approximately $25 mil-
lion. In addition, as previously discussed, we recorded a
charge in fiscal 2010 related to the discontinuation of cer-
tain SKUs which reflects the anticipated returns, as well as
the write-off of related inventory on hand of approxi-
mately $34 million, combined.
In Asia/Pacific, operating income increased 29%, or
$47.1 million, to $212.3 million. Virtually all countries in
the region reported higher operating results, led by Hong
Kong, China, Japan, Taiwan, and Australia, which com-
bined for approximately $39 million of the improvement.
INTEREST EXPENSE, NET
Net interest expense was $74.3 million as compared with
$75.7 million in the prior year. Interest expense decreased
primarily due to lower average debt balances and lower
average interest rates on borrowings. This change was
partially offset by lower interest income due to lower aver-
age investment rates, partially offset by higher average
investment balances.
dramatically from fiscal 2009, we do not expect the same
levels of year-over-year improvements to continue. The
following discussions of Operating Results by Product
Categories and Geographic Regions exclude the impact of
total charges associated with restructuring activities of
$84.7 million, or 1.1% of net sales, in fiscal 2010 and $91.7
million, or 1.3% of net sales, in fiscal 2009. We believe the
following analysis of operating results better reflects the
manner in which we conduct and view our business.
Product Categories
All product categories benefited from initiatives we imple-
mented as part of the Program including a more strategi-
cally focused approach to spending, as well as significant
improvement in cost of sales from favorable product mix
and enhanced inventory management. Skin care operat-
ing income increased 48%, or $140.2 million, to $434.3
million, primarily reflecting improved results from certain
of our heritage brands driven by increased net sales
primarily from recently-launched products with higher
margins. While the current year skin care results reflected
charges of approximately $11 million related to goodwill,
other intangible asset and long-lived asset impairments, it
was a favorable comparison to the prior year when we
recorded similar charges of approximately $36 million.
Makeup operating income increased 49%, or $137.0 mil-
lion, to $416.8 million, primarily reflecting improved
results from certain of our heritage brands and from our
makeup artist brands. The operating results for the
makeup category also reflected the majority of the impact
of the charge related to the discontinuation of certain
SKUs, as previously discussed, which reflects the antici-
pated returns, as well as the write-off of related inventory
on hand of approximately $30 million, combined.
Fragrance operating results improved over 100%, or $87.1
million, from a loss in the prior fiscal year to $26.3 million,
primarily reflecting higher net sales of designer fragrances,
a more strategically focused approach to spending reflect-
ing our strategy to improve profitability, and a favorable
comparison to the prior year when we recorded approxi-
mately $13 million of other intangible asset impairment
charges. Hair care operating results decreased over 100%
or $7.3 million, to a loss of $6.2 million, primarily reflecting
higher goodwill and other intangible asset impairments of
approximately $27 million, partially offset by net sales
growth outside the United States, the closing of certain
underperforming retail stores in the prior year and savings
generated from cost containment initiatives.
Geographic Regions
Operating results in each of our geographic regions ben-
efited from the initiatives we implemented as part of the