Estee Lauder 2013 Annual Report Download - page 129

THE EST{E LAUDER COMPANIES INC. 127
the effective income tax rate of 120 basis points was
principally due to a decrease in the effective tax rate of
our foreign operations as compared with the prior year, as
well as the retroactive reinstatement of the U.S. federal
research and development tax credit signed into law on
January 2, 2013.
NET EARNINGS ATTRIBUTABLE TO
THE EST{E LAUDER COMPANIES INC.
Net earnings attributable to The Estée Lauder Companies
Inc. as compared with fiscal 2012 increased 19%, or
$162.9 million, to $1,019.8 million and diluted net earn-
ings per common share increased 20% from $2.16 to
$2.58. The results in the current year include the impact
of total returns and charges associated with restructuring
activities of $11.7 million, after tax, or $.03 per diluted
common share. The results in fiscal 2012 year include the
impact of total returns and charges associated with
restructuring activities of $44.1 million, after tax, or $.11
per diluted common share.
FISCAL 2012 AS COMPARED WITH FISCAL 2011
NET SALES
Net sales increased 10%, or $903.6 million, to $9,713.6
million, reflecting growth in all of our major product
categories within each geographic region. The impact of
foreign currency translation on net sales was de minimis.
The following discussions of Net Sales by Product
Categories and Geographic Regions exclude the impact of
returns associated with restructuring activities of $2.1
million and $4.6 million recorded during fiscal 2012 and
fiscal 2011, respectively. We believe the following analysis
of net sales better reflects the manner in which we
conduct and view our business.
Product Categories
Skin Care Net sales of skin care products increased 14%,
or $506.6 million, to $4,225.2 million, primarily reflecting
the continued success of our strategic focus on growing
this category. The fiscal 2012 launches of Turnaround
Overnight Radiance Moisturizer, Moisture Surge Intense
and Repairwear Uplifting Firming Cream from Clinique
and Revitalizing Supreme Global Anti-Aging Creme from
Estée Lauder contributed incremental sales of approxi-
mately $78 million, combined. Higher sales of Idealist
Even Skintone Illuminator, Advanced Night Repair
Synchronized Recovery Complex and Idealist Cooling Eye
Illuminator from Estée Lauder and various products from
La Mer and Origins contributed approximately $237 mil-
lion, combined, to the increase. The fiscal 2012 relaunch
of the reformulated Resilience Lift and Nutritious
results in Hong Kong were due in part to investment
spending to support new product launches.
INTEREST EXPENSE, NET
Net interest expense was $54.8 million as compared with
$61.1 million in the prior year. Interest expense decreased
primarily due to the refinancing of debt at lower rates.
INTEREST EXPENSE ON DEBT EXTINGUISHMENT
During the first quarter of fiscal 2013, we redeemed the
$230.1 million principal amount of our 7.75% Senior
Notes due 2013 at a price of 108% of the principal
amount. We recorded a pre-tax expense on the extin-
guishment of debt of $19.1 million representing the call
premium of $18.6 million and the pro-rata write-off of
$0.5 million of issuance costs and debt discount.
OTHER INCOME
In December 2012, we amended the agreement related
to the August 2007 sale of Rodan + Fields (a brand then
owned by us) to receive a fixed amount in lieu of future
contingent consideration and other rights. Accordingly,
we recognized $22.4 million, net of discount of $0.4 mil-
lion, which has been classified as other income in our
consolidated statements of earnings. Prior to this amend-
ment, we earned and received $0.7 million of contingent
consideration.
In November 2011, we settled a commercial dispute
with third parties that was outside our normal operations.
In connection therewith, we received a $10.5 million cash
payment, which has been classified as other income in
our consolidated statement of earnings.
PROVISION FOR INCOME TAXES
The provision for income taxes represents U.S. federal,
foreign, state and local income taxes. The effective rate
differs from the federal statutory rate primarily due to the
effect of state and local income taxes, the taxation of for-
eign income and income tax reserve adjustments, which
represent changes in our net liability for unrecognized
tax benefits including tax settlements and lapses of the
applicable statutes of limitations. Our effective tax rate
will change from year to year based on recurring and
non-recurring factors including, but not limited to, the
geographical mix of earnings, enacted tax legislation,
state and local income taxes, tax reserve adjustments, the
ultimate disposition of deferred tax assets relating to
stock-based compensation and the interaction of various
global tax strategies.
The effective income tax rate for fiscal 2013 was 30.6%
as compared with 31.8% in the prior year. The decrease in