Estee Lauder 2013 Annual Report Download - page 133

THE EST{E LAUDER COMPANIES INC. 131
Downgrades in our credit ratings may reduce our ability
to issue commercial paper and/or long-term debt and
would likely increase the relative costs of borrowing. A
credit rating is not a recommendation to buy, sell, or hold
securities, is subject to revision or withdrawal at any time
by the assigning rating organization, and should be evalu-
ated independently of any other rating. As of August 19,
2013, our commercial paper is rated A-1 by Standard &
Poor’s and P-1 by Moody’s and our long-term debt is
rated A with a stable outlook by Standard & Poor’s and
A2 with a stable outlook by Moody’s.
The effects of inflation have not been significant to our
overall operating results in recent years. Generally, we
have been able to introduce new products at higher
prices, increase prices and implement other operating
efficiencies to sufficiently offset cost increases, which
have been moderate.
Credit Ratings
Changes in our credit ratings will likely result in changes in
our borrowing costs. Our credit ratings also impact the
cost of our revolving credit facility as discussed below.
Debt
At June 30, 2013, our outstanding borrowings were as follows:
Long-term Debt Current Debt Total Debt
(In millions)
3.70% Senior Notes, due August 15, 2042 (“2042 Senior Notes”)(1), (6) $ 248.9 $ — $ 248.9
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”)(2), (6) 296.5 — 296.5
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”)(3) 197.8 — 197.8
2.35% Senior Notes, due August 15, 2022 (“2022 Senior Notes”)(4), (6) 249.8 — 249.8
5.55% Senior Notes, due May 15, 2017 (“2017 Senior Notes”)(5), (6) 328.0 — 328.0
Other borrowings 5.0 18.3 23.3
$1,326.0 $18.3 $1,344.3
(1) Consists of $250.0 million principal and unamortized debt discount of $1.1 million.
(2) Consists of $300.0 million principal and unamortized debt discount of $3.5 million.
(3) Consists of $200.0 million principal and unamortized debt discount of $2.2 million.
(4) Consists of $250.0 million principal and unamortized debt discount of $0.2 million.
(5) Consists of $300.0 million principal, unamortized debt discount of $0.2 million and a $28.2 million adjustment to reflect the termination value
of interest rate swaps.
(6) As of June 30, 2013, we were in compliance with all restrictive covenants, including limitations on indebtedness and liens, and expect continued
compliance.
In August 2012, we issued $250.0 million of 2.35% Senior
Notes due August 15, 2022 (“2022 Senior Notes”) and
$250.0 million of 3.70% Senior Notes due August 15,
2042 (“2042 Senior Notes”) in a public offering. The
2022 Senior Notes were priced at 99.911% with a yield of
2.360%. The 2042 Senior Notes were priced at 99.567%
with a yield of 3.724%. Interest payments on both notes
are required to be made semi-annually on February 15
and August 15, commencing February 15, 2013. During
the first quarter of fiscal 2013, we used the net proceeds
of the offering to redeem the $230.1 million principal
amount of our 7.75% Senior Notes due November 1,
2013 at a price of 108% of the principal amount and
recorded a pre-tax expense on the extinguishment 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 issu-
ance costs and debt discount. We used the remaining net
proceeds of the offering for general corporate purposes.
We have a commercial paper program under which we
may issue commercial paper in the United States. In the
second quarter of fiscal 2013, we increased the limit of
this program from $750.0 million to $1.0 billion. In the
first quarter of fiscal 2013, we had repaid, using cash on
hand, $200.0 million of commercial paper that was out-
standing at June 30, 2012. At June 30, 2013, we had no
commercial paper outstanding.
We have a $1.0 billion senior unsecured revolving
credit facility that expires on July 14, 2015 (the “Facility”).
The Facility may be used to provide credit support for our
commercial paper program and for general corporate
purposes. Up to the equivalent of $250 million of the
Facility is available for multi-currency loans. The interest
rate on borrowings under the Facility is based on LIBOR
or on the higher of prime, which is the rate of interest
publicly announced by the administrative agent, or
½% plus the Federal funds rate. We incurred costs of