Estee Lauder 2013 Annual Report Download - page 161

pursuant to which the Company may borrow up to $150.0
million in the form of loan participation notes through one
of its subsidiaries in Europe. The interest rate on borrow-
ings under this agreement is at an all-in fixed rate deter-
mined by the lender and agreed to by the Company at
the date of each borrowing. At June 30, 2013, no borrow-
ings were outstanding under this agreement. Debt
issuance costs incurred related to this agreement were
de minimis.
As of June 30, 2013, the Company had 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 the Company’s 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.
In fiscal 2012, the Company incurred costs of approxi-
mately $1 million to establish the Facility which are being
amortized over the term of the Facility. The Facility has an
annual fee of $0.7 million, payable quarterly, based on the
Company’s current credit ratings. The Facility also con-
tains a cross-default provision whereby a failure to pay
other material financial obligations in excess of $100.0
million (after grace periods and absent a waiver from the
lenders) would result in an event of default and the accel-
eration of the maturity of any outstanding debt under this
facility. At June 30, 2013, no borrowings were outstanding
under this agreement.
The Company maintains uncommitted credit facilities
in various regions throughout the world. Interest rate
terms for these facilities vary by region and reflect prevail-
ing market rates for companies with strong credit ratings.
During fiscal 2013 and 2012, the monthly average amount
outstanding was approximately $11.8 million, and the
annualized monthly weighted-average interest rate
incurred was approximately 8.8% and 14.1%, respectively.
Refer to Note 13 — Commitments and Contingencies
for the Company’s projected debt service payments, as of
June 30, 2013, over the next five fiscal years.
NOTE 10 — DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures
through a controlled program of risk management that
includes the use of derivative financial instruments. The
Company enters into foreign currency forward contracts.
The Company may enter into option contracts to reduce
the effects of fluctuating foreign currency exchange rates
and interest rate derivatives to manage the effects of
interest rate movements on the Company’s aggregate
liability portfolio. The Company also enters into foreign
currency forward contracts and may use option contracts,
not designated as hedging instruments, to mitigate
the change in fair value of specific assets and liabilities
on the balance sheet. The Company does not utilize
derivative financial instruments for trading or speculative
purposes. Costs associated with entering into these deriv-
ative financial instruments have not been material to the
Company’s consolidated financial results.
For each derivative contract entered into where the
Company looks to obtain hedge accounting treatment,
the Company formally documents all relationships
between hedging instruments and hedged items, as well
as its risk-management objective and strategy for under-
taking the hedge transaction, the nature of the risk being
hedged, how the hedging instruments’ effectiveness in
offsetting the hedged risk will be assessed prospectively
and retrospectively, and a description of the method of
measuring ineffectiveness. This process includes linking all
derivatives to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted trans-
actions. The Company also formally assesses, both at the
hedge’s inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or
cash flows of hedged items. If it is determined that a deriv-
ative is not highly effective, or that it has ceased to be
a highly effective hedge, the Company will be required
to discontinue hedge accounting with respect to that
derivative prospectively.
THE EST{E LAUDER COMPANIES INC. 159