Estee Lauder 2015 Annual Report Download

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B
E
AUTI
F
UL
THE EST{E LAUDER COMPANIES INC.
2015 ANNUAL REPORT
MOMENTUM

Table of contents

  • Page 1
    THE EST{E LAUDER COMPANIES INC. BEAUTIFUL MOMENTUM 2015 ANNUAL REPORT

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  • Page 4
    BEAUTIFUL MOMENTUM

  • Page 5
    OUR COMPANY AT-A-GLANCE FISCAL 2015* RESULTS BY PRODUCT CATEGORY 5% 13% 5% 2% Global Leader in Prestige Beauty Net Sales 42% 41% Operating Income 52% 40% $10.78 billion Net Sales Global Employees 25+ Prestige Brands Countries and Territories Skin Care Fragrance Makeup Hair Care ...

  • Page 6
    ...in Luxury Fragrance Dedication to our Heritage Markets Emerging Markets: Thinking Locally, Excelling Globally Board of Directors Executive Officers Financial Section Management's Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Stockholder...

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  • Page 8
    ...the future. This beautiful momentum is a direct result of a strategy executed with excellence by our talented and diverse global workforce, which is guided by the outstanding strategic leadership of our President and Chief Executive Officer, Fabrizio Freda, our world-class Executive Leadership Team...

  • Page 9
    ...education helps ensure that we build the next generation of leaders for our Company. Over 9,000 employees participate in learning opportunities offered by The Estée Lauder Companies each year, and even more have access to tools that can enhance their knowledge and experience. Our business of beauty...

  • Page 10
    ... largest corporate foundation and second biggest private donor to HIV/AIDS causes in the United States. Through a unique 100% giving model, every cent of the sales price of VIVAGLAM lip products is donated to MAF and other programs that help women, men and children affected by HIV/AIDS. The sale of...

  • Page 11
    8

  • Page 12
    ... sales rose 6 percent and diluted earnings per share increased 12 percent.* Cash flow from operations increased 27 percent to $1.9 billion, providing ample resources to invest in our business, while returning substantial cash to our stockholders. During the fiscal year, we raised our dividend rate...

  • Page 13
    ... of a range of masks at Origins and the expansion of this subcategory at La Mer, where we doubled the size of our mask business during fiscal 2015. Our recent acquisition of GLAMGLOW, the popular Hollywood skin care brand focused on fast-acting skin care masks, gives us the opportunity to lead in...

  • Page 14
    ...with sales from Tom Ford, La Mer and Jo Malone London showing strong growth. La Mer, one of our luxury skin care brands, grew retail sales by double-digit rates in fiscal 2015. La Mer's Treatment Lotion is the most popular SKU in Asia in our distribution, with new marketing assets driving sales and...

  • Page 15
    In fiscal 2015, the talented teams at our heritage Estée Lauder and Clinique brands continued to work hard to reignite growth, beginning new, exciting programs to achieve this objective over the next year. Both brands delivered breakthrough launches that filled "white space" opportunities for us....

  • Page 16
    ... vision and create new avenues of growth for our Company. Our track record is spectacular: M·A·C, Bobbi Brown, La Mer and Jo Malone London-all significant value-creating acquisitions from the 1990s-are helping to power our momentum today. For example, since we acquired Bobbi Brown in 1995 and...

  • Page 17
    ...deliver topline growth between 6 and 8 percent annually in constant currency. In order to achieve this, we are actively investing in the fastest-growing areas of our industry. We expect to leverage our sales growth through greater productivity and cost savings and 14 THE EST{E LAUDER COMPANIES INC...

  • Page 18
    ... and returning cash to stockholders through dividends and share repurchases. Our outstanding performance this year, and over time, is supported by the following foundational assets of our company: First, the Lauder family. We are a public company built upon the strong foundation of family heritage...

  • Page 19
    16

  • Page 20
    ...creative spark and a talented entrepreneur. Our long tradition of identifying brands with unique positioning while working closely with their innovative founders has built many of them into global powerhouses. In fiscal 2015, The Estée Lauder Companies welcomed four new, high-potential brands that...

  • Page 21
    ..., and RODIN olio lusso- which translates to "luxury oil"-was born. RODIN olio lusso has a unique positioning in the high-growth subcategory of skin care oils and a devoted cult following of fashion and beauty connoisseurs and Ageless consumers around the world. Founder: Linda Rodin RODIN OLIO LUSSO...

  • Page 22
    ... soulful, custom-made luxury fragrances that combine the shock of the new with the comfort of the intimately familiar. Le Labo's carefully crafted fragrances are infused with the energy and spirit of its New York roots and the serenity of the elds of Grasse, France, where the ingredients for several...

  • Page 23
    ... 2000, Acquired: January 2015 EDITIONS DE PARFUMS DE Descended from legendary perfumers, Frédéric Malle curates a line of exclusive, ultraluxury fragrances crafted by some of the world's most talented perfumers. As unique and varied as its creators, each fragrance in Malle's eponymous collection...

  • Page 24
    ..., Acquired: January 2015 GLAMGLOW, the Hollywood-inspired prestige skin care brand, was developed by Glenn and Shannon Dellimore to help friends get stunning, camera-ready skin with fast-acting treatment masks. GLAMGLOW's exclusive collection of innovative, high-end treatment masks helps give skin...

  • Page 25
    ...E L E SS CON S UM E R S DYNAMIC CONSUMER TRENDS are expected to shape prestige beauty for the next 10 years, two of which trends ...opportunities, while continuing to recognize and serve beautiful, diverse consumers of all ages around the world. Right: Darphin Exquisâge Beauty Revealing Collection...

  • Page 26
    23

  • Page 27
    KENDALL JENNER DRIVEN BY DESIRE NEW PURE COLOR ENVY LIQUID LIP POTION Fluid lipcolor with lipstick's potent effect. Kendall's shade: Lethal Red esteelauder.com © 2015 Estée Lauder Inc. Oil Elixir Infused Estée Lauder model Kendall Jenner has a social media audience of over 50 million ...

  • Page 28
    ...for by Millennials by 2020 75% $3.4 trillion U.S. Millennials' purchasing power by 2018 86% of Millennials sharing their brand preferences online For the brand's launch of its quarter-life skin care product, Original Skin Renewal Serum, Origins debuted the #QuarterLifeCrisis app around the globe...

  • Page 29
    ...revolution in how consumers shop at retail stores and online platforms, as new channels of communication, commerce and service converge. We continue to enhance our digital infrastructure and increase our number of freestanding stores to seamlessly guide consumers between shopping channels around the...

  • Page 30
    ... opportunities to discover our brands and products. See how the consumer journey might look in China. Reads product reviews on Tmall China Researches on a beauty blog Alerts friends via social media platform Weibo Experiences product at Clinique counter in Haitang Bay, Hainan, China Purchases...

  • Page 31
    ... and shoppable. This year, we continued to increase our number of freestanding stores, which offer consumers High-Touch, customizable and educational prestige experiences and services. Aveda Experience Center in Istanbul, Turkey. Surf Infusion campaign featuring hair by Bumble and bumble's Global...

  • Page 32
    I like a good eye...I love mascara. Kendall Jenner #TheEstéeEdit online initiative from Estée Lauder connects consumers to brand storytelling and shoppable content. 29

  • Page 33
    ...the world indulged in pick-me-up moments in makeup, with lipstick representing the power of self-discovery and self-expression. M·A·C, Smashbox, Estée Lauder, Clinique and Tom Ford realized double-digit growth in the lip category. LIPSTICK SALES SOARED Right: Clinique Pop Lip Colour + Primer ad...

  • Page 34
    Have it all. clinique.com © Clinique Laboratories, LLC Rich colour + smoothing primer in one. New. Clinique Pop™ 31

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    32

  • Page 36
    ... prestige makeup. In fact, M·A·C sells one lipstick every second. Tom Ford Lips & Boys The lip category at Tom Ford grew nearly 50 percent during fiscal 2015, leveraging disruptive digital campaigns like Lips & Boys. Smashbox Bing With this innovative campaign, the beauty and art world collide...

  • Page 37
    ... our guide, our brands were well-positioned to benefit from rapid growth in key subcategories, such as contouring in both makeup and skin care, foundations, masks and oils. We enhanced our portfolio in these areas through new product innovations and acquisitions. Right: Bobbi Brown Intensive Skin...

  • Page 38
    ... Medicine Formulated with Traditional Chinese Medicine ingredients, Bobbi Brown' s desires of the ingredients and inspired by the Intensive Skin Serum Foundation SPF 40 Asian consumer Bobbi Brown's Intensive Skin combines the benefits of a skin care product Foundation combines the benefits of with...

  • Page 39
    Masks Origins is the number one prestige mask brand in the U.S. Origins strengthens its mask popularity by engaging consumers with a weekly program that encourages them to post "selfies" using Origins masks with the hashtag #MaskMonday. #MaskMonday "selfies" from Origins. 36

  • Page 40
    Oils Whether for skin or for hair, oils have become an important part of consumers' beauty rituals. Bumble and bumble capitalized on the strength of Hairdresser's Invisible Oil, introducing a shampoo, conditioner and primer. Bumble and bumble Hairdresser's Invisible Oil Family. 37

  • Page 41
    ... at Sephora. One of the most exciting developments at Estée Lauder is a transformative contouring collection of skin care and palettes that creates visible definition for a beautiful, more contoured looking face. The New Dimension collection includes Shape + Fill Expert Serum, Expert Liquid Tape...

  • Page 42
    39

  • Page 43
    ... in luxury fragrance this year, having each grown strong double-digits, well ahead of the market. When we acquired Jo Malone London 15 years ago, it had just two locations in the U.K.; today it has over 500 stores and counters globally. DRIVEN BY A DESIRE Right: Tom Ford Velvet Orchid ad featuring...

  • Page 44
    4 41

  • Page 45
    © AERIN Beauty, DIST. INTRODUCING A F US I O N O F R O S E S W I T H R O S E OT TO B U LGA R I A N , R O S E A B S O L U T E A N D O N E H U N D R E D - P E TA L E D R O S E C E N T I F O L I A . H A N D - P I C K E D I N G R A S S E .

  • Page 46
    ...Sea Salt ad. Jo Malone London's debut of its Wood Sage & Sea Salt collection was the number one launch in the U.S. women's prestige fragrance category during the Holiday 2014 season. Tom Ford had an intoxicating year in fragrance. Its Neroli Portofino Collection expanded and continued strong sales...

  • Page 47
    ... leadership positions by finding "emerging markets" within our heritage markets, targeting growing trends in specific regions and tailoring our assortments to local demographics. In the U.K., sales in fiscal 2015 grew faster than overall U.K. prestige beauty, as we opened new freestanding stores...

  • Page 48
    Jo Malone London Girl Poppy Delevingne 45

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    46

  • Page 50
    The Estée Lauder Companies: Nearly the size of its nearest prestige competitor in the U.S. 2X brands in the top 10 beauty brands in the U.S. 4 No. 1 positions in U.S. prestige skin care and makeup brands La Mer Counter, The Beverly Center, Los Angeles. Top 2 in prestige beauty in the U.K.

  • Page 51
    ... global retail sales. The Estée Lauder Companies has made significant strategic investments to capture the growing afï¬,uent populations in these markets. We continue to focus resources on our group of emerging markets, which includes Russia, China, the Middle East, Turkey, South Africa and...

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    49 4 9

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  • Page 54
    The New Gold Fragrance Collection by Michael Kors ad visual. Michael Kors fragrances resonate strongly with consumers in the Middle East, who are attracted to their luxurious gold accents and sophisticated olfactive offerings. In the heart of the Amazon rainforests' tier three city of Manaus, ...

  • Page 55
    ...LLC FABRIZIO FREDA President and Chief Executive Of cer, The Estée Lauder Companies Inc. JANE LAUDER Global Brand President, Clinique AERIN LAUDER Founder and Creative Director, AERIN; Style and Image Director, Estée Lauder BARRY S. STERNLICHT Chairman, Chief Executive Of cer, Starwood Capital...

  • Page 56
    BOARD OF DIRECTORS WILLIAM P. LAUDER Executive Chairman, The Estée Lauder Companies Inc. CHARLENE BARSHEFSKY Senior International Partner, WilmerHale IRVINE O. HOCKADAY, JR. Retired President and Chief Executive Of cer, Hallmark Cards, Inc. WEI SUN CHRISTIANSON Managing Director and Co-CEO of ...

  • Page 57
    ... Vice President, Global Supply Chain CARL HANEY Executive Vice President, Global Research and Development, Corporate Product Innovation, Package Development CEDRIC PROUVÉ Group President, International TRACEY T. TRAVIS LEONARD A. LAUDER Chairman Emeritus Executive Vice President and Chief...

  • Page 58
    FINANCIAL SECTION THE EST{E L AUDER COMPANIES INC. 55

  • Page 59
    FINANCIAL CONTENTS Selected Financial Data Management's Discussion and Analysis of ...Management's Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Stockholder Information 57 58 80 81 82 83 84 85 118 119 121 56 THE EST{E LAUDER COMPANIES...

  • Page 60
    ... of issuance costs and debt discount. (e) 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. As a result of the original and amended terms of...

  • Page 61
    ... 2015 and 2014 and 3.3% in fiscal 2013. Our sales return accrual is a subjective critical estimate that has a direct impact on reported net sales. This accrual 58 THE EST{E LAUDER COMPANIES INC. is calculated based on a history of actual returns, estimated future returns and information provided...

  • Page 62
    ...-Point Increase (In millions) 25 Basis-Point Decrease $3.9 $2.8 Discount rate Expected return on assets $(3.9) $(2.8) Our post-retirement plans are comprised of health care plans that could be impacted by health care cost trend rates, which may have a significant effect on the amounts reported...

  • Page 63
    ... and our intention to sell or dispose of a reporting unit or cease the use of a trademark. With regard to our fiscal 2015 acquisitions of RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle and GLAMGLOW, the carrying values of the related goodwill and other indefinite-lived intangible...

  • Page 64
    ... OPERATIONS We manufacture, market and sell beauty products including those in the skin care, makeup, fragrance and hair care categories which are distributed in over 150 countries and territories. The following table is a comparative summary of operating results for fiscal 2015, 2014 and 2013 and...

  • Page 65
    ... JUNE 30 (In millions) 2015 2014 2013 NET SALES By Region: The Americas Europe, the Middle East & Africa Asia/Pacific (Returns) adjustments associated with restructuring activities Net Sales By Product Category: Skin Care Makeup Fragrance Hair Care Other (Returns) adjustments associated with...

  • Page 66
    ... a number of new products, including new collections from our makeup artist brands, Pure Color Envy sculpting lipstick and sculpting eye shadow palette from Estée Lauder, and Pop Lip Colour and Primer, Beyond Perfecting foundation and concealer and Chubby Stick sculpting products from Clinique. Our...

  • Page 67
    ...ciencies in select operating expenses and working capital, freeing resources to strategically reinvest in activities to support our future growth. We rolled out the last major wave of SMI in July 2014 and currently most of our locations are SAP-enabled. We plan to continue the implementation of SAP...

  • Page 68
    .... Sales from our makeup artist brands benefited from new product offerings, as well as expanded distribution in a number of channels, including our freestanding retail stores. The higher net sales from Tom Ford and Smashbox were primarily due to expanded distribution of Tom Ford in the travel retail...

  • Page 69
    ... retail business were driven by the impact of the accelerated orders. Excluding this impact, travel retail net sales increased due to a strategic expansion of certain of our luxury brands and our makeup artist brands, partially offset by the negative impact of the social instability in Hong Kong...

  • Page 70
    ... points, combined, primarily driven by the expansion of M.A. C and Jo Malone London freestanding retail stores. Also contributing to this increase were higher costs associated with stock-based compensation and higher spending on advertising, merchandising and sampling as a percentage of net sales...

  • Page 71
    ... operating results in our travel retail business, due to the accelerated orders, and, to a lesser extent, Germany of approximately $79 million, combined. The higher results in France, India, Russia and Switzerland were primarily due to an increase in constant currency net sales. Adjusting for the...

  • Page 72
    ... in fiscal 2015 and 2014 of $5.3 million and $38.3 million, respectively, for which no tax benefit was provided. This reduction was partially offset by an increase in income tax reserve adjustments recorded in the current year. NET EARNINGS ATTRIBUTABLE TO THE EST{E LAUDER COMPANIES INC. Net...

  • Page 73
    .... Skin Care Net sales of skin care products increased 7%, or $304.5 million, to $4,769.8 million. The fiscal 2014 launches of Advanced Night Repair Synchronized Recovery Complex II and Micro Essence Skin Activating Treatment Lotion from Estée Lauder, and Dramatically Different Moisturizing Lotion...

  • Page 74
    ... of the accelerated orders, reported net sales in makeup would have increased 7%. Fragrance Net sales of fragrance products increased 9%, or $114.2 million, to $1,425.0 million, primarily reï¬,ecting the fiscal 2014 launches of Estée Lauder Modern Muse, the Michael Kors Collection, Jo Malone Peony...

  • Page 75
    ... or $145.7 million, to $975.8 million, primarily reflecting higher results driven by fiscal 2014 product launches from Estée Lauder and Clinique and higher sales of luxury skin care products. Makeup operating income increased 23%, or $135.5 million, to $715.9 million, primarily reflecting improved...

  • Page 76
    .... Adjusting for the impact of the accelerated orders, operating income in the Americas would have increased 14%. In Europe, the Middle East & Africa, operating income increased 15%, or $124.9 million, to $938.3 million. Higher results from our travel retail business and in the United Kingdom totaled...

  • Page 77
    ... annual period are recognized separately in the period of change. The effective rate for income taxes was 32.0% and 30.6% for fiscal 2014 and 2013, respectively. The increase in the rate of 140 basis points was principally attributable to a higher effective tax rate related to the Company's foreign...

  • Page 78
    ...-for-sale and totaled $917.8 million at June 30, 2015. During fiscal 2015, we acquired RODIN olio lusso, a skin care brand, Le Labo, a fragrance brand, Editions de Parfums Frédéric Malle, a fragrance brand, and GLAMGLOW, a skin care brand. The purchase price related to each of these acquisitions...

  • Page 79
    ...scal 2015, 2014 and 2013, respectively. The fiscal 2015 increase in cash ï¬,ows provided by operating activities as compared with fiscal 2014 primarily reï¬,ected a favorable change in accounts receivable, reï¬,ecting the timing of shipments and improved collections, a favorable change in inventory...

  • Page 80
    ... of Operations - Critical Accounting Policies and Estimates." The effect of our pension plan funding on future operating results will depend on economic conditions, employee demographics, mortality rates, the number of participants electing to take lump-sum distributions, investment performance and...

  • Page 81
    ... regarding sales, earnings or other future financial performance and liquidity, product introductions, entry into new geographic regions, information systems initiatives, new methods of sale, our long-term strategy, restructuring and other charges and resulting cost savings, and future operations...

  • Page 82
    ... our customers that are retailers and our inability to collect receivables; (4) destocking and tighter working capital management by retailers; (5) the success, or changes in timing or scope, of new product launches and the success, or changes in the timing or the scope, of advertising, sampling and...

  • Page 83
    ... taxes Net Earnings Net earnings attributable to noncontrolling interests Net Earnings Attributable to The Estée Lauder Companies Inc. Net earnings attributable to The Estée Lauder Companies Inc. per common share Basic Diluted Weighted-average common shares outstanding Basic Diluted Cash dividends...

  • Page 84
    ... taxes on components of other comprehensive income Total other comprehensive income (loss) Comprehensive income (loss) Comprehensive (income) loss attributable to noncontrolling interests: Net earnings Translation adjustments Comprehensive income (loss) attributable to The Estée Lauder Companies...

  • Page 85
    ... Retained earnings Accumulated other comprehensive loss Less: Treasury stock, at cost; 190,694,630 Class A shares at June 30, 2015 and 178,434,483 Class A shares at June 30, 2014 Total stockholders' equity - The Estée Lauder Companies Inc. Noncontrolling interests Total equity Total liabilities and...

  • Page 86
    ... year Treasury stock, beginning of year Acquisition of treasury stock Stock-based compensation Treasury stock, end of year Total stockholders' equity - The Estée Lauder Companies Inc. Noncontrolling interests, beginning of year Net earnings attributable to noncontrolling interests Distributions to...

  • Page 87
    ... Excess tax benefits from stock-based compensation arrangements Payments to acquire treasury stock Dividends paid to stockholders Payments to noncontrolling interest holders for dividends Net cash ï¬,ows used for financing activities Effect of Exchange Rate Changes on Cash and Cash Equivalents Net...

  • Page 88
    ... Lauder Companies Inc. manufactures, markets and sells skin care, makeup, fragrance and hair care products around the world. Products are marketed under brand names, including: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M.A. C, Bobbi Brown, La Mer, Aveda, Jo Malone London...

  • Page 89
    ... in fiscal 2015, 2014 and 2013, respectively. Cash and Cash Equivalents Cash and cash equivalents include $373.4 million and $971.9 million of short-term time deposits at June 30, 2015 and 2014, respectively. The Company considers all highly liquid investments with original maturities of three...

  • Page 90
    ... assets are employed, and the growth of the global prestige beauty industry. In addition to these macroeconomic factors, among other things, the Company considered the reporting units' current results and forecasts, any changes in the nature of the business, any significant legal, regulatory...

  • Page 91
    ... Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. The Company's sales that are subject to credit risk are made primarily to department stores, perfumeries, specialty multi-brand retailers and retailers in its travel retail business...

  • Page 92
    ..., at least annually, based on net sales to third parties. Most of the Company's licenses were entered into to create new business. In some cases, the Company acquired, or entered into, a license where the licensor or another licensee was operating a pre-existing beauty products business. In those...

  • Page 93
    ... services to customers in an amount that reï¬,ects the consideration to which the entity expects to be entitled in exchange for those goods or services. It provides companies with a single comprehensive five-step principles-based model to use in accounting for revenue and supersedes current revenue...

  • Page 94
    ... of earnings. NOTE 6 - ACQUISITION OF BUSINESSES The Company acquired RODIN olio lusso, a skin care brand, in October 2014, Le Labo, a fragrance brand, in November 2014, and in January 2015, Editions de Parfums Frédéric Malle, a fragrance brand, and GLAMGLOW, a skin care brand. The results of...

  • Page 95
    ... of the Bobbi Brown brand. The Company assigns goodwill of a reporting unit to the product category in which that reporting unit predominantly operates at the time of acquisition. The following table presents goodwill by product category and the related change in the carrying amount: Skin Care (In...

  • Page 96
    ... charges were reï¬,ected in the skin care product category and in the Europe, the Middle East & Africa region. NOTE 8- INCOME TAXES The provision for income taxes is comprised of the following: YEAR ENDED JUNE 30 (In millions) 2015 2014 2013 Current: Federal Foreign State and local Deferred...

  • Page 97
    ...of the Company's deferred income tax assets and liabilities were as follows: JUNE 30 (In millions) 2015 2014 Deferred tax assets: Compensation related expenses Inventory obsolescence and other inventory related reserves Retirement benefit obligations Various accruals not currently deductible Net...

  • Page 98
    ... Hong Kong Japan Korea Russia Spain Switzerland United Kingdom United States State of California State and City of New York Open Fiscal Years 2013-2015 2008-2015 2011-2015 2012-2015 2013-2015 2009-2015 2012-2015 2014-2015 2013-2015 2012-2015 2011-2015 2014-2015 2015 2012-2015 2011-2015 The Company...

  • Page 99
    ... Advertising, merchandising and sampling Employee compensation Payroll and other taxes Accrued income taxes Other NOTE 10-DEBT The Company's current and long-term debt and available financing consist of the following: Debt at June 30 2015 (In millions) Available financing at June 30, 2015 2014...

  • Page 100
    ..., the debt discount and debt issuance costs, the effective interest rate on the 2033 Senior Notes will be 5.395% over the life of the debt. The Company has a $1.0 billion commercial paper program under which it may issue commercial paper in the United States. At June 30, 2015, the Company had no...

  • Page 101
    ... into Earnings (Effective Portion)(1) June 30 2015 2014 2014 Derivatives in Cash Flow Hedging Relationships: Foreign currency forward contracts Settled interest rate-related derivatives Total derivatives $ 90.3 $(22.2) Cost of sales Selling, general and administrative Interest expense $ 9.1 28...

  • Page 102
    ... million) and Hong Kong dollar ($103.0 million). In April and May 2015, in anticipation of the issuance of the 2045 Senior Notes, the Company entered into a series of forward-starting interest rate swap agreements, which were designated as cash-flow hedges. See Note 10 - Debt for further discussion...

  • Page 103
    ... and $(1.2) million as of June 30, 2015 and 2014, respectively. Fair-Value Hedges The Company enters into interest rate derivative contracts to manage the exposure to interest rate ï¬,uctuations on its funded indebtedness and anticipated issuance of debt for periods consistent with the identified...

  • Page 104
    ... the Company's financial instruments are as follows: JUNE 30, 2015 Carrying Amount (In millions) JUNE 30, 2014 Carrying Amount Fair Value Fair Value Nonderivatives Cash and cash equivalents Available-for-sale securities Note receivable Current and long-term debt Additional purchase price payable...

  • Page 105
    ... and currency spot and forward rates, were obtained from an independent pricing service. To determine the fair value of contracts under the model, the difference between the contract price and the current forward rate was discounted using LIBOR for contracts with maturities up to 12 months, and...

  • Page 106
    ... Plans U.S. 2015 (In millions) Other than Pension Plans International Post-retirement 2015 2014 2014 2015 2014 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participant contributions Actuarial loss (gain) Foreign currency exchange rate...

  • Page 107
    ... health care cost trend rates for fiscal 2015 would have had the following effects: One-Percentage-Point Increase (In millions) One-Percentage-Point Decrease $ (1.0) $(10.1) Effect on total service and interest costs Effect on post-retirement benefit obligations 104 THE EST{E L AUDER COMPANIES...

  • Page 108
    ... and fair value of plan assets for the Company's pension plans at June 30 are as follows: Pension Plans Retirement Growth Account 2015 (In millions) Restoration 2015 $117.7 $103.9 $ - 2014 $111.7 $ 97.0 $ - International 2015 $586.2 $524.1 $519.3 2014 $598.7 $531.4 $513.7 2014 $643.5 $598.4 $723...

  • Page 109
    ...% 48% 32% 100% Other than Pension Plans Post-retirement 30% 39% 31% 100% The following is a description of the valuation methodologies used for plan assets measured at fair value: Cash and Cash Equivalents - Cash and all highly-liquid securities with original maturities of three months or less are...

  • Page 110
    ... of June 30, 2014 Actual return on plan assets: Relating to assets still held at the reporting date Relating to assets sold during the year Transfers in (out) Purchases, sales, issuances and settlements, net Foreign exchange impact Balance as of June 30, 2015 $34.5 3.1 1.1 - (1.0) (2.7) $35.0 THE...

  • Page 111
    ... fiscal 2015, 2014 and 2013, respectively. Shares of the Company's Class A Common Stock are not an investment option in the Savings Plan and the Company does not use such shares to match participants' contributions. Deferred Compensation The Company accrues for deferred compensation and interest...

  • Page 112
    ... stockholders of record at the close of business on August 31, 2015. NOTE 16 - STOCK PROGRAMS As of June 30, 2015, the Company has two active equity compensation plans which include the Amended and Restated Fiscal 2002 Share Incentive Plan (the "Fiscal 2002 Plan") and the Non-Employee Director Share...

  • Page 113
    ... requisite service periods of stock options, PSUs, RSUs, PSUs based on total stockholder return, MSUs and share units. Stock-based compensation expense and related income tax benefits are as follows: YEAR ENDED JUNE 30 (In millions) 2015 $165.0 54.1 2014 $152.6 50.2 2013 $145.8 47.6 Stock-based...

  • Page 114
    ... 249,900 PSUs that vested as of June 30, 2015. In September 2014, approximately 377,300 shares of the Company's Class A Common Stock were issued and related accrued dividends were paid, relative to the target goals set at the time of issuance, in settlement of 259,700 PSUs which vested as of June 30...

  • Page 115
    ... were issued, and related dividends were paid. The number of shares equaled the maximum payout under the award, because the average closing stock price per share of the Company's Class A Common Stock on the New York Stock Exchange during the last 20 trading days ending on June 30, 2014 exceeded $75...

  • Page 116
    ..., 2015, 2014 and 2013, 0.6 million, 0.5 million and 0.5 million, respectively, of PSUs have been excluded from the calculation of diluted EPS because the number of shares ultimately issued is contingent on the achievement of certain performance targets of the Company, as discussed in Note 16 - Stock...

  • Page 117
    ... activities. Returns and charges associated with restructuring activities are not allocated to the product categories because they result from activities that are deemed a companywide program to redesign the Company's organizational structure. The accounting policies for the Company's reportable...

  • Page 118
    YEAR ENDED JUNE 30 (In millions) 2015 2014 2013 PRODUCT CATEGORY DATA Net Sales: Skin Care Makeup Fragrance Hair Care Other (Returns) adjustments associated with restructuring activities Depreciation and Amortization: Skin Care Makeup Fragrance Hair Care Other Goodwill and Other Intangible Asset...

  • Page 119
    ... segment based on the location of the customer. The net sales from the Company's travel retail business are included in the Europe, the Middle East & Africa region. The Company is domiciled in the United States. Net sales in the United States in fiscal 2015, 2014 and 2013 were $3,972.1 million...

  • Page 120
    ... result of the Company's July 2014 SMI rollout, approximately $178 million of accelerated orders were recorded as net sales (approximately $127 million as operating income or $.21 per diluted common share) in the fiscal 2014 fourth quarter that would have occurred in the fiscal 2015 first quarter...

  • Page 121
    ...nancial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly re...

  • Page 122
    ... financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly re...

  • Page 123
    ...The Board of Directors and Stockholders The Estée Lauder Companies Inc.: We have audited the accompanying consolidated balance sheets of The Estée Lauder Companies Inc. and subsidiaries ("the Company") as of June 30, 2015 and 2014, and the related consolidated statements of earnings, comprehensive...

  • Page 124
    ...Securities and Exchange Commission website at www.sec.gov. Common Stock Information The Class A Common Stock of The Estée Lauder Companies Inc. is listed on the New York Stock Exchange with the symbol EL. Quarterly Per Share Market Prices and Cash Dividends on Common Stock Fiscal 2015 Quarter Ended...

  • Page 125
    ... Louis Vuitton S.A., The Procter & Gamble Company and Shiseido Company, Ltd. Cumulative five-year total stockholder return $350 300 250 200 150 100 50 0 June 2010 June 2011 June 2012 June 2013 S&P 500 June 2014 Peer Group June 2015 The Estée Lauder Companies Inc. 122 THE EST{E L AUDER...

  • Page 126
    ..., Clear Improvement, Clinique, Clinique Pop, Darphin, Frédéric Malle, Exquisage, GLAMGLOW, Hairdresser's Invisible Oil, Jo Malone London, Le Labo, La Mer, M.A.C, M.A.C AIDS Fund, M.A.C Viva Glam, New Dimension, Original Skin, Out of Trouble, Portrait of a Lady, Pure Color Lip Envy, RODIN olio...

  • Page 127
    ... generated by equivalent virgin fiber production. Purchasing green power significantly reduces greenhouse gas emissions, as well. (Cars per year - the average car emits 11,013 pounds of CO2 in a year.) Savings of these greenhouse gas emissions are equivalent to: 3,061.23 hours Number of kilowatt...

  • Page 128