Estee Lauder 2015 Annual Report Download - page 71

68 THE EST{E LAUDER COMPANIES INC.
Product Categories
The overall change in operating results in each product
category was negatively impacted by the accelerated
orders into the fiscal 2014 fourth quarter from certain of
our retailers due to our implementation of SMI as follows:
skin care, approximately $144 million; makeup, approxi-
mately $82 million; fragrance, approximately $28 million;
and the impact on hair care was de minimis.
Skin care operating income decreased 15%, or $143.6
million, to $832.2 million, reflecting the impact of the
accelerated orders and a difficult comparison to the signif-
icant launch activity in the prior year by certain of our
heritage brands. Makeup operating income decreased
8%, or $56.6 million, to $659.3 million, primarily due
to lower results from our heritage brands, reflecting
the impact of the accelerated orders, partially offset
by improved results from our makeup artist brands.
Fragrance operating income decreased 20%, or $21.3 mil -
lion, to $82.8 million, reflecting the lower launch activity
from certain designer fragrances and heritage brands,
partially offset by higher results from certain of our luxury
fragrance brands. Hair care operating results increased
12%, or $4.2 million, to $37.9 million, primarily reflecting
higher net sales driven by expanded global distribution
and new product launches, as well as lower investment
spending as compared with the higher level of spending
in the prior year to support the Invati line of products.
Adjusting for the impact of the accelerated orders, skin
care operating results would have been flat and makeup,
fragrance and hair care operating results would have
increased 4%, 7% and 13%, respectively.
Geographic Regions
The overall change in operating results in each geographic
region was negatively impacted by the accelerated orders
into the fiscal 2014 fourth quarter from certain of our
retailers due to our implementation of SMI as follows:
Americas, approximately $106 million; Europe, the Middle
East & Africa, approximately $106 million; and Asia/
Pacific, approximately $42 million.
Operating income in the Americas decreased 44%, or
$235.0 million, to $302.3 million, primarily reflecting the
decrease in net sales from our heritage brands in the
United States and Canada associated with the accelerated
orders and the significant launch activity in the prior year
related to the reformulation of certain iconic products, as
well as higher general and administrative expenses, which
include acquisition-related expenses. This decrease was
partially offset by lower advertising, merchandising and
sampling spending by our heritage brands due to the
lower launch activity and a reallocation of spending
among media formats. The region also benefited from
higher results in Latin America, primarily driven by lower
charges related to the remeasurement of net monetary
assets in Venezuela. Adjusting for the impact of the accel-
erated orders, operating income in the Americas would
have decreased 27%.
In Europe, the Middle East & Africa, operating income
increased less than 1%, or $5.0 million, to $943.3 million.
Higher operating results in the United Kingdom, the
Middle East, France, India, Russia and Switzerland of
approximately $83 million, combined, were partially off-
set by lower 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 impact of the accelerated orders,
operating income in Europe, the Middle East & Africa
would have increased 13%.
In Asia/Pacific, operating income increased 3%, or
$11.6 million, to $360.7 million. Higher results in China,
Korea and Australia totaled approximately $49 million,
com bined. These higher results were partially offset
by lower results in Japan, due to the accelerated orders,
and Singapore of approximately $40 million, combined.
The lower results in Singapore were primarily due to lower
net sales. Adjusting for the impact of the accelerated
orders, operating income in Asia/Pacific would have
increased 16%.
INTEREST EXPENSE
Interest expense increased to $60.0 million as compared
with $59.4 million in the prior year, primarily due to
higher short- and long-term debt levels.
INTEREST INCOME AND INVESTMENT
INCOME, NET
Interest income and investment income, net increased to
$14.3 million as compared with $8.6 million in the prior
year, primarily due to higher investment income as a result
of an increase in short- and long-term investment bal-
ances and rates in connection with our modified cash
investment strategy, as well as realized gains on invest-
ments. See “Financial Condition” below for further discus-
sion of our modified cash investment strategy.