Estee Lauder 2015 Annual Report Download - page 76

THE EST{E LAUDER COMPANIES INC. 73
brands and media formats which positively impacted
operating income in the skin care and makeup product
categories. Fragrance operating income decreased 13%,
or $16.2 million, to $104.1 million, primarily reflecting
higher investment spending behind fiscal 2014 major
launches, partially offset by higher results from our luxury
brands. The fiscal 2014 remeasurement of net monetary
assets in Venezuela impacted the skin care, makeup and
fragrance product categories by $12 million, $16 million
and $10 million, respectively. Hair care operating results
increased 26%, or $7.0 million, to $33.7 million, primarily
reflecting higher results from Aveda and strategic reduc-
tions in spending behind Ojon products. Adjusting for the
accelerated orders, operating income in the skin care,
makeup, fragrance and hair care product categories
would have increased (decreased) 9%, 16%, (25%) and
26%, respectively.
Geographic Regions
The overall change in operating results in each geographic
region benefited as a result of the accelerated orders
during fiscal 2014, as discussed above, as follows: Americas ,
approximately $53 million; Europe, the Middle East &
Africa, approximately $53 million; and Asia/Pacific,
approximately $21 million.
Operating income in the Americas increased 27%, or
$114.1 million, to $537.3 million, primarily reflecting the
increase in net sales, as previously discussed, as well as a
more measured approach to spending. These improve-
ments were partially offset by the fiscal 2014 remeasure-
ment of net monetary assets in Venezuela. 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 approximately $126 million,
combined, primarily reflecting higher sales. The higher
results in our travel retail business also reflected the
impact of the accelerated orders. These improvements
were partially offset by lower operating results in France
and the Middle East of approximately $10 million, com-
bined. The lower results in France were due to higher
spending on advertising, merchandising and sampling.
Adjusting for the impact of the accelerated orders, oper-
ating income in Europe, the Middle East & Africa would
have increased 9%.
In Asia/Pacific, operating income increased 14%, or
$41.9 million, to $349.1 million. Higher results in Korea,
Japan and Hong Kong totaled approximately $45 million,
combined. The higher results in Korea were due to lower
spending on advertising, merchandising and sampling
and the higher results in Japan primarily reflected the
impact of the accelerated orders. The higher results in
the region were partially offset by lower operating results
of approximately $11 million in China and Thailand,
combined. The lower results from China were primarily
driven by an increase in investment spending as a result of
new product introductions and increased distribution.
Adjusting for the impact of the accelerated orders, oper-
ating income in Asia/Pacific would have increased 7%.
INTEREST EXPENSE
Interest expense decreased to $59.4 million as compared
with $63.1 million in fiscal 2013, primarily due to the
refinancing of debt at lower rates in fiscal 2013.
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.
INTEREST INCOME AND INVESTMENT
INCOME, NET
Interest income and investment income, net increased to
$8.6 million, which remained relatively unchanged com-
pared with $8.3 million in fiscal 2013.
OTHER INCOME
We recognized $23.1 million as other income during fis-
cal 2013, primarily reflecting the amended agreement
related to the August 2007 sale of Rodan + Fields (a brand
then owned by us).
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 appli-
cable 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 geo-
graphical mix of earnings, enacted tax legislation, state
and local income taxes, tax reserve adjustments, the ulti-
mate disposition of deferred tax assets relating to stock-
based compensation and the interaction of various global