Estee Lauder 2015 Annual Report Download - page 78

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THE EST{E LAUDER COMPANIES INC. 75
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of funds historically have been cash
flows from operations, borrowings pursuant to our com-
mercial paper program, borrowings from the issuance of
long-term debt and committed and uncommitted credit
lines provided by banks and other lenders in the United
States and abroad. At June 30, 2015, we had cash and
cash equivalents of $1,021.4 million compared with
$1,629.1 million at June 30, 2014. Our cash and cash
equivalents are maintained at a number of financial insti-
tutions. To mitigate the risk of uninsured balances, we
select financial institutions based on their credit ratings
and financial strength and perform ongoing evaluations of
these institutions to limit our concentration risk exposure.
The decline in cash balances reflects the change in our
cash investment strategy that we implemented in the fiscal
2015 second quarter, to invest a portion of our cash and
cash equivalents in short- and long-term investments. Our
investment objectives include capital preservation, main-
taining adequate liquidity, asset diversification, and
achieving appropriate returns within the guidelines set
forth in our investment policy. These investments are
classified as available-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 includes cash paid at
closing plus additional amounts to be paid in the future,
a portion of which is contingent on the achievement of
certain future operating results. The amounts paid at clos-
ing, amounting to $237.2 million, were funded by cash on
hand and through the issuance of commercial paper. The
additional amounts are expected to be paid from fiscal
2018 through fiscal 2020 with the exception of working
capital adjustments that were paid during fiscal 2015 and
additional working capital adjustments and a purchase
price true-up payment that are expected to be paid in the
first quarter of fiscal 2016. The aggregate acquisition-date
fair value of these transactions was approximately
$437 million.
Our business is seasonal in nature and, accordingly,
our working capital needs vary. From time to time, we
may enter into investing and financing transactions that
require additional funding. To the extent that these needs
exceed cash from operations, we could, subject to market
conditions, issue commercial paper, issue long-term debt
securities or borrow under our revolving credit facilities.
Based on past performance and current expectations,
we believe that cash on hand, cash generated from oper-
ations, available credit lines and access to credit markets
will be adequate to support currently planned business
operations, information systems enhancements, capital
expenditures, potential stock repurchases, commitments
and other contractual obligations on both a near-term and
long-term basis. Our cash and cash equivalents and short-
and long-term investment balances at June 30, 2015
include approximately $1,694 million of cash and short-
and long-term investments in offshore jurisdictions associ-
ated with our permanent reinvestment strategy. We do
not believe that the indefinite reinvestment of these funds
offshore impairs our ability to meet our domestic debt or
working capital obligations. If these indefinitely reinvested
earnings were repatriated into the United States as divi-
dends, we would be subject to additional taxes.
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.
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
evaluated independently of any other rating. As of August
14, 2015, 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.