Estee Lauder 2008 Annual Report Download - page 69

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THE EST{E LAUDER COMPANIES INC. 67
DISCONTINUED OPERATIONS
On September 30, 2005, we committed to a plan to sell
and on April 10, 2006, we completed the sale of certain
assets and operations of our reporting unit that marketed
and sold Stila brand products. For the fi scal year ended
June 30, 2007, $0.5 million, net of tax, of operating
income was refl ected as discontinued operations, refl ect-
ing the conclusion of transitional distribution services
provided to the purchaser. The fi scal 2006 charge of
$80.3 million, net of tax, refl ected the then-anticipated
loss on the sale of the business of $69.9 million, net of tax,
and the operating loss of $10.4 million, net of tax.
NET EARNINGS
Net earnings as compared with fi scal 2006 increased
$205.0 million to $449.2 million and diluted net earnings
per common share improved 93% from $1.12 to $2.16.
Net earnings from continuing operations as compared
with fi scal 2006 increased by $124.2 million, or 38%, to
$448.7 million and diluted net earnings per common
share from continuing operations increased 45% from
$1.49 to $2.16.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash
fl ows 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, 2008, we had cash and
cash equivalents of $401.7 million compared with $253.7
million at June 30, 2007.
At June 30, 2008, our outstanding borrowings were
as follows:
partially offset by modest combined operating income
growth from the remaining affi liates in this region.
In Asia/Pacifi c, operating income increased 33%, or
$23.1 million, to $93.2 million. This increase refl ected
improved results of approximately $23 million in Hong
Kong, China, Australia and Korea.
INTEREST EXPENSE, NET
Net interest expense was $38.9 million as compared with
$23.8 million in fi scal 2006. This change primarily resulted
from higher average debt balances, primarily associated
with the funding of our accelerated share repurchase pro-
gram, and higher average interest rates. Also contributing
to the increase was reduced interest income generated
from lower average investment balances internationally,
partially offset by higher average investment rates. These
increases were partially offset by the capitalization of
interest expense on internally developed software in con-
nection with the upgrade of our information systems.
PROVISION FOR INCOME TAXES
The provision for income taxes represents Federal, for-
eign, state and local income taxes. The effective rate dif-
fers from statutory rates due to the effect of state and
local taxes, tax rates in foreign jurisdictions and certain
nondeductible expenses. Our effective tax rate will
change from year to year based on non-recurring and
recurring factors including, but not limited to, the geo-
graphical mix of earnings, enacted tax legislation, state
and local taxes, tax audit settlements and the interaction
of various global tax strategies. The effective rate for
income taxes for the year ended June 30, 2007 was 35.9%
as compared with 43.6% in fi scal 2006. The decrease in
the effective income tax rate was primarily attributable to
the fi scal 2006 effect of the IRS tax settlement of approxi-
mately 770 basis points.
Long-term Debt Short-term Debt Total Debt
($ in millions)
6.00% Senior Notes, due May 15, 2037 (“2037 Senior Notes”)(1) $ 296.2 $ — $ 296.2
5.75% Senior Notes, due October 15, 2033 (“2033 Senior Notes”)(2) 197.5 — 197.5
5.55% Senior Notes, due May 15, 2017 (“2017 Senior Notes”)(3) 310.4 — 310.4
6.00% Senior Notes, due January 15, 2012 (“2012 Senior Notes”)(4) 242.0 — 242.0
$13.5 million promissory note due August 31, 2012(5) 15.7 — 15.7
$7.0 million promissory note due July 31, 2009(6) 7.4 — 7.4
Commercial paper maturing through July 2008 (2.24% average interest rate) — 83.9 83.9
Turkish lira overdraft facility — 13.1 13.1
Other borrowings 9.0 21.7 30.7
$1,078.2 $118.7 $1,196.9
(1) Consists of $300.0 million principal and unamortized debt discount of $3.8 million.
(2) Consists of $200.0 million principal and unamortized debt discount of $2.5 million.
(3)
Consists of $300.0 million principal, unamortized debt discount of $0.4 million and a $10.8 million adjustment to refl ect the fair value of outstanding interest rate swaps.
(4) Consists of $250.0 million principal, unamortized debt discount of $0.4 million and a $7.6 million adjustment to refl ect the remaining termination value of an interest
rate swap that is being amortized to interest expense over the life of the debt.
(5) Consists of $13.5 million face value and unamortized premium of $2.2 million.
(6) Consists of $7.0 million face value and unamortized premium of $0.4 million.