Estee Lauder 2008 Annual Report Download - page 70

68 THE EST{E LAUDER COMPANIES INC.
We have an overdraft borrowing agreement with a
fi nancial institution pursuant to which our subsidiary in
Turkey may be credited to satisfy outstanding negative
daily balances arising from its business operations. The
total balance outstanding at any time shall not exceed
20.0 million Turkish lira. The interest rate applicable to
each such credit shall be 40 basis points per annum above
the spot rate charged by the lender or the lender’s fl oat-
ing call rate agreed to by us at each borrowing. There
were no debt issuance costs incurred related to this agree-
ment. The outstanding balance at June 30, 2008 ($13.1
million at the exchange rate at June 30, 2008) is classifi ed
as short-term debt in our consolidated balance sheet. Sub-
sequent to June 30, 2008, this facility was increased to
30.0 million Turkish lira and the interest rate spread on
borrowings was increased to 55 basis points per annum.
We have a 3.0 billion yen revolving credit facility that
expires on March 24, 2009. The interest rate on borrow-
ings under the credit facility is based on TIBOR (Tokyo
Interbank Offered Rate) and a 10 basis point facility fee is
incurred on the undrawn balance. At June 30, 2008, no
borrowings were outstanding under this facility.
Our business is seasonal in nature and, accordingly,
our working capital needs vary. From time to time, we
may enter into investing and fi nancing 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.
Total debt as a percent of total capitalization was 42%
at June 30, 2008 and 48% at June 30, 2007.
The effects of infl ation have not been signifi cant to our
overall operating results in recent years. Generally, we
have been able to introduce new products at higher sell-
ing prices or increase selling prices suffi ciently to offset
cost increases, which have been moderate.
Based on past performance and current expectations,
we believe that cash on hand, cash generated from
operations, available credit lines and access to credit
markets will be adequate to support currently planned
business operations, information systems enhancements,
capital expenditures, stock repurchases, commitments
and other contractual obligations on both a near-term and
long-term basis.
Cash Flows
Net cash provided by operating activities was $690.1 mil-
lion, $661.6 million and $709.8 million in fi scal 2008,
2007 and 2006, respectively. The increase in fi scal 2008
as compared with fi scal 2007 primarily refl ected a higher
level of cash generated from net earnings before non-cash
items such as depreciation, amortization and stock-based
We have a $750.0 million commercial paper program
under which we may issue commercial paper in the
United States. Our commercial paper is currently rated
A-1 by Standard & Poor’s and P-1 by Moody’s. Our long-
term credit ratings are A with a stable outlook by Standard
& Poor’s and A2 with a stable outlook by Moody’s. At
June 30, 2008, we had $83.9 million of commercial paper
outstanding, which we may refi nance on a periodic basis
as it matures at then-prevailing market interest rates.
We also have $209.9 million in additional uncommitted
credit facilities, of which $28.5 million was used as of
June 30, 2008.
We have an undrawn $750.0 million senior unsecured
revolving credit facility that expires on April 26, 2012. This
facility may be used primarily to provide credit support for
our commercial paper program, to repurchase shares of
our common stock and for general corporate purposes.
Up to the equivalent of $250 million of the credit facility
is available for multi-currency loans. The interest rate on
borrowings under the credit facility is based on LIBOR or
on the higher of prime, which is the rate of interest
publicly announced by the administrative agent, or ½%
plus the Federal funds rate. We incurred costs of approxi-
mately $0.3 million to establish the facility which will be
amortized over the term of the facility. The credit facility
has an annual fee of $0.4 million, payable quarterly, based
on our current credit ratings. As of June 30, 2008, we
were in compliance with all related fi nancial and other
restrictive covenants, including limitations on indebted-
ness and liens.
In July 2007, we acquired Ojon Corporation. As part of
the purchase price, we issued (i) a promissory note due
July 31, 2009 with a notional value of $7.0 million (present
value of $7.4 million at June 30, 2008), bearing interest at
10.00% due at maturity and (ii) a promissory note due
August 31, 2012 with a notional amount of $13.5 million
(present value of $15.7 million at June 30, 2008), bearing
interest at 10.00% payable annually on July 31. The notes
due in 2009 and 2012 were recorded in the accompany-
ing consolidated balance sheet at present value using
effective rates of 5.11% and 5.42%, respectively.
We have a fi xed rate promissory note agreement with
a fi nancial institution pursuant to which we may borrow
up to $150.0 million in the form of loan participation notes
through one of our subsidiaries in Europe. The interest
rate on borrowings under this agreement is at an all-in
fi xed rate determined by the lender and agreed to by us at
the date of each borrowing. At June 30, 2008, no borrow-
ings were outstanding under this agreement. Debt
issuance costs incurred related to this agreement were
de minimis.