Estee Lauder 2008 Annual Report Download - page 72

70 THE EST{E LAUDER COMPANIES INC.
and 2007, we made cash contributions to our international
defi ned benefi t pension plans of $35.3 million and $24.0
million, respectively. We expect to make contributions
under these plans during fi scal 2009 of approximately
$46 million.
Commitments and Contingencies
Certain of our business acquisition agreements include
“earn-out” provisions. These provisions generally require
that we pay to the seller or sellers of the business addi-
tional amounts based on the performance of the acquired
business. Since the size of each payment depends upon
performance of the acquired business, we do not expect
that such payments will have a material adverse impact on
our future results of operations or fi nancial condition.
For additional contingencies, refer to “Item 3. Legal
Proceedings.”
Contractual Obligations
The following table summarizes scheduled maturities of
our contractual obligations for which cash fl ows are fi xed
and determinable as of June 30, 2008:
operating results will depend on economic conditions,
employee demographics, mortality rates, the number of
participants electing to take lump-sum distributions,
investment performance and funding decisions.
For fi scal 2008 and 2007, there was no minimum con-
tribution to the U.S. Qualifi ed Plan required by ERISA.
During the fi rst quarter of fi scal 2007, the Pension Protec-
tion Act of 2006 was adopted into law in the United
States. Certain provisions of this law changed the cal-
culation related to the maximum contribution amount
deductible for income tax purposes. As a result of these
provisions, we made discretionary contributions totaling
$25.0 million and $20.0 million to the U.S. Qualifi ed Plan
during fi scal 2008 and 2007, respectively. During fi scal
2009, we expect to make cash contributions totaling
approximately $15 million to the U.S. Qualifi ed Plan.
For fi scal 2008 and 2007, we made benefi t payments
under our non-qualified domestic noncontributory
pension plan of $7.7 million and $5.3 million, respectively.
We expect to make benefi t payments under this plan dur-
ing fi scal 2009 of approximately $7 million. For fi scal 2008
Payments Due in Fiscal
Total 2009 2010 2011 2012 2013 Thereafter
(In millions)
Debt service(1) $2,192.2 $ 176.6 $ 70.4 $ 61.1 $309.8 $ 56.8 $1,517.5
Operating lease commitments 1,338.5 200.8 180.9 156.0 132.6 119.3 548.9
Unconditional purchase obligations(2) 2,081.2 1,157.0 228.4 191.3 158.4 150.0 196.1
Gross unrecognized tax benefi ts
and interest —current(3) 75.7 75.7 — — — — —
Total contractual obligations $5,687.6 $1,610.1 $479.7 $408.4 $600.8 $326.1 $2,262.5
(1) Includes long-term and short-term debt and the related projected interest costs, and to a lesser extent, capital lease commitments. Interest costs
on long-term and short-term debt are projected to be $57.6 million in fi scal 2009, $58.8 million in fi scal 2010, $57.4 million in each of the years
from fi scal 2011 through fi scal 2012, $42.5 million in fi scal 2013 and $713.8 million thereafter. Projected interest costs on variable rate instruments
were calculated using market rates at June 30, 2008. Refer to Note 11 of Notes to Consolidated Financial Statements.
(2) Unconditional purchase obligations primarily include inventory commitments, estimated future earn-out payments, estimated royalty payments
pursuant to license agreements, advertising commitments, capital improvement commitments, planned funding of pension and other post-
retirement benefi t obligations, commitments pursuant to executive compensation arrangements and obligations related to our cost savings
initiative. Future earn-out payments and future royalty and advertising commitments were estimated based on planned future sales for the term
that was in effect at June 30, 2008, without consideration for potential renewal periods.
(3) Refer to Note 9 of Notes to Consolidated Financial Statements for information regarding unrecognized tax benefi ts. During the fourth quarter of
fi scal 2008, we made a cash payment of $35.0 million to the U.S. Treasury as an advance deposit, which is not refl ected as a reduction to the
$75.7 million. As of June 30, 2008, the noncurrent portion of our unrecognized tax benefi ts, including related accrued interest and penalties was
$177.3 million. At this time, the settlement period for the noncurrent portion of the unrecognized tax benefi ts, including related accrued
interest and penalties, cannot be determined and therefore was not included.
Derivative Financial Instruments and
Hedging Activities
We address certain fi nancial exposures through a con-
trolled program of risk management that includes the use
of derivative fi nancial instruments. We primarily enter into
foreign currency forward and option contracts to reduce
the effects of fl uctuating foreign currency exchange rates.
We also enter into interest rate derivative contracts to
manage the effects of fl uctuating interest rates. We cate-
gorize these instruments as entered into for purposes
other than trading.
For each derivative contract entered into where we look
to obtain special hedge accounting treatment, we formally
document the relationship between the hedging instru-
ment and hedged item, as well as its risk-management
objective and strategy for undertaking the hedge, the