Estee Lauder 2009 Annual Report Download - page 139

138 THE EST{E LAUDER COMPANIES INC.
outstanding debt under this facility. As of June 30, 2009,
the Company was in compliance with all related fi nancial
and other restrictive covenants, including limitations on
indebtedness and liens. The fi nancial covenant of this
facility requires an interest expense coverage ratio of
greater than 3:1 as of the last day of each fi scal quarter.
There are no other conditions where the lender’s commit-
ments may be withdrawn, other than certain events of
default, as defi ned in the facility, which are customary for
facilities of this type.
The Company maintains uncommitted credit facilities
in various regions throughout the world. Interest rate
terms for these facilities vary by region and refl ect prevail-
ing market rates for companies with strong credit ratings.
During fi scal 2009 and 2008, the monthly average amount
outstanding was approximately $28.2 million and $17.4
million, respectively, and the annualized monthly weighted
average interest rate incurred was approximately 13.4%
and 5.76%, respectively.
Refer to Note 14 for the Company’s projected debt
service payments over the next fi ve fi scal years.
NOTE 11 — DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures
through a controlled program of risk management that
includes the use of derivative fi nancial instruments. The
Company primarily enters into foreign currency forward
and option contracts to reduce the effects of fl uctuating
foreign currency exchange rates and interest rate deriva-
tives to manage the effects of interest rate movements on
the Company’s aggregate liability portfolio. The Company
also enters into foreign currency forward and option con-
tracts, not designated as hedging instruments, to mitigate
the change in fair value of specifi c assets and liabilities on
the balance sheet. The Company does not utilize deriva-
tive fi nancial instruments for trading or speculative pur-
poses. Costs associated with entering into these derivative
financial instruments have not been material to the
Company’s consolidated fi nancial results.
For each derivative contract entered into where the
Company looks to obtain special hedge accounting treat-
ment, the Company formally documents all relationships
between hedging instruments and hedged items, as well
as its risk-management objective and strategy for under-
taking the hedge transaction, the nature of the risk being
hedged, how the hedging instruments’ effectiveness in
offsetting the hedged risk will be assessed prospectively
and retrospectively, and a description of the method of
measuring ineffectiveness. This process includes linking all
derivatives to specifi c assets and liabilities on the balance
sheet or to specific firm commitments or forecasted
transactions. The Company also formally assesses, both at
the exchange rate at June 30, 2009). The interest rate
applicable to each such credit shall be up to a maximum
of 175 basis points per annum above the spot rate charged
by the lender or the lender’s fl oating call rate agreed to
by the Company at each borrowing. There were no
debt issuance costs incurred related to this agreement.
The outstanding balance at June 30, 2009 ($12.5 million
at the exchange rate at June 30, 2009) is classified
as short-term debt on the Company’s consolidated
balance sheet.
As of June 30, 2009, the Company had a fi xed rate
promissory note agreement with a fi nancial institution pur-
suant to which the Company may borrow up to $150.0
million in the form of loan participation notes through one
of its subsidiaries in Europe. The interest rate on borrow-
ings under this agreement is at an all-in fi xed rate deter-
mined by the lender and agreed to by the Company at the
date of each borrowing. At June 30, 2009, no borrowings
were outstanding under this agreement. Debt issuance
costs incurred related to this agreement were de minimis.
As of June 30, 2009, the Company had a 1.5 billion
Japanese yen ($15.7 million at the exchange rate at
June 30, 2009) revolving credit facility that expires on
March 31, 2010 and a 1.5 billion Japanese yen ($15.7 mil-
lion at the exchange rate at June 30, 2009) revolving
credit facility that expires on March 31, 2012. The interest
rates on borrowings under these credit facilities are based
on TIBOR (Tokyo Interbank Offered Rate) plus .45% and
.75%, respectively and the facility fees incurred on
undrawn balances are 15 basis points and 25 basis points,
respectively. At June 30, 2009, no borrowings were out-
standing under these facilities.
The Company has 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 the Company’s commercial paper program, to
repurchase shares of its 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
1
/ 2 % plus the Federal funds rate. The Company
incurred costs of approximately $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 the Company’s current credit
ratings. This facility also contains a cross-default provision
whereby a failure to pay other material fi nancial obliga-
tions in excess of $50.0 million (after grace periods and
absent a waiver from the lenders) would result in an event
of default and the acceleration of the maturity of any