Estee Lauder 2010 Annual Report Download - page 98

THE EST{E LAUDER COMPANIES INC. 97
FISCAL 2009 AS COMPARED WITH FISCAL 2008
NET SALES
Net sales decreased 7%, or $587.0 million, to $7,323.8
million, reflecting declines in each of our major product
categories. Net sales decreases in Europe, the Middle East
& Africa and the Americas reflected customer destocking
in all of our major product categories. These declines
were partially offset by growth in Asia/Pacific. Excluding
the $389.4 million impact of foreign currency translation,
net sales decreased 2%. The following discussions of Net
Sales by Product Categories and Geographic Regions
exclude the impact of returns associated with restructur-
ing activities of $8.1 million incurred in fiscal 2009. We
believe the following analysis of net sales better reflects
the manner in which we conduct and view our business.
Product Categories
Skin Care Net sales of skin care products decreased 4%,
or $110.8 million, to $2,886.0 million, primarily reflecting
declines in net sales from our heritage brands. Despite the
difficult economic environment and the unfavorable
impact of foreign currency translation, we continued to
enhance select product lines to address the needs of our
consumers. The fiscal 2009 launches of Perfectionist
[CP+] Wrinkle Lifting Serum and the new Time Zone line
of moisturizing products from Estée Lauder and Super-
defense SPF 25 Age Defense Moisturizer and Youth Surge
SPF 15 Age Decelerating Moisturizer from Clinique con-
tributed incremental sales of approximately $181 million,
combined. While these product launches contributed
favorably to the category, they were partially offset by
lower sales from other existing products in the Perfection-
ist, Idealist and Re-Nutriv lines from Estée Lauder and the
Superdefense and Repairwear lines from Clinique of
approximately $163 million, combined. Net sales of most
other product lines in this category also experienced
declines, particularly in Europe, the Middle East & Africa
and the Americas, partially offset by double-digit growth
in Asia/Pacific. Excluding the impact of foreign currency
translation, skin care net sales increased 2%.
Makeup Makeup net sales decreased 6%, or $169.5 mil-
lion, to $2,830.9 million, primarily reflecting lower net
sales from our heritage brands of approximately $162 mil-
lion. Lower net sales in the makeup product category also
reflected a net decrease from our makeup artist brands of
approximately $14 million, driven by the Americas region,
partially offset by additional points of distribution interna-
tionally. These declines were mitigated in part by fiscal
2009 product launches of reformulated Superfit Makeup
and High Impact Lip Colour SPF 15 from Clinique, as well
as Estée Lauder Signature Blush, which contributed
INTEREST EXPENSE ON DEBT EXTINGUISHMENT
During the fourth quarter of fiscal 2010, we completed a
cash tender offer for $130.0 million principal amount of
our 2012 Senior Notes at a price of 108.500% of the prin-
cipal amount and for $69.9 million principal amount of
our 2013 Senior Notes at a tender price of 118.813%
of the principal amount. We recorded a pre-tax expense on
the extinguishment of debt of $27.3 million representing
the tender premium of $24.2 million, the pro-rata write-off
of $2.4 million of unamortized terminated interest rate
swap, issuance costs and debt discount, and $0.7 million
in tender offer costs associated with both series of notes.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign,
state and local income taxes. The effective rate differs
from statutory rates primarily due to the effect of state
and local income taxes, tax rates in foreign jurisdictions
and income tax reserve adjustments, which represent
changes in our net liability for unrecognized tax benefits
including tax settlements and lapses of the applicable stat-
utes of limitations. Our effective tax rate will change from
year to year based on recurring and non-recurring factors
including, but not limited to, the geographical mix of earn-
ings, enacted tax legislation, state and local income taxes,
tax reserve adjustments, the ultimate disposition of
deferred tax assets relating to stock-based compensation
and the interaction of various global tax strategies.
The effective rate for income taxes for the year ended
June 30, 2010 was 29.9% as compared with 33.8% in the
prior year. The decrease in the effective income tax rate of
390 basis points was primarily attributable to tax reserve
adjustments including favorable tax settlements as well as
lapses of statutes of limitations partially offset by a higher
effective tax rate related to our foreign operations.
NET EARNINGS ATTRIBUTABLE TO
THE ESTÉE LAUDER COMPANIES INC.
Net earnings attributable to The Estée Lauder Companies
Inc. as compared with fiscal 2009 increased over 100%,
or $259.9 million, to $478.3 million and diluted net earn-
ings per common share increased over 100% from $1.10
to $2.38. The results in the current year include the impact
of total charges associated with restructuring activities of
$55.9 million, after tax, or $.28 per diluted common share
and interest expense on debt extinguishment of $17.5 mil-
lion, after tax, or $.09 per diluted common share. The
results in fiscal 2009 include the impact of total charges
associated with restructuring activities of $61.7 million,
after tax, or $.31 per diluted common share.