Estee Lauder 2011 Annual Report Download - page 107

THE EST{E LAUDER COMPANIES INC. 105
In Asia/Pacific, operating income increased 19%, or
$39.7 million, to $252.0 million. Virtually all countries in
the region reported higher operating results, led by
approximately $46 million in China, Hong Kong, Taiwan
and Malaysia, combined. Partially offsetting these
increases were lower operating results of approximately
$7 million in Japan and Australia. At this time, we believe
the ongoing consequences of the disasters in Japan may
continue for the short term, however, we cannot predict
with certainty the magnitude or duration of the impact
and we will continue to monitor the situation.
INTEREST EXPENSE, NET
Net interest expense was $63.9 million as compared with
$74.3 million in the prior year. Interest expense decreased
primarily due to a reduction of debt balances that resulted
from the $200 million debt tender offer we completed in
the fourth quarter of fiscal 2010.
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 U.S. federal,
foreign, state and local income taxes. The effective rate
differs from the federal statutory rate primarily due to the
effect of state and local income taxes, the taxation of for-
eign income and income tax reserve adjustments, which
represent changes in our net liability for unrecognized tax
benefits including tax settlements and lapses of the appli-
cable statutes 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 earnings, 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 income tax rate for fiscal 2011 was 31.4%
as compared with 29.9% in the prior year. The increase in
the effective income tax rate of 150 basis points was
principally due to a decrease in favorable tax reserve
adjustments as compared with the prior year.
NET EARNINGS ATTRIBUTABLE TO
THE ESTÉE LAUDER COMPANIES INC.
Net earnings attributable to The Estée Lauder Companies
Inc. as compared with fiscal 2010 increased 47%, or
$222.5 million, to $700.8 million and diluted net earnings
per common share increased 46% from $2.38 to $3.48.
The results in the current year include the impact of total
returns and charges associated with restructuring
activities of $41.7 million, after tax, or $0.21 per diluted
common share. The results in fiscal 2010 include the
impact of total returns and 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 million, after tax, or $.09 per
diluted common share.
FISCAL 2010 AS COMPARED WITH FISCAL 2009
NET SALES
Net sales increased 6%, or $472.0 million, to $7,795.8 mil-
lion, reflecting increases in Asia/Pacific and Europe, the
Middle East & Africa, and, to a lesser extent, the Americas.
Net sales increases in the skin care, makeup and hair care
product categories were partially offset by declines in the
fragrance category. Excluding the impact of foreign cur-
rency translation, net sales increased 5%. The following
discussions of Net Sales by Product Categories and
Geographic Regions exclude the impact of returns associ-
ated with restructuring activities of $15.7 million recorded
during fiscal 2010. 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 increased 12%,
or $341.1 million, to $3,227.1 million, primarily reflecting
our strategic focus on growing this category through
creativity and innovation, particularly high growth
segments, such as products that address the visible signs
of aging. The fiscal 2010 launches of Advanced Night
Repair Synchronized Recovery Complex, Advanced
Night Repair Eye Synchronized Complex, and Hydrationist
Maximum Moisture Crème and Lotion from Estée Lauder
contributed incremental sales of approximately $247 mil-
lion, combined. Also contributing to the category were
the introductions of Even Better Clinical Dark Spot
Corrector, Youth Surge Night Age Decelerating Night
Moisturizer, and Even Better Skin Tone Correcting
Moisturizer SPF 20 from Clinique, and The Regenerating