Estee Lauder 2011 Annual Report Download - page 111

THE EST{E LAUDER COMPANIES INC. 109
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 rate for income taxes for fiscal 2010 was
29.9% as compared with 33.8% for fiscal 2009. The
decrease in the effective income tax rate of 390 basis
points was primarily attributable to tax reserve adjust-
ments including favorable tax settlements as well as lapses
of statutes of limitations partially offset by a higher effec-
tive tax rate related to our foreign operations.
NET EARNINGS ATTRIBUTABLE TO
THE EST{E 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 fiscal 2010 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
million, 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.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal sources of funds historically have been cash
flows from operations, borrowings pursuant to our com-
mercial paper program, borrowings from the issuance of
long-term debt and committed and uncommitted credit
lines provided by banks and other lenders in the United
States and abroad. At June 30, 2011, we had cash and
cash equivalents of $1,253.0 million compared with
$1,120.7 million at June 30, 2010. Our cash and cash
equivalents are maintained at a number of financial insti-
tutions. As of June 30, 2011, less than 25% of our total
cash was insured by governmental agencies. To mitigate
the risk of uninsured balances, we select financial institu-
tions based on their credit ratings and financial strength
and perform ongoing evaluations of these institutions to
limit our concentration risk exposure.
Our business is seasonal in nature and, accordingly,
our working capital needs vary. From time to time, we
may enter into investing and financing 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.
Based on past performance and current expectations,
we believe that cash on hand, cash generated from opera-
tions, available credit lines and access to credit markets
will be adequate to support currently planned business
operations, information systems enhancements, capital
expenditures, potential stock repurchases, commitments
and other contractual obligations on both a near-term and
long-term basis. Our cash and cash equivalents balance at
June 30, 2011 includes approximately $508 million of
cash in offshore jurisdictions associated with our perma-
nent reinvestment strategy. We do not believe that the
indefinite reinvestment of these funds offshore impairs
our ability to meet our domestic debt or working capital
obligations.
The effects of inflation have not been significant to our
overall operating results in recent years. Generally, we
have been able to introduce new products at higher
prices, increase prices and implement other operating
efficiencies to sufficiently offset cost increases, which
have been moderate.
Credit Ratings
Changes in our credit ratings will likely result in changes in
our borrowing costs. Our credit ratings also impact the
cost of our revolving credit facility as discussed below.
Downgrades in our credit ratings may reduce our ability
to issue commercial paper and/or long-term debt and
would likely increase the relative costs of borrowing.
A credit rating is not a recommendation to buy, sell, or
hold securities, is subject to revision or withdrawal at any
time by the assigning rating organization, and should be
evaluated independently of any other rating. As of August
15, 2011, our commercial paper is rated A-1 by Standard
& Poor’s and P-1 by Moody’s and our long-term debt is
rated A with a stable outlook by Standard & Poor’s and
A2 with a stable outlook by Moody’s.