Estee Lauder 2012 Annual Report Download - page 114

112 THE EST{E LAUDER COMPANIES INC.
Product Categories
Skin care operating income increased 25%, or $151.6 mil-
lion, to $746.7 million, primarily reflecting improved
results from higher-margin product launches from certain
of our heritage brands, as well as increased results from
higher-end prestige skin care products. Makeup operating
income increased 9%, or $44.2 million, to $538.0 million,
primarily reflecting improved results from our makeup art-
ist brands. Both our skin care and makeup categories
were impacted by higher investment spending on global
advertising, merchandising and sampling to support
major launches and existing franchises in line with our
strategy. Fragrance operating income increased 24%,
or $19.4 million, to $100.1 million, primarily reflecting
improved cost of goods and a more strategically focused
approach to spending from our heritage brands as part of
our strategy to improve profitability. Hair care operating
results increased over 100%, or $21.3 million, to $12.2
million, primarily reflecting expanded global distribution,
improved results driven by new product launches, as well
as a favorable comparison to the prior year which was
impacted by higher goodwill and other intangible asset
impairment charges of $15 million.
Geographic Regions
Operating income in the Americas increased 18%, or
$43.5 million, to $288.4 million, primarily reflecting
improved results from our heritage and makeup artist
brands that were driven by improved category mix, as
well as a favorable comparison to the prior year which
was impacted by higher goodwill and other intangible
asset impairment charges of $16 million. Partially offset-
ting these improvements was the level of strategic invest-
ment spending in the current year.
In Europe, the Middle East & Africa, operating income
increased 14%, or $94.4 million, to $746.3 million. Higher
results from our travel retail business and the Middle East
totaled approximately $109 million, combined. Partially
offsetting these improvements were lower results in
Russia and France of approximately $28 million,
combined. The lower results in Russia primarily reflected
strategic investment spending to support this emerging
market, coupled with a decrease in sales as a result of
destocking associated with ongoing challenges with a
certain customer. The lower results in France primarily
reflected strategic investment spending.
In Asia/Pacific, operating income increased 35%, or
$88.2 million, to $340.2 million. Most countries in the
region reported higher operating results, led by approxi-
mately $70 million in Hong Kong, China, Japan and
Korea, combined.
INTEREST EXPENSE, NET
Net interest expense was $61.1 million as compared with
$63.9 million in the prior year. Interest expense decreased
due to the replacement of our 6.00% Senior Notes in
January 2012 with commercial paper.
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
applicable 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 2012 was 31.8%
as compared with 31.4% in the prior year. The increase in
the effective income tax rate of 40 basis points was prin-
cipally due to a decrease in favorable tax reserve adjust-
ments as compared with the prior year partially offset by
a lower effective 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 2011 increased 22%, or
$156.1 million, to $856.9 million and diluted net earnings
per common share increased 24% from $1.74 to $2.16.
The results in the current year include the impact of total
returns and charges associated with restructuring activi-
ties of $44.1 million, after tax, or $.11 per diluted common
share. The results in fiscal 2011 include the impact of
total returns and charges associated with restructuring
activities of $41.7 million, after tax, or $.10 per diluted
common share.
FISCAL 2011 AS COMPARED WITH FISCAL 2010
NET SALES
Net sales increased 13%, or $1,014.2 million, to $8,810.0
million, reflecting increases in all geographic regions and
product categories. Excluding the impact of foreign cur-
rency translation, net sales increased 12%. During fiscal
2010, we undertook an initiative to identify certain under-
performing stock keeping units (“SKUs”) for the purposes