Estee Lauder 2012 Annual Report Download - page 118

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116 THE EST{E LAUDER COMPANIES INC.
the effective income tax rate of 150 basis points was
principally due to a decrease in favorable tax reserve
adjustments as compared with fiscal 2010.
NET EARNINGS ATTRIBUTABLE TO
THE EST{E 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 $1.19 to $1.74.
The results in fiscal 2011 included the impact of total
returns and charges associated with restructuring activi-
ties of $41.7 million, after tax, or $.10 per diluted common
share. The results in fiscal 2010 included the impact of
total returns and charges associated with restructuring
activities of $55.9 million, after tax, or $.14 per diluted
common share and interest expense on debt extinguish-
ment of $17.5 million, after tax, or $.04 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, 2012, we had cash and
cash equivalents of $1,347.7 million compared with
$1,253.0 million at June 30, 2011. Our cash and cash
equivalents are maintained at a number of financial
institutions. As of June 30, 2012, approximately 17% of
the total balance was insured by governmental agencies.
To mitigate the risk of uninsured balances, we select finan-
cial institutions based on their credit ratings and financial
strength and perform ongoing evaluations of these institu-
tions 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, 2012 includes approximately $708 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. If these indefinitely reinvested earnings were
repatriated into the United States as dividends, we would
be subject to additional taxes.
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
13, 2012, 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.