Estee Lauder 2014 Annual Report Download - page 60

58 THE EST{E LAUDER COMPANIES INC.
In Europe, the Middle East & Africa, operating income
increased 15%, or $124.9 million, to $938.3 million.
Higher results from our travel retail business and in the
United Kingdom totaled approximately $126 million,
combined, primarily reflecting higher sales. The higher
results in our travel retail business also reflected the
impact of the accelerated orders. These improvements
were partially offset by lower operating results in France
and the Middle East of approximately $10 million, com-
bined. The lower results in France were due to higher
spending on advertising, merchandising and sampling.
Adjusting for the impact of the accelerated orders, oper-
ating income in Europe, the Middle East & Africa would
have increased 9%.
In Asia/Pacific, operating income increased 14%, or
$41.9 million, to $349.1 million. Higher results in Korea,
Japan and Hong Kong totaled approximately $45 million,
combined. The higher results in Korea were due to lower
spending on advertising, merchandising and sampling
and the higher results in Japan primarily reflected the
impact of the accelerated orders. The higher results in the
region were partially offset by lower operating results of
approximately $11 million in China and Thailand, com -
bined. The lower results from China were primarily driven
by an increase in investment spending as a result of new
product introductions and increased distribution. Adjust-
ing for the impact of the accelerated orders, operating
income in Asia/Pacific would have increased 7%.
INTEREST EXPENSE, NET
Net interest expense decreased to $50.8 million as com-
pared with $54.8 million in the prior year, primarily due to
the refinancing of debt at lower rates in fiscal 2013 and
higher interest income.
INTEREST EXPENSE ON DEBT EXTINGUISHMENT
During the first quarter of fiscal 2013, we redeemed the
$230.1 million principal amount of our 7.75% Senior
Notes due 2013 at a price of 108% of the principal
amount. We recorded a pre-tax expense on the extin-
guishment of debt of $19.1 million representing the call
premium of $18.6 million and the pro-rata write-off of
$0.5 million of issuance costs and debt discount.
OTHER INCOME
We recognized $23.1 million as other income during
fiscal 2013, primarily reflecting the amended agreement
related to the August 2007 sale of Rodan + Fields (a brand
then owned by us).
increased 10% and operating margin would have
increased 50 basis points.
Product Categories
The overall change in operating results in each product
category benefited from the accelerated orders during
the current year, as discussed above, as follows: skin care,
approximately $72 million; makeup, approximately $41
million; fragrance, approximately $14 million; and the
impact on hair care was de minimis.
Skin care operating income increased 18%, or $145.7
million, to $975.8 million, primarily reflecting higher
results driven by recent product launches from Estée
Lauder and Clinique and higher sales of luxury skin care
products. Makeup operating income increased 23%, or
$135.5 million, to $715.9 million, primarily reflecting
improved results from our makeup artist brands and cer-
tain of our heritage brands, attributable to growth in net
sales. We reallocated our investment spending among
brands and media formats which positively impacted
operating income in the skin care and makeup product
categories. Fragrance operating income decreased 13%,
or $16.2 million, to $104.1 million, primarily reflecting
higher investment spending behind recent major
launches, partially offset by higher results from our luxury
brands. The current year remeasurement of net monetary
assets in Venezuela impacted the skin care, makeup and
fragrance product categories by $12 million, $16 million
and $10 million, respectively. Hair care operating results
increased 26%, or $7.0 million, to $33.7 million, primarily
reflecting higher results from Aveda and strategic reduc-
tions in spending behind Ojon products. Adjusting for the
accelerated orders, operating income in the skin care,
makeup, fragrance and hair care product categories
would have increased (decreased) 9%, 16%, (25%) and
26%, respectively.
Geographic Regions
The overall change in operating results in each geographic
region benefited as a result of the accelerated orders
during the current year, as discussed above, as follows:
Americas, approximately $53 million; Europe, the Middle
East & Africa, approximately $53 million; and Asia/Pacific,
approximately $21 million.
Operating income in the Americas increased 27%, or
$114.1 million, to $537.3 million, primarily reflecting the
increase in net sales, as previously discussed, as well as a
more measured approach to spending. These improve-
ments were partially offset by the current year remeasure-
ment of net monetary assets in Venezuela. Adjusting for
the impact of the accelerated orders, operating income in
the Americas would have increased 14%.