Estee Lauder 2014 Annual Report Download - page 64

62 THE EST{E LAUDER COMPANIES INC.
lower operating results of approximately $51 million in
Korea, Hong Kong and Japan, combined. The lower
results in Hong Kong were due in part to investment
spending to support new product launches.
INTEREST EXPENSE, NET
Net interest expense was $54.8 million as compared with
$61.1 million in fiscal 2012. Interest expense decreased
primarily due to the refinancing of debt at lower rates.
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
In December 2012, we amended the agreement related
to the August 2007 sale of Rodan + Fields (a brand then
owned by us) to receive a fixed amount in lieu of future
contingent consideration and other rights. Accordingly,
we recognized $22.4 million, net of discount of $0.4 mil-
lion, which has been classified as other income in our
consolidated statements of earnings. Prior to this amend-
ment, we earned and received $0.7 million of contingent
consideration.
In November 2011, we settled a commercial dispute
with third parties that was outside our normal operations.
In connection therewith, we received a $10.5 million cash
payment, which has been classified as other income in
our consolidated statement of earnings.
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.
following discussions of Operating Results by Product
Categories and Geographic Regions exclude the impact of
total returns and charges associated with restructuring
activities of $17.8 million, or 0.2% of net sales, in fiscal
2013 and $63.2 million, or 0.7% of net sales, in fiscal 2012.
We believe the following analysis of operating results
better reflects the manner in which we conduct and view
our business.
Product Categories
Skin care operating income increased 11%, or $83.4 mil-
lion, to $830.1 million, primarily reflecting improved
results from higher-margin product launches from Estée
Lauder and La Mer, partially offset by goodwill and other
intangible asset impairment charges of $17.7 million.
Makeup operating income increased 8%, or $42.4 mil-
lion, to $580.4 million, primarily reflecting improved
results from our M.A.C brand, partially offset by certain of
our heritage brands and an increase in investment spend-
ing in line with our strategy. Fragrance operating income
increased 20%, or $20.2 million, to $120.3 million, primar-
ily reflecting increased profitability from certain
Jo Malone, Estée Lauder and Clinique products, partially
offset by lower results from certain of our designer fra-
grances. Hair care operating results increased over 100%,
or $14.5 million, to $26.7 million, due to a favorable com-
parison to fiscal 2012 which was impacted by other intan-
gible asset impairment charges of $21.7 million, partially
offset by lower sales of Bumble and bumble brand prod-
ucts and higher investment spending by Aveda to support
the Invati line of products.
Geographic Regions
Operating income in the Americas increased 47%, or
$134.8 million, to $423.2 million, primarily reflecting
improved results from our makeup artist and luxury
brands and certain of our hair care and heritage brands,
driven by improved category mix, partially offset by the
timing and level of strategic investment spending in
fiscal 2013.
In Europe, the Middle East & Africa, operating income
increased 9%, or $67.1 million, to $813.4 million. Higher
results from our travel retail business, the Middle East and
the United Kingdom totaled approximately $77 million,
combined. Partially offsetting these improvements were
lower results in Germany and Spain of approximately $5
million, combined, as well as goodwill and other intangi-
ble asset impairment charges of $17.7 million.
In Asia/Pacific, operating income decreased 10%, or
$33.0 million, to $307.2 million. Higher results from China
and Thailand totaled approximately $22 million, com-
bined. These higher results were more than offset by