Estee Lauder 2014 Annual Report Download - page 65

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THE EST{E LAUDER COMPANIES INC. 63
operations, information systems enhancements, capital
expenditures, potential stock repurchases, potential
acquisitions and investments, commitments and other
contractual obligations on both a near-term and long-term
basis. Our cash and cash equivalents balance at June 30,
2014 includes approximately $1,140 million of cash in off-
shore jurisdictions associated with our permanent rein-
vestment 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
14, 2014, 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.
The effective income tax rate for fiscal 2013 was 30.6%
as compared with 31.8% in fiscal 2012. The decrease in
the effective income tax rate of 120 basis points was
principally due to a decrease in the effective tax rate of
our foreign operations as compared with fiscal 2012, as
well as the retroactive reinstatement of the U.S. federal
research and development tax credit signed into law on
January 2, 2013.
NET EARNINGS ATTRIBUTABLE TO
THE EST{E LAUDER COMPANIES INC.
Net earnings attributable to The Estée Lauder Companies
Inc. as compared with fiscal 2012 increased 19%, or
$162.9 million, to $1,019.8 million and diluted net earn-
ings per common share increased 20% from $2.16 to
$2.58. The results in fiscal 2013 include the impact of total
returns and charges associated with restructuring
activities of $11.7 million, after tax, or $.03 per diluted
common share. The results in fiscal 2012 include the
impact of total returns and charges associated with
restructuring activities of $44.1 million, after tax, or $.11
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, 2014, we had cash and
cash equivalents of $1,629.1 million compared with
$1,495.7 million at June 30, 2013. Our cash and cash
equivalents are maintained at a number of financial insti-
tutions. To mitigate the risk of uninsured balances, we
select financial institutions 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 oper-
ations, available credit lines and access to credit markets
will be adequate to support currently planned business