Estee Lauder 2014 Annual Report Download - page 91

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THE EST{E LAUDER COMPANIES INC. 89
the date of each borrowing. At June 30, 2014, no borrow-
ings were outstanding under this agreement. Debt
issuance costs incurred related to this agreement were
de minimis.
In July 2014, the Company replaced its undrawn $1.0
billion unsecured revolving credit facility that was set to
expire on July 14, 2015 (the “Prior Facility”), with a new
$1.0 billion senior unsecured revolving credit facility that
expires on July 15, 2019, unless extended for up to two
additional years in accordance with the terms set forth in
the agreement (the “New Facility”). At June 30, 2014, no
borrowings were outstanding under the Prior Facility. The
New Facility may be used for general corporate purposes.
Up to the equivalent of $350 million of the New Facility is
available for multi-currency loans. The interest rate on bor-
rowings under the New Facility is based on LIBOR or on
the higher of prime, which is the rate of interest publicly
announced by the administrative agent, or ½% plus the
Federal funds rate. The Company incurred costs of
approximately $1 million to establish the New Facility
which will be amortized over the term of the facility. The
New Facility has an annual fee of $0.6 million, payable
quarterly, based on the Company’s current credit ratings.
The New Facility also contains a cross-default provision
whereby a failure to pay other material financial obliga-
tions in excess of $150.0 million (after grace periods and
absent a waiver from the lenders) would result in an event
of default and the acceleration of the maturity of any out-
standing debt under this facility.
The Company maintains uncommitted credit facilities
in various regions throughout the world. Interest rate
terms for these facilities vary by region and reflect prevail-
ing market rates for companies with strong credit ratings.
During fiscal 2014 and 2013, the monthly average amount
outstanding was approximately $13.7 million and $11.8
million, respectively, and the annualized monthly weight-
ed-average interest rate incurred was approximately 9.2%
and 8.8%, respectively.
Refer to Note 13 — Commitments and Contingencies
for the Company’s projected debt service payments, as of
June 30, 2014, over the next five fiscal years.
NOTE 10
—
DERIVATIVE FINANCIAL INSTRUMENTS
The Company addresses certain financial exposures
through a controlled program of risk management that
includes the use of derivative financial instruments. The
Company enters into foreign currency forward contracts
and may enter into option contracts to reduce the effects
of fluctuating foreign currency exchange rates and
interest rate derivatives to manage the effects of interest
rate movements on the Company’s aggregate liability
portfolio. The Company also enters into foreign currency
forward contracts and may use option contracts, not
designated as hedging instruments, to mitigate the
change in fair value of specific assets and liabilities on
the balance sheet. The Company does not utilize deriva-
tive financial instruments for trading or speculative
purposes. Costs associated with entering into these deriv-
ative financial instruments have not been material to the
Company’s consolidated financial results.
For each derivative contract entered into where the
Company looks to obtain hedge accounting treatment,
the Company formally and contemporaneously
documents all relationships between hedging instruments
and hedged items, as well as its risk-management
objective and strategy for undertaking the hedge
trans action, the nature of the risk being hedged, how the
hedging instruments’ effectiveness in offsetting
the hedged risk will be assessed prospectively and retro-
spectively, and a description of the method of measuring
ineffectiveness. This process includes linking all deriva-
tives to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted trans-
actions. The Company also formally assesses, both at the
hedge’s inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or
cash flows of hedged items. If it is determined that a deriv-
ative is not highly effective, or that it has ceased to be
a highly effective hedge, the Company will be required
to discontinue hedge accounting with respect to that
derivative prospectively.