How did The Estee Lauder Companies perform financially in fiscal 1998?

Net sales grew 7% to $3,618.0 million, operating income rose 14% to $409.1 million, and net earnings increased to $236.8 million, or $1.78 per diluted share. Management attributed the improvement to new product introductions, the continued success of core products and the inclusion of the Aveda and Sassaby businesses, along with operating expense efficiencies.

What impact did the strong U.S. dollar have on results?

The filing states that the continued strengthening of the U.S. dollar reduced net sales by approximately $135 million in fiscal 1998. Excluding foreign currency translation, net sales increased 11%.

Why did Asia/Pacific performance weaken, and what does management expect?

Asia/Pacific net sales fell 15% to $452.5 million and operating income decreased 36% to $29.8 million, due to a difficult retail environment in Japan and the surrounding region and the strengthening of the U.S. dollar against the yen. Management states that continued dollar strength and economic uncertainty will most likely have an adverse effect on future results in this region.

How did the company finance its acquisitions and what is its debt position?

Acquisitions used $459.9 million of cash in fiscal 1998. In February 1998 the company refinanced $300.0 million of revolving credit borrowings with a $405.0 million long-term note due 2005, swapped to an effective interest rate of 6.69%. Total debt was $436.5 million at June 30, 1998, and unused committed credit lines were $400.0 million.

What are the key Year 2000 risks disclosed?

The company expects to complete remediation and testing of its internal systems and other date-sensitive equipment in summer 1999 and expects incremental out-of-pocket costs to be immaterial. The filing states that failures by third parties continuing for more than several days could have a material adverse effect on results, and the extent of lost revenue cannot be estimated at this time.

EL 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed September 11, 1998. Cited figures are marked; the original filing is the authoritative source.

The Estee Lauder Companies Inc. reported fiscal 1998 (year ended June 30, 1998) net sales of $3,618.0 million^a, up from $3,381.6 million in fiscal 1997, with the filing stating a 7% increase.

Operating income rose to $409.1 million^b from $359.1 million, and net earnings were $236.8 million versus $197.6 million. Diluted earnings per share were $1.78, compared with $1.47 in fiscal 1997. Growth was driven by new product introductions, the inclusion of the Aveda and Sassaby acquisitions, and strength in fragrance and makeup, while Asia/Pacific sales fell 15% to $452.5 million amid a difficult retail environment in Japan.

The filing notes that the strengthening U.S. dollar reduced net sales by approximately $135 million^c, and that excluding currency translation, net sales increased 11%. The balance sheet expanded substantially due to acquisitions. Total assets rose to $2,512.8 million from $1,873.1 million, and total debt increased to $436.5 million from $31.1 million, reflecting a $405.0 million long-term note issued in February 1998 to refinance borrowings used for acquisitions, including the remaining interest in M.A.C, Aveda and Sassaby.

Cash from operating activities was $258.2 million^d, and acquisitions used $459.9 million in cash during the year. Stockholders' equity increased to $696.4 million. Management states that cash on hand, internally generated cash flow and available credit lines are adequate for planned operations.

The company is controlled by the Lauder family, which holds approximately 94.4% of voting power. Management highlights Year 2000 remediation work expected to be completed in summer 1999, with incremental costs described as immaterial, and notes that Year 2000 failures at third parties could have a material adverse effect. Cash dividends of $.085 per quarter ($.34 annually) were maintained.

02—Key points

Key Highlights

Net sales rose to $3,618.0 million in fiscal 1998 from $3,381.6 million, a 7% increase as reported; excluding currency translation, sales increased 11%.
Operating income increased to $409.1 million from $359.1 million, with operating margin of 11.3% versus 10.6% in fiscal 1997.
Net earnings were $236.8 million, or $1.78 per diluted share, compared with $197.6 million, or $1.47 per diluted share, in fiscal 1997.
Total debt rose to $436.5 million from $31.1 million, primarily from acquisitions and a $405.0 million long-term note issued in February 1998.
Acquisitions of Aveda (December 1997), Sassaby/jane (October 1997) and the remaining interest in M.A.C (February 1998) totaled approximately $464.4 million in aggregate purchase price.
Asia/Pacific net sales decreased 15% to $452.5 million, while the Americas rose 14% to $2,204.7 million.
The Lauder family controls approximately 94.4% of the Company's voting power, and quarterly cash dividends of $.085 per share were maintained.

03—Questions

Frequently Asked Questions

How did The Estee Lauder Companies perform financially in fiscal 1998?
Net sales grew 7% to $3,618.0 million, operating income rose 14% to $409.1 million, and net earnings increased to $236.8 million, or $1.78 per diluted share. Management attributed the improvement to new product introductions, the continued success of core products and the inclusion of the Aveda and Sassaby businesses, along with operating expense efficiencies.
What impact did the strong U.S. dollar have on results?
The filing states that the continued strengthening of the U.S. dollar reduced net sales by approximately $135 million in fiscal 1998. Excluding foreign currency translation, net sales increased 11%.
Why did Asia/Pacific performance weaken, and what does management expect?
Asia/Pacific net sales fell 15% to $452.5 million and operating income decreased 36% to $29.8 million, due to a difficult retail environment in Japan and the surrounding region and the strengthening of the U.S. dollar against the yen. Management states that continued dollar strength and economic uncertainty will most likely have an adverse effect on future results in this region.
How did the company finance its acquisitions and what is its debt position?
Acquisitions used $459.9 million of cash in fiscal 1998. In February 1998 the company refinanced $300.0 million of revolving credit borrowings with a $405.0 million long-term note due 2005, swapped to an effective interest rate of 6.69%. Total debt was $436.5 million at June 30, 1998, and unused committed credit lines were $400.0 million.
What are the key Year 2000 risks disclosed?
The company expects to complete remediation and testing of its internal systems and other date-sensitive equipment in summer 1999 and expects incremental out-of-pocket costs to be immaterial. The filing states that failures by third parties continuing for more than several days could have a material adverse effect on results, and the extent of lost revenue cannot be estimated at this time.

04—Continue

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