01—Abstract
Summary
Summary of the 10-K filed September 17, 2002. Cited figures are marked; the original filing is the authoritative source.
The Estee Lauder Companies Inc. reported net sales of $4.74 billiona for fiscal 2002 (year ended June 30, 2002), up from $4.67 billion in fiscal 2001, with growth in makeup, skin care and hair care partially offset by a decline in fragrance.
Net sales in the Americas rose to $2.88 billion, Europe, the Middle East & Africa to $1.26 billionb, and Asia/Pacific to $610.6 million. Profitability weakened: operating income fell to $341.4 million from $495.6 million, reflecting a $117.4 million pre-tax restructuring charge in the fourth quarter. Net earnings were $191.9 million, or $.70 per diluted share, versus $305.2 million and $1.16 a year earlier.
Excluding restructuring and other non-recurring items, the filing states net earnings were $289.4 millionc, and the company cited weak U.S. economic conditions and reduced travel retail sales. Cash generation improved, with operating cash flow of $518.0 million, aided mainly by a reduction in inventory. Cash and cash equivalents rose to $546.9 million, and total debt was $410.5 million.
The company issued $250.0 milliond of 6% Senior Notes due 2012 to refinance a bank term loan and commercial paper, and it repurchased 1.5 million Class A shares for $49.7 million during the year, with a further 4.4 million shares bought for $138.1 million after year-end. The Lauder family controls about 91.2% of voting power.
The Board will move from quarterly to annual common dividends, with a first $.20 per share annual dividend expected in January 2003. The filing also discloses a pending Revlon patent infringement suit and a California prestige cosmetics price-fixing class action, and management believes neither will have a material adverse effect.
02—Key points
Key Highlights
- Net sales rose 2% to $4.74 billion, driven by makeup (up 4%), skin care (up 3%) and hair care (up 19%), while fragrance declined 6%.
- Operating income fell 31% to $341.4 million; operating margin dropped to 7.2% from 10.6%, largely due to a $117.4 million restructuring charge.
- Excluding restructuring and other non-recurring items, operating income decreased 18% to $458.8 million.
- Net earnings declined to $191.9 million ($.70 diluted EPS) from $305.2 million ($1.16), including a $20.6 million goodwill write-down from adopting SFAS No. 142.
- Operating cash flow improved to $518.0 million from $305.4 million, mainly from lower inventory.
- The company issued $250.0 million of 6% Senior Notes due 2012, and it expects higher interest expense in the near term as a result.
- Quarterly dividends are being replaced by an annual $.20 per share dividend, with the first payment expected in January 2003.
03—Questions
Frequently Asked Questions
Why did operating income drop so sharply in fiscal 2002?
The company recorded a restructuring charge of $117.4 million in the fourth quarter covering Internet operations (Gloss.com), supply chain, globalization of the organization and distribution channel changes. Management also cited lower-than-expected sales, increased support spending and new distribution channel costs. Operating income excluding these items was $458.8 million, down 18%.
Which product categories and regions drove sales?
Makeup net sales rose 4% to $1.79 billion and skin care rose 3% to $1.70 billion, with newer brands such as M.A.C, Bobbi Brown and Stila contributing. Fragrance fell 6% to $1.02 billion, reflecting U.S. softness and lower travel retail sales. By region, the Americas rose 1%, Europe, the Middle East & Africa rose 3%, and Asia/Pacific rose 2%.
How is the company's balance sheet and liquidity position?
At June 30, 2002, cash and cash equivalents were $546.9 million, up from $346.7 million, and total debt was $410.5 million. Total debt was 18% of total capitalization, down from 20%. The company had a $400.0 million unused revolving credit facility expiring June 28, 2006, and stockholders' equity was $1,461.9 million.
What changes are being made to shareholder returns?
The Board will pay the common dividend annually instead of quarterly, starting with a $.20 per share dividend declared in the second quarter of fiscal 2003 and payable in January 2003. The company expects total fiscal 2003 dividends of $.25 per share. It also repurchased 1.5 million Class A shares for $49.7 million in fiscal 2002 and 4.4 million more for $138.1 million after year-end.
What significant legal matters are disclosed?
Revlon's affiliate has sued for alleged patent infringement over several Estee Lauder, Origins, La Mer and jane products, seeking treble and punitive damages. A separate California class action alleges price-fixing and supply restriction with department stores. Management believes neither will have a material adverse effect on the consolidated financial condition, and the company intends to defend both vigorously.
04—Continue