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Estée Lauder Companies Annual Report, Year Ended Jun 30, 2003

Filing Date
Filed September 15, 2003
Period End
June 30, 2003
Security
EL
In the record · 2016–202610-K1110-Q338-K126

EL filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 126 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Jul ’18Jul ’18
  2. Restructuring8-K · Aug ’20Aug ’20
  3. Leadership change8-K · Jul ’22Jul ’22
  4. Restructuring8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed September 15, 2003. Cited figures are marked; the original filing is the authoritative source.

The Estee Lauder Companies Inc. reported net sales of $5,117.6 milliona for the fiscal year ended June 30, 2003, up from $4,743.7 million in fiscal 2002, with growth in all product categories and all geographic regions.

Operating income rose to $495.1 millionb from $341.4 million, but that comparison is affected by a $22.0 million special charge in fiscal 2003 tied to a proposed class action settlement and a $117.4 million restructuring charge in fiscal 2002. Excluding these items, operating income was $517.1 million versus $458.8 million, and net earnings were $333.3 million, or $1.32 per diluted share. Reported net earnings were $319.8 million, or $1.26 per diluted share, compared with $191.9 million, or $.70 per diluted share, in the prior year, which included the restructuring and a $20.6 million cumulative accounting change charge.

Cash flow from operations was $548.5 millionc, and the company repurchased 11.2 million Class A shares for $352.4 million during fiscal 2003. Year-end cash and cash equivalents were $364.1 million, and total debt was $291.4 million. The filing notes that the Lauder family holds approximately 91.3% of voting power.

The company also highlights the April 2003 Darphin acquisition, the May 2003 Michael Kors license, and the July 2003 Rodan & Fields acquisition, and it discloses that the $6.50d Cumulative Redeemable Preferred Stock must be redeemed on June 30, 2005, with dividends to be classified as interest expense beginning fiscal 2004 under SFAS No. 150. Management cites a soft U.S. retail environment, with travel retail weakened late in the fiscal year by the Iraq war and SARS concerns. Gross margin improved to 73.9% from 73.2%, and the company reports that three major customers accounted for 24% of fiscal 2003 net sales.

02—Key points

Key Highlights

  1. Net sales rose 8% to $5,117.6 million, with growth in all product categories and all three regions; excluding foreign currency translation, net sales increased 4%.
  2. Reported operating income increased 45% to $495.1 million; excluding the $22.0 million settlement charge and the prior-year $117.4 million restructuring charge, operating income rose 13% to $517.1 million.
  3. Diluted earnings per share were $1.26 on reported net earnings of $319.8 million; excluding the $13.5 million after-tax settlement charge, diluted EPS was $1.32.
  4. Gross margin improved to 73.9% from 73.2%, reflecting production and supply chain efficiencies and lower promotional costs.
  5. The company repurchased 11.2 million Class A shares for $352.4 million during fiscal 2003 and declared a $.20 per share annual dividend.
  6. Year-end cash was $364.1 million and total debt was $291.4 million; cash from operations was $548.5 million.
  7. The $6.50 Cumulative Redeemable Preferred Stock ($360.0 million) is subject to mandatory redemption on June 30, 2005, and dividends will be reported as interest expense starting in fiscal 2004.

03—Questions

Frequently Asked Questions

  1. How did The Estee Lauder Companies perform in fiscal 2003?

    Net sales grew 8% to $5,117.6 million, and reported net earnings were $319.8 million, or $1.26 per diluted share, compared with $191.9 million, or $.70 per diluted share, in fiscal 2002. Fiscal 2002 results included a $117.4 million restructuring charge and a $20.6 million accounting change charge.

  2. What one-time items affected fiscal 2003 results?

    The company took a special pre-tax charge of $22.0 million ($13.5 million after-tax, or $.06 per diluted share) in connection with the proposed settlement of a class action lawsuit over prestige cosmetics pricing. Excluding this charge, net earnings were $333.3 million, or $1.32 per diluted share.

  3. Which regions and product categories drove sales growth?

    Europe, the Middle East & Africa grew 19% to $1,506.4 million, aided by favorable foreign exchange and travel retail recovery. The Americas rose 3% to $2,953.4 million, and Asia/Pacific rose 8% to $657.8 million. By category, skin care grew 11% to $1,893.7 million, makeup grew 7% to $1,909.4 million, fragrance grew 4% to $1,059.6 million, and hair care grew 6% to $228.9 million.

  4. What are the company's main balance sheet and capital allocation priorities?

    At June 30, 2003, the company had $364.1 million in cash and $291.4 million in total debt, and it had an unused $400.0 million revolving credit facility. During fiscal 2003 it repurchased 11.2 million Class A shares for $352.4 million, and it has 14.2 million cumulative shares repurchased under the program. The $6.50 preferred stock of $360.0 million must be redeemed on June 30, 2005.

  5. What risks does the filing highlight?

    The filing cites a soft U.S. retail environment, weakness in travel retail late in fiscal 2003 due to the Iraq war and SARS concerns, and foreign currency fluctuations. It also notes customer concentration, with three largest customers accounting for 24% of fiscal 2003 net sales, and pending legal matters, including a New York landfill cleanup and a discrimination lawsuit seeking $10 million per cause of action.

04—Continue

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