01—Abstract
Summary
Summary of the 10-K filed September 3, 2004. Cited figures are marked; the original filing is the authoritative source.
The Estée Lauder Companies Inc. reported fiscal 2004 (year ended June 30, 2004) net sales of $5,790.4 milliona, up from $5,096.0 million in fiscal 2003, with operating income of $644.0 million versus $503.7 million, and net earnings of $342.1 million versus $319.8 million.
Management attributes the sales growth to all product categories and all geographic regions, led by double-digit growth in Europe, the Middle East & Africa and Asia/Pacific. Excluding foreign currency translation, net sales increased 9%. Prior-year operating results included a $22.0 millionb legal settlement charge, and fiscal 2004 included a $33.3 million after-tax charge from discontinued operations related to the sale of the jane brand business in February 2004.
Balance sheet and capital structure changed notably during the year. Cash and cash equivalents rose to $611.6 millionc from $364.1 million, and total debt was $535.3 million. The company redeemed $291.6 million of its 2015 Preferred Stock and issued $200.0 million of 5.75% Senior Notes due 2033.
Following SFAS No. 150 adoption, preferred dividends of $17.4 milliond are now reported as interest expense, which raised net interest expense to $27.1 million and the effective tax rate to 37.7% from 32.9%. The company repurchased about 2.8 million Class A shares for $115.9 million during fiscal 2004. Lauder family members controlled approximately 88.4% of the voting power as of August 31, 2004.
The filing also discloses ongoing legal matters, including the prestige cosmetics class action settlement, New York State landfill cleanup claims (Blydenburgh and Huntington/East Northport), and a Portuguese tax assessment report. Management believes none of these will have a material adverse effect on consolidated financial condition.
02—Key points
Key Highlights
- Net sales rose to $5,790.4 million from $5,096.0 million, with growth in all product categories and all geographic regions; excluding currency translation, net sales increased 9%.
- Operating income increased to $644.0 million from $503.7 million, and operating margin reached 11.1% of net sales versus 9.9% in the prior year.
- Net earnings were $342.1 million, or $1.48 per diluted share, compared with $319.8 million, or $1.26 per diluted share, in fiscal 2003.
- Net cash provided by operating activities was $669.8 million, and cash and cash equivalents increased to $611.6 million at June 30, 2004.
- The company redeemed $291.6 million of 2015 Preferred Stock and issued $200.0 million of 5.75% Senior Notes due 2033; total debt was $535.3 million.
- Preferred dividends of $17.4 million are now classified as interest expense under SFAS No. 150, increasing net interest expense to $27.1 million and the effective tax rate to 37.7%.
- The company repurchased approximately 2.8 million Class A shares for $115.9 million in fiscal 2004, with 11.3 million shares remaining under the authorization as of June 30, 2004.
03—Questions
Frequently Asked Questions
How did The Estée Lauder Companies perform in fiscal 2004?
Net sales increased 14% to $5,790.4 million, and operating income increased 28% to $644.0 million. Net earnings rose to $342.1 million, and diluted earnings per share were $1.48, up from $1.26 in fiscal 2003.
Which regions and product categories drove growth?
Europe, the Middle East & Africa net sales rose 24% to $1,870.2 million, and Asia/Pacific rose 17% to $771.4 million. The Americas rose 7% to $3,148.8 million. By category, skin care rose 13% to $2,140.1 million, makeup rose 14% to $2,148.3 million, and fragrance rose 15% to $1,221.1 million.
How concentrated are the company's customers?
Three largest customers accounted for 22% of fiscal 2004 net sales, compared with 24% in fiscal 2003. No single customer accounted for more than 10% of net sales in fiscal 2004, 2003 or 2002.
What major legal and contingent matters are disclosed?
The company settled a consolidated prestige cosmetics class action, with a $22.0 million pre-tax charge taken in fiscal 2003. It is also a potentially responsible party for the Blydenburgh and Huntington/East Northport landfills in New York, and received a Portuguese tax report alleging income subject to tax. Management believes none of these will have a material adverse effect on consolidated financial condition.
How did the Lauder family's control and the Preferred Stock change affect shareholders?
Lauder family members held about 88.4% of the voting power as of August 31, 2004. Following the death of Mrs. Estée Lauder on April 24, 2004, the company redeemed $291.6 million of 2015 Preferred Stock, and the remaining $68.4 million may be put to the company at face value. The company expects to save approximately $14.0 million in fiscal 2005 from the redemption and dividend rate reduction.
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