How concentrated is the company's customer base?

The three largest customers accounted for 22% of fiscal 2004 net sales, down from 24% in fiscal 2003 and 25% in fiscal 2002. No single customer accounted for more than 10% of net sales in any of those years.

Who controls the company?

The Lauder family has controlled the company since its founding and, as of August 31, 2004, beneficially owned shares carrying approximately 88.4% of the outstanding voting power of the Common Stock.

What drove the change in interest expense?

Net interest expense rose to $27.1 million from $8.1 million, mainly because preferred stock dividends of $17.4 million were classified as interest expense under SFAS No. 150. Management expects interest expense to decline in fiscal 2005 following the partial redemption of preferred stock.

What are the main pending legal and environmental matters?

The company is a potentially responsible party at the Blydenburgh and Huntington/East Northport landfills in New York, with estimated cleanup costs of $16 million and $20 million, respectively. It is also appealing a January 2004 Portuguese tax assessment. Management believes none of these will have a material adverse effect on consolidated financial condition.

What is the company's dividend policy?

The company declared an annual dividend of $.30 per share for fiscal 2004, up from $.20 in fiscal 2003, and states it expects to continue paying cash dividends, though it cannot assure the Board will continue to declare them.

EL 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed November 5, 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 million^a, up from $5,096.0 million in fiscal 2003, with growth in all product categories and all geographic regions.

Operating income rose to $644.0 million^b from $503.7 million, and operating margin was 11.1% of net sales versus 9.9% in the prior year, which included a $22.0 million legal settlement charge. Net earnings were $342.1 million, or $1.48 per diluted share, compared with $1.26 in fiscal 2003. Net sales growth excluding foreign currency translation was 9%, and the company cited the weakening U.S. dollar as a benefit in Europe, the Middle East & Africa and Asia/Pacific.

The company's balance sheet and cash flow strengthened during the year. Cash and cash equivalents rose to $611.6 million^c, and net cash from operating activities was $669.8 million. Total debt increased to $535.3 million, reflecting the issuance of $200.0 million of 5.75% Senior Notes due 2033 and the reclassification of $68.4 million of remaining 2015 Preferred Stock.

The company redeemed $291.6 million^d of preferred stock in June 2004 following the death of Mrs. Estée Lauder, and it repurchased approximately 2.8 million shares for $115.9 million during the year. Management expects lower interest expense in fiscal 2005 as a result of the preferred stock redemption.

The Lauder family controls approximately 88.4% of the voting power of common stock. Pending legal matters include a New York State environmental suit over the Blydenburgh landfill, with the State's cleanup costs estimated at $16 million, and a Portuguese tax assessment appeal. Management believes neither will have a material adverse effect on consolidated financial condition.

02—Key points

Key Highlights

Net sales rose to $5,790.4 million in fiscal 2004 from $5,096.0 million, with all product categories and regions growing; excluding currency translation, net sales increased 9%.
Operating income increased to $644.0 million from $503.7 million, with operating margin of 11.1% versus 9.9%; the prior year included a $22.0 million legal settlement charge.
Diluted earnings per share were $1.48 versus $1.26, and net earnings were $342.1 million versus $319.8 million.
Skin care ($2,140.1 million), makeup ($2,148.3 million) and fragrance ($1,221.1 million) were the largest categories; fragrance operating income fell 23% to $24.8 million.
Europe, the Middle East & Africa net sales increased 24% to $1,870.2 million, led by travel retail, while the Americas grew 7% to $3,148.8 million.
Total debt rose to $535.3 million after issuing $200.0 million of 5.75% Senior Notes; $291.6 million of preferred stock was redeemed in June 2004.
Operating cash flow was $669.8 million, and the company repurchased about 2.8 million shares for $115.9 million during fiscal 2004.

03—Questions

Frequently Asked Questions

How concentrated is the company's customer base?
The three largest customers accounted for 22% of fiscal 2004 net sales, down from 24% in fiscal 2003 and 25% in fiscal 2002. No single customer accounted for more than 10% of net sales in any of those years.
Who controls the company?
The Lauder family has controlled the company since its founding and, as of August 31, 2004, beneficially owned shares carrying approximately 88.4% of the outstanding voting power of the Common Stock.
What drove the change in interest expense?
Net interest expense rose to $27.1 million from $8.1 million, mainly because preferred stock dividends of $17.4 million were classified as interest expense under SFAS No. 150. Management expects interest expense to decline in fiscal 2005 following the partial redemption of preferred stock.
What are the main pending legal and environmental matters?
The company is a potentially responsible party at the Blydenburgh and Huntington/East Northport landfills in New York, with estimated cleanup costs of $16 million and $20 million, respectively. It is also appealing a January 2004 Portuguese tax assessment. Management believes none of these will have a material adverse effect on consolidated financial condition.
What is the company's dividend policy?
The company declared an annual dividend of $.30 per share for fiscal 2004, up from $.20 in fiscal 2003, and states it expects to continue paying cash dividends, though it cannot assure the Board will continue to declare them.

04—Continue

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