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Estée Lauder Companies Annual Report, Year Ended Jun 30, 2005

Filing Date
Filed September 2, 2005
Period End
June 30, 2005
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 2, 2005. Cited figures are marked; the original filing is the authoritative source.

The Estée Lauder Companies Inc. reported fiscal 2005 (year ended June 30, 2005) net sales of $6,336.3 milliona, up from $5,790.4 million in fiscal 2004, with growth in all product categories and all geographic regions.

Operating income rose to $720.6 millionb from $644.0 million, and net earnings increased to $406.1 million, or $1.78 per diluted share, from $342.1 million, or $1.48 per diluted share. The filing attributes the net earnings increase partly to an approximately $35 million tax charge tied to a plan to repatriate about $690 million of foreign earnings under the American Jobs Creation Act, which lifted the effective tax rate to 41.2% from 37.7%. Management notes that fragrance remains challenging and that fiscal 2006 earnings will be affected by the adoption of SFAS No. 123(R) and by the August 2005 merger of Federated Department Stores and The May Department Stores Company, which is a major customer.

The company's balance sheet shows total assets of $3,885.8 millionc, cash of $553.3 million and total debt of $714.7 million, up from $535.3 million, with total debt at 30% of total capitalization versus 24% a year earlier. The company repurchased about 10.7 million Class A shares for $438.6 million during the year.

Control remains with the Lauder family, which holds approximately 87.7%d of voting power, and three customers accounted for 22% of net sales. Key risks for investors include concentration among department store customers, litigation including a consumer class action over anti-aging skin care claims and a Portuguese tax assessment totaling several tens of millions of euros, and the continued challenge in the fragrance category.

02—Key points

Key Highlights

  1. Net sales rose to $6,336.3 million in fiscal 2005 from $5,790.4 million, with growth in skin care, makeup, fragrance and hair care and in all three geographic regions.
  2. Operating income increased to $720.6 million from $644.0 million, and diluted net earnings per share reached $1.78 versus $1.48 in fiscal 2004.
  3. Effective tax rate rose to 41.2% from 37.7%, driven by an approximately $35 million charge tied to repatriating about $690 million of foreign earnings under the AJCA.
  4. Operating cash flow fell to $479.2 million from $675.4 million, reflecting working capital changes and payments of deferred compensation to retired executives.
  5. Total debt increased to $714.7 million, and debt represented 30% of total capitalization at June 30, 2005, compared with 24% a year earlier.
  6. The company repurchased 10.7 million Class A shares for $438.6 million during fiscal 2005 under its share repurchase program.
  7. The three largest customers accounted for 22% of net sales, and the two largest, Federated and May, merged on August 30, 2005.

03—Questions

Frequently Asked Questions

  1. What drove the growth in Estée Lauder's fiscal 2005 results?

    The filing attributes net sales growth of 9% to launches across all major categories, led by makeup and skin care, and growth in every region, led by Europe, the Middle East & Africa. Excluding currency translation, net sales increased 7%. Operating income rose 12%, supported by higher sales and an improved operating expense ratio of 63.1% versus 63.4%.

  2. How did taxes affect net earnings in fiscal 2005?

    The company formulated a plan to repatriate approximately $690 million of foreign earnings in fiscal 2006, including $500 million of extraordinary intercompany dividends under the American Jobs Creation Act. This produced an aggregate tax charge of approximately $35 million, including an incremental charge of about $28 million, or $0.12 per diluted share. The effective tax rate was 41.2% compared with 37.7% in fiscal 2004.

  3. What risks does the company identify for fiscal 2006?

    The filing states that fiscal 2006 earnings will be affected by the adoption of SFAS No. 123(R), which will increase operating expenses for stock-based compensation, and by the August 2005 merger of Federated Department Stores and The May Department Stores Company, which may adversely affect the Americas region. Management also describes the fragrance category as challenging in fiscal 2006.

  4. What legal matters are pending against the company?

    The company is party to a California consumer class action settled in 2003, with a final judgment entered March 30, 2005 that is subject to appeal, and a remaining accrual of $17.2 million. It also faces Portuguese tax assessments for 2000 through 2002 totaling about 66 million euros including interest, which it is contesting, and a New York landfill cost-recovery matter with an accrual. Management believes none will have a material adverse effect on its financial condition.

  5. How is control of the company structured?

    The Lauder family, directly or indirectly, held shares with approximately 87.7% of the outstanding voting power as of August 26, 2005. Class B common stock carries ten votes per share, and Class A carries one vote per share. Approximately 4,143 record holders of Class A stock and 21 record holders of Class B stock were reported.

04—Continue

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