Estee Lauder 2002 Annual Report Download - page 49

THEEST{E LAUDER COMPANIES INC.
The restructuring charge was recorded in other accrued
liabilities or as a reduction of fixed assets. During fiscal
2001, $0.7 million was paid and through June 30, 2002,
an additional $26.7 million was paid. As of June 30, 2002,
the remaining obligation was $7.1 million, the majority of
which we expect to settle by the end of fiscal 2003 with
remaining payments made ratably through fiscal 2004.
OPERATING RESULTS
Operating income decreased 4% or $20.2 million to
$495.6 million as compared with the prior year. Operating
margins were 10.6% of net sales in fiscal 2001 as com-
pared with 11.6% in the prior year. Operating income
reflected the inclusion of restructuring and other non-
recurring expenses of $46.7 million and $16.3 million,
respectively. Before consideration of these one-time
charges, operating income increased 8% to $558.6 mil-
lion and operating margins were 11.9%. The increase in
operating income was primarily due to higher net sales and
an improved gross margin percentage, partially offset by
increased operating expenses reflecting increased sales
support spending and new distribution channel costs.
Net earnings and net earnings per diluted share
decreased approximately 3%. Net earnings declined $8.9
million to $305.2 million and net earnings per diluted
share was lower by $.04 per diluted share from $1.20 to
$1.16. Net earnings before restructuring and other non-
recurring expenses and before the cumulative effect of
adopting a new accounting principle was $347.7 million,
representing an increase of 11% over the prior year;
diluted earnings per common share increased 12% to
$1.34 from $1.20 in the prior year.
The following discussions of Operating Income by
Product Categories and Geographic Regions exclude
the impact of restructuring and other non-recurring
expenses and represent the manner in which we conduct
and view our business.
Product Categories
Operating income increased 17% to $212.5 million and
11% to $266.9 million in makeup and skin care, respec-
tively, due primarily to the strength of recently launched
products. The strong growth of our M.A.C business,
which includes retail store expansion, also contributed to
the increase in makeup operating income. Operating
income from our fragrance business declined by $17.0
million reflecting lower sales and increased support
spending versus the prior year. The nominal increase in
hair care operating income was a result of the inclusion
of Bumble and bumble and sales from recent launches,
partiallyoffset by costs associated with refining Aveda’s
salon distribution, opening new Aveda Environmental
Lifestyle Stores and investing in new product introductions.
Geographic Regions
Operating income in the Americas increased 4% or $12.0
million to $299.9 million as compared with the prior year,
primarily due to net sales increases related to new and
recently launched products,strong growth in our M.A.C
business and the inclusion of Bumble and bumble, par-
tially offset by a decline in fragrance net sales. In Europe,
the Middle East & Africa, operating income increased
19% or $32.9 million to $201.8 million primarily due to
improved operating results in the United Kingdom and
Spain and in the travel retail business, partially offset by
lower operating income in South Africa. In Asia/Pacific,
operating income decreased slightly to $56.9 million due
to higher results in Korea and Hong Kong offset by lower
operating income in Japan and Australia.
INTEREST EXPENSE, NET
Net interest expense was $12.3 million as compared with
$17.1 million in the prior year. As a result of an increase in
average available cash during the period, we had higher
interest income on invested funds and lower interest
expense due to reduced short-term borrowings. Addi-
tionally, we benefited from a lower effective interest rate
on our long-term borrowings resulting from our interest
rate risk management strategy.
PROVISION FOR INCOME TAXES
The provision for income taxes represents Federal, for-
eign, state and local income taxes. The effective rate for
income taxes for fiscal 2001 was 36% compared with
37% in the prior year. These rates reflect the effect of state
and local taxes, tax rates in foreign jurisdictions and
certain non-deductible expenses. The decrease in the
effective income tax rate was principally attributable to
ongoing tax planning initiatives.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash
flows from operations and borrowings under commercial
paper and committed and uncommitted credit lines
provided by banks in the United States and abroad. In
February 2002, we repaid $200.0 million principal amount
of bank borrowings with proceeds of a public offering
of 6% Senior Notes due 2012 (“6% Senior Notes”).
At June 30, 2002, we had cash and cash equivalents
of $546.9 million compared with $346.7 million at
June 30, 2001.
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