Estee Lauder 2002 Annual Report Download - page 50

THEEST{E LAUDER COMPANIES INC.
We have a $750.0 million commercial paper program,
under which we have issued, and intend to issue, com-
mercial paper in the United States. Our commercial paper
is currently rated A-1 by Standard & Poor’s and P-1 by
Moody’s. Our long-term credit ratings are A+ by Standard
& Poor’s and A1 by Moody’s. At June 30, 2002, our out-
standing borrowings consisted of $130.0 million of com-
mercial paper; $248.9 million, net of $1.1 million
unamortized debt discount, of 6% Senior Notes due
January 2012; a 700.0 million yen loan payable (approxi-
mately $5.8 million at current exchange rates), which is
due in April 2003; and a 3.0 billion yen term loan (approx-
imately $25.0 million at current exchange rates), which is
due in March 2006. Commercial paper is classified as
long-term debt on our balance sheet based upon our
intent and ability to refinance maturing commercial paper
on a long-term basis. It is our policy to maintain backup
facilities to support our commercial paper program and
its classification as long-term debt. As of June 30, 2002,
we had an unused $400.0 million revolving credit facility,
expiring on June 28, 2006. We also have an effective shelf
registration statement covering the potential issuance of
up to $150.0 million in debt securities.
In January 2002, we issued and sold $250.0 million of
6% Senior Notes due 2012 in a public offering. The 6%
Senior Notes were priced at 99.538% with a yield
of 6.062%. Interest payments are required to be made
semi-annually on January 15 and July 15 of each year.
We made the first payment on July 15, 2002. The primary
portion of the net proceeds of the offering was used
to repaya $200.0 million term loan. The remainder was
used to repay a portion of the outstanding commercial
paper. We issued these fixed-rate notes in an attempt to
mitigate future interest rate volatility and capitalize on the
prevailing market interest rates then available for such
long-term instruments. However, we do expect the refi-
nancing to result in a higher level of interest expense in
the near term.
Our business is seasonal in nature and, accordingly, our
working capital needs vary. To meet these needs, we
could issue up to an additional $620.0 million of com-
mercial paper under our program, issue long-term debt
securities or borrow under the revolving credit facility. As
of June 30, 2002, we also had $22.9 million in unused
uncommitted facilities.
Total debt as a percent of total capitalization was 18%
at June 30, 2002 as compared with 20% at June 30, 2001,
primarily as a result of higher total capital.
Net cash provided by operating activities was $518.0
million in fiscal 2002 as compared with $305.4 million in
fiscal 2001 and $442.5 million in fiscal 2000. This
improvement in net cash flows was generated primarily
by a reduction of inventory. Inventory levels were unsea-
sonably high at the end of fiscal 2001 and were lowered
during the current fiscal year as part of our ongoing effort
to keep inventory levels in line with forecasted sales.
Operating cash flows were generally not impacted by the
fiscal 2002 restructuring as lower net earnings were offset
by the non-cash portion of the charge and the increase
in other accrued liabilities. We expect the settlement of
these accrued charges to result in a lower level of cash
flow provided by operating activities in fiscal 2003. The
decrease in cash provided by operating activities in fiscal
2001 as compared to fiscal 2000 reflected an increase in
inventory primarily due to accelerated growth both in
new distribution channels and in the rollout of new
brands; a shift in the timing of Christmas production at
the end of fiscal 2001 as compared with the prior year;
reconfiguration of some of our distribution to improve
service levels; and softer retail sales than projected in the
Americas. Accounts receivable increased due to sales
growth, particularly outside the United States,and the
timing of shipments as compared with fiscal 2000.
The decrease in other accrued liabilities in fiscal 2001
reflected the type and timing of various expenditures and
the tightening of spending, particularly in the Americas,
due to the difficult retail environment, partially offset by a
$35.2 million accrual for restructuring and other non-
recurring expenses.
Net cash used for investing activities was $217.0 mil-
lion in fiscal 2002, compared with $206.3 million in fiscal
2001 and $374.3 million in fiscal 2000. Net cash used in
investing activities during fiscal 2002 is comparable to
fiscal 2001 and relates primarily to capital expenditures
in both periods. Investment spending in fiscal 2000
reflected capital expenditures and the acquisitions of Stila,
Jo Malone, Gloss.com and Bumble and bumble, as well as
certain Aveda distributors.
Capital expenditures amounted to $203.2 million,
$192.2 million and $180.9 million in fiscal 2002, 2001 and
2000, respectively. Spending in all three years primarily
reflected the continued upgrade of manufacturing equip-
ment, dies and molds, new store openings, store improve-
ments, counter construction and information technology
enhancements.
Cash used for financing activities was $121.8 million,
$63.5 million and $87.9 million in fiscal 2002, 2001 and
2000, respectively. Cash used for financing during fiscal
2002 and 2000 primarily relates to dividend payments
and common stock repurchases. The cash used in fiscal
2001 was primarily related to dividend payments.
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