Estee Lauder 2004 Annual Report Download - page 52

THE EST{E LAUDER COMPANIES INC.
are put to us or if we call those shares for redemption, we
expect to use cash on hand to fund the redemption.
We have a $750.0 million commercial paper program
under which we may issue commercial 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+ with a negative outlook by S tandard
& Poor’s and A1 with a stable outlook by Moody’s. At June
30, 2004, we had no commercial paper outstanding. We
also have an effective shelf registration statement cover-
ing the potential issuance of up to an additional $300.0
million in debt securities. As of June 30, 2004, we had an
unused $400.0 million revolving credit facility, expiring
on June 28, 2006, and $173.3 million in additional uncom-
mitted credit facilities, of which $5.4 million was used.
Our business is seasonal in nature and, accordingly, our
working capital needs vary. From time to time, we may
enter into investing and financing transactions that require
additional funding. To the extent that these needs exceed
cash from operations, we could, subject to market condi-
tions, issue commercial paper, issue long-term debt secu-
rities or borrow under the revolving credit facility.
Total debt as a percent of total capitalization was 24%
at June 30, 2004 as compared with 14% at June 30, 2003.
This increase primarily reflects the classification of the
2015 Preferred Stock as short-term debt as well as the
issuance of the 5.75% Senior Notes in fiscal 2004.
The effects of inflation have not been significant to our
overall operating results in recent years. Generally, we
have been able to introduce new products at higher sell-
ing prices or increase selling prices sufficiently to offset
cost increases, which have been moderate.
We believe that cash on hand, cash generated from
operations, available credit lines and access to credit
markets will be adequate to support currently planned
business operations and capital expenditures on both a
near-term and long-term basis.
Cash Flows
Net cash provided by operating activities was $669.8
million in fiscal 2004 as compared with $553.1 million in
fiscal 2003 and $519.3 million in fiscal 2002. The
improved operating cash flow primarily reflects increased
net earnings from continuing operations and an increase
in accrued costs. Changes in operating assets and liabili-
ties reflect partially offsetting increases in accounts
payable and inventory in anticipation of product launches
in fiscal 2005, higher accounts receivable in line with sales
growth, and changes in other assets and accrued liabilities
that reflect receipts and accruals from employee
compensation and benefit related transactions as well as
selling, advertising and merchandising activities. We
expect cash flows from operations in fiscal 2005 to reflect
payments of approximately $47 million, net of tax, related
to deferred compensation and supplemental pension
arrangements. The improvement in net cash flows for fis-
cal 2003 compared to fiscal 2002 reflected increased
earnings and seasonal levels of operating assets and lia-
bilities. Operating assets and liabilities reflected an
improvement in accounts receivable collections in fiscal
2003, and a higher level of accounts payable, partially off-
set by increased inventories at June 30, 2003 in anticipa-
tion of product launches in the first half of fiscal 2004 and
the impact of acquisitions on required inventory levels.
Net cash used for investing activities was $208.0 mil-
lion in fiscal 2004, compared with $192.5 million in fiscal
2003 and $217.0 million in fiscal 2002. Net cash used in
investing activities in fiscal 2004 primarily related to capi-
tal expenditures. Net cash used in investing activities
during fiscal 2003 primarily related to capital expenditures
and the acquisition of Darphin and certain Aveda distrib-
utors. Net cash used in fiscal 2002 related primarily to
capital expenditures.
Capital expenditures amounted to $206.5 million,
$163.1 million and $203.2 million in fiscal 2004, 2003 and
2002, 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. In fiscal 2005, we expect our capital
expenditures to increase as a result of a company-wide
initiative to upgrade our financial systems as well as our
plan to invest in leasehold improvements in our corporate
offices. The reduced level of capital expenditures in fiscal
2003 reflected tight control on our spending in light of
then-prevailing economic conditions, fewer retail store
openings and reduced spending related to leasehold
improvements.
Cash used for financing activities was $216.0 million,
$555.0 million and $123.1 million in fiscal 2004, 2003 and
2002, respectively. The net cash used for financing activi-
ties in fiscal 2004 primarily related to the redemption of
$291.6 million aggregate principal amount of the 2015
Preferred Stock, common stock repurchases and dividend
payments partially offset by proceeds from the issuance of
the 5.75% Senior Notes and employee stock transactions.
Net cash used for financing during fiscal 2003 and fiscal
2002 primarily related to common stock repurchases, the
repayment of long-term debt and dividend payments.
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