Estee Lauder 2004 Annual Report Download - page 53

THE EST{E LAUDER COMPANIES INC.
Dividends
On November 5, 2003, the Board of Directors declared
an annual dividend of $.30 per share on our Class A and
Class B Common Stock, payable on January 6, 2004 to
stockholders of record at the close of business on Decem-
ber 16, 2003. Common stock dividends paid during the
fiscal years 2004, 2003 and 2002 were $68.5 million,
$58.3 million and $47.6 million, respectively. Dividends
paid on the preferred stock were $17.4 million for the
year ended June 30, 2004 and $23.4 million for the years
ended June 30, 2003 and 2002. The decrease reflects an
agreement to reduce the dividend of the preferred stock
made in connection with the exchange of the preferred
shares on December 31, 2003 and the redemption
of $291.6 million aggregate principal amount of 2015
Preferred Stock on June 10, 2004. The dividend rate on
the remaining $68.4 million principal amount of 2015
Preferred Stock was reduced, for the period from April
25, 2004 through June 30, 2004, from 4.75% per annum
to 0.62% per annum, which is a rate based on the after-
tax yield on six-month U.S. Treasuries. The dividend rate
for the six-month period July 1, 2004 through December
31, 2004 is 0.994%. So long as the remaining shares of
2015 Preferred Stock are outstanding, the dividend rate
will be reset semi-annually in January and July at the
then existing after-tax yield on six-month U.S. Treasuries.
The cumulative redeemable preferred stock dividends
declared for the year ended June 30, 2004 have been
characterized as interest expense (see “Recently Issued
Accounting Standards”).
Pension Plan Funding and Expense
We maintain pension plans covering substantially all of
our full-time employees for our U.S. operations and a
majority of our international operations. Several plans pro-
vide pension benefits based primarily on years of service
and employees’ earnings. In the United States, we main-
tain a trust-based, noncontributory defined benefit pen-
sion plan (“U.S. Plan”). Additionally, we have an unfunded,
nonqualified domestic noncontributory pension plan to
provide benefits in excess of statutory limitations. Our
international pension plans are comprised of defined
benefit and defined contribution plans.
Several factors influence our annual funding require-
ments. For the U.S. Plan, our funding policy consists of
annual contributions at a rate that provides for future plan
benefits and maintains appropriate funded percentages.
Such contribution is not less than the minimum required
by the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), and subsequent pension
legislation and is not more than the maximum amount
deductible for income tax purposes. For each international
plan, our funding policies are determined by local laws
and regulations. In addition, amounts necessary to fund
future obligations under these plans could vary depending
on estimated assumptions (as detailed in “Critical
Accounting Polices and Estimates”). The effect on operat-
ing results in the future of pension plan funding will
depend on economic conditions, employee demograph-
ics, mortality rates, the number of participants electing to
take lump-sum distributions, investment performance and
funding decisions.
For fiscal 2004 and 2003 there was no minimum con-
tribution to the U.S. Plan required by ERISA. However, at
management’s discretion, we made cash contributions to
the U.S. Plan of $33.0 million and $76.0 million during fis-
cal 2004 and 2003, respectively. Depending upon mar-
ket conditions during fiscal 2005, we expect to make cash
contributions to our U.S. Plan of $16.0 million.
In addition, at June 30, 2004 and 2003, we recognized
a liability on our balance sheet for each pension plan if
the fair market value of the assets of that plan was less
than the accumulated benefit obligation and, accordingly,
a benefit or a charge was recorded in accumulated other
comprehensive income (loss) in shareholders’ equity.
During fiscal 2004, we recorded a benefit, net of deferred
tax, of $16.0 million, while in fiscal 2003, we recorded a
charge, net of deferred tax, of $20.3 million to accumu-
lated other comprehensive income (loss).
Commitments and Contingencies
On June 10, 2004, we redeemed all $291.6 million
aggregate principal amount of 2015 Preferred Stock that
could be redeemed at that time. The remaining $68.4 mil-
lion principal amount of 2015 Preferred Stock may be put
to us at any time at face value, but may not be redeemed
by us until May 24, 2005. If shares of the 2015 Preferred
Stock are put to us on or before June 30, 2005, we would
have up to 120 days after notice to purchase such shares.
Certain of our business acquisition agreements include
“earn-out” provisions. These provisions generally require
that we pay to the seller or sellers of the business addi-
tional amounts based on the performance of the acquired
business. The payments typically are made after a certain
period of time and our next “earn-out” payment is
expected to be made after the end of fiscal 2005. Since
the size of each payment depends upon performance of
the acquired business, we do not expect that such pay-
ments will have a material adverse impact on our future
results of operations or financial condition.
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