Estee Lauder 2004 Annual Report Download - page 67

THE EST{E LAUDER COMPANIES INC.
NOTE 3 – PUBLIC OFFERINGS
In June 2004, three Lauder family trusts sold a total of
13,000,000 shares of Class A Common Stock in a regis-
tered public offering. The Company did not receive any
proceeds from the sales of these shares. The cost of this
offering was borne by the selling stockholders.
During October 2001, a member of the Lauder family
sold 5,000,000 shares of Class A Common Stock in a reg-
istered public offering. The Company did not receive any
proceeds from the sale of these shares. The cost of this
offering was borne by the selling stockholder.
NOTE 4 – ACQUISITION AND DIVESTITURE OF
BUSINESSES AND LICENSE ARRANGEMENTS
In December 2003, the Company committed to a plan to
sell the assets and operations of its reporting unit that sold
jane brand products and sold them in February 2004. At
the time the decision was made, circumstances warranted
that the Company conduct an assessment of the tangible
and intangible assets of the jane business. Based on this
assessment, the Company determined that the carrying
amount of these assets as then reflected on the Com-
pany’s consolidated balance sheet exceeded its estimated
fair value. In accordance with the assessment and the clos-
ing of the sale, the Company recorded an after-tax charge
to discontinued operations of $33.3 million for the fiscal
year ended June 30, 2004. The charge represents the
impairment of goodwill in the amount of $26.4 million;
the reduction in value of other tangible assets in the
amount of $2.1 million, net of taxes; and the reporting
unit’s operating loss of $4.8 million, net of tax. Included
in the operating loss of the fiscal year were additional
costs associated with the sale and discontinuation of the
business. As a result, all consolidated statements of earn-
ings information in the consolidated financial statements
and footnotes for fiscal 2003 and 2002 has been restated
for comparative purposes to reflect that reporting unit as
discontinued operations, including the restatement of the
makeup product category and the Americas region data
presented in Note 18.
In July 2003, the Company acquired the Rodan + Fields
skin care line. The initial purchase price, paid at closing,
was funded by cash provided by operations, the payment
of which did not have a material effect on the Company’s
results of operations or financial condition. The Company
expects to make additional payments between fiscal
2007 and 2011 based on certain conditions.
On April 30, 2003, the Company completed the acqui-
sition of the Paris-based Darphin group of companies that
develops, manufactures and markets the “Darphin” brand
of skin care and makeup products. The initial purchase
price, paid at closing, was funded by cash provided by
operations, the payment of which did not have a material
effect on the Company’s results of operations or financial
condition. An additional payment is expected to be made
in fiscal 2009, the amount of which will depend on future
net sales and earnings of the Darphin business.
At various times during fiscal 2004, 2003 and 2002, the
Company acquired businesses engaged in the wholesale
distribution and retail sale of Aveda products, as well as
other products, in the United States and other countries.
In fiscal 2002, the Company purchased an Aveda whole-
sale distributor business in Korea and acquired the minority
interest of its Aveda joint venture in the United Kingdom.
The aggregate purchase price for these transactions,
which includes acquisition costs, was $4.4 million, $50.4
million, and $18.5 million in fiscal 2004, 2003 and 2002,
respectively, and each transaction was accounted for
using the purchase method of accounting. Accordingly,
the results of operations for each of the acquired busi-
nesses are included in the accompanying consolidated
financial statements commencing with its date of original
acquisition. Pro forma results of operations, as if each of
such businesses had been acquired as of the beginning
of the year of acquisition, have not been presented, as the
impact on the Company’s consolidated financial results
would not have been material.
In May 2003, the Company entered into a license
agreement for fragrances and beauty products under the
“Michael Kors” trademarks with Michael Kors L.L.C. and
purchased certain related rights and inventory from
American Designer Fragrances, a division of LVMH.
NOTE 5 – RESTRUCTURING AND SPECIAL CHARGES
Fiscal 2003
During the fourth quarter of fiscal 2003, the Company
recorded a special pre-tax charge of $22.0 million, or
$13.5 million after tax, equal to $.06 per diluted common
share, in connection with the proposed settlement of a
legal proceeding brought against a number of defendants
including the Company (see Note 15). The amount of the
charge in this case is significantly larger than similar
charges the Company has incurred individually or in the
aggregate for legal proceedings in any prior year.
Fiscal 2002
During the fourth quarter of fiscal 2002, the Company
recorded a restructuring charge related to repositioning
certain businesses as part of its ongoing efforts to
drive long-term growth and increase profitability. The
restructuring focused on cost reduction opportunities
related to the Internet, supply chain, globalization of the
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