Estee Lauder 2007 Annual Report Download - page 49

48 THE EST{E LAUDER COMPANIES INC.
liabilities primarily refl ected higher advertising, merchan-
dising and sampling accruals compared to fi scal 2005, as
well as signifi cant deferred compensation and supplemen-
tal pension payments made to retired executives in fi scal
2005. Additional increases in other accrued liabilities and
other noncurrent liabilities refl ected accrued employee
separation benefi ts related to the Company’s fi scal 2006
cost savings initiative.
Net cash used for investing activities was $373.8 mil-
lion, $303.2 million and $237.0 million in fi scal 2007, 2006
and 2005. The increase in cash fl ows used for investing
activities as compared with fi scal 2006 primarily refl ected
capital expenditures, which refl ected our continuing com-
pany-wide initiative to upgrade our information systems,
store improvements and counter construction. Fiscal 2007
investing activities also refl ected the purchase of the
remaining equity interest in Bumble and Bumble Products,
LLC and Bumble and Bumble, LLC, as well as the acquisi-
tion of businesses engaged in the wholesale distribution
and retail sale of our products in the United States and
other countries. The increase in cash fl ows used for invest-
ing activities during fi scal 2006 primarily refl ected the
cash payment related to the Jo Malone Limited earn-out
provision and, to a lesser extent, Aveda distributor acquisi-
tions. Capital expenditures also increased in fi scal 2006
primarily refl ecting our continued company-wide initiative
to upgrade our information systems, which was initiated
in fi scal 2005. Fiscal 2005 capital expenditures refl ected
those costs related to our information systems as well
as the investment in leasehold improvements for our
corporate offi ces.
Cash used for fi nancing activities was $411.6 million,
$594.6 million and $300.4 million in fi scal 2007, 2006 and
2005, respectively. Net cash fl ows related to short-term
and long-term borrowings increased approximately
$722.1 million from the prior year. An increase in pro-
ceeds from employee stock transactions of approximately
$87 million also contributed to the improvement. Partially
offsetting these improvements were increases in treasury
stock repurchases of approximately $604 million and an
increase of approximately $18 million in dividends paid to
stockholders. During fi scal 2006, in addition to common
stock repurchases and dividend payments, cash fl ows
used for fi nancing activities refl ected the repayment of
short-term commercial paper that was outstanding at
June 30, 2005 and the October 2005 redemption of the
remaining 2015 Preferred Stock. These outfl ows were
partially offset by short-term borrowings under our loan
participation note program. The 3.0 billion yen term
loan outstanding at the end of fi scal 2005 was refi nanced
by borrowings under the new 3.0 billion yen revolving
incurred on the undrawn balance. At June 30, 2007, no
borrowings were outstanding under this facility.
Our business is seasonal in nature and, accordingly,
our working capital needs vary. From time to time, we
may enter into investing and fi nancing transactions that
require additional funding. To the extent that these needs
exceed cash from operations, we could, subject to market
conditions, issue commercial paper, issue long-term debt
securities or borrow under our revolving credit facilities.
Total debt as a percent of total capitalization was 48%
at June 30, 2007 and 24% at June 30, 2006.
The effects of infl ation have not been signifi cant to our
overall operating results in recent years. Generally, we
have been able to introduce new products at higher
selling prices or increase selling prices suffi ciently to offset
cost increases, which have been moderate.
Based on past performance and current expectations,
we believe that cash on hand, cash generated from opera-
tions, available credit lines and access to credit markets
will be adequate to support currently planned business
operations, information systems enhancements, capital
expenditures, stock repurchases, commitments and
other contractual obligations on both a near-term and
long-term basis.
Cash Flows
Net cash provided by operating activities was $661.6
million, $709.8 million and $478.1 million in fi scal 2007,
2006 and 2005, respectively. The net decrease in operat-
ing cash fl ows from fi scal 2006 to fi scal 2007 refl ected
higher domestic and international inventory levels primar-
ily driven by growth in new and emerging international
markets, increased regulatory requirements and the build-
ing of safety stock for the recent implementation of SAP
as part of our Strategic Modernization Initiative at our
Aveda manufacturing facility. In addition, the decrease in
operating cash fl ows refl ected higher accounts receivable
balances, primarily related to signifi cant sales growth from
our international operations. Cash flows were also
impacted by cash payments made during fi scal 2007
related to our fi scal 2006 cost savings initiative. Partially
offsetting the decrease was an improvement in net earn-
ings from continuing operations.
The net increase in operating cash fl ows for fi scal 2006
as compared with fi scal 2005 primarily refl ected favorable
changes in certain working capital accounts, partially off-
set by a decrease in net earnings from continuing opera-
tions. Net accounts receivable balances decreased
primarily refl ecting higher collections domestically during
fi scal 2006. Inventory levels remained constant at June 30,
2006 as compared to June 30, 2005 due to our efforts to
better manage our inventory. Increases in other accrued