Estee Lauder 2003 Annual Report Download - page 51

THEEST{E LAUDER COMPANIES INC.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash
flows from operations and borrowings under commercial
paper, borrowings from the issuance of long-term debt
and committed and uncommitted credit lines provided
by banks in the United States and abroad. At June 30,
2003, we had cash and cash equivalents of $364.1 mil-
lion compared with $546.9 million at June 30, 2002.
At June 30, 2003, our outstanding borrowings of
$291.4 million included: (i) $257.1 million of 6% Senior
Notes due January 2012 consisting of $250.0 million prin-
cipal, an unamortized debt discount of $1.0 million, and
an $8.1 million adjustment to reflect the fair value of an
outstanding interest rate swap; (ii) a 3.0 billion yen term
loan (approximately $25.2 million at current exchange
rates), which is due in March 2006; (iii) $7.8 million of
other short-term borrowings; and (iv) $1.3 million of other
long-term borrowings.
In May 2003, we entered into an interest rate swap
agreement with a notional amount of $250.0 million to
effectively convert the fixed rate interest on our outstand-
ing $250.0 million 6% Senior Notes to variable interest
rates based on LIBOR. In the short-term, this will provide
us with a lower level of interest expense related to the 6%
Senior Notes based on current variable interest rates,
however, over the life of the notes, interest expense may
be greater than 6% based upon the fluctuations of LIBOR.
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+ by Standard & Poor’s and A1
by Moody’s. At June 30, 2003, we had no commercial
paper outstanding. We also have an effective shelf regis-
tration statement covering the potential issuance of up to
$500.0 million in debt securities. As of June 30, 2003, we
had an unused $400.0 million revolving credit facility,
expiring on June 28, 2006, and $156.6 million in addi-
tional uncommitted credit facilities.
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.
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
selling 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 $548.5
million in fiscal 2003 as compared with $518.0 million
in fiscal 2002 and $305.4 million in fiscal 2001. The
improved operating cash flow primarily reflects increased
earnings and seasonal levels of operating assets and
liabilities. Operating assets and liabilities reflect an
improvement in accounts receivable collections, and a
higher level of accounts payable, partially offset by
increased inventories in anticipation of product launches
in the first half of fiscal 2004 and the impact of acquisi-
tions on required inventory levels. The improvement in
net cash flows for fiscal 2002 compared to fiscal 2001
was generated primarily by a reduction of inventory.
Inventory levels were unseasonably high at the end of fis-
cal 2001 and were lowered during fiscal 2002 as part of
our 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.
Net cash used for investing activities was $192.5 mil-
lion in fiscal 2003, compared with $217.0 million in fiscal
2002 and $206.3 million in fiscal 2001. Net cash used in
investing activities in fiscal 2003 primarily relates to capital
expenditures and the acquisition of Darphin and certain
Aveda distributors. Net cash used in investing activities
during fiscal 2002 and fiscal 2001 relates primarily to
capital expenditures.
Capital expenditures amounted to $163.1 million,
$203.2 million and $192.2 million in fiscal 2003, 2002 and
2001, respectively. Spending in all three years primarily
reflected the continued upgrade of manufacturing
equipment, dies and molds, new store openings, store
improvements, counter construction and information
technology enhancements. The reduced level of capital
expenditures in fiscal 2003 reflects tight control on our
spending in light of economic conditions, fewer retail
store openings and reduced spending related to lease-
hold improvements.
Cash used for financing activities was $550.4 million,
$121.8 million and $63.5 million in fiscal 2003, 2002
and 2001, respectively. The net cash used for financing
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