Estee Lauder 2003 Annual Report Download - page 52

THEEST{E LAUDER COMPANIES INC.
activities in 2003 primarily relates to common stock repur-
chases, the repayment of long-term debt and dividend
payments.Net cash used for financing during fiscal 2002
primarily relates to dividend payments and common stock
repurchases. The net cash used in fiscal 2001 was prima-
rily related to dividend payments.
Dividends
The Board of Directors declared, and we paid on our
Class A Common Stock and Class B Common Stock, an
annual dividend of $.20 per share in fiscal 2003 and
quarterly dividends at the rate of $.05 per share in each
quarter of fiscal 2002 and 2001. The last quarterly divi-
dend of $.05 per share was paid in the first quarter of
fiscal 2003. As previously disclosed, the Board of Direc-
tors determined that,at its discretion, it would declare and
the Company would pay dividends on its common stock
annually rather than quarterly commencing in fiscal 2003.
In fiscal 2003, 2002 and 2001, dividends declared on our
common stock totaled $46.5 million, $47.5 million and
$47.7 million, respectively. Total dividends declared,
including dividends on the $6.50 Cumulative Redeemable
Preferred Stock, were $69.9 million, $70.9 million and
$71.1 million in fiscal 2003, 2002 and 2001, respectively.
Share Repurchase Program
In September 1998, our Board of Directors authorized a
share repurchase program to repurchase a total of up to
8.0 million shares of Class A Common Stock in the open
market or in privately negotiated transactions, depending
on market conditions and other factors. In October 2002,
the Board of Directors authorized the repurchase of up
to 10.0 million additional shares of Class A Common
Stock, increasing the total authorization under the share
repurchase program to 18.0 million shares. During fiscal
2003, we purchased 11.2 million shares for $352.4
million. As of June 30, 2003, we have purchased approxi-
mately 13.8 million shares under this program. Subse-
quent to year-end, we purchased an additional 0.4 million
shares for $12.3 million bringing the cumulative total of
acquired shares to 14.2 million.
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 benefit plan to provide benefits in
excess of Internal Revenue Code limitations. Our interna-
tional 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 an
annual contribution 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 leg-
islation 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.
During fiscal 2003, we changed certain of the underly-
ing assumptions associated with our pension plans based
upon the recent past performance and outlook of the
securities markets, resulting in a larger funding require-
ment. In addition, the assets associated with the pension
plans experienced negative investment returns, which
also affected our funding requirements. Even after
considering the impact of these factors, there was no
minimum contribution to the U.S. Plan required by ERISA
for fiscal 2003 and 2002. However, at management’s
discretion, we made cash contributions to the U.S. Plan of
$76.0 million and $43.0 million during fiscal 2003 and
2002, respectively.
In addition, at June 30, 2003, we recognized a liability
on our balance sheet for each pension plan if the fair mar-
ket value of the assets of that plan was less than the accu-
mulated benefit obligation and, accordingly, a charge is
recorded in accumulated other comprehensive income
(loss) in shareholders’ equity. During fiscal 2003 and 2002,
we recorded a charge to accumulated other comprehen-
sive income (loss) of $20.3 million and $7.9 million,
respectively. This charge had no impact on our consoli-
dated net earnings or liquidity.
Commitments and Contingencies
We will be required to redeem the outstanding $6.50
Cumulative Redeemable Preferred Stock on June 30,
2005. However, in the event that Mrs. Estée Lauder were
to pass away before such date, then we would have the
right to redeem the shares from the current holders, and
51