Estee Lauder 2003 Annual Report Download - page 53

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THEEST{E LAUDER COMPANIES INC.
the holders of such shares would have the right to put the
shares to us, at $100 per share (for an aggregate cost of
$360.0 million). If shares of $6.50 Cumulative Redeemable
Preferred Stock are put to us, 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.
Under agreements covering our purchase of trade-
marks for a percentage of related sales, royalty payments
totaling $20.3 million, $16.5 million and $16.0 million
in fiscal 2003, 2002 and 2001, respectively, have been
charged to expense. Such payments were made to
Mrs. Estée Lauder. This obligation is not necessarily fixed
and determinable, and therefore has been excluded from
the following contractual obligation table.
52
Contractual Obligations
The following table summarizes scheduled maturities of our contractual obligations for which cash flows are fixed and
determinable as of June 30, 2003.
Total 2004 2005 2006 2007 2008 Thereafter
(In millions)
Long-term debt including current portion
(1)
$ 291.4 $ 7.8 $ 1.3 $ 25.2 $ — $ — $257.1
Redeemable preferred stock
(2)
360.0 — 360.0 — — — —
Lease commitments
(3)
605.6 120.1 104.6 74.4 61.9 54.8 189.8
Unconditional purchase obligations
(4)
698.7 346.9 37.8 42.6 27.3 25.5 218.6
Total contractual obligations $1,955.7 $474.8 $503.7 $142.2 $89.2 $80.3 $665.5
(1) Refer to Note 8 of Notes to Consolidated Financial Statements.
(2) Refer to Note 12 of Notes to Consolidated Financial Statements.
(3) Includes operating lease commitments, and to a lesser extent, minimal capital lease commitments. Refer to Note 15 of Notes to Consolidated
Financial Statements.
(4) Unconditional purchase obligations primarily include inventory commitments, estimated future earn-out payments, estimated royaltypayments pursuant
to license agreements, advertising commitments and capital improvement commitments.
Payments Due in Fiscal
In July 2003, we signed a new lease for our principal
offices at the same location. Our rental obligations
under the new lease will commence in fiscal 2005 and
expire in fiscal 2020. Obligations pursuant to the lease
in fiscal 2005, 2006, 2007, 2008 and thereafter are $5.9
million, $23.6 million, $23.6 million, $24.1 million and
$324.2 million, respectively.
Business Acquisitions and License Agreements
In April 2003, we acquired the Paris-based Darphin group
of companies that develops, manufactures and markets
the “Darphin” brand of skin care products. The initial pur-
chase price, paid at closing, was funded by cash provided
by operations, and did not have a material effect on our
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 earn-
ings of the Darphin business.
In May 2003, we entered into a license agreement to
manufacture and sell fragrances and beauty products
under the “Michael Kors” trademarks with Michael Kors
L.L.C. At the same time, we purchased certain related
rights and inventory from American Designer Fragrances,
a division of LVMH.
Derivative Financial Instruments and
Hedging Activities
We address certain financial exposures through a con-
trolled program of risk management that includes the use
of derivative financial instruments. We primarily enter into
foreign currency forward exchange contracts and foreign
currency options to reduce the effects of fluctuating for-
eign currency exchange rates. We also enter into interest
rate derivative contracts to manage the effects of fluctu-
ating interest rates. We categorize these instruments as
entered into for purposes other than trading.