Estee Lauder 2005 Annual Report Download - page 68

THE EST{E LAUDER COMPANIES INC.
expects to make additional payments between fiscal 2007
and 2011 based on certain conditions.
In April 2003, the Company acquired 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 2005, 2004 and 2003, 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.
The aggregate purchase price for these acquisitions,
which includes acquisition costs, was $7.1 million, $4.4 mil-
lion, and $50.4 million in fiscal 2005, 2004 and 2003,
respectively, and each transaction was accounted for using
the purchase method of accounting. Accordingly, the
results of operations for each of the acquired businesses
are included in the accompanying consolidated financial
statements commencing with its date of original acquisi-
tion. 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 fiscal 2005, the Company was developing products
under license agreements for Sean John (announced in
May 2004), Tom Ford (announced in April 2005) and
Missoni (announced in May 2005) and an Origins license
agreement to develop and sell products using the name of
Dr. Andrew Weil (announced in October 2004). 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.
Certain license agreements may require minimum
royalty payments, incremental royalties based on net sales
levels and minimum spending on advertising and promo-
tional activities. Royalty expenses are accrued in the period
in which net sales are earned while advertising and
promotional expenses are accrued at the time these costs
are incurred.
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 14). 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. As of
June 30, 2005, cumulative payments related to the special
pre-tax charge were $4.8 million. The Company expects to
settle a majority of the remaining obligation by the end of
fiscal 2007.
Fiscal 2002 and Fiscal 2001
As of June 30, 2005 and 2004, accruals related to fiscal
2002 and fiscal 2001 restructurings were $4.7 million and
$10.7 million, respectively. During fiscal 2005, 2004
and 2003, $6.0 million, $13.8 million and $36.7 million,
respectively, related to these restructurings were paid. The
Company expects to settle the remaining obligations
through fiscal 2007.
NOTE 6 – INCOME TAXES
The provision for income taxes is comprised of the following:
YEAR ENDED JUNE 30 2005 2004 2003
(In millions)
Current:
Federal $ 48.4 $ 67.1 $ 37.6
Foreign 130.5 135.5 84.0
State and local 7.5 11.7 5.2
186.4 214.3 126.8
Deferred:
Federal 88.6 20.1 33.5
Foreign 10.7 (1.8) 1.9
State and local 5.6 — 1.1
104.9 18.3 36.5
$291.3 $232.6 $163.3
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