3 COMBINED GENERAL SHAREHOLDERS MEETING MAY 15, 2003 Chairman’s Message 4 Managing and Auditing Bodies 6 Simplified Organization Chart 7 Consolidated Highlights 8 Management Report from the Board of Directors 11 Consolidated statements 45 • Consolidated Highlights 47 • Consolidated Balance Sheet 48 • Consolidated Statement of Income 50 • Consolidated Statement of Cash Flow 51 • Notes to the Consolidated Financial Statements 52 Report of the statutory auditors 113
Transcript
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C O M B I N E D G E N E R A LS H A R E H O L D E R S M E E T I N G
M AY 1 5 , 2 0 0 3
Chairman’s Message 4
Managing and Auditing Bodies 6
Simplified Organization Chart 7
Consolidated Highlights 8
Management Report from the Board of Directors 11
Consolidated statements 45
• Consolidated Highlights 47
• Consolidated Balance Sheet 48
• Consolidated Statement of Income 50
• Consolidated Statement of Cash Flow 51
• Notes to the Consolidated Financial Statements 52
Report of the statutory auditors 113
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CHAIRMAN’S MESSAGE
A 41% increase in Dior Couture sales! In the miserable economic climate of 2002,this improvement seems almost outrageous. Indeed, Dior is the fashion brand withthe strongest growth in the world, and the results achieved in 2002 are just one stepin our future development.
Dior Couture should reach sales of one billion euros by 2007 and produce incomefrom operations on the order of 20% of total sales.
Everything is in place to achieve this goal. After the arrival of John Galliano in1997, Victoire de Castellane in 1998 and Hedi Slimane in 2000, Dior has a creativeteam that is among the most talented in the profession. The success of new productsis evidence of this: 35% growth in women’s ready-to-wear in 2002, 56% in leathergoods, and a doubling of jewelry sales.
Many of our products are copied, even counterfeited. We are fighting thecounterfeiting, but it should also be recognized as the price of success.
After such swift progress - Dior Couture has more than doubled its sales in threeyears - can the brand sustain such a rate in coming years? Beyond the historicalactivities that will continue with strong growth, the signs of growth are there: Men’sactivities, under the direction of Hedi Slimane, is still only in its initial stages; shoes,which up to now represented only a very small part of our activity, will deliver majorgrowth in coming years; jewelry, only recently launched, has already reached thebreak-even point and will be clearly profitable by 2003. Finally, growth will besustained by the extension of the network of boutiques that will reinforce ourpresence in the areas of our major customers - the United States, Europe and Asia.From 75 at the end of 1999, the number of boutiques increased to 144 by the end of2002, an average of more than 20 openings per year. In 2003, we will open theflagship property for the brand in Japan in the Omotesando district of Tokyo, andby 2005 the network should approach 200 boutiques.
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The sales goal of one billion euros in 2007 is ambitious, but it is not beyond reach.
Our subsidiary LVMH also experienced a solid improvement in profitability in 2002.
The growth achieved by our leading brands is the result of our strategy ofconcentrating investments in our core business. Louis Vuitton, Moët & Chandon,Veuve Clicquot, Hennessy, Parfums Christian Dior, etc. are gaining in sales andmore still in profitability, and are winning new market share. In a business thatLVMH more recently tackled, but with a long-term perspective, our brands ofwatches and jewelry, particularly TAG Heuer, Christian Dior, Zenith, Chaumet, arealso extending their influence and are developing their sales at a rate that exceedsthat of their market, fully justifying the attention and investments that have beenmade in them.
As we anticipated, our policy of innovation, especially nurtured during the secondhalf of the year, is one of the factors that strongly contributed to the Group’s growth.Among the successes that could be mentioned are the launch of the Louis VuittonTambour watch, the Dior Addict women’s perfume, Givenchy pour Homme, Fine deCognac, the latest creation of Hennessy, the Riva Sparkling watch signed byChristian Dior. The opening in August of the Louis Vuitton “home” building inTokyo Omotesando - an architectural as well as commercial event - could also becalled an innovation. Although its success makes it one of the finest in our networkof stores, even more than that it is a symbol, a symbol of the exceptional success ofLouis Vuitton in the Archipelago and evidence of its commitment to Japanesecustomers.
Improving profitability was also a major objective. Except for Watches and Jewelry,which are in the investment phase for future growth, all of our sectors havecontributed to it. The selective retailing activities, more strongly affected by theeconomic situation, were particularly involved. They fully achieved their objectivesthanks to the efforts of DFS, which has regained its operating equilibrium at theprice of a set of stiff cost reduction measures. Sephora, whose overall sales figuresincreased significantly, also contributed its part. Our business has actually achievedstrong growth in its income from operations in Europe, and has exceeded its goalsfor improvement in the United States by concentrating its efforts on its mostprofitable facilities. Sephora is in line with its profitability goal in the United Statesin 2003.
Strengthened in its strategy and prospects by the results obtained in 2002, theChristian Dior group is confident in facing the challenges and opportunities of thecoming months. Our Group has established a goal of a significant increase in itsincome from operations for 2003; beyond that point, it is actively preparing for thesuccesses of tomorrow and building its long-term success.
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BOARD OF DIRECTORS
Bernard ARNAULT
Chairman
Eric GUERLAIN
Vice-President
Antoine BERNHEIM
Denis DALIBOT
Pierre GODE
Christian de LABRIFFE
Raymond WIBAUX
Directors
GENERAL MANAGEMENT
Sidney TOLEDANO
General Manager
PERFORMANCE AUDITINGCOMMITTEE
Eric GUERLAIN
Chairman
Pierre GODE
Christian de LABRIFFE
DIRECTOR ANDREMUNERATION SELECTIONCOMMITTEE
Antoine BERNHEIM
Chairman
Pierre GODE
Eric GUERLAIN
Raymond WIBAUX
AUDITORS
ERNST & YOUNG AUDIT
Represented by François Hilly
BARBIER FRINAULT & AUTRES
Represented by Gilles Galippe
M A N A G I N G A N D A U D I T I N G B O D I E S
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S I M P L I F I E D O R G A N I Z A T I O N C H A R TA T D E C E M B E R 3 1 , 2 0 0 2
Christian Dior*
FinancièreJean Goujon
Christian Dior Couture
LVMH*
100%
42.5%
100%
* Listed company
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Wines and Spirits2,266
Watches and Jewelry552
Selective Retailing3,337
Other activitiesand eliminations
(9)
Perfumesand Cosmetics
2,336
Fashionand Leather Goods
4,194
Christian Dior Couture492
17%18%
5%
4%
28%25%
1%
27% 32%
20% 17%
2% 4%3%
20022000
18%
4%
27%
1%
29%
18%
2001
France2,266
Europe (except France)2,276
Japan1,950
Asia (except Japan)1,974
Other markets1,127
United States3,575
8 %
17 %
15 %
18 %
16 %
26 %
7 %
16 %
15%
19%
17%
26%
2000
9%
15%
15%
17%
17%
27%
20022001
12%
4%
4%
16%
29%
2000
35%
12%
4%
5%
16%
31%
2001
32%
12%
4%4%
16%
32%
2002
32%
Euro4,221
US Dollar4,223
Pound Sterling520
Hong Kong Dollar 546
Other currencies1,598
Yen2,060
Consolidated sales by business group(millions of euros)
Consolidated sales by geographic destination(millions of euros)
Consolidated sales by currency(millions of euros)
C O N S O L I D A T E D H I G H L I G H T S
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C O N S O L I D A T E D H I G H L I G H T S
1998 1999 2000 2001 2002millions of euros
Sales by business group
Christian Dior Couture 200 220 296 350 492
Wines and Spirits 1,919 2,240 2,336 2,232 2,266
Fashion and Leather Goods 1,797 2,295 3,202 3,612 4,194
Perfumes and Cosmeticss 1,369 1,703 2,072 2,231 2,336
Watches and Jewelry 32 135 614 548 552
Selective Retailing 1,799 2,162 3,294 3,493 3,337
Other activities 14 3 53 101 (9)
Total 7,130 8,758 11,867 12,567 13,168
Percentage earned outside France 81% 80% 85% 83% 83%
Income from operations (1) 1,181 1,551 1,967 1,548 2,034
Net current income - Group sharebefore amortization of goodwill 184 295 320 75 287
Net income - Group share 47 264 251 (95) 178
euros
Net current income per sharebefore amortization goodwill (2) 1.04 1.63 1.77 0.41 1.58
Overall dividend per share (2) 0.95 1.05 1.17 1.17 1.23
millions of euros
Balance sheet total 21,422 26,330 28,435 29,228 26,802
Average workforce 34,098 39,259 48,524 54,463 55,314
(1) Adjusted retroactively to reflect reclassifications.
(2) Adjusted to reflect the 4 for 1 stock split in July 2000.
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M A N A G E M E N T R E P O R T F R O M T H E B O A R D
O F D I R E C T O R S
Ladies and Gentlemen,
This report first summarizes the significant events affecting the life of the Christian DiorGroup in 2002.
We shall review in order the consolidated results, the business picture by segment and yourcompany’s performance.
I. CONSOLIDATED RESULTS
In spite of a poor economic environment and geopolitical tensions that have weighed downinternational trade and tourism, the Christian Dior Group posted excellent results.
Sales reached 13,168 million euros, up by 5%.
Fluctuations in currency exchange rates had a negative effect, a result of the weakening ofthe dollar and the yen. At constant exchange rates, sales increased by 9.6%.
The changes in consolidation had a positive effect and generated a 5.4% increase in sales.
The Group’s income from operations was 2,034 million euros, a 31% increase over 2001.This increase, far greater than the sales increase, was the result of the very strong growth inthe Christian Dior Couture business and the improvement in LVMH’s margins, while thebusiness and administrative expenses remained well under control.
The consolidated net current income was 890 million euros, compared to 361 million euros in2001, of which 287 and 75 million euros, respectively, were the Group’s share. Beyond theimprovement in the income from operations already mentioned, this very positive changereflects in particular the reduction of financial expenses related to the lowering of interestrates and to the resources freed up by the sale of assets.
The amortization of goodwill amounted to 109 million euros (Group’s share) compared to 70 million in 2001. This change is the result of the reduction in the amortization term ofDFS’ goodwill, rolled back to 20 years, and of the changes in consolidation.
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The net result was 637 million euros compared to 3 million in 2001, of which 178 million and(95) million, respectively, were the Group’s share.
millions of euros 2002 2001
Sales 13,168 12,567
Operating income 2,034 1,548
Current income 890 361Group share 287 75
Net current income 637 3Group share 178 (95)
In order to measure the performance of the Christian Dior Group in its current structure,pro forma accounts were prepared by moving up the effective date of all modifications toJanuary 1, 2001.
The principal results were:
millions of euros 2002 2001pro forma pro forma
Sales 13,168 13,249
Current income 1,045 534Group share 346 230
The Group’s various branches of business posted new improvement in sales in an economicenvironment that was hardly favorable, as was already mentioned.
• Christian Dior Couture posted a 41% increase in its sales; in particular this is related to theextension of the network of boutiques, but also - and to an even greater degree - to internalgrowth.
• Wines and Spirits sales improved by 2%. Excluding the effect of the sale of the Pommerybrand, and excluding the effect of fluctuations in exchange rate parities, the actualimprovement was 10%.
• Sales in the Fashion and Leather Goods business increased by 16%. In particular, thisperformance is related to the increased sales of Louis Vuitton, 7% in constant exchangeterms, especially in the Japanese and American markets.
• Sales in the Perfumes and Cosmetics businesses increased by 5% and 8% in constantexchange terms; this development illustrates the success of recent launches.
• Sales of the Watches and Jewelry group increased by 1% and 3% in constant exchangeterms, in spite of the shut-down of manufacturing and distribution activities for brandsoutside the Group.
• Selective Retailing sales decreased overall by 5%, although this percentage obscures verydifferent realities for DFS which has suffered a setback, while Sephora is clearly improving.
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millions of euros Sales Operating income
2002 2001 2002 2001
Christian Dior Couture 492 350 33 (5)
Wines and Spirits 2,266 2,232 750 676
Fashion and Leather Goods 4,194 3,612 1,297 1,274
Perfumes and Cosmetics 2,336 2,231 161 149
Watches and Jewelry 552 548 (13) 27
Selective Retailing 3,337 3,493 20 (213)
Other activities, eliminations and restatements (9) 101 (214) (360)
Total 13,168 12,567 2,034 1,548
In Christian Dior’s consolidated financial statements, LVMH’s accounts are restated to takeinto account differences in appraisal of brands recorded prior to 1990 in the consolidations ofeach of these companies.
Consequently the net results of LVMH are consolidated for 697 million euros compared to687 million euros before restatement, and are included in the net income-Group share-ofChristian Dior for 239 million euros compared to 236 million euros before restatement. Itwill be noted that since the assets sold by LVMH have a consolidation value that is greaterin Christian Dior’s books than what is recorded at LVMH, the consolidated sale results arereduced by the same amount.
The results by branch of business shown below are as published by LVMH, and are thereforenot restated.
Investments
Net investments amount to 780 million euros and include 435 million euros in operationalinvestments of the current businesses, as well as the non-recurring investments related torestructuring and external growth operations, particularly the acquisition of Millennium (76 million euros), the increased stake in Fendi (196 million euros) and in Thomas Pink (28 million euros).
On the other hand, the sale of Pommery (152 million euros) should be noted.
Research and Development
The research and development expenses, recorded as expenses during the period, amountedto 36 million euros in 2002 (27 million in 2001). These outlays cover the expenses of scientificresearch and the development of new products.
The research and development expenses, broadened to include “packaging” and “design”expenses, represent a charge of 47 million euros for 2002 (37 million in 2001).
Workforce
The Group’s workforce increased by 1.6%, particularly from the effect of newly acquiredcompanies, but also as a result of the internal growth of the most buoyant business sectors.
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The average workforce of the fully consolidated companies is as follows:
2002 2001
Christian Dior Couture 1,501 1,289Wines and Spirits 5,018 5,268Fashion and Leather Goods 15,033 12,758Perfumes and Cosmetics 12,994 12,887Watches and Jewelry 2,301 1,975Selective Retailing 17,289 18,439Other activities 1,178 1,847
Total 55,314 54,463
II. RESULTS BY BUSINESS
1. Christian Dior Couture
A - Highlights
The strategic goals defined for fiscal 2002 were achieved and even exceeded.
• Accelerated development of sales. After a growth rate of 18% during fiscal 2001, sales during 2002 grew by 41%.This development, which occurred in an international context rather unfavorable to the large,deluxe brands, resulted in a significant increase in the brand’s market shares.
• A return to profitability, in terms of operating income and net income. The investments made during the preceding periods, both in terms of products, image anddistribution network, enabled the brand to cross the profitability threshold with an operatingincome 7% over 2001, close to the break-even point.
• The renewal of the brand’s image. The 2002 financial year contributed to the success of the strategic choices initiated during thepreceding years. Thanks to a renewed image, the brand has been accepted by a broadercustomer base that is also younger and more international.
• The acceleration of the network of company-owned boutiques. The network had 144 points of sale at December 31, 2002, and 28 boutiques were opened in2002.
• As in 2001, the European Community was still an essential axis of development with theopening of 10 points of sale constituting major sites in the large European capitals.
• The United States has continued the development of its network, with six new points ofsale.
• In Japan, six points of sale were opened and the important Omotesando project in Tokyowas begun, with projected opening of an 800 m2 boutique by 2003-2004.
• In Southeast Asia, the priority goals for fiscal 2002 were the development of Taiwan andSouth Korea.
• The continued rationalization of the network of licensees.
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During fiscal 2002, the brand took over the responsibility for the marketing of lingerie andbathing suits, which until then had been operated under license, in order to obtain bettercontrol of the quality and distribution of these lines.
B - Consolidated Results of the Couture Business
Sales from the Couture business, 492 million euros grew by 41% compared to 2001. At aconstant rate of exchange, sales would be 507 million euros, or a 45% increase compared tothe previous year. In spite of the effects of the decline in the US dollar, yen and Hong Kongdollar, which had a significant impact on development, this exceptional growth was quitebalanced over all geographic areas and all products.
Income from operations showed a profit of 33.1 million euros, compared to a loss of 5.5 million euros in 2001. The development of sales and control of expenses made it possiblefor the brand to reach the anticipated profitability.
Financial income showed a charge of 9.3 million euros, an increase compared to 2001 (6.6 million euros). This increase was primarily due to the cost of financing the investmentsmade to extend the network of boutiques.
Tax expense was 5.3 million euros. This is an increase over 2001, which was 2.6 millioneuros, because of the increase in the tax expense due to the improved results of thesubsidiaries.
All of these factors made it possible to produce net income - Group share - for a profit of14.6 million euros, compared to a loss of 20.4 million euros in 2001. The share pertaining tothird parties was 1.3 million euros.
C - Analysis of the development per business sector
millions of euros 2002 2001 %
Royalties from licenses 21.0 19.7 6
Wholesale sales 102.6 73.3 40
Retail sales and miscellaneous 368.1 256.5 44
Total 491.7 349.5 41
LICENSES
Royalties from licenses per geographic area were as follows:
millions of euros 2002 2001 %
Europe 17.6 14.6 21
North America 3.1 3.4 (9)
Other 0.3 1.7 NS
Total 21.0 19.7 6
The growth in sales is quite satisfactory, particularly of watches, eyeglasses and costumejewelry. The relative stability of sales in North and South America is due to the drop in thedollar and to the discontinuation of the last non-strategic licenses during 2001.
The lingerie and bathing suit license, which had reached expiration, was not renewed.
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WHOLESALE SALES
Wholesale sales increased by 40% in 2002, particularly with the continued development ofthe Dior Homme line, confirming for the second consecutive year the success achieved byHedi Slimane’s collections.
RETAIL SALES
millions of euros 2002 2001 %
Europe 163.5 106.8 53
North America 65.5 49.6 32
Asia-Pacific 136.6 97.3 40
Other 2.5 2.8 –
Total 368.1 256.5 44
In the retail network, growth was supported by the development of all products.
Leather goods continued with particularly strong growth, with the development of two new“street chic” and “admit it” lines that have experienced dynamic success and have acceleratedthe sale of purses, small leather goods and shoes.
Shoe sales underwent particularly strong expansion, both in the company-owned boutiquesand in the corners of department stores.
Designer Jewelry continued the strong growth begun in 2001. Victoire de Castellane’shighly creative products are distributed at points of sale for jewelry opened in 2002 (atHarrod’s in London, in Los Angeles, Taiwan, at Umeda Hankyu in Osaka, Japan) and in theDior network of boutiques.
Women’s ready-to-wear also continued steady growth with the support of the John Gallianocreations.
Men’s ready-to-wear benefited from the strong identity of the Hedi Slimane creations, to bedeveloped into the retail network, in particular with the opening of a boutique in Milan.
Finally, the brand’s new image has been supported by the development of fashion accessoriessuch as watches, eyeglasses and costume jewelry that have contributed strongly to therevamping of its territory.
In the retail network, growth was spread equally throughout all geographical areas.
In Europe, boutiques were opened in the European capitals at very prestigious sites in Rome,Milan, Florence, Madrid and Brussels.
In other parts of the world, the network was added to by the opening of company-ownedboutiques, or corners in department stores, including Neiman Marcus in the U.S. andTakashimaya in Japan.
Two major projects were also begun with the Tokyo project (Omotesando district) and theHong Kong (Peking Road) project.
D - Outlook
The year 2003 should see continued growth in sales at a sustained rate and a significantimprovement in profitability.
The repositioning of the brand will be continued by the development of new lines of productsand by maintaining advertising investments.
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The network will have new developments with four major projects: the opening of a RueRoyale boutique in Paris, marketing all of the brand’s products; the construction of a pointof sale in the Omotesando district of Tokyo; setting up in Hong Kong in the Peking Roadshopping center; and the opening of a Dior Homme boutique in New York.
Moreover, the brand will continue its policy of expansion in department stores and company-owned boutiques throughout the world.
2. Wines and Spirits Group
• Sales of the Wines and Spirits group were 2,266 million euros, up 2% over 2001. Theoperating income reached 750 million euros, an 11% increase.
The increase in sales was affected by a negative foreign exchange in the fourth quarter,although the impact on the operating income was limited as the result of an effective hedgingpolicy. At constant exchange rates and constant consolidation, sales increased by 11%.
• The rebound in consumption of champagne was confirmed throughout the year 2002,particularly in the United States, the United Kingdom and Japan. At a constantconsolidation, sales by volume increased by 14%.
• Thanks to the quick implementation of effective plans of action, the volume of still andsparkling wines sold in Argentina and Brazil increased 6%, in spite of the economic crisiswhose monetary consequences affected the results.
• Hennessy has continued its growth, and with a 6% increase in sales by volume, it has againconsolidated its market share of the premium segment. The difficult situation in Japan hasbeen compensated by the dynamic and continued success of Hennessy cognacs in the UnitedStates and in other Asian countries, especially in China.
Highlights:
• In order to generate greater synergies in the marketing of its products in the United States,Moët Hennessy has consolidated the distribution of its brands with those of Diageo throughdedicated teams at a single distributor in certain key states. This realignment will acceleratethe development of the brands and will make it possible to respond better to the needs of theretailers and to the demand of American consumers.
• In order to reinforce its portfolio of premium spirits brands, Moët Hennessy has acquired40% of Millennium, a company that owns the prestige vodka brand Belvedere and thedistribution rights of the Chopin brand. This company was a prime mover in creating thehigh end category of vodka in the United States.
3. Fashion and Leather Goods Group
• Sales of the Fashion and Leather Goods group, including the consolidation effect related tothe consolidation of Donna Karan and 100% of Fendi, was 4,194 million euros, an increaseof 16%.
Overall income from operations reached 1,297 million euros, a slight increase in a verydifficult economic and monetary context, in addition to the integration of new brands. In thisenvironment, which has affected the entire fashion sector as well as leather goods, LouisVuitton, the Group’s flagship brand and world leader of the deluxe brands, succeeded againin increasing its income and operating margin.
• The increase in sales of Louis Vuitton was 7% in terms of constant currencies. Thecompany benefited from its policy of innovation and from the very strong demand of itswestern and Japanese local customers. Its performance was particularly noteworthy in
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Japan (+15% in yen) and in North America (+12% in dollars). Louis Vuitton has enjoyedexceptional worldwide growth in the fourth quarter (23% in constant currencies) and set anew sales record in December.
• In spite of the depressed climate in some markets, the Group’s other brands, more sensitiveto economic conditions, displayed overall strength. Particularly notable are the performancesof Marc Jacobs in the United States as well as its breakthrough in Japan, the strongdevelopment of Berluti, the improvement of Christian Lacroix in Japan and the success ofthe new leather goods products of Céline.
Highlights:
• At the end of 2002, the Louis Vuitton distribution network included 299 stores. Duringthe year, the brand strengthened its network in every region of the world. There were sevenopenings during the second half of the year, in particular a “global store” in Kobe, Japan, andwith unprecedented success, an exceptional store in Omotesando, Tokyo, the largest everopened by Louis Vuitton in Japan. The presence of the brand was inaugurated in Israel (TelAviv), Russia (Moscow) and in the Netherlands (Amsterdam).
• Illustrating the craze that has arisen in the customer base, the new Louis Vuitton productshave contributed 14% to the sales for the year. The Tambour watch, which has been marketedsince mid-September, is showing great promise: available in 60 stores, with more than 6,500 units sold and more than 5,000 on order. The Monogram Mat, launched in July, has metwith immediate success. Louis Vuitton also created a complete LV Cup line to celebrate theAmerica’s Cup elimination yacht races and a collection of Monogram Vernis Fluo pursesdeveloped with the creator Bob Wilson.
• The recently acquired brands of Fendi and Donna Karan were primarily involved in 2002with the reorganization of the distribution networks and with the adaptation of the industrialand logistical infrastructures. Pucci received an enthusiastic welcome for its first collectioncreated by Christian Lacroix, and has opened a store on avenue Montaigne in Paris.
4. Perfumes and Cosmetics Group
• Sales of the Perfumes and Cosmetics Group were 2,336 million euros, up by 5% and 8% inconstant currencies. Income from operations was 161 million euros.
Sales growth was particularly remarkable in the Asian markets (Japan, Korea, China) andin Europe, including Russia, a market in which significant development confirms thepotential.
• The increase in operating income was 8%, greater than the increase in sales as specified inthe goals communicated at the beginning of 2002.
• The Loewe perfumes, previously integrated into the Fashion and Leather Goods group,rejoined Perfumes and Cosmetics in 2002, significantly strengthening its positions in Spainwhere it is the leading brand in the selective market. In order to concentrate its investmentsin its strategic activities and in those that contribute the most, the group sold off the Americanstart-ups Urban Decay and Hard Candy.
Highlights:
• Parfums Christian Dior has again improved its performances, due in particular to the verysuccessful launches at the end of the year of the women’s perfume Dior Addict, the make-upfoundation Diorskin and the Maximeyes line of eye makeup. Confirming its rank as the greatstandard of the women’s perfume market, J’adore turned in a performance that wascomparable to the previous year.
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• Parfums Givenchy has greatly increased its profitability. The brand successfully launchedtwo new perfumes, the Eau Torride for women and Givenchy pour Homme which, in a fewmonths, has produced an excellent sales score in the men’s category.
• In the absence of major launches, Guerlain devoted the year 2002 to extending its Issimacare line, particularly with Issima Success Laser. The brand posted a significant increase inJapan, a country which, with France, is one of its priority markets.
• Thanks to the continued expansion of Flower, to the successful launch of Parfum d’Eté and tothe selective extension of the Kenzoki line, Parfums Kenzo has confirmed its new dynamicand has continued the improvement of its operating income.
5. Watches and Jewelry Group
• In 2002, the Watches and Jewelry group increased its commercial and marketing supportfor its own brands. The LVMH brands produced sales of 540 million euros, a 4% increaseover 2001. In an unfavorable economic and monetary context, the LVMH brands increasedstill further in local currencies in all regions, and increased their market share. At the sametime, the group continued its withdrawal from certain production and distribution activitiesfor outside brands. Sales related to this business having fallen 62%, the consolidated sales ofthe Watches and Jewelry group increased by 1% and were 552 million euros. Income fromoperations was a charge of 13 million euros.
• The Ateliers Horlogers, created in 2001, increased capacity in order to deal with the stronggrowth of Montres Christian Dior and to the very successful launch of Louis Vuitton’sTambour watch distributed exclusively in the brand’s stores.
• The first boutique of the De Beers L.V. company opened its doors in London on Old BondStreet and Picadilly at the end of November 2002. The press and customers gave a veryencouraging welcome to the collections and to the very innovative store concept.
Highlights:
• The Watches and Jewelry Group has continued the integration of its distribution,particularly by opening up the China and India markets for the TAG Heuer and MontresChristian Dior brands. Now having a territorial organization covering the principalmarkets, the group implemented at the end of 2002 a program for improving the productivityof its distribution network and boutiques.
• TAG Heuer continued its growth with a more selective distribution, a new advertisingconcept, “What are you made of?”, and a sustained increase by the standard models (Monza,Monaco, etc.) and the gold collections. The Micrograph F1, which will be launched in 2003, wasawarded the Grand Prix d’Horlogerie of Geneva 2002, Design category, in December.
Montres Christian Dior grew strongly, sustained by very powerful communications on themodels Riva and Malice Sparkling.
• Zenith is carrying out its repositioning in the upscale watch market and has resumedgrowth in spite of abandoning the manufacturing of quartz watches and a number of supplyproblems for certain components.
6. Selective Retailing Group
• The change in total sales for the Selective Retailing business, which were 3,337 millioneuros, down 5%, involves contrasting situations: the “travel retail” activities were penalizedby the weakness in tourism in 2002, while Sephora continued to grow in Europe and theUnited States. In accordance with the objectives for the year, income from operations forSelective Retailing is slightly positive with a profit of 20 million euros, DFS and Sephorahaving successfully continued their efforts to improve profitability.
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• DFS’s sales for all of 2002 were down in spite of a slight increase during the fourth quarter,a period that compares to the very depressed year end in 2001. The efforts made to increasethe competitiveness of the products offered at the different destinations turned out to bepositive. As a result of rigorous measures to reduce central expenses, the closing of storeswith substandard performance in the economic environment of 2002, and the renegotiationof certain airport concession rates, DFS has returned to the operating break-even point.
• Within a context of growth in the cruise market, Miami Cruiseline has turned in improvedperformances in terms of sales and operating income. The advances made in merchandisingand the measures taken to reduce company costs have proven effective.
• Worldwide sales of Sephora increased 10%, excluding Japan, and at a constant rate ofexchange - an impressive performance in the context of intentional slowing of opening storeson either side of the Atlantic. In Europe, the year 2002 was marked by the deployment of aproject to improve operations, which contributed to strong growth in operating income. Inthe United States, Sephora achieved a 25% increase in sales for a comparable number ofstores, i.e., for the second consecutive year, a performance quite clearly better than averagefor specialized distribution in this market, giving evidence of the commercial success of itsconcept. The goals of improving the operating income in the United States were exceeded.
Highlights:
• DFS, which just opened a new Galleria in Singapore, is established at the Okinawa airportin Japan and has renewed its concessions in Guam and in New Zealand.
• Sephora opened 15 stores (net) in Europe during 2002, in particular the premiere point ofsale for its name in Athens and three stores in Prague, thus successfully inaugurating itsestablishment in the Czech Republic and confirming the potential of its concept in EasternEurope. The network grew slightly in the United States with a net of two openings.
III. RESULTS OF CHRISTIAN DIOR S.A.
Christian Dior S.A.’s earnings consist primarily of dividend income related to its investmentin LVMH less the interest expense incurred to finance the investment.
Net financial income totaled 118 million euros compared to 109 million euros in 2001.
It consists of 159 million euros in dividends received from Financière Jean Goujon, 25 millioneuros in net interest expense and a 16 million euros on treasury stock.
The net income was 113 million euros compared to 105 million euros in 2001.
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Appropriation of earnings: Euros
• Net income: 113,524,459.78Less allocation to legal reserve (1,200.00)
Plus• Retained earnings: 176,469,725.62
Total income available for distribution: 289,992,985.40
The following dividend will be proposed to the shareholders:• a dividend of 149,016,179.36
- 0.82 euros per share with - 0.41 euros as dividend tax credit (*)- 1.23 euros in gross compensation
• Retained earnings 140,976,806.04
Total 289,992,985.40
(*) For individuals.
Since an interim dividend of 0.28 euros per share was paid on December 3, 2002, the balanceof 0.54 euros with tax credit of 0.27 euros per share will be paid on May 28, 2003.
Since the shares held by the company at the time this dividend is paid do not pay dividends,the amount corresponding to the unpaid dividend would be posted to retained earnings.
Distribution of dividends
We would remind you that the dividends paid for the last three years and the correspondingtax credit are as follows(*):
in euros Net Dividend Tax Credit Gross Dividend
2001 0.78 0.39 1.17
2000 0.78 0.39 1.17
1999 0.70 0.35 1.05
(*) For reasons of comparability, the figures were adjusted to factor in the four-for-one stock split on July 3,2000.
IV. SHAREHOLDERS
Pursuant to Article L.233-13 of the Commercial Code and the information received underArticles L 233-7 and L.233-12 of said Code, the following table identifies shareholders whohold over 5% of the company’s capital or voting rights to the company’s knowledge:
At December 31, 2002 At December 31, 2001
SHAREHOLDERS Number % of the % of voting Number % of the % of voting of shares capital rights of shares capital rights
Groupe Arnault SAS (*) 126,083,710 69.38 72.20 123,770,546 68.11 78.2341, avenue Montaigne75008 PARIS
(*)Directly or indirectly.
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As of December 31, 2002, the company had 363,454,096 euros in capital stock, divided into181,727,048 shares with a par value of 2 euros per share. There were 17,484,389 shares withdouble voting rights.
Under Articles L 255-208 and L 255-209 of the Commercial Code, we are also reporting that:• During the past year, the company bought back 490,200 of its own shares at an averageprice of 35.35 euros. These share purchases were made in order to allot them to employeeswho would be exercising stock options granted by the company.
Moreover, 19,000 shares initially acquired for the purpose of regularizing the stock pricewere also allocated to these purchase options.
At year end, the 2,769,100 shares were held for allocation to current and future stock optionplans, for a net value of 79,149,983.96 euros. The par value is 2 euros. These sharesrepresent 1.52% of the capital stock. • At year end, the company held 525,220 of its own shares for a net value of 17,474,069.40 euros.These shares were bought back to regularize the stock price. The par value is 2 euros. Theyrepresent 0.29% of the capital stock.
By law, these shares do not carry voting rights.
V. BOARD OF DIRECTORS
The Shareholders’ Meeting is being asked to:
• Renew Messrs. Eric Guerlain, Denis Dalibot and Christian de Labriffe as directors for thestatutory three years of office;
• Renew the Ernst & Young firm and Mr. Dominique Thouvenin as regular and alternateauditors, respectively, whose terms expire at the end of this shareholders’ meeting, for a termof six years that will end at the end of the Ordinary General Shareholders’ Meeting held inthe year 2009 that rules on the accounts for the previous year.
• Appoint the Mazars & Guerard firm and Mr. Guillaume Potel as regular and alternateauditors, respectively, for a period of six years that will end at the end of the OrdinaryGeneral Shareholders’ Meeting held in the year 2009 that rules on the accounts for theprevious year, to replace the Barbier Frinault and Others firm and Mr. Alain Grosmann,respectively, whose terms expire at the end of this year’s shareholders’ meeting.
General Management:
The Board of Directors at its meeting of September 11, 2002, decided to dissociate the dutiesof Chairman of the Board of Directors and Managing Director, and to appoint Mr. SidneyToledano as Managing Director, with Mr. Bernard Arnault in the position of Chairman ofthe Board of Directors.
VI. FINANCIAL AUTHORIZATIONS GIVEN TO THE BOARD OFDIRECTORS BY THE SHAREHOLDERS’ MEETING
Authorization to act on the Stock Market
The Combined Ordinary and Extraordinary Shareholders’ Meeting of May 15, 2002authorized the Board of Directors to acquire the company’s stock up to a maximum of 10%of its capital stock, with a maximum unit purchase price set at 120 euros per share.
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At this year’s shareholders’ meeting, you are being asked to renew this authorization. Thepurposes of the stock purchases are exclusively in accordance with market situations or tocounter market trends in order to regularize stock price fluctuations.
The total number of shares the company may acquire would be limited to 0.5% of the capitalstock as of January 1, 2003 and the maximum purchase price would be 90 euros per shareand the minimum selling price would be 20 euros.
Authorization to increase capital stock
Pursuant to article L.225-129 of the Commercial Code, you are being asked to authorize theBoard of Directors, based solely on its deliberations, to increase the capital stock by anymeans, including by issuing any securities giving access immediately or over time to thecapital stock.
This authorization will allow the company to proceed with capital increases by the freeallocation of shares, but also, where appropriate, to utilize the market in France or abroad toensure that financing needs related to the development of the Group are met. In this regard,since it is customary to allow operations to be performed by public issue, you are being askedto authorize the company to proceed with issues with no preferential right of subscription.However, even in this case, if the issues take place in the French market, a priority rightcould be granted to the shareholders. These issues may not exceed a total face value of 40 million euros.
For a period of twenty-six months, this authorization replaces the one agreed to by theCombined General Shareholders’ Meeting of May 14, 2001.
Within the scope of this authorization, and pursuant to the provisions of the law on payrollsavings, you are also being asked to authorize your Board of Directors, if it deems itappropriate, to increase the capital stock to the benefit of the members of the salariedpersonnel of the Company and of the related companies, up to a limit of 3% of the capitalstock.
VII. INFORMATION ON COMPENSATION AND BENEFITS PAID TOCOMPANY OFFICERS
In accordance with Article L 225-102-1 of the Commercial Code, we are reporting on thetotal remuneration and benefits of any kind paid during the fiscal year to each companyofficer, both by your company and by its controlled companies as this term is defined byArticle L 233-16 of the Commercial Code.
The following payments were received during the past financial year:
Mr. Bernard ARNAULT, Chairman:• Compensation paid by the company: 16,939 euros• In-kind benefits: none• Compensation paid by controlled companies: 1,430,335 euros (1)• In-kind benefits received from controlled companies: none
Mr. Eric GUERLAIN, Vice Chairman and Director: • Compensation paid by the company: 8,469 euros • In-kind benefits: none • Compensation paid by controlled companies: none• In-kind benefits received from controlled companies: none
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Mr. Antoine BERNHEIM, Director:• Compensation paid by the company: 8,469 euros • In-kind benefits: none • Compensation paid by controlled companies: 126,450 euros • In-kind benefits received from controlled companies: none
Mr. Denis DALIBOT, Director:• Compensation paid by the company: 8,469 euros • In-kind benefits: none • Compensation paid by controlled companies: 8,892 euros • In-kind benefits received from controlled companies: none
Mr. Christian de LABRIFFE, Director:• Compensation paid by the company: 8,469 euros • In-kind benefits: none • Compensation paid by controlled companies: none• In-kind benefits received from controlled companies: none
Mr. Pierre GODE, Director:• Compensation paid by the company: 14,782 euros • In-kind benefits: none • Compensation paid by controlled companies: 2,040,967 euros (1)• In-kind benefits received from controlled companies: automobile
Mr. Raymond WIBAUX, Director:• Compensation paid by the company: 8,469 euros • In-kind benefits received from controlled companies: none • Compensation paid by controlled companies: none• In-kind benefits received from controlled companies: none
Mr. Sidney TOLEDANO, General Manager, non-director:• Compensation paid by the company: none• In-kind benefits: none • Compensation paid by controlled companies: 325,389 euros (1)• In-kind benefits received from controlled companies: automobile
(1) Amount paid by the company and the companies it controls in the sense of Article L. 233-16 of theCommercial Code, after deducting employee benefits expenses, the General Social Contribution (CSG) andthe Social Security Repayment Contribution (CRDS), computed at the 10% marginal rate, and the Frenchpersonal income tax at the 49.58% marginal rate.
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VIII. LIST OF POSITIONS OR OFFICES HELD IN ALL COMPANIESBYTHE CORPORATE OFFICERS AND DIRECTORS
Pursuant to Article L 225-102-1 of the Commercial Code, below is a report on all positionsand offices held in any company by each of the company’s officers and directors during thepast financial year as well as for the directors whose terms expire at the close of thisshareholders’ meeting and the list of offices and positions they have held over the five pastyears.
CHAIRMAN OF THE BOARD OF DIRECTORS
Mr. Bernard ARNAULT - born March 5, 1949Date of first appointment: March 20, 1985Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2004.
Chairman and Chief Executive Officer of:• LVMH Moët Hennessy Louis Vuitton, France;• Montaigne Participations et Gestion, France.
Chairman of the Board of Directors of Société Civile du Cheval Blanc, France.
Chairman of Groupe Arnault, France.
Director of: • Christian Dior Couture, France;• LVMH Moët Hennessy Louis Vuitton (Japon) KK., Japan;• Moët Hennessy Inc., United States.
Permanent representative of Montaigne Participations & Gestion, Director of FinancièreAgache, France.
Legal representative of:• Montaigne Participations et Gestion, Chairman of GASA Développement, France;• Montaigne Participations et Gestion, Chairman of Financière Saint Nivard, France.
Member of the Steering Committee of Financière Jean Goujon, France.
GENERAL MANAGER (non-director)
Mr. Sidney TOLEDANO - Born July 25, 1951Date of first appointment: September 11, 2002Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2004.
President and Chief Executive Officer of Christian Dior Couture, France.
Chairman of:• Christian Dior Inc., United States of America;• Les Jardins d’Avron LLC, United States of America;• Christian Dior Italia S.r.l., Italy;• Bopel, Italy;• Mardi S.p.a., Italy.
Sole Director of Christian Dior Puerto Banus, Spain.
Director of John Galliano, France.
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Director of:
• Christian Dior Australia Pty Ltd, Australia;
• Christian Dior Couture Korea, South Korea;
• Christian Dior Guam Ltd, Guam;
• Christian Dior Far East Ltd, China;
• Christian Dior Fashion (Malaysia) Sdn. Bhd., Malaysia;
• Christian Dior Hong Kong Ltd, China;
• Christian Dior KK, Japan;
• Christian Dior New Zealand, New Zealand;
• Christian Dior Saipan, Saipan;
• Christian Dior Singapore Pte, Singapore;
• Christian Dior Taiwan Ltd, Taiwan;
• Christian Dior UK Limited, United Kingdom.
Manager of:
• CD Espanola, Spain;
• Christian Dior GmbH, Germany.
Permanent representative of:
• Christian Dior Couture, Chairman of Les Jardins d’Avron, France;
• Christian Dior Couture, Director of Christian Dior Belgium.
VICE CHAIRMAN AND DIRECTOR
Mr. Eric GUERLAIN - Born May 2, 1940
Date of first appointment: June 29, 1994
Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2002.
CURRENT DUTIES AND POSITIONS
Chairman of the Board of Directors of Hydroélectrique d’Energie, France.
Permanent representative of LVMH Fashion Group, Director of Guerlain SA, France.
Director of:
• Folio Corporate Finance Ltd, United Kingdom;
• Eurofolio Ltd, United Kingdom.
PREVIOUS DUTIES AND POSITIONS
None
DIRECTOR
Mr. Denis DALIBOT - Born November 15, 1945
Date of first appointment: May 17, 2000
Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2002.
CURRENT DUTIES AND POSITIONS
Finance Director of Christian Dior, France.
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Chairman of:
• Agache Développement SAS, France;
• Europatweb, France;
• FA Investissements SAS, France;
• Sifanor SAS, France.
Member of the Supervisory Board of Sèvres Investissements, France.
Chairman of Montaigne Finance, France.
Director - Acting Managing Director of Financière Agache.
Director of:
• Bon Marché International, France;
• Christian Dior Couture, France;
• Groupe Arnault Inc., United States.
Executive Director of Omnium Lyonnais d’Etudes, France.
Legal representative of Financière Agache:
• Manager of Lamourelle Paris SNC, France;
• Chairman of Aristide Boucicaut SAS, France.
Permanent representative of:
• Christian Dior Couture, Director of Ateliers AS, France;
• Financière Agache, Director of Raspail Investissements, France;
• Ufipar, Director of Le Jardin d’Acclimatation, France.
Manager of:
• Kléber Participations, France;
• Montaigne Investissements, France;
• Groupement Foncier Agricole Dalibot, France.
PREVIOUS DUTIES AND POSITIONS
Chairman and Chief Executive Officer of:
• Montaigne Finance, France;
• Paris Provence Bâtiment, France.
Director - Acting Managing Director of:
• Financière Truffaut, France;
• Omnium Lyonnais d’Etudes, France.
Director of:
• Financière Jean Goujon, France;
• John Galliano, France;
• Service Bois Construction, France.
Permanent representative of:
• Financière Agache, Member of the Supervisory Board of Zebank, France;
• Financière Agache, Director of CS Oblig Europe, France;
• Eurofinweb NV, Director of Europatweb, France.
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DIRECTOR
Mr. Christian de LABRIFFE - Born March 13, 1947
Date of first appointment: May 14, 1986
Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2002.
CURRENT DUTIES AND POSITIONS
Chairman of Transaction R, France.
Active managing partner of Rothschild & Cie Banque, France.
Managing partner of Rothschild Gestion, France.
Active partner of Rothschild & Cie, France.
Member of the Supervisory Board of Financière Rabelais, France.
Director of:
• Christian Dior Couture, France;
• Holding Financier Jean Goujon, France;
• Montaigne Rabelais, France;
• Paris Orléans, France;
• Rothschild Conseil International, France;
• Investec, Guernsey.
PREVIOUS DUTIES AND POSITIONS:
None
DIRECTOR
Mr. Raymond WIBAUX - Born July 17, 1938
Date of first appointment: June 11, 1993
Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2003.
Chairman of the Board of Directors of Financière Joire Pajot Martin, France.
Director of Participex, France.
Permanent representative of:
• Financière Joire Pajot Martin, Director of E.T.O., France;
• Stratefi Belgique, Director of Compagnie Textile et Financière, France.
DIRECTOR
Mr. Antoine BERNHEIM - born September 4, 1924
Date of first appointment: May 14, 2001
Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2003.
Partner of Lazard LLC, United States.
Chairman of the Board of Directors of Generali, Italy.
Director of:
• Bolloré Investissement, France,;
• Christian Dior Couture, France;
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• Ciments Français, France;
• Eurazeo, France;
• Generali France Holding, France;
• LVMH Moët Hennessy Louis Vuitton, France;
• Rue Impériale, France;
• AMB, Germany;
• BSI, Switzerland;
• EA - Generali, Austria;
• Intesa S.p.a., Italy;
• Mediobanca, Italy.
DIRECTOR
Mr. Pierre GODE - born December 4, 1944
Date of first appointment: May 14, 2001
Date of end of term: Annual shareholders’ meeting approving the accounts for fiscal 2004.
Chairman and Chief Executive Officer of:
• Financière Agache, France;
• Raspail Investissements, France.
Member of the Board of Directors - Managing Director of LVMH Fashion Group, France.
Director - Acting Managing Director of Le Bon Marché, Maison Aristide Boucicaut, France.
Executive Director of Groupe Arnault, France
Director of:
• Christian Dior Couture, France;
• LVMH Moët Hennessy Louis Vuitton, France;
• Montaigne Participations et Gestion, France;
• SA du Château d’Yquem, France;
• Société Civile du Cheval Blanc, France;
• Christian Dior Inc., United States;
• LVMH Moët Hennessy Louis Vuitton Inc., United States;
• LVMH Moët Hennessy Louis Vuitton (Japon) KK., Japan;
• LVMH Services Limited, United Kingdom.
Permanent representative of:
• Financière Agache, Director of Parfums Christian Dior, France;
• Le Bon Marché, Maison Aristide Boucicaut, Director of Franck & Fils, France;
• Louis Vuitton Malletier, Director of Belle Jardinière, France;
• LVMH Moët Hennessy Louis Vuitton, Director of DI Group, France.
Chairman of:
• Sèvres Investissements, France;
• Financière Jean Goujon, France.
According to the Charter of the Board of Directors, each Director must hold at least 200shares registered in a personal account.
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IX. STOCK OPTION PLANS
Stock option purchase and stock option subscription plans
• Options granted by the Christian Dior parent company
Seven stock option purchase plans were in effect on December 31, 2002. These plans have a term of ten years;according to the plans, the options can be exercised after a period of three or five years after the plans areopened. In some circumstances, notably upon retirement from the company, this time requirement will bewaived.
Each of these plans stipulates that each option gives the right to buy one share.
STOCK OPTION SUBSCRIPTION PLANS:
Number Number of optionsShareholders’ Plan Number Number Exercise of options in force ➂
meeting opened of options of bene- price exercisedauthorization granted ➀ ficiaries (EUR) ➁ ➂ in 2002 ➂ 12.31.2002 01.31.2003
06.11.1993 05.30.1996 2,250 2 21.49 6,000 0 0
STOCK OPTION PURCHASE PLANS:
Number Number of optionsShareholders’ Plan Number Number Exercise of options in force ➂)
meeting opened of options of bene- price exercisedauthorization granted ➀ ficiaries (EUR) ➁ ➂ in 2002 ➂ 12.31.2002 01.31.2003
➀ Number of options at the plan’s opening not restated for adjustments relating to one-for-ten bonus allotments of July 1994 andJune 1999 and the five-for-one stock splits of March 1994 and July 2000.
➁ Adjusted for the transaction stipulated in note 1 above.
➂ The exercise prices for the benefit of Italian residents of plans opened January 22, 2002 and January 22, 2003 are 45.70 eurosand 38.73 euros, respectively.
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• Options granted to each company officer by the company and any Group company:
Exercise ExpirationGrantor Date Number price date
Beneficiaries company of plan of options (euros) of plan
B. Arnault Christian Dior 02.18.2002 220,000 33.53 02.17.2012
LVMH 01.22.2002 600,000 43.30 01.21.2012
D. Dalibot Christian Dior 02.18.2002 20,000 33.53 02.17.2012
P. Godé Christian Dior 02.18.2002 65,000 33.53 02.17.2012
LVMH 01.22.2002 200,000 43.30 01.21.2012
S. Toledano Christian Dior 02.18.2002 35,000 33.53 02.17.2012
• Options exercised by each company officer during the financial year:
Beneficiaries Grantor company Number of shares Exercise price (euros)
D. Dalibot Christian Dior 6,000 21.49
• Options granted during the financial year by the company or any Group company to theten non-officer/director employees holding the most options:
Total number Weighted averageGrantor company Date of plan of options exercise price (euros)
Christian Dior 02.18.2002 130,000 33.53
LVMH 01.22.2002 505,000 43.30
• Options exercised during the financial year by the ten non-officer/director employeesholding the most options:
Total number Weighted averageGrantor company Date of plans of options exercise price (euros)
Christian Dior 10.14.1996 2,000 25.95
LVMH 03.16.1994 760 17.84
LVMH 03.22.1995 5,750 20.89
LVMH 05.30.1996 24,400 34.15
LVMH 05.29.1997 40,850 37.50
LVMH 01.29.1998 39,325 25.92
LVMH 01.20.1999 33,550 32.10
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X. INFORMATION ON THE IMPACT OF THE COMPANY’S ACTIVITYON THE ENVIRONMENT
1. 2002 consolidation of reporting environmental indicators
The reporting of environmental data was established in 1999 in some companies and hasbeen extended to cover production activities in France for 2001, where most of theproduction activity (74% of the number of production and storage sites) is concentrated.
This consolidation was extended in 2002 to include all companies in the Group in February2003. Due to this change, only the 2002 figures are mentioned and presented by area ofactivity.
It covers:• For companies with production activity: production and storage sites throughout the worldthat are wholly owned by these companies and purchased prior to 2002;• For companies with no production activity: the boutiques located in France and operatedby the company.
This involves 306 sites, apart from 20 sites that are insignificant with respect to the overallstatement.
It does not include:• Environmental impact (water, energy, etc.) of the administrative buildings and whollyowned or franchised boutiques of the Perfumes & Cosmetics and Fashion and Leather Goodsbranches;• Fleets of vehicles wholly owned by the companies and used for transportation of personnel;• Energy consumption related to the transport of merchandise (all of the transport companiesare outside providers).
Pursuant to executive order No. 2002-221 of February 20, 2002, the nature and magnitudeof the pertinent and significant impact are shown with regard to the business.
2. Consumption of water, raw materials and energy resources
Consumption Consumption Packaging placed of water (m3) of energy (MWh) on the market (tons)
Christian Dior Couture 845 1,159 205
Wines & Spirits 1,217,190 103,208 98,905
Perfumes & Cosmetics 463,155 94,177 16,061
Fashion & Leather Goods 97,341 93,566 2,540
Watches & Jewelry 23,573 8,679 66
Selective Retailing 532,294 88,025 670
Total 2,334,398 388,814 118,447
By way of comparison, the consumption of electricity and natural gas in the industrial sectorof France was 129,000,000 MWh (MINEFI 2001 data), the draw-off of water about 3.7 billion m3 (IFEN 1999 data).
Energy consumption: This corresponds to the sum of the energy sources used internally(i.e., combustion took place on site: fuel oil for generators, butane, propane, natural gas) andexternally (i.e., combustion did not take place on site: electricity, steam).
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Packaging placed on the market: Due to the diversity of the Group’s activities, thesignificant common point that was used for the consumption of raw materials is the quantityof primary and secondary packaging placed on the market intended for consumers by eachof the Group’s companies. Packing for transport is excluded.
This involves the following packaging:• Wines & Spirits: bottles, cases, caps, etc.• Perfumes & Cosmetics: bottles, boxes, etc.• Fashion & Leather Goods: boutique bags, envelopes, boxes, etc.• Watches & Jewelry: packaging of boxes and cases, etc.• Selective Retailing: boutique bags, envelopes, boxes, etc. For Sephora, the figures includeall packaging of Sephora brand products sent to consumers throughout the world.
3. Land use conditions, discharges into the air, water and ground seriouslyaffecting the environment
3.1 Land use
Soil pollution related to former industrial facilities (production of Cognac and Champagne,manufacture of trunks) are insignificant. The most recent production sites are generallyestablished on former agricultural land with no historical pollution. Finally, the productionactivities of the Group’s companies make little use of the land, beyond grape growing. In orderto minimize environmental impact, the Wines and Spirits branch uses the rational approachto viticulture, a farming method that consists of avoiding any systematic treatment of the vineand applying “the right product, at the right place, at the right time, in the right dose”, inorder to meet the economic, qualitative and ecological requirements at the same time.
3.2 Emissions of greenhouse gas
The only significant emissions into the air for the Group’s activities are greenhouse gasesrelated to the companies’ energy consumption.
In order to evaluate the generated emissions of greenhouse gas, directly or indirectly on thefull life cycle of its products, the Group has been the first to apply the “Carbon Balance”method, developed by a consultant from the Manicore company, tested by Hennessy,Parfums Christian Dior and Veuve Clicquot Ponsardin. This measuring tool also helps todetermine the most effective ways to fight against climate change.
In all three cases the results have shown that the Group’s companies are more effective inreducing greenhouse gas emissions as contractors of the mode of transport and choice ofpackaging materials, rather than simply acting within their legal areas.
The estimated CO2 (carbon dioxide) equivalent tons of greenhouse gas emissions correspondto the emissions from the energy consumption sites, as defined in paragraph 2. They includedirect emissions (combustion on site) and indirect emissions (from the production ofelectricity used by the sites).
CO2-equivalent tons
Wines & Spirits 20,335
Perfumes & Cosmetics 14,112
Fashion & Leather Goods 17,960
Watches & Jewelry 1,512
Selective Retailing 9,349
Total 63,268
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By way of comparison, the manufacturing industry in France discharged 106 million CO2-equivalent tons in 2000 (source: CITE PA).
3.3 Emissions in water
Because of the low impact of the activities of the Group’s companies on water, the onlysignificant emissions that can be considered are the discharges in water of substances thatcontribute to eutrophication (1). The parameter concerned is the chemical oxygen demand(COD), calculated after treatment at company-owned stations or at outside stations withwhich the sites have agreements. The following operations are considered to be treatments:common effluent disposal, private effluent disposal (aeration tank), broad irrigation.
COD after treatment (tons/year)
Wines & Spirits 219
Perfumes & Cosmetics 37
Fashion & Leather Goods 5*
Watches & Jewelry NA**
Selective Retailing NA**
Total 261
*: estimated - no regulatory requirement **: not applicable (no regulatory requirement)
3.4 Waste
The quantities of waste produced by the Group and their respective elimination systems areindicated below.
Diverted wastes: Waste whose final destination is one of the following systems: reuse (useof a waste for the same purpose for which the product was initially designed), recycling(direct reintroduction of a waste into the production cycle from which it came, in total orpartial replacement of a unworked raw material), incineration with energy diversion(recovery of energy from the combustion of the waste in the form of electricity or heat).
Included here in the term “recycling” is organic diversion (controlled spreading of wastecomposed of organic materials for fertilization of soils).
(1) Phenomenon characterized by an excessive proliferation of algae and aquatic plants due to an overload ofnutrients in the water (especially phosphorus). Eutrophication causes reduced oxygenation of the water,which has harmful consequences on the environment.
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Waste Hazardous Diverted Incineration produced waste waste Reuse Recycling with energy Discharge
* Some products, rejected from production, are treated in the hazardous waste system to avoid any violationand are therefore classified as such.
Selective sorting programs and a search for new outlets, which are being deployed in theSelective Retailing and Fashion & Leather Goods branches, should make it possible in 2003to achieve diversion rates that are comparable to the Group’s other branches.
4. Measures taken to limit harm done to the ecological balance, the naturalenvironment, and to protected animal and plant species
The Fashion & Leather Goods and Watches & Jewelry branches implemented procedures in2002 to reinforce compliance with the CITES international convention, which opposesoverexploitation related to international trade of certain endangered animal and plant species,by a system of import and export permits.
In the Perfumes & Cosmetics branch, the laboratories question their partners about thebiodiversity and bioavailability of each new plant studied. In their operation, the companiesin that branch are committed to not use plants that are protected, rare or endangered, but forthe most part plants that are commonly used or cultivated specifically for their needs.
5. Internal environmental management services within the company, trainingand information for employees, resources dedicated to the reduction ofenvironmental risks as well as the organization implemented to deal withpollution accidents having consequences beyond the company’sestablishments
Since the beginning of the 1990s, management of the environment, assigned to a member ofthe executive committee, the Finance Director, was set up to:• Orient the environmental policy of the Group’s companies, based on the LVMH Charter(cf. paragraph 6),• Provide regulatory and technical oversight,• Create management tools,• Help the companies prevent risks,• Train and heighten awareness of associates at every hierarchical level,• Define and consolidate the environmental indicators,• Work with the various parties involved (associations, rating agencies, public authorities,etc.).
37
The companies have correspondents who make up the LVMH Commission on theEnvironment, headed up by the management of the environment. They have quarterlymeetings and communicate by a Group Environmental Intranet accessible to everyone.
Training - heightening of awareness of personnel
(number of hours)
Wines & Spirits 4,814
Perfumes & Cosmetics 423
Fashion & Leather Goods 111
Watches & Jewelry 40
Selective Retailing 318
Total 5,706
6. Approaches for environmental evaluation or certification of companies
Being locally responsible, each company must, according to the LVMH EnvironmentalCharter, prepare and implement its environmental management system. It has the LVMHself-evaluation guide and can, if desired, have its system certified (ISO 14001 or EMAS). In1998 Jas Hennessy & Co was the first company in the world to receive this distinction in theWines and Spirits sector, which has since been renewed.
7. Measures taken, where appropriate, to ensure compliance of the company’s activity with applicable legal and regulatory provisions
To ensure this follow-up, the Group’s companies are regularly audited, whether by outsidethird parties, insurers, or by internal auditors, which allows them to keep their plan up todate. In 2002, 13 outside audits and 4 internal audits were carried out on the sites. The mostsignificant actions in 2002 were:• Separation of the wastewater sewer from the rainwater sewer at the historic VCPproduction site• Construction of a Domaine Chandon Australia effluent treatment pond • Statement to the DRIRE following the construction of the new Louis Vuitton Malletiershop in Ducey• Construction of a new plant in Switzerland in the Watches sector that complies withenvironmental standards.
8. Expenses incurred to prevent consequences of the company’s activity on theenvironment
While waiting for the conclusion of the work of the National Accounting Council onenvironmental accounting, in which the Group participates, the following items areconsidered as:
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❑ Environmental expenses:
• Taxes and fees related to the environment.
• Operation (excluding investments):- Salary costs- Operation of equipment (for example including the expenses of operating scrubber devices,waste management cost, etc.)- Costs of analyses, measurements and controls
• Other costs: consulting, communication, training, environmental insurance premium, etc.
In 2002, environmental expenses totaled 5,475 K euros.
❑ Investments:
• Direct investments: prevention / measures / cleanup
• Other investments: the “environmental” part of investments in equipment and machines,fire safety if related to the environment.
In 2002, investments totaled 4,333 K euros.
9. Total provisions and guarantees for environmental risks and indemnificationspaid during the financial year in execution of a legal decision concerning theenvironment and actions taken to repair damages caused thereto
A total of 530 K euros was funded in 2002 for environmental risk for repair of an historicindustrial site. No indemnification was paid in execution of a legal decision on environmentalaspects.
10. Objectives that the company assigns to its subsidiaries abroad
Christian Dior requires each subsidiary, regardless of its geographic situation, to apply theGroup’s environmental policy defined by the Charter, which specifies the implementation ofenvironmental objectives for each of them.
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XI. CORPORATE DATA FOR THE GROUP
Total workforce
The average workforce of the Dior Group in 2002 was 55,314, two thirds of whom wereabroad.
Distribution by business
Christian Dior Couture 1,501 2.7%Wines and Spirits 5,018 9.1%Fashion and Leather Goods 15,033 27.2%Perfumes and Cosmetics 12,994 23.5%Watches and Jewelry 2,301 4.1%Selective Retailing 17,289 31.3%Other 1,178 2.1%
Distribution of personnel in France by socioprofessional category
Executives and management 19%Technical 15%Office and clerical 39%Labor and production 27%
Total 100%
Hiring policy
The hiring policy of the Group’s companies is based on criteria of professional qualifications,and depending on the positions, prior experience and knowledge of foreign languages.
In France, in 2002 LVMH hired 3,167 persons under open-ended contracts and 4,835 persons under fixed term contracts. The seasonal sales peak during year-end holidaysand grape harvests are two important reasons for using fixed term contracts.
For its part, during 2002 Christian Dior Couture (CDC) hired 509 persons under permanentcontract throughout the world. In France, 22 persons younger than 25 years were hiredduring the year under permanent contract.
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Distribution of total hiring by business
Christian Dior Couture 13.9%
Wines and Spirits 14.1%
Fashion and Leather Goods 10.6%
Perfumes and Cosmetics 14.4%
Watches and Jewelry 1.2%
Selective Retailing 45.0%
Other 0.8%
Total 100%
This hiring was done in part to offset departures. Excluding Selective Retailing, traditionallycharacterized by a high turnover rate, there were 908 departures in 2002 of employees underopen-ended contract, 42% of which were resignations.
For CDC, departures amounted to 265 throughout the world.
Overtime
The number of overtime hours per year per employee varies from zero to fifty.
Accommodation of work time
In France, all of the companies signed agreements at the end of 1999 or beginning of 2000pertaining to the application of the 35-hour law. These provisions were implemented withina very short period of time and with no particular social conflict.
Absenteeism and its reasons
For the Dior Group, the rate of absenteeism in France is 5%. This figure is in line with thenational level.
Remuneration and change
For the Group, average gross remuneration in 2002 of employees in France under open-ended contract (who were present for the full year):
< 1,500 euros 1,501 to 2,250 euros 2,251 to 3,000 euros 3,001 euros and +
% % % % %32 29 19 20 100
Fringe benefits and outside labor in France
For the Dior Group, the total expense of leasing of personnel by service providers ortemporary labor is relatively small, representing only 9% of the total payroll.
Profit sharing, participation and employee savings
All of the French companies have a Participation, Profit Sharing or Savings plan. Theseplans represent a total of 63.4 million euros:
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millions of euros
Participation 35.9
Profit sharing 22.7
Additional savings plan 4.8
Total 63.4
In 2001, LVMH implemented a world-wide stock options plan for LVMH shares, and underthat plan allocated 25 options to 44,669 of the Group’s employees.
Job equality
The companies in the Dior Group have a significant percentage of female personnel. Onaverage, women represent two thirds of all of the Group’s personnel in France.
Percentages of women in France according to socioprofessional category:
Executives and management 52.3%
Technical 69.2%
Office and clerical 73.8%
Labor and production 63.7%
Total 66.3%
Industrial relations and collective agreements
In France, the Group’s companies have Work Committees, Personnel Representatives, andHealth and Safety Committees. The Group’s Committee was established in 1985.
During 2002, representatives of personnel participated in more than 1,434 meetings.
Work Committee 572
Personnel Representatives 522
Health and Safety Committee 190
Other 189
Total 1,473
In particular, these meetings enabled 39 Work Agreements to be signed (agreements withinthe framework of annual negotiation on wages and hours, profit sharing and participationagreements, etc.).
Health and safety conditions
LVMH:
In 2002, there were 548 labor-related or commuting accidents in France with loss of work,which translates to the loss of 13,232 days of work.
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Distribution of accidents with loss of work: Number of accidents
Wines and Spirits 117
Fashion and Leather Goods 58
Perfumes and Cosmetics 143
Watches and Jewelry 3
Selective Retailing 224
Other 3
Total 548
16 million euros were invested in Health and Safety in France. These sums includedexpenses for occupational medicine, personal protective equipment (gloves, goggles, etc.),programs for improving the safety and health of people: compliance, signage, protection, etc.
The total amount of these expenses and investments represents 2.9% of the gross payroll.
More than 4,000 were trained in safety in the Group’s French companies.
Christian Dior Couture:
CDC is a company that is concerned about the safety and well-being of the employees whowork there. For example, the budget for development or improvement of premises and theworking environment in 2002 was 500 K euros for France, and the expenses for equipmentand improvement of health and safety in France totaled 300 K euros. Training in first aidand fire fighting is provided on a regular basis. CDC also offers social services, medicalservices and a company restaurant to employees in France.
Training
LVMH:
Jobs in the deluxe products industry are characterized by the acquisition and developmentof specific know-how that requires years of learning. Managers must devote a large part oftheir time to training mid-level management in the management techniques specific to ourjobs. A significant part of the training takes place within the work environment, on a dailybasis, and is not included in the following indicators.
The training investment made in 2002 by the companies of the LVMH Group in Francerepresented a funding of 21.5 million euros, or 3.9% of the total payroll. The averageinvestment in training per person in full time equivalent was 1,140 euros.
This funding made possible the completion of 353,000 hours of training. More than 11,000 employees at CDI have benefited from at least one day of training during the year.
Moreover, nearly 2,000 employees participated in an orientation or integration session.
Christian Dior Couture:
In order to develop and reinforce the expertise of the employees CDC has pursued anambitious training policy with the creation of a sales school (job techniques, knowledge ofproducts) for the distribution network.
In 2002, 106 people in France benefited from this type of training, which is 14.7% of theworkforce at the end of the period.
For France, 8,243 hours of training were provided in 2002, all types of training combined.
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In order to enable new hires to be integrated quickly into our company, we regularly organizeintegration courses that cover the following areas: knowledge of the company’s product lines,knowledge of products, internal organization, management of performance, etc. For example,some twenty people in France have been able to benefit from this type of course in 2002.
Thus, the occupational training effort for 2002 was 3.04% (the statement 2483 representing2.39%) of the total payroll.
Internal mobility and more selective programs for development of executives in internationalbusiness also cooperate in the development of people (6 people have taken newresponsibilities in international positions). Furthermore, inter-area exchanges (Japan/France,China/France, etc.) allow employees to come to France for a few months in order tosupplement their local experience. In 2002, the 11th exchange program with Japan tookplace.
Hiring and induction of handicapped workers
In France handicapped personnel represent 2% of the Dior Group’s total workforce.Services that are subcontracted in France to Work Aid Centers represented a total of about2 million euros.
Social activities
In 2002 in France, the various companies of the Dior Group allotted a budget of nearly 7 million euros to social and cultural activities: contributions to company committees fororganizing trips, leadership of photography or painting clubs, libraries of books and DVDs,groups focused on playing sports or health programs, etc.
All of these supplemental services, food service expenses and subsidies of CompanyCommittees represents a total of 65 million euros, paid out as follows:
millions of euros
Death and disability 7
Retirement 35
Membership organizations 6
Food service expenses for personnel 10
Subsidies for Company Committees 7
Subcontracting
A large part of what Christian Dior markets is “made in France” and the essential part of itsproduction activities is in France: Louis Vuitton, Moët & Chandon, Parfums Christian Dior,Christian Dior Couture, etc. Most of the Group’s subcontractors are located in France andItaly, which facilitates Christian Dior’s compliance with the provisions of the basicconventions of the International Labor Organization.
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Territorial impact of the activity on jobs and regional development
Dior practices a policy of maintaining and developing jobs. There were no significant masslayoffs in 2002.
The principal, large-sized companies of the Group: Hennessy, Moët & Chandon, LouisVuitton Malletier, Parfums Christian Dior, Christian Dior Couture, etc., are established inFrench regions and play an undeniably significant role in job development in their respectiveregions. For example, Louis Vuitton recently established planned facilities in Sainte-Florenceand Ducey. Whether in Saint Jean de Braye, near Orléans, in Champagne or in Cognac,where several of our companies have been established for a long time, our companies haverelations and communications policies with the local governments, particularly in the areas ofeducation and employment.
Relations with job-insertion associations and educational institutions
LVMH has developed numerous partnerships with management schools and in particular,engineering schools, but also with creative design schools and those specialized in specificknow-how of our lines (leather, textile, etc.). The Group’s principal companies participateseveral times a year in presentations on the campuses of these schools. Senior executives ofthe Group are involved in teaching several programs.
The Group’s hiring policy includes initiatives in favor of young people without degrees aswell as disadvantaged people. Thus, Veuve Clicquot Ponsardin has partnerships with theANPE for receiving young people in job-insertion training. Moët & Chandon belong to the“Companies and Handicap” club. Louis Vuitton has agreements for people with long-termillness providing job-insertion at its facilities. More than 300 qualification, apprenticeship orwork-and-training contracts were signed last year.
For CDC, the integration of young talent remains a priority. For this reason CDC isdeveloping a policy of school relations (art and creative design schools, management schools,schools for engineers, etc.). These meetings with the students are an opportunity for CDCto present the company’s business lines and an occasion for exchange with the students.Thus in 2002 CDC gave several hundred students the opportunity to take a course.
Moreover, CDC is concerned about striking a balance between the demands for performanceand respect for individuals. Thus, hiring is based on objective criteria combining previousexperience, the level of training and suitability according to the values promoted by CDC:strictness, excellence, creativity and integrity.
Compliance with international conventions
Taking into consideration, in each decision, the person, his freedom and dignity, but also hisdevelopment and health, are the pillars of a doctrine of responsibility to which all of theGroup’s companies subscribe.
All of the companies in the Group have policies and practices concerning respect of equalityof opportunity and treatment (sex, race, religion, political opinion, etc.) as defined in theconventions of the International Labor Organization. This culture and these practices alsolead to respect for freedom of association, respect of persons and prohibits child labor as wellas forced labor.
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C O N S O L I D A T E D S T A T E M E N T S
47
C O N S O L I D A T E D H I G H L I G H T S
millions of euros 1998 1999 2000 2001 2002
Net sales 7,130 8,758 11,867 12,567 13,168
Income from operations 1,181 1,551 1,967 1,548 2,034
Income before taxes 969 1,415 1,652 597 1,264
Net current income before goodwill amortization, Group share 184 295 320 75 287
Net income, Group share 47 264 251 (95) 178
euros
Net current income per share beforegoodwill amortization 1.04 1.63 1.77 0.41 1.58
millions of euros
Balance sheet total 21,422 26,330 28,435 29,228 26,802
Total shareholders’ equity 18 3,793 3,889 3,788 3,972
Total liabilities 26,802 26,802 29,228 28,435
The notes are an integral part of the consolidated financial statements.
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C O N S O L I D A T E D S T A T E M E N T O F I N C O M Ein millions of euros, except for earnings per share expressed in euros
Notes 2002 2001 2000
Net Sales 22-30-31 13,168 12,567 11,867
Cost of sales (4,712) (4,764) (4,313)
Gross margin 8,456 7,803 7,554
Design expenses 20 (31) (25) (55)
Marketing and selling expenses (4,924) (4,743) (4,305)
General and administrative expenses (1,467) (1,487) (1,227)
Income from operations 30-31 2,034 1,548 1,967
Financial income 22 (333) (499) (467)
Dividends from unconsolidated investments 8 16 45
Other income and expenses - net 23 (445) (468) 107
Income before income taxes 1,264 597 1,652
Income taxes 24 (356) (194) (635)
Income from companies accounted for under the equity method 8 (18) (42) (34)
Net income before amortization of goodwill and unusual items 890 361 983(Group’s share: 2002: 287; 2001: 75; 2000: 320)
Amortization of goodwill 25 (253) (159) (131)
Net income before unusual items 637 202 852(Group’s share: 2002: 178; 2001: 5; 2000: 262)
Unusual items 26 0 (199) 35
Net income 637 3 887
Minority interests (459) (98) (636)
Net income - Group share 178 (95) 251
Net income per share before amortization of goodwill and unusual items 1.58 0.41 1.77
Number of shares used as basis for calculation (1) 181,727,048 181,721,048 181,261,048
Fully diluted earnings per share before amortization of goodwill and unusual items 1.58 0.41 1.76
Number of shares used as basis for calculation (1) 181,727,048 181,723,825 181,665,063
(1) Numbers adjusted to reflect the four for one stock split of July 2000.
The notes are an integral part of the consolidated financial statements.
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C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O Wmillions of euros
2002 2001 2000
I - OPERATING ACTIVITIESNet income, group share 178 (95) 251Minority interests in net income 459 98 636Elimination of income from companies accounted for by the equity method 18 42 34Dividends received from equity companies (1) 4 2Amortization and net long-term and short-term provisions 700 1,672 292 Net gain (loss) on sale of fixed assets or treasury shares 174 (837) (75)Net cash provided by operating activities before changes in current assets and liabilities 1,528 884 1,140 Change in current assets 117 (403) (697)Change in short-term debts 309 47 384
Change in working capital requirements 426 (356) (313)
Net cash provided by operating activities ➀ 1,954 528 827
II - INVESTMENT ACTIVITIESPurchases of intangible assets (88) (135) (75)Purchases of plant, property and equipment (538) (949) (822)Purchases of equity investments (51) (417) (447)Changes in debt on purchases of fixed asset (53) 244 56Sale of non-financial fixed assets 203 149 85Change in receivables on disposals of fixed assets 0 0 1Impact of reclassification of equity interests and investment securities 0 (677) 817Disposal of unconsolidated investments 92 2,122 1,195Changes in other financial assets (185) (181) (192)Impact in changes in consolidation (160) (895) (547)
Net cash provided by investing activities ➁ (780) (739) 71
III - FINANCING ACTIVITIESProceeds from issuance of common stock 13 42 11Issuance of bonds and other financial debt 661 2,300 3,077Principal repayments on short-term borrowings and long-term debt (2,400) (2,477) (2,616)Change in current accounts (109) 304 370Changes in listed securities 182 880 (1,071)
Net cash provided by financing activities ➂ (1,653) 1,049 (229)
IV - ACQUISITION AND DISPOSAL OF LVMH /DIOR SHARES ➃ 500 (33) (370)
V - DIVIDENDS PAID IN THE PERIOD ➄ (363) (508) (384)
VI - IMPACT OF EXCHANGE RATE DIFFERENCES ➅ 18 (12) (9)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ➀ + ➁ + ➂ + ➃ + ➄ + ➅ (324) 285 (94)
Cash and cash equivalents at beginning of year (net of bank overdrafts) 611 326 420Cash and cash equivalents at year end (net of bank overdrafts) 287 611 326
NET INCREASE (DECREASE )IN CASH AND CASH EQUIVALENTS (324) 285 (94)
The statement of cash flows shows the change in cash (net of bank overdrafts) and cash equivalents consisting of short-terminvestments that can be readily converted into cash, excluding, since January 1, 2001, listed securities. Figures from previousperiods have been adjusted to allow comparisons with the data presented.
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N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
NOTE 1 - SIGNIFICANT EVENTS AND CHANGES IN THE GROUPCONSOLIDATION
In 2002:
Wines and Spirits
• In July 2002, LVMH purchased 40% interest in Millennium Import LLC, a producer ofhigh end vodkas distributed under the brands Belvédère and Chopin, for USD 76 million.The interest in Millennium was consolidated by the equity method as of that date. Thistransaction was accounted for on the balance sheet as a fixed asset of USD 71 million,amortized over 15 years, representing the perpetual license Millennium holds for thedistribution of these brands in the United States.
• In May 2002 the Group sold the Pommery brand for 152 million euros. This sale alsoincluded the administrative and production sites, the wine cellars, the inventories and thedistribution contracts, excluding the vineyards. The Pommery activities have not beenincluded in the consolidation since that date.
Fashion and Leather Goods
• Donna Karan International Inc., “DKI”, purchased in December 2001 (see below: changesin consolidation for the 2001 financial year) was fully consolidated as of January 1, 2002.The total investment in Gabrielle Studio and DKI was allocated to the Donna Karan brandfor 494 million euros; the consolidated goodwill of USD 224 million will be amortized over20 years.
• During the financial year, LVMH strengthened its interest in the Fendi group, increasedfrom 51% to 67%. This investment, for a total of 196 million euros, generated an additionalconsolidated goodwill of 115 million euros (see also note 28: events that occurred after yearend).
• The Emilio Pucci group, purchased in 2001 for 33 million euros, was fully consolidated asof January 1, 2002. The investment was allocated to the Pucci brand for 16 million euros.The consolidated goodwill will be amortized over 20 years.
• Finally, LVMH increased its interest in Thomas Pink from 70% to 100%, an investment of28 million euros.
Perfumes and Cosmetics
• In December 2002 the group sold the Hard Candy and Urban Decay brands for USD 1 million, which could change during the next three years because of an indexing clause; theresults of 2002 for these entities were included in the consolidated income until their sale.
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Other activities
• Based on an agreement of May 2002, LVMH’s interest in Phillips was reduced from 75%to 27.5%, LVMH transferring control to its former directors, Daniella Luxembourg and Simon de Pury. With this agreement, LVMH reestablished the financial situation of the Phillips group by discontinuing its financial aid, and in return received Phillips’ fixedassets and inventory. Phillips was deconsolidated as of January 1, 2002, the activity duringthe first months of the period being insignificant (see also note 28: events that occurred afteryear end).
** *
In 2001:
Wines and Spirits
• At the end of 2000, the Group acquired 60 and 90% respectively of the Newton (NapaValley, California) and MountAdam (Eden Valley, South Australia) winegrowing estates for34.5 million euros. These interests were fully consolidated over the full year in 2001.
Fashion and Leather Goods
• In January 2001, pursuant to an agreement signed in December 2000, LVMH acquired allof the stock of American company Gabrielle Studio, owner of the Donna Karan New Yorkbrand, for USD 405 million.
Moreover, in March 2001, LVMH drafted a merger project with Donna Karan InternationalInc (DKI), a company listed on the New York stock exchange and owner of the exclusivelicense for the Donna Karan brand, proposing the transfer of LVMH’s interest in GabrielleStudio to DKI and a takeover bid by LVMH for practically all of DKI’s stock at the price ofUSD 10.75 per share, a total of USD 185 million.
This project was approved by DKI’s Shareholders’ Meeting of November 27, 2001.Following this operation, LVMH holds 100% of the preferred stock and 89.40% of thecommon stock of the new Donna Karan group.
Gabrielle Studio was fully consolidated for the entire fiscal year while the stake in DonnaKaran International will be consolidated as of 2002.
The USD 405 million investment in Gabrielle Studio was fully allocated to the value of theDonna Karan New York brand.
• In December 2001, LVMH’s 25.50% interest in Fendi was increased to 51%, with LVMH’sbuyout of Prada’s stake in the 50/50 joint venture created for that investment (see below:Changes in Consolidation in 2000). This operation represents an additional investment of295 million euros, 255 million of which will be paid over a 4-year period. Most of thisamount, i.e. 404 million euros (206 million euros attributable to the Group) was allocated tothe value of the Fendi brand; 136 million euros was recorded as goodwill to be amortized over30 years.
The Fendi investment has been consolidated on a proportionate basis since July 2000; atDecember 31, 2001, Fendi’s balance sheet was fully consolidated.
Perfumes and Cosmetics
• The Group’s 65% interest in American cosmetics company Fresh, acquired in September2000 for 18 million euros, has been fully consolidated since January 1, 2001.
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Selective Retailing
• In January 2001, LVMH acquired 55% of the Paris department store La Samaritaine for256 million euros, including 88 million euros through a reserved capital increase.
The amount invested corresponds to real estate which is not limited to the buildings housingthe department store, estimated at 471 million euros (182 million euros for the group share,after deferred tax). The goodwill on this investment, including brand value, is 57 millioneuros, to be amortized over 20 years. La Samaritaine has been fully consolidated sinceJanuary 1, 2001.
Watches and Jewelry
• In January 2001, LVMH and the De Beers group signed an agreement to form a 50/50 jointventure. This agreement was approved by the European Commission in July. Starting in2002, this company will have an exclusive license for the world-wide sale of diamond jewelryin a network of stores to be created under the “De Beers” name. Since July 2001, this jointventure has been accounted for using the equity method.
Other activities
• In January 2001, Mrs. Daniella Luxembourg and Mr. Simon de Pury, the founders of theGeneva art gallery de Pury et Luxembourg Art, transferred their full interest in de Pury etLuxembourg Art to Phillips. This contribution was remunerated with a 25% interest inPhillips, and a payment of USD 10 million. Following this operation, Phillips becamePhillips, de Pury & Luxembourg (PPL).
In November 2001, within the framework of an agreement drawn up in July, PPL’s UKactivities and the operations of British auction company Bonhams & Brooks merged withina joint entity 49.9 % held by PPL, with PPL retaining control of its international activities.
The transfer of de Pury & Luxembourg Art to Phillips resulted in goodwill of 54 millioneuros, added to the initial goodwill of 95 million euros.
De Pury & Luxembourg Art has been fully consolidated in Phillips since January 1, 2001; asof November 2001, the stake in the joint venture with Bonhams & Brooks has beenaccounted for using the equity method.
• In December 2001, the group’s 50% stake in the luxury product Internet site eLuxury wasincreased to 99.99%, through subscription to a capital increase. This operation resulted ingoodwill of 45 million euros, corresponding to the value of the customer base and prior sitedevelopment costs. This interest was accounted for by the equity method over 2001; it wasfully consolidated on December 31, 2001.
• In January 2001, the sub-group Télématique Victoire Multimédia was transferred to theJet Multimédia group in exchange for 479,125 shares in Jet Multimédia with a guaranteedprice. This disposal resulted in a gross capital gain of 25 million euros.
In 2000:
Fashion and Leather Goods
• In July 2000, pursuant to the memorandum of agreement signed at the end of 1999, LVMHacquired with the Prada Group 51% of Italian group Fendi. 404 million euros of the total 564 million euros paid by the joint venture represents the value of the Fendi brand, and 92 million euros was posted to goodwill.
Fendi has been consolidated using the proportionate method since July 1 for 50%, including25.50% for LVMH’s share.
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Perfumes and Cosmetics
• In 1999, LVMH acquired 70% of the US company BeneFit Cosmetics for 67 million euros,the value of the BeneFit brand representing most of the price paid. Other acquisitions in1999 include 73% of the French company Make Up For Ever, and 94% of the US cosmeticscompany Hard Candy; in 2000, LVMH acquired 100% of Urban Decay: these threeinvestments represent a total of 42 million euros, and were fully consolidated over the year.
Watches and Jewelry
• In addition to the investment in TAG Heuer, LVMH acquired the entire capital stock ofthe watch companies Ebel and Zenith at the end of 1999, for 19 and 75 million eurosrespectively, as well as 100% of Chaumet, the famous Paris jeweler, for 47 million euros.
The values attributed to these brands were 125 million euros for Ebel, 58 million for Zenith,and 33 million for Chaumet.
These investments are consolidated as of January 1.
Selective Retailing
• In addition to the Italian “Laguna” brand acquired by Sephora at the end of 1999, thebusiness group acquired the owner of the Italian “Boïdi” brand in February 2000 andpurchased 100% and 50% respectively of the Italian and Greek owners of the “Carmen” and“Beauty Shop” brands in July. The total investment of 154 million euros has been principallyallocated to the value of the four brands. The corresponding goodwill is amortized over 10-15 years. The stakes in Laguna and Boïdi were consolidated over the full year, while thestakes in Carmen and Marinopoulos (owner of the Beauty Shop brand) was consolidated asof July 2000.
• In January 2000, LVMH acquired Miami Cruiseline, an American company that sellsluxury goods aboard cruise ships. The investment cost of 361 million euros resulted in therecording of goodwill of 359 million euros, amortized over 20 years. The investment isconsolidated for the full year.
Other activities
• At year end 1999, LVMH acquired the Phillips auction sale house for 90 million euros. Thecorresponding goodwill of 95 million euros is amortized over 30 years. Phillips has beenconsolidated from January 1.
** *
Pro forma data and impact on cash flow:
A simplified pro forma statement of income is presented below for 2001 and 2002, on aconstant consolidation basis taking into account, as of January 1, 2001, the changes thatoccurred in 2002 or over less than 12 months in 2001:
• In 2002: the consolidation of Donna Karan International and Emilio Pucci, the additionalinvestment in Fendi and Thomas Pink, the consolidation of Millennium by the equity methodas well as the sale of the Pommery activities.
• In 2001: the additional investment in Fendi, and the deconsolidation of Phillips.
These pro forma data do not necessarily represent the results that would have effectively beenrecorded in the consolidated statements if the operations described had taken place on thedate stated. Moreover, they cannot be used to forecast future trends in consolidated results.
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in millions of euros 2002 2001pro forma pro forma
Sales: 13,168 13,249- Christian Dior Couture 492 356- Wines and Spirits 2,266 2,185- Fashion and Leather Goods 4,194 4,440- Perfumes and Cosmetics 2,336 2,231- Watches and Jewelry 552 548- Selective Retailing 3,337 3,456
Income from operations 2,034 1,694
Income before income taxes 1,426 759
Net current income before amortization of goodwill, group share 346 135
Net income before unusual items, group share 237 48
The marginal effect of changes in consolidation for the period on the balance sheet atDecember 31, 2002 is as follows:
in millions of euros
Brands and other intangible assets 149 Shareholders’ equity -
Goodwill 371 Minority interests 54
Net tangible assets 42 Net financial debt 395
Net inventories 71 Other debts at more than one year 35
Net trade receivables 54 Other debts at less than one year 278
Other assets 75
762 762
The impact of the changes in consolidation on the Group’s cash flow, as shown in theconsolidated statement of cash flow, net of the cash flow of the companies purchased or soldand net of deferred payments on these acquisitions, amounts to 160 million euros (628 millioneuros in 2001).
This figure represents primarily the investments in Fendi (196 million euros), Millennium (76 million euros), Thomas Pink (28 million euros), as well as the positive effect of the saleof some of Pommery’s assets (152 million euros).
In 2001, they mainly concerned the investments in Gabrielle Studio, la Samaritaine and de Pury Luxembourg Art SA.
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NOTE 2 - ACCOUNTING PRINCIPLES - RULES - METHODS
The consolidated financial statements of the Christian Dior group have been prepared inaccordance with French accounting principles, as defined by the law of January 3, 1985.Regulation No. 99-02 from the Comité de Réglementation Comptable, issued on June 22,1999 and in force since fiscal 2000, had no material impact on shareholders’ equity and Groupearnings.
The basic accounting principles used to prepare these financial statements are describedbelow.
2.1 - Principles of consolidation
The accounts of companies in which Christian Dior has direct or indirect exclusive controlare fully consolidated.
The accounts of companies in which Christian Dior has joint control are consolidated usingthe proportionate method.
For the companies owned jointly with the Diageo group, only those parts of the balance sheetand statement of income relating to LVMH group activity are included in the accompanyingfinancial statements (see note 2.15).
Investments in companies in which Christian Dior has a significant direct or indirectinfluence are accounted for using the equity method.
The list of the companies included in the scope of consolidation is presented in note 32.
2.2 - Foreign currency translation, hedging of exchange and interest rate risks
a - Currency translation
The accounts of foreign companies are converted as follows: • at the exchange rate at year end for balance sheet items; • at the average rates of the financial year for statement of income items.
Translation adjustments from the application of these rates have been recorded inshareholders’ equity under “Foreign currency translation”.
b - Currency transactions
Foreign currency transactions by consolidated companies are converted at the exchange rateon the transaction date.
Losses and gains resulting from the conversion of balances at exchange rate on December 31are recorded in the statement of income.
Exchange differences from currency debt or other instruments assigned to cover long-terminvestments in the same currency are recorded as “Currency translation”.
c - Currency and option contracts
Forward currency contracts and options are revalued using the exchange rates of December 31. Unrealized gains and losses from such revaluations are: • recorded in the statement of income to offset unrealized gains or losses on the assets orliabilities covered by these instruments; • deferred if the instruments have been allocated to transactions planned for the followingperiod; • recorded as income or losses for the period if they have not been allocated.
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Deferred unrealized gains and losses are included in “Other current assets” and “Otherliabilities”.
d - Hedging
Currency gains and losses arising from hedges on an underlying commercial asset arerecorded as operating income or expenses, except for premiums and discounts of forwardcontracts, which are recorded on a prorated basis as financial income or expenses. Foreignexchange instruments for hedging financial risks are recorded as financial income orexpenses.
e - Interest rate hedging
Gains and losses from interest rate hedging contracts (swap contracts, CAP, forward rateagreements, collars, etc.) are accounted for on a prorated basis over the period of the relatedcontracts.
If interest rate “swaps” mature after the maturity of the operations hedged. Where applicable,the unrealized losses at year end are recorded in the income statement. The unrealized gainsare not recorded.
2.3 - Brands and other intangible assets
Intangible assets are recorded as assets at their purchase price plus goodwill, if any.
Only those acquired brands that are well-known and individually identifiable are recorded inassets, using their value at the time of purchase. This value is not amortized. The book valueand current value of brands are determined for each accounting period, using the proceduresdescribed in note 3. When the book value of a brand becomes permanently greater than itscurrent value, a set-aside equal to the difference is made for amortization. Expenses incurredto create a new brand or to develop an existing one are recorded under expenses.
Other intangible assets are amortized over their estimated useful lives:
• leasehold acquisition rights duration of lease
• software 1 to 5 years
2.4 - Goodwill and related intangible assets
Goodwill is defined as the difference between the purchase price of the securities ofconsolidated companies and the Group’s share in their net assets on the purchase date. Thiscalculation is made after the net assets of the acquired company have been restated accordingto Group accounting principles and after revaluation to fair value, when fair value differsfrom net book value on the purchase date.
The value of certain intangible assets, such as brands, market share, or business goodwill arenot reported separately from goodwill.
Goodwill is recorded depending on whether it is positive or negative, under “Goodwill” onthe asset side or under “Contingencies” on the liabilities side.
For the changes in group consolidation since fiscal 2000, goodwill has been recorded in theoperating currency of the acquired company. It was previously recorded in euro.
Goodwill is amortized over periods ranging from 5 to 40 years, depending on their estimatedduration when first consolidated. This estimation refers to the purchased company in its ownmarket, in terms of positioning, age and geographic location.
Business goodwill acquired under French law is amortized over a period which may notexceed 18 years.
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The book value and current value of goodwill are determined using the procedures describedin note 3. When the book value of goodwill becomes permanently greater than its currentvalue, a set-aside equal to the difference is made for amortization.
2.5 - Tangible assets
Tangible assets are generally recorded in the consolidated balance sheet at their acquisitioncost. This includes goodwill, if any.
Assets acquired under financial lease contracts are recorded as long-term assets and theresulting debt is recorded under liabilities.
Tangible assets are depreciated principally according to the straight-line method at ratesbased on the estimated useful lives below:
• Buildings 20 to 50 years
• Plant and equipment 3 to 20 years
• Retail leasehold improvements 3 to 10 years
• Vineyards 18 to 25 years
• Other assets 3 to 10 years
Vineyard preparations and development costs are capitalized until the vineyards becomeproductive (generally three years) and are included in “Tangible assets in progress”.
2.6 - Financial assets
Unconsolidated investments are recorded at cost.
In case of a difference considered to be permanent between the useful value of such a Groupinvestment and its book value, a provision is made to write down this amount.
The useful value of investments is measured based on criteria such as the value of the Group’sshare in net assets, the stock price or the outlook for earnings and cash flow. These criteriaare weighted for the effects on the Group of holding the investments, in terms of strategy orsynergy with existing businesses.
2.7 - Inventories and work in progress
Inventories are recorded at the lower of cost or market value. Cost price is determined eitherusing the weighted average cost method or the first-in first-out (FIFO) method.
Considering the aging process for champagne and cognac, these inventories are often held formore than one year. However, in line with industry practice, they are classified as currentassets.
Financial fees are not taken in account in the evaluation of inventories.
2.8 - Trade accounts receivable and other receivables
Receivables are recorded at their face value. An allowance for write-down is establishedwhen the inventory value is less than book value, based on the probability of recovery.
2.9 - Treasury shares
Treasury shares are recorded at acquisition cost.
Shares held under French market regulations for stock price adjustment, shares held foremployee stock option plans and shares held by subsidiaries on a short-term basis arerecorded as assets in the balance sheet.
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Shares held on a long-term basis or for the purpose of future cancellation or exchange arededucted from shareholders’ equity, including the realized capital gains and losses.
When the market value of the shares, as defined in note 2.10 below, becomes less than thepurchase price (or the exercise price in the case of stock option plans), a write-downprovision is recorded for the difference.
The other shares are treated as short-term investments.
2.10 - Short-term investments
Short-term investments and equivalent receivables (investment fund units, money marketfunds, etc.) are stated at the acquisition cost. A write-down allowance is recorded when theacquisition value is higher than the market value.
Shares of mutual funds, cash mutual funds and similar securities are valued at their publishednet asset value.
Market value for traded securities is determined by reference to the average price quoted onthe related stock exchange during the last month of the year, translated at the year-endexchange rate if applicable. Market value of non-traded securities is based on their estimatedrealizable value.
In case of partial sale of an investment, the FIFO or weighted average price methods are usedto determine the gain or loss to be recognized.
2.11 - Cash and cash equivalents
Cash and cash equivalents include cash in bank and short-term deposits with are immediatelyavailable, minus restricted cash.
2.12 - Bond issues
Bond issue costs and redemption premiums on convertible bond are recorded as financialcosts over the life of the bond.
Provisions for redemption premiums are funded annually and recorded under “Financialdebt”.
Issue premiums on bonds issued above par are deducted from issuance costs.
The issuance costs of subordinated securities are amortized over 15 years.
2.13 - Design costs - Research and developments costs
These costs are generally recorded as expenses in the fiscal year in which they are incurred.
2.14 - Income taxes; deferred taxes
Deferred income taxes arise out of timing differences between the net book assets ofconsolidated companies as reported in the consolidation and the amount resulting from theapplication of tax rules. These are recorded based on the known tax situation at the end ofthe year.
Tax savings from carried-over fiscal deficits are recorded as deferred taxes only when theirrecovery is deemed probable.
Taxes that would become payable in the event that retained earning of subsidiaries aredistributed are set aside if such a distribution is probable.
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2.15 - Accounting treatment of income
• Net sales. Group net sales include both retail sales through the stores of the Group and so-called“wholesale” sales to distributors and agents. Retail sales come basically from Selective Retailing and the following lines: Fashion andLeather Goods; certain brands of Perfumes and Cosmetics, and Watches and Jewelry. Thesesales are recorded at the time of purchase by the customers. “Wholesale” sales come from Wines and Spirits, and, as above, from certain brands ofPerfumes and Cosmetics or Watches and Jewelry. These sales are recorded when ownershipis transferred, that is, upon shipping.
• Net sales from the Diageo Joint VentureA significant part of the sales revenue from Wines and Spirits is earned through thedistribution agreement with Diageo, which most often consists of joint ventures. These jointventures ensure the delivery and sale of the brands of both groups. The distributionagreements govern the breakdown of the balance sheet and income statement of these entitiesbetween LVMH and Diageo. Because of these agreements, LVMH only consolidates the netsales and share of joint-venture expenses that applies to its own brands.
• Sales repurchase agreementsCompanies in the Perfumes and Cosmetics division, and to a lesser extent in Fashion andLeather Goods, repurchase unsold or outdated products from their customers or distributors.Reserves are funded on a percentage of realized sales revenue and margin to cover the costsof such repurchased or destroyed products.
• Re-billed shipping and transportation costs Shipping and transportation costs re-billed to customers are included in net sales, because theassociated expenses were recorded under commercial expenses.
• Marketing cooperation agreements and referral rights It is common usage, especially in the marketing of Wines and Spirits, to pay for referrals ofproducts or to participate in advertising agreements with the distributor. These expenses arerecorded as commercial costs and not as a reduction of net sales.
2.16 - Other income and expenses; unusual items
The primary business of the Group is the management and development of its brands andstores. Operating income derives from these activities, whether they involve recurring ornon-recurring operations, main or incidental.
“Other income and expenses” reflects income statement items which may not be inherent tothe Group’s operating activity, because of their nature or frequency.
Significant amounts of other income and expenses are recorded as unusual items.
“Income before taxes” is equivalent to the notion of “Net income of consolidated companies”.
Net income is income net of taxes, excluding goodwill amortization expense and beforeunusual items.
2.17 - Earnings per share
Earnings per share are calculated based on the weighted average number of common sharesoutstanding during the year.
Fully diluted earnings per share are computed as described above, plus the weighted averagenumber of shares assuming the exercise of all outstanding options. This calculation takes intoaccount the corresponding reduction in interest expense and the tax effect.
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2.18 - Pensions, medical expenses and other personnel liabilities
When the consolidated companies pay premiums for pensions, medical costs and otherliabilities to third parties who are responsible for paying these costs or reimbursing expenses,the premiums are recorded in the period in which they are due, so that no liability is retainedon the balance sheet.
When the consolidated companies pay pensions, medical costs and other liabilities directly,the related total actuarial commitment appears as a provision on the balance sheet. Changesto this commitment are recorded under period expenses.
When this commitment is covered partially or in full by funds paid by the consolidatedcompanies to external agencies who manage them, the total of these dedicated financial assetsis deducted from the actuarial commitment on the balance sheet.
The calculation of the actuarial commitment is based on evaluations made for each country,especially combining estimates for increases in salaries, inflation, life expectancy, staffturnover and the return on the dedicated financial assets.
The cumulative effects of the actuarial differences are amortized when they exceed 10% ofthe total gross commitment of dedicated financial assets or of the market value of thededicated financial assets at year end. These differences are amortized beginning in the yearfollowing their determination, over the residual average working life of the employeesconcerned.
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NOTE 3 - SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS
A - Short-term investments
millions of euros 2002 2001 2000
Listed securities 28 202 1,133
Mutual funds and OEIC units, listed and unlisted 41 406 154
Negotiable debt securities and other unlisted securities 9 49 86
Depreciation allowance (17) (34) (47)
Net portfolio value 61 623 1,326
Market value of investment securities 62 692 1,397
including market value of listed securities, mutual funds and OEIC 53 254 1,311
At December 31, 2000, listed securities included 12,500,000 shares of Diageo Plc (UnitedKingdom) and 18,465,940 shares of Bouygues SA (France) for 126 and 956 million euros,respectively. The Diageo shares were sold in 2001 and the Bouygues shares were reclassifiedas other long-term investments (see note 9).
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NOTE 4 - TREASURY SHARES
At December 31, 2002:
• LVMH held 16,113,497 shares, 9,062,897 of which were allocated to stock option plans andthe remainder, i.e., 7,050,600 shares, to stock price equalization.
• Dior held 3,294,320 shares, 2,769,100 of which were allocated to stock option plans and theremainder, i.e., 525,220 shares, to stock price equalization.
LVMH and DIOR stock portfolios are assigned as follows:
2002 2002 2001 2000
millions of euros Number Amount
Less than 1 year:• stock option plans 11,831,997 329 271 171
• stock price equalization or short-term investment: - gross value 7,575,820 449 1,217 1,199- depreciation allowance (137) (345) -
Total 19,407,817 641 1,143 1,370
During 2002, the following transactions were made in Dior’s stock portfolio:
Trade accounts: advances and down payments 132 204 99
Prepaid expenses 212 229 254
Other receivables net 513 565 433
Net value 1,315 1,534 1,616
The balance of “currency hedging” primarily consists of unrealized gains from the revaluationof currency hedging contracts at year-end. In the case of an unrealized loss, it is the prepaidexpense resulting from the difference (see note 15).
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NOTE 8 - EQUITY INVESTMENTS
A - Value of equity investmentsmillions of euros 2002 2001 2000
(*) portion of net loss transferred to provisions for risks and contingencies.
(**) Company fully consolidated on December 31, 2002.
(***) See note 1: Significant facts and changes in the scope of consolidation.
B - Income (loss) from investments in equity companies(included in the value of equity investments)
millions of euros 2002 2001 2000
Bonhams & Brooks PS&N Ltd (4) – –
De Beers LV Ltd (9) (4) –
eLuxury.com Inc – (31) (38)
Millennium Import LLC (***) 2 – –
Other (7) (7) 4
Total (18) (42) (34)
(***) See note 1: Significant facts and changes in the scope of consolidation.
The group share of consolidated reserves of equity companies, excluding differences ontranslation, totaled 39.2 million euros in 2002 (7.7 million euros in 2001 and (43.0) millioneuros in 2000).
NOTE 9 - OTHER INVESTMENT SECURITIES
millions of euros 2002 2001 2000
Gross Set-aside Gross Set-aside Gross Set-aside value to reserves value to reserves value to reserves
Bouygues SA (France) 819 (282) 819 (82) – –
Gucci group NV (Netherlands) – – – – 1,256 –
LVMH treasury shares 400 (38) 318 – 156 –
Other investments 464 (130) 867 (217) 759 (120)
Total 1,683 (450) 2,004 (299) 2,171 (120)
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Group Net Divi- Share- Net Marketinterest book dends holders’ income value
million of euros % value received equity (1) (1) (2)
Bouygues SA (France) 5 537 6 4,740 344 429
Tod’s Spa (Italy) 4 47 – 369 37 36
Investments in various Internet funds (USA) ND 31 – ND ND –
SFMI SA Micromania 13 15 – 49 – –
Joseph 10 7 1 – – –
Other investments 48 1 – – –
Investments less than 20% 685 8
Pechel Industries SA (France) 43 33 – 96 (3) –
L Capital FCPR (France) 46 37 – ND ND –
Interparfums Inc. (USA) 21 17 – 74 9 29
Rossimoda Spa (Italy) 45 23 – 18 1 –
Other investments – 36 – – – –
Investments between 20% and 50% 146 –
Other investments 40 –
Investments greater than 50% 40 –
LVMH treasury shares 362 –
Total 1,233 8
((1) The accounting data shown are prior to December 31, 2002. The figures for year-end 2002 were notavailable at the time of this report.
(2) Average stock market price for December 2002. The above-mentioned investments, held at more than 20%, are unconsolidated, since the Group has nosignificant influence on these companies.
Investment in Bouygues
The LVMH group has an interest in Bouygues, managed as part of the Group’s portfolio. Inthat context, the prospects for a rise in the value of this investment must be assessed over themedium term. At December 31, 2000, this investment was included in the short-terminvestment portfolio. Therefore, it was reclassified on June 30, 2001 as a long-terminvestment (over one year), after deducting the block sold in July 2001 (2,650,000 shares).On December 31, 2001, a devaluation expense of 82 million euros was recorded to takeaccount of the long-term drop in the stock market value of media and telecommunicationsstock. This expense came to 282 million euros by the end of 2002.
Investment in Gucci
Between 1999 and 2001, LVMH was involved in a dispute with the Pinault Printemps-Redoute (PPR) and Gucci groups. This dispute concerned the validity of two reservedcapital increases, on February 18 and March 19, 1999, which reduced LVMH’s stake inGucci from 34.4% to about 20%.
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In September 2001, the PPR, Gucci and LVMH groups settled this dispute through atransactional agreement providing for the following:
• PPR’s purchase from LVMH in October 2001 of 8.6 million Gucci shares at USD 94 pershare, for a total of USD 806 million (897 million euros);
• Gucci’s payment in December 2001 of an exceptional dividend of USD 7 per share;considering LVMH’s residual interest on that date, this resulted in earnings of USD 81 million (90 million euros);
• PPR’s tender offer in March 2004 for all of Gucci’s stock at a price of USD 101.50 pershare.
In December 2001, LVMH sold its residual interest of 11.6 million shares to Crédit Lyonnaisworth USD 1,037 million (about USD 89.60 per share), or 1,150 million euros. The sharedisposal contract contains an “earn-out” provision entitling LVMH to an additional paymentuntil March 2004 depending on the price of a Gucci share and dividends paid by Gucciduring this period.
LVMH’s total capital gains on the sale of 20.1 million Gucci shares amounts to 774 millioneuros, and to 864 million euros when the exceptional dividend is taken into account.
Investment in Diageo:
In addition to the partnership for the distribution of their products, LVMH and Diageo havemaintained cross holdings for several years.
As of December 31, 2002 Diageo had a 34% stake in Moët Hennessy, the holding companyfor the LVMH Wines and Spirits business segment.
The LVMH investment in Diageo (ex Guinness), originally 20% in Guinness, has steadilydecreased since 1997.
As of December 31, 2000, this investment was less than 0.5%. It was reclassified as a short-term investment and sold during 2001.
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT
millions of euros 2002 2001 2000
Gross Depre- Gross Depre- Gross Depre-value ciation value ciation value ciation
Land 881 (8) 929 (5) 597 (5)
Land and producing vineyards 553 (54) 557 (56) 541 (48)
Buildings 2,089 (721) 2,275 (728) 1,923 (592)
Plant and equipment 1,418 (970) 1,574 (993) 1,333 (896)
Other tangible assets 1,544 (860) 1,377 (702) 1,191 (504)
Fixed assets under construction 370 (1) 408 (5) 217 –
Total 6,855 (2,614) 7,120 (2,489) 5,802 (2,045)
incl. assets financed under capital lease 315 (99) 340 (91) 305 (78)
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Changes in property, plant and equipment from one period to another are broken down asfollows:
millions of euros 2002 2001 2000
Gross Depre- Gross Depre- Gross Depre-value ciation value ciation value ciation
Balance at beginning of year 7,120 (2,489) 5,802 (2,045) 4,956 (1,727)
Acquisitions 523 – 950 – 788 -
Disposals (456) 244 (275) 168 (177) 125
Depreciation allowance – (416) – (532) – (364)
Impact of changes in consolidation 118 (122) 582 (61) 159 (53)
Balance at year end 6,855 (2,614) 7,120 (2,489) 5,802 (2,045)
incl. acquisitions financed under capital lease: 3 16 7
The increase in 2002 basically came from investments in the Louis Vuitton retail network,especially in Japan, and in the renovation of shops and kiosks.
The principal assets sold during the period included the buildings located in Paris, especiallythe former head office and the bare bones of the stores on the Champs Elysées and certainassets of Pommery.
This item includes the effect of store closings, especially DFS and Sephora Japan.
The principal currency fluctuations resulted from changes in the dollar.
Acquisitions in 2000 and 2001 primarily concerned investments in the Louis Vuitton, DFSand Sephora retail networks.
The impact of changes in consolidation is due primarily to the consolidation of LaSamaritaine for 471 million euros (which consisted of 245 million euros for land and 225 million euros for buildings).
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NOTE 11 - GOODWILL AND SIMILAR INTANGIBLE ASSETS
millions of euros 2002 2001 2000
Amortization Gross Depre- Gross Depre- Gross Depre-period value ciation value ciation value ciation
Amor- Amor- Amor-tization tization tization
DFS 20 1,996 (675) 1,996 (581) 2,061 (206)
Sephora 5 to 20 590 (119) 587 (83) 583 (54)
Louis Vuitton 40 365 (63) 365 (54) 365 (46)
Fendi (1) 20 351 (28) 228 (10) 92 (2)
Miami Cruiseline 20 318 (48) 378 (38) 359 (18)
Donna Karan (1) 20 214 (11) – – – –
Millennium 15 68 (2) – – – –
Laflachère 25 65 (10) 65 (8) 63 (5)
La Samaritaine 20 59 (6) 57 (3) – –
eLuxury 3 38 (13) 45 – – –
Phillips – – – 123 (123) 95 (3)
Other – 485 (206) 508 (191) 428 (158)
Total 4,549 (1,181) 4,352 (1,091) 4,046 (492)
Goodwill 79 (43) 54 (24) 53 (13)
Total 4,628 (1,224) 4,406 (1,115) 4,099 (505)
(1) See note 1: Significant facts and changes in the scope of consolidation.
The goodwill on Sephora includes the value of selective retailing brands in Perfumes andCosmetics: “Sephora”, present in several European countries, as well as “Carmen”, “Laguna”and “Boïdi” in Italy, and “Beauty Shop” (Marinopoulos Group) in Greece.
The goodwill on Louis Vuitton does not represent a price paid for acquiring the brand,because this was developed by the Group. It is the result of successive acquisitions ofminority interests in the various legal structures of the Louis Vuitton sub-group.
DFS Goodwill:
Each of the global crises since LVMH took control of DFS - the economic crisis in SoutheastAsia and the tragic attacks on the World Trade Center - have had temporary, serious effectson the level of business and income of DFS.
Furthermore, the economic situation in Japan, the significant changes taking place acrossthat country and the yen-dollar exchange rate, especially in 2001, permanently reduced thenumber of Japanese tourists, DFS’s principal clientele, and lowered their purchasing power.
In order to determine both the durable drop in business activity and profitability of DFS, andthe greatest income swings compared to what was expected when the Group acquired DFS,it was decided in 2001: • to take an exceptional charge of 323 million euros, bringing the net book value of goodwillto a level that can be justified by realizable future cash flows; • to reduce the total amortization period for goodwill from 40 years to 20 years. The net bookvalue on December 31, 2001 of 1,415 million euros will thus be amortized by 1/15th.
Valuation methods for goodwill are the same as those described in note 12 for brands.
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NOTE 12 - BRANDS AND OTHER INTANGIBLE ASSETS
millions of euros 2002 2001 2000
Gross Depre- Gross Depre- Gross Depre-value ciation value ciation value ciation
Amor- Amor- Amor-tization tization tization
Brands (*) 8,862 (91) 8,882 (21) 7,979 (5)
Leasehold rights 199 (62) 213 (72) 137 (38)
Other 307 (209) 297 (198) 248 (143)
Total 9,368 (362) 9,392 (291) 8,364 (186)
(*) Brands break down as follows:
millions of euros 2002 2001 2000
Gross Depre- Gross Depre- Gross Depre-value ciation value ciation value ciation
Amor- Amor- Amor-tization tization tization
Louis Vuitton 2,058 – 2,058 – 2,058 –
Hennessy 1,067 – 1,067 – 1,067 –
Tag Heuer 854 – 837 – 823 –
Moët 732 – 732 – 732 –
Parfums Christian Dior 610 – 610 – 610 –
Guerlain 441 – 441 – 441 –
Fendi (1) 809 (2) 809 – 404 –
Donna Karan New York (1) 494 – 460 – – –
Céline 351 (70) 351 – 351 –
Veuve Clicquot 244 – 244 – 244 –
Parfums Givenchy 152 – 152 – 152 –
Ebel 125 – 123 – 125 –
Loewe 122 – 122 – 122 –
Château d’Yquem 108 – 108 – 108 –
Krug 100 – 100 – 100 –
Other (< 100 M€) 595 (19) 668 (21) 642 (5)
Total 8,862 (91) 8,882 (21) 7,979 (5)
(1) See note 1: Significant facts and changes in the scope of consolidation.
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The “acquired” brands not detailed in the “other” item above are primarily:
• Wines and Spirits: Canard-Duchêne, Newton Vineyards, MountAdam, Ruinart and Mercier;
• Fashion and Leather Goods: Givenchy, Kenzo, Christian Lacroix, Berluti, Thomas Pinkand Pucci;
• Perfumes and Cosmetics: Parfums Kenzo, Bliss, Make Up For Ever, Benefit Cosmetics andFresh;
• Watches and Jewelry: Zenith, Fred, Chaumet and Omas;
• Other activities: La Tribune and Investir newspapers.
• The value of a brand is determined mainly by the cash flow method, that is, from theprojected cash flows attributable to it. However, other methods are used to correct theresults from projected cash flows: the royalties method, which gives the brand a value equalto the capitalization of the royalties which must be paid to use it; the margin differentialmethod, which applies only to cases where it is possible to measure the revenue generated bya brand compared to an unbranded product; the replacement cost method for an equivalentbrand, especially in terms of advertising expenses; finally, the comparison method, whichuses multiples of net sales and income from transactions involving similar brands or multiplemarkets applicable to the activities concerned.
In the cash flow method, the projected data used comes from budgets and plans drawn up bythe companies using the brands. The projected cash flows from these documents is updatedand, if necessary, weighted as a function of the probability of each of the scenarios underconsideration occurring. The discount rate used integrates the rate of return expected by aninvestor in the business field concerned and the risk premium appropriate to that business.
The same methods are used to valuate goodwill.
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NOTE 13 - OTHER BORROWINGS AND FINANCIAL DEBT A - Type of financial debt
Swap toInterest floating
millions of euros rate rate Maturity 2002 2001 2000
Bonds issues
Public issues:
EUR 500,000,000 - 2001 6.125% total 2008 500 500 –
FRF 1,500,000,000 - 1996 5.25% total 2002 – 229 229
2,821 3,177 1,977Private placements in the EMTN (Euro Medium Term Notes) program:
EUR 8,000,000 - 2002 0.00% total 2004 8 – –
EUR 50,000,000 - 2002 variable total 2004 50 – –
JPY 3,000,000,000 - 2002 variable – 2004 24 – –
JPY 500,000,000 - 2002 0.66% – 2004 4 – –
EUR 130,000,000 - 2001 variable – 2003 130 130 –
EUR 150,000,000 - 2001 variable – 2002 – 150 –
SGD 125,000,000 - 2001 4.00% total 2006 66 79 –
EUR 55,000,000 - 2001 variable – 2006 55 55 –
JPY 3,000,000,000 - 2001 0.16% – 2002 – 26 –
JPY 2,400,000,000 - 2001 0.15% – 2002 – 21 –
EUR 20,000,000 - 2001 variable – 2002 – 20 –
JPY 2,000,000,000 - 2001 0.65% total 2004 19 19 –
JPY 1,500,000,000 - 2001 0.95% total 2006 14 14 –
JPY 1,500,000,000 - 2001 0.21% total 2002 – 14 –
JPY 1,100,000,000 - 2001 variable total 2006 10 10 –
JPY 1,000,000,000 - 2001 variable total 2006 9 9 –
EUR 120,000,000 - 2000 variable – 2002 – 120 120
SGD 100,000,000 - 2000 3.55% total 2001 – – 64
EUR 60,000,000 - 2000 variable – 2001 – – 60
EUR 40,000,000 - 2000 variable – 2004 40 40 40
EUR 30,000,000 - 2000 variable – 2005 30 30 30
EUR 25,000,000 - 2000 variable – 2002 – 25 25
EUR 18,500,000 - 2000 variable – 2001 – – 19
HKD 100,000,000 - 2000 variable total 2003 15 15 15
474 777 373
Financial lease liabilities and long-term rentals 2003 to 2008 144 178 166
Other financial debt 2003 to 2008 1,476 1,610 1,314
Total 4,915 5,742 3,830
Short-term portion (5) (360) (340) (331)
Long-term portion 4,555 5,402 3,499
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Unless otherwise indicated, bonds are redeemable at par “at maturity”.
(1) 2001 bond for 850 million euros, bearing interest at the rate of 5.375%, issued as follows: • First tranche of 800 million euros, issued at 99.616% of par value,• Second tranche of 50 million euros, issued at 101.036% of par value.
(2) 2000 bond for 600 million euros, bearing interest at the rate of 5.75%, issued as follows: • First tranche of 400 million euros, issued at 99.513% of par value,• Second tranche of 150 million euros, issued at 98.563% of par value,• Third tranche of 50 million euros, issued at 98.846% of par value.
(3) 1999 bond for 800 million euros, bearing interest at the rate of 5.00%, issued as follows: • First tranche of 500 million euros, issued at 99.515% of par value,• Second tranche of 200 million euros, issued at 97.395% of par value,• Third tranche of 100 million euros, issued at 96.653% of par value.
(4) Indexed bond issued in 1988 for FRF 1,300,000,761 at 100% of par value, linked to a benchmark LVMH stockprice per share of 42.33 euros. This bond is fully redeemable on maturity at the greater of par value or the averageof the last 10 stock prices before May 1, 2005. This bond carries an option to be redeemed in advance in favor ofthe bearer between May 15, 2002, and April 15, 2005, based on the LVMH stock price. Within this framework,LVMH has redeemed a total of 127 million euros during 2002. The swaps that fully transformed this bond into anon-indexed, floating-rate debt were canceled to the extent due.
(5) At December 31, 2002, unused long-term irrevocable credit lines exceeded 1.8 billion euros. Because of thesecommitments, a fraction of the current portion of long-term debt was maintained under long-term debt, representing130 million euros. In addition, short-term drafts worth 573 million euros (579 million euros at December 31, 2001; 272 million eurosat December 31, 2000) were reclassified under long-term financial debt, because of the contractual nature of thedraft renewal rights.
The collection of bond issues in foreign currencies led to the signing of swaps contracts upon bond issuance toconvert them into bonds in euro, except for the bond for SGD 125,000,000, which was converted into dollars. Theseswaps contracts upon issue may have been supplemented by subsequent rate-hedging transactions (see note 16 B).
The market value of the bonds at December 31, 2002 was 3,530 million euros for a par value of 3,446 million euros,based on the interest rates in the issue contracts. If one takes into account the subsequent hedging operations stillopen at year end, the market value of these bonds is 3,381 million euros.
None of these loans required guarantees or collateral vis-à-vis the lending agencies.
B - Analysis by maturity and currency
millions of eurosBefore After
Maturity 2002 Devises swap swap
2003 360 Euro 4,050 4,160
2004 1,696 Yen, Japan 167 115
2005 937 Dollar, US 401 467
2006 1,038 Franc , Switzerland 5 5
2007 249 Dollar, Singapore 66 –
2008 and beyond 635 Dollar, Hong Kong 192 145
Other currencies 34 23
Total 4,915 Total 4,915 4,915
Taking into account the swaps contracts in place on December 31, 2002, 51% of the debtabove is at a fixed rate or a capped variable rate and the remaining 49% is at a variable rate.
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NOTE 14 - SHORT-TERM BORROWINGS AND BANK OVERDRAFTS:ANALYSIS BY TYPE AND BY CURRENCY
Before Aftermillions of euros 2002 2001 2000 swaps swaps
Commercial paper (1) 1,447 2,837 3,670 Euro 3,105 1,318
Other lines of credit 1,667 1,610 2,148 Yen, Japan 260 227
Bank overdrafts 504 603 619 Dollar, US 11 835
Pound Sterling 1 107
Franc, Switzerland – 881
Other currencies 241 250
Total short-termborrowings 3,618 5,050 6,437 3,618 3,618
(1) Commercial paper concerns LVMH.
At December 31, 2002, the unused and secured short-term credit lines totaled about 2 billioneuros.
Advances and down payments received from customers 119 116 116
Deferred payments on tangible assets or long-term investments 156 235 70
Reorganization allowance 108 171 154
Other provisions for risks and contingencies 286 202 217
Allowance for returned stock 97 116 119
Prepaid income 45 20 73
Other liabilities 1,066 1,073 824
Total 2,746 2,763 2,856
The balance of “currency hedging” primarily consists of unrealized losses from therevaluation of currency hedging contracts at year end. In the case of an unrealized gain, it isthe prepaid income resulting from the difference (see note 7).
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During 2002, the provisions for reorganization and for risks and contingencies changed asfollows:
Changes Other (incl.Dec. 31, Set aside Used Reversed in conso- diff. on Dec. 31,
Balance at December 31 (millions of euros) 2002 147 75
2001 195 89
2000 245 101
In 1990 and 1992, LVMH issued two series of subordinated notes (“repackaged subordinatednotes”) outside France, with the following features:
• Repayable at par value only in the event of liquidation or voluntary dissolution of LVMH,except from a merger or spin-off;
• Principal payments subordinated to the full payment of all other creditors;
• Option of suspending interest payments if specific financial ratios are not achieved.
In 1996, an amendment to the 1990 repackaged subordinated notes agreement eliminated thesecond and third of the aforementioned conditions. These notes were then reclassified underdebt as repackaged notes. The repackaged notes issued in 1992 were simultaneouslyreclassified as a result of the pari-passu clause in their agreement.
Although there are no fixed repayment terms, the repackaged notes are recorded on thebalance sheet for an amount that will be progressively reduced to nil value at the end of 15 years, because of agreements with third parties.
In accordance with these agreements and in return for an initial lump sum payment byLVMH, the third-party companies have promised to hold or to repurchase the notes fromnote holders after a 15-year period, and have agreed to relinquish any rights to interest onthese notes after that time.
According to these arrangements:
• The repackaged notes have been recorded in the balance sheet at par value upon issue, afterdeducting the aforementioned payments; each year, these notes are amortized by the amountof income generated by the investments the third-party companies make with thesepayments;
• The consolidated income from each year funds the interest expense borne on the par value,after the amortization.
The repackaged notes issued in 1990 at a variable rate were subject to a swap transformingthem to a fixed rate of 469 million euros.
The market value of the repackaged notes on December 31, 2002 totaled 154 million eurosbased on the interest rates in the issue contracts, and 266 million euros if one takes intoaccount the related rate-hedging operations still in place at year end.
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NOTE 17 - OTHER MEDIUM- AND LONG-TERM LIABILITIES ANDPROVISIONS
millions of euros 2002 2001 2000
Provisions for retirement plans, medical expenses and similar liabilities (1) 179 258 218
Provisions for risks and contingencies 480 548 658
Reorganization allowance 80 160 64
Provisions for employee profit-sharing (2) 51 50 57
Deferred payments for equity investments 182 114 49
Other liabilities 179 192 119
Total 1,151 1,322 1,165
(1) The provisions for retirement plans, medical expenses and similar liabilities are explained in note 29. OnDecember 31, 2002, the dedicated financial assets hedging these commitments were deducted from the latter.On December 31, 2001 and 2000, these dedicated financial assets were 81 and 72 million euros, respectively.
(2) French companies only.
The provisions for risks and contingencies correspond to the estimated impact on equity ofthe actual or probable risks, disputes, and disputed claims resulting from Group activities.These are carried out at an international level, in a regulatory context that is often imprecise,varying by country and in time. They apply to areas as varied as the composition of productsor the calculation of taxes.
During 2002, provisions for risks and contingencies and for reorganization changed asfollows:
Changes Other (incl.Dec. 31, Set aside Used Reversed in conso- diff. on Dec. 31,
Provisions for risks and contingencies 548 83 (82) (17) (22) (30) 480
Total 708 100 (126) (22) (28) (72) 560
including:
• Income from operations 18 NA (6) – –
• Other income and expenses 82 NA (16) – –
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NOTE 18 - CAPITAL STOCK - CHANGES IN SHAREHOLDERS’EQUITY AND MINORITY INTERESTS
A - Capital stock
On December 31, 2002, capital stock consisted of 181,727,048 shares (including 17,484,389 shares with double voting rights).
There are no more shares to issue for stock options as authorized by the Annual Meeting ofMay 30, 1996.
The number of shares issued in 2002 totaled:
• 6,000 shares through the exercise of stock options for 129,000 euros.
In 2000, 2001 and 2002, Christian Dior respectively acquired 534,464, 461,664 and 490,200of its own shares and sold 10,000 in 2000, 88,000 in 2001 and 26,164 in 2002. The Board ofDirectors granted the following stock options for a total of 2,863,900 shares:
• At its meeting of October 14, 1996: 378,400 shares at a unit price of 25.95 euros per share,to be exercised between December 1, 1999 and November 30, 2006 to the company’sexecutives and executives of subsidiaries and sub-subsidiaries;• At its meeting of May 29, 1997: 391,600 shares at a unit price of 32.01 euros per share, tobe exercised between May 30, 2002 and May 29, 2007 to the company’s executives andexecutives of subsidiaries and sub-subsidiaries;
• At its meeting of November 3, 1998: 393,600 shares at a unit price of 18.29 euros per share,to be exercised between November 4, 2003 and November 3, 2008 to the company’sexecutives and executives of subsidiaries and sub-subsidiaries; • At its meeting of January 26, 1999: 358,000 shares at a unit price of 25.36 euros per share,to be exercised between January 25, 2004 and January 24, 2009 to the company’s executivesand executives of subsidiaries and sub-subsidiaries;
• At its meeting of February 15, 2000: 400,800 shares at a unit price of 56.70 euros per share,to be exercised between February 15, 2005 and February 14, 2010 to the company’sexecutives and executives of subsidiaries and sub-subsidiaries; • At its meeting of February 21, 2001: 437,500 shares at a unit price of 45.95 euros per share,to be exercised between February 21, 2004 and February 20, 2011 to the company’sexecutives and executives of subsidiaries and sub-subsidiaries;
• At its meeting of February 18, 2002: 504,000 shares at a unit price of 33.53 euros per share,to be exercised between February 18, 2005 and February 17, 2012 to the company’sexecutives and executives of subsidiaries and sub-subsidiaries.
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B - Changes in shareholders’ equity and minority interests
millions of euros 2002 2001 2000
Group Mino- Group Mino- Group Mino-rities rities rities
At January 1 3,788 8,658 3,972 8,374 3,887 7,807
Income for the period 178 459 (95) 97 251 636
Dividends and advances paid (51) (222) (51) (369) (51) (255)
Impact of foreign currency translation in financial statements of foreign companies (36) (86) (4) 5 (6) (2)
Christian DiorJune 11, 1993 May 30, 1996 2,250 2 21.49 6,000 –
Purchase plansMeeting date Grant Number Number Exercise Number Outstanding
date of options of bene- price of options options atgranted ficiaries (in euros) exercised December 31
(1) (2) (3) in 2002 (2) 2002 (2)
LVMHMay 25, 1992 March 17, 1993 49,681 548 15.40 2,623 61,512May 25, 1992 March 16, 1994 139,031 364 17.84 3,560 1,594,680May 25, 1992 June 17, 1994 1,250 1 17.68 – 7,565 May 25, 1992 March 22, 1995 256,903 395 20.89 17,750 431,870June 8, 1995 May 30, 1996 233,199 297 34.15 35,375 761,720June 8, 1995 May 29, 1997 233,040 319 37.50 58,590 1,069,220June 8, 1995 January 29, 1998 269,130 346 25.92 49,885 1,265,845June 8, 1995 March 16, 1998 15,800 4 31.25 – 86,900June 8, 1995 January 20, 1999 320,059 364 32.10 56,845 1,684,035June 8, 1995 September 16, 1999 44,000 9 54.65 – 220,000June 8, 1995 January 19, 2000 376,110 552 80.10 – 1,879,550May 17, 2000 January 23, 2001 2,649,075 786 65.12 – 2,606,075May 17, 2000 March 6, 2001 40,000 1 63.53 – 40,000May 17, 2000 May 14, 2001 1,105,877 44,669 66.00 – 1,105,877May 17, 2000 May 14, 2001 552,500 4 61.77 – 552,500May 17, 2000 September 12, 2001 50,000 1 52.48 – 50,000May 17, 2000 January 22, 2002 3,284,100 993 43.30 – 3,276,500May 17, 2000 May 15, 2002 8,560 2 54.83 – 8,560
Christian DiorMay 30, 1996 October 14, 1996 94,600 21 25.95 2,000 282,400May 30, 1996 May 29, 1997 97,900 22 32.01 – 389,600May 30, 1996 November 3, 1998 98,400 23 18.29 – 391,600May 30, 1996 January 26, 1999 89,500 14 25.36 – 358,000May 17, 2000 February 15, 2000 100,200 20 56.70 – 400,800May 14, 2001 February 21, 2001 437,500 17 45.95 – 437,500May 15, 2002 February 18, 2002 504,000 24 33.53 – 504,000
Total 19,466,309
(1) Number of options at the issuance of the plan, not restated to reflect the subsequent adjustments resultingfrom the one-for-ten bonus share allotments in July 1994 and June 1999, the five-for-one splits in March1994 and July 2000, for LVMH, and the four-for-one split in July 2000 for Dior.
(2) Adjusted to reflect the transactions referred to in (1) above.
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(3) Figures prior to 1999 were converted into euro from data originally recorded in francs.
Number of options 2002 2001 2000
Outstanding options at January 1 15,993,732 12,148,265 2,168,189
Five-for-one stock split (LVMH) – – 6,682,156
Four-for-one stock split (Dior) – – 1,492,950
Options granted 3,801,860 4,834,952 2,281,350
Options exercised (268,923) (985,410) (473,120)
Expired options (55,160) (4,075) (3,260)
Outstanding options at December 31 19,471,509 (4) 15,993,732 (5) 12,148,265 (6)
(4) incl. 16,702,409 LVMH shares 2,763,900 Christian Dior shares allocated to purchase plans in effect 5,200 Christian Dior shares allocated to future plans
(5) incl. 13,725,832 LVMH shares 2,267,900 Christian Dior shares
(6) incl. 9,769,865 LVMH shares 2,378,400 Christian Dior shares
NOTE 20 - DESIGN COSTS
Design costs posted as expenses for the year amounted to 31 million euros in 2002 (25 millionin 2001; 55 million in 2000). These figures cover expenses linked to design studios, designerfees, costs of manufacturing prototypes for collections and new products.
NOTE 21 - RESEARCH AND OF DEVELOPMENT COSTS
Research and development costs amounted to 36 million euros in 2002 (27 million in 2001;21 million in 2000). These amounts cover costs incurred in scientific research and newproduct development.
Research and development costs extended to “packaging” and “design” amounted to 47 million euros in 2002 (37 million euros in 2001; 40 million euros in 2000).
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NOTE 22 - FINANCIAL PROFIT/LOSS
millions of euros 2002 2001 2000
Financial expenses (526) (728) (571)
Financial income 194 222 127
Income from sale of short-term securities 9 (33) 7
Depreciation allowance for short-term securities (3) 17 (17)
Foreign exchange income (7) 23 (13)
Total (333) (499) (467)
including financial expenses paid during the period (535) (702) (564)
A - Exposure to foreign currency risks and hedging
1 - In the Group’s French companies, foreign currency risks relate mainly to commercialtransactions (net sales in foreign currency) and, to a lesser extent, to financial operations(investments, foreign currency financing).
Commercial operations: some Group subsidiaries realize a considerable portion of theircommercial transactions in foreign currency.
For example, 2002 sales revenue was received in the following currencies:
millions of euros Value %
Euro 4,221 32Dollars US 4,223 32Yen 2,060 16Dollars HK 520 4Pounds Sterling 546 4Other currencies 1,598 12
Net sales 13,168 100
Excluding the hedging effect, a 1% fluctuation in the major currencies (USD, JPY, HKD,GBP) would have caused a change in net income of 47 million euros.
Financial operations: certain financial operations, such as loans, may be in foreigncurrencies based on anticipated future revenues in foreign currency or changes in exchangerates.
Various financial instruments are used to hedge against exchange rate risk, such as foreigncurrency swaps, futures contracts and currency options.
In accordance with the currency translation methods stated in the accounting principles (note2.2), the hedging instruments used are assigned either to trade receivables or debts, or toestimated transactions for the following year.
The unrealized gains or losses from translation revalued at the December 31 exchange rateare:
• Recorded in the income statement when they concern hedging instruments assigned toreceivables or liabilities;
• Deferred if they are designated as hedges for transactions for the following period.
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All the hedging contracts in place on December 31, 2002, in all currencies and at exchangerates in force on December 31, 2002, are shown below by type and by amounts of capitalhedged:
millions of euros Hedging amounts assigned to DeferredRevaluation at the December 31, 2004 and income Market2002 rate 2002 2003 beyond (expenses) value
At December 31, 2001, deferred income totaled 135 million euros (175 million in 2000).
2 - Income from subsidiaries with accounts denominated in GBP-, JPY- and USD-indexedcurrencies account for 543 million euros of consolidated net income, excluding unusual items.A 10% fluctuation in the exchange rate of these currencies would have an impact of 62 millioneuros on the consolidated operating income and 54 million euros on consolidated net income.
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B - Exposure to interest rate risks and hedging
Various financial instruments are used to hedge exchange rate risks: rate swaps, caps, etc.The type of hedging contracts in place on December 31, 2002 and the amount of hedgedcapital are analyzed below, in millions of euro:
Taking into consideration the above instruments, capped fixed-rate or floating-rate debt(including repackages notes) represents about 42% of total consolidated debt.
Under these conditions, an interest rate fluctuation of 1% would affect net income by 53 million euros.
NOTE 23 - OTHER NET INCOME AND EXPENSES
In 2002:
• Other income and expenses include especially the following: a net capital gain of 55 millioneuros from the sales of the Pommery, Hard Candy and Urban Decay brands, various realestate assets and the investments in Fininfo and Grand Marnier; a supplemental provision of200 million euros for the Bouygues securities; a non-recurring write-down of assets for 116 million euros, including 41 million euros for inventories and 55 million euros forintangible assets. Other income and expenses also include net income of 17 million eurosfrom the sales of LVMH shares and changes to the reserves for these securities, and a totalof 161 million euros primarily related to provisions for the costs of restructuring thedistribution network of Moët Hennessy in certain countries, to the complete divesting ofPhillips capital and to the closing of some shops.
In 2001:
• Other income and expenses include the profits from the LVMH stock portfolio: 39 millioneuros in capital gains from sales, and 343 million euros from a write-down reserve forsecurities held at year end. This items also includes accelerated depreciation of inventoriesof PLV articles in the Perfumes and Cosmetics branch, and the write-down of various assets,especially shares of unconsolidated investments.
In 2000:
• Other net income and expenses essentially include 115 million euros from the sale ofLVMH shares.
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NOTE 24 - INCOME TAXES
millions of euros 2002 2001 2000
Current income taxes (502) (456) (682)Deferred income taxe 146 262 47
Total (356) (194) (635)
In 2000, the French companies were subject to a surtax of 13%, reduced to 9.3% in 2001 and6.3% in 2002. This surtax resulted in an additional tax expense of 10 million euros in 2002 (8 million in 2001; 45 million in 2000).
At December 31, 2002, the Group had available unused operating losses to carry forward1,926 million euros (1,903 million in 2001 and 1,775 million in 2000), including 685 millioneuros in period losses (693 million euros in 2001 and 476 million in 2000).
Tax sharing agreements allow certain French companies of the Group to combine their taxableresults to determine the overall tax expense for which only the parent company is fully liable.
The application of these agreements allowed the Christian Dior group to record income taxsavings of 325 million euros on December 31, 2002 (313 million in 2001; 64 million in 2000).
Main components of deferred taxes:
• On the statement of incomemillions of euros 2002 2001 2000
Deferred foreign exchange gains and losses (2) (21) 21Inter-company profits included in inventories 4 2 20Valuation changes 16 7 8 Provisions for risks and contingencies and depreciation of assets 5 (20) (12)Other adjustments and consolidation entries 12 31 23Unrealized capital gains and losses 8 27 –Losses carried forward 103 246 –Impact of income tax changes – (10) (13)
Credit for the year 146 262 47
• On the balance sheetmillions of euros 2002 2001 2000
Inter-company profits included in inventories 144 153 146Valuation changes (280) (271) (145)Provisions for risks and contingencies and depreciation of assets 93 95 79Consolidation adjustments (1) 34 26 96Unrealized capital gains and losses 58 48 (8)Losses carried forward 376 248 (4)Other 6 33 (9)
(1) Primarily regulated reserves, supplementary amortization for tax purposes and finance lease.
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Analysis of the difference between the effective tax rate and the French statutory tax rate:
The reconciliation between the French statutory tax rate applied to French companies andthe effective tax rate recorded in the consolidated financial statements breaks down asfollows:
(as % of income before tax ) 2002 2001 2000
• French statutory tax rate 33 1/3 33 1/3 33 1/3
• Temporary supplemental income tax applicable to French companies 0.83 3.24 2.8
• Impact of differences between foreign and French tax rates (1.14) (5.10) (4.0)
• Losses from subsidiaries or from tax consolidation (4.40) (2.07) 9.6
• Impact of differences between consolidated,taxable incomes and incomes taxed
at a reduced rate (1.20) 2.10 (3.8)
• Impact of withholding at the source 0.74 1.00 0.5
Effective tax rate 28.16 32.50 38.4
NOTE 25 - NET GOODWILL AMORTIZATION
millions of euros 2002 2001 2000
Companies consolidated by:
• Full consolidation (251) (151) (131)
• The equity method (2) (8) –
Total (253) (159) (131)
See note 26: Unusual items, for the amortization charge recorded in this account and note 1:Significant facts and changes in the scope of consolidation.
NOTE 26 - UNUSUAL ITEMS
In 2001:
Unusual items included income of 864 million euros from Gucci, including a capital gain of774 million euros from the sale of these Gucci shares and an exceptional dividend of 90 million euros recorded during the fourth quarter of the year. Negative unusual itemsincluded a restructuring provision of 446 million euros, including 385 million euros forselective retailing. Exceptional asset depreciation or amortization expenses of 480 millioneuros were also recorded: they included 323 million euros for DFS goodwill, 82 million eurosfor the Bouygues investment, and 60 million euros for media and telecommunicationsinvestments. The accounts at December 31, 2001 also showed an expense of 141 millioneuros related to the sale of Phillips, de Pury & Luxembourg to its current management. Thisexpense mainly corresponds to the full amortization of the goodwill.
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In 2000:
Unusual items included 78 million euros in capital gains from the sale of shares, particularlyDiageo shares, 87 million euros set aside as depreciation allowance for investments or fundsin the e-business activity, and 57 million euros in exceptional costs incurred to develop thePhillips business and promote its image.
The rest of “unusual items” corresponds to exceptional changes in the provisions for risks and contingencies.
NOTE 27 - COMMITMENTS AND CURRENT LITIGATION
A - Purchase commitments
millions of euros 2002 2001 2000
Grapes, wines and distilled alcohol 429 413 407
Industrial or commercial assets 104 80 111
Investment shares (1) 756 975 1 093
(1) Including the impact of “events after year end close” described in note 28.
In the Wines and Spirits business group, some companies have contractual agreements withvarious local growers to supply a portion of their future requirements for grapes, light wineand distilled alcohol. Depending on the business, these commitments are based oncontractual terms or the latest known prices and anticipated yields. They mainly cover theyears 2003 and 2004.
The commitments to purchase investment shares represent contract commitments enteredinto by the Group to purchase minority interests in consolidated subsidiaries or additionalinterest in unconsolidated subsidiaries, or additional payments of the price of realizedtransactions.
The total does not include the Memorandum of Understanding signed on January 20, 1994by LVMH and Diageo, according to which LVMH committed to repurchase the Diageo 34%investment in Moët Hennessy, with a six-month notice and for an amount equal to 80% ofthe investment value at the date of the notice. On the date of the Memorandum, the Diageoinvestment in Moët Hennessy was assessed at more than 1.2 billion euros.
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B - Securitization of trade receivables
millions of euros 2002 2001 2000
Receivables from the Dailly sale 260 260 123
Because of a possible recourse by the assignee vis-à-vis LVMH for 100 million euros in theevent of non-payment by the debtor of the receivable sold, net financing in place onDecember 31, 2002 was 160 million euros (158 million on December 31, 2001, 60 million onDecember 31, 2000).
C - Lease commitments and similar
At December 31, 2002, the Group was using 1,670 stores worldwide, especially for theFashion and Leather Goods and Selective Retailing groups. In many countries, rentals forthese stores are contingent on payment of minimal amounts, especially when the leasesinclude revenue-indexed rent clauses. This is particularly true in cases where airportconcession fees are paid. In addition, the leases may also include nonadjustable minimumdurations.
The Group also finances part of its equipment through simple, long-term operating leases.
Lastly, some capital assets or manufacturing equipment were acquired or refinanced throughfinance-lease or lease-back agreements.
At December 31, 2002, future non-cancelable commitments arising from these contractsbroke down as follows:
millions of euros 2002 2001 2000
Simple leases 2,387 2,092 1,800
Concession fees 916 1,041 973
Capital lease fees 531 192 184
Lease commitments 3,834 3,325 2,957
Amounts representing interests (387) (14) (18)
Current value of lease commitments 3,447 3,311 2,939
D - Deposits, pledges and other guarantees millions of euros 2002 2001 2000
Guarantees givenDeposits and pledges 142 66 101Mortgages and collateral 95 278 314Other guarantees 49 155 84
Guarantees received 12 15 27
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E - Commitments outstanding at December 31, 2002
Total less than 2 to 4 to beyondmillions of euros 1 year 3 years 5 years 5 years
Commitments to purchase materials 429 212 143 64 10
Commitments to purchase assets 104 93 7 4 -
Commitments to purchase securities (*) 756 373 55 225 103
Deposits, pledges and other guarantees given 286 116 7 17 146
(*) When the maturity of a commitment is conditional, it is considered to mature beyond 5 years.
F - Other commitments
To the knowledge of the Group, there are no off-balance sheet commitments other than thosedescribed above.
G - Possible liabilities and current disputes
In the ordinary course of its business, the Group is a party from time to time to legalproceedings and claims involving trademarks and intellectual property, selective retailingagreements, licensing, employee relations, tax audits and other matters incidental to itsbusiness. The Group estimates that the provisions included in the balance sheets related tolitigation and disputes known or in-process at December 31, 2002 are sufficient to cover anyunfavorable outcome, so that the Group financial position would not be significantly affected.
NOTE 28 - EVENTS THAT OCCURRED AFTER THE YEAR END
• During the first quarter of 2003, LVMH brought its stake in Fendi to 84.1%, by purchasingshares representing 17.2% of the share capital for a total of 190 million euros.
• In February 2003, LVMH:
- Sold its 36% interest in Michaël Kors for USD 13.9 million;
- Sold its remaining 27.5% interest in Phillips, for a token USD 1.00. This transaction hadno effects beyond those recorded in 2002;
- Increased its stake in Rossimoda from 45% to 97%, for 32.5 million euros.
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NOTE 29 - EMPLOYEE INFORMATION
Payroll charges totaled 2,336 million euros (2,310 million in 2001; 2,041 million in 2000).
The average number of employees in 2002 was 55,314 (54,463 in 2001; 48,524 in 2000).
At December 31, the staffing of fully consolidated companies was as follows:
By business group 2002 2001 2000
Christian Dior Couture 1,728 1,383 1,195
Wines and Spirits 4,801 5,089 5,154
Fashion and Leather Goods 16,323 13,402 11,006
Perfumes and Cosmetics 13,006 13,087 12,758
Watches and Jewelry 2,366 2,233 1,830
Selective Retailing 18,243 18,542 18,540
Other activities 1,074 1,443 1,840
Total 57,541 55,179 52,323
By geographic region 2002 2001 2000
France 20,990 20,399 19,009
Europe (excluding France) 10,871 10,194 9,150
U.S.A. 13,050 12,235 12,240
Japan 4,043 3,591 3,036
Asia Pacific 8,587 8,760 8,888
Total 57,541 55,179 52,323
By category 2002 2001 2000
Labor and production 9,084 9,116 8,447
Office and clerical 32,710 31,730 29,781
Technical 5,735 5,066 4,767
Executives and management 10,012 9,267 9,328
Total 57,541 55,179 52,323
Compensation
Compensation paid to Christian Dior directors and officers for their duties in consolidatedcompanies totaled 9,039 thousand euros.
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Expenses and provisions for retirements, medical costs and similar liabilities
• Analysis of the provisions on the balance sheet
millions of euros 2002 2001 2000
Current value of entitlements 353 294 256
Market value of the dedicated financial assets (1) (136) (113) (107)
Unrecognized actuarial differences (38) (4) (3)
Provision to the balance sheet 179 177 146
(1) See note 17: other medium- and long-term liabilities and provisions.
• The changes in the commitments break down as follows:
Market CommitmentUpdated value of Unamor- appearing onvalue of financial tized the balance
millions of euros entitlements assets component sheet
Balance at December 31, 2000 256 (107) (3) 146
Net period expense 39 (7) 11 43
Benefits paid to beneficiaries (12) 7 – (5)
Increase in dedicated financial assets (payments) – (21) – (21)
Impact of exchange rate changes 5 (1) – 4
Impact of changes in consolidation 9 – – 9
Other (including actuarial differences and changes in treatment) (3) 16 (12) 1
Balance at December 31, 2001 294 (113) (4) 177
Net period expense 49 (6) 3 46
Benefits paid to beneficiaries (16) 8 – (8)
Increase in dedicated financial assets (payments) – (22) – (22)
Impact of exchange rate changes (20) 5 – (15)
Impact of changes in consolidation 1 – – 1
Other (including actuarial differences and changes in treatment) 45 (8) (37) –
Balance at December 31, 2002 353 (136) (38) 179
The actuarial assumptions used to estimate the commitments in the principal countries wherethe commitments are located, are as follows: Discount rate 2.50% in Japan, 3.00% to 4.50% in
France, 6.50% to 7.00% in the United States Expected long-term return on assets 4.00% in Japan, 4.50% in France,
8.70% in the United States Rate of increase of salaries 2.00% to 4.75%
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NOTE 30 - INFORMATION SPECIFIC TO BUSINESS GROUPS
1. Net salesmillions of euros 2002 2001 2000
Christian Dior Couture 492 350 296Wines and Spirits 2,266 2,232 2,336Fashion and Leather Goods 4,194 3,612 3,202Perfumes and Cosmetics 2,336 2,231 2,072Watches and Jewelry 552 548 614Selective Retailing 3,337 3,493 3,294Other activities, eliminations and restatements (9) 101 53
Total 13,168 12,567 11,867
2. Income from operations millions of euros 2002 2001 2000
Christian Dior Couture 33 (5) 14 Wines and Spirits 750 676 716 Fashion and Leather Goods 1,297 1,274 1,169Perfumes and Cosmetics 161 149 184Watches and Jewelry (13) 27 59Selective Retailing 20 (213) (65)Other activities, eliminations and restatements (214) (360) (110)
Total 2,034 1,548 1,967
3. Breakdown of assets millions of euros 2002 2001 2000
Christian Dior Couture 747 676 560Wines and Spirits 4,822 5,244 5,241Fashion and Leather Goods 6,184 5,371 4,483Perfumes and Cosmetics 2,450 2,543 2,568Watches and Jewelry 1,625 1,662 1,560Selective Retailing 4,477 5,054 5,147Other activities, eliminations and restatements 6,497 8,678 8,876
Total 26,802 29,228 28,435
4. Inventories and work-in-progressmillions of euros 2002 2001 2000
Christian Dior Couture 103 75 50 Wines and Spirits 1,912 2,018 1,953 Fashion and Leather Goods 459 395 280 Perfumes and Cosmetics 225 282 265 Watches and Jewelry 196 194 164Selective Retailing 524 590 657 Other activities, eliminations and restatements 103 173 62
Total 3,522 3,727 3,431
In 2002 Sephora.com was reclassified from “Other activities” to “Selective Retailing”. Thedata from 2000 and 2001 were restated to make them comparable to those of 2002.
94
NOTE 31 - INFORMATION BY GEOGRAPHIC REGION
millions of euros 2002 2001 2000
Exports from French companies 3,851 3,742 3,393Exports as a percentage of the sales of French companies 65% 65% 64%
Percentage of consolidated net sales earned outside France 83% 83% 85%
The information below is based on the geographic location of the Group companies:
All the companies below are fully consolidated except for those indicated by the number (2),which are consolidated under the equity method and those indicated by (1), which are conso-lidated on a proportionate basis.
PERCENTAGECOMPANIES HEAD OFFICE Control Interest
Christian Dior CoutureChristian Dior Couture SA Paris, France 100% 100%
S.A.M. Christian Dior Monaco 96% 96%
Christian Dior GmbH Munich, Germany 100% 100%
Christian Dior, Inc. New York, U.S.A. 100% 100%
Christian Dior Retail - UK Ltd London, United Kingdom 100% 100%
Christian Dior (Suisse) SA Geneva, Switzerland 100% 100%
Les Jardins d’Avron Paris, France 100% 100%
Mardi SpA Badia e Settimo, Italy 50% 50%
Ateliers AS (2) Pierre Bénite, France 25% 25%
Christian Dior Far East Hong Kong 100% 100%
Christian Dior Fashion Malaysia Kuala-Lumpur, Malaysia 100% 100%
Christian Dior Malaysia Ltd Kuala-Lumpur, Malaysia 100% 100%
Christian Dior Hong Kong Hong Kong 100% 100%
Christian Dior Taiwan Taipei, Taiwan 90% 90%
Christian Dior Singapore Singapore 100% 100%
Christian Dior Saipan Saipan, NMI 100% 100%
Christian Dior Australia Sydney, Australia 100% 100%
Christian Dior New Zealand Auckland, New Zealand 100% 100%
Christian Dior (Thailand) Bangkok, Thailand 100% 100%
Christian Dior KK Tokyo, Japan 100% 100%
Christian Dior Couture Korea Ltd Seoul, South Korea 100% 100%
Christian Dior Guam Ltd Agana, Guam 100% 100%
Montaigne Española Barcelona, Spain 100% 100%
CD do Brazil Sao Paulo, Brazil 100% 100%
CD Italia Milan, Italy 100% 100%
Christian Dior Belgique Brussels, Belgium 100% 100%
Bopel Spa Milan, Italy 70% 70%
Christian Dior Indonesia Jakarta, Indonesia 80% 80%
Carrera Traun (2) Traun, Austria 5% 5%
CD Puerto Banus Puerto Banus, Spain 75% 75%
JA LLC New York, United States 100% 100%
(2) Company consolidated under the equity method
96
Champagne Moët & Chandon SA Epernay, France 43% 28%
Champagne Ruinart SA Rheims, France 43% 28%
Champagne Ruinart UK Ltd Newhaven, United Kingdom 43% 28%
France Champagne SA Epernay, France 43% 28%
De Fresnoy SA Epernay, France 43% 28%
Moët Hennessy UK Ltd London, United Kingdom 43% 28%
Chandon SA Spain Sant Cugat, Spain 43% 28%
Moët & Chandon SA (Suisse) Geneva, Switzerland 43% 28%
Champagne Des Moutiers SA Oiry, France 43% 28%
Schieffelin Partner Inc. New York, U.S.A. 43% 28%
Moët Hennessy Mexico Mexico City, Mexico 43% 28%
Chamfipar SA Ay, France 43% 28%
Société Viticole de Reims (ex Champagne Pommery SA) Ay, France 43% 28%
Cie Française du Champagne et du Luxe (ex Champagne Pommery & Greno SA) Ay, France 43% 28%
Domaine Chandon Inc. Yountville (California), U.S.A. 43% 28%
M Chandon do Brasil Ltda Sao Paulo, Brazil 43% 28%
Bodegas Chandon SA Buenos Aires, Argentina 43% 28%
Domaine Chandon Australia, Pty Ltd Coldstream Victoria, Australia 43% 28%
Cheval des Andes (1) Argentina 21% 14%
Moët Hennessy Deutschland GmbH Munich, Germany 43% 28%
Moët Hennessy Italia SpA Turin, Italy 43% 28%
Schieffelin & Sommerset Inc. New York, U.S.A. 43% 28%
Schieffelin & Co Inc. New York, U.S.A. 43% 28%
MH UDV France SA Paris, France 43% 28%
Deux Rivières General Partnership (2) Yountville (California), U.S.A 43% 6%
Veuve Clicquot Ponsardin SA Rheims, France 43% 28%
Champagne Canard-Duchêne SA Ludes, France 43% 28%
Société Civile des Crus de Champagne Rheims, France 43% 28%
Neggma SA Rheims, France 21% 14%
Veuve Clicquot U.K. London, United Kingdom 43% 28%
Clicquot Inc. New York, U.S.A. 43% 28%
Cape Mentelle Vineyards Ltd Margaret River, Australia 43% 28%
Veuve Clicquot Properties, Pty Ltd Margaret River, Australia 43% 28%
Cloudy Bay Vineyards Ltd Adelaide, New Zealand 43% 28%
Scharffenberger Cellars Inc. Napa Valley (California) U.S.A. 43% 28%
(1) Company consolidated on a proportionate basis (2) Company consolidated under the equity method
PERCENTAGECOMPANIES HEAD OFFICE Control Interest
Wines and Spirits
97
Marques Champagne Spiritueux GIE (2) Brussels, Belgium 43% 28%
Paragon Vintners Ltd London, United Kingdom 43% 28%
Krug SA Rheims, France 43% 28%
Veuve Clicquot Japan KK Tokyo, Japan 43% 28%
Mountadam Vineyards Pty Ltd Adelaide, Australia 38% 25%
Newton Vineyards LLC St. Helena (California), U.S.A. 25% 17%
Jardine Wines & Spirits KK (3) Tokyo, Japan 43% 19%
Moët Hennessy Asia Pte Ltd Singapore 43% 28%
Millennium Import LLC Wilmington, U.S.A. 17% 11%
Fashion and Leather GoodsLouis Vuitton Malletier SA Paris, France 43% 43%
SNC Société des Ateliers Louis Vuitton Paris, France 43% 43%
SNC Société Louis Vuitton Services Paris, France 43% 43%
(2) Company consolidated under the equity method(3) Company established as a joint venture with Diageo: only the Moët Hennessy activity is consolidated
PERCENTAGECOMPANIES HEAD OFFICE Control Interest
Wines and Spirits (continued)
98
SNC Société des Magasins Louis Vuitton - France Paris, France 43% 43%
Louis Vuitton Monaco SA Monte Carlo, Monaco 43% 43%
Louis Vuitton U.K. Ltd London, United Kingdom 43% 43%
Louis Vuitton Deutschland GmbH Düsseldorf, Germany 43% 43%
Louis Vuitton Espana SA Madrid, Spain 43% 43%
Catalana Talleres SA Barbera del Valles, Spain 43% 43%
Louis Vuitton Netherlands BV Amsterdam, Netherlands 43% 43%
Louis Vuitton Belgique SA Brussels, Belgium 43% 43%
Louis Vuitton Italia SpA Milan, Italy 43% 43%
Louis Vuitton Hellas SA Athens, Greece 43% 43%
Louis Vuitton Portugal, Maleiro, LdA. Lisbon, Portugal 43% 43%
Louis Vuitton Ltd Tel Aviv, Israel 43% 43%
Louis Vuitton Danmark A/S Copenhagen, Denmark 43% 43%
Louis Vuitton Sweden Stockholm, Sweden 43% 43%
Louis Vuitton Suisse SA Geneva, Switzerland 43% 43%
Louis Vuitton Ceska s.r.o. Prague, Czech Republic 43% 43%
Louis Vuitton GesmbH Vienna, Austria 43% 43%
Louis Vuitton Cantacilik Ticaret, Anonim Sirketi Istanbul, Turkey 43% 43%
Louis Vuitton US Manufacturing, Inc. San Dimas (California), U.S.A. 43% 43%
Louis Vuitton Hawaii, Inc. Honolulu (Hawaii), U.S.A. 43% 43%
Louis Vuitton Prada BV Amsterdam, Netherlands 43% 43%
Sofidiv UK London, United Kingdom 43% 43%
LVMH KK Tokyo, Japan 43% 43%
Shinagawa project KK Tokyo, Japan 43% 43%
Osaka Fudosan Company Limited Tokyo, Japan 43% 43%
LVMH Asia Pacific Ltd Hong Kong 43% 43%
LVMH Moët Hennessy Louis Vuitton SA Paris, France 43% 43%
PERCENTAGECOMPANIES HEAD OFFICE Control Interest
Other activities (continued)
REPORT OF THE STATUTORY AUDITORS FOR THE YEAR ENDINGAT DECEMBER 31, 2002
BARBIER FRINAULT & AUTRES ERNST & YOUNG AUDIT41, rue Ybry 4, rue Auber
92576 Neuilly-sur-Seine Cedex 75009 Paris
Statutory AuditorsMember of the Compagnie Régionale Member of the Compagnie Régionale
de Versailles de Paris
To the shareholders of the Christian Dior Company,
Ladies and Gentlemen:
In carrying out the audit assigned to us by your general shareholders’ meeting, we reviewedthe consolidated financial statements of the Christian Dior Company for the fiscal year endingDecember 31, 2002, as they appear in this report.
The consolidated financial statements were drawn up by the Board of Directors. Our respon-sibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in France.Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, by sampling, evidence supporting the amounts and disclosures in the financialstatements. It also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fair, in all materialrespects, the assets, the financial position and the results of all the companies consolidated intoChristian Dior.
Furthermore, we have also verified the information relating to the Group, in accordance withaccounting principles generally accepted in France, which was given in the management report.
We have no observation to make as to their sincerity or consistency with the consolidatedfinancial statements.
Neuilly-sur-Seine and Paris, April 10, 2003
The Statutory Auditors
BARBIER FRINAULT & AUTRES ERNST & YOUNG AUDITGilles Galippe François Hilly
