Estee Lauder 2002 Annual Report Download - page 59

THEEST{E LAUDER COMPANIES INC.
Currency Translation and Transactions
All assets and liabilities of foreign subsidiaries and affili-
ates are translated at year-end rates of exchange, while
revenue and expenses are translated at weighted average
rates of exchange for the year. Unrealized translation
gains or losses are reported as cumulative translation
adjustments through other comprehensive income. Such
adjustments amounted to $46.0 million of unrealized
translation gains and $38.0 million of unrealized transla-
tion losses in fiscal 2002 and 2001, respectively.
The Company enters into forward foreign exchange
contracts and foreign currency options to hedge foreign
currency transactions for periods consistent with its iden-
tified exposures. Accordingly, the Company categorizes
these instruments as entered into for purposes other than
trading. Premiums on foreign currency options are amor-
tized based on changes in the time-value of the options
for the reporting period.
The accompanying consolidated statements of earn-
ings include net exchange losses of $6.8 million, net
exchange gains of $9.2 million and net exchange losses of
$4.3 million in fiscal 2002, 2001 and 2000, respectively.
Inventory and Promotional Merchandise
Inventory and promotional merchandise only includes
inventory considered saleable or usable in future periods,
and is stated at the lower of cost or fair-market value, with
cost being determined on the first-in, first-out method.
Promotional merchandise is charged to expense at
the time the merchandise is shipped to the Company’s
customers.
JUNE 30 2002 2001
(In millions)
Inventory and promotional
merchandise consists of:
Raw materials $117.5 $172.9
Work in process 27.0 24.4
Finished goods 272.2 308.0
Promotional merchandise 127.8 125.0
$544.5 $630.3
Property, Plant and Equipment
Property, plant and equipment is carried at cost less
accumulated depreciation and amortization. For financial
statement purposes, depreciation is provided principally
on the straight-line method over the estimated useful lives
of the assets ranging from 3 to 40 years. Leasehold
improvements are amortized on a straight-line basis over
the shorter of the lives of the respective leases or the
expected useful lives of those improvements.
JUNE 30 2002 2001
(In millions)
Land $ 13.0 $ 12.7
Buildings and improvements 144.0 135.7
Machinery and equipment 611.7 563.2
Furniture and fixtures 86.1 77.5
Leasehold improvements 447.2 311.2
1,302.0 1,100.3
Less accumulated depreciation
and amortization 721.3 571.6
$ 580.7 $ 528.7
Depreciation and amortization of property, plant and
equipment was $140.5 million, $112.1 million and $90.3
million in fiscal 2002, 2001 and 2000, respectively.
Goodwill and Other Intangible Assets
Effective July 1, 2001, the Company adopted Statement
of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations”, and SFAS No. 142, “Goodwill
and Other Intangible Assets”. These statements estab-
lished financial accounting and reporting standards for
acquired goodwill and other intangible assets. Specifically,
the standards address how acquired intangible assets
should be accounted for both at the time of acquisition
and after they have been recognized in the financial
statements. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001.
In accordance with SFAS No. 142, intangible assets,
including purchased goodwill, must be evaluated for
impairment. Those intangible assets that will continue to
be classified as goodwill or as other intangibles with indef-
inite lives are no longer amortized.
In accordance with SFAS No. 142, the Company com-
pleted its transitional impairment testing of intangible
assets during the first quarter of fiscal 2002. That effort,
and preliminary assessments of the Company’s identifi-
able intangible assets, indicated that little or no adjustment
would be required upon adoption of this pronouncement.
The impairment testing is performed in two steps: (i) the
Company determines impairment by comparing the fair
value of a reporting unit with its carrying value, and (ii) if
there is an impairment, the Company measures the
amount of impairment loss by comparing the implied fair
value of goodwill with the carrying amount of that good-
will. Subsequent to the first quarter of fiscal 2002, with
the assistance of a third-party valuation firm, the Company
finalized the testing of goodwill. Using conservative, but
realistic, assumptions to model the Company’s jane busi-
ness, the Company determined that the carrying value of
this unit was slightly greater than the derived fair value,
indicating an impairment in the recorded goodwill.
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