Estee Lauder 2004 Annual Report Download - page 56

THE EST{E LAUDER COMPANIES INC.
first quarter of fiscal 2005 and will recognize the impact
of the new law under Medicare Part D, which will not be
material to our results of operations, cash flows, or finan-
cial condition. Therefore, any measures of the accumu-
lated postretirement benefit obligation or the net periodic
postretirement benefit cost as of and for the year ended
June 30, 2004 do not reflect the effects of the new law.
In December 2003, the FASB issued FASB Interpre-
tation Number 46-R (“FIN 46-R”), “Consolidation of
Variable Interest Entities.” FIN 46-R, which modifies certain
provisions and effective dates of FIN 46, sets forth criteria
to be used in determining whether an investment in a vari-
able interest entity should be consolidated. These provi-
sions are based on the general premise that if a company
controls another entity through interests other than vot-
ing interests, that company should consolidate the con-
trolled entity. We have evaluated whether the provisions
of FIN 46-R are applicable to our investments, certain of
which are currently accounted for by the equity method,
as well as other arrangements, which may meet the criteria
of the interpretation, and believe that there are currently
no material arrangements that meet the definition of a
variable interest entity which would require consolidation.
In December 2003, the FASB revised Statement of
Financial Accounting Standard No. 132 (Revised 2003),
“Employers’ Disclosures about Pensions and other Postre-
tirement Benefits” (“SFAS No. 132 (R)”), establishing addi-
tional annual disclosures about plan assets, investment
strategy, measurement date, plan obligations and cash
flows. In addition, the revised standard established interim
disclosure requirements related to the net periodic bene-
fit cost recognized and contributions paid or expected to
be paid during the current fiscal year. The new annual dis-
closures are effective for financial statements of compa-
nies with fiscal years ending after December 15, 2003 and
the interim-period disclosures are effective for interim
periods beginning after December 15, 2003. We adopted
the interim disclosures for our fiscal quarter ended March
31, 2004 and the annual disclosures for our fiscal year
ending June 30, 2004. The adoption of the revised SFAS
No. 132 (R) had no impact on our results of operations or
financial condition.
We have adopted Statement of Financial Accounting
Standard No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity” (“SFAS No. 150”). SFAS No. 150 established stan-
dards for classifying and measuring certain financial
instruments with characteristics of both liabilities and
equity. Among other things, it specifically requires that
mandatorily redeemable instruments, such as redeemable
preferred stock, be classified as a liability. Initial and sub-
sequent measurements of the instruments differ based on
the characteristics of each instrument and as provided for
in the statement. Based on the provisions of this state-
ment, we have classified the cumulative redeemable pre-
ferred stock as a liability and the related dividends
thereon have been characterized as interest expense.
Restatement of financial statements for earlier years
presented was not permitted. The adoption of this
statement has resulted in the inclusion of the dividends
on the preferred stock (equal to $17.4 million for the
year ended June 30, 2004) as interest expense. While
the inclusion has impacted net earnings, net earnings
attributable to common stock and earnings per common
share were unaffected. Given that the dividends are not
deductible for income tax purposes, the inclusion of the
preferred stock dividends as an interest expense has
caused an increase in our effective tax rate for fiscal 2004.
The adoption of SFAS No. 150 had no impact on our
financial condition.
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make writ-
ten or oral forward-looking statements, including state-
ments contained in this and other filings with the
Securities and Exchange Commission, in our press
releases and in our reports to stockholders. The words and
phrases “will likely result,” “expect,” “believe,” “planned,”
“will,” “will continue,” “may,” “could,” “anticipated,”
“estimate,” “project” or similar expressions are intended
to identify “forward-looking statements” within the mean-
ing of the Private Securities Litigation Reform Act of 1995.
These statements include, without limitation, our expec-
tations regarding sales, earnings or other future financial
performance and liquidity, product introductions, entry
into new geographic regions, information systems initia-
tives, new methods of sale and future operations or oper-
ating results. Although we believe that our expectations
are based on reasonable assumptions within the bounds
of our knowledge of our business and operations, actual
results may differ materially from our expectations. Factors
that could cause actual results to differ from expectations
include, without limitation:
(1) increased competitive activity from companies in the
skin care, makeup, fragrance and hair care businesses,
some of which have greater resources than we do;
(2) our ability to develop, produce and market new
products on which future operating results may depend;
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