Estee Lauder 2004 Annual Report Download - page 61

THE EST{E LAUDER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1– DESCRIPTION OF BUSINESS
The Estée Lauder Companies Inc. manufactures, markets
and sells skin care, makeup, fragrance and hair care
products around the world. Products are marketed under
the following brand names: Estée Lauder, Clinique,
Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown,
La Mer, Aveda, Stila, Jo Malone, Bumble and bumble,
Darphin and Rodan + Fields. The Estée Lauder Companies
Inc. is also the global licensee of the Tommy Hilfiger,
Donna Karan, kate spade and Michael Kors brands for
fragrances and cosmetics.
NOTE 2– SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of The Estée Lauder Companies Inc.
and its subsidiaries (collectively, the “Company”) as con-
tinuing operations, with the exception of the operating
results of its reporting unit that sold jane brand products,
which have been reflected as discontinued operations for
fiscal 2004, 2003 and 2002 (see Note 4). All significant inter-
company balances and transactions have been eliminated.
Certain amounts in the consolidated financial state-
ments of prior years have been reclassified to conform to
current year presentation for comparative purposes.
Net Earnings Per Common Share
For the year ended June 30, 2004, net earnings per
common share (“basic EPS”) is computed by dividing net
earnings, which includes preferred stock dividends (see
“Recently Issued Accounting Standards”), by the weighted
average number of common shares outstanding and con-
tingently issuable shares (which satisfy certain conditions).
For the years ended June 30, 2003 and 2002, basic EPS is
computed by dividing net earnings, after deducting
preferred stock dividends on the Company’s $6.50
Cumulative Redeemable Preferred Stock, by the weighted
average number of common shares outstanding and con-
tingently issuable shares (which satisfy certain conditions).
Net earnings per common share assuming dilution
(“diluted EPS”) is computed by reflecting potential dilution
from the exercise of stock options.
A reconciliation between the numerators and denomi-
nators of the basic and diluted EPS computations is
as follows:
59
YEAR ENDED JUNE 30 2004 2003 2002
(In millions, except per share data)
Numerator:
Net earnings from continuing operations $375.4 $325.6 $212.9
Preferred stock dividends —(23.4) (23.4)
Net earnings attributable to common stock from continuing operations 375.4 302.2 189.5
Discontinued operations, net of tax (33.3) (5.8) (21.0)
Net earnings attributable to common stock $342.1 $296.4 $168.5
Denominator:
Weighted average common shares outstanding — Basic 228.2 232.6 238.2
Effect of dilutive securities: Stock options 3.4 2.1 2.9
Weighted average common shares outstanding — Diluted 231.6 234.7 241.1
Basic net earnings per common share:
Net earnings from continuing operations $ 1.65 $ 1.30 $ .80
Discontinued operations, net of tax (.15) (.03) (.09)
Net earnings $ 1.50 $ 1.27 $ .71
Diluted net earnings per common share:
Net earnings from continuing operations $ 1.62 $ 1.29 $ .79
Discontinued operations, net of tax (.14) (.03) (.09)
Net earnings $ 1.48 $ 1.26 $ .70
As of June 30, 2004, 2003 and 2002, options to purchase
6.6 million, 13.6 million and 12.1 million shares, respec-
tively, of Class A Common Stock were not included in the
computation of diluted EPS because the exercise prices
of those options were greater than the average market
price of the common stock and their inclusion would be
anti-dilutive. The options were still outstanding at the end
of the applicable periods.
Cash and Cash Equivalents
Cash and cash equivalents include $187.2 million and
$76.2 million of short-term time deposits at June 30, 2004
and 2003, respectively. The Company considers all highly
liquid investments with original maturities of three months
or less to be cash equivalents.