Estee Lauder 2002 Annual Report Download - page 58

NOTE 1– DESCRIPTION OF BUSINESS
The Estée Lauder Companies Inc. manufactures, markets
and sells skin care, makeup, fragrance and hair care prod-
ucts around the world. Products are marketed under the
following brand names: Estée Lauder, Clinique, Aramis,
Prescriptives, Origins, M.A.C, Bobbi Brown, La Mer, jane,
Aveda, Stila, Jo Malone and Bumble and bumble. The
Estée Lauder Companies Inc. is also the global licensee
of the Tommy Hilfiger, Donna Karan and Kate Spade
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”). All
significant intercompany 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
Net earnings per common share (“basic EPS”) is com-
puted 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 contingently
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.
Areconciliation between the numerators and denom-
inators of the basic and diluted EPS computations is
as follows:
YEAR ENDED JUNE 30 2002 2001 2000
(In millions, except per share data)
Numerator:
Net earnings before accounting change $212.5 $307.4 $314.1
Preferred stock dividends (23.4) (23.4) (23.4)
Net earnings attributable to common stock before accounting change 189.1 284.0 290.7
Cumulative effect of a change in accounting principle, net of tax (20.6) (2.2) —
Net earnings attributable to common stock $168.5 $281.8 $290.7
Denominator:
Weighted average common shares outstanding — Basic 238.2 238.4 237.7
Effect of dilutive securities: Stock options 2.9 3.8 4.8
Weighted average common shares outstanding — Diluted 241.1 242.2 242.5
Basic net earnings per common share:
Net earnings before accounting change $.79 $ 1.19 $ 1.22
Cumulative effect of a change in accounting principle, net of tax (.08) (.01) —
Net earnings $.71 $ 1.18 $ 1.22
Diluted net earnings per common share:
Net earnings before accounting change $.78 $ 1.17 $ 1.20
Cumulative effect of a change in accounting principle, net of tax (.08) (.01) —
Net earnings $.70 $ 1.16 $ 1.20
As of June 30, 2002, 2001 and 2000, options to pur-
chase 12.1 million, 10.5 million and 7.2 million shares,
respectively, 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 $426.2 million and
$232.2 million of short-term time deposits at June 30,
2002 and 2001, respectively. The Company considers all
highly liquid investments with original maturities of three
months or less to be cash equivalents.
Accounts Receivable
Accounts receivable is stated net of the allowance for
doubtful accounts and customer deductions of $30.6
million and $26.8 million as of June 30, 2002 and
2001, respectively.
THEEST{E LAUDER COMPANIES INC.57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS