Estee Lauder 2002 Annual Report Download - page 61

THEEST{E LAUDER COMPANIES INC.
amortization expense related to amortizable intangible
assets for the year ended June 30, 2002 was $1.5 million.
Long-Lived Assets
In accordance with SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of”, long-lived assets are reviewed
for impairment whenever events or changes in circum-
stances indicate that the carrying amount of the assets in
question may not be recoverable. An impairment would
be recorded in circumstances where undiscounted cash
flows expected to be generated by an asset are less than
the carrying value of that asset.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive
income (loss) (“OCI”) included in the accompanying
consolidated balance sheets consist of the following:
60
YEAR ENDEDJUNE 30 2002 2001 2000
(In millions)
Net unrealized investment gains, beginning of year $2.9 $ 13.9 $ 6.1
Unrealized investment gains (losses) (5.0) (18.3) 13.0
Provision for deferred income taxes 2.0 7.3 (5.2)
Net unrealized investment gains (losses), end of year (0.1) 2.9 13.9
Net derivative instruments, beginning of year (2.0) ——
Gain (loss) on derivative instruments (16.1) 8.8 —
Provision for deferred income taxes on gain (loss) 5.5 (3.1) —
Reclassification to earnings during the year 5.3 (12.0) —
Provision for deferred income taxes on reclassification (1.8) 4.3 —
Net derivative instruments, end of year (9.1) (2.0) —
Net minimum pension liability adjustments, beginning of year (12.4) ——
Minimum pension liability adjustments (11.6) (19.4) —
Provision for deferred income taxes 3.7 7.0 —
Net minimum pension liability adjustments, end of year (20.3) (12.4) —
Cumulative translation adjustments, beginning of year (109.0) (71.0) (50.4)
Translation adjustments 46.0 (38.0) (20.6)
Cumulative translation adjustments, end of year (63.0) (109.0) (71.0)
Accumulated other comprehensive income (loss) $ (92.5) $(120.5) $(57.1)
returns were 4.9% in fiscal 2002, 4.9% in fiscal 2001 and
4.3% in fiscal 2000.
Advertising and Promotion
Costs associated with advertising are expensed during the
year as incurred. Global advertising expenses, which pri-
marily include television, radio and print media, and promo-
tional expenses,such as products used as sales incentives,
were $1,326.2 million, $1,255.3 million and $1,195.8 mil-
lion in fiscal 2002, 2001 and 2000, respectively. These
amounts include expenses relating to purchase with pur-
chase and gift with purchase promotions that are now
reflected in net sales and cost of sales due to a change in
generally accepted accounting principles. Advertising and
promotional expenses included in operating expenses
were $1,122.0 million, $1,060.8 million and $1,003.4 mil-
lion in fiscal 2002, 2001 and 2000, respectively.
Research and Development
Research and development costs, which amounted to $61.3
million, $57.3 million and $53.8 million in fiscal 2002,
2001 and 2000, respectively, are expensed as incurred.
The $9.1 million, net of tax, derivative instruments loss
recorded in OCI at June 30, 2002 related to forward con-
tracts that the Company estimates will be classified to
earnings as losses during the next twelve months assuming
exchange rates at the time of settlement are equal to the
forward rates as of June 30, 2002. The Company believes
these losses would be offset by the effects of exchange
rate movements on the respective underlying transactions
for which the hedges are intended. With regard to interest
rate contracts, upon repayment of the term loan in Febru-
ary 2002 and the termination of interest rate swaps and
options, losses deferred in OCI were reclassified to earn-
ings. Those losses were substantially offset by deferred
gains from previously terminated interest rate swaps.
Revenue Recognition
Generally, revenues from merchandise sales are recorded
at the time the product is shipped to the customer. The
Company reports its sales levels on a net sales basis,
which is computed by deducting from gross sales the
amount of actual returns received and an amount estab-
lished for anticipated returns. As a percent of gross sales,