Estee Lauder 2003 Annual Report Download - page 60

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, Bumble and bumble and Darphin.
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”). 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 denomi-
nators of the basic and diluted EPS computations is
as follows:
YEAR ENDED JUNE 30 2003 2002 2001
(In millions, except per share data)
Numerator:
Net earnings before accounting change $319.8 $212.5 $307.4
Preferred stock dividends (23.4) (23.4) (23.4)
Net earnings attributable to common stock before accounting change 296.4 189.1 284.0
Cumulative effect of a change in accounting principle, net of tax —(20.6) (2.2)
Net earnings attributable to common stock $296.4 $168.5 $281.8
Denominator:
Weighted average common shares outstanding — Basic 232.6 238.2 238.4
Effect of dilutive securities: Stock options 2.1 2.9 3.8
Weighted average common shares outstanding — Diluted 234.7 241.1 242.2
Basic net earnings per common share:
Net earnings before accounting change $1.27 $ .79 $ 1.19
Cumulative effect of a change in accounting principle, net of tax — (.08) (.01)
Net earnings $1.27 $ .71 $ 1.18
Diluted net earnings per common share:
Net earnings before accounting change $1.26 $ .78 $ 1.17
Cumulative effect of a change in accounting principle, net of tax — (.08) (.01)
Net earnings $1.26 $ .70 $ 1.16
As of June 30, 2003, 2002 and 2001, options to purchase
13.6 million, 12.1 million and 10.5 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 $76.2 million and
$104.6 million of short-term time deposits at June 30,
2003 and 2002, 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
$31.8 million and $30.6 million as of June 30, 2003 and
2002, respectively.
THEEST{E LAUDER COMPANIES INC.59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS