Estee Lauder 2004 Annual Report Download - page 62

THE EST{E LAUDER COMPANIES INC.
Accounts Receivable
Accounts receivable is stated net of the allowance for
doubtful accounts and customer deductions of $30.1 mil-
lion and $31.8 million as of June 30, 2004 and 2003,
respectively.
Currency Translation and Transactions
All assets and liabilities of foreign subsidiaries and
affiliates are translated at year-end rates of exchange,
while revenue and expenses are translated at weighted
average rates of exchange for the year. Unrealized trans-
lation gains or losses are reported as cumulative transla-
tion adjustments through other comprehensive income.
Such adjustments amounted to $36.5 million, $51.3 mil-
lion and $46.0 million of unrealized translation gains in
fiscal 2004, 2003 and 2002, respectively.
The Company enters into forward foreign exchange
contracts and foreign currency options to hedge foreign
currency transactions for periods consistent with its
identified exposures. Accordingly, the Company catego-
rizes these instruments as entered into for purposes other
than trading.
The accompanying consolidated statements of
earnings include net exchange losses of $14.5 million,
$15.0 million and $6.8 million in fiscal 2004, 2003 and
2002, respectively.
Inventory and Promotional Merchandise
Inventory and promotional merchandise only includes
inventory considered saleable or usable in future periods,
and is stated at the lower of cost or fair-market value, with
cost being determined on the first-in, first-out method.
Promotional merchandise is charged to expense at the time
the merchandise is shipped to the Company’s customers.
JUNE 30 2004 2003
(In millions)
Inventory and promotional
merchandise consists of:
Raw materials $148.1 $137.7
Work in process 36.5 34.1
Finished goods 317.7 296.6
Promotional merchandise 151.2 130.6
$653.5 $599.0
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accu-
mulated depreciation and amortization. For financial state-
ment purposes, depreciation is provided principally on
the straight-line method over the estimated useful lives of
the assets ranging from 3 to 40 years. Leasehold improve-
ments are amortized on a straight-line basis over the
shorter of the lives of the respective leases or the
expected useful lives of those improvements.
JUNE 30 2004 2003
(In millions)
Land $ 13.6 $ 13.5
Buildings and improvements 160.9 150.8
Machinery and equipment 670.7 567.8
Furniture and fixtures 100.8 95.3
Leasehold improvements 621.8 535.8
1,567.8 1,363.2
Less accumulated depreciation
and amortization 920.8 755.5
$ 647.0 $ 607.7
Depreciation and amortization of property, plant and
equipment was $176.9 million, $156.3 million and $139.8
million in fiscal 2004, 2003 and 2002, respectively.
Goodwill and Other Intangible Assets
The Company follows the provisions of Statement
of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations” and SFAS No. 142, “Goodwill
and Other Intangible Assets.” These statements estab-
lished financial accounting and reporting standards for
acquired goodwill and other intangible assets. Specifically,
the standards address how acquired intangible assets
should be accounted for both at the time of acquisition
and after they have been recognized in the financial
statements. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001.
In accordance with SFAS No. 142, intangible assets,
including purchased goodwill, must be evaluated for
impairment. Those intangible assets that will continue to
be classified as goodwill or as other intangibles with indef-
inite lives are no longer amortized.
In accordance with SFAS No. 142, the Company com-
pleted its transitional impairment testing of intangible
assets during the first quarter of fiscal 2002. That effort,
and preliminary assessments of the Company’s identifi-
able intangible assets, indicated that little or no adjustment
would be required upon adoption of this pronouncement.
The impairment testing is performed in two steps: (i) the
Company determines impairment by comparing the fair
value of a reporting unit with its carrying value, and (ii) if
there is an impairment, the Company measures the
amount of impairment loss by comparing the implied fair
value of goodwill with the carrying amount of that good-
will. Subsequent to the first quarter of fiscal 2002, with
the assistance of a third-party valuation firm, the Company
finalized the testing of goodwill. Using conservative, but
realistic, assumptions to model the Company’s jane
60