Estee Lauder 2005 Annual Report Download - page 60

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,
Rodan + Fields, American Beauty, Flirt!, Good Skin™,
Donald Trump The Fragrance and Grassroots. The Estée
Lauder Companies Inc. is also the global licensee of the
Tommy Hilfiger, Donna Karan and Michael Kors brand
names 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 and 2003 (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 years ended June 30, 2005 and 2004, net earnings
per common share (“basic EPS”) is computed by dividing
net earnings, which includes preferred stock dividends, by
the weighted average number of common shares out-
standing and contingently issuable shares (which satisfy
certain conditions). For the year ended June 30, 2003,
basic EPS is computed by dividing net earnings, after
deducting preferred stock dividends on the Company’s
$6.50 Cumulative Redeemable Preferred Stock (which was
outstanding during such fiscal year and exchanged for the
2015 Preferred Stock in fiscal 2004), by the weighted
average number of common shares outstanding and
contingently issuable shares (which satisfy certain condi-
tions). 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 2005 2004 2003
(In millions, except per share data)
Numerator:
Net earnings from continuing operations $406.1 $375.4 $325.6
Preferred stock dividends —— (23.4)
Net earnings attributable to common stock from continuing operations 406.1 375.4 302.2
Discontinued operations, net of tax —(33.3) (5.8)
Net earnings attributable to common stock $406.1 $342.1 $296.4
Denominator:
Weighted average common shares outstanding — Basic 225.3 228.2 232.6
Effect of dilutive securities: Stock options 3.3 3.4 2.1
Weighted average common shares outstanding— Diluted 228.6 231.6 234.7
Basic net earnings per common share:
Net earnings from continuing operations $ 1.80 $ 1.65 $ 1.30
Discontinued operations, net of tax —(.15) (.03)
Net earnings $ 1.80 $ 1.50 $ 1.27
Diluted net earnings per common share:
Net earnings from continuing operations $ 1.78 $ 1.62 $ 1.29
Discontinued operations, net of tax —(.14) (.03)
Net earnings $ 1.78 $ 1.48 $ 1.26
As of June 30, 2005, 2004 and 2003, options to purchase
12.5 million, 6.6 million and 13.6 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 $332.9 million and
$187.2 million of short-term time deposits at June 30, 2005
and 2004, respectively. The Company considers all highly
liquid investments with original maturities of three months
or less to be cash equivalents.