Estee Lauder 2005 Annual Report Download - page 63

THE EST{E LAUDER COMPANIES INC.
Of the $12.0 million, net of tax, derivative instrument gain
recorded in OCI at June 30, 2005, $9.0 million, net of tax,
related to the proceeds from the settlement of the treasury
lock agreements upon the issuance of the 5.75% Senior
Notes which will be reclassified to earnings as an offset to
interest expense over the 30-year life of the debt and $3.0
million, net of tax, related to gains from forward and option
contracts which the Company will reclassify to earnings
during the next twelve months.
Revenue Recognition
Revenues from merchandise sales are recognized upon
transfer of ownership, including passage of title to the
customer and transfer of the risk of loss related to those
goods. In the Americas region, sales are generally recog-
nized at the time the product is shipped to the customer
and, in the Europe, Middle East & Africa and Asia/Pacific
regions, sales are generally recognized based upon the
customer’s receipt. In certain circumstances, transfer of
title takes place at the point of sale (e.g., at the Company’s
retail stores).
Sales are reported on a net sales basis, which is com-
puted by deducting from gross sales the amount of actual
product returns received, discounts, incentive arrange-
ments with retailers and an amount established for
anticipated product returns. The Company’s practice is to
accept product returns from retailers only if properly
requested, authorized and approved. In accepting returns,
the Company typically provides a credit to the retailer
against accounts receivable from that retailer. As a per-
centage of gross sales, returns were 4.7%, 4.6% and 5.1%
in fiscal 2005, 2004 and 2003, respectively.
Payments to Customers
The Company is subject to the provisions of Emerging
Issues Task Force (“EITF”) Issue No. 01-9, “Accounting
for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor’s Products).” In accor-
dance with this guidance, the Company has recorded the
revenues generated from purchase with purchase promo-
tions as sales and the costs of its purchase with purchase
and gift with purchase promotions as cost of sales. Certain
other incentive arrangements require the payment of a fee
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Long-Lived Assets
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets are
reviewed for impairment whenever events or changes in circumstances 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 (Loss)
The components of accumulated other comprehensive income (loss) (“OCI”) included in the accompanying consolidated
balance sheets consist of the following:
YEAR ENDED JUNE 30 2005 2004 2003
(In millions)
Net unrealized investment gains (losses), beginning of year $0.1 $ 0.7 $ (0.1)
Unrealized investment gains (losses) 0.5 (1.0) 1.4
Benefit (provision) for deferred income taxes (0.2) 0.4 (0.6)
Net unrealized investment gains, end of year 0.4 0.1 0.7
Net derivative instruments, beginning of year 10.2 (1.5) (9.1)
Gain (loss) on derivative instruments (9.1) 1.6 (1.6)
Benefit (provision) for deferred income taxes on derivative instruments 3.0 (1.4) 0.5
Reclassification to earnings during the year 11.8 17.2 13.3
Provision for deferred income taxes on reclassification (3.9) (5.7) (4.6)
Net derivative instruments, end of year 12.0 10.2 (1.5)
Net minimum pension liability adjustments, beginning of year (24.6) (40.6) (20.3)
Minimum pension liability adjustments (15.5) 26.6 (30.8)
Benefit (provision) for deferred income taxes 4.1 (10.6) 10.5
Net minimum pension liability adjustments, end of year (36.0) (24.6) (40.6)
Cumulative translation adjustments, beginning of year 24.8 (11.7) (63.0)
Translation adjustments 8.2 36.5 51.3
Cumulative translation adjustments, end of year 33.0 24.8 (11.7)
Accumulated other comprehensive income (loss) $9.4 $ 10.5 $(53.1)