calculated over the past 250-day period. The measured value-at-risk, calculated as an average, for the twelve months ended June 30, 2003 related to our foreign exchange contracts was $7.6 million. As of June 30, 2003, the measured value-at-risk related to our interest rate contracts was $10.3 million. The model estimates were made assuming normal market conditions and a 95 percent confidence level. We used a statistical simulation model that valued our derivative financial instruments against one thousand randomly generated market price paths. Our calculated value-at-risk exposure represents an estimate of reasonably possible net losses that would be recognized on our portfolio of derivative financial instru- ments assuming hypothetical movements in future mar- ket rates and is not necessarily indicative of actual results, which may or may not occur. It does not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in mar- ket rates, operating exposures, and the timing thereof, and changes in our portfolio of derivative financial instruments during the year. We believe, however, that any loss incurred would be offset by the effects of market rate movements on the respective underlying transactions for which the hedge  is intended. We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with uncon- solidated entities that would be expected to have a mate- rial current or future effect upon our financial condition or results of operations. In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Lia- bilities and Equity” (“SFAS No. 150”). SFAS No. 150 estab- lished standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. It specifically requires that mandatorily redeemable instruments, instruments with repurchase obligations which embody, are indexed to, or obligate the repurchase of, the issuer’s own equity shares, and instru- ments with obligations to issue a variable number of the issuer’s own equity shares, be classified as a liability. Initial and subsequent measurements of the instruments differ based on the characteristics of each instrument and as provided for in the statement. SFAS No. 150 is effective for all freestanding financial instruments entered into or modified after May 31, 2003 and otherwise became effective at the beginning of the first interim period begin- ning after June 15, 2003. We have adopted this statement effective for all instruments entered into or modified after May 31, 2003 and will adopt the statement for any exist- ing financial instruments in the first quarter of fiscal 2004. Based on the provisions of this statement, beginning in fiscal 2004, we will be classifying the $6.50 Cumulative Redeemable Preferred Stock as a liability and the related dividends thereon will be characterized as interest expense. Restatement of financial statements for earlier years presented is not permitted. The adoption of this statement will result in the inclusion of the dividends on the preferred stock (equal to $23.4 million per year) as interest expense. While the inclusion will impact net earn- ings,net earnings attributable to common stock and earnings per common share will be unaffected. Given that the dividends are not deductible for income tax purposes, the inclusion of the preferred stock dividends as an inter- est expense will cause an increase in our effective tax rate. The adoption of SFAS No.150 will have no impact on our financial condition. In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation as originally defined by SFAS No.123, “Accounting for Stock-Based Compensation.” Additionally, SFAS No. 148 amends the disclosure require- ments of SFAS No. 123 to require prominent disclosure in both the annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transitional requirements of SFAS No. 148 are effec- tive for all financial statements for fiscal years ending after December 15, 2002. We adopted the disclosure portion of this statement for the fiscal quarter ended March 31, 2003. The application of the disclosure portion of this standard has no impact on our consolidated financial position or results of operations. The FASB recently indi- cated that it will require stock-based employee compen- sation to be recorded as a charge to earnings pursuant to a standard on which it is currently deliberating. The FASB anticipates issuing an Exposure Draft in the fourth quarter of 2003 and a final statement in the second quarter of 2004. We will continue to monitor the FASB’s progress on the issuance of this standard as well as evaluate our posi- tion with respect to current guidance. THEEST{E LAUDER COMPANIES INC. 54 RECENTLY ISSUED ACCOUNTING STANDARDS OFF-BALANCE SHEET ARRANGEMENTS