Estee Lauder 2007 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, Aramis, Clinique,
Prescriptives, Lab Series, Origins, M.A.C, Bobbi Brown,
La Mer, Aveda, Jo Malone, Bumble and bumble, Darphin,
American Beauty, Flirt!, Good Skin™ and Grassroots. The
Estée Lauder Companies Inc. is also the global licensee of
the Tommy Hilfi ger, Donna Karan, Michael Kors, Sean
John, Missoni, Daisy Fuentes and Tom Ford brand names
for fragrances and cosmetics.
NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated fi nancial statements
include the accounts of The Estée Lauder Companies Inc.
and its subsidiaries (collectively, the “Company”) as
continuing operations, with the exception of the operating
results of its reporting unit that marketed and sold
Stila brand products, which have been refl ected as dis-
continued operations for fi scal 2007, 2006 and 2005
(see Note 4). All signifi cant intercompany balances and
transactions have been eliminated.
Certain amounts in the consolidated fi nancial state-
ments of prior years have been reclassifi ed to conform to
current year presentation for comparative purposes.
Net Earnings Per Common Share
For the years ended June 30, 2007, 2006 and 2005, net
earnings per common share (“basic EPS”) is computed by
dividing net earnings 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 refl ecting potential dilution from stock-
based awards and contingently issuable shares.
A reconciliation between the numerators and denomi-
nators of the basic and diluted EPS computations is
as follows:
THE EST{E LAUDER COMPANIES INC. 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30 2007 2006 2005
(In millions, except per share data)
Numerator:
Net earnings from continuing operations $448.7 $324.5 $409.9
Discontinued operations, net of tax 0.5 (80.3) (3.8)
Net earnings attributable to common stock $449.2 $244.2 $406.1
Denominator:
Weighted average common shares outstanding — Basic 204.3 215.0 225.3
Effect of dilutive stock options 3.2 2.4 3.3
Effect of restricted share units 0.2 0.0 —
Effect of contingently issuable shares pursuant to
accelerated share repurchase program 0.1 — —
Weighted average common shares outstanding — Diluted 207.8 217.4 228.6
Basic net earnings per common share:
Net earnings from continuing operations $ 2.20 $ 1.51 $ 1.82
Discontinued operations, net of tax .00 (.37) (.02)
Net earnings $ 2.20 $ 1.14 $ 1.80
Diluted net earnings per common share:
Net earnings from continuing operations $ 2.16 $ 1.49 $ 1.80
Discontinued operations, net of tax .00 (.37) (.02)
Net earnings $ 2.16 $ 1.12 $ 1.78
200
7
$
448.7
0
.5
$
449.2
20
4.
3
3
.2
0
.2
0
.1
2
0
7.
8
$ 2.20
.00
$
2.20
$
2.16
.00
$
2.16
As of June 30, 2007, 2006 and 2005, outstanding options
to purchase 6.0 million, 13.6 million and 12.5 million
shares, respectively, of Class A Common Stock were not
included in the computation of diluted EPS because their
inclusion would be anti-dilutive. As of June 30, 2007 and
2006, 0.2 million and 0.1 million, respectively, of perfor-
mance share units have been excluded from the calcula-
tion of diluted EPS because the number of shares
ultimately issued is contingent on the achievement of
certain performance targets of the Company, as discussed
in Note 13 — Stock Programs.
Cash and Cash Equivalents
Cash and cash equivalents include $51.3 million and
$66.2 million of short-term time deposits at June 30, 2007
and 2006, respectively. The Company considers all highly
liquid investments with original maturities of three months
or less to be cash equivalents.