Estee Lauder 2007 Annual Report Download - page 85

84 THE EST{E LAUDER COMPANIES INC.
NOTE 17
— SEGMENT DATA AND
RELATED INFORMATION
Reportable operating segments, as defined by SFAS
No. 131, “Disclosures about Segments of an Enterprise
and Related Information,” include components of an
enterprise about which separate fi nancial information is
available that is evaluated regularly by the chief operating
decision maker (the “Chief Executive”) in deciding how to
allocate resources and in assessing performance. As a
result of the similarities in the manufacturing, marketing
and distribution processes for all of the Company’s
products, much of the information provided in the
consolidated fi nancial statements is similar to, or the same
as, that reviewed on a regular basis by the Chief Executive.
Although the Company operates in one business segment,
beauty products, management also evaluates perfor-
mance on a product category basis.
While the Company’s results of operations are also
reviewed on a consolidated basis, the Chief Executive
reviews data segmented on a basis that facilitates
comparison to industry statistics. Accordingly, net sales,
depreciation and amortization, and operating income are
available with respect to the manufacture and distribution
of skin care, makeup, fragrance, hair care and other
products. These product categories meet the FASB’s defi -
nition of operating segments and, accordingly, additional
fi nancial data are provided below. The “other” segment
includes the sales and related results of ancillary products
and services that do not fi t the defi nition of skin care,
makeup, fragrance and hair care.
The Company evaluates segment performance based
upon operating income, which represents earnings before
income taxes, minority interest, net interest expense and
discontinued operations. The accounting policies for each
of the reportable segments are the same as those
described in the summary of significant accounting
policies, except for depreciation and amortization charges,
which are allocated, primarily, based upon net sales. The
assets and liabilities of the Company are managed
centrally and are reported internally in the same manner
as the consolidated fi nancial statements; thus, no addi-
tional information is produced for the Chief Executive or
included herein.
On April 10, 2006, a shareholder derivative action
complaint captioned Miriam Loveman v. Leonard A.
Lauder, et al., was fi led against certain of the Company’s
offi cers and all of its directors as of that date (collectively
the “Derivative Action Defendants”) in the United States
District Court for the Southern District of New York. The
complaint alleged that the Derivative Action Defendants
breached their fi duciary duties to the Company based on
the same alleged course of conduct identifi ed in the com-
plaint described above. On May 2, 2007, the judge
granted the Derivative Action Defendants’ motion to dis-
miss because the plaintiff failed to satisfy the requirement
under Delaware law that she make a demand on the
Board of Directors to pursue litigation on behalf of
the Company prior to initiating the litigation herself. The
plaintiff has not taken any further action with respect to
this matter.
NOTE 15 — NET UNREALIZED INVESTMENT GAINS
Under SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities” (“SFAS No. 115”), available-
for-sale securities are recorded at market value. Unreal-
ized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings
and are reported as a component of stockholders’ equity
until realized. The Company’s investments subject to the
provisions of SFAS No. 115 are treated as available-for-sale
and, accordingly, the applicable investments have been
adjusted to market value with a corresponding adjust-
ment, net of tax, to net unrealized investment gains in
accumulated other comprehensive income. Included
in accumulated other comprehensive income was
an unrealized investment gain (net of deferred taxes)
of $0.8 million and $0.5 million at June 30, 2007 and
2006, respectively.
NOTE 16 — STATEMENT OF CASH FLOWS
Supplemental cash fl ow information related to certain
non-cash investing and fi nancing transactions for fi scal
2007, 2006 and 2005 is as follows:
2007 2006 2005
(In millions)
Incremental tax benefi t from the
exercise of stock options $16.0 $ 6.4 $19.7
Change in liability associated with
acquisition of business $ 2.1 $(36.1) $38.2
Capital lease obligations incurred $ 5.1 $ 1.5 $10.9
Accrued dividend equivalents $ 0.2 $ 0.1 $ —
Interest rate swap derivative
mark to market $ 0.6 $(16.5) $ 9.6
2
00
7
$
16.0
$
2.1
$
5.1
$
0.2
$ 0.6