Estee Lauder 2010 Annual Report Download - page 114

THE EST{E LAUDER COMPANIES INC. 113
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!, GoodSkin Labs, grassroots
research labs and Ojon. The Estée Lauder Companies Inc.
is also the global licensee of the Tommy Hilfiger, Kiton,
Donna Karan, Michael Kors, Sean John, Missoni, Daisy
Fuentes, Tom Ford and Coach brand names for fragrances
and/or 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”). All sig-
nificant intercompany balances and transactions have
been eliminated.
In accordance with recently adopted accounting
guidance, net earnings attributable to The Estée Lauder
Companies Inc. and net earnings attributable to noncon-
trolling interests are disclosed separately on the face of
the accompanying consolidated statements of earnings.
In addition, noncontrolling interests are reported as a sep-
arate component of equity in the consolidated balance
sheets and consolidated statements of equity.
Certain amounts in the consolidated financial state-
ments of prior periods have been reclassified to conform
to current period presentation.
Management Estimates
The preparation of financial statements and related
disclosures in conformity with U.S. generally accepted
accounting principles (“U.S. GAAP”) requires manage-
ment to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the finan-
cial statements and the reported amounts of revenues and
expenses reported in those financial statements. Certain
significant accounting policies that contain subjective
management estimates and assumptions include those
related to revenue recognition, inventory, pension and
other post-retirement benefit costs, goodwill, other
intangible assets and long-lived assets, income taxes
and derivatives. Management evaluates its estimates and
assumptions on an ongoing basis using historical experi-
ence and other factors, including the current economic
environment, and makes adjustments when facts and
circumstances dictate. As future events and their effects
cannot be determined with precision, actual results could
differ significantly from those estimates and assumptions.
Significant changes, if any, in those estimates resulting
from continuing changes in the economic environment
will be reflected in the consolidated financial statements
in future periods.
Currency Translation and Transactions
All assets and liabilities of foreign subsidiaries and affiliates
are translated at year-end rates of exchange, while reve-
nue and expenses are translated at weighted average rates
of exchange for the year. Unrealized translation gains or
losses are reported as cumulative translation adjustments
through other comprehensive income (loss). Such
adjustments amounted to $65.9 and $139.1 million of
unrealized translation losses, net of tax, in fiscal 2010 and
2009, respectively, and $98.3 million of unrealized trans-
lation gains, net of tax, in fiscal 2008. For the Company’s
subsidiary operating in a highly inflationary economy, the
U.S. dollar is the functional currency. Remeasurement
adjustments in financial statements in a highly inflationary
economy and other transactional gains and losses are
reflected in earnings.
The Company enters into foreign currency forward and
option contracts to hedge foreign currency transactions
for periods consistent with its identified exposures.
Accordingly, the Company categorizes these instruments
as entered into for purposes other than trading.
The accompanying consolidated statements of earn-
ings include net exchange gains (losses) of $(33.3) million,
$(20.0) million and $3.9 million in fiscal 2010, 2009 and
2008, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include $534.5 million and
$239.8 million of short-term time deposits at June 30,
2010 and 2009, respectively. The Company considers all
highly liquid investments with original maturities of three
months or less to be cash equivalents. Approximately 16%
and 14% of the Company’s cash and cash equivalents are
held by two counterparties.
Accounts Receivable
Accounts receivable is stated net of the allowance for
doubtful accounts and customer deductions of $34.3 mil-
lion and $41.4 million as of June 30, 2010 and 2009,
respectively. This reserve is based upon the evaluation
of accounts receivable aging, specific exposures and
historical trends.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS