Estee Lauder 2013 Annual Report Download - page 145

THE EST{E LAUDER COMPANIES INC. 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
various brand names including: Estée Lauder, Aramis,
Clinique, Prescriptives, Lab Series, Origins, M.A.C,
Bobbi Brown, La Mer, Aveda, Jo Malone, Bumble and
bumble, Darphin, Flirt!, GoodSkin Labs, Ojon and
Smashbox. Certain subsidiaries of The Estée Lauder
Companies Inc. are also the global licensee of the Tommy
Hilfiger, Kiton, Donna Karan, Michael Kors, Tom Ford,
Coach and Ermenegildo Zegna 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
significant intercompany balances and transactions have
been eliminated.
Certain amounts in the consolidated financial state-
ments of prior years have been reclassified to conform to
current year presentation.
All share (except par value per share), earnings per
common share and cash dividends declared per common
share information for fiscal 2011 reflects the two-for-one
stock split on the Company’s Class A and Class B Com-
mon Stock, which was effected in the form of a stock
dividend for each share held by stockholders of record at
the close of business on January 4, 2012. The number of
shares of the Company’s Class A Common Stock issuable
upon exercise of outstanding stock options and vesting of
other stock-based awards were proportionately increased
in accordance with the terms of the respective plans.
Management Estimates
The preparation of financial statements and related disclo-
sures in conformity with U.S. generally accepted account-
ing principles (“U.S. GAAP”) requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of con-
tingent assets and liabilities at the date of the financial
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, and income taxes.
Management evaluates its estimates and assumptions on
an ongoing basis using historical experience 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 and assumptions 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 period. Unrealized translation
gains (losses) reported as cumulative translation adjust-
ments through other comprehensive income (loss)
(“OCI”) attributable to The Estée Lauder Companies Inc.
amounted to $(25.6) million, $(154.2) million and $210.5
million, net of tax, in fiscal 2013, 2012 and 2011, respec-
tively. For the Company’s Venezuelan subsidiary operat-
ing in a highly inflationary economy, the U.S. dollar is the
functional currency. Remeasurement adjustments in finan-
cial statements in a highly inflationary economy and other
transactional gains and losses are reflected in earnings.
The Company enters into foreign currency forward
contracts and may enter into option contracts to hedge
foreign currency transactions for periods consistent with
its identified exposures. Accordingly, the Company cate-
gorizes these instruments as entered into for purposes
other than trading.
The accompanying consolidated statements of earn-
ings include net exchange losses on foreign currency
transactions of $3.5 million, $0.5 million and $18.6 million
in fiscal 2013, 2012 and 2011, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include $843.5 million and
$660.2 million of short-term time deposits at June 30,
2013 and 2012, respectively. The Company considers all
highly liquid investments with original maturities of three
months or less to be cash equivalents. As of June 30,
2013, approximately 21% and 20% of the Company’s
cash and cash equivalents are held by two financial
institutions.
Accounts Receivable
Accounts receivable is stated net of the allowance for
doubtful accounts and customer deductions totaling
$22.7 million and $31.1 million as of June 30, 2013 and