Estee Lauder 2015 Annual Report Download - page 91

88 THE EST{E LAUDER COMPANIES INC.
Long-Lived Assets
The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. When
such events or changes in circumstances occur, a recover-
ability test is performed comparing projected undis-
counted cash flows from the use and eventual disposition
of an asset or asset group to its carrying value. If the pro-
jected undiscounted cash flows are less than the carrying
value, then an impairment charge would be recorded for
the excess of the carrying value over the fair value, which
is determined by discounting estimated future cash flows.
Concentration of Credit Risk
The Company is a worldwide manufacturer, marketer and
distributor of skin care, makeup, fragrance and hair care
products. The Company’s sales that are subject to credit
risk are made primarily to department stores, perfumeries,
specialty multi-brand retailers and retailers in its travel
retail business. The Company grants credit to all qualified
customers and does not believe it is exposed significantly
to any undue concentration of credit risk.
The Company’s largest customer sells products primarily
within the United States and accounted for $1,060.4 mil-
lion, or 10%, $1,142.7 million, or 10%, and $1,078.8
million, or 11%, of the Company’s consolidated net sales
in fiscal 2015, 2014 and 2013, respectively. This customer
accounted for $139.1 million, or 12%, and $158.5 million,
or 11%, of the Company’s accounts receivable at June 30,
2015 and 2014, respectively.
Revenue Recognition
Revenues from product sales are recognized upon
transfer of ownership, including passage of title to the
customer and transfer of the risk of loss related to those
goods. In the Americas region, sales are generally recog-
nized at the time the product is shipped to the customer
and in the Europe, the Middle East & Africa and Asia/
Pacific regions, sales are generally recognized based
upon the customer’s receipt. In certain circumstances,
transfer of title takes place at the point of sale, for exam-
ple, at the Company’s retail stores. The Company records
revenues generated from purchase with purchase promo-
tions in Net Sales and costs of its purchase with purchase
and gift with purchase promotions in Cost of Sales.
Revenues are reported on a net sales basis, which is
computed by deducting from gross sales the amount of
actual product returns received, discounts, incentive
arrangements with retailers and an amount established for
anticipated product returns. The Company’s practice is to
accept product returns from retailers only if properly
requested and approved. In accepting returns, the
Company typically provides a credit to the retailer against
accounts receivable from that retailer. As a percentage of
gross sales, returns were 3.4% in fiscal 2015 and 2014 and
3.3% in fiscal 2013.
Payments to Customers
Certain incentive arrangements require the payment of
a fee to customers based on their attainment of pre-
established sales levels. These fees have been accrued
and recorded as a reduction of Net Sales in the accom-
panying consolidated statements of earnings and
were not material to the results of operations in any
period presented.
The Company enters into transactions related to
demonstration, advertising and counter construction,
some of which involve cooperative relationships with
customers. These activities may be arranged either with
unrelated third parties or in conjunction with the cus-
tomer. To the extent the Company receives an identifiable
benefit in exchange for consideration and the fair-value of
the benefit can be reasonably estimated, the Company’s
share of the cost of these transactions (regardless of to
whom they were paid) are reflected in Selling, general
and administrative expenses in the accompanying consol-
idated statements of earnings and were approximately
$1,378 million, $1,410 million and $1,412 million in fiscal
2015, 2014 and 2013, respectively.
Advertising and Promotion
Global net expenses for advertising, merchandising, sam-
pling, promotion and product development were
$2,771.5 million, $2,840.0 million and $2,754.8 million in
fiscal 2015, 2014 and 2013, respectively, and are
expensed as incurred. Excluding the impact of purchase
with purchase and gift with purchase promotions, costs
for advertising, merchandising, sampling, promotion
and product development included in Selling, general and
administrative expenses in the accompanying consoli-
dated statements of earnings were $2,558.6 million,
$2,618.1 million and $2,541.0 million in fiscal 2015, 2014
and 2013, respectively.
Research and Development
Research and development costs of $178.1 million, $157.9
million and $146.8 million in fiscal 2015, 2014 and 2013,
respectively, are recorded in Selling, general and adminis-
trative expenses in the accompanying consolidated
statements of earnings and are expensed as incurred.
Shipping and Handling
Shipping and handling expenses of $363.6 million, $373.6
million and $337.9 million in fiscal 2015, 2014 and
2013, respectively, are recorded in Selling, general and