Estee Lauder 2007 Annual Report Download - page 61

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Accounts Receivable
Accounts receivable is stated net of the allowance for
doubtful accounts and customer deductions of $23.3
million and $27.1 million as of June 30, 2007 and 2006,
respectively.
Currency Translation and Transactions
All assets and liabilities of foreign subsidiaries and affi liates
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. Such adjustments
amounted to $53.1 million, $27.0 million and $8.2 million
of unrealized translation gains in fi scal 2007, 2006 and
2005, respectively.
The Company enters into foreign currency forward
exchange contracts and foreign currency options to hedge
foreign currency transactions for periods consistent with
its identifi ed 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 gains (losses) of $(0.6) million,
$4.0 million and $(15.8) million in fi scal 2007, 2006 and
2005, respectively.
Inventory and Promotional Merchandise
Inventory and promotional merchandise only includes
inventory considered saleable or usable in future periods,
and is stated at the lower of cost or fair-market value, with
cost being determined on the fi rst-in, fi rst-out method.
Cost components include raw materials, componentry,
direct labor and overhead (e.g., indirect labor, utilities,
depreciation, purchasing, receiving, inspection and
warehousing) as well as inbound freight. Promotional
merchandise is charged to expense at the time the mer-
chandise is shipped to the Company’s customers. Included
in inventory and promotional merchandise is an inventory
obsolescence reserve, which represents the difference
between the cost of the inventory and its estimated realiz-
able value, based on various product sales projections.
This reserve is calculated using an estimated obsolescence
percentage applied to the inventory based on age,
historical trends and requirements to support forecasted
sales. In addition, and as necessary, specifi c reserves for
future known or anticipated events may be established.
JUNE 30 2007 2006
(In millions)
Inventory and promotional
merchandise consists of:
Raw materials $179.5 $151.0
Work in process 49.2 44.2
Finished goods 431.3 407.1
Promotional merchandise 195.8 164.0
$855.8 $766.3
200
7
$
179.5
49
.2
43
1.
3
1
95.8
$
855.8
Property, Plant and Equipment
Property, plant and equipment, including leasehold and
other improvements that extend an asset’s useful life or
productive capabilities, are carried at cost less accumu-
lated depreciation and amortization. The cost of assets
related to projects in progress of $72.1 million and $91.9
million as of June 30, 2007 and June 30, 2006, respec-
tively, is included in their respective asset categories in the
table below. For fi nancial statement purposes, deprecia-
tion is provided principally on the straight-line method
over the estimated useful lives of the assets ranging from
3 to 40 years. Leasehold improvements are amortized on
a straight-line basis over the shorter of the lives of the
respective leases or the expected useful lives of those
improvements.
JUNE 30 2007 2006
(In millions)
Asset (Useful Life)
Land $ 14.4 $ 13.7
Buildings and improvements
(10 to 40 years) 167.5 161.7
Machinery and equipment
(3 to 10 years) 905.0 803.0
Furniture and fi xtures
(5 to 10 years) 108.2 108.2
Leasehold improvements 917.2 790.8
2,112.3 1,877.4
Less accumulated depreciation
and amortization 1,231.5 1,119.4
$ 880.8 $ 758.0
200
7
$
14.4
1
67.5
9
05.0
108
.2
91
7.2
2
,
11
2.3
1
,23
1
.5
$
880.8
Depreciation and amortization of property, plant and
equipment was $198.1 million, $189.9 million and $186.3
million in fiscal 2007, 2006 and 2005, respectively.
Depreciation and amortization related to the Company’s
manufacturing process is included in cost of sales and all
other depreciation and amortization is included in selling,
general and administrative expenses in the accompanying
consolidated statements of earnings.
Goodwill and Other Intangible Assets
The Company follows the provisions of Statement
of Financial Accounting Standards (“SFAS”) No. 141,
60 THE EST{E LAUDER COMPANIES INC.