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THE EST{E LAUDER COMPANIES INC.
2008 ANNUAL REPORT
140
29
8,000,000,000

Table of contents

  • Page 1
    140 29 8,000,000,000 THE EST{E LAUDER COMPANIES INC. 2008 ANNUAL REPORT

  • Page 2
    ...strategy for profitable growth is maintaining our unwavering commitment to "bringing the best to everyone we touch" while continually expanding into new regions, new distribution channels and new brands. This is our story. TODAY, OUR PRODUCTS ARE SOLD IN MORE THAN 140 COUNTRIES AND TERRITORIES. WE...

  • Page 3
    ...-Channel Distribution 26 Multi-Brand Leadership 42 Portfolio of Brands 52 Board of Directors 53 Executive Officers 54 Financial Section 110 Management's Report on Internal Control Over Financial Reporting 111 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial...

  • Page 4
    HOW WE GROW LEONARD A. LAUDER ENTREPRENEURSHIP IS IN OUR BLOOD, from our founder to our beauty experts who advise our consumers. 2

  • Page 5
    ... today that help women and men look and feel their best. Until 1961, our products were available on only one continent. Today, we sell our stellar brands in more than 140 countries and territories. As our consumers ventured out to try other shopping venues, we also expanded our distribution to match...

  • Page 6
    LEADING CHANGE FOR GROWTH WILLIAM P. LAUDER I am CONFIDENT that together we will BRING the Company to even greater levels of SUCCESS in the world of luxury beauty. 4

  • Page 7
    ...an all-time record of nearly $8 billion and earnings per share rose by double digits. Our growth was broad-based, with particular strength in emerging markets and new distribution channels. These results are even more notable given the multiple economic challenges - particularly in the United States...

  • Page 8
    ...and how they want, new channels of distribution are becoming increasingly important to us. Our online sales grew 40 percent this past fiscal year, with particularly strong performances by La Mer, Estée Lauder, Aveda and Jo Malone. Direct response TV is another exciting shopping venue where many of...

  • Page 9
    ...the United Kingdom. Many of our highly successful product launches are detailed throughout the following pages. Looking ahead at our established brands, Estée Lauder's new Sensuous fragrance went on sale with a fabulous ad campaign and Clinique Medical, the line of advanced, physiciandispensed skin...

  • Page 10
    ...FUTURE GROWTH Our goal at The Estée Lauder Companies is to remain the preeminent leader in global luxury cosmetics - a position we have achieved by listening and responding to our consumers. Today, more than ever, consumers are in charge, as new channels allow them to take control of their shopping...

  • Page 11
    HOW WE GROW: Fiscal 2008 highlights HOW WE GROW We are MULTI-national MULTI-channel MULTI-brand 9

  • Page 12
    ...7% Other (incl. distributors) 5% Salons/Spas 9% Retail Stores 8% Travel Retail 15% Perfumeries 19% International Department Stores 26% International Department Stores 44% North American Department Stores 30% North American Department Stores DISTRIBUTION MIX 2003 2008 MULTI-BRAND Our brands are...

  • Page 13
    ... BY CATEGORY SKIN CARE accounts for 38 percent of total net sales • Skin care sales reached $3 billion in fiscal 2008, and delivered our best rate of sales growth at 15.2 percent. • Sales growth was strongest in the Asia/Pacific region, thanks to new skin care and whitening products and higher...

  • Page 14
    ..., compensated for softness in the U.S. department store channel. EUROPE, THE MIDDLE EAST & AFRICA accounts for 38 percent of total net sales • The 20.6 percent rise in Europe, Middle East & Africa net sales was led by double-digit growth in the travel retail business, the United Kingdom and...

  • Page 15
    ...16 $2.40 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 * Refer to Selected Financial Data and related footnotes on page 55. †In April 2006, we completed the sale of certain assets and operations of the reporting unit that marketed and sold Stila brand products. In February 2004, we...

  • Page 16
    ...- including Estée Lauder, Clinique, M.A. C, La Mer, Bobbi Brown, Aveda and Jo Malone - are international icons when it comes to luxury beauty. For almost 50 years, we have recognized the vast growth opportunities in regions outside of the United States, where the luxury beauty business is estimated...

  • Page 17
    ... of us. The Estée Lauder Nutritious mega launch in Shanghai. DEPARTMENT STORES IN NORTH AMERICA CONTRIBUTED 30% TO OUR BUSINESS. Clinique and Dillard's. Country-by-country-and culture-by-culture- our strategies for growth in new markets have been carefully crafted to address the local needs and...

  • Page 18
    ...have created specific foundation shades and cheek color carefully designed to bring out the natural beauty in Indian skin tones. Our multi-national strategy was a primary driver of our fiscal 2008 financial results, as 59 percent of our sales came from outside the United States. Going forward, we...

  • Page 19
    RUSSIAN women boast one of the in the HIGHEST spends on BEAUTY PRODUCTS WORLD. We've grown ever since: M.A. C, La Mer and Estée Lauder are consistently among the top-selling brands in Tsum, a leading Russian department store. Brazil is now the fourth-largest cosmetics market in the world and ...

  • Page 20
    ... North American Gift Promotion showed notable gains, specifically with Macy's and Dillard's department stores. Department stores in North America contribute 30 percent of our sales. A "world tour" of our international growth initiatives in Europe shows progress on countless fronts. Jo Malone opened...

  • Page 21
    ... this expansion strategy we have experienced double-digit sales increases in Western Europe, as well as in the newer markets of Eastern Europe, in fiscal 2008. We believe we have the world at our fingertips and it is our intention to bring our luxury beauty products to every corner where there is...

  • Page 22
    ...are shopped by at least one in five women every three months. We expect the Internet, direct response TV, travel retail, spas, salons, pharmacies, freestanding stores and other diverse channels to continue to power our growth, complementing our established role in traditional department stores. 20

  • Page 23
    TODAY the total travel retail industry is worth $34 BILLION. Clinique skin typing at London's Heathrow Airport. DEPARTMENT STORES Premier department stores, including Bloomingdale's, Dillard's, Galeries Lafayette, Holt Renfrew, Harrods, Isetan, Lotte, Macy's, Neiman Marcus, Nordstrom and Saks ...

  • Page 24
    ... products for customers shopping outside the traditional department store channel around the globe. BeautyBank has created a new working model for the Company, focused on innovation, creativity and speed-to-market. In 2007, BeautyBank developed a beauty business for Coach stores in the United States...

  • Page 25
    ... where shopping online via mobile devices is the norm, BeautyBank created e-commerce sites for Flirt! and Good Skinâ„¢. Millions of consumers are now sharing their enthusiasm for our products with their friends via social networks. As part of a more comprehensive social marketing campaign to support...

  • Page 26
    ...launched Eyes by Design, a line of eye makeup products developed for exclusive distribution on the direct response TV channel known as HSN, which reaches 90 million homes in the United States. Eyes by Design is also our Company's first beauty collection created exclusively for television retail and...

  • Page 27
    ... 75 in France. With new modes of distribution, our commitment to "Bringing the Best to Everyone We Touch" takes on new meaning. We have more ways than ever to "touch" consumers - delivering quality products, and highly personalized shopping and service. Darphin is sold in 1 ,200 day spas and 2,400...

  • Page 28
    .... Makeup and skin care each achieved $3 billion in sales during fiscal 2008. We are leaders in prestige hair care in the United States with our Aveda, Bumble and bumble and Ojon brands. Almost 50 percent of our fragrance business is embedded within Estée Lauder, Clinique, Prescriptives and Origins...

  • Page 29
    ...-thirds of net sales. In Europe, The Estée Lauder Companies ranks as the number one corporation for total beauty sales which includes prestige skin care, makeup and fragrance. SKIN CARE Our skin care products come from brands that are trusted and relied upon around the world, helping people feel...

  • Page 30
    ... for the entire Clinique brand. Innovation and creativity are at the heart of our product development efforts in skin care, as we marry science and aesthetics to create effective beauty solutions. Estée Lauder, a leader in the anti-aging category, developed Re-Nutriv Ultimate Youth Creme based on...

  • Page 31
    ... are deeply devoted to beautiful skin. In Japan, La Mer launched The Hydrating Infusion - a high-potency treatment designed to complement and intensify the hydrating and conditioning benefits of Crème de la Mer. Estée Lauder Cyber White EX joined Nutritious in Asia as product lines that were...

  • Page 32
    ... brands represent over 50 percent of total makeup sales in U.S. prestige distribution. Our company created four of the top six brands in the U.S. prestige channel: M.A. C, Estée Lauder, Clinique and Bobbi Brown. Whether it's the latest in eye, lip, cheek or foundation, we bring our heritage of gold...

  • Page 33
    ...is the number one unit mover. Bobbi Brown is the internationally renowned beauty expert who sets the trend in wearable, skin-tone-correct makeup for women of all ethnicities. Her brand offers a clean, fresh and modern approach to beauty with a broad collection of prestige products ranging from color...

  • Page 34
    In the United Kingdom and Continental Europe, Clinique is the number one prestige brand in both the foundation and face categories. Today, Clinique's makeup does double duty. Everything the brand knows about skin care is incorporated into its makeup products. With Supermoisture Makeup, super-intense...

  • Page 35
    ... allows Double Wear Light to adjust to each individual's skin type, keeping moisture levels balanced while controlling excess oil and shine. Custom Blend makeup from Prescriptives allows each woman to create the perfect match of cheek, eye and lip colors for her special skin undertone. Women of...

  • Page 36
    ... The Estée Lauder Companies accounted for 25 percent of the women's fragrance business in U.S. department stores. More than 20 years after it was first introduced, Estée Lauder Beautiful is still the best-selling women's prestige fragrance in the United States, with Estée Lauder pleasures, Donna...

  • Page 37
    ... Aerin Lauder in prestigious department stores in the United States, United Kingdom, Canada and Russia. DKNY Be Delicious, a fragrance from the award-winning fashion designer Donna Karan, expanded its reach to additional international markets. An apple-infused ï¬,oral fragrance celebrating New York...

  • Page 38
    ... as the perfect gift with its Art of Gift Giving program. Tom Ford, a brand that captures the sexy, self-assured style of this global fashion leader, launched its first ultra-luxe men's fragrance, Tom Ford for Men, in fiscal 2008. The new fragrance joins the luxurious Private Blend Collection, an...

  • Page 39
    4 of the top 10 U.S. fragrances are ours. Estée Lauder Beautiful 1985 still number born in 1 Clinique Happy born in 1997 Estée Lauder pleasures born in 1998 Donna Karan Cashmere Mist born in 1994 37

  • Page 40
    .../B/D32/1=;  A; HAIR CARE Our hair care business is strongly rooted in prestige salons with Aveda and Bumble and bumble. This year, we expanded our foothold in this growing category with the acquisition of Ojon, a brand based on naturally-derived, wildcrafted beauty products using traditional...

  • Page 41
    ... preserving the rainforest - truly a beautiful result. This year, Bumble and bumble leveraged its renowned expertise in hairdressing - born in salons and perfected in the real time world of fashion - with the launch of Spray de Mode, Bumble and bumble's first styling product in almost two years. It...

  • Page 42
    ...and bumble continues to focus on strong North American growth and expanding its strength in the United Kingdom, it is setting the stage for further expansion in Europe. Overwhelming consumer response greeted two hair care product launches from Aveda in fiscal 2008, while its Dry Remedy Moisturizing...

  • Page 43
    ... of nine products created exclusively for men's hair care needs, Pure-Formance soothes and relieves the scalp while promoting stronger, healthier hair. To support further command of the growing men's business, Aveda has begun classes for professional salon owners in men's grooming and styling. As...

  • Page 44
    ...care authorities in the world. All makeup and skin care products are allergy-tested and 100% fragrance free. Clinique offers products for men and women of all ages and ethnicities. Select products: 3-Step Skin Care System, Redness Solutions, Even Better Skin Tone Corrector, Acne Solutions Clear Skin...

  • Page 45
    ...Oil Control Daily Hydrator and Age Rescue Face Lotion. Origins was founded by The Estée Lauder Companies Inc. in 1990 as the first department store wellness brand. Sold in more than 30 countries and territories. The mission at Origins is to promote beauty and wellness through good-for-you products...

  • Page 46
    ... makeup brushes and tools, accessories and fragrance. Select products: Luminous Moisturizing Foundation, Creamy Concealer Kit, Shimmer Brick Compact, Long-Wear Gel Eyeliner, Long-Wear Cream Shadow, Lip Color, Hydrating Eye Cream, Extra line of skin care, Bobbi Brown beach fragrance and related...

  • Page 47
    ... The Estée Lauder Companies Inc. when the exclusive global license agreement was signed in 2005. Sold in 16 countries and territories and select travel retail locations. Select products: Tom Ford Black Orchid Eau de Parfum, Tom Ford Black Orchid Perfume, Private Blend Collection and Tom Ford Black...

  • Page 48
    ... very best. Select products: Kiton and Kiton Black fragrances. Donna Karan joined The Estée Lauder Companies Inc. family of brands when the exclusive global license agreement was signed and business acquired in 1997. Sold in more than 120 countries and territories. Luxury fragrance, bath and body...

  • Page 49
    ... acqua Eau de Toilette, Parfum, Body Lotion and Shower Gel. In 2006, Coach and The Estée Lauder Companies Inc. embarked on a collaboration to develop and market a line of fragrance and beauty products under the Coach brand name. Coach is the leading marketer of modern classic American accessories...

  • Page 50
    ...prestige salons and spas, cosmetology schools, specialty retailers and via freestanding Aveda Experience Centers and select Aveda Institutes. Select products: Be Curly Shampoo and Conditioner, Uruku makeup collection, Aveda Men Pure-Formance hair care, Green Science skin care, Chakra Balancing Mists...

  • Page 51
    ...Mustang joined The Estée Lauder Companies Inc. family of brands when the exclusive license agreement was signed in 2006. Sold in North America and Latin America. The Mustang fragrance exemplifies the allure of the Mustang man: bold, daring and legendary. Mustang infuses a blend of warm ingredients...

  • Page 52
    ..., skin care and fragrance brand that celebrates the beauty of American style. American Beauty is available exclusively in the United States at Kohl's Department Stores and online at kohls.com. In 2008, American Beauty launched internationally in Target Australia. Select products: Belovedâ„¢ Perfume...

  • Page 53
    ... grassroots Research Labs are available exclusively in the United States at Kohl's Department Stores and online at kohls.com. Select products: Pomegranate Super Anti-Oxidant Cream and Serum, Happily Ever Afterâ„¢ Moisture Cream SPF 15 and In Good Handsâ„¢ Comforting Hand Cream. Daisy Fuentes Beauty...

  • Page 54
    ...IRVINE O. HOCKADAY, JR.1 Retired President and Chief Executive Officer Hallmark Cards, Inc. AERIN LAUDER Senior Vice President Creative Director Estée Lauder RONALD S. LAUDER Chairman Clinique Laboratories, LLC WILLIAM P. LAUDER Chief Executive Officer The Estée Lauder Companies Inc. RICHARD...

  • Page 55
    ... Global Research, Development and Product Innovation EVELYN H. LAUDER Senior Corporate Vice President RONALD S. LAUDER Chairman Clinique Laboratories, LLC SARA E. MOSS Executive Vice President General Counsel CEDRIC PROUVÉ Group President - International IN MEMORIAM The Estée Lauder Companies...

  • Page 56
    ... Sheets 78 Consolidated Statements of Stockholders' Equity and Comprehensive Income 79 Consolidated Statements of Cash Flows 80 Notes to Consolidated Financial Statements 110 Management's Report on Internal Control Over Financial Reporting 111 Report of Independent Registered Public Accounting Firm...

  • Page 57
    ... long-term commercial paper, which was used to fund our accelerated stock repurchase program, and to pay transaction fees and expenses related to this offering. (d) In April 2006, we completed the sale of certain assets and operations of the reporting unit that marketed and sold Stila brand products...

  • Page 58
    .... During fiscal 2006, Federated Department Stores, Inc. acquired The May Department Stores Company, resulting in the merger of our previous two largest customers (collectively "Macy's, Inc."). This customer sells products primarily within North America and accounted for $951.4 million, or...

  • Page 59
    ... could have a direct impact on reported net earnings. The pre-retirement discount rate for each plan used for determining future net periodic benefit cost is based on a review of highly rated long-term bonds. For fiscal 2008, we used a pre-retirement discount rate for our Domestic Plans of 6.25...

  • Page 60
    ... 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. FIN 48 prescribes a twostep evaluation process for tax positions taken, or expected to be taken, in a tax return. The first step is recognition and the...

  • Page 61
    ... OVERVIEW We manufacture, market and sell skin care, makeup, fragrance and hair care products which are distributed in over 140 countries and territories. We believe that the best way to increase stockholder value is to provide our customers and consumers with the products and services that they...

  • Page 62
    ...aesthetics company, to develop a Clinique-branded skin care line, Clinique Medical, to be sold exclusively through physicians' offices in the United States. We continued to make progress on our Strategic Modernization Initiative ("SMI"). During fiscal 2008, Demand Planning for select business units...

  • Page 63
    ....3 318.7 26.8 $6,463.8 OPERATING INCOME By Region: The Americas Europe, the Middle East & Africa Asia/Pacific Special charges related to cost savings initiative * By Product Category: Skin Care Makeup Fragrance Hair Care Other Special charges related to cost savings initiative * $ 228.3 433.1 149...

  • Page 64
    ... Eye Concentrate and The Moisturizing Gel Cream from La Mer. Collectively, these new products resulted in incremental sales of approximately $215 million. Net sales increases from Re-Nutriv and Resilience Lift Extreme Ultra Firming products from Estée Lauder, products in Clinique's 3-Step Skin Care...

  • Page 65
    ... fragrances business and our makeup artist and hair care brands in the United States. Partially offsetting this growth was approximately $37 million related to weaknesses in certain of our core brands in the United States as a result of competitive pressures and challenges in the department store...

  • Page 66
    ...and net sales growth from La Mer products and Tri-Aktilineâ„¢ Instant Deep Wrinkle Filler from Good Skinâ„¢. In addition, the prior year results in this category reï¬,ected organizational costs of approximately $30 million, primarily related to our pharmacy channel in Europe. Makeup operating income...

  • Page 67
    ... by new points of distribution and new product launches as well as M.A. C Viva Glam lip products, the proceeds of which are donated to AIDSrelated charities. Higher sales of Double Wear Foundation and the fiscal 2007 launch of Resilience Lift Extreme Ultra Firming Makeup SPF 15 by Estée Lauder...

  • Page 68
    ...ecting spending behind strategic initiatives at our core brands, retailer consolidation and costs to develop new brands in the United States. Operating income growth from our makeup artist brands, hair care business and our internet distribution partially offset these results. In Europe, the Middle...

  • Page 69
    ... IRS tax settlement of approximately 770 basis points. ($ in millions) DISCONTINUED OPERATIONS On September 30, 2005, we committed to a plan to sell and on April 10, 2006, we completed the sale of certain assets and operations of our reporting unit that marketed and sold Stila brand products. For...

  • Page 70
    ... to satisfy outstanding negative daily balances arising from its business operations. The total balance outstanding at any time shall not exceed 20.0 million Turkish lira. The interest rate applicable to each such credit shall be 40 basis points per annum above the spot rate charged by the lender...

  • Page 71
    ... Products, LLC and Bumble and Bumble, LLC, as well as the acquisition of businesses engaged in the wholesale distribution and retail sale of our products in the United States and other countries. Cash used for financing activities was $78.1 million, $411.6 million and $594.6 million in fiscal 2008...

  • Page 72
    ..., $42.5 million in fiscal 2013 and $713.8 million thereafter. Projected interest costs on variable rate instruments were calculated using market rates at June 30, 2008. Refer to Note 11 of Notes to Consolidated Financial Statements. (2) Unconditional purchase obligations primarily include inventory...

  • Page 73
    ... based on six-month LIBOR. The interest rate swaps were designated as fair-value hedges. As of June 30, 2008, these fair-value hedges were highly effective, in all material respects. Market Risk We use a value-at-risk model to assess the market risk of our derivative financial instruments. Value...

  • Page 74
    ... about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). In February 2008, the FASB issued FSP No. FAS 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address...

  • Page 75
    ... collaborators should be presented in the income statement based on the nature of the arrangement, the nature of the company's business and whether the payments are within the scope of other accounting literature. Other detailed information related to the collaborative arrangement is also required...

  • Page 76
    ...the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than we do; (2) our ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in our core brands, including gift with purchase...

  • Page 77
    ... to acquire, develop or implement new information and distribution technologies, on a timely basis and within our cost estimates; (15) our ability to capitalize on opportunities for improved efficiency, such as publicly-announced cost-savings initiatives, and to integrate acquired businesses and...

  • Page 78
    ...37) 1.14 1.49 (.37) 1.12 Net Sales Cost of sales Gross Profit Operating expenses: Selling, general and administrative Special charges related to cost savings initiative Operating Income Interest expense, net Earnings before Income Taxes, Minority Interest and Discontinued Operations Provision for...

  • Page 79
    ... Assets Investments, at cost or market value Goodwill and other intangible assets, net Other assets, net Total other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term debt Accounts payable Accrued income taxes Other accrued liabilities Total current liabilities...

  • Page 80
    ... income (loss) Adjustment to initially apply FASB Statement No. 158, net of tax (Note 13) Accumulated other comprehensive income, end of year Treasury stock, beginning of year Acquisition of treasury stock, net of issuances Treasury stock, end of year Total stockholders' equity COMPREHENSIVE INCOME...

  • Page 81
    ... long-term debt, net Net settlement of interest rate derivatives Repayments and redemptions of long-term debt Net proceeds from employee stock transactions Excess tax benefits from stock-based compensation arrangements Payments to acquire treasury stock Dividends paid to stockholders Distributions...

  • Page 82
    ... and sells skin care, makeup, fragrance and hair care products 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...

  • Page 83
    ...Risk The Company is a worldwide manufacturer, marketer and distributor of skin care, makeup, fragrance and hair care products. Domestic and international sales are made primarily to department stores, perfumeries and specialty retailers. The Company grants credit to all qualified customers and does...

  • Page 84
    ... "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." In accordance with this guidance, the Company has recorded the revenues generated from purchase with purchase promotions as sales and the costs of its purchase with purchase and gift with...

  • Page 85
    ... about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). In February 2008, the FASB issued FSP No. FAS 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address...

  • Page 86
    ... collaborators should be presented in the income statement based on the nature of the arrangement, the nature of the company's business and whether the payments are within the scope of other accounting literature. Other detailed information related to the collaborative arrangement is also required...

  • Page 87
    ... 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. THE EST{E LAUDER COMPANIES INC. 85

  • Page 88
    ... OTHER INTANGIBLE ASSETS During fiscal 2008, the Company acquired Ojon Corporation, which markets and sells Ojon hair care and skin care products primarily through direct response television and specialty stores. In conjunction with this acquisition, the Company purchased, from an unrelated party...

  • Page 89
    ...been accounted for as indefinite lived intangible assets in the accompanying consolidated balance sheet. At various times during fiscal 2008, 2007 and 2006, the Company also acquired businesses engaged in the wholesale distribution and retail sale of the Company's products in the United States and...

  • Page 90
    ... Company's operating expenses and cost of sales: Accrued at Fiscal 2008 June 30, 2007 expense Fiscal 2008 payments Accrued at June 30, 2008 Fiscal 2007 expense Fiscal 2007 payments Employee separation expenses Facility closures and product/ distribution rationalization Advertising and promotional...

  • Page 91
    .... The determination and estimation of the future income tax consequences in all relevant taxing jurisdictions involves the application of highly complex tax laws in the countries involved, particularly in the United States, and is based on the tax profile of the Company in the year of earnings...

  • Page 92
    ..., potential outcomes and timing, and is a subjective critical estimate. The Company assesses its tax positions and records tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances, and information available at the reporting dates. For those...

  • Page 93
    ... Switzerland United Kingdom United States State of California State of Minnesota State of New York Open Fiscal Years 2004-2008 2001-2008 2005-2008 1999-2008 2006-2008 2002-2008 1999-2002, 2004-2008 2004-2008 2007-2008 2002-2008 2002-2008 2001-2008 2007-2008 The Company is also subject to income tax...

  • Page 94
    ... Senior Notes. As a result of the forward-starting interest rate swap agreements, the debt discount and debt issuance costs, the effective interest rate on the 2037 Senior Notes will be 6.181% over the life of the debt. As of June 30, 2008, the Company had outstanding $197.5 million of 2033 Senior...

  • Page 95
    ...its business operations. The total balance outstanding at any time shall not exceed 20.0 million Turkish lira. The interest rate applicable to each such credit shall be 40 basis points per annum above the spot rate charged by the lender or the lender's ï¬,oating call rate agreed to by the Company at...

  • Page 96
    ... the accompanying balance sheets. The associated gains and losses on these derivatives are recorded in Cost of sales and Selling, general and administrative expenses in the accompanying statements of earnings. On the date the derivative contract is entered into, the Company designates the derivative...

  • Page 97
    ... 30, 2008, these fair-value hedges were highly effective in all material respects. In April 2007, the Company terminated an interest-rate swap agreement with a notional amount of $250.0 million to effectively convert fixed rate interest on its 2012 Senior Notes to variable interest rates based on...

  • Page 98
    ... rate contracts: The fair value of forwards, swaps and options is the estimated amount the Company would receive or pay to terminate the agreements based on quoted market prices at June 30. The estimated fair values of the Company's financial instruments are as follows: JUNE 30, 2008 Carrying...

  • Page 99
    ... with international employee transfers. Retirement Growth Account Plan (U.S.) The Retirement Growth Account Plan is a trust-based, noncontributory qualified defined benefit pension plan. The Company's funding policy consists of an annual contribution at a rate that provides for future plan bene...

  • Page 100
    ... than Pension Plans International Post-retirement 2008 2007 2007 2008 2007 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participant contributions Actuarial loss (gain) Foreign currency exchange rate impact Benefits, expenses, taxes and...

  • Page 101
    ...25% 5.25% N/A N/A The pre-retirement discount rate for each plan used for determining future net periodic benefit cost is based on a review of highly rated long-term bonds. The pre-retirement rate for the Company's U.S. Plans is based on a bond portfolio that includes only long-term bonds with an...

  • Page 102
    ... $0.8 Prior service cost Net actuarial loss $0.7 $1.7 The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company's pension plans at June 30 are as follows: Pension Plans Retirement Growth Account 2008 (In millions) Restoration 2008 $84.5 $65...

  • Page 103
    ... THAN TO RETIREES The Company provides certain post-employment benefits to eligible former or inactive employees and their dependents during the period subsequent to employment but prior to retirement. These benefits include health care coverage and severance benefits. The cost of providing these...

  • Page 104
    ... pension and other post-retirement benefit obligations, commitments pursuant to executive compensation arrangements and obligations related to the Company's cost savings initiative. Future earn-out payments and future royalty and advertising commitments were estimated based on planned future sales...

  • Page 105
    ... either new or treasury shares. The Company's stock compensation awards outstanding at June 30, 2008 include stock options, PSUs, restricted stock units ("RSU") and share units. Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods...

  • Page 106
    ... such, the compensation cost of the PSU is subject to adjustment based upon the attainability of these target goals. No settlement will occur for results below the applicable minimum 104 Restricted Stock Units The Company granted approximately 585,000 RSUs during fiscal 2008. At the time of grant...

  • Page 107
    ... Units The Company grants share units to certain non-employee directors under the Non-Employee Director Share Incentive Plan. The share units are convertible into shares of Class A Common Stock as provided for in that plan. Share Cash Units Certain non-employee directors defer cash compensation...

  • Page 108
    ...provision) for deferred income taxes Adjustment to initially apply SFAS No. 158, net of tax Net minimum pension liability adjustments, end of year Net pension and post-retirement adjustments, beginning of year Adjustment to initially apply SFAS No. 158 Changes in plan assets and benefit obligations...

  • Page 109
    ..." segment includes the sales and related results of ancillary products and services that do not fit the definition 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...

  • Page 110
    ...Income (Loss): Skin Care Makeup Fragrance Hair Care Other Special charges related to cost savings initiative Reconciliation: Interest expense, net Earnings before income taxes, minority interest and discontinued operations GEOGRAPHIC DATA Net Sales: The Americas Europe, the Middle East & Africa Asia...

  • Page 111
    ... quarterly operating results of the Company for the years ended June 30, 2008 and 2007: Quarter Ended September 30 (In millions, except per share data) December 31 March 31 June 30 Total Year Fiscal 2008 Net sales $1,710.1 Gross profit 1,254.3 Operating income 77.9 Net earnings from continuing...

  • Page 112
    .... Based on this assessment, the Company's management has concluded that, as of June 30, 2008, the Company's internal control over financial reporting was effective. William P. Lauder Chief Executive Officer August 21, 2008 Richard W. Kunes Executive Vice President and Chief Financial Of...

  • Page 113
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Estée Lauder Companies Inc. and subsidiaries as of June 30, 2008 and 2007, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash...

  • Page 114
    ... financial statements, effective July 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109." New York, New York August 21, 2008 112 THE EST{E LAUDER COMPANIES INC.

  • Page 115
    ...ée Lauder Companies Inc. 767 Fifth Avenue, New York, New York 10153 212-572-4200 Stockholder Information Stockholders may access Company information, including a summary of the latest financial results, 24 hours a day, by dialing our toll-free information line, 800-308-2334. News releases issued...

  • Page 116
    ... this report include: 3-Step Skin Care System, 8 Flower Nectar Aromatic Care, A Perfect World, Acne Solutions, Advanced Night Repair, Age Rescue, All Bright, All Calm, All Firm, All is Forgiven, All Skins, Almost Powder, American Beauty, Anti-Age Advanced Protection Lotion, AnyWear, Aramis, Arovita...

  • Page 117
    ...cumulative five- and thirteen-year total stockholder return (stock price appreciation plus dividends) on the Company's Class A Common Stock with the cumulative total return of the S&P 500 Index and a market weighted index of two publicly traded peer groups. The returns are calculated by assuming an...

  • Page 118
    ...Lauder Companies Inc. 2008 Annual Report uses 29,700 lbs of paper which has a post-consumer recycled percentage of 100%. 285.12 trees preserved for the future...-FREE WIND-GENERATED ELECTRICITY: 13,710 lbs air emissions not generated. DISPLACES THIS AMOUNT OF FOSSIL FUEL: 6 barrels crude oil ...

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    T H E E ST { E L A U D E R CO M PA N I E S I N C . 767 FIFTH AVENUE NEW YORK, NEW YORK 10153