Estee Lauder 2008 Annual Report Download - page 83

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 $129.0 million and $72.1
million as of June 30, 2008 and 2007, respectively, is
included in their respective asset categories in Note 5. For
fi nancial statement purposes, depreciation is provided
principally on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 40 years. Lease-
hold 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.
Investments
Under SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities” (“SFAS No. 115”), available-
for-sale securities are recorded at market value. Unreal-
ized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings
and are reported as a component of stockholders’ equity
until realized. The Company’s investments subject to the
provisions of SFAS No. 115 are treated as available-for-sale
and, accordingly, the applicable investments have been
adjusted to market value with a corresponding adjust-
ment, net of tax, to net unrealized investment gains in
accumulated other comprehensive income. Accumulated
other comprehensive income includes an unrealized
investment gain (net of deferred taxes) of $0.3 million and
$0.8 million at June 30, 2008 and 2007, respectively.
Goodwill and Other Intangible Assets
The Company follows the provisions of SFAS No. 141,
“Business Combinations” (“SFAS No. 141”) and SFAS
No. 142, “Goodwill and Other Intangible Assets”
(“SFAS No. 142”). These statements establish fi nancial
accounting and reporting standards for acquired goodwill
and other intangible assets. Specifi cally, the standards
address how acquired intangible assets should be
accounted for both at the time of acquisition and after
they have been recognized in the fi nancial statements.
In accordance with SFAS No. 142, intangible assets,
including purchased goodwill, must be evaluated for
impairment. Those intangible assets that will continue to
be classifi ed as goodwill or as other intangibles with indef-
inite lives are no longer amortized.
In accordance with SFAS No. 142, the impairment test-
ing is performed in two steps: (i) the Company determines
impairment by comparing the fair value of a reporting unit
with its carrying value, and (ii) if there is an impairment, the
Company measures the amount of impairment loss by com-
paring the implied fair value of goodwill with the carrying
amount of that goodwill. To determine fair value, the
Company relies on three valuation models: guideline pub-
lic companies, acquisition analysis and discounted cash
fl ow. For goodwill valuation purposes only, the revised fair
value of a reporting unit is allocated to the assets and lia-
bilities of the business unit to arrive at an implied fair value
of goodwill, based upon known facts and circumstances,
as if the acquisition occurred at that time.
Long-Lived Assets
In accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” long-lived
assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount of the assets in question may not be recoverable.
An impairment would be recorded in circumstances
where expected undiscounted cash fl ows from the use
and eventual disposition of an asset are less than the
carrying value of that asset.
Concentration of Credit 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 pri-
marily to department stores, perfumeries and specialty
retailers. The Company grants credit to all qualifi ed cus-
tomers and does not believe it is exposed signifi cantly to
any undue concentration of credit risk.
During fi scal 2006, Federated Department Stores, Inc.
acquired The May Department Stores Company, resulting
in the merger of the Company’s previous two largest cus-
tomers (collectively “Macy’s, Inc.”). This customer sells
products primarily within North America and accounted
for $951.4 million, or 12%, $958.8 million, or 14%, and
$1,005.8 million, or 16%, of the Company’s consolidated
net sales in fi scal 2008, 2007 and 2006, respectively. This
customer accounted for $109.2 million, or 11%, and
$105.3 million, or 12%, of the Company’s accounts
receivable at June 30, 2008 and 2007, respectively.
Revenue Recognition
Revenues from merchandise sales are recognized upon
transfer of ownership, including passage of title to the cus-
tomer 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, Middle East & Africa and Asia/Pacifi c
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 example, at the
Company’s retail stores. Sales at the Company’s retail
stores and online are recognized in accordance with a
traditional 4-4-5 retail calendar, where each fi scal quarter
is comprised of two 4-week periods and one 5-week
THE EST{E LAUDER COMPANIES INC. 81