Estee Lauder 2012 Annual Report Download - page 130

128 THE EST{E LAUDER COMPANIES INC.
NOTE 1 — DESCRIPTION OF BUSINESS
The Estée Lauder Companies Inc. manufactures, markets
and sells skin care, makeup, fragrance and hair care
products 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 sig-
nificant 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 all prior years reflect the two-for-one
stock split on the Company’s Class A and Class B
Common 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
dis closures in conformity with U.S. generally accepted
accounting principles (“U.S. GAAP”) requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contin-
gent assets and liabilities at the date of the financial state-
ments 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 intangi ble assets
and long-lived assets, income taxes and derivatives. Man-
agement 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 revenue
and expenses are translated at weighted-average rates of
exchange for the period. Unrealized translation gains or
losses are reported as cumulative translation adjustments
through other comprehensive income (loss) (“OCI”).
Such adjustments, attributable to The Estée Lauder Com-
panies Inc., amounted to $(154.2) million, $210.5 million
and $65.9 million of unrealized translation gains (losses),
net of tax, in fiscal 2012, 2011 and 2010, respectively. For
the Company’s Venezuelan subsidiary operating in a
highly inflationary economy, the U.S. dollar is the func-
tional currency. Remeasurement adjustments in financial
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 $0.5 million, $18.6 million and $33.3
million in fiscal 2012, 2011 and 2010, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include $660.2 million and
$242.5 million of short-term time deposits at June 30,
2012 and 2011, respectively. The Company considers all
highly liquid investments with original maturities of three
months or less to be cash equivalents. As of June 30, 2012 ,
approximately 24% 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
$31.1 million and $33.9 million as of June 30, 2012
and 2011, respectively. This reserve is based upon the
evaluation of accounts receivable aging, specific expo-
sures and historical trends.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS