Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	One)

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

For	the	transition	period	from										to

Commission	file	number	1-14064

# The	Estée	Lauder	Companies	Inc.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of	incorporation	or	organization)

767	Fifth	Avenue,	New	York,	New	York

(Address	of	principal	executive	offices)

Registrant's	telephone	number,	including	area	code	212-572-4200

# Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

(I.R.S.	Employer	Identification	No.)

(Zip	Code)

Class	A	Common	Stock,	$.01	par	value New	York	Stock	Exchange

# Securities	registered	pursuant	to	Section	12(g)	of	the	Act:

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.		Yes		x		No	o

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.		Yes		o		No	x

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the	preceding	12 months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90	days.		Yes		x		No	o

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of	registrant's knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	o

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company.		See	the	definitions	of	"large accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.

Large	accelerated	filer	x

Accelerated	filer	o

Non-accelerated	filer	o Smaller	reporting	company	o

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).		Yes	o	No	x

The	aggregate	market	value	of	the	registrant's	voting	common	equity	held	by	non-affiliates	of	the	registrant	was	approximately	$4.58	billion	at	December	31,	2007	(the	last	business day	of	the	registrant's	most	recently	completed	second	quarter).*

# Documents	Incorporated	by	Reference

Document

Proxy	Statement	for	Annual	Meeting	of

Stockholders	to	be	held	November	7,	2008

Where	Incorporated

Part	III

*	Calculated	by	excluding	all	shares	held	by	executive	officers	and	directors	of	registrant	and	certain	trusts	without	conceding	that	all	such	persons	are	"affiliates"	of	registrant	for purposes	of	the	Federal	securities	laws.

INDEX	TO	ANNUAL	REPORT	ON	FORM	10-K

# Part	I:

| Item	1. | Business | 2 |
| :--- | :--- | :--- |
| Item\t1A. | Risk\tFactors | 12 |
| Item\t1B. | Unresolved\tStaff\tComments | 15 |
| Item\t2. | Properties | 16 |
| Item\t3. | Legal\tProceedings | 17 |

| Item	5. | Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities | 17 |
| :--- | :--- | :--- |
| Item\t6. | Selected\tFinancial\tData | 19 |
| Item\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 20 |
| Item\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 39 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 39 |
| Item\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 40 |
| Item\t9A. | Controls\tand\tProcedures | 40 |
| Item\t9B. | Other\tInformation | 40 |
| Part\tIII: |  |  |
| Item\t10. | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 40 |
| Item\t11. | Executive\tCompensation | 40 |
| Item\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 40 |
| Item\t13. | Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 41 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 41 |
| Part\tIV: |  |  |
| Item\t15. | Exhibits,\tFinancial\tStatement\tSchedules | 42 |
| Signatures |  | 46 |

# Forward-Looking	Statements	and	Risk	Factors

This	Annual	Report	on	Form	10-K	includes	"forward-looking	statements"	within	the	meaning	of	the	Private	Securities	Litigation	Reform	Act	of	1995.		Such statements	include,	without	limitation,	our	expectations	regarding	sales,	earnings	or	other	future	financial	performance	and	liquidity,	product	introductions,	entry into	new	geographic	regions,	information	systems	initiatives,	new	methods	of	sale	and	future	operations	or	operating	results.		Although	we	believe	that	our expectations	are	based	on	reasonable	assumptions	within	the	bounds	of	our	knowledge	of	our	business	and	operations,	we	cannot	assure	that	actual	results	will	not differ	materially	from	our	expectations.		Factors	that	could	cause	actual	results	to	differ	from	expectations	are	described	herein;	in	particular,	see	"Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Forward-Looking	Information."		In	addition,	there	is	a	discussion	of risks	associated	with	an	investment	in	our	securities.		See	"Item	1A.	Risk	Factors."

# Item	1.		Business.

The	Estée	Lauder	Companies	Inc.,	founded	in	1946	by	Estée	and	Joseph	Lauder,	is	one	of	the	world's	leading	manufacturers	and	marketers	of	quality	skin	care,	makeup, fragrance	and	hair	care	products.		Our	products	are	sold	in	over	140	countries	and	territories	under	the	following	brand	names:	Estée	Lauder,	Aramis,	Clinique, Prescriptives,	Lab	Series,	Origins,	MžAžC,	Bobbi	Brown,	La	Mer,	Aveda,	Jo	Malone,	Bumble	and	bumble,	Darphin,	American	Beauty,	Flirt!,	Good	Skin™,	Grassroots, Ojon	and	Eyes	by	Design.		We	are	also	the	global	licensee	for	fragrances	and/or	cosmetics	sold	under	the	Tommy	Hilfiger,	Kiton,	Donna	Karan,	Michael	Kors,	Sean John,	Missoni,	Daisy	Fuentes,	Tom	Ford	and	Mustang	brand	names.		Each	brand	is	distinctly	positioned	within	the	market	for	beauty	products.

We	are	a	pioneer	in	the	cosmetics	industry	and	believe	we	are	a	leader	in	the	industry	due	to	the	global	recognition	of	our	brand	names,	our	leadership	in	product innovation,	our	strong	market	position	in	key	geographic	markets	and	the	consistently	high	quality	of	our	products.		We	sell	our	prestige	products	principally	through limited	distribution	channels	to	complement	the	images	associated	with	our	brands.		These	channels,	encompassing	over	25,000	points	of	sale,	consist	primarily	of upscale	department	stores,	specialty	retailers,	upscale	perfumeries	and	pharmacies	and	prestige	salons	and	spas.		In	addition,	our	products	are	sold	in	freestanding company-owned	stores	and	spas,	our	own	and	authorized	retailer	websites,	stores	on	cruise	ships,	direct	response	television	("DRTV"),	in-flight	and	duty-free	shops	and certain	fragrances	are	sold	in	self-select	outlets.		We	believe	that	our	strategy	of	pursuing	limited	distribution	strengthens	our	relationships	with	retailers,	enables	our brands	to	be	among	the	best	selling	product	lines	at	the	stores	and	heightens	the	aspirational	quality	of	our	brands.

For	a	discussion	of	recent	developments,	see	"Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Results	of	Operations –	Overview."

We	have	been	controlled	by	the	Lauder	family	since	the	founding	of	our	company.		Members	of	the	Lauder	family,	some	of	whom	are	directors,	executive	officers and/or	employees,	beneficially	own,	directly	or	indirectly,	as	of	August	15,	2008,	shares	of	Class	A	Common	Stock	and	Class	B	Common	Stock	having	approximately 87.8%	of	the	outstanding	voting	power	of	the	Common	Stock.

Unless	the	context	requires	otherwise,	references	to	"we,"	"us,"	"our"	and	the	"Company"	refer	to	The	Estée	Lauder	Companies	Inc.	and	its	subsidiaries.

# Products

Skin	Care	-	Our	broad	range	of	skin	care	products	addresses	various	skin	care	needs	for	women	and	men.		These	products	include	moisturizers,	creams, lotions,	cleansers,	sun	screens	and	self-tanning	products,	a	number	of	which	are	developed	for	use	on	particular	areas	of	the	body,	such	as	the	face	or	the	hands	or	around the	eyes.		Skin	care	products	accounted	for	approximately	38%	of	our	net	sales	in	fiscal	2008.

Makeup	-	We	manufacture,	market	and	sell	a	full	array	of	makeup	products,	including	lipsticks,	lip	glosses,	mascaras,	foundations,	eyeshadows,	nail	polishes and	powders.		Many	of	the	products	are	offered	in	an	extensive	array	of	shades	and	colors.		We	also	sell	related	items	such	as	compacts,	brushes	and	other	makeup

tools.		Makeup	products	accounted	for	approximately	38%	of	our	net	sales	in	fiscal	2008.

Fragrance	-	We	offer	a	variety	of	fragrance	products	for	women	and	men.		The	fragrances	are	sold	in	various	forms,	including	eau	de	parfum	sprays	and colognes,	as	well	as	lotions,	powders,	creams	and	soaps	that	are	based	on	a	particular	fragrance.		Fragrance	products	accounted	for	approximately	18%	of	our	net	sales	in fiscal	2008.

Hair	Care	-	Hair	care	products	are	offered	mainly	in	salons	and	in	freestanding	retail	stores	and	include	hair	color	and	styling	products,	shampoos,	conditioners and	finishing	sprays.		In	fiscal	2008,	hair	care	products	accounted	for	approximately	6%	of	our	net	sales.

Given	the	personal	nature	of	our	products	and	the	wide	array	of	consumer	preferences	and	tastes,	as	well	as	competition	for	the	attention	of	consumers,	our	strategy	has been	to	market	and	promote	our	products	through	distinctive	brands	seeking	to	address	broad	preferences	and	tastes.		Each	brand	has	a	single	global	image	that	is promoted	with	consistent	logos,	packaging	and	advertising	designed	to	enhance	its	image	and	differentiate	it	from	other	brands.

Estée	Lauder	-	Estée	Lauder	brand	products,	which	have	been	sold	since	1946,	are	positioned	as	luxurious,	classic	and	aspirational.		We	believe	that	Estée	Lauder brand	products	are	technologically	advanced	and	innovative	and	have	a	worldwide	reputation	for	excellence.		The	broad	product	line	principally	consists	of	skin	care, makeup	and	fragrance	products	that	are	presented	in	high	quality	packaging.

Aramis	and	Designer	Fragrances	-	Our	Aramis	and	Designer	Fragrances	division	creates	and	markets	fragrance	and	skin	care	products,	including	the	following brand	names:

·																		Aramis	-	We	pioneered	the	marketing	of	prestige	men's	fragrance,	grooming	and	skin	care	products	with	the	introduction	of	Aramis	products	in	1964.

·																		Lab	Series	-	Lab	Series	Skincare	for	Men,	introduced	by	the	Aramis	and	Designer	Fragrances	division	in	1987,	offers	a	full	range	of	products	for	cleansing,

shaving,	treatment	and	body	that	are	especially	formulated	to	answer	the	unique	needs	of	men's	skin.

·																		Tommy	Hilfiger	-	We	have	an	exclusive	global	license	arrangement	to	develop	and	market	a	line	of	men's	and	women's	fragrances	and	cosmetics	under	the Tommy	Hilfiger	brand	name.		We	launched	the	line	in	1995	with	a	men's	fragrance,	tommy.		Today,	we	manufacture	and	sell	a	variety	of	fragrances	and ancillary	products	for	men	and	women.

·																		Donna	Karan	Cosmetics	-	In	November	1997,	we	obtained	the	exclusive	global	license	to	develop,	market	and	distribute	a	line	of	fragrances	and	other cosmetics	under	the	Donna	Karan	New	York	and	DKNY	brand	names,	including	certain	products	that	were	originally	sold	by	The	Donna	Karan	Company.		We launched	the	first	DKNY	women's	fragrance	in	fiscal	2000	and	the	first	DKNY	men's	fragrance	in	fiscal	2001.		Under	this	license,	fragrances	have	been expanded	to	include	extensive	lines	of	companion	bath	and	body	products.

·																		Michael	Kors	-	In	May	2003,	we	entered	into	a	license	agreement	for	fragrances	and	beauty	products	under	the	Michael	Kors	brand	name	and	purchased certain	related	rights	and	inventory	from	another	party.		The	fragrances,	as	well	as	ancillary	bath	and	body	products,	are	sold	in	department	stores,	specialty stores,	at	freestanding	Michael	Kors	boutiques	and	over	the	Internet.

·																		Sean	John	Fragrances	-	In	2005,	we	entered	into	an	exclusive	license	agreement	to	develop	fragrances	and	other	beauty	products	under	the	Sean	John	brand name.		Sean	"Diddy"	Combs	played	an	active	role	in	creating	the	signature	scent,	"Unforgivable."		The	Unforgivable	fragrance	and	ancillary	products	are primarily	available	at	select	department	and	specialty	stores	as	well	as	travel	retail	outlets	around	the	world.

·																		Missoni	-	In	2006,	we	launched	fragrance	and	ancillary	products	under	our	exclusive	global	licensing	agreement	with	Milan-based	fashion	house,	Missoni. Missoni	products	are	sold	in	select	distribution	channels	worldwide.

In	addition	to	the	foregoing	brands,	we	market	and	sell	Mustang	and	Kiton	products	as	a	licensee.

Clinique	-	First	introduced	in	1968,	Clinique	skin	care	and	makeup	products	are	all	allergy	tested	and	100%	fragrance	free	and	have	been	designed	to	address individual	skin	types	and	needs.		The	products	are	based	on	the	research	and	related	expertise	of	leading	dermatologists.		Clinique	skin	care	products	are	generally marketed	as	part	of	the	3-Step	System:	Cleanse,	Exfoliate,	Moisturize.		Clinique	also	offers	fragrances	and	a	line	of	hair	care	products.

Prescriptives	-	Introduced	in	1979	and	sold	in	five	countries,	Prescriptives	focuses	on	delivering	flawless-looking	skin—for	all	skins,	from	lightest	to	darkest. Signature	services	include	the	ultra-personalized	artistry	of	Custom	Blend	Makeup	and	complimentary	Colorprinting,	which	leads	the	customer	to	her	exact	match foundation	and	customizable	color	cosmetics.		Prescriptives	also	features	a	personalized	skin	care	regime	for	all	skins.		The	products	are	visually	compelling	and	of minimalist	design	with	a	modern,	innovative	image.

Origins	-	Origins	was	introduced	in	1990.		It	is	positioned	as	a	plant-based	line	of	skin	care,	makeup	and	aromatherapy	products	that	combine	time-tested	botanical ingredients	with	modern	science	to	promote	total	well-being.		Origins	sells	its	products	at	our	freestanding	Origins	stores	and	through	stores-within-stores	(which	are designed	to	replicate	the	Origins	store	environment	within	a	department	store),	at	traditional	retail	counters,	in	perfumeries	and	directly	to	consumers	over	the	Internet. Origins	Organics™	is	the	first	full	line	of	prestige	skin,	body	and	hair	care	products	to	be	certified	under	the	USDA	National	Organic	Program.		Origins	also	has	a license	agreement	to	develop	and	sell	products	using	the	name	of	Dr.	Andrew	Weil.

MžAžC	-	MžAžC	products	comprise	a	broad	line	of	color-oriented,	professional	cosmetics	and	professional	makeup	tools	targeting	makeup	artists	and	fashion- conscious	consumers.		The	products	are	sold	through	a	limited	number	of	department	and	specialty	stores,	at	freestanding	MžAžC	stores	and	directly	to	consumers	over the	Internet.		We	acquired	the	companies	behind	MžAžC	in	three	stages:	in	December	1994,	March	1997	and	February	1998.

Bobbi	Brown	-	In	October	1995,	we	acquired	the	Bobbi	Brown	line	of	color	cosmetics,	professional	makeup	brushes	and	skin	care	products.		Bobbi	Brown products	are	manufactured	to	our	specifications,	primarily	by	third	parties,	and	sold	through	a	limited	number	of	department	and	specialty	stores	and	directly	to consumers	over	the	Internet.

La	Mer	-	La	Mer	products	primarily	consist	of	moisturizing	creams,	lotions,	cleansers,	toners	and	other	skin	care	products.		The	line,	which	is	available	in	very limited	distribution	in	the	United	States	and	certain	other	countries,	is	an	extension	of	the	initial	Crème	de	la	Mer	product	that	we	acquired	in	1995.

Aveda	-	We	acquired	the	Aveda	business	in	December	1997	and	have	since	acquired	selected	Aveda	distributors	and	retail	stores.		Aveda,	a	prestige	hair	care leader,	is	a	manufacturer	and	marketer	of	plant-based	hair	care,	skin	care,	makeup	and	fragrance	products.		We	sell	Aveda	products	to	third-party	distributors	and prestige	salons	and	spas,	cosmetology	schools,	certain	non-U.S.	department	stores	and	specialty	retailers	and	directly	to	consumers	at	our	own	freestanding	Aveda Experience	Centers	and	certain	Aveda	Institutes.

Jo	Malone	-	We	acquired	London-based	Jo	Malone	Limited	in	October	1999.		Jo	Malone	is	known	for	its	prestige	skin	care,	fragrance	and	hair	care	products showcased	at	its	flagship	store	in	London.		Products	are	also	available	through	a	company	catalogue,	at	freestanding	stores	and	at	a	very	limited	group	of	specialty stores,	primarily	in	the	United	States,	Canada	and	the	United	Kingdom.

Bumble	and	bumble	-	In	September	2006,	we	acquired	the	remaining	minority	equity	interest	in	Bumble	and	bumble.		We	acquired	a	controlling	majority	equity interest	in	June	2000.		Bumble	and	bumble	is	a	New	York-based	hair	care	and	education	company	with	two	salons	that	creates	high-quality	hair	care	and	styling products	distributed	through	other	top-tier	salons	and	select	prestige	retailers.		We	also	provide	business	and	design	education	to	the	Bumble	and	bumble	network	of

# independent	salons.

Darphin	-	In	April	2003,	we	acquired	Laboratoires	Darphin,	the	Paris-based	company	dedicated	to	the	development,	manufacture	and	marketing	of	prestige	skin care	and	makeup	products	which	are	distributed	primarily	through	high-end	independent	pharmacies	and	specialty	stores.

BeautyBank	-	BeautyBank	is	our	entrepreneurial	think	tank	division	whose	mission	is	to	develop	brands	and	products	for	consumers	shopping	outside	of	the traditional	department	store	channel	on	a	worldwide	basis.		Brands	developed	under	the	BeautyBank	umbrella	include:

·																		American	Beauty	-	Launched	in	2004,	the	luxurious	fragrance,	makeup	and	advanced	skin	care	line	celebrates	the	beauty	of	American	style.		These	products,

which	are	sold	in	the	United	States	at	Kohl's	Department	Stores	and	Kohls.com,	have	been	developed	to	meet	the	needs	of	the	modern	American	woman,	with a	straightforward	makeup	and	skin	care	appeal.

·																		Flirt!	-	Launched	in	2004	and	sold	in	the	United	States	at	Kohl's	Department	Stores	and	Kohls.com,	this	makeup	line	is	all	about	experimenting	with	color,	pop culture	and	trends;	"you	can	Flirt!	with	the	possibilities."

·																		Good	Skin™	-	Launched	in	2004	and	sold	in	the	United	States	at	Kohl's	Department	Stores	and	Kohls.com,	this	line	of	skin	care	products	was	created	with	the expertise	of	a	dermatologist.		This	line	is	color-coded	for	ease	of	use.		Select	products	of	this	brand	are	now	available	in	a	number	of	countries	around	the world.		good	skin,	easy	to	choose,	easy	to	use,	doctor	formulated	for	you.™

·																		Grassroots	-	Introduced	in	2005	and	sold	in	the	United	States	at	Kohl's	Department	Stores	and	Kohls.com,	Grassroots	offers	a	range	of	wholesome,	naturally-

sourced	products	to	help	care	for	you	and	your	family.		This	line's	seven	product	categories	include	face,	body,	hair,	post-pregnancy,	babies,	kids	and	pets.

·																		Daisy	Fuentes	-	In	early	fiscal	2007,	we	launched	Dianoche,	the	first	fragrance	under	our	license	agreement	with	Daisy	Fuentes.		Dianoche	holds	two	scents that	connect	in	a	single	bottle	and	is	available	exclusively	at	Kohl's	Department	Stores	nationwide	or	online	at	Kohls.com.

·																		Eyes	by	Design	-	A	line	of	makeup	products	for	the	eyes	developed	for	exclusive	distribution	on	HSN,	a	DRTV	channel,	and	HSN.com	that	BeautyBank launched	in	July	2008.

Tom	Ford	-	In	2006,	we	entered	into	a	license	agreement	to	develop	fragrances	and	other	beauty	products	under	the	Tom	Ford	brand	name.		In	fiscal	2007,	we introduced	Tom	Ford	Black	Orchid,	his	first	signature	fragrance.

Ojon	-	In	2007,	we	acquired	Ojon	Corporation,	a	company	based	in	Canada	which	markets	naturally-derived,	wildcrafted	hair	and	skin	care	beauty	products	using ingredients	found	in	the	world's	rainforests.

Our	core	brands	are	Estée	Lauder,	Aramis	and	Designer	Fragrances,	Clinique,	Prescriptives	and	Origins.		MžAžC	and	Bobbi	Brown	are	our	makeup	artist	brands.

# Distribution

We	sell	our	products	principally	through	limited	distribution	channels	to	complement	the	images	associated	with	our	brands.		These	channels	include	more	than	25,000 points	of	sale	in	over	140	countries	and	territories	and	consist	primarily	of	upscale	department	stores,	specialty	retailers,	upscale	perfumeries	and	pharmacies	and	prestige salons	and	spas.		In	addition,	our	products	are	sold	in	freestanding	company-owned	stores	and	spas,	our	own	and	authorized	retailer	websites,	stores	on	cruise	ships, DRTV,	in-flight	and	duty-free	shops	and	certain	fragrances	are	sold	in	self-select	outlets.

We	maintain	a	dedicated	sales	force	which	sells	to	our	retail	accounts	in	North	America	and	in	the	major	overseas	markets,	such	as	Western	Europe	and	Japan.		We	have wholly-owned	operations	in	over	40	countries,	and	controlling	interests	in	joint	ventures	that	operate	in	four	other	countries,	through	which	we	market,	sell	and	distribute our	products.		In	certain	countries,	we	sell	our	products	through	selected	local	distributors	under	contractual	arrangements	designed	to	protect	the	image	and	position	of the	brands.		In	addition,	we	sell	certain	products	in	select	domestic	and	international	military	locations.		For	information	regarding	our	net	sales	and	long-lived	assets	by geographic	region,	see	Note	21	of	Notes	to	Consolidated	Financial	Statements,	which	is	incorporated	herein	by	reference.

We	sell	Aveda	products	principally	to	independent	salons	and	spas,	cosmetology	schools,	third-party	distributors	and	specialty	retailers	and	directly	to	consumers	at	our own	freestanding	Aveda	Experience	Centers	and	certain	Aveda	Institutes.		There	are	currently	about	7,200	points	of	sale,	primarily	in	the	United	States,	that	sell	Aveda products.		Bumble	and	bumble	products	are	principally	sold	to	about	2,500	independent	salons,	primarily	in	the	United	States.		Darphin	products	are	principally	sold through	high-end	independent	pharmacies,	principally	in	Europe,	representing	approximately	3,700	points	of	sale.

As	part	of	our	strategy	to	diversify	our	distribution,	we	have	been	selectively	expanding	the	number	of	single-brand,	freestanding	stores	that	we	operate.		The	Origins, Aveda	and	MžAžC	brands	are	the	primary	focus	for	this	method	of	distribution.		At	this	time,	we	operate	577	single-brand,	freestanding	stores	worldwide,	the	majority of	which	are	in	the	United	States,	and	expect	that	number	to	increase	moderately	over	the	next	several	years.		We	also	operate	90	multi-brand	stores.

We	sell	American	Beauty,	Flirt!,	Good	Skin™,	Grassroots	and	Dianoche,	by	Daisy	Fuentes	in	approximately	1,000	Kohl's	Department	Stores	in	the	United	States.

We	currently	sell	products	from	16	of	our	brands	directly	to	consumers	over	the	Internet	through	our	own	e-commerce	sites.		Some	or	all	of	these	brands	are	sold	in	the following	countries:	the	United	States,	the	United	Kingdom,	Australia,	France,	Korea	and	Canada.

As	is	customary	in	the	cosmetics	industry,	our	practice	is	to	accept	returns	of	our	products	from	retailers	if	properly	requested,	authorized	and	approved.		In	accepting returns,	we	typically	provide	a	credit	to	the	retailer	against	sales	and	accounts	receivable	from	that	retailer	on	a	dollar-for-dollar	basis.		In	recognition	of	this	practice, and	in	accordance	with	U.S.	generally	accepted	accounting	principles,	we	report	revenues	on	a	net	sales	basis,	which	reflects	the	amount	of	actual	returns	received	and	an amount	established	for	anticipated	returns.		As	a	percentage	of	gross	sales,	returns	were	4.4%,	4.2%	and	5.0%	in	fiscal	2008,	2007	and	2006,	respectively.

# Customers

Our	strategy	is	to	build	strong	strategic	relationships	with	selected	retailers	globally.		Senior	management	works	with	executives	of	our	major	retail	accounts	on	a	regular basis	and	we	believe	we	are	viewed	as	an	important	supplier	to	these	customers.		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.").		As	of	and	for	the	fiscal	years	ended	June	30,	2008,	2007 and	2006,	Macy's,	Inc.	accounted	for	11%,	12%	and	14%,	respectively,	of	our	accounts	receivable	and	12%,	14%	and	16%,	respectively,	of	our	consolidated	net	sales.

# Marketing

Our	marketing	strategy	is	built	around	our	vision	statement:	"Bringing	the	Best	to	Everyone	We	Touch."		Mrs.	Estée	Lauder	formulated	this	marketing	philosophy	to provide	high-quality	service	and	products	as	the	foundation	for	a	solid	and	loyal	consumer	base.

Our	marketing	efforts	focus	principally	on	promoting	the	quality	and	benefits	of	our	products.		Each	of	our	brands	is	distinctively	positioned,	has	a	single	global	image, and	is	promoted	with	consistent	logos,	packaging	and	advertising	designed	to	enhance	its	image	and	differentiate	it	from	other	brands.		We	regularly	advertise	our products	on	television	and	radio,	in	upscale	magazines	and	newspapers	and	through	direct	mail	and	photo	displays	at	international	airports.		In	addition,	our	products receive	extensive	editorial	coverage	in	prestige	publications	and	other	media	worldwide.		Promotional	activities	and	in-store	displays	are	designed	to	introduce	existing

consumers	to	different	products	in	the	line	and	to	attract	new	consumers.		Our	marketing	efforts	also	benefit	from	cooperative	advertising	programs	with	retailers,	some of	which	are	supported	by	coordinated	promotions,	such	as	purchase	with	purchase	and	gift	with	purchase.		Our	marketing	and	sales	executives	spend	considerable	time in	the	field	meeting	with	consumers	and	key	retailers	and	consulting	with	sales	representatives	at	the	points	of	sale.		These	include	Estée	Lauder	Beauty	Advisors, Clinique	Consultants,	Aramis	Selling	Specialists,	Prescriptives	Analysts,	Origins	Guides	and	MžAžC	Makeup	Artists.		At	in-store	counters,	sales	representatives	offer personal	demonstrations	to	market	individual	products	as	well	as	to	provide	education	on	basic	skin	care	and	makeup	application.		We	conduct	extensive	sampling programs	and	we	pioneered	gift	with	purchase	as	a	sampling	program.		We	believe	that	the	quality	and	perceived	benefits	of	sample	products	have	been	effective inducements	to	purchases	by	new	and	existing	consumers.

Starting	with	the	launch	of	the	Clinique	website	in	1996,	we	have	used	the	Internet	to	educate	and	inform	consumers	about	certain	of	our	brands.		Currently,	19	of	our brands	have	marketing	sites,	16	of	which	have	e-commerce	capabilities.

Most	of	our	creative	marketing	work	is	done	by	in-house	creative	teams.		The	creative	staff	designs	and	produces	the	sales	materials,	advertisements	and	packaging	for all	products	in	each	brand.

Global	net	expenses	for	advertising,	merchandising,	sampling	and	promotion	were	$2,034.6	million,	$1,841.9	million	and	$1,721.1	million	in	fiscal	2008,	2007	and 2006,	respectively.		These	amounts	include	activities	relating	to	purchase	with	purchase	and	gift	with	purchase	promotions	that	are	reflected	in	net	sales	and	cost	of	sales.

# Information	Systems

Information	systems	support	business	processes	including	product	development,	marketing,	sales,	order	processing,	production,	distribution	and	finance.		Of	the	many systems	currently	being	utilized,	the	most	significant	to	our	business	needs	are:	(i)	a	centralized	data	repository	of	essential	attributes	for	each	of	the	products	we	offer, or	plan	to	offer,	which	enables	us	to	globally	manufacture	and	market	products	of	consistent	quality;	(ii)	a	sales	analysis	system	to	track	weekly	sales	at	the	stock	keeping unit	(SKU)	level	at	most	significant	retail	sales	locations	(i.e.,	sell-through	data),	increasing	our	understanding	of	consumer	preferences	and	enabling	us	to	coordinate more	effectively	our	product	development,	manufacturing	and	marketing	strategies;	(iii)	an	automated	replenishment	system	with	many	of	our	key	domestic	customers, allowing	us	to	replenish	inventories	for	individual	points	of	sale	automatically,	with	minimal	paperwork;	and	(iv)	an	inventory	management	system	to	provide	us	with	a global	view	of	finished	goods	availability	relative	to	actual	requirements.

We	expect	that	these	systems	will	continue	to	provide	pertinent	inventory	and	sales	data	in	the	short	term.		However,	as	part	of	our	long-term	effort	to	enhance	these systems	and	increase	productivity,	we	are	implementing	our	Strategic	Modernization	Initiative	("SMI"),	which	includes	an	enterprise-wide	global	program	that	we expect	will	deliver	a	single	set	of	integrated	data,	processes	and	technologies,	which	would	be	scalable	and	used	to	standardize	business	processes	across	brands, operating	units	and	sales	affiliates.		The	initial	implementation	of	SMI	at	our	Aveda	operating	unit	occurred	in	May	2007	and	we	believe	it	is	operating	effectively.		We anticipate	SMI	implementation	will	continue	at	additional	primary	locations	in	fiscal	2009,	with	the	majority	of	our	business	to	be	implemented	through	fiscal	2012.

# Research	and	Development

We	believe	that	we	are	an	industry	leader	in	the	development	of	new	products.		Marketing,	product	development	and	packaging	groups	work	with	our	research	and development	group	to	identify	shifts	in	consumer	preferences,	develop	new	products	and	improve,	redesign	or	reformulate	existing	products.		In	addition,	research	and development	personnel	work	closely	with	quality	assurance	and	manufacturing	personnel	on	a	worldwide	basis	to	provide	ongoing	technical	assistance	and	know-how, to	ensure	consistent	global	standards	for	our	products	and	to	deliver	products	with	attributes	that	fulfill	consumer	expectations.		The	research	and	development	group	has long-standing	working	relationships	with	several	U.S.	and	international	medical	and	educational	facilities,	which	supplement	internal	capabilities.		Members	of	the	group are	also	responsible	for	regulatory	compliance	matters.

We	do	not	conduct	animal	testing	on	our	products	or	ingredients,	nor	ask	others	to	test	on	our	behalf,	except	when	required	by	law.		We	evaluate	our	finished	products	in clinical	tests	on	volunteer	panels.

We	maintain	ongoing	research	and	development	programs	at	our	facilities	in	Melville,	New	York;	Oevel,	Belgium;	Petersfield,	U.K.;	Tokyo,	Japan;	Markham,	Ontario; Blaine,	Minnesota;	Shanghai,	China;	and	Colombes,	France.		As	of	June	30,	2008,	we	had	approximately	450	employees	engaged	in	research	and	development. Research	and	development	expenditures	totaled	$80.9	million,	$74.4	million	and	$72.0	million	in	fiscal	2008,	2007	and	2006,	respectively.

# Manufacturing,	Warehousing	and	Raw	Materials

We	manufacture	skin	care,	makeup,	fragrance	and	hair	care	products	primarily	in	the	United	States,	Belgium,	Switzerland,	the	United	Kingdom,	Canada	and	France. We	continue	to	streamline	our	manufacturing	processes	and	identify	sourcing	opportunities	to	improve	innovation,	increase	efficiencies	and	reduce	costs.		Our	major manufacturing	facilities	operate	as	"focus"	plants	that	primarily	manufacture	one	type	of	product	(e.g.,	lipsticks)	for	all	of	the	principal	brands.		Our	plants	are	modern and	our	manufacturing	processes	are	substantially	automated.		While	we	believe	that	our	manufacturing	facilities	are	sufficient	to	meet	current	and	reasonably anticipated	manufacturing	requirements,	we	continue	to	identify	opportunities	to	make	significant	improvements	in	capacity	and	productivity.		To	capitalize	on innovation	and	other	supply	benefits,	we	continue	to	utilize	third	parties	on	a	global	basis	for	finished	goods	production,	including	an	increased	volume	in	Asia/Pacific	to support	our	international	growth.

We	have	established	a	global	distribution	network	designed	to	meet	the	changing	demands	of	our	customers	while	maintaining	service	levels.		We	are	continuously evaluating	and	restructuring	this	physical	distribution	network.		We	have	begun	to	establish	regional	inventory	centers	strategically	positioned	throughout	the	world	in order	to	facilitate	timely	delivery	of	our	products	to	our	customers.

The	principal	raw	materials	used	in	the	manufacture	of	our	products	are	essential	oils,	alcohol	and	specialty	chemicals.		We	also	purchase	packaging	components	that	are manufactured	to	our	design	specifications.		Procurement	of	materials	for	all	manufacturing	facilities	is	generally	made	on	a	global	basis	through	our	Global	Supplier Relations	department.		In	recent	years,	we	made	a	concentrated	effort	in	supplier	rationalization	with	the	specific	objective	of	reducing	costs,	increasing	innovation	and improving	quality.		In	addition,	we	continue	to	focus	on	supply	sourcing	within	the	region	of	manufacture	to	allow	for	improved	supply	chain	efficiencies.		As	a	result	of sourcing	initiatives,	there	is	increased	dependency	on	certain	suppliers,	but	we	believe	that	these	suppliers	have	adequate	resources	and	facilities	to	overcome	any unforeseen	interruption	of	supply.		We	are	continually	benchmarking	the	performance	of	the	supply	chain	and	will	add	or	delete	suppliers	based	upon	the	changing	needs of	the	business.		In	the	past,	we	have	been	able	to	obtain	an	adequate	supply	of	essential	raw	materials	and	currently	believe	we	have	adequate	sources	of	supply	for virtually	all	components	of	our	products.		As	we	integrate	acquired	brands,	we	continually	seek	new	ways	to	leverage	our	production	and	sourcing	capabilities	to improve	manufacturing	performance.

# Competition

The	skin	care,	makeup,	fragrance	and	hair	care	businesses	are	characterized	by	vigorous	competition	throughout	the	world.		Brand	recognition,	quality,	performance	and price	have	a	significant	impact	on	consumers'	choices	among	competing	products	and	brands.		Advertising,	promotion,	merchandising,	the	pace	and	timing	of	new product	introductions,	line	extensions	and	the	quality	of	in-store	sales	staff	also	have	a	significant	impact	on	consumers'	buying	decisions.		With	our	numerous	brands, sold	in	various	channels,	we	are	one	of	the	world's	leading	manufacturers	and	marketers	of	skin	care,	makeup,	fragrance	and	hair	care	products.		We	compete	against	a number	of	companies,	some	of	which	have	substantially	greater	resources	than	we	do.

Our	principal	competitors	among	manufacturers	and	marketers	of	skin	care,	makeup,	fragrance	and	hair	care	products	include:

·																Alticor,	which	markets	Artistry,	NAO	and	Laura	Mercier	Cosmetics	and	Skincare;

·																Avon	Products	Inc.,	a	direct	marketer	of	Avon	Color,	Anew,	Avon	Naturals,	Advance	Techniques,	Skin-so-soft,	mark,	and	other	products;

·																Bare	Escentuals,	Inc.,	which	markets	its	bareMinerals,	RareMinerals	and	Bare	Escentuals	brands.		It	also	markets	professional	skin	care	products	under	its	md formulations	brand;

·																Beiersdorf	AG,	which	markets	Nivea,	Eucerin,	La	Prairie,	Juvena,	Florena	and	other	brands;

·																Clarins	S.A.,	which	markets	Clarins,	Azzaro,	Thierry	Mugler,	Porsche	Design,	David	Yurman,	Stella	Cadente,	Swarovski	and	other	brands,	and	holds	a	minority stake	in	Kibio	and	L'Occitane	International;

·																Coty,	Inc.,	which	markets	Calvin	Klein,	Cerruti,	Chloé,	Chopard,	Davidoff,	House	of	Phat,	Jennifer	Lopez,	Jette	Joop,	Jill	Sander,	JOOP!,	Kenneth	Cole,	Lancaster,

Marc	Jacobs,	Nautica,	Nikos,	Sarah	Jessica	Parker,	Vera	Wang,	Vivienne	Westwood	and	other	brands;

·																Elizabeth	Arden,	Inc.,	which	markets	Elizabeth	Arden,	Elizabeth	Taylor,	Halston,	Britney	Spears,	Prevage,	Hummer,	Hillary	Duff,	Danielle	Steel,	Daytona	500,

Gant,	Giorgio	Beverley	Hills,	Mariah	Carey,	Badgley	Mischka,	Nanette	Lepore,	Alfred	Sung	and	others;

·																Johnson	&	Johnson,	which	markets	AMBI	Skincare,	Aveeno,	Clean	&	Clear,	Vendome,	Lubriderm,	Neutrogena,	Purpose,	RoC,	Piz	Buin	and	other	brands;

·																Kao	Corporation,	which	markets	Sofina,	Kanebo,	Molton	Brown,	Biore,	Jergens,	John	Frieda,	Goldwell,	KMS,	HADA	KA,	Phytomax,	KPSS,	and	other	brands;

·																L'Oreal	S.A.,	which	markets	Lancôme,	Biotherm,	Helena	Rubinstein,	Kiehl's,	Shu	Uemura,	Giorgio	Armani,	Ralph	Lauren,	Cacharel,	Viktor	&	Rolf,	Diesel,

Vichy,	La	Roche-Posay,	Innéov,	SkinCeuticals,	Garnier,	L'Oreal	Paris,	Maybelline	NY,	SoftSheen-Carson,	Kérastase,	Redken,	Matrix,	Mizani,	Sanoflore,	The Body	Shop,	YSL	Beaute,	Stella	McCartney	and	other	brands;

·																LVMH	Moët	Hennessey	Louis	Vuitton	("LVMH"),	which	markets	Dior,	Guerlain,	Givenchy,	Kenzo,	Benefit,	Fresh,	Make	Up	For	Ever,	Aqua	di	Parma,	Loewe and	other	brands;

·																The	Procter	&	Gamble	Company,	which	markets	SK-II,	Cover	Girl,	Olay,	Noxema,	Giorgio	Beverly	Hills,	Hugo	Boss,	Escada,	Lacoste,	bruno	banani,	Ghost,

Puma,	Naomi	Campbell,	Infusium,	Max	Factor,	Pantene,	Clairol,	Wella,	Valentino,	Aussie,	Dolce	&	Gabbana,	Baldessarini,	Frederick	Fekkai	and	other	brands;

·																Revlon,	Inc.,	which	markets	Revlon,	Color	Stay,	New	Complexion,	Revlon	Age	Defying,	Almay,	Ultima	II,	Flex,	Mitchum	and	Charlie;

·																Shiseido	Company,	Ltd.,	which	markets	Shiseido,	Clé	de	Peau	Beauté,	Nars,	Decléor,	Issey	Miyake,	Jean	Paul	Gaultier,	Carita,	Aupres,	and	other	brands;

We	also	face	competition	from	a	number	of	independent	brands,	such	as	dr.	brandt,	MD	Skincare,	Murad,	Obagi,	Paul	Mitchell,	Paula	Dorf,	N.V.	Perricone	M.D.,	tarte,

TIGI,	and	Trish	McEvoy.

Additionally,	some	retailers	have	developed	their	own	beauty	brands,	such	as:

·																		Limited	Brands	Inc.,	which	markets	Victoria's	Secret	Beauty,	Bath	and	Body	Works,	c.o.	bigelow;	and

Some	of	our	competitors	also	have	ownership	interests	in	retailers	that	are	customers	of	ours.		For	example,	LVMH	has	interests	in	DFS	Group	LTD,	Miami	Cruiseline Services,	Le	Bon	Marché,	la	Samaritaine,	eLuxury,	and	Sephora.

# Trademarks,	Patents	and	Copyrights

The	trademarks	used	in	our	business	include	the	brand	names	Estée	Lauder,	Clinique,	Aramis,	Prescriptives,	Lab	Series,	Origins,	Tommy	Hilfiger,	Donna	Karan, DKNY,	MžAžC,	Bobbi	Brown,	La	Mer,	Aveda,	Jo	Malone,	Bumble	and	bumble,	Darphin,	Michael	Kors,	American	Beauty,	Flirt!,	Good	Skin™,	Grassroots,	Ojon	and Eyes	by	Design	and	the	names	of	many	of	the	products	sold	under	these	brands.		We	own	the	material	trademark	rights	used	in	connection	with	the	manufacturing, marketing	and	distribution	of	most	of	our	major	products	both	in	the	United	States	and	in	the	other	principal	countries	where	such	products	are	sold.		We	are	the exclusive	worldwide	licensee	for	fragrances,	cosmetics	and/or	related	products	for	Tommy	Hilfiger,	Donna	Karan,	DKNY,	Kiton,	Michael	Kors,	Sean	John,	Missoni, Daisy	Fuentes	and	Tom	Ford.		Origins	sells	products	using	the	name	of	Dr.	Andrew	Weil	and	Aramis	and	Designer	Fragrances	sells	a	fragrance	in	the	Americas	region using	the	name	Mustang,	in	each	case	pursuant	to	a	license	agreement.		We	protect	our	trademarks	for	our	principal	products	in	the	United	States	and	significant	markets worldwide.		We	consider	the	protection	of	our	trademarks	to	be	important	to	our	business.

A	number	of	our	products	incorporate	patented,	patent-pending	or	proprietary	technology	in	formulations	or	packaging.		In	addition,	several	products	are	covered	by design	patents,	patent	applications	or	copyrights.		While	we	consider	these	patents	and	copyrights,	and	the	protection	thereof,	to	be	important,	no	single	patent	or copyright	is	considered	material	to	the	conduct	of	our	business.

# Employees

At	June	30,	2008,	we	had	approximately	32,000	full-time	employees	worldwide	(including	sales	representatives	at	points	of	sale	who	are	employed	by	us),	of	whom approximately	13,400	are	employed	in	the	United	States	and	Canada.		None	of	our	employees	in	the	United	States	is	covered	by	a	collective	bargaining	agreement.		In certain	other	countries,	a	limited	number	of	employees	are	covered	by	a	works	council	agreement	or	other	syndicate	arrangements.		We	believe	that	relations	with	our employees	are	good.		We	have	never	encountered	a	material	strike	or	work	stoppage	in	the	United	States	or	in	any	other	country	where	we	have	a	significant	number	of employees.

# Government	Regulation

We	and	our	products	are	subject	to	regulation	by	the	Food	and	Drug	Administration	and	the	Federal	Trade	Commission	in	the	United	States,	as	well	as	by	various	other Federal,	state,	local	and	international	regulatory	authorities	and	the	regulatory	authorities	in	the	countries	in	which	our	products	are	produced	or	sold.		Such	regulations principally	relate	to	the	ingredients,	labeling,	packaging	and	marketing	of	our	products.		We	believe	that	we	are	in	substantial	compliance	with	such	regulations,	as	well as	with	applicable	Federal,	state,	local	and	international	and	other	countries'	rules	and	regulations	governing	the	discharge	of	materials	hazardous	to	the	environment. There	are	no	significant	capital	expenditures	for	environmental	control	matters	either	planned	in	the	current	year	or	expected	in	the	near	future.		Along	with	other unrelated	parties,	we	have	been	named	as	a	potentially	responsible	party	by	the	Office	of	the	Attorney	General	of	the	State	of	New	York	with	regard	to	a	landfill	in	Long Island,	New	York.		See	"Item	3.	Legal	Proceedings."

Seasonality

Our	results	of	operations	in	total,	by	region	and	by	product	category,	are	subject	to	seasonal	fluctuations,	with	net	sales	in	the	first	half	of	the	fiscal	year	typically	being slightly	higher	than	in	the	second	half	of	the	fiscal	year.		The	higher	net	sales	in	the	first	half	of	the	fiscal	year	are	attributable	to	the	increased	levels	of	purchasing	by retailers	for	the	holiday	selling	season	and	for	fall	fashion	makeup	introductions.		Many	of	our	customers	that	are	retailers	follow	a	4-4-5	retail	calendar	which	may influence	the	amount	and	timing	of	their	order	placement	and	receipt	of	goods	in	any	fiscal	quarter.		In	a	traditional	4-4-5	retail	calendar,	each	fiscal	quarter	is	comprised of	two	4-week	periods	and	one	5-week	period,	with	one	extra	week	in	one	quarter	every	seven	years.		As	a	result,	the	retail	quarter-end	and	the	fiscal	quarter-end	may	be different	by	up	to	six	days.		Fluctuations	in	net	sales	and	operating	income	in	total	and	by	geographic	region	and	product	category	in	any	fiscal	quarter	may	be attributable	to	the	level	and	scope	of	new	product	introductions.		Additionally,	gross	margins	and	operating	expenses	are	impacted	on	a	quarter-by-quarter	basis	by variations	in	our	launch	calendar	and	the	timing	of	promotions,	including	purchase	with	purchase	and	gift	with	purchase	promotions.

# Availability	of	Reports

We	make	available	financial	information,	news	releases	and	other	information	on	our	website	at	www.elcompanies.com.		There	is	a	direct	link	from	the	website	to	our Securities	and	Exchange	Commission	filings	via	the	EDGAR	database,	where	our	annual	report	on	Form	10-K,	quarterly	reports	on	Form	10-Q,	current	reports	on Form	8-K	and	any	amendments	to	these	reports	filed	or	furnished	pursuant	to	Section	13(a)	or	15(d)	of	the	Securities	Exchange	Act	of	1934	are	available	free	of	charge as	soon	as	reasonably	practicable	after	we	file	such	reports	and	amendments	with,	or	furnish	them	to,	the	Securities	and	Exchange	Commission.		Stockholders	may	also contact	Investor	Relations	at	767	Fifth	Avenue,	New	York,	New	York	10153	or	call	800-308-2334	to	obtain	a	hard	copy	of	these	reports	without	charge.

# Corporate	Governance	Guidelines	and	Code	of	Conduct

The	Board	of	Directors	has	developed	corporate	governance	practices	to	help	it	fulfill	its	responsibilities	to	stockholders	in	providing	general	direction	and	oversight	of management.		These	practices	are	set	forth	in	our	Corporate	Governance	Guidelines.		We	also	have	a	Code	of	Conduct	("Code")	applicable	to	all	employees,	officers and	directors	of	the	Company,	including,	without	limitation,	the	Chief	Executive	Officer,	the	Chief	Financial	Officer	and	other	senior	financial	officers.		These documents,	the	charters	for	the	Audit	Committee,	Compensation	Committee	and	Nominating	and	Board	Affairs	Committee,	and	any	waiver	of	a	provision	of	the	Code granted	to	any	senior	officer	or	director	or	material	amendment	to	the	Code,	if	any,	may	be	found	in	the	"Investors"	section	of	our	website:	www.elcompanies.com under	the	heading	"Corporate	Governance."		Stockholders	may	also	contact	Investor	Relations	at	767	Fifth	Avenue,	New	York,	New	York	10153	or	call	800-308-2334 to	obtain	a	hard	copy	of	these	documents	without	charge.

# Executive	Officers

The	following	table	sets	forth	certain	information	with	respect	to	our	executive	officers:

| Name | Age | Position(s)	Held |
| :--- | :--- | :--- |
| Malcolm\tBond | 58 | Executive\tVice\tPresident\t–\tGlobal\tOperations |
| Daniel\tJ.\tBrestle | 63 | Vice\tChairman\tand\tPresident,\tELC\tNorth\tAmerica |
| John\tDemsey | 52 | Group\tPresident |
| Amy\tDiGeso | 56 | Executive\tVice\tPresident\t–\tGlobal\tHuman\tResources |
| Fabrizio\tFreda | 50 | President\tand\tChief\tOperating\tOfficer |
| Harvey\tGedeon | 65 | Executive\tVice\tPresident\t–\tResearch\tand\tDevelopment\tand\tProduct\tInnovation |
| Richard\tW.\tKunes | 55 | Executive\tVice\tPresident\tand\tChief\tFinancial\tOfficer |
| Evelyn\tH.\tLauder | 72 | Senior\tCorporate\tVice\tPresident |
| Leonard\tA.\tLauder | 75 | Chairman\tof\tthe\tBoard\tof\tDirectors |
| Ronald\tS.\tLauder | 64 | Chairman\tof\tClinique\tLaboratories,\tLLC\tand\ta\tDirector |
| William\tP.\tLauder | 48 | Chief\tExecutive\tOfficer\tand\ta\tDirector |
| Sara\tE.\tMoss | 61 | Executive\tVice\tPresident\tand\tGeneral\tCounsel |
| Gregory\tF.\tPolcer | 53 | Executive\tVice\tPresident\t–\tGlobal\tSupply\tChain |
| Cedric\tProuvé | 48 | Group\tPresident |
| Alexandra\tC.\tTrower | 44 | Executive\tVice\tPresident\t–\tGlobal\tCommunications |

Malcolm	Bond	became	Executive	Vice	President	–	Global	Operations	in	July	2004	and,	through	July	2008,	he	was	responsible	for	Global	Direct	Procurement,

Manufacturing,	Logistics	and	Employee	Health	and	Safety.		From	January	2001	through	June	2004,	Mr.	Bond	was	Senior	Vice	President,	Global	Manufacturing	and Distribution.		From	January	1999	to	January	2001,	he	was	Senior	Vice	President,	Manufacturing,	during	which	time	his	responsibilities	also	included	corporate engineering	and	supply	chain.		From	September	1997	to	January	1999,	he	was	Vice	President,	Focus	Factories,	responsible	for	all	of	our	factory	operations.		Mr.	Bond joined	us	in	September	1995	as	General	Manager	of	our	U.K.	manufacturing	operations,	with	responsibility	for	South	African	and	Australian	operations	as	well.		It	is expected	that	through	September	30,	2008,	Mr.	Bond	will	assist	in	the	transition	of	his	responsibilities,	after	which	he	will	become	Executive	Vice	President	–	SMI	and Special	Projects,	but	will	cease	to	be	an	executive	officer.

Daniel	J.	Brestle	became	Vice	Chairman	&	President,	ELC	North	America	in	March	2008.		He	is	responsible	for	leading	the	Company's	North	American	business across	its	multiple	distribution	channels.		In	addition,	he	oversees	the	Estée	Lauder,	MžAžC,	Prescriptives,	Origins,	Ojon	and	Tom	Ford	Beauty	brands,	and	the BeautyBank	Division.		From	January	2005	through	February	2008	he	served	as	Chief	Operating	Officer	of	the	Company.		From	July	2001	to	January	2005,	Mr.	Brestle had	been	Group	President	with	global	responsibility	for	our	specialty	brands,	including	Aveda,	Bobbi	Brown,	Bumble	and	bumble,	Darphin,	Jo	Malone,	La	Mer, Prescriptives,	Rodan	+	Fields	and	Stila.		He	also	oversaw	the	launch	of	BeautyBank	and	its	first	four	brands.		From	July	1998	through	June	2001,	he	was	President	of Estée	Lauder	(USA	&	Canada).		Prior	to	July	1998,	he	was	President	of	Clinique	Laboratories,	Inc.	and	had	been	the	senior	officer	of	that	division	since	1992.		From 1988	through	1992,	he	was	President	of	Prescriptives	U.S.A.		Mr.	Brestle	joined	us	in	1978.

John	Demsey	was	appointed	Group	President	in	July	2006.		In	this	role,	he	is	responsible	for	the	Estée	Lauder,	MžAžC,	Sean	John,	Prescriptives	and	Tom	Ford Beauty	brands.		In	January	2005,	Mr.	Demsey	became	Global	Brand	President	of	Estée	Lauder	after	serving	as	President	and	Managing	Director	of	MžAžC	since	1998. From	1991	to	1998,	he	held	several	positions	with	Estée	Lauder,	including	Senior	Vice	President	of	Sales	and	Education	for	Estée	Lauder	USA	and	Canada.		Before joining	us,	he	worked	for	Revlon,	Borghese,	Alexandra	de	Markoff	Cosmetics,	and	Lancaster	Cosmetics.		He	also	held	various	executive	retail	positions	at Bloomingdale's,	Macy's,	Benetton	and	Saks	Fifth	Avenue.		Mr.	Demsey	serves	as	Chairman	of	the	MžAžC	AIDS	Fund	and	is	active	in	many	other	AIDS-related organizations.

Amy	DiGeso	became	Executive	Vice	President	-	Global	Human	Resources	in	May	2006.		From	May	2005,	when	she	joined	us,	to	May	2006	she	was	Senior	Vice President	-	Global	Human	Resources.		She	was	Senior	Partner	-	Global	Human	Resource	in	charge	of	the	Human	Resources	Department	at	PriceWaterhouseCoopers LLP	from	May	2001	through	June	2003.		From	April	1999	through	April	2001,	Ms.	DiGeso	was	President	of	the	Popular	Club	Plan,	a	direct	sales	subsidiary	of Federated	Department	Stores,	and	from	May	1992	through	December	1998,	she	served	in	various	executive	capacities	at	Mary	Kay,	Inc.,	including	Chief	Executive Officer	from	November	1996	through	December	1998.		Since	June	2003,	Ms.	DiGeso	has	been	engaged	in	various	philanthropic	activities.

Fabrizio	Freda	became	President	and	Chief	Operating	Officer	in	March	2008.		In	this	role,	he	oversees	Clinique,	Bobbi	Brown,	La	Mer,	Jo	Malone,	Darphin, Aveda,	Bumble	and	bumble	and	the	Aramis	and	Designer	Fragrances	Division.		He	is	also	responsible	for	the	Company's	International	Division,	as	well	as	Global Operations,	Research	and	Development,	Packaging,	Quality	Assurance,	Merchandise	Design,	Corporate	Store	Design	and	Retail	Store	Operations.		From	2001	through 2007,	Mr.	Freda	was	President,	Global	Snacks,	of	The	Procter	&	Gamble	Company	("P&G").		Prior	to	that	position,	he	spent	about	a	decade	in	positions	of	increasing

responsibility	in	P&G,	including	positions	within	P&G's	Health	and	Beauty	Care	Division.

Harvey	Gedeon	became	Executive	Vice	President	-	Research	and	Development	in	July	2004	and	added	responsibilities	for	product	innovation	in	July	2007.		From January	2000	to	July	2004,	he	was	Senior	Vice	President	-	Research	and	Development.		Prior	to	joining	us	in	January	2000,	Mr.	Gedeon	was	Executive	Vice	President and	General	Manager,	Research	and	Development	and	Quality	Assurance	for	Revlon,	Inc.	from	1997	through	1999.

Richard	W.	Kunes	became	Executive	Vice	President	and	Chief	Financial	Officer	in	November	2004.		Prior	thereto,	he	was	Senior	Vice	President	and	Chief Financial	Officer	since	October	2000.		He	joined	us	in	1986	and	served	in	various	finance-related	positions	until	November	1993,	when	he	was	named	Vice	President	– Operations	Finance	Worldwide.		From	January	1998	through	September	2000,	Mr.	Kunes	was	Vice	President	–	Financial	Administration	and	Corporate	Controller. Prior	to	joining	us,	he	held	finance	and	controller	positions	at	the	Colgate-Palmolive	Company.		Mr.	Kunes	is	on	the	Board	of	Directors	of	Make-a-Wish	Foundation	of Suffolk	County,	NY,	Inc.

Evelyn	H.	Lauder	has	been	Senior	Corporate	Vice	President	since	1989,	and	previously	served	as	Vice	President	and	in	other	executive	capacities	since	first joining	us	in	1959	as	Education	Director.		She	is	a	member	of	the	Board	of	Overseers	of	Memorial	Sloan-Kettering	Cancer	Center,	a	member	of	the	Boards	of	Trustees of	Central	Park	Conservancy,	Inc.,	The	Trinity	School	in	New	York	City	(Trustee	Emirata),	a	member	of	the	Board	of	Directors	of	New	Yorkers	for	Parks,	an	Honorary Board	Member	of	Cold	Spring	Harbor	Laboratories	and	the	Founder	and	Chairman	of	The	Breast	Cancer	Research	Foundation.

Leonard	A.	Lauder	has	been	Chairman	of	the	Board	of	Directors	since	1995.		He	was	our	Chief	Executive	Officer	from	1982	through	1999	and	President	from 1972	until	1995.		Mr.	Lauder	formally	joined	us	in	1958	after	serving	as	an	officer	in	the	United	States	Navy.		Since	joining,	he	has	held	various	positions,	including executive	officer	positions	other	than	those	described	above.		He	is	Chairman	Emeritus	of	the	Board	of	Trustees	of	the	Whitney	Museum	of	American	Art,	a	Charter Trustee	of	the	University	of	Pennsylvania,	a	Trustee	of	The	Aspen	Institute	and	the	co-founder	and	director	of	the	Alzheimer's	Drug	Discovery	Foundation.		He	also served	as	a	member	of	the	White	House	Advisory	Committee	on	Trade	Policy	and	Negotiations	under	President	Reagan.

Ronald	S.	Lauder	has	served	as	Chairman	of	Clinique	Laboratories,	LLC	since	returning	from	government	service	in	1987	and	was	Chairman	of	Estee	Lauder International,	Inc.	from	1987	through	2002.		Mr.	Lauder	joined	the	Company	in	1964	and	has	served	in	various	capacities.		From	1983	to	1986,	Mr.	Lauder	served	as Deputy	Assistant	Secretary	of	Defense	for	European	and	NATO	Affairs.		From	1986	to	1987,	he	was	U.S.	Ambassador	to	Austria.		He	is	non-executive	Chairman	of	the Board	of	Directors	of	Central	European	Media	Enterprises	Ltd.		He	is	also	an	Honorary	Chairman	of	the	Board	of	Trustees	of	the	Museum	of	Modern	Art.

William	P.	Lauder	is	Chief	Executive	Officer	of	the	Company.		He	became	President	and	Chief	Executive	Officer	on	July	1,	2004.		From	January	2003	through June	2004,	he	was	Chief	Operating	Officer.		From	July	2001	through	2002,	he	was	Group	President	responsible	for	the	worldwide	business	of	Clinique	and	Origins	and the	Company's	retail	store	and	on-line	operations.		From	1998	to	2001,	he	was	President	of	Clinique	Laboratories,	LLC.		Prior	to	1998,	he	was	President	of	Origins Natural	Resources	Inc.,	and	he	had	been	the	senior	officer	of	that	division	since	its	inception	in	1990.		Prior	thereto,	he	served	in	various	positions	since	joining	the Company	in	1986.		He	is	a	member	of	the	Boards	of	Trustees	of	The	University	of	Pennsylvania	and	The	Trinity	School	in	New	York	City	and	the	Boards	of	Directors of	the	Fresh	Air	Fund,	the	92 	Street	Y,	the	Partnership	for	New	York	City,	True	Temper	Sports,	Inc.,	GLG	Partners	Inc.	and	the	Advisory	Board	of	Zelnick	Media. nd

Sara	E.	Moss	became	Executive	Vice	President	in	November	2004.		She	joined	us	as	Senior	Vice	President,	General	Counsel	and	Secretary	in	September	2003. She	was	Senior	Vice	President	and	General	Counsel	of	Pitney	Bowes	Inc.	from	1996	to	February	2003,	and	Senior	Litigation	Partner	for	Howard,	Smith	&	Levin	(now Covington	&	Burling)	in	New	York	from	1984	to	1996.		Prior	to	1984,	Ms.	Moss	served	as	an	Assistant	United	States	Attorney	in	the	Criminal	Division	in	the	Southern District	of	New	York,	was	an	associate	at	the	law	firm	of	Davis,	Polk	&	Wardwell	and	was	Law	Clerk	to	the	Honorable	Constance	Baker	Motley,	a	U.S.	District	Judge	in the	Southern	District	of	New	York.

Gregory	F.	Polcer	became	Executive	Vice	President	–	Global	Supply	Chain	in	July	2008.		He	is	responsible	for	Global	Direct	and	Indirect	Procurement, Manufacturing,	Logistics,	Quality	Assurance	and	Environmental	Affairs	and	Safety.		From	1988	to	2008,	he	worked	for	Unilever	where	he	designed	and	implemented global,	regional	and	local	initiatives.		Most	recently,	from	2006	to	2008,	he	served	as	the	Senior	Vice	President,	Supply	Chain	for	Unilever	where	he	integrated	the North	and	Latin	American	Supply	Chains,	provided	senior	leadership	for	all	global	supply	management	and	established	a	global	outsourcing	plan.		He	served	as	Senior Vice	President,	Supply	Chain	–	North	America	from	2005	to	2006	and	Senior	Vice	President,	Supply	Chain,	Home	and	Personal	Care	–	North	America	from	2002	to 2004.

Cedric	Prouvé	became	Group	President	in	January	2003.		He	is	responsible	for	sales	and	profits	in	our	International	Division,	which	includes	all	markets	outside	of North	America,	our	Travel	Retail	business	worldwide	and	all	of	the	activities	of	our	sales	affiliates	and	certain	distributor	relationships.		From	August	2000	through	2002 he	was	the	General	Manager	of	our	Japanese	sales	affiliate.		From	January	1997	to	August	2000,	he	was	Vice	President,	General	Manager,	Travel	Retail.		He	started	with us	in	1994	as	General	Manager,	Travel	Retailing	–	Asia	Pacific	Region	and	was	given	the	added	responsibility	of	General	Manager	of	our	Singapore	affiliate	in	1995. Prior	to	joining	us	he	worked	at	L'Oreal	in	sales	and	management	positions	in	the	Americas	and	Asia/Pacific.

Alexandra	C.	Trower	became	Executive	Vice	President	-	Global	Communications	in	April,	2008.		She	directs	the	Company's	overall	communications	strategy, oversees	brand	communications,	corporate	communications,	internal	communications	and	consumer	communications.		Before	joining	us,	Ms.	Trower	was	Senior	Vice President,	Media	Relations	for	Bank	of	America	from	January,	2004	to	March,	2008.		From	1997	to	2002,	she	worked	at	JPMorgan	Chase,	where	she	was	responsible for	corporate	communications	at	JPMorgan	Fleming	Asset	Management.

Each	executive	officer	serves	for	a	one-year	term	ending	at	the	next	annual	meeting	of	the	Board	of	Directors,	subject	to	his	or	her	applicable	employment	agreement and	his	or	her	earlier	death,	resignation	or	removal.

# Item	1A.		Risk	Factors.

There	are	risks	associated	with	an	investment	in	our	securities.

Please	consider	the	following	risks	and	all	of	the	other	information	in	this	annual	report	on	Form	10-K	and	in	our	subsequent	filings	with	the	Securities	and	Exchange Commission	("SEC").		Our	business	may	also	be	adversely	affected	by	risks	and	uncertainties	not	presently	known	to	us	or	that	we	currently	believe	to	be	immaterial. If	any	of	the	events	contemplated	by	the	following	discussion	of	risks	should	occur	or	other	risks	arise	or	develop,	our	business,	prospects,	financial	condition	and results	of	operations,	as	well	as	the	trading	prices	of	our	securities,	may	be	adversely	affected.

# The	beauty	business	is	highly	competitive,	and	if	we	are	unable	to	compete	effectively	our	results	will	suffer.

We	face	vigorous	competition	from	companies	throughout	the	world,	including	multinational	consumer	product	companies.		Some	of	these	competitors	have	greater resources	than	we	do	and	may	be	able	to	respond	to	changing	business	and	economic	conditions	more	quickly	than	us.		Competition	in	the	beauty	business	is	based	on pricing	of	products,	innovation,	perceived	value,	service	to	the	consumer,	promotional	activities,	advertising,	special	events,	new	product	introductions,	electronic commerce	initiatives	and	other	activities.		It	is	difficult	for	us	to	predict	the	timing	and	scale	of	our	competitors'	actions	in	these	areas.		In	particular,	the	fragrance category	in	the	United	States	is	influenced	by	the	high	volume	of	new	product	introductions	by	diverse	companies	across	several	different	distribution	channels.		Also,

the	trend	toward	consolidation	in	the	retail	trade,	particularly	in	developed	markets	such	as	the	United	States	and	Western	Europe,	has	resulted	in	us	becoming increasingly	dependent	on	key	retailers,	including	large-format	retailers,	who	have	increased	their	bargaining	strength.		This	trend	has	also	resulted	in	an	increased	risk related	to	the	concentration	of	our	customers.		A	severe	adverse	impact	on	their	business	operations	could	have	a	corresponding	material	adverse	effect	on	us.		Our ability	to	compete	also	depends	on	the	continued	strength	of	our	brands,	our	ability	to	attract	and	retain	key	talent	and	other	personnel,	the	efficiency	of	our manufacturing	facilities	and	distribution	network,	and	our	ability	to	protect	our	intellectual	property.		Our	inability	to	continue	to	compete	effectively	in	countries	around the	world	could	have	an	adverse	impact	on	our	business.

# Our	inability	to	anticipate	and	respond	to	market	trends	and	changes	in	consumer	preferences	could	adversely	affect	our	financial	results.

Our	continued	success	depends	on	our	ability	to	anticipate,	gauge	and	react	in	a	timely	and	cost-effective	manner	to	changes	in	consumer	tastes	for	skin	care,	makeup, fragrance	and	hair	care	products	as	well	as	to	where	and	how	consumers	shop	for	those	products.		We	must	continually	work	to	develop,	produce	and	market	new products,	maintain	and	enhance	the	recognition	of	our	brands,	achieve	a	favorable	mix	of	products,	and	refine	our	approach	as	to	how	and	where	we	market	and	sell	our products.		While	we	devote	considerable	effort	and	resources	to	shape,	analyze	and	respond	to	consumer	preferences,	we	recognize	that	consumer	tastes	cannot	be predicted	with	certainty	and	can	change	rapidly.		If	we	are	unable	to	anticipate	and	respond	to	trends	in	the	market	for	our	products	and	changing	consumer	demands,	our financial	results	will	suffer.

# Our	future	success	depends	on	our	ability	to	achieve	our	long-term	strategy.

Our	long-term	strategy	is	based	on	five	strategic	imperatives:

4.															Diversify	and	strengthen	distribution	channels

Achieving	our	long-term	objectives	may	require	investment	in	new	brands,	categories,	distribution	channels,	technologies	and	geographic	markets.		These	investments may	result	in	short-term	costs	without	any	current	revenues	and,	therefore,	may	be	dilutive	to	our	earnings,	at	least	in	the	short	term.		In	addition,	we	may	dispose	of select	brands	or	streamline	operations	and	incur	costs	or	one-time	charges	in	doing	so.		Although	we	believe	that	our	strategic	imperatives	will	lead	to	long-term	growth in	revenue	and	profitability,	we	may	not	realize,	in	full	or	in	part,	the	anticipated	benefits.		The	failure	to	realize	benefits,	which	may	be	due	to	our	ability	to	execute plans	or	other	risks	described	herein,	could	have	a	material	adverse	effect	on	our	business,	financial	condition	and	operating	results.

# Any	future	acquisitions	may	expose	us	to	additional	risks.

We	continuously	review	acquisition	opportunities	that	would	expand	our	current	product	offerings,	our	distribution	channels,	increase	the	size	and	geographic	scope	of our	operations	or	otherwise	offer	growth	and	operating	efficiency	opportunities.		If	required,	the	financing	for	any	of	these	acquisitions	could	result	in	an	increase	in	our indebtedness,	dilute	the	interests	of	our	stockholders	or	both.		Acquisitions	may	entail	numerous	risks,	including:

·																		difficulties	in	assimilating	acquired	operations	or	products,	including	the	loss	of	key	employees	from	or	customers	of	acquired	businesses;

·																		diversion	of	management's	attention	from	our	core	businesses;

·																		adverse	effects	on	existing	business	relationships	with	suppliers	and	customers;	and

·																		risks	of	entering	distribution	channels,	categories	or	markets	in	which	we	have	limited	or	no	prior	experience.

Our	failure	to	successfully	complete	the	integration	of	any	acquired	business	could	have	a	material	adverse	effect	on	our	business,	financial	condition	and	operating results.		In	addition,	there	can	be	no	assurance	that	we	will	be	able	to	identify	suitable	acquisition	candidates	or	consummate	acquisitions	on	favorable	terms.

A	general	economic	downturn	or	sudden	disruption	in	business	conditions	may	affect	consumer	purchases	of	discretionary	items	and/or	the	financial	strength	of our	customers	that	are	retailers,	which	could	adversely	affect	our	financial	results.

The	general	level	of	consumer	spending	is	affected	by	a	number	of	factors,	including	general	economic	conditions,	inflation,	interest	rates,	energy	costs,	and	consumer confidence	generally,	all	of	which	are	beyond	our	control.		Consumer	purchases	of	discretionary	items	tend	to	decline	during	recessionary	periods,	when	disposable income	is	lower,	and	may	impact	sales	of	our	products.		A	decline	in	consumer	purchases	of	discretionary	items	also	tends	to	impact	our	customers	that	are	retailers. We	generally	extend	credit	to	a	retailer	based	on	an	evaluation	of	its	financial	condition,	usually	without	requiring	collateral.		However,	the	financial	difficulties	of	a retailer	could	cause	us	to	curtail	or	eliminate	business	with	that	customer.		We	may	also	assume	more	credit	risk	relating	to	the	receivables	from	that	retailer.		Our inability	to	collect	the	receivable	from	one	of	our	largest	customers	or	from	a	group	of	customers	could	have	a	material	adverse	effect	on	our	business	and	our	financial condition.		If	a	retailer	was	to	liquidate,	we	may	incur	additional	costs	if	we	choose	to	purchase	the	retailer's	inventory	of	our	products	to	protect	brand	equity.

In	addition,	sudden	disruptions	in	business	conditions,	for	example,	as	a	consequence	of	events	such	as	the	outbreak	of	SARs	in	2003	or	those	that	are	currently	taking place	in	the	Middle	East,	or	as	a	result	of	a	terrorist	attack,	retaliation	and	the	threat	of	further	attacks	or	retaliation,	or	as	a	result	of	adverse	weather	conditions	or	climate changes,	can	have	a	short	and,	sometimes,	long-term	impact	on	consumer	spending.

Events	that	impact	consumers'	willingness	or	ability	to	travel	and/or	purchase	our	products	while	traveling	may	impact	our	travel	retail	business,	which	is	a	significant contributor	to	our	overall	results.

A	downturn	in	the	economies	in	which	we	sell	our	products	or	a	sudden	disruption	of	business	conditions	in	those	economies	could	adversely	affect	our	sales	and profitability.

# Changes	in	laws,	regulations	and	policies	that	affect	our	business	could	adversely	affect	our	financial	results.

Our	business	is	subject	to	numerous	laws,	regulations	and	policies.		Changes	in	the	laws,	regulations	and	policies,	including	the	interpretation	or	enforcement	thereof, that	affect,	or	will	affect,	our	business,	including	changes	in	accounting	standards,	tax	laws	and	regulations,	trade	rules	and	customs	regulations,	and	the	outcome	and expense	of	legal	or	regulatory	proceedings,	and	any	action	we	may	take	as	a	result	could	adversely	affect	our	financial	results.

# Our	success	depends,	in	part,	on	the	quality	and	safety	of	our	products.

Our	success	depends,	in	part,	on	the	quality	and	safety	of	our	products.		If	our	products	are	found	to	be	defective	or	unsafe,	or	if	they	otherwise	fail	to	meet	our consumers'	standards,	our	relationships	with	customers	or	consumers	could	suffer,	the	appeal	of	one	or	more	of	our	brands	could	be	diminished,	and	we	could	lose	sales and/or	become	subject	to	liability	claims,	any	of	which	could	result	in	a	material	adverse	effect	on	our	business,	results	of	operations	and	financial	condition.

# Our	success	depends,	in	part,	on	our	key	personnel.

Our	success	depends,	in	part,	on	our	ability	to	retain	our	key	personnel,	including	our	executive	officers	and	senior	management	team.		The	unexpected	loss	of	one	or more	of	our	key	employees	could	adversely	affect	our	business.		Our	success	also	depends,	in	part,	on	our	continuing	ability	to	identify,	hire,	train	and	retain	other highly	qualified	personnel.		Competition	for	these	employees	can	be	intense.		We	may	not	be	able	to	attract,	assimilate	or	retain	qualified	personnel	in	the	future,	and	our failure	to	do	so	could	adversely	affect	our	business.		This	risk	may	be	exacerbated	by	the	stresses	associated	with	the	implementation	of	SMI	(as	defined	below)	and other	initiatives.

# We	are	subject	to	risks	related	to	our	international	operations.

We	operate	on	a	global	basis,	with	approximately	59%	of	our	fiscal	2008	net	sales	generated	outside	the	United	States.		We	maintain	offices	in	over	40	countries	and have	key	operational	facilities	located	outside	the	United	States	that	manufacture,	warehouse	or	distribute	goods	for	sale	throughout	the	world.		Foreign	operations	are subject	to	many	risks	and	uncertainties,	including:

·																					fluctuations	in	foreign	currency	exchange	rates,	which	can	affect	our	results	of	operations,	the	value	of	our	foreign	assets,	the	relative	prices	at	which	we	and foreign	competitors	sell	products	in	the	same	markets	and	the	cost	of	certain	inventory	and	non-inventory	items	required	in	our	operations;

·																					changes	in	foreign	laws,	regulations	and	policies,	including	restrictions	on	trade,	import	and	export	license	requirements,	and	tariffs	and	taxes,	as	well	as changes	in	United	States	laws	and	regulations	relating	to	foreign	trade	and	investment;	and

·																					adverse	weather	conditions,	social,	economic	and	geopolitical	conditions,	such	as	terrorist	attacks,	war	or	other	military	action.

These	risks	could	have	a	material	adverse	effect	on	our	business,	prospects,	results	of	operations	and	financial	condition.

# A	disruption	in	operations	could	adversely	affect	our	business	and	financial	results.

As	a	company	engaged	in	manufacturing	and	distribution	on	a	global	scale,	we	are	subject	to	the	risks	inherent	in	such	activities,	including	industrial	accidents, environmental	events,	strikes	and	other	labor	disputes,	disruptions	in	logistics	or	information	systems,	loss	or	impairment	of	key	manufacturing	sites,	product	quality control,	safety,	licensing	requirements	and	other	regulatory	issues,	as	well	as	natural	disasters	and	other	external	factors	over	which	we	have	no	control.		If	such	an	event were	to	occur,	it	could	have	an	adverse	affect	on	our	business	and	financial	results.

# Our	information	systems	and	websites	may	be	susceptible	to	outages	and	other	risks.

We	have	information	systems	that	support	our	business	processes,	including	product	development,	marketing,	sales,	order	processing,	production,	distribution,	finance and	intracompany	communications	throughout	the	world.		We	have	e-commerce	and	other	Internet	websites	in	the	United	States	and	many	other	countries.		These systems	may	be	susceptible	to	outages	due	to	fire,	floods,	power	loss,	telecommunications	failures,	break-ins	and	similar	events.		Despite	the	implementation	of	network security	measures,	our	systems	may	be	vulnerable	to	computer	viruses,	break-ins	and	similar	disruptions	from	unauthorized	tampering.		The	occurrence	of	these	or	other events	could	disrupt	or	damage	our	information	systems	and	adversely	affect	our	business	and	results	of	operations.

# We	are	subject	to	risks	associated	with	implementing	global	information	systems.

As	part	of	a	program	that	we	call	our	"Strategic	Modernization	Initiative,"	or	"SMI,"	we	are	implementing	enterprise-wide	global	programs	intended	to	deliver	a	single set	of	integrated	data,	processes	and	technologies,	which	would	be	scalable	and	used	to	standardize	business	processes	across	brands,	operating	units	and	sales	affiliates. The	initial	implementation	of	SMI	at	our	Aveda	operating	unit	occurred	in	May	2007.		We	anticipate	SMI	implementation	will	continue	at	additional	primary	locations in	fiscal	2009,	with	the	majority	of	our	business	to	be	implemented	through	fiscal	2012.		Like	most	entity-wide	changes	to	software	systems,	the	implementation	of	SMI involves	risks	and	uncertainties.		Failure	to	implement	SMI	as	planned,	in	terms	of	timing,	specifications	and/or	costs,	could	have	an	adverse	impact	on	our	business	and results	of	operations.

# The	trading	prices	of	our	securities	periodically	may	rise	or	fall	based	on	the	accuracy	of	predictions	of	our	earnings	or	other	financial	performance.

Our	business	planning	process	is	designed	to	maximize	our	long-term	strength,	growth	and	profitability,	not	to	achieve	an	earnings	target	in	any	particular	fiscal	quarter. We	believe	that	this	longer-term	focus	is	in	the	best	interests	of	the	Company	and	our	stockholders.		At	the	same	time,	however,	we	recognize	that	it	may	be	helpful	to provide	investors	with	guidance	as	to	our	forecast	of	net	sales	and	earnings.		Accordingly,	when	we	announced	our	year-end	financial	results	for	fiscal	2008,	we	provided guidance	as	to	our	expected	net	sales	and	earnings	for	the	fiscal	year	ending	June	30,	2009	and	the	quarter	ending	September	30,	2008.		While	we	generally	expect	to provide	updates	to	our	guidance	when	we	report	our	results	each	fiscal	quarter,	we	assume	no	responsibility	to	update	any	of	our	forward-looking	statements	at	such times	or	otherwise.		In	addition,	the	longer-term	guidance	we	provide	is	based	on	goals	that	we	believe,	at	the	time	guidance	is	given,	are	reasonably	attainable	for growth	and	performance	over	a	number	of	years.		Such	targets	are	more	speculative	than	our	current	quarter	and	fiscal	year	expectations.

In	all	of	our	public	statements	when	we	make,	or	update,	a	forward-looking	statement	about	our	sales	and/or	earnings	expectations,	we	accompany	such	statements directly,	or	by	reference	to	a	public	document,	with	a	list	of	factors	that	could	cause	our	actual	results	to	differ	materially	from	those	we	expect.		Such	a	list	is	included, among	other	places,	in	our	earnings	press	release	and	in	our	periodic	filings	with	the	Securities	and	Exchange	Commission	(e.g.,	in	our	reports	on	Form	10-K	and Form	10-Q).		These	and	other	factors	may	make	it	difficult	for	outside	observers,	such	as	research	analysts,	to	predict	what	our	earnings	will	be	in	any	given	fiscal quarter	or	year.

Outside	analysts,	like	all	investors,	have	the	right	to	make	their	own	predictions	of	our	financial	results	for	any	future	period.		Outside	analysts,	however,	have	access	to no	more	material	information	about	our	plans	than	any	other	public	investor,	and	we	do	not	endorse	their	predictions	as	to	our	future	performance.		Nor	do	we	assume any	responsibility	to	correct	the	predictions	of	outside	analysts	or	others	when	they	differ	from	our	own	internal	expectations.		If	and	when	we	announce	actual	results that	differ	from	those	that	outside	analysts	or	others	have	been	predicting,	the	market	price	of	our	securities	could	be	affected.		Investors	who	rely	on	the	predictions	of outside	analysts	or	others	when	making	investment	decisions	with	respect	to	our	securities	do	so	at	their	own	risk.		We	take	no	responsibility	for	any	losses	suffered	as	a result	of	such	changes	in	the	prices	of	our	securities.

# Item	1B.		Unresolved	Staff	Comments.

As	of	the	filing	of	this	annual	report	on	Form	10-K,	there	were	no	unresolved	comments	from	the	Staff	of	the	Securities	and	Exchange	Commission.

# Item	2.		Properties.

The	following	table	sets	forth	our	principal	owned	and	leased	manufacturing,	assembly,	research	and	development	and	distribution	facilities	as	of	August	15,	2008.		The leases	expire	at	various	times	through	2026	subject	to	certain	renewal	options.

| Location | Use | Approximate<br>Square	Footage |
| :--- | :--- | :--- |
| The\tAmericas |  |  |
| Blaine,\tMinnesota\t(owned) | Manufacturing\tand\tR&amp;D | 275,000 |
| Blaine,\tMinnesota\t(leased) | Distribution | 126,000 |
| Oakland,\tNew\tJersey\t(leased) | Manufacturing | 148,000 |
| Hauppauge,\tNew\tYork\t(leased) | Manufacturing\t/\tAssembly | 140,000 |
| Melville,\tNew\tYork\t(owned) | Manufacturing | 353,000 |
| Melville,\tNew\tYork\t(owned) | R&amp;D | 134,000 |
| Yaphank,\tNew\tYork\t(leased) | Manufacturing\t/\tAssembly | 230,000 |
| Bristol,\tPennsylvania\t(leased) | Manufacturing | 67,000 |
| Bristol,\tPennsylvania\t(leased) | Distribution | 243,000 |
| Bristol,\tPennsylvania\t(leased) | Distribution | 243,000 |
| Trevose,\tPennsylvania\t(leased) | Manufacturing\t/\tAssembly | 140,000 |
| Agincourt,\tOntario,\tCanada\t(owned) | Manufacturing | 96,000 |
| Markham,\tOntario,\tCanada\t(leased) | Manufacturing | 58,000 |
| Markham,\tOntario,\tCanada\t(leased) | R&amp;D | 26,000 |
| Markham,\tOntario,\tCanada\t(leased) | Manufacturing | 79,000 |
| Toronto,\tOntario,\tCanada\t(leased) | Distribution | 186,000 |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica |  |  |
| Oevel,\tBelgium\t(owned) | Manufacturing | 113,000 |
| Oevel,\tBelgium\t(leased) | Manufacturing\tand\tR&amp;D | 70,000 |
| Oevel,\tBelgium\t(leased) | Distribution | 100,000 |
| Madrid,\tSpain\t(leased) | Distribution | 90,000 |
| Lachen,\tSwitzerland\t(owned) | Manufacturing | 53,000 |
| Lachen,\tSwitzerland\t(owned) | Distribution | 125,000 |
| Hampshire,\tU.K.\t(leased) | Distribution | 203,000 |
| Petersfield,\tU.K.\t(owned) | Manufacturing | 225,000 |
| Asia/Pacific |  |  |
| Shanghai,\tChina\t(leased) | Distribution\tand\tR&amp;D | 57,000 |
| Tokyo,\tJapan\t(leased) | Distribution\tand\tR&amp;D | 147,600 |
| Tanjong\tPenjuru,\tSingapore\t(leased) | Distribution | 56,000 |

We	own,	lease	and	occupy	numerous	offices,	assembly	and	distribution	facilities	and	warehouses	in	the	United	States	and	abroad.		We	consider	our	properties	to	be generally	in	good	condition	and	believe	that	our	facilities	are	adequate	for	our	operations	and	provide	sufficient	capacity	to	meet	anticipated	requirements.		We	lease approximately	286,000	square	feet	of	rentable	space	for	our	principal	offices	in	New	York,	New	York	and	own	an	office	building	of	approximately	57,000	square	feet	in Melville,	New	York.		As	of	August	15,	2008,	we	operated	667	freestanding	retail	stores,	including	20	for	the	Estée	Lauder	brand,	29	for	Clinique,	149	for	Origins,	208 for	MžAžC,	138	for	Aveda,	6	for	Bobbi	Brown,	24	for	Jo	Malone,	2	for	Bumble	and	bumble	and	90	multi-brand	stores.

# Item	3.	Legal	Proceedings.

We	are	involved,	from	time	to	time,	in	litigation	and	other	legal	proceedings	incidental	to	our	business.		Management	believes	that	the	outcome	of	current	litigation	and legal	proceedings	will	not	have	a	material	adverse	effect	upon	our	results	of	operations	or	financial	condition.		However,	management's	assessment	of	our	current litigation	and	other	legal	proceedings	could	change	in	light	of	the	discovery	of	facts	with	respect	to	legal	actions	or	other	proceedings	pending	against	us	not	presently known	to	us	or	determinations	by	judges,	juries	or	other	finders	of	fact	which	are	not	in	accord	with	management's	evaluation	of	the	possible	liability	or	outcome	of	such litigation	or	proceedings.

In	1999,	the	Office	of	the	Attorney	General	of	the	State	of	New	York	(the	"State")	notified	the	Company	and	ten	other	entities	that	they	had	been	identified	as potentially	responsible	parties	("PRPs")	with	respect	to	the	Blydenburgh	landfill	in	Islip,	New	York.		Each	PRP	may	be	jointly	and	severally	liable	for	the	costs	of investigation	and	cleanup,	which	the	State	estimated	in	2006	to	be	approximately	$19.7	million	for	all	PRPs.		In	2001,	the	State	sued	other	PRPs	(including	Hickey's Carting,	Inc.,	Dennis	C.	Hickey	and	Maria	Hickey,	collectively	the	"Hickey	Parties"),	in	the	U.S.	District	Court	for	the	Eastern	District	of	New	York	to	recover	such costs	in	connection	with	the	site,	and	in	September	2002,	the	Hickey	Parties	brought	contribution	actions	against	the	Company	and	other	Blydenburgh	PRPs.		These contribution	actions	seek	to	recover,	among	other	things,	any	damages	for	which	the	Hickey	Parties	are	found	liable	in	the	State's	lawsuit	against	them,	and	related	costs and	expenses,	including	attorneys'	fees.		In	June	2004,	the	State	added	the	Company	and	other	PRPs	as	defendants	in	its	pending	case	against	the	Hickey	Parties.		In April	2006,	the	Company	and	other	defendants	added	numerous	other	parties	to	the	case	as	third-party	defendants.		The	Company	and	certain	other	PRPs	have	engaged in	settlement	discussions	which	to	date	have	been	unsuccessful.		Settlement	negotiations	with	the	new	third-party	defendants,	the	State,	the	Company	and	other defendants	began	in	July	2006.		We	have	accrued	an	amount	which	we	believe	would	be	necessary	to	resolve	our	share	of	this	matter.		If	settlement	discussions	are	not successful,	we	intend	to	vigorously	defend	the	pending	claims.		While	no	assurance	can	be	given	as	to	the	ultimate	outcome,	management	believes	that	the	resolution	of the	Blydenburgh	matters	will	not	have	a	material	adverse	effect	on	our	consolidated	financial	condition.

# Item	4.		Submission	of	Matters	to	a	Vote	of	Security	Holders.

No	matters	were	submitted	to	a	vote	of	security	holders	during	the	quarter	ended	June	30,	2008.

# PART	II

Item	5.		Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities.

# Market	for	Registrant's	Common	Equity	and	Related	Stockholder	Matters

Our	Class	A	Common	Stock	is	publicly	traded	on	the	New	York	Stock	Exchange	under	the	symbol	"EL."		The	following	table	shows	the	high	and	low	sales	prices	as reported	on	the	New	York	Stock	Exchange	Composite	Tape	and	the	cash	dividends	per	share	declared	in	fiscal	2008	and	fiscal	2007:

|  | High | Fiscal	2008<br>Low | Cash<br>Dividends | High | Fiscal	2007<br>Low | Cash<br>Dividends |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| First\tQuarter | $47.98 | $38.41 | $— | $41.15 | $34.88 | $— |
| Second\tQuarter | 47.05 | 39.47 | .55 | 43.60 | 39.05 | .50 |

| Third	Quarter | 46.66 | 37.03 | — | 50.12 | 39.52 | — |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Fourth\tQuarter | 49.43 | 43.83 | — | 52.31 | 44.67 | — |
| Fiscal\tYear | 49.43 | 37.03 | $.55 | 52.31 | 34.88 | $.50 |

We	expect	to	continue	the	payment	of	cash	dividends	in	the	future,	but	there	can	be	no	assurance	that	the	Board	of	Directors	will	continue	to	declare	them.		In November	2007	and	October	2006,	the	Board	of	Directors	declared	an	annual	dividend	of	$.55	and	$.50	per	share,	respectively,	which	was	paid	in	December	2007	and 2006,	respectively.

As	of	August	15,	2008,	there	were	approximately	3,247	record	holders	of	Class	A	Common	Stock	and	20	record	holders	of	Class	B	Common	Stock.

# Share	Repurchase	Program

We	are	authorized	by	the	Board	of	Directors	to	repurchase	up	to	88.0	million	shares	of	Class	A	Common	Stock	in	the	open	market	or	in	privately	negotiated transactions,	depending	on	market	conditions	and	other	factors.		As	of	June	30,	2008,	the	cumulative	total	of	acquired	shares	pursuant	to	the	authorization	was	64.1 million,	reducing	the	remaining	authorized	share	repurchase	balance	to	23.9	million.		During	fiscal	2008,	we	purchased	approximately	3.0	million	shares	pursuant	to	the authorization	for	$129.1	million	as	outlined	in	the	following	table:

|  |  |  | Total	Number	of	Shares | Maximum	Number	of |
| :--- | :--- | :--- | :--- | :--- |
|  |  |  | Purchased\tas\tPart\tof | Shares\tthat\tMay\tYet\tBe |
|  | Total\tNumber\tof | Average\tPrice | Publicly\tAnnounced | Purchased\tUnder\tthe |
|  |  |  |  | (1) |
| Period | Shares\tPurchased | Paid\tPer\tShare | Program | Program |
| July\t2007 | — | — | — | 6,929,958 |
| August\t2007 | 100,000 | $41.76 | 100,000 | 6,829,958 |
|  | 97,417^(2) | —(2) | 97,417 | 6,732,541 |
| September\t2007 | 1,219,800 | $41.17 | 1,219,800 | 5,512,741 |
| October\t2007 | 117,807^(3) | $43.39 | — | 5,512,741 |
| November\t2007 | — | — | — | 25,512,741 |
| December\t2007 | 474,653^(3) | $43.44 | 474,600 | 25,038,141 |
| January\t2008 | — | — | — | 25,038,141 |
| February\t2008 | — | — | — | 25,038,141 |
| March\t2008 | 300,000 | $45.00 | 300,000 | 24,738,141 |
| April\t2008 | 561,000 | $45.10 | 561,000 | 24,177,141 |
| May\t2008 | 151,200 | $45.28 | 151,200 | 24,025,941 |
| June\t2008 | 84,400 | $45.90 | 84,400 | 23,941,541 |
| Year-to-date | 3,106,277 | $43.09 | 2,988,417 | 23,941,541 |

(1) The	publicly	announced	repurchase	program	was	last	increased	by	20.0	million	shares	in	November	2007.	The	initial	program	covering	the	repurchase	of	8.0 million	shares	was	announced	in	September	1998	and	increased	by	20.0	million	shares	in	both	February	2007	and	May	2005	and	10.0	million	shares	in	both May	2004	and	October	2002.

(2) Represents	shares	of	our	common	stock	received	as	a	price	adjustment	and	final	settlement	related	to	an	accelerated	share	repurchase	program	with	a financial	counterparty	implemented	during	fiscal	2007.

(3) Includes	shares	that	were	repurchased	by	the	Company	in	connection	with	shares	withheld	to	satisfy	tax	obligations	upon	the	vesting	of	restricted	stock	units.

Subsequent	to	June	30,	2008,	we	repurchased	approximately	0.9	million	additional	shares	of	Class	A	Common	Stock	for	$38.4	million	pursuant	to	a	10b5-1	stock purchase	plan	entered	into	in	February	2008	and	completed	in	August	2008.

# Sales	of	Unregistered	Securities

Shares	of	Class	B	Common	Stock	may	be	converted	immediately	into	Class	A	Common	Stock	on	a	one-for-one	basis	by	the	holder	and	are	automatically	converted	into Class	A	Common	Stock	on	a	one-for-one	basis	upon	transfer	to	a	person	or	entity	that	is	not	a	"Permitted	Transferee"	or	soon	after	a	record	date	for	a	meeting	of stockholders	where	the	outstanding	Class	B	Common	Stock	constitutes	less	than	10%	of	the	outstanding	shares	of	Common	Stock	of	the	Company.		There	is	no	cash	or other	consideration	paid	by	the	holder	converting	the	shares	and,	accordingly,	there	is	no	cash	or	other	consideration	received	by	the	Company.		The	shares	of	Class	A Common	Stock	issued	by	the	Company	in	such	conversions	are	exempt	from	registration	under	the	Securities	Act	of	1933,	as	amended,	pursuant	to	Section	3(a) (9)	thereof.

During	the	three	months	ended	June	30,	2008,	the	holder	set	forth	in	the	table	converted	shares	of	Class	B	Common	Stock	into	Class	A	Common	Stock	on	the	date	set forth	in	the	table	below:

# Item	6.		Selected	Financial	Data.

The	table	below	summarizes	selected	financial	information.		For	further	information,	refer	to	the	audited	consolidated	financial	statements	and	the	notes	thereto beginning	on	page	F-1	of	this	report.

|  |  |  | Year	Ended	or	at	June	30 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2008 | 2007 | 2006\t(a) | 2005(b) | 2004 |
|  |  |  | (In\tmillions,\texcept\tper\tshare\tdata) |  |  |
| Statement\tof\tEarnings\tData: |  |  |  |  |  |
| Net\tsales | $7,910.8 | $7,037.5 | $6,463.8 | $6,280.0 | $5,741.5 |
| Gross\tprofit | 5,914.0 | 5,262.7 | 4,777.2 | 4,677.2 | 4,277.2 |
| Operating\tincome | 810.7 | 749.9 | 619.6 | 726.8 | 648.9 |

| Interest	expense,	net	(c) | 66.8 | 38.9 | 23.8 | 13.9 | 27.1 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Earnings\tbefore\tincome\ttaxes,\tminority\tinterest,\tdiscontinued |  |  |  |  |  |
| operations\tand\taccounting\tchange | 743.9 | 711.0 | 595.8 | 712.9 | 621.8 |
| Provision\tfor\tincome\ttaxes | 259.9 | 255.2 | 259.7 | 293.7 | 234.4 |
| Minority\tinterest,\tnet\tof\ttax | (10.2) | (7.1) | (11.6) | (9.3) | (8.9) |
| Net\tearnings\tfrom\tcontinuing\toperations | 473.8 | 448.7 | 324.5 | 409.9 | 378.5 |
| Discontinued\toperations,\tnet\tof\ttax\t(d) | — | 0.5 | (80.3) | (3.8) | (36.4) |
| Net\tearnings | 473.8 | 449.2 | 244.2 | 406.1 | 342.1 |
| Cash\tFlow\tData: |  |  |  |  |  |
| Net\tcash\tflows\tprovided\tby\toperating\tactivities | $690.1 | $661.6 | $709.8 | $478.1 | $673.0 |
| Net\tcash\tflows\tused\tfor\tinvesting\tactivities | (478.5) | (373.8) | (303.2) | (237.0) | (213.7) |
| Net\tcash\tflows\tused\tfor\tfinancing\tactivities | (78.1) | (411.6) | (594.6) | (300.4) | (216.0) |
| Per\tShare\tData: |  |  |  |  |  |
| Net\tearnings\tper\tcommon\tshare\tfrom\tcontinuing\toperations\t(d): |  |  |  |  |  |
| Basic | $2.44 | $2.20 | $1.51 | $1.82 | $1.66 |
| Diluted | $2.40 | $2.16 | $1.49 | $1.80 | $1.64 |
| Net\tearnings\tper\tcommon\tshare: |  |  |  |  |  |
| Basic | $2.44 | $2.20 | $1.14 | $1.80 | $1.50 |
| Diluted | $2.40 | $2.16 | $1.12 | $1.78 | $1.48 |
| Weighted\taverage\tcommon\tshares\toutstanding\t(e): |  |  |  |  |  |
| Basic | 193.9 | 204.3 | 215.0 | 225.3 | 228.2 |
| Diluted | 197.1 | 207.8 | 217.4 | 228.6 | 231.6 |
| Cash\tdividends\tdeclared\tper\tcommon\tshare | $.55 | $.50 | $.40 | $.40 | $.30 |
| Balance\tSheet\tData: |  |  |  |  |  |
| Working\tcapital | $1,088.0 | $738.7 | $738.7 | $804.9 | $877.2 |
| Total\tassets | 5,011.2 | 4,125.7 | 3,784.1 | 3,885.8 | 3,708.1 |
| Total\tdebt\t(c) | 1,196.9 | 1,088.5 | 521.5 | 714.7 | 535.3 |
| Stockholders'\tequity\t(e) | 1,653.2 | 1,199.0 | 1,622.3 | 1,692.8 | 1,733.5 |

(a)	Fiscal	2006	results	included	$93.0	million,	after-tax,	or	$.43	per	diluted	share	in	special	charges	related	to	our	cost	savings	initiative	and	tax-related	matters.		Included in	the	charges	was	an	operating	expense	charge	of	$92.1	million,	equal	to	$.27	per	diluted	common	share	related	to	the	cost	savings	initiative.		The	results	also	included	a special	tax	charge	related	to	a	settlement	with	the	Internal	Revenue	Service	regarding	an	examination	of	our	consolidated	Federal	income	tax	returns	for	fiscal	years 1998	through	2001,	and	represents	the	aggregate	earnings	impact	of	the	settlement	through	fiscal	2006.		The	settlement	resulted	in	an	increase	to	our	fiscal	2006	income tax	provision	and	a	corresponding	decrease	in	fiscal	2006	net	earnings	of	approximately	$46	million,	or	approximately	$.21	per	diluted	common	share.		During	the	fourth quarter	of	fiscal	2006,	we	completed	the	repatriation	of	foreign	earnings	through	intercompany	dividends	under	the	provisions	of	the	American	Jobs	Creation	Act	of 2004	(the	"AJCA").		In	connection	with	the	repatriation,	we	updated	the	computation	of	the	related	aggregate	tax	impact,	resulting	in	a	favorable	adjustment	of approximately	$11	million,	or	approximately	$.05	per	diluted	common	share,	to	our	initial	tax	charge	of	$35	million	recorded	in	fiscal	2005.		The	tax	settlement,	coupled with	the	AJCA	favorable	tax	adjustment,	resulted	in	a	net	increase	to	our	fiscal	2006	income	tax	provision	and	a	corresponding	decrease	in	fiscal	2006	net	earnings	of approximately	$35	million,	or	approximately	$.16	per	diluted	common	share.

(b)	In	the	fourth	quarter	of	fiscal	2005,	we	announced	plans	to	repatriate	approximately	$690	million	of	foreign	earnings	in	fiscal	year	2006,	which	included	$500 million	of	extraordinary	intercompany	dividends	under	the	provisions	of	the	AJCA.		This	action	resulted	in	an	aggregate	tax	charge	of	approximately	$35	million	in	our fiscal	year	ended	June	30,	2005,	which	included	an	incremental	tax	charge	of	approximately	$28	million,	equal	to	$.12	per	diluted	share.

(c)	In	May	2007,	we	issued	and	sold	$300.0	million	of	5.55%	Senior	Notes	due	May	15,	2017	and	$300.0	million	of	6.00%	Senior	Notes,	due	May	15,	2037	in	a	public offering.		We	used	the	net	proceeds	of	this	offering	to	repay	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.		In	February	2004,	we	sold	the assets	and	operations	of	our	former	reporting	unit	that	sold	jane	brand	products.		As	a	result,	all	consolidated	statements	of	earnings	information	in	the	consolidated financial	statements	and	footnotes	for	all	periods	presented	has	been	restated	for	comparative	purposes	to	reflect	those	reporting	units	as	discontinued	operations.

(e)	During	fiscal	2007,	we	repurchased	22,461,642	shares	of	our	outstanding	common	stock,	of	which	15,960,842	shares	were	purchased	for	$750.0	million	through	an accelerated	stock	repurchase	program	with	a	financial	counterparty.

# Item	7.		Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

# CRITICAL	ACCOUNTING	POLICIES	AND	ESTIMATES

The	discussion	and	analysis	of	our	financial	condition	at	June	30,	2008	and	our	results	of	operations	for	the	three	fiscal	years	ended	June	30,	2008	are	based	upon	our consolidated	financial	statements,	which	have	been	prepared	in	conformity	with	U.S.	generally	accepted	accounting	principles.		The	preparation	of	these	financial statements	requires	us	to	make	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets,	liabilities,	revenues	and	expenses	reported	in	those	financial statements.		These	judgments	can	be	subjective	and	complex,	and	consequently	actual	results	could	differ	from	those	estimates.		Our	most	critical	accounting	policies relate	to	revenue	recognition,	concentration	of	credit	risk,	inventory,	pension	and	other	post-retirement	benefit	costs,	goodwill	and	other	intangible	assets,	income	taxes and	derivatives.

Management	of	the	Company	has	discussed	the	selection	of	significant	accounting	policies	and	the	effect	of	estimates	with	the	Audit	Committee	of	the	Company's Board	of	Directors.

# Revenue	Recognition

Revenues	from	merchandise	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	recognized	at	the	time	the	product	is	shipped	to	the	customer	and	in	the	Europe,	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 example,	at	our	retail	stores.		Sales	at	our	retail	stores	and	online	are	recognized	in	accordance	with	a	traditional	4-4-5	retail	calendar,	where	each	fiscal	quarter	is comprised	of	two	4-week	periods	and	one	5-week	period,	with	one	extra	week	in	one	quarter	every	seven	years.		As	a	result,	the	retail	quarter-end	and	the	fiscal	quarter- end	may	be	different	by	up	to	six	days.

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.		Our	practice	is	to	accept	product	returns	from	retailers	only	if	properly	requested, authorized	and	approved.		In	accepting	returns,	we	typically	provide	a	credit	to	the	retailer	against	accounts	receivable	from	that	retailer.		As	a	percentage	of	gross	sales, returns	were	4.4%,	4.2%	and	5.0%	in	fiscal	2008,	2007	and	2006,	respectively.

Our	sales	return	accrual	is	a	subjective	critical	estimate	that	has	a	direct	impact	on	reported	net	sales.		This	accrual	is	calculated	based	on	a	history	of	actual	returns, estimated	future	returns	and	information	provided	by	authorized	retailers	regarding	their	inventory	levels.		Consideration	of	these	factors	results	in	an	accrual	for anticipated	sales	returns	that	reflects	increases	or	decreases	related	to	seasonal	fluctuations.		Experience	has	shown	a	relationship	between	retailer	inventory	levels	and sales	returns	in	the	subsequent	period,	as	well	as	a	consistent	pattern	of	returns	due	to	the	seasonal	nature	of	our	business.		In	addition,	as	necessary,	specific	accruals may	be	established	for	significant	future	known	or	anticipated	events.		The	types	of	known	or	anticipated	events	that	we	have	considered,	and	will	continue	to	consider, include,	but	are	not	limited	to,	the	financial	condition	of	our	customers,	store	closings	by	retailers,	changes	in	the	retail	environment	and	our	decision	to	continue	or support	new	and	existing	products.

# Concentration	of	Credit	Risk

An	entity	is	vulnerable	to	concentration	of	credit	risk	if	it	is	exposed	to	risks	of	loss	greater	than	it	would	have	if	it	mitigated	its	risks	through	diversification	of customers.		The	significance	of	such	credit	risk	depends	on	the	extent	and	nature	of	the	concentration.

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	12%,	$958.8	million,	or	14%,	and $1,005.8	million,	or	16%,	of	our	consolidated	net	sales	in	fiscal	2008,	2007	and	2006,	respectively.		This	customer	accounted	for	$109.2	million,	or	11%,	and	$105.3 million,	or	12%,	of	our	accounts	receivable	at	June	30,	2008	and	2007,	respectively.		Although	management	believes	that	this	customer	and	our	other	major	customers are	sound	and	creditworthy,	a	severe	adverse	impact	on	their	business	operations	could	have	a	corresponding	material	adverse	effect	on	our	net	sales,	cash	flows	and/or financial	condition.

In	the	ordinary	course	of	business,	we	have	established	an	allowance	for	doubtful	accounts	and	customer	deductions	in	the	amount	of	$26.3	million	and	$23.3	million	as of	June	30,	2008	and	2007,	respectively.		Our	allowance	for	doubtful	accounts	is	a	subjective	critical	estimate	that	has	a	direct	impact	on	reported	net	earnings.		The allowance	for	doubtful	accounts	was	reduced	by	$10.2	million,	$18.2	million	and	$12.0	million	for	customer	deductions	and	write-offs	in	fiscal	2008,	2007	and	2006, respectively,	and	increased	by	$13.2	million,	$14.4	million	and	$10.2	million	for	additional	provisions	in	fiscal	2008,	2007	and	2006,	respectively.		This	reserve	is	based upon	the	evaluation	of	accounts	receivable	aging,	specific	exposures	and	historical	trends.

# Inventory

We	state	our	inventory	at	the	lower	of	cost	or	fair	market	value,	with	cost	being	determined	on	the	first-in,	first-out	(FIFO)	method.		We	believe	FIFO	most	closely matches	the	flow	of	our	products	from	manufacture	through	sale.		The	reported	net	value	of	our	inventory	includes	saleable	products,	promotional	products,	raw materials	and	componentry	and	work	in	process	that	will	be	sold	or	used	in	future	periods.		Inventory	cost	includes	raw	materials,	direct	labor	and	overhead.

We	also	record	an	inventory	obsolescence	reserve,	which	represents	the	difference	between	the	cost	of	the	inventory	and	its	estimated	realizable	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,	we	may	establish	specific	reserves	for	future	known	or	anticipated	events.

# Pension	and	Other	Post-retirement	Benefit	Costs

We	offer	the	following	benefits	to	some	or	all	of	our	employees:	a	domestic	trust-based	noncontributory	qualified	defined	benefit	pension	plan		("U.S.	Qualified	Plan") and	an	unfunded,	non-qualified	domestic	noncontributory	pension	plan	to	provide	benefits	in	excess	of	statutory	limitations	(collectively	with	the	U.S.	Qualified	Plan, the	"Domestic	Plans");	a	domestic	contributory	defined	contribution	plan;	international	pension	plans,	which	vary	by	country,	consisting	of	both	defined	benefit	and defined	contribution	pension	plans;	deferred	compensation	arrangements;	and	certain	other	post-retirement	benefit	plans.

The	amounts	needed	to	fund	future	payouts	under	these	plans	are	subject	to	numerous	assumptions	and	variables.		Certain	significant	variables	require	us	to	make assumptions	that	are	within	our	control	such	as	an	anticipated	discount	rate,	expected	rate	of	return	on	plan	assets	and	future	compensation	levels.		We	evaluate	these assumptions	with	our	actuarial	advisors	and	we	believe	they	are	within	accepted	industry	ranges,	although	an	increase	or	decrease	in	the	assumptions	or	economic	events outside	our	control	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%	and	varying	rates	on	our	international	plans	of	between	2.25%	and	8.25%.		The	pre-retirement rate	for	our	Domestic	Plans	is	based	on	a	bond	portfolio	that	includes	only	long-term	bonds	with	an	Aa	rating,	or	equivalent,	from	a	major	rating	agency.		We	believe the	timing	and	amount	of	cash	flows	related	to	the	bonds	included	in	this	portfolio	is	expected	to	match	the	estimated	defined	benefit	payment	streams	of	our	Domestic Plans.		For	fiscal	2008,	we	used	an	expected	return	on	plan	assets	of	7.75%	for	our	U.S.	Qualified	Plan	and	varying	rates	of	between	3.00%	and	8.25%	for	our international	plans.		In	determining	the	long-term	rate	of	return	for	a	plan,	we	consider	the	historical	rates	of	return,	the	nature	of	the	plan's	investments	and	an expectation	for	the	plan's	investment	strategies.		The	U.S.	Qualified	Plan	asset	allocation	as	of	June	30,	2008	was	approximately	40%	equity	investments,	42%	debt securities	and	18%	other	investments.		The	asset	allocation	of	our	combined	international	plans	as	of	June	30,	2008	was	approximately	45%	equity	investments,	38% debt	securities	and	17%	other	investments.		The	difference	between	actual	and	expected	return	on	plan	assets	is	reported	as	a	component	of	accumulated	other comprehensive	income.		Those	gains/losses	that	are	subject	to	amortization	over	future	periods	will	be	recognized	as	a	component	of	the	net	periodic	benefit	cost	in	such future	periods.		For	fiscal	2008,	our	pension	plans	had	actual	negative	return	on	assets	of	$19.3	million	as	compared	with	expected	return	on	assets	of	$47.0	million, which	resulted	in	a	net	deferred	loss	of	$66.3	million,	of	which	approximately	$34	million	is	subject	to	amortization	over	periods	ranging	from	approximately	8	to	16 years.		The	actual	negative	return	on	assets	was	primarily	related	to	the	performance	of	equity	markets	during	the	past	fiscal	year.

A	25	basis-point	change	in	the	discount	rate	or	the	expected	rate	of	return	on	plan	assets	would	have	had	the	following	effect	on	fiscal	2008	pension	expense:

| (In	millions) | 25	Basis-Point<br>Increase | 25	Basis-Point<br>Decrease |
| :--- | :--- | :--- |
| Discount\trate | $(2.0\t) | $2.5 |
| Expected\treturn\ton\tassets | $(1.7\t) | $1.7 |

Our	post-retirement	plans	are	comprised	of	health	care	plans	that	could	be	impacted	by	health	care	cost	trend	rates,	which	may	have	a	significant	effect	on	the	amounts reported.		A	one-percentage-point	change	in	assumed	health	care	cost	trend	rates	for	fiscal	2008	would	have	had	the	following	effects:

| (In	millions) | One-Percentage-Point<br>Increase | One-Percentage-Point<br>Decrease |
| :--- | :--- | :--- |
| Effect\ton\ttotal\tservice\tand\tinterest\tcosts | $1.2 | $(1.1\t) |
| Effect\ton\tpost-retirement\tbenefit\tobligations | $10.9 | $(9.8\t) |

For	fiscal	2009,	we	are	using	a	pre-retirement	discount	rate	for	the	Domestic	Plans	of	6.75%	and	varying	rates	for	our	international	plans	of	between	2.00%	and	9.00%. We	are	using	an	expected	return	on	plan	assets	of	7.75%	for	the	U.S.	Qualified	Plan	and	varying	rates	for	our	international	pension	plans	of	between	3.25%	and	9.00%.

The	net	change	in	these	assumptions	from	those	used	in	fiscal	2008	will	result	in	a	decrease	in	pension	expense	of	approximately	$3.6	million	in	fiscal	2009.		We	will continue	to	monitor	the	market	conditions	relative	to	these	assumptions	and	adjust	them	accordingly.

# Goodwill	and	Other	Intangible	Assets

Goodwill	is	calculated	as	the	excess	of	the	cost	of	purchased	businesses	over	the	fair	value	of	their	underlying	net	assets.		Other	intangible	assets	principally	consist	of purchased	royalty	rights	and	trademarks.		Goodwill	and	other	intangible	assets	that	have	an	indefinite	life	are	not	amortized.

On	an	annual	basis,	or	more	frequently	if	certain	events	or	circumstances	warrant,	we	test	goodwill	and	other	indefinite-lived	intangible	assets	for	impairment.		To determine	the	fair	value	of	these	intangible	assets,	there	are	many	assumptions	and	estimates	used	that	directly	impact	the	results	of	the	testing.		We	have	the	ability	to influence	the	outcome	and	ultimate	results	based	on	the	assumptions	and	estimates	we	choose.		To	mitigate	undue	influence,	we	use	industry	accepted	valuation	models and	set	criteria	that	are	reviewed	and	approved	by	various	levels	of	management	and,	in	certain	instances,	we	engage	third-party	valuation	specialists	to	advise	us.

# Income	Taxes

We	account	for	income	taxes	in	accordance	with	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	109,	"Accounting	for	Income	Taxes,"	as	amended.		This statement	establishes	financial	accounting	and	reporting	standards	for	the	effects	of	income	taxes	that	result	from	an	enterprise's	activities	during	the	current	and preceding	years.		It	requires	an	asset	and	liability	approach	for	financial	accounting	and	reporting	of	income	taxes.

As	of	June	30,	2008,	we	have	current	net	deferred	tax	assets	of	$184.6	million	and	non-current	net	deferred	tax	assets	of	$55.3	million.		The	net	deferred	tax	assets assume	sufficient	future	earnings	for	their	realization,	as	well	as	the	continued	application	of	currently	anticipated	tax	rates.		Included	in	net	deferred	tax	assets	is	a valuation	allowance	of	$5.7	million	for	deferred	tax	assets,	where	management	believes	it	is	more	likely	than	not	that	the	deferred	tax	assets	will	not	be	realized	in	the relevant	jurisdiction.		Based	on	our	assessments,	no	additional	valuation	allowance	is	required.		If	we	determine	that	a	deferred	tax	asset	will	not	be	realizable,	an adjustment	to	the	deferred	tax	asset	will	result	in	a	reduction	of	earnings	at	that	time.

In	June	2006,	the	Financial	Accounting	Standards	Board	("FASB")	issued	FASB	Interpretation	No.	("FIN")	48,	"Accounting	for	Uncertainty	in	Income	Taxes	–	an interpretation	of	FASB	Statement	No.	109"	("FIN	48").		FIN	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	two-step	evaluation	process	for	tax	positions	taken,	or	expected	to	be	taken,	in	a	tax	return.		The	first step	is	recognition	and	the	second	is	measurement.		FIN	48	also	provides	guidance	on	derecognition,	measurement,	classification,	disclosures,	transition	and	accounting for	interim	periods.		In	May	2007,	the	FASB	issued	FASB	Staff	Position	("FSP")	No.	FIN	48-1,	"Definition	of	Settlement	in	FASB	Interpretation	No.	48,	an amendment	of	FASB	Interpretation	(FIN)	No.	48,	Accounting	for	Uncertainty	in	Income	Taxes"	("FSP	No.	FIN	48-1").		FSP	No.	FIN	48-1	provides	guidance	on	how to	determine	whether	a	tax	position	is	effectively	settled	for	the	purpose	of	recognizing	previously	unrecognized	tax	benefits.

We	adopted	the	provisions	of	FIN	48,	as	amended,	effective	July	1,	2007.		As	a	result,	we	recognized	an	increase	in	the	liability	for	unrecognized	tax	benefits	and interest	of	$13.1	million	(net	of	tax	effect),	which,	as	required,	was	accounted	for	as	a	reduction	to	the	July	1,	2007	balance	of	retained	earnings.		We	elected	to	continue our	historical	practice	of	classifying	applicable	interest	and	penalties	as	a	component	of	the	provision	for	income	taxes.

We	provide	tax	reserves	for	Federal,	state,	local	and	international	exposures	relating	to	periods	subject	to	audit.		The	development	of	reserves	for	these	exposures requires	judgments	about	tax	issues,	potential	outcomes	and	timing,	and	is	a	subjective	critical	estimate.		We	assess	our	tax	positions	and	record	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	tax	positions	where it	is	more-likely-than-not	that	a	tax	benefit	will	be	sustained,	we	have	recorded	the	largest	amount	of	tax	benefit	with	a	greater	than	50%	likelihood	of	being	realized upon	settlement	with	a	tax	authority	that	has	full	knowledge	of	all	relevant	information.		For	those	tax	positions	where	it	is	not	more-likely-than-not	that	a	tax	benefit will	be	sustained,	no	tax	benefit	has	been	recognized	in	the	financial	statements.		Where	applicable,	associated	interest	and	penalties	have	also	been	recognized. Although	the	outcome	relating	to	these	exposures	is	uncertain,	in	management's	opinion	adequate	provisions	for	income	taxes	have	been	made	for	estimable	potential liabilities	emanating	from	these	exposures.		In	certain	circumstances,	the	ultimate	outcome	of	exposures	and	risks	involves	significant	uncertainties	which	render	them inestimable.		If	actual	outcomes	differ	materially	from	these	estimates,	including	those	that	cannot	be	quantified,	they	could	have	a	material	impact	on	our	results	of operations,	as	we	experienced	in	the	fourth	quarter	of	fiscal	2006	(see	"Results	of	Operations,	Fiscal	2007	as	Compared	with	Fiscal	2006	–	Provision	for	Income Taxes").

# Derivatives

We	account	for	derivative	financial	instruments	in	accordance	with	SFAS	No.	133,	"Accounting	for	Derivative	Instruments	and	Hedging	Activities,"	as	amended,	which establishes	accounting	and	reporting	standards	for	derivative	instruments,	including	certain	derivative	instruments	embedded	in	other	contracts,	and	for	hedging activities.		This	statement	also	requires	the	recognition	of	all	derivative	instruments	as	either	assets	or	liabilities	on	the	balance	sheet	and	that	they	be	measured	at	fair value.

We	currently	use	derivative	financial	instruments	to	hedge	certain	anticipated	transactions	and	interest	rates,	as	well	as	receivables	and	payables	denominated	in	foreign currencies.		We	do	not	utilize	derivatives	for	trading	or	speculative	purposes.		Hedge	effectiveness	is	documented,	assessed	and	monitored	by	employees	who	are qualified	to	make	such	assessments	and	monitor	the	instruments.		Variables	that	are	external	to	us	such	as	social,	political	and	economic	risks	may	have	an	impact	on	our hedging	program	and	the	results	thereof.		For	a	discussion	on	the	quantitative	impact	of	market	risks	related	to	our	derivative	financial	instruments,	refer	to	"Liquidity and	Capital	Resources	–	Market	Risk."

# Quantitative	Analysis

During	the	three-year	period	ended	June	30,	2008	there	have	not	been	material	changes	in	the	assumptions	underlying	these	critical	accounting	policies,	nor	to	the related	significant	estimates.		With	the	exception	of	our	tax	settlement	with	the	Internal	Revenue	Service	in	the	fourth	quarter	of	fiscal	2006,	which	finalized	the	ultimate liability	for	exposures	which	were	previously	inestimable,	the	results	of	our	business	underlying	these	assumptions	have	not	differed	significantly	from	our	expectations.

While	we	believe	that	the	estimates	that	we	have	made	are	proper	and	the	related	results	of	operations	for	the	period	are	presented	fairly	in	all	material	respects,	other assumptions	could	reasonably	be	justified	that	would	change	the	amount	of	reported	net	sales,	cost	of	sales,	operating	expenses	or	our	provision	for	income	taxes	as	they relate	to	the	provisions	for	anticipated	sales	returns,	allowance	for	doubtful	accounts,	inventory	obsolescence	reserve	and	income	taxes.		For	fiscal	2008,	had	these estimates	been	changed	simultaneously	by	2.5%	in	either	direction,	our	reported	gross	profit	would	have	increased	or	decreased	by	approximately	$5.2	million, operating	expenses	would	have	changed	by	approximately	$0.7	million	and	the	provision	for	income	taxes	would	have	increased	or	decreased	by	approximately	$1.7 million.		The	collective	impact	of	these	changes	on	operating	income,	net	earnings	and	net	earnings	per	diluted	common	share	would	be	an	increase	or	decrease	of approximately	$5.9	million,	$7.6	million	and	$.04,	respectively.

# RESULTS	OF	OPERATIONS

# 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	have	come	to	expect	from	us	in	the	most	efficient and	profitable	manner.		With	this	goal	in	mind,	we	have	developed	a	long-term	strategy	based	on	the	following	five	imperatives:

In	fiscal	2008,	we	continued	to	find	ways	to	strengthen	our	core	brands	and	product	categories,	maximize	high-growth	brands,	and	incubate	and	develop	next	generation brands.		Net	sales	from	Estée	Lauder	and	Clinique	grew	on	a	global	basis,	fueled	by	strong	demand	outside	of	the	United	States	where	these	brands	generated approximately	two-thirds	of	their	net	sales.		We	took	measures	to	improve	our	business	at	the	point	of	sale	by	investing	in	new	modular	display	and	tester	units	for	the Estée	Lauder	brand	at	all	North	American	department	store	locations	and	increased	our	focus	to	improve	the	service	provided	by	Estée	Lauder	Beauty	Advisors.		Our Clinique	brand	sponsored	a	program	to	improve	the	consumer	experience	at	U.S.	and	international	department	stores.		Our	faster	growing	MžAžC,	Bobbi	Brown,	La Mer	and	Jo	Malone	brands	continued	to	increase	their	net	sales	in	all	of	our	geographic	regions.		The	recent	launch	of	Sean	John	Unforgivable	Woman	generated significant	incremental	net	sales	to	our	fragrance	product	category.

In	July	2007,	we	acquired	Ojon	Corporation,	a	privately	held	hair	care	and	skin	care	company	based	in	Canada	that	sells	its	products	primarily	through	direct	response television	("DRTV")	and	specialty	stores.		We	also	recently	announced	that	we	purchased	a	minority	interest	in	a	privately	held	company	that	manufactures,	markets	and sells	beauty	products	in	India	under	the	Forest	Essentials	brand.

This	past	year	we	continued	to	build	on	our	strength	in	research	and	development.		For	example,	we	further	improved	the	Estée	Lauder	Re-Nutriv	product	line	with	the introduction	of	Re-Nutriv	Ultimate	Youth	Crème.		Clinique	launched	a	"dermatologist-certified"	line	called	Redness	Solutions	to	reduce	the	appearance	of	skin	redness. Origins	recently	launched	Origins	Organics,	the	first	full	line	of	skin,	body	and	hair	care	products	to	be	certified	under	the	USDA	National	Organic	Program.

Again	in	fiscal	2008,	the	majority	of	our	net	sales	came	from	outside	the	United	States.		We	generated	growth	in	sales	and	profits	in	our	travel	retail	business,	including accelerated	growth	from	downtown	locations	in	Asian	cities,	border	stores	in	Latin	America	and	shops	on	cruise	ships.		We	continued	to	increase	our	presence	in	China and	Russia	and	recently	established	affiliates	in	the	Middle	East	and	India.		In	an	effort	to	improve	the	return	on	our	media	investment	abroad,	we	consolidated	the	work of	several	media	agencies	into	one	by	selecting	M2M,	a	media	company	of	Omnicom	Media	Group,	to	be	our	media	agency	in	eight	European	and	four	Asian/Pacific countries.		By	doing	so,	we	anticipate	integrating	traditional	media	and	expanding	the	use	of	Internet	and	digital	advertising	in	these	areas.

In	alternative	distribution	channels,	we	continued	to	grow	our	online	business	in	the	United	States,	where	we	sell	products	from	15	of	our	brands	on	Company-owned websites.		With	the	recent	expansion	of	our	online	business	into	Korea,	we	now	sell	products	on	our	own	e-commerce	sites	in	five	foreign	countries.		In	fiscal	2008,	we also	expanded	our	presence	in	the	DRTV	distribution	channel,	most	significantly	with	the	acquisition	of	Ojon	in	July	2007.		In	the	United	States,	Clinique	debuted	on QVC,	where	Bobbi	Brown,	Origins	and	Ojon	currently	have	regular	shows.		BeautyBank	created	Eyes	by	Design,	a	brand	which	is	currently	being	sold	exclusively	on HSN.		Internationally,	Ojon	debuted	on	QVC	in	Germany	while	Bobbi	Brown	and	Prescriptives	aired	on	QVC	in	the	United	Kingdom.		Origins	and	Good	Skin TM 	have also	had	shows	on	DRTV	in	Korea.

As	part	of	our	international	pharmacy	channel	business	initiative,	several	distributor	markets	for	Darphin	products	will	now	be	serviced	by	our	own	affiliates	and	Origins opened	more	than	20	new	pharmacies	in	France.		Tri-Aktiline	by	Good	Skin TM 	launched	in	over	500	Sephora	doors	throughout	Europe	and	exclusively	in	Cosmed's	250 pharmacies	in	Taiwan,	our	first	entry	in	Taiwan's	pharmacy	channel.		In	January	2008,	we	formed	a	strategic	collaboration	with	Allergan,	Inc.,	a	global	medical 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	began	using	SAP software,	a	critical	part	of	SMI.		We	anticipate	SMI	implementation	will	continue	at	additional	primary	locations	in	fiscal	2009,	with	the	majority	of	our	business	to	be implemented	through	fiscal	2012.

Despite	the	rise	in	energy	and	raw	material	prices	in	the	current	year,	we	were	able	to	maintain	our	overall	cost	of	sales	margin	through	other	efficiencies	achieved	from our	ongoing	savings	initiatives.		We	also	opened	a	new	distribution	center	in	Singapore	to	improve	service	levels	in	the	fast-growing	Asia/Pacific	region.		In December	2007,	we	entered	into	agreements	to	ensure	that	the	equivalent	of	all	electricity	utilized	by	our	Global	Operations	division	is	generated	from	green	sources. We	now	rank	22nd	on	the	EPA's	list	of	leading	Fortune	500	companies	in	alternative	power	usage.

During	fiscal	2008,	we	also	faced	challenges,	many	of	which	we	expect	to	be	ongoing	in	fiscal	2009.		We	believe	that	economic	uncertainty	in	the	United	States	has affected	our	business,	particularly	in	the	department	store	channel.		We	continue	to	see	softness	in	the	United	States,	including	the	impact	of	the	consolidation	and changes	taking	place	among	retailers.		In	addition,	the	fragrance	category	continues	to	be	highly	competitive.		These	challenges	have	been	mitigated	through	sales	in alternative	channels,	such	as	freestanding	retail	stores,	internet	distribution,	self-select	distribution	and	DRTV.		Efforts	to	expand	geographically	are	complicated	by increasing	regulatory	issues	and	cultural	barriers.

As	we	continue	to	implement	our	strategic	imperatives,	we	expect	to	make	selective	investments,	embark	on	new	business	endeavors,	and	pursue	initiatives	that	we believe	will	have	long-term	benefits.		The	timing,	impact	and	magnitude	of	any	particular	actions,	such	as	an	acquisition	to	strengthen	our	product	categories	and/or diversify	our	distribution	channels,	are	subject	to	numerous	factors	and	one-time	charges	that	cannot	be	predicted.

The	following	table	is	a	comparative	summary	of	operating	results	from	continuing	operations	for	fiscal	2008,	2007	and	2006	and	reflects	the	basis	of	presentation described	in	Note	2	and	Note	21	to	the	Notes	to	Consolidated	Financial	Statements	for	all	periods	presented.		Products	and	services	that	do	not	meet	our	definition	of skin	care,	makeup,	fragrance	and	hair	care	have	been	included	in	the	"other"	category.

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) |  |
| NET\tSALES |  |  |  |
| By\tRegion: |  |  |  |
| The\tAmericas | $3,711.5 | $3,560.9 | $3,446.4 |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica | 3,006.7 | 2,493.4 | 2,147.7 |
| Asia/Pacific | 1,192.6 | 983.2 | 869.7 |
|  | $7,910.8 | $7,037.5 | $6,463.8 |
| By\tProduct\tCategory: |  |  |  |
| Skin\tCare | $2,996.8 | $2,601.0 | $2,400.8 |
| Makeup | 3,000.4 | 2,712.7 | 2,504.2 |
| Fragrance | 1,432.0 | 1,308.6 | 1,213.3 |
| Hair\tCare | 427.1 | 377.1 | 318.7 |
| Other | 54.5 | 38.1 | 26.8 |
|  | $7,910.8 | $7,037.5 | $6,463.8 |

# OPERATING	INCOME

| The	Americas | $228.3 | $336.4 | $344.1 |
| :--- | :--- | :--- | :--- |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica | 433.1 | 321.4 | 297.5 |
| Asia/Pacific | 149.7 | 93.2 | 70.1 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative\t* | (0.4) | (1.1) | (92.1) |
|  | $810.7 | $749.9 | $619.6 |
| By\tProduct\tCategory: |  |  |  |
| Skin\tCare | $405.6 | $341.5 | $346.4 |
| Makeup | 359.4 | 339.3 | 329.4 |
| Fragrance | 36.2 | 28.1 | 7.7 |
| Hair\tCare | 11.5 | 42.5 | 26.5 |
| Other | (1.6) | (0.4) | 1.7 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative\t* | (0.4) | (1.1) | (92.1) |
|  | $810.7 | $749.9 | $619.6 |

*	Refer	to	the	discussion	in	Note	8	to	the	Notes	to	Consolidated	Financial	Statements.

The	following	table	presents	certain	consolidated	earnings	data	as	a	percentage	of	net	sales:

|  | 2008 | Year	Ended	June	30<br>2007 | 2006 |
| :--- | :--- | :--- | :--- |
| Net\tsales | 100.0% | 100.0% | 100.0% |
| Cost\tof\tsales | 25.2 | 25.2 | 26.1 |
| Gross\tprofit | 74.8 | 74.8 | 73.9 |
| Operating\texpenses: |  |  |  |
| Selling,\tgeneral\tand\tadministrative | 64.5 | 64.1 | 62.9 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative | — | — | 1.4 |
|  | 64.5 | 64.1 | 64.3 |
| Operating\tincome | 10.3 | 10.7 | 9.6 |
| Interest\texpense,\tnet | 0.9 | 0.6 | 0.4 |
| Earnings\tbefore\tincome\ttaxes,\tminority\tinterest\tand\tdiscontinued |  |  |  |
| operations | 9.4 | 10.1 | 9.2 |
| Provision\tfor\tincome\ttaxes | 3.3 | 3.6 | 4.0 |
| Minority\tinterest,\tnet\tof\ttax | (0.1) | (0.1) | (0.2) |
| Net\tearnings\tfrom\tcontinuing\toperations | 6.0 | 6.4 | 5.0 |
| Discontinued\toperations,\tnet\tof\ttax | — | — | (1.2) |
| Net\tearnings | 6.0% | 6.4% | 3.8% |

In	order	to	meet	the	demands	of	consumers,	we	continually	introduce	new	products,	support	new	and	established	products	through	advertising,	sampling	and merchandising	and	phase	out	existing	products	that	no	longer	meet	the	needs	of	our	consumers.		The	economics	of	developing,	producing,	launching	and	supporting products	influence	our	sales	and	operating	performance	each	period.		The	introduction	of	new	products	may	have	some	cannibalizing	effect	on	sales	of	existing	products, which	we	take	into	account	in	our	business	planning.

The	recent	challenges	and	uncertainties	in	the	economies	of	certain	key	countries,	including	the	United	States,	may	continue	to	have	an	adverse	impact	on	consumer demand,	which	could	affect	our	net	sales	and	operating	results	in	the	short	and	long	term.

# Fiscal	2008	as	Compared	with	Fiscal	2007

# NET	SALES

Net	sales	increased	12%,	or	$873.3	million,	to	$7,910.8	million,	reflecting	net	sales	growth	in	all	of	our	product	categories	within	each	geographic	region.		Skin	care, makeup	and	fragrance	net	sales	increases	were	led	by	Europe,	the	Middle	East	and	Africa	while	most	of	the	net	sales	increase	in	hair	care	was	achieved	in	the	Americas. The	increase	in	net	sales	reflected	our	efforts	to	capitalize	on	growth	opportunities	internationally.		Excluding	the	impact	of	foreign	currency	translation,	net	sales increased	8%.

# Product	Categories

# Skin	Care

Net	sales	of	skin	care	products	increased	15%,	or	$395.8	million,	to	$2,996.8	million.		This	growth	reflected	the	recent	launches	of	Idealist	Pore	Minimizing	Skin Refinisher,	Cyber	White	EX	and	Hydra	Bright	Skin	Tone	Perfecting	Moisturizers	from	Estée	Lauder.		Also	contributing	to	the	growth	were	the	recent	launches	of products	in	the	Acne	Solutions	Clear	Skin	System,	Redness	Solutions	and	Even	Better	Skin	Tone	Corrector	from	Clinique	as	well	as	The	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	System	and	Repairwear	line,	and	Tri-Aktiline Instant	Deep	Wrinkle	Filler	from	Good	Skin TM 	totaled	approximately	$80	million.		These	improvements	were	partially	offset	by	approximately	$55	million	of	lower sales	from	certain	other	existing	Idealist	products	and	Perfectionist	products	from	Estée	Lauder.		Net	sales	of	other	new	and	existing	products	also	significantly contributed	to	the	growth.		Excluding	the	impact	of	foreign	currency	translation,	skin	care	net	sales	increased	10%.

# Makeup

Makeup	net	sales	increased	11%,	or	$287.7	million,	to	$3,000.4	million	reflecting	growth	from	our	makeup	artist	brands	of	approximately	$194	million.		Also contributing	to	the	growth	were	incremental	sales	from	the	recent	launches	of	Estée	Lauder	Signature	Hydra	Lustre	Lipstick,	Double	Wear	Zero	Smudge	Mascara	and Eyeliner	from	Estée	Lauder,	Supermoisture	Makeup	and	Superbalm	Moisturizing	Gloss	from	Clinique,	as	well	as	higher	sales	of	Double	Wear	Stay-In-Place	Makeup from	Estée	Lauder	of	approximately	$97	million,	combined.		Partially	offsetting	these	increases	were	lower	sales	of	approximately	$30	million	of	Pure	Color	Eyeshadow and	High	Gloss	from	Estée	Lauder	and	Colour	Surge	Lipstick	from	Clinique.		Excluding	the	impact	of	foreign	currency	translation,	makeup	net	sales	increased	7%.

# Fragrance

Net	sales	of	fragrance	products	increased	9%,	or	$123.4	million,	to	$1,432.0	million.		The	recent	launches	of	Sean	John	Unforgivable	Woman,	Dreaming	Tommy Hilfiger,	Estée	Lauder	Pure	White	Linen	Light	Breeze,	Estée	Lauder	pleasures	delight	and	DKNY	Delicious	Night	collectively	contributed	approximately	$95	million	to the	growth	in	the	category.		Higher	sales	of	approximately	$62	million	of	DKNY	Be	Delicious,	Jo	Malone	and	Tom	Ford	fragrances	also	contributed	to	the	increase. Lower	sales	of	approximately	$53	million	of	Tommy	Girl	by	Tommy	Hilfiger,	DKNY	Red	Delicious	Women	and	DKNY	Be	Delicious	Men	partially	offset	the	growth in	this	product	category.		While	current	year	sales	levels	compared	favorably	to	the	prior	year,	we	anticipate	continued	challenges	in	this	product	category	in	the	United States.		Excluding	the	impact	of	foreign	currency	translation,	fragrance	net	sales	increased	5%.

# Hair	Care

Hair	care	net	sales	increased	13%,	or	$50.0	million,	to	$427.1	million,	primarily	due	to	the	inclusion	of	the	Ojon	brand	which	was	acquired	at	the	end	of	July	2007,	as well	as	growth	from	Aveda	and	Bumble	and	bumble.		Aveda	net	sales	increases	benefited	from	the	recent	launches	of	Smooth	Infusion	and	Aveda	Men	Pure-Formance products,	as	well	as	the	recent	acquisition	of	an	independent	distributor.		Bumble	and	bumble	net	sales	benefited	from	new	points	of	distribution	and	increases	from	its hotel	amenities	program,	which	concluded	in	the	third	quarter.		Excluding	the	impact	of	foreign	currency	translation,	hair	care	net	sales	increased	11%.

# Geographic	Regions

Net	sales	in	the	Americas	increased	4%,	or	$150.6	million,	to	$3,711.5	million,	primarily	reflecting	net	sales	growth	in	Canada	and	Latin	America,	as	well	as	the addition	of	the	Ojon	brand,	of	approximately	$98	million,	combined.		Additional	net	sales	increases	of	approximately	$65	million	were	attributable	to	our	designer 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	channel.		We	believe	that	economic uncertainty	in	the	United	States	has	affected	our	business,	particularly	in	the	department	store	channel.		These	challenges	have	been	mitigated	through	sales	in	alternative channels,	such	as	freestanding	retail	stores,	internet	distribution,	self-select	distribution	and	direct-response	television.		Excluding	the	impact	of	foreign	currency translation,	net	sales	in	the	Americas	increased	3%.

All	countries	in	Europe,	the	Middle	East	&	Africa	experienced	net	sales	growth,	which	contributed	to	the	increase	in	net	sales	of	21%,	or	$513.3	million,	to	$3,006.7 million,	although	net	sales	growth	rates	slowed	in	certain	key	countries.		This	growth	was	led	by	our	travel	retail	business	and	the	United	Kingdom,	as	well	as	in	Russia, which	benefited	from	our	expansion	in	this	emerging	market.		The	results	in	this	region	were	inclusive	of	an	exchange	rate	benefit	due	to	the	weakening	of	the	U.S. dollar	of	approximately	$206	million.		Excluding	the	impact	of	foreign	currency	translation,	net	sales	in	Europe,	the	Middle	East	&	Africa	increased	12%.

Net	sales	in	Asia/Pacific	increased	21%,	or	$209.4	million,	to	$1,192.6	million,	reflecting	growth	from	all	countries	in	the	region.		This	increase	reflected	higher	net	sales of	approximately	$172	million	in	China,	Japan,	Hong	Kong,	Australia	and	Korea.		The	results	in	this	region	were	inclusive	of	an	exchange	rate	benefit	due	to	the weakening	of	the	U.S.	dollar	of	approximately	$66	million.		Excluding	the	impact	of	foreign	currency	translation,	Asia/Pacific	net	sales	increased	15%.

We	strategically	stagger	our	new	product	launches	by	geographic	market,	which	may	account	for	differences	in	regional	sales	growth.

# COST	OF	SALES

Cost	of	sales	as	a	percentage	of	total	net	sales	was	25.2%,	which	is	the	same	as	the	prior	year.		Cost	of	sales	as	a	percentage	of	net	sales	reflected	a	decrease	in	the	level and	timing	of	promotional	activities	of	approximately	20	basis	points	and	a	positive	effect	of	exchange	rates	of	approximately	10	basis	points.		Offsetting	these improvements	was	an	unfavorable	change	in	the	mix	of	our	business,	an	increase	in	obsolescence	charges,	and	employee-related	charges	designed	to	streamline	certain business	activities	and	achieve	future	cost	savings	of	approximately	10	basis	points,	each.

Despite	the	rise	in	energy	and	raw	material	prices	in	the	current	year,	we	were	able	to	maintain	our	overall	cost	of	goods	margin	through	other	efficiencies	achieved	from ongoing	savings	initiatives.		While	sustained	energy	and	raw	material	price	increases	could	result	in	higher	costs,	we	believe	that	this	will	not	have	a	material	adverse effect	on	our	cost	of	sales	margin	in	the	near	future.

Since	certain	promotional	activities	are	a	component	of	sales	or	cost	of	sales	and	the	timing	and	level	of	promotions	vary	with	our	promotional	calendar,	we	have experienced,	and	expect	to	continue	to	experience,	fluctuations	in	the	cost	of	sales	percentage.		In	addition,	future	cost	of	sales	mix	may	be	impacted	by	the	inclusion	of new	brands	which	have	margin	and	product	cost	structures	different	from	those	of	our	existing	brands.

# OPERATING	EXPENSES

Operating	expenses	increased	to	64.5%	of	net	sales	as	compared	with	64.1%	of	net	sales	in	the	prior	year.		The	increase	in	operating	expenses	and	operating	expense margin	reflected	higher	costs	of	global	information	technology	systems	and	infrastructure	of	approximately	30	basis	points.		An	additional	20	basis	points	resulted	from an	increase	in	valuation	reserves	reflecting	the	diminishing	likelihood	of	realizing	value	from	a	promissory	note	and	convertible	preferred	stock	received	in	connection with	the	divestiture	of	Stila	in	fiscal	2006.		We	also	recorded	an	increase	in	intangible	asset	amortization	resulting	from	recent	strategic	acquisitions,	as	well	as employee-related	charges	designed	to	streamline	certain	business	activities	and	achieve	future	cost	savings,	of	approximately	10	basis	points	each.		Operating	expense margin	in	the	prior	year	was	adversely	impacted	by	charges	related	to	our	pharmacy	channel	of	approximately	40	basis	points.

Changes	in	advertising,	merchandising	and	sampling	spending	result	from	the	type,	timing	and	level	of	activities	related	to	product	launches	and	rollouts,	as	well	as	the markets	being	emphasized.

# OPERATING	RESULTS

Operating	income	increased	8%,	or	$60.8	million,	to	$810.7	million	as	compared	with	the	prior	year.		Operating	margin	declined	to	10.3%	of	net	sales	as	compared	with 10.7%	in	the	prior	year,	reflecting	our	constant	cost	of	sales	margin	and	the	increase	in	our	operating	expense	margin,	as	previously	discussed.

Fragrance	operating	income	increased	29%,	or	$8.1	million,	to	$36.2	million,	reflecting	profitable	international	growth,	partially	offset	by	increased	spending	in	support of	designer	fragrance	products	initiatives.		Skin	care	operating	income	increased	19%,	or	$64.1	million,	to	$405.6	million,	primarily	reflecting	improved	international results	from	certain	of	our	core	brands	and	net	sales	growth	from	La	Mer	products	and	Tri-Aktiline 	Instant	Deep	Wrinkle	Filler	from	Good	Skin .		In	addition,	the TM TM

prior	year	results	in	this	category	reflected	organizational	costs	of	approximately	$30	million,	primarily	related	to	our	pharmacy	channel	in	Europe.		Makeup	operating income	increased	6%,	or	$20.1	million,	to	$359.4	million,	primarily	reflecting	improved	results	internationally.		These	improvements	were	partially	offset	by	lower results	in	the	United	States	from	certain	of	our	core	brands,	the	charge	on	the	impairment	of	Stila-related	financial	instruments,	and	costs	related	to	the	establishment	of new	points	of	distribution	for	MžAžC.		Hair	care	operating	income	declined	73%,	or	$31.0	million,	to	$11.5	million,	primarily	reflecting	costs	related	to	the	acquisition and	integration	of	Ojon	to	position	the	brand	for	future	growth.		The	results	in	this	category	also	reflected	an	increase	in	intangible	asset	amortization	resulting	from recent	strategic	acquisitions	as	well	as	costs	related	to	the	establishment	of	new	points	of	distribution.

Operating	income	in	the	Americas	declined	32%,	or	$108.1	million,	to	$228.3	million,	primarily	reflecting	a	difficult	retail	environment	in	which	our	core	brands	faced challenges	in	the	department	store	channel.		We	also	experienced	significant	pressure	on	the	profitability	of	our	hair	care	business	as	discussed	above.		At	the	same	time, we	continued	to	invest	in	our	global	information	technology	systems	and	infrastructure.		In	addition,	we	established	new	points	of	distribution	for	existing	brands, incurred	costs	to	streamline	certain	business	activities	to	generate	future	efficiencies	and	incurred	a	charge	on	the	impairment	of	Stila-related	financial	instruments,	as discussed	above.

In	Europe,	the	Middle	East	&	Africa,	operating	income	increased	35%,	or	$111.7	million,	to	$433.1	million	primarily	due	to	higher	results	of	approximately	$71	million in	our	travel	retail	business,	the	United	Kingdom,	Italy,	the	Balkans	and	Spain.		Partially	offsetting	these	increases	were	lower	results	in	Russia	and	India	of approximately	$6	million,	reflecting	spending	to	support	our	expansion	in	these	emerging	markets.		The	overall	operating	results	in	this	region	were	adversely	impacted in	the	prior	year	by	the	pharmacy	channel	charges	discussed	above.

In	Asia/Pacific,	operating	income	increased	61%,	or	$56.5	million,	to	$149.7	million.		All	of	our	affiliates	in	this	region	experienced	an	increase	in	operating	income, primarily	resulting	from	net	sales	growth	led	by	Japan,	Hong	Kong,	China,	Australia	and	Korea,	which	contributed	approximately	$43	million,	collectively.

# INTEREST	EXPENSE,	NET

Net	interest	expense	was	$66.8	million	as	compared	with	$38.9	million	in	the	prior	year.		This	change	primarily	resulted	from	higher	average	debt	balances,	including	an additional	$600.0	million	of	senior	notes	issued	in	the	fourth	quarter	of	fiscal	2007,	partially	offset	by	lower	average	interest	rates.

# PROVISION	FOR	INCOME	TAXES

The	provision	for	income	taxes	represents	Federal,	foreign,	state	and	local	income	taxes.		The	effective	rate	differs	from	statutory	rates	due	to	the	effect	of	state	and	local taxes,	tax	rates	in	foreign	jurisdictions	and	certain	nondeductible	expenses.		Our	effective	tax	rate	will	change	from	year	to	year	based	on	non-recurring	and	recurring factors	including,	but	not	limited	to,	the	geographical	mix	of	earnings,	enacted	tax	legislation,	state	and	local	taxes,	tax	audit	settlements	and	the	interaction	of	various global	tax	strategies.		The	effective	rate	for	income	taxes	for	the	year	ended	June	30,	2008	was	34.9%	as	compared	with	35.9%	in	the	prior	year.		The	decrease	in	the effective	income	tax	rate	of	100	basis	points	resulted	primarily	from	a	decrease	in	state	and	local	income	tax	expense	(240	basis	points)	partially	offset	by	an	increase	in the	tax	effect	of	our	foreign	operations	(140	basis	points).

# NET	EARNINGS

Net	sales	increased	9%,	or	$573.7	million,	to	$7,037.5	million,	reflecting	net	sales	growth	in	all	product	categories	and	geographic	regions.		The	increases	in	our	skin care,	makeup	and	fragrance	product	categories	were	led	by	Europe,	the	Middle	East	&	Africa	while	the	increase	in	hair	care	net	sales	was	predominantly	in	the Americas.		Excluding	the	impact	of	foreign	currency	translation,	net	sales	increased	7%.

Net	sales	of	skin	care	products	increased	8%,	or	$200.2	million,	to	$2,601.0	million.		Most	of	this	growth	was	fueled	by	new	product	launches	which	made	their	most significant	impact	in	our	Europe,	the	Middle	East	&	Africa	and	Asia/Pacific	regions.		The	fiscal	2007	launches	of	Advanced	Night	Repair	Concentrate	Recovery Boosting	Treatment	and	Idealist	Refinisher	from	Estée	Lauder,	and	Repairwear	Lift	Firming	Night	Cream,	Continuous	Rescue	Antioxidant	Moisturizer,	All	About	Eyes Rich	and	Repairwear	Contour	Firming	Formula	from	Clinique	contributed	incremental	sales	of	approximately	$95	million,	combined.		Net	sales	increases	from	our	fast- growing	La	Mer	brand,	Resilience	Lift	Extreme	Ultra	Firming	products	and	other	existing	Advanced	Night	Repair	products	from	Estée	Lauder,	along	with	products	in the	Clinique	3-Step	Skin	Care	System	and	Superdefense	from	Clinique,	totaled	approximately	$97	million.		These	improvements	were	partially	offset	by	approximately $35	million	of	lower	sales	from	certain	other	Resilience	Lift	products	and	Perfectionist	[CP+]	from	Estée	Lauder.		Excluding	the	impact	of	foreign	currency	translation, skin	care	net	sales	increased	6%.

Makeup	net	sales	increased	8%,	or	$208.5	million,	to	$2,712.7	million,	reflecting	growth	from	our	makeup	artist	brands	of	approximately	$191	million.		This	increase was	supported	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	AIDS-related charities.		Higher	sales	of	Double	Wear	Foundation	and	the	fiscal	2007	launch	of	Resilience	Lift	Extreme	Ultra	Firming	Makeup	SPF	15	by	Estée	Lauder	contributed approximately	$56	million	to	the	growth	in	this	product	category.		Lower	sales	of	approximately	$35	million	of	Pure	Color	Gloss	and	Individualist	Natural	Finish Makeup	by	Estée	Lauder,	and	Repairwear	Anti-Aging	Makeup	SPF	15	by	Clinique	partially	offset	this	growth.		Excluding	the	impact	of	foreign	currency	translation, makeup	net	sales	increased	6%.

Net	sales	of	fragrance	products	increased	8%,	or	$95.3	million,	to	$1,308.6	million,	primarily	driven	by	incremental	international	sales	from	newer	fragrance	offerings. DKNY	Red	Delicious,	Pure	White	Linen	from	Estée	Lauder,	Sean	John	Unforgivable,	DKNY	Red	Delicious	Men	and	Donna	Karan	Gold	collectively	contributed approximately	$128	million	to	the	category.		Lower	sales	of	approximately	$67	million	of	True	Star	and	True	Star	Men	by	Tommy	Hilfiger,	and	Estée	Lauder	pleasures partially	offset	the	growth	in	this	product	category.		Excluding	the	impact	of	foreign	currency	translation,	fragrance	net	sales	increased	5%.

Hair	care	net	sales	increased	18%,	or	$58.4	million,	to	$377.1	million,	primarily	due	to	sales	growth	from	Aveda	and	Bumble	and	bumble	products.		Aveda	net	sales increases	were	primarily	due	to	sales	of	professional	color	products,	the	fiscal	2007	launch	of	Be	Curly	shampoo	and	conditioner	and	the	acquisition	of	an	independent distributor.		Bumble	and	bumble	sales	benefited	from	a	new	hotel	amenities	program,	sales	growth	in	its	existing	salon	distribution	and	new	points	of	distribution. Excluding	the	impact	of	foreign	currency	translation,	hair	care	net	sales	increased	17%.

Net	sales	in	the	Americas	increased	3%,	or	$114.5	million,	to	$3,560.9	million.		The	increase	was	led	by	growth	in	the	United	States	of	approximately	$152	million	from our	makeup	artist	brands,	our	hair	care	business,	our	internet	distribution	and	the	fiscal	2007	launch	of	the	Unforgivable	fragrance	by	Sean	John.		Partially	offsetting	this growth	was	approximately	$90	million	related	to	weaknesses	in	our	core	brands	as	a	result	of	competitive	pressures	and	retailer	consolidations.		Net	sales	growth	in Canada,	Latin	America	and	Mexico	contributed	an	additional	$31	million	to	the	increase.		The	fiscal	2006	results	reflected	an	incremental	provision	of	approximately $16	million	for	returns	that	were	anticipated	at	that	time	as	a	result	of	then-announced	store	closings	from	retailer	consolidations.

In	Europe,	the	Middle	East	&	Africa,	net	sales	increased	16%,	or	$345.7	million,	to	$2,493.4	million,	including	an	exchange	rate	benefit	due	to	the	weakening	of	the U.S.	dollar	of	approximately	$122	million.		The	growth	in	the	region	reflected	higher	net	sales	of	approximately	$260	million	in	the	United	Kingdom,	our	travel	retail business,	Russia,	Germany	and	Spain,	with	all	benefiting	from	an	improving	retail	environment,	and	in	Turkey,	where	we	acquired	a	distributor.		On	a	local	currency basis,	net	sales	in	Europe,	the	Middle	East	&	Africa	increased	10%.

Net	sales	in	Asia/Pacific	increased	13%,	or	$113.5	million,	to	$983.2	million.		The	growth	in	this	region	reflected	higher	net	sales	of	approximately	$86	million	in	Korea, China,	Hong	Kong	and	Australia.		These	markets	benefited	from	an	improved	economy	across	the	region	while	China's	growth	in	net	sales	primarily	reflected	our continued	strategic	expansion	in	this	country.		We	also	experienced	modest	sales	growth	in	Japan,	our	largest	market	in	this	region.		Excluding	the	impact	of	foreign currency	translation,	Asia/Pacific	net	sales	increased	11%.

Cost	of	sales	as	a	percentage	of	total	net	sales	decreased	to	25.2%	as	compared	with	26.1%	in	fiscal	2006.		Cost	of	sales	as	a	percentage	of	net	sales	reflected	a	favorable change	in	the	mix	of	our	business	of	approximately	40	basis	points,	a	decrease	in	the	level	and	timing	of	promotional	activities	of	approximately	20	basis	points,	the effect	of	exchange	rate	translation	of	approximately	20	basis	points	and	a	decrease	in	obsolescence	charges	of	approximately	10	basis	points.		Certain	of	these	items reflect	savings	achieved	during	fiscal	2007	from	our	cost	savings	initiative,	which	commenced	during	fiscal	2006.

Operating	expenses	improved	to	64.1%	of	net	sales	as	compared	with	64.3%	of	net	sales	in	fiscal	2006.		During	fiscal	2006,	we	recorded	a	$92.1	million	charge	to operating	expenses	related	to	the	implementation	of	our	cost	savings	initiative	that	negatively	impacted	our	operating	expense	margin	by	approximately	140	basis points.		Partially	offsetting	this	improvement	was	an	increase	of	approximately	50	basis	points	in	selling,	general	and	administrative	expenses	reflecting	higher demonstration,	field	selling	and	training	costs	in	support	of	our	business.		In	fiscal	2007,	our	operating	expense	margin	was	negatively	impacted	by	approximately	40 basis	points	resulting	from	expenses	related	to	our	pharmacy	channel	for	organizational	costs,	costs	to	streamline	the	distribution	of	goods,	and	the	impairment	of goodwill	and	other	intangible	assets.		An	increase	in	costs	incurred	related	to	the	implementation	of	SMI	and	higher	stock-based	compensation	expenses	lowered	our operating	expense	margin	by	approximately	20	additional	basis	points,	combined.		Overall	operating	expenses	reflected	savings	achieved	during	fiscal	2007	from	our cost	savings	initiative,	which	commenced	during	fiscal	2006.

Due	to	the	growth	in	net	sales	and	the	decreases	in	our	cost	of	sales	and	operating	expense	margins	as	previously	discussed,	operating	income	increased	21%,	or	$130.3 million,	to	$749.9	million	as	compared	with	fiscal	2006.		Operating	margins	were	10.7%	of	net	sales	as	compared	with	9.6%	in	fiscal	2006,	which	was	negatively impacted	by	1.4%	of	net	sales	as	a	result	of	the	special	charge	related	to	our	cost	savings	initiative.

The	following	discussions	of	Operating	Results	by	Product	Categories	and	Geographic	Regions	exclude	the	impact	of	special	charges	related	to	our	cost	savings initiative	of	$1.1	million	and	$92.1	million	for	the	fiscal	years	ended	June	30,	2007	and	2006,	respectively.		We	believe	the	following	analysis	of	operating	results	better reflects	the	manner	in	which	we	conduct	and	view	our	business.		See	Note	21	of	Notes	to	Consolidated	Financial	Statements.

Fragrance	operating	results	increased	over	100%,	or	$20.4	million,	to	$28.1	million,	as	profits	from	higher	international	net	sales	and	lower	spending	at	certain	of	our core	brands	in	the	United	States	more	than	offset	spending	behind	new	and	developing	brands.		Hair	care	operating	results	grew	60%,	or	$16.0	million,	to	$42.5	million as	the	increase	in	net	sales	outpaced	increased	spending	in	support	of	new	distribution	points	and	product	launches.		Operating	results	increased	3%,	or	$9.9	million,	to $339.3	million	in	makeup,	primarily	as	a	result	of	higher	net	sales	and	profits	from	our	makeup	artist	brands,	which	more	than	offset	challenges	among	certain	core brands.		Skin	care	operating	results	decreased	1%,	or	$4.9	million,	to	$341.5	million.		The	results	in	this	product	category	were	negatively	impacted	in	fiscal	2007	by charges	related	to	our	pharmacy	channel.		We	recorded	approximately	$30	million	for	organizational	costs,	costs	to	streamline	the	distribution	of	goods,	and	the impairment	of	goodwill	and	other	intangible	assets.		In	addition,	improvements	in	international	skin	care	results	were	partially	offset	by	challenges	in	certain	core	brands in	the	United	States.

Operating	income	in	the	Americas	decreased	2%,	or	$7.7	million,	to	$336.4	million,	reflecting	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	East	&	Africa,	operating	income	increased	8%,	or	$23.9	million,	to	$321.4	million	primarily	due	to	higher	results	of	approximately	$49	million from	our	travel	retail	business,	the	United	Kingdom,	Russia	and	Germany.		Lower	results	from	France	partially	offset	these	improvements	by	approximately	$10 million.		The	fiscal	2007	operating	results	in	France	reflected	the	rebalancing	of	inventory	levels	at	certain	retailers	as	well	as	strategic	investment	spending	behind	the

field	sales	force.		During	fiscal	2007,	the	region	was	negatively	impacted	by	the	charges	discussed	above	related	to	our	pharmacy	channel,	partially	offset	by	modest combined	operating	income	growth	from	the	remaining	affiliates	in	this	region.

In	Asia/Pacific,	operating	income	increased	33%,	or	$23.1	million,	to	$93.2	million.		This	increase	reflected	improved	results	of	approximately	$23	million	in	Hong Kong,	China,	Australia	and	Korea.

Net	interest	expense	was	$38.9	million	as	compared	with	$23.8	million	in	fiscal	2006.		This	change	primarily	resulted	from	higher	average	debt	balances,	primarily associated	with	the	funding	of	our	accelerated	share	repurchase	program,	and	higher	average	interest	rates.		Also	contributing	to	the	increase	was	reduced	interest income	generated	from	lower	average	investment	balances	internationally,	partially	offset	by	higher	average	investment	rates.		These	increases	were	partially	offset	by the	capitalization	of	interest	expense	on	internally	developed	software	in	connection	with	the	upgrade	of	our	information	systems.

The	provision	for	income	taxes	represents	Federal,	foreign,	state	and	local	income	taxes.		The	effective	rate	differs	from	statutory	rates	due	to	the	effect	of	state	and	local taxes,	tax	rates	in	foreign	jurisdictions	and	certain	nondeductible	expenses.		Our	effective	tax	rate	will	change	from	year	to	year	based	on	non-recurring	and	recurring factors	including,	but	not	limited	to,	the	geographical	mix	of	earnings,	enacted	tax	legislation,	state	and	local	taxes,	tax	audit	settlements	and	the	interaction	of	various global	tax	strategies.		The	effective	rate	for	income	taxes	for	the	year	ended	June	30,	2007	was	35.9%	as	compared	with	43.6%	in	fiscal	2006.		The	decrease	in	the effective	income	tax	rate	was	primarily	attributable	to	the	fiscal	2006	effect	of	the	IRS	tax	settlement	of	approximately	770	basis	points.

# 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	the	fiscal	year	ended	June	30,	2007,	$0.5	million,	net	of	tax,	of	operating	income	was	reflected	as	discontinued	operations,	reflecting the	conclusion	of	transitional	distribution	services	provided	to	the	purchaser.		The	fiscal	2006	charge	of	$80.3	million,	net	of	tax,	reflected	the	then-anticipated	loss	on the	sale	of	the	business	of	$69.9	million,	net	of	tax,	and	the	operating	loss	of	$10.4	million,	net	of	tax.

Net	earnings	as	compared	with	fiscal	2006	increased	$205.0	million	to	$449.2	million	and	diluted	net	earnings	per	common	share	improved	93%	from	$1.12	to	$2.16. Net	earnings	from	continuing	operations	as	compared	with	fiscal	2006	increased	by	$124.2	million,	or	38%,	to	$448.7	million	and	diluted	net	earnings	per	common	share from	continuing	operations	increased	45%	from	$1.49	to	$2.16.

# FINANCIAL	CONDITION

# LIQUIDITY	AND	CAPITAL	RESOURCES

Our	principal	sources	of	funds	historically	have	been	cash	flows	from	operations,	borrowings	pursuant	to	our	commercial	paper	program,	borrowings	from	the	issuance of	long-term	debt	and	committed	and	uncommitted	credit	lines	provided	by	banks	and	other	lenders	in	the	United	States	and	abroad.		At	June	30,	2008,	we	had	cash	and cash	equivalents	of	$401.7	million	compared	with	$253.7	million	at	June	30,	2007.

At	June	30,	2008,	our	outstanding	borrowings	were	as	follows:

|  | Long-term | Short-term |  |
| :--- | :--- | :--- | :--- |
|  | Debt | Debt | Total\tDebt |
|  |  | (In\tmillions) |  |
|  | $296.2 | $— | $296.2 |
|  | 197.5 | — | 197.5 |
|  | 310.4 | — | 310.4 |
|  | 242.0 | — | 242.0 |
| $13.5\tmillion\tpromissory\tnote\tdue\tAugust\t31,\t2012\t^(5) | 15.7 | — | 15.7 |
| $7.0\tmillion\tpromissory\tnote\tdue\tJuly\t31,\t2009\t^(6) |  |  |  |
|  | 7.4 | — | 7.4 |
| Commercial\tpaper\tmaturing\tthrough\tJuly\t2008\t(2.24%\taverage\tinterest\trate) | — | 83.9 | 83.9 |
| Turkish\tlira\toverdraft\tfacility | — | 13.1 | 13.1 |
| Other\tborrowings | 9.0 | 21.7 | 30.7 |
|  | $1,078.2 | $118.7 | $1,196.9 |

Consists	of	$300.0	million	principal	and	unamortized	debt	discount	of	$3.8	million.

Consists	of	$300.0	million	principal,	unamortized	debt	discount	of	$0.4	million	and	a	$10.8	million	adjustment	to	reflect	the	fair	value	of	outstanding	interest rate	swaps.

Consists	of	$250.0	million	principal,	unamortized	debt	discount	of	$0.4	million	and	a	$7.6	million	adjustment	to	reflect	the	remaining	termination	value	of	an interest	rate	swap	that	is	being	amortized	to	interest	expense	over	the	life	of	the	debt.

Consists	of	$13.5	million	face	value	and	unamortized	premium	of	$2.2	million.

Consists	of	$7.0	million	face	value	and	unamortized	premium	of	$0.4	million.

We	have	a	$750.0	million	commercial	paper	program	under	which	we	may	issue	commercial	paper	in	the	United	States.		Our	commercial	paper	is	currently	rated	A-1	by Standard	&	Poor's	and	P-1	by	Moody's.		Our	long-term	credit	ratings	are	A	with	a	stable	outlook	by	Standard	&	Poor's	and	A2	with	a	stable	outlook	by	Moody's.		At June	30,	2008,	we	had	$83.9	million	of	commercial	paper	outstanding,	which	we	may	refinance	on	a	periodic	basis	as	it	matures	at	then-prevailing	market	interest	rates.

We	also	have	$209.9	million	in	additional	uncommitted	credit	facilities,	of	which	$28.5	million	was	used	as	of	June	30,	2008.

We	have	an	undrawn	$750.0	million	senior	unsecured	revolving	credit	facility	that	expires	on	April	26,	2012.		This	facility	may	be	used	primarily	to	provide	credit support	for	our	commercial	paper	program,	to	repurchase	shares	of	our	common	stock	and	for	general	corporate	purposes.		Up	to	the	equivalent	of	$250	million	of	the

credit	facility	is	available	for	multi-currency	loans.		The	interest	rate	on	borrowings	under	the	credit	facility	is	based	on	LIBOR	or	on	the	higher	of	prime,	which	is	the rate	of	interest	publicly	announced	by	the	administrative	agent,	or	½%	plus	the	Federal	funds	rate.		We	incurred	costs	of	approximately	$0.3	million	to	establish	the facility	which	will	be	amortized	over	the	term	of	the	facility.		The	credit	facility	has	an	annual	fee	of	$0.4	million,	payable	quarterly,	based	on	our	current	credit	ratings. As	of	June	30,	2008,	we	were	in	compliance	with	all	related	financial	and	other	restrictive	covenants,	including	limitations	on	indebtedness	and	liens.

In	July	2007,	we	acquired	Ojon	Corporation.		As	part	of	the	purchase	price,	we	issued	(i)	a	promissory	note	due	July	31,	2009	with	a	notional	value	of	$7.0	million (present	value	of	$7.4	million	at	June	30,	2008),	bearing	interest	at	10.00%	due	at	maturity	and	(ii)	a	promissory	note	due	August	31,	2012	with	a	notional	amount	of $13.5	million	(present	value	of	$15.7	million	at	June	30,	2008),	bearing	interest	at	10.00%	payable	annually	on	July	31.		The	notes	due	in	2009	and	2012	were	recorded in	the	accompanying	consolidated	balance	sheet	at	present	value	using	effective	rates	of	5.11%	and	5.42%,	respectively.

We	have	a	fixed	rate	promissory	note	agreement	with	a	financial	institution	pursuant	to	which	we	may	borrow	up	to	$150.0	million	in	the	form	of	loan	participation notes	through	one	of	our	subsidiaries	in	Europe.		The	interest	rate	on	borrowings	under	this	agreement	is	at	an	all-in	fixed	rate	determined	by	the	lender	and	agreed	to	by us	at	the	date	of	each	borrowing.		At	June	30,	2008,	no	borrowings	were	outstanding	under	this	agreement.		Debt	issuance	costs	incurred	related	to	this	agreement	were de	minimis.

We	have	an	overdraft	borrowing	agreement	with	a	financial	institution	pursuant	to	which	our	subsidiary	in	Turkey	may	be	credited	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	or	the	lender's	floating	call	rate	agreed	to	by	us	at	each	borrowing.		There	were no	debt	issuance	costs	incurred	related	to	this	agreement.		The	outstanding	balance	at	June	30,	2008	($13.1	million	at	the	exchange	rate	at	June	30,	2008)	is	classified	as short-term	debt	in	our	consolidated	balance	sheet.		Subsequent	to	June	30,	2008,	this	facility	was	increased	to	30.0	million	Turkish	lira	and	the	interest	rate	spread	on borrowings	was	increased	to	55	basis	points	per	annum.

We	have	a	3.0	billion	yen	revolving	credit	facility	that	expires	on	March	24,	2009.		The	interest	rate	on	borrowings	under	the	credit	facility	is	based	on	TIBOR	(Tokyo Interbank	Offered	Rate)	and	a	10	basis	point	facility	fee	is	incurred	on	the	undrawn	balance.		At	June	30,	2008,	no	borrowings	were	outstanding	under	this	facility.

Our	business	is	seasonal	in	nature	and,	accordingly,	our	working	capital	needs	vary.		From	time	to	time,	we	may	enter	into	investing	and	financing	transactions	that require	additional	funding.		To	the	extent	that	these	needs	exceed	cash	from	operations,	we	could,	subject	to	market	conditions,	issue	commercial	paper,	issue	long-term debt	securities	or	borrow	under	our	revolving	credit	facilities.

The	effects	of	inflation	have	not	been	significant	to	our	overall	operating	results	in	recent	years.		Generally,	we	have	been	able	to	introduce	new	products	at	higher selling	prices	or	increase	selling	prices	sufficiently	to	offset	cost	increases,	which	have	been	moderate.

Based	on	past	performance	and	current	expectations,	we	believe	that	cash	on	hand,	cash	generated	from	operations,	available	credit	lines	and	access	to	credit	markets will	be	adequate	to	support	currently	planned	business	operations,	information	systems	enhancements,	capital	expenditures,	stock	repurchases,	commitments	and	other contractual	obligations	on	both	a	near-term	and	long-term	basis.

# Cash	Flows

Net	cash	provided	by	operating	activities	was	$690.1	million,	$661.6	million	and	$709.8	million	in	fiscal	2008,	2007	and	2006,	respectively.		The	increase	in	fiscal	2008 as	compared	with	fiscal	2007	primarily	reflected	a	higher	level	of	cash	generated	from	net	earnings	before	non-cash	items	such	as	depreciation,	amortization	and	stock- based	compensation.		Approximately	$91	million	of	the	change	in	deferred	income	taxes	was	offset	by	a	correlative	change	in	noncurrent	accrued	income	taxes reflecting	the	balance	sheet	presentation	of	unrecognized	tax	benefits	(see	Note	9	of	Notes	to	Consolidated	Financial	Statements	for	further	discussion).		These	changes were	partially	offset	by	the	timing	and	level	of	payments	on	trade	payables	in	North	America	and	higher	accounts	receivable	levels,	primarily	reflecting	the	continuing significant	sales	growth	from	our	international	operations,	which	carry	longer	customer	payment	terms.

The	net	decrease	in	operating	cash	flows	from	fiscal	2006	to	fiscal	2007	reflected	higher	domestic	and	international	inventory	levels	primarily	driven	by	growth	in	new and	emerging	international	markets,	increased	regulatory	requirements	and	the	building	of	safety	stock	for	the	implementation	of	SAP	as	part	of	our	Strategic Modernization	Initiative	at	our	Aveda	manufacturing	facility.		In	addition,	the	decrease	in	operating	cash	flows	reflected	higher	accounts	receivable	balances,	primarily related	to	significant	sales	growth	from	our	international	operations.		Cash	flows	were	also	impacted	by	cash	payments	made	during	fiscal	2007	related	to	our	fiscal	2006 cost	savings	initiative.		Partially	offsetting	the	decrease	was	an	improvement	in	cash	generated	from	net	earnings	from	continuing	operations.

Net	cash	used	for	investing	activities	was	$478.5	million,	$373.8	million	and	$303.2	million	in	fiscal	2008,	2007	and	2006.		The	increase	during	fiscal	2008	primarily reflected	cash	payments	related	to	the	acquisition	of	Ojon	Corporation	and	the	exclusive	rights	to	sell	and	distribute	Ojon	products	worldwide,	and	to	a	lesser	extent,	the acquisition	of	an	Aveda	distributor.		Capital	expenditures	also	increased	from	the	prior	year	reflecting	incremental	spending	for	counters	and	the	higher	costs	of technology	related	to	our	continuing	company-wide	initiative	to	upgrade	our	information	systems.		The	increase	in	cash	flows	used	for	investing	activities	from	fiscal 2006	to	fiscal	2007	primarily	reflected	capital	expenditures,	which	reflected	our	company-wide	initiative	to	upgrade	our	information	systems,	as	well	as	store improvements	and	counter	construction.		Fiscal	2007	investing	activities	also	reflected	the	purchase	of	the	remaining	equity	interest	in	Bumble	and	Bumble	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,	2007	and	2006,	respectively.		The	fiscal	2008	improvement	in cash	used	for	financing	activities	primarily	reflected	higher	treasury	stock	repurchases	in	the	prior	year,	which	were	partially	funded	by	the	issuance	of	long-term	debt. Also	contributing	to	the	change	in	net	cash	used	for	financing	activities	was	an	increase	in	outstanding	commercial	paper,	partially	offset	by	lower	cash	inflows	from stock	option	exercises.		The	improvement	in	cash	flows	used	for	financing	activities	from	fiscal	2006	to	fiscal	2007	reflected	a	net	increase	in	short-term	and	long-term borrowings	and	an	increase	in	proceeds	from	employee	stock	transactions,	partially	offset	by	increases	in	treasury	stock	repurchases	and	an	increase	in	dividends	paid	to stockholders.

# Dividends

On	November	9,	2007,	the	Board	of	Directors	declared	an	annual	dividend	of	$.55	per	share	on	our	Class	A	and	Class	B	Common	Stock,	of	which	an	aggregate	of $106.6	million	was	paid	on	December	27,	2007	to	stockholders	of	record	at	the	close	of	business	on	December	7,	2007.		The	annual	common	stock	dividend	declared during	fiscal	2007	was	$.50	per	share,	of	which	an	aggregate	of	$103.6	million	was	paid	on	December	27,	2006	to	stockholders	of	record	at	the	close	of	business	on December	8,	2006.

# Pension	Plan	Funding	and	Expense

We	maintain	pension	plans	covering	substantially	all	of	our	full-time	employees	for	our	U.S.	operations	and	a	majority	of	our	international	operations.		Several	plans provide	pension	benefits	based	primarily	on	years	of	service	and	employees'	earnings.		In	the	United	States,	we	maintain	a	trust-based,	noncontributory	qualified defined	benefit	pension	plan	("U.S.	Qualified	Plan").		Additionally,	we	have	an	unfunded,	non-qualified	domestic	noncontributory	pension	plan	to	provide	benefits	in excess	of	statutory	limitations.		Our	international	pension	plans	are	comprised	of	defined	benefit	and	defined	contribution	plans.

Several	factors	influence	our	annual	funding	requirements.		For	the	U.S.	Qualified	Plan,	our	funding	policy	consists	of	annual	contributions	at	a	rate	that	provides	for future	plan	benefits	and	maintains	appropriate	funded	percentages.		Such	contribution	is	not	less	than	the	minimum	required	by	the	Employee	Retirement	Income Security	Act	of	1974,	as	amended	("ERISA"),	and	subsequent	pension	legislation,	and	is	not	more	than	the	maximum	amount	deductible	for	income	tax	purposes.		For

each	international	plan,	our	funding	policies	are	determined	by	local	laws	and	regulations.		In	addition,	amounts	necessary	to	fund	future	obligations	under	these	plans could	vary	depending	on	estimated	assumptions	(as	detailed	in	"Critical	Accounting	Polices	and	Estimates").		The	effect	of	our	pension	plan	funding	on	future	operating results	will	depend	on	economic	conditions,	employee	demographics,	mortality	rates,	the	number	of	participants	electing	to	take	lump-sum	distributions,	investment performance	and	funding	decisions.

For	fiscal	2008	and	2007,	there	was	no	minimum	contribution	to	the	U.S.	Qualified	Plan	required	by	ERISA.		During	the	first	quarter	of	fiscal	2007,	the	Pension Protection	Act	of	2006	was	adopted	into	law	in	the	United	States.		Certain	provisions	of	this	law	changed	the	calculation	related	to	the	maximum	contribution	amount deductible	for	income	tax	purposes.		As	a	result	of	these	provisions,	we	made	discretionary	contributions	totaling	$25.0	million	and	$20.0	million	to	the	U.S.	Qualified Plan	during	fiscal	2008	and	2007,	respectively.		During	fiscal	2009,	we	expect	to	make	cash	contributions	totaling	approximately	$15	million	to	the	U.S.	Qualified	Plan.

For	fiscal	2008	and	2007,	we	made	benefit	payments	under	our	non-qualified	domestic	noncontributory	pension	plan	of	$7.7	million	and	$5.3	million,	respectively.		We expect	to	make	benefit	payments	under	this	plan	during	fiscal	2009	of	approximately	$7	million.		For	fiscal	2008	and	2007,	we	made	cash	contributions	to	our international	defined	benefit	pension	plans	of	$35.3	million	and	$24.0	million,	respectively.		We	expect	to	make	contributions	under	these	plans	during	fiscal	2009	of approximately	$46	million.

# Commitments	and	Contingencies

Certain	of	our	business	acquisition	agreements	include	"earn-out"	provisions.		These	provisions	generally	require	that	we	pay	to	the	seller	or	sellers	of	the	business additional	amounts	based	on	the	performance	of	the	acquired	business.		Since	the	size	of	each	payment	depends	upon	performance	of	the	acquired	business,	we	do	not expect	that	such	payments	will	have	a	material	adverse	impact	on	our	future	results	of	operations	or	financial	condition.

For	additional	contingencies,	refer	to	"Item	3.	Legal	Proceedings."

# Contractual	Obligations

The	following	table	summarizes	scheduled	maturities	of	our	contractual	obligations	for	which	cash	flows	are	fixed	and	determinable	as	of	June	30,	2008:

|  |  |  |  | Payments	Due	in	Fiscal |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter |
|  |  |  |  | (In\tmillions) |  |  |  |
| Debt\tservice\t^(1) | $2,192.2 | $176.6 | $70.4 | $61.1 | $309.8 | $56.8 | $1,517.5 |
| Operating\tlease\tcommitments | 1,338.5 | 200.8 | 180.9 | 156.0 | 132.6 | 119.3 | 548.9 |
| Unconditional\tpurchase\tobligations\t^(2) | 2,081.2 | 1,157.0 | 228.4 | 191.3 | 158.4 | 150.0 | 196.1 |
| Gross\tunrecognized\ttax\tbenefits\tand |  |  |  |  |  |  |  |
| interest\t–\tcurrent\t^(3) | 75.7 | 75.7 | — | — | — | — | — |
| Total\tcontractual\tobligations | $5,687.6 | $1,610.1 | $479.7 | $408.4 | $600.8 | $326.1 | $2,262.5 |

								Includes	long-term	and	short-term	debt	and	the	related	projected	interest	costs,	and	to	a	lesser	extent,	capital	lease	commitments.		Interest	costs	on	long-term	and short-term	debt	are	projected	to	be	$57.6	million	in	fiscal	2009,	$58.8	million	in	fiscal	2010,	$57.4	million	in	each	of	the	years	from	fiscal	2011	through	fiscal	2012, $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. (1)

								Unconditional	purchase	obligations	primarily	include	inventory	commitments,	estimated	future	earn-out	payments,	estimated	royalty	payments	pursuant	to	license agreements,	advertising	commitments,	capital	improvement	commitments,	planned	funding	of	pension	and	other	post-retirement	benefit	obligations,	commitments pursuant	to	executive	compensation	arrangements	and	obligations	related	to	our	cost	savings	initiative.		Future	earn-out	payments	and	future	royalty	and	advertising commitments	were	estimated	based	on	planned	future	sales	for	the	term	that	was	in	effect	at	June	30,	2008,	without	consideration	for	potential	renewal	periods. 								Refer	to	Note	9	of	Notes	to	Consolidated	Financial	Statements	for	information	regarding	unrecognized	tax	benefits.		During	the	fourth	quarter	of	fiscal	2008,	we made	a	cash	payment	of	$35.0	million	to	the	U.S.	Treasury	as	an	advance	deposit,	which	is	not	reflected	as	a	reduction	to	the	$75.7	million.		As	of	June	30,	2008,	the noncurrent	portion	of	our	unrecognized	tax	benefits,	including	related	accrued	interest	and	penalties	was	$177.3	million.		At	this	time,	the	settlement	period	for	the noncurrent	portion	of	the	unrecognized	tax	benefits,	including	related	accrued	interest	and	penalties,	cannot	be	determined	and	therefore	was	not	included. (2) (3)

# Derivative	Financial	Instruments	and	Hedging	Activities

We	address	certain	financial	exposures	through	a	controlled	program	of	risk	management	that	includes	the	use	of	derivative	financial	instruments.		We	primarily	enter into	foreign	currency	forward	and	option	contracts	to	reduce	the	effects	of	fluctuating	foreign	currency	exchange	rates.		We	also	enter	into	interest	rate	derivative contracts	to	manage	the	effects	of	fluctuating	interest	rates.		We	categorize	these	instruments	as	entered	into	for	purposes	other	than	trading.

For	each	derivative	contract	entered	into	where	we	look	to	obtain	special	hedge	accounting	treatment,	we	formally	document	the	relationship	between	the	hedging instrument	and	hedged	item,	as	well	as	its	risk-management	objective	and	strategy	for	undertaking	the	hedge,	the	nature	of	the	risk	being	hedged,	how	the	hedging instruments'	effectiveness	in	offsetting	the	hedged	risk	will	be	assessed	prospectively	and	retrospectively,	and	a	description	of	the	method	of	measuring	ineffectiveness. This	process	includes	linking	all	derivatives	that	are	designated	as	fair-value,	cash-flow,	or	foreign-currency	hedges	to	specific	assets	and	liabilities	on	the	balance	sheet or	to	specific	firm	commitments	or	forecasted	transactions.		We	also	formally	assess,	both	at	the	hedge's	inception	and	on	an	ongoing	basis,	whether	the	derivatives	that are	used	in	hedging	transactions	are	highly	effective	in	offsetting	changes	in	fair	values	or	cash	flows	of	hedged	items.		If	it	is	determined	that	a	derivative	is	not	highly effective,	then	we	will	be	required	to	discontinue	hedge	accounting	with	respect	to	that	derivative	prospectively.

# Foreign	Exchange	Risk	Management

We	enter	into	foreign	currency	forward	contracts	to	hedge	anticipated	transactions,	as	well	as	receivables	and	payables	denominated	in	foreign	currencies,	for	periods consistent	with	our	identified	exposures.		The	purpose	of	the	hedging	activities	is	to	minimize	the	effect	of	foreign	exchange	rate	movements	on	our	costs	and	on	the	cash flows	that	we	receive	from	foreign	subsidiaries.		The	majority	of	foreign	currency	forward	contracts	are	denominated	in	currencies	of	major	industrial	countries	and	are with	large	financial	institutions	rated	as	strong	investment	grade	by	a	major	rating	agency.		We	also	enter	into	foreign	currency	option	contracts	to	hedge	anticipated transactions	where	there	is	a	high	probability	that	anticipated	exposures	will	materialize.		The	foreign	currency	forward	and	option	contracts	entered	into	to	hedge anticipated	transactions	have	been	designated	as	cash-flow	hedges.		Hedge	effectiveness	of	foreign	currency	forward	contracts	is	based	on	a	hypothetical	derivative methodology	and	excludes	the	portion	of	fair	value	attributable	to	the	spot-forward	difference	which	is	recorded	in	current-period	earnings.		Hedge	effectiveness	of foreign	currency	option	contracts	is	based	on	a	dollar	offset	methodology.		The	ineffective	portion	of	both	foreign	currency	forward	and	option	contracts	is	recorded	in current-period	earnings.		For	hedge	contracts	that	are	no	longer	deemed	highly	effective,	hedge	accounting	is	discontinued	and	gains	and	losses	accumulated	in	other comprehensive	income	are	reclassified	to	earnings	when	the	underlying	forecasted	transaction	occurs.		If	it	is	probable	that	the	forecasted	transaction	will	no	longer occur,	then	any	gains	or	losses	accumulated	in	other	comprehensive	income	are	reclassified	to	current-period	earnings.		As	of	June	30,	2008,	these	cash-flow	hedges were	highly	effective,	in	all	material	respects.

As	a	matter	of	policy,	we	only	enter	into	contracts	with	counterparties	that	have	at	least	an	"A"	(or	equivalent)	credit	rating.		The	counterparties	to	these	contracts	are

major	financial	institutions.		We	do	not	have	significant	exposure	to	any	one	counterparty.		Our	exposure	to	credit	loss	in	the	event	of	nonperformance	by	any	of	the counterparties	is	limited	to	only	the	recognized,	but	not	realized,	gains	attributable	to	the	contracts.		Management	believes	risk	of	default	under	these	hedging	contracts is	remote	and	in	any	event	would	not	be	material	to	the	consolidated	financial	results.		The	contracts	have	varying	maturities	through	the	end	of	June	2009.		Costs associated	with	entering	into	such	contracts	have	not	been	material	to	our	consolidated	financial	results.		We	do	not	utilize	derivative	financial	instruments	for	trading	or speculative	purposes.

At	June	30,	2008,	we	had	foreign	currency	forward	contracts	and	option	contracts	in	the	amount	of	$1,229.0	million	and	$64.9	million,	respectively.		The	foreign currencies	included	in	foreign	currency	forward	contracts	(notional	value	stated	in	U.S.	dollars)	are	principally	the	Euro	($221.6	million),	British	pound	($220.7	million), Swiss	franc	($206.5	million),	Canadian	dollar	($130.0	million),	Australian	dollar	($91.8	million),	Russian	ruble	($71.9	million)	and	Japanese	yen	($64.4	million).		The foreign	currencies	included	in	foreign	currency	option	contracts	(notional	value	stated	in	U.S.	dollars)	are	principally	the	Canadian	dollar	($36.8	million)	and	the	South Korean	won	($23.1	million).

# Interest	Rate	Risk	Management

We	enter	into	interest	rate	derivative	contracts	to	manage	the	exposure	to	fluctuations	of	interest	rates	on	our	funded	indebtedness	and	anticipated	issuance	of	debt	for periods	consistent	with	the	identified	exposures.		All	interest	rate	derivative	contracts	are	with	large	financial	institutions	rated	as	strong	investment	grade	by	a	major rating	agency.

We	have	interest	rate	swap	agreements,	with	a	notional	amount	totaling	$250.0	million,	to	effectively	convert	the	fixed	rate	interest	on	our	2017	Senior	Notes	to	variable interest	rates	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-at-risk	represents	the	potential	losses	for	an	instrument	or	portfolio from	adverse	changes	in	market	factors	for	a	specified	time	period	and	confidence	level.		We	estimate	value-at-risk	across	all	of	our	derivative	financial	instruments using	a	model	with	historical	volatilities	and	correlations	calculated	over	the	past	250-day	period.		The	measured	value-at-risk,	calculated	as	an	average,	for	the	twelve months	ended	June	30,	2008	related	to	our	foreign	exchange	contracts	and	our	interest	rate	contracts	was	$11.3	million	and	$20.0	million,	respectively.		The	model estimates	were	made	assuming	normal	market	conditions	and	a	95	percent	confidence	level.		We	used	a	statistical	simulation	model	that	valued	our	derivative	financial instruments	against	one	thousand	randomly	generated	market	price	paths.

Our	calculated	value-at-risk	exposure	represents	an	estimate	of	reasonably	possible	net	losses	that	would	be	recognized	on	our	portfolio	of	derivative	financial instruments	assuming	hypothetical	movements	in	future	market	rates	and	is	not	necessarily	indicative	of	actual	results,	which	may	or	may	not	occur.		It	does	not represent	the	maximum	possible	loss	or	any	expected	loss	that	may	occur,	since	actual	future	gains	and	losses	will	differ	from	those	estimated,	based	upon	actual fluctuations	in	market	rates,	operating	exposures,	and	the	timing	thereof,	and	changes	in	our	portfolio	of	derivative	financial	instruments	during	the	year.

We	believe,	however,	that	any	such	loss	incurred	would	be	offset	by	the	effects	of	market	rate	movements	on	the	respective	underlying	transactions	for	which	the derivative	financial	instrument	was	intended.

# OFF-BALANCE	SHEET	ARRANGEMENTS

We	do	not	maintain	any	off-balance	sheet	arrangements,	transactions,	obligations	or	other	relationships	with	unconsolidated	entities	that	would	be	expected	to	have	a material	current	or	future	effect	upon	our	financial	condition	or	results	of	operations.

# RECENTLY	ISSUED	ACCOUNTING	STANDARDS

In	September	2006,	the	FASB	issued	SFAS	No.	157,	"Fair	Value	Measurements"	("SFAS	No.	157"),	to	clarify	the	definition	of	fair	value,	establish	a	framework	for measuring	fair	value	and	expand	the	disclosures	on	fair	value	measurements.		SFAS	No.	157	defines	fair	value	as	the	price	that	would	be	received	to	sell	an	asset	or	paid to	transfer	a	liability	in	an	orderly	transaction	between	market	participants	at	the	measurement	date	(an	exit	price).		SFAS	No.	157	also	stipulates	that,	as	a	market-based measurement,	fair	value	measurement	should	be	determined	based	on	the	assumptions	that	market	participants	would	use	in	pricing	the	asset	or	liability,	and	establishes a	fair	value	hierarchy	that	distinguishes	between	(a)	market	participant	assumptions	developed	based	on	market	data	obtained	from	sources	independent	of	the	reporting entity	(observable	inputs)	and	(b)	the	reporting	entity's	own	assumptions	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	Fair	Value	Measurements	for	Purposes	of	Lease	Classification	or	Measurement	under	Statement	13."		This	FSP	amends	SFAS	No.	157	to	exclude	certain leasing	transactions	accounted	for	under	previously	existing	accounting	guidance.		However,	this	scope	exception	does	not	apply	to	assets	acquired	and	liabilities assumed	in	a	business	combination,	regardless	of	whether	those	assets	and	liabilities	are	related	to	leases.

SFAS	No.	157	becomes	effective	for	us	in	the	beginning	of	fiscal	2009.		We	are	currently	evaluating	the	impact	of	the	provisions	of	SFAS	No.	157	on	our	consolidated financial	statements.		In	February	2008,	the	FASB	issued	FSP	No.	FAS	157-2,	"Effective	Date	for	FASB	Statement	No.	157."		This	FSP	permits	the	delayed	application of	SFAS	No.	157	for	nonfinancial	assets	and	nonfinancial	liabilities,	as	defined	in	this	FSP,	except	for	those	that	are	recognized	or	disclosed	at	fair	value	in	the	financial statements	at	least	annually,	until	the	beginning	of	our	fiscal	2010.

In	February	2007,	the	FASB	issued	SFAS	No.	159,	"The	Fair	Value	Option	for	Financial	Assets	and	Financial	Liabilities"	("SFAS	No.	159"),	to	permit	all	entities	to choose	to	elect,	at	specified	election	dates,	to	measure	eligible	financial	instruments	at	fair	value.		An	entity	shall	report	unrealized	gains	and	losses	on	items	for	which the	fair	value	option	has	been	elected	in	earnings	at	each	subsequent	reporting	date,	and	recognize	upfront	costs	and	fees	related	to	those	items	in	earnings	as	incurred and	not	deferred.		SFAS	No.	159	applies	to	fiscal	years	beginning	after	November	15,	2007,	with	early	adoption	permitted	for	an	entity	that	has	also	elected	to	apply	the provisions	of	SFAS	No.	157.		An	entity	is	prohibited	from	retrospectively	applying	SFAS	No.	159,	unless	it	chooses	early	adoption.		We	are	currently	evaluating	the impact	of	the	provisions	of	SFAS	No.	159	on	our	consolidated	financial	statements,	if	any,	when	it	becomes	effective	in	the	beginning	of	fiscal	2009.

In	December	2007,	the	FASB	issued	SFAS	No.	141	(revised	2007),	"Business	Combinations"	("SFAS	No.	141(R)").		SFAS	No.	141(R)	replaces	SFAS	No.	141, "Business	Combinations,"	however,	it	retains	the	fundamental	requirements	of	the	former	Statement	that	the	acquisition	method	of	accounting	(previously	referred	to	as the	purchase	method)	be	used	for	all	business	combinations	and	for	an	acquirer	to	be	identified	for	each	business	combination.		SFAS	No.	141(R)	defines	the	acquirer	as the	entity	that	obtains	control	of	one	or	more	businesses	in	the	business	combination	and	establishes	the	acquisition	date	as	the	date	that	the	acquirer	achieves	control. Among	other	requirements,	SFAS	No.	141(R)	requires	the	acquiring	entity	in	a	business	combination	to	recognize	the	identifiable	assets	acquired,	liabilities	assumed and	any	noncontrolling	interest	in	the	acquiree	at	their	acquisition-date	fair	values,	with	limited	exceptions;	acquisition-related	costs	generally	will	be	expensed	as incurred.		SFAS	No.	141(R)	requires	certain	financial	statement	disclosures	to	enable	users	to	evaluate	and	understand	the	nature	and	financial	effects	of	the	business combination.		SFAS	No.	141(R)	must	be	applied	prospectively	to	business	combinations	that	are	consummated	on	or	after	July	1,	2009.

In	December	2007,	the	FASB	issued	SFAS	No.	160,	"Noncontrolling	Interests	in	Consolidated	Financial	Statements,	an	Amendment	of	ARB	No.	51"	("SFAS	No.	160") to	establish	accounting	and	reporting	standards	for	the	noncontrolling	interest	in	a	subsidiary	and	for	the	deconsolidation	of	a	subsidiary.		Among	other	requirements, SFAS	No.	160	clarifies	that	a	noncontrolling	interest	in	a	subsidiary,	which	is	sometimes	referred	to	as	minority	interest,	is	to	be	reported	as	a	separate	component	of equity	in	the	consolidated	financial	statements.		SFAS	No.	160	also	requires	consolidated	net	income	to	include	the	amounts	attributable	to	both	the	parent	and	the noncontrolling	interest	and	to	disclose	those	amounts	on	the	face	of	the	consolidated	statement	of	income.		SFAS	No.	160	must	be	applied	prospectively	for	fiscal	years,

and	interim	periods	within	those	fiscal	years,	beginning	in	our	fiscal	2010,	except	for	the	presentation	and	disclosure	requirements,	which	will	be	applied	retrospectively for	all	periods	presented.

In	December	2007,	the	FASB	ratified	the	consensus	reached	on	Emerging	Issues	Task	Force	("EITF")	Issue	No.	07-1,	"Collaborative	Arrangements,"	("EITF	No.	07- 1").		This	EITF	addresses	accounting	for	collaborative	arrangement	activities	that	are	conducted	without	the	creation	of	a	separate	legal	entity	for	the	arrangement. Revenues	and	costs	incurred	with	third	parties	in	connection	with	the	collaborative	arrangement	should	be	presented	gross	or	net	by	the	collaborators	pursuant	to	the guidance	in	EITF	99-19,	"Reporting	Revenue	Gross	as	a	Principal	versus	Net	as	an	Agent,"	and	other	applicable	accounting	literature.		Payments	to	or	from 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	to	be	disclosed.		The	requirements under	this	EITF	must	be	applied	to	collaborative	arrangements	in	existence	at	the	beginning	of	our	fiscal	2010	using	a	modified	version	of	retrospective	application.		We are	currently	evaluating	the	impact	the	provisions	of	EITF	No.	07-1	will	have	on	our	consolidated	financial	statements.

In	March	2008,	the	FASB	issued	SFAS	No.	161,	"Disclosures	about	Derivative	Instruments	and	Hedging	Activities	–	an	amendment	of	FASB	Statement	No.	133" ("SFAS	No.	161").		SFAS	No.	161	requires	companies	to	provide	qualitative	disclosures	about	their	objectives	and	strategies	for	using	derivative	instruments, quantitative	disclosures	of	the	fair	values	and	gains	and	losses	of	these	derivative	instruments	in	a	tabular	format,	as	well	as	more	information	about	liquidity	by requiring	disclosure	of	a	derivative	contract's	credit-risk-related	contingent	features.		SFAS	No.	161	also	requires	cross-referencing	within	footnotes	to	enable	financial statement	users	to	locate	important	information	about	derivative	instruments.		We	are	currently	evaluating	the	disclosure	requirements	of	SFAS	No.	161.		As	this	is	a disclosure-only	standard,	we	do	not	anticipate	an	impact	on	our	consolidated	financial	statements	as	a	result	of	its	adoption.		SFAS	No.	161	becomes	effective	for	our March	2009	interim	consolidated	financial	statements.

In	April	2008,	the	FASB	issued	FSP	No.	FAS	142-3,	"Determination	of	the	Useful	Life	of	Intangible	Assets."		This	FSP	amends	the	factors	that	should	be	considered	in developing	renewal	or	extension	assumptions	used	to	determine	the	useful	life	of	a	recognized	intangible	asset	under	SFAS	No.	142,	"Goodwill	and	Other	Intangible Assets"	("SFAS	No.	142").		This	FSP	also	adds	certain	disclosures	to	those	already	prescribed	in	SFAS	No.	142.		FSP	No.	FAS	142-3	becomes	effective	for	fiscal	years, and	interim	periods	within	those	fiscal	years,	beginning	in	our	fiscal	2010.		The	guidance	for	determining	useful	lives	must	be	applied	prospectively	to	intangible	assets acquired	after	the	effective	date.		The	disclosure	requirements	must	be	applied	prospectively	to	all	intangible	assets	recognized	as	of	the	effective	date.

In	June	2008,	the	FASB	issued	FSP	No.	EITF	03-6-1,	"Determining	Whether	Instruments	Granted	in	Share-Based	Payment	Transactions	Are	Participating	Securities." This	FSP	provides	that	unvested	share-based	payment	awards	that	contain	nonforfeitable	rights	to	dividends	or	dividend	equivalents	(whether	paid	or	unpaid)	are participating	securities	and	shall	be	included	in	the	computation	of	earnings	per	share	pursuant	to	the	two-class	method.		This	FSP	is	effective	for	financial	statements issued	for	fiscal	years	beginning	after	December	15,	2008,	and	interim	periods	within	those	years.		Upon	adoption,	a	company	is	required	to	retrospectively	adjust	its earnings	per	share	data	(including	any	amounts	related	to	interim	periods,	summaries	of	earnings	and	selected	financial	data)	to	conform	with	the	provisions	in	this	FSP. Early	application	of	this	FSP	is	prohibited.		We	do	not	issue	share-based	payment	awards	that	contain	nonforfeitable	rights	to	dividends	or	dividend	equivalents.

# FORWARD-LOOKING	INFORMATION

We	and	our	representatives	from	time	to	time	make	written	or	oral	forward-looking	statements,	including	statements	contained	in	this	and	other	filings	with	the	Securities and	Exchange	Commission,	in	our	press	releases	and	in	our	reports	to	stockholders.		The	words	and	phrases	"will	likely	result,"	"expect,"	"believe,"	"planned,"	"may," "should,"	"could,"	"anticipate,"	"estimate,"	"project,"	"intend,"	"forecast"	or	similar	expressions	are	intended	to	identify	"forward-looking	statements"	within	the meaning	of	the	Private	Securities	Litigation	Reform	Act	of	1995.		These	statements	include,	without	limitation,	our	expectations	regarding	sales,	earnings	or	other	future financial	performance	and	liquidity,	product	introductions,	entry	into	new	geographic	regions,	information	systems	initiatives,	new	methods	of	sale	and	future	operations or	operating	results.		Although	we	believe	that	our	expectations	are	based	on	reasonable	assumptions	within	the	bounds	of	our	knowledge	of	our	business	and	operations, actual	results	may	differ	materially	from	our	expectations.		Factors	that	could	cause	actual	results	to	differ	from	expectations	include,	without	limitation:

(1)	increased	competitive	activity	from	companies	in	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,	and	in	our	fragrance	business;

(3)	consolidations,	restructurings,	bankruptcies	and	reorganizations	in	the	retail	industry	causing	a	decrease	in	the	number	of	stores	that	sell	our	products,	an increase	in	the	ownership	concentration	within	the	retail	industry,	ownership	of	retailers	by	our	competitors	or	ownership	of	competitors	by	our	customers	that are	retailers;

# (4)	destocking	by	retailers;

(5)	the	success,	or	changes	in	timing	or	scope,	of	new	product	launches	and	the	success,	or	changes	in	the	timing	or	the	scope,	of	advertising,	sampling	and merchandising	programs;

(6)	shifts	in	the	preferences	of	consumers	as	to	where	and	how	they	shop	for	the	types	of	products	and	services	we	sell;

(7)	social,	political	and	economic	risks	to	our	foreign	or	domestic	manufacturing,	distribution	and	retail	operations,	including	changes	in	foreign	investment	and trade	policies	and	regulations	of	the	host	countries	and	of	the	United	States;

(8)	changes	in	the	laws,	regulations	and	policies	(including	the	interpretations	and	enforcement	thereof)	that	affect,	or	will	affect,	our	business,	including	those relating	to	our	products,	changes	in	accounting	standards,	tax	laws	and	regulations,	trade	rules	and	customs	regulations,	and	the	outcome	and	expense	of	legal or	regulatory	proceedings,	and	any	action	we	may	take	as	a	result;

(9)	foreign	currency	fluctuations	affecting	our	results	of	operations	and	the	value	of	our	foreign	assets,	the	relative	prices	at	which	we	and	our	foreign competitors	sell	products	in	the	same	markets	and	our	operating	and	manufacturing	costs	outside	of	the	United	States;

(10)	changes	in	global	or	local	conditions,	including	those	due	to	natural	or	man-made	disasters,	real	or	perceived	epidemics,	or	energy	costs,	that	could	affect consumer	purchasing,	the	willingness	or	ability	of	consumers	to	travel	and/or	purchase	our	products	while	traveling,	the	financial	strength	of	our	customers, suppliers	or	other	contract	counterparties,	our	operations,	the	cost	and	availability	of	capital	which	we	may	need	for	new	equipment,	facilities	or	acquisitions, the	cost	and	availability	of	raw	materials	and	the	assumptions	underlying	our	critical	accounting	estimates;

(11)	shipment	delays,	depletion	of	inventory	and	increased	production	costs	resulting	from	disruptions	of	operations	at	any	of	the	facilities	that	manufacture nearly	all	of	our	supply	of	a	particular	type	of	product	(i.e.,	focus	factories)	or	at	our	distribution	or	inventory	centers,	including	disruptions	that	may	be	caused by	the	implementation	of	SAP	as	part	of	our	Strategic	Modernization	Initiative;

(12)	real	estate	rates	and	availability,	which	may	affect	our	ability	to	increase	the	number	of	retail	locations	at	which	we	sell	our	products	and	the	costs associated	with	our	other	facilities;

(13)	changes	in	product	mix	to	products	which	are	less	profitable;

(14)	our	ability	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	realize	value	therefrom;

(16)	consequences	attributable	to	the	events	that	are	currently	taking	place	in	the	Middle	East,	including	terrorist	attacks,	retaliation	and	the	threat	of	further attacks	or	retaliation;

(17)	the	timing	and	impact	of	acquisitions	and	divestitures,	which	depend	on	willing	sellers	and	buyers,	respectively;	and

(18)	additional	factors	as	described	in	our	filings	with	the	Securities	and	Exchange	Commission,	including	this	Annual	Report	on	Form	10-K	for	the	fiscal	year ended	June	30,	2008.

We	assume	no	responsibility	to	update	forward-looking	statements	made	herein	or	otherwise.

# Item	7A.		Quantitative	and	Qualitative	Disclosures	About	Market	Risk.

The	information	required	by	this	item	is	set	forth	in	Item	7	of	this	Annual	Report	on	Form	10-K	under	the	caption	"Liquidity	and	Capital	Resources	-	Market	Risk"	and is	incorporated	herein	by	reference.

# Item	8.		Financial	Statements	and	Supplementary	Data.

The	information	required	by	this	item	appears	beginning	on	page	F-1	of	this	Annual	Report	on	Form	10-K	and	is	incorporated	herein	by	reference.

# Item	9.		Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure.

# None.

# Item	9A.		Controls	and	Procedures.

Our	disclosure	controls	and	procedures	(as	defined	in	Rules	13a-15(e)	and	15d-15(e)	under	the	Securities	Exchange	Act	of	1934,	as	amended	(the	"Exchange	Act"))	are designed	to	ensure	that	information	required	to	be	disclosed	in	the	reports	that	we	file	or	submit	under	the	Exchange	Act	is	recorded,	processed,	summarized	and reported	within	the	time	periods	specified	in	the	rules	and	forms	of	the	Securities	and	Exchange	Commission.		The	Chief	Executive	Officer	and	the	Chief	Financial Officer,	with	assistance	from	other	members	of	management,	have	reviewed	the	effectiveness	of	our	disclosure	controls	and	procedures	as	of	June	30,	2008	and,	based on	their	evaluation,	have	concluded	that	the	disclosure	controls	and	procedures	were	effective	as	of	such	date.

As	part	of	our	Strategic	Modernization	Initiative,	we	anticipate	the	continued	migration	of	our	operations	to	SAP,	with	the	majority	of	our	business	being	implemented through	fiscal	2012.		Based	on	management's	evaluation,	the	necessary	steps	have	been	taken	to	monitor	and	maintain	appropriate	internal	control	over	financial reporting	during	this	period.

There	have	been	no	changes	in	our	internal	control	over	financial	reporting	(as	defined	in	Rules	13a-15(f)	and	15d-15(f)	of	the	Exchange	Act)	that	occurred	during	the fourth	quarter	of	fiscal	2008	that	has	materially	affected,	or	is	reasonably	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

Management's	report	on	internal	control	over	financial	reporting	and	the	report	of	independent	registered	public	accounting	firm	on	our	internal	control	over	financial reporting	are	incorporated	herein	from	pages	F-2	and	F-3,	respectively.

# Item	9B.		Other	Information.

# Item	10.		Directors,		Executive	Officers	and	Corporate	Governance.

The	information	required	by	this	Item,	not	already	provided	herein	under	"Item	1.	Business	–	Executive	Officers,"	will	be	included	in	our	Proxy	Statement	for	the	2008 Annual	Meeting	of	Stockholders	(the	"2008	Proxy	Statement").		The	2008	Proxy	Statement	will	be	filed	within	120	days	after	the	close	of	the	fiscal	year	ended	June	30, 2008	and	such	information	is	incorporated	herein	by	reference.

# Item	11.		Executive	Compensation.

The	information	required	by	this	Item	11	(Executive	Compensation)	of	Form	10-K	will	be	included	in	the	2008	Proxy	Statement.		The	2008	Proxy	Statement	will	be filed	within	120	days	after	the	close	of	the	fiscal	year	ended	June	30,	2008	and	such	information	is	incorporated	herein	by	reference.

# Item	12.		Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters.

The	information	required	by	this	Item,	not	already	provided	under	"Equity	Compensation	Plan	Information"	as	set	forth	below,	will	be	included	in	the	2008	Proxy Statement.		The	2008	Proxy	Statement	will	be	filed	within	120	days	after	the	close	of	the	fiscal	year	ended	June	30,	2008	and	such	information	is	incorporated	herein	by reference.

# Equity	Compensation	Plan	Information

The	following	table	summarizes	the	equity	compensation	plans	under	which	our	securities	may	be	issued	as	of	June	30,	2008	and	does	not	include	grants	made	or

cancelled	and	options	exercised	after	such	date.		The	securities	that	may	be	issued	consist	solely	of	shares	of	our	Class	A	Common	Stock	and	all	plans	were	approved	by stockholders	of	the	Company.

# Equity	Compensation	Plan	Information	as	of	June	30,	2008

|  |  |  | Number	of	securities |
| :--- | :--- | :--- | :--- |
|  | Number\tof\tsecurities\tto |  | remaining\tavailable\tfor\tfuture |
|  | be\tissued\tupon | Weighted-average | issuance\tunder\tequity |
|  | exercise\tof\toutstanding | exercise\tprice\tof | compensation\tplans\t(excluding |
|  | options,\twarrants\tand | outstanding\toptions, | securities\treflected\tin\tthe\tfirst |
| Plan\tcategory | rights | warrants\tand\trights | column) |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity |  |  |  |
| holders(a) | 21,540,776(b) | $42.53(c) | 7,184,360(d) |

401,525	upon	conversion	of	outstanding	Performance	Share	Units	("PSU")	(assuming	maximum	payout	and	approval	by	the	Stock	Plan	Subcommittee	of	the Company's	Board	of	Directors	of	expected	payouts	for	PSUs	vested	as	of	June	30,	2008)	and	18,063	upon	conversion	of	Share	Units.

(d)																																											The	1999	Plan	and	the	2002	Plan	are	similar	omnibus	plans.		Each	authorizes	the	Stock	Plan	Subcommittee	of	the	Board	of	Directors	to	grant	shares	and benefits	other	than	stock	options.		As	of	June	30,	2008,	there	were	618,186	shares	and	6,280,459	shares	of	Class	A	Common	Stock	available	for	issuance under	each	plan,	respectively	(subject	to	the	approval	by	the	Stock	Plan	Subcommittee	of	the	Company's	Board	of	Directors	of	expected	payouts	for	PSUs vested	as	of	June	30,	2008).		Shares	underlying	grants	cancelled	or	forfeited	under	the	1999	Plan	may	be	used	for	grants	under	the	2002	Plan.		Shares underlying	grants	cancelled	or	forfeited	under	the	1996	Plan	may	be	used	for	grants	under	the	1999	Plan	or	the	2002	Plan.		The	Non-Employee	Director	Share Incentive	Plan	provides	for	an	annual	grant	of	options	and	a	grant	of	either	options	or	stock	units	to	non-employee	directors.		As	of	June	30,	2008,	there	were 285,715	shares	available	for	issuance	under	the	Director	Plan.

If	all	of	the	outstanding	options,	warrants,	rights,	stock	units	and	share	units,	as	well	as	the	securities	available	for	future	issuance,	included	in	the	first	and	third	columns in	the	table	above	were	converted	to	shares	of	Class	A	Common	Stock	as	of	June	30,	2008,	the	total	shares	of	Common	Stock	outstanding	(i.e.,	Class	A	plus	Class	B) would	increase	15%	to	223,632,232.		Of	the	outstanding	options	to	purchase	20,307,221	shares	of	Class	A	Common	Stock,	options	in	respect	of	14,057,369	shares	are exercisable	at	a	price	less	than	$46.45,	the	closing	price	on	June	30,	2008.		Assuming	the	exercise	of	in-the-money	options,	the	total	shares	outstanding	would	increase by	7%	to	208,964,465.

# Item	13.		Certain	Relationships	and	Related	Transactions,	and	Director	Independence.

The	information	required	by	this	Item	will	be	included	in	the	2008	Proxy	Statement.		The	2008	Proxy	Statement	will	be	filed	within	120	days	after	the	close	of	the	fiscal year	ended	June	30,	2008	and	such	information	is	incorporated	herein	by	reference.

# Item	14.		Principal	Accounting	Fees	and	Services.

# PART	IV

# Item	15.		Exhibits,	Financial	Statement	Schedules.

(a) 1	and	2.	Financial	Statements	and	Schedules	-	See	index	on	Page	F-1.

3.	Exhibits:

# Exhibit

List	of	significant	subsidiaries.

# *		Incorporated	herein	by	reference.

†		Exhibit	is	a	management	contract	or	compensatory	plan	or	arrangement.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized.

/s/	RICHARD	W.	KUNES

Richard	W.	Kunes

Executive	Vice	President

and	Chief	Financial	Officer

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant	and	in	the capacities	and	on	the	date	indicated.

*	By	signing	his	name	hereto,	Richard	W.	Kunes	signs	this	document	in	the	capacities	indicated	above	and	on	behalf	of	the	persons	indicated	above	pursuant	to	powers of	attorney	duly	executed	by	such	persons	and	filed	herewith.

(Attorney-in-Fact)

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

All	other	schedules	are	omitted	because	they	are	not	applicable	or	the	required	information	is	included	in	the	consolidated	financial	statements	or	notes	thereto.

# Management's	Report	on	Internal	Control	over	Financial	Reporting

Management	of	The	Estée	Lauder	Companies	Inc.	(including	its	subsidiaries)	(the	"Company")	is	responsible	for	establishing	and	maintaining	adequate	internal	control over	financial	reporting	(as	defined	in	Rules13a-15(f)	of	the	Securities	Exchange	Act	of	1934,	as	amended).

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	U.S.	generally	accepted	accounting	principles.		A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	U.S.	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations of	management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.		Also,	projections	of	any	evaluation	of	effectiveness to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or procedures	may	deteriorate.

Under	the	supervision	of	and	with	the	participation	of	the	Chief	Executive	Officer	and	the	Chief	Financial	Officer,	the	Company's	management	conducted	an	assessment of	the	effectiveness	of	the	Company's	internal	control	over	financial	reporting	based	on	the	framework	and	criteria	established	in	Internal	Control	–	Integrated Framework,	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.		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.

/s/	William	P.	Lauder

William	P.	Lauder

Chief	Executive	Officer

Executive	Vice	President	and	Chief	Financial	Officer

# Report	of	Independent	Registered	Public	Accounting	Firm	on	Internal	Control	over	Financial	Reporting

# The	Board	of	Directors	and	Stockholders

We	have	audited	The	Estée	Lauder	Companies	Inc.'s	(the	"Company")	internal	control	over	financial	reporting	as	of	June	30,	2008,	based	on	criteria	established	in Internal	Control	—	Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).		The	Company's	management	is responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting, included	in	the	accompanying	Management's	Report	on	Internal	Control	over	Financial	Reporting.		Our	responsibility	is	to	express	an	opinion	on	the	Company's internal	control	over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).		Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.		Our	audit

included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	and	testing	and	evaluating	the	design and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk.		Our	audit	also	included	performing	such	other	procedures	as	we	considered	necessary	in	the circumstances.		We	believe	that	our	audit	provides	a	reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.		A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

In	our	opinion,	The	Estée	Lauder	Companies	Inc.	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	June	30,	2008,	based	on criteria	established	in	Internal	Control	—	Integrated	Framework	issued	by	the	COSO.

We	also	have	audited,	in	accordance	with	the	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	flows	for	each	of	the	years	in	the	three-year	period	ended	June	30,	2008,	and	our	report	dated	August	21,	2008	expressed	an	unqualified opinion	on	those	consolidated	financial	statements.

# /s/	KPMG	LLP

# Report	of	Independent	Registered	Public	Accounting	Firm

We	have	audited	the	accompanying	consolidated	balance	sheets	of	The	Estée	Lauder	Companies	Inc.	and	subsidiaries	(the	"Company")	as	of	June	30,	2008	and	2007, and	the	related	consolidated	statements	of	earnings,	stockholders'	equity	and	comprehensive	income,	and	cash	flows	for	each	of	the	years	in	the	three-year	period	ended June	30,	2008.		In	connection	with	our	audits	of	the	consolidated	financial	statements,	we	also	have	audited	the	financial	statement	schedule	as	listed	on	the	index	on page	F-1.		These	consolidated	financial	statements	and	financial	statement	schedule	are	the	responsibility	of	the	Company's	management.		Our	responsibility	is	to express	an	opinion	on	these	consolidated	financial	statements	and	financial	statement	schedule	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).		Those	standards	require	that	we	plan and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.		An	audit	includes	examining,	on	a	test basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.		An	audit	also	includes	assessing	the	accounting	principles	used	and	significant estimates	made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.		We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	the	consolidated	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	financial	position	of	The	Estée	Lauder	Companies	Inc. and	subsidiaries	as	of	June	30,	2008	and	2007,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	years	in	the	three-year	period	ended	June	30,	2008, in	conformity	with	U.S.	generally	accepted	accounting	principles.		Also	in	our	opinion,	the	related	financial	statement	schedule,	when	considered	in	relation	to	the consolidated	financial	statements	taken	as	a	whole,	presents	fairly,	in	all	material	respects,	the	information	set	forth	therein.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	The	Estée	Lauder	Companies	Inc.'s	internal control	over	financial	reporting	as	of	June	30,	2008,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission	(COSO),	and	our	report	dated	August	21,	2008	expressed	an	unqualified	opinion	on	the	effectiveness	of	the	Company's internal	control	over	financial	reporting.

As	discussed	in	the	notes	to	the	consolidated	financial	statements,	effective	July	1,	2006,	the	Company	changed	their	method	for	quantifying	errors	based	on	SEC	Staff Accounting	Bulletin	No.	108,	"Considering	the	Effects	of	Prior	Year	Misstatements	when	Quantifying	Misstatements	in	Current	Year	Financial	Statements,"		and effective	June	30,	2007,	the	Company	adopted	Statement	of	Financial	Accounting	Standard	No.	158,	"Employers'	Accounting	for	Defined	Benefit	Pension	and	Other Postretirement	Plans	–	an	amendment	of	FASB	Statements	No.	87,	88,	106,	and	132(R)."		Also	as	discussed	in	the	notes	to	the	consolidated	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."

# CONSOLIDATED	STATEMENTS	OF	EARNINGS

| Cost	of	sales | 1,996.8 | 1,774.8 | 1,686.6 |
| :--- | :--- | :--- | :--- |
| Gross\tProfit | 5,914.0 | 5,262.7 | 4,777.2 |
| Operating\texpenses: |  |  |  |
| Selling,\tgeneral\tand\tadministrative | 5,102.9 | 4,511.7 | 4,065.5 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative | 0.4 | 1.1 | 92.1 |
|  | 5,103.3 | 4,512.8 | 4,157.6 |
| Operating\tIncome | 810.7 | 749.9 | 619.6 |
| Interest\texpense,\tnet | 66.8 | 38.9 | 23.8 |
| Earnings\tbefore\tIncome\tTaxes,\tMinority\tInterest\tand\tDiscontinued\tOperations | 743.9 | 711.0 | 595.8 |
| Provision\tfor\tincome\ttaxes | 259.9 | 255.2 | 259.7 |
| Minority\tinterest,\tnet\tof\ttax | (10.2) | (7.1) | (11.6) |
| Net\tEarnings\tfrom\tContinuing\tOperations | 473.8 | 448.7 | 324.5 |
| Discontinued\toperations,\tnet\tof\ttax | — | 0.5 | (80.3) |
| Net\tEarnings | $473.8 | $449.2 | $244.2 |
| Basic\tnet\tearnings\tper\tcommon\tshare: |  |  |  |
| Net\tearnings\tfrom\tcontinuing\toperations | $2.44 | $2.20 | $1.51 |
| Discontinued\toperations,\tnet\tof\ttax | — | .00 | (.37) |
| Net\tearnings | $2.44 | $2.20 | $1.14 |
| Diluted\tnet\tearnings\tper\tcommon\tshare: |  |  |  |
| Net\tearnings\tfrom\tcontinuing\toperations | $2.40 | $2.16 | $1.49 |
| Discontinued\toperations,\tnet\tof\ttax | — | .00 | (.37) |
| Net\tearnings | $2.40 | $2.16 | $1.12 |
| Weighted\taverage\tcommon\tshares\toutstanding: |  |  |  |
| Basic | 193.9 | 204.3 | 215.0 |
| Diluted | 197.1 | 207.8 | 217.4 |
| Cash\tdividends\tdeclared\tper\tshare | $.55 | $.50 | $.40 |

See	notes	to	consolidated	financial	statements.

# CONSOLIDATED	BALANCE	SHEETS

| Cash	and	cash	equivalents | $401.7 | $253.7 |
| :--- | :--- | :--- |
| Accounts\treceivable,\tnet | 1,038.8 | 860.5 |
| Inventory\tand\tpromotional\tmerchandise,\tnet | 987.2 | 855.8 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 359.5 | 269.4 |
| Total\tcurrent\tassets | 2,787.2 | 2,239.4 |
| Property,\tPlant\tand\tEquipment,\tnet | 1,043.1 | 880.8 |
| Other\tAssets |  |  |
| Investments,\tat\tcost\tor\tmarket\tvalue | 24.1 | 22.2 |
| Goodwill\tand\tother\tintangible\tassets,\tnet | 900.8 | 764.7 |
| Other\tassets,\tnet | 256.0 | 218.6 |
| Total\tother\tassets | 1,180.9 | 1,005.5 |
| Total\tassets | $5,011.2 | $4,125.7 |
| LIABILITIES\tAND\tSTOCKHOLDERS'\tEQUITY |  |  |
| Current\tLiabilities |  |  |
| Short-term\tdebt | $118.7 | $60.4 |
| Accounts\tpayable | 361.7 | 314.7 |
| Accrued\tincome\ttaxes | 151.2 | 161.7 |
| Other\taccrued\tliabilities | 1,067.6 | 963.9 |
| Total\tcurrent\tliabilities | 1,699.2 | 1,500.7 |
| Noncurrent\tLiabilities |  |  |
| Long-term\tdebt | 1,078.2 | 1,028.1 |
| Other\tnoncurrent\tliabilities | 554.0 | 376.6 |
| Total\tnoncurrent\tliabilities | 1,632.2 | 1,404.7 |

Commitments	and	Contingencies	(Note	15)

| Minority	Interest | 26.6 | 21.3 |
| :--- | :--- | :--- |
| Stockholders'\tEquity |  |  |
| and\t173,365,104\tat\tJune\t30,\t2007;\t240,000,000\tshares\tClass\tB\tauthorized;\tshares\tissued\tand\toutstanding: |  |  |
| 78,067,261\tat\tJune\t30,\t2008\tand\t81,804,761\tat\tJune\t30,\t2007 | 2.6 | 2.6 |
| Paid-in\tcapital | 979.0 | 801.7 |
| Retained\tearnings | 3,085.1 | 2,731.5 |
| Accumulated\tother\tcomprehensive\tincome | 110.8 | 54.7 |
|  | 4,177.5 | 3,590.5 |
| Less:\tTreasury\tstock,\tat\tcost;\t63,914,699\tClass\tA\tshares\tat\tJune\t30,\t2008\tand\t60,841,674\tClass\tA\tshares\tat\tJune\t30, |  |  |
| 2007 | (2,524.3) | (2,391.5) |
| Total\tstockholders'\tequity | 1,653.2 | 1,199.0 |
| Total\tliabilities\tand\tstockholders'\tequity | $5,011.2 | $4,125.7 |

# CONSOLIDATED	STATEMENTS	OF	STOCKHOLDERS'	EQUITY

# AND	COMPREHENSIVE	INCOME

|  |  | Year	Ended	June	30 |  |
| :--- | :--- | :--- | :--- |
|  | 2008 | 2007 | 2006 |
|  |  | (In\tmillions) |  |
| STOCKHOLDERS'\tEQUITY |  |  |  |
| Common\tstock,\tbeginning\tof\tyear | $2.6 | $2.5 | $2.5 |
| Stock-based\tcompensation\tprograms | — | 0.1 | — |
| Common\tstock,\tend\tof\tyear | 2.6 | 2.6 | 2.5 |
| Paid-in\tcapital,\tbeginning\tof\tyear | 801.7 | 581.0 | 465.2 |
| Stock-based\tcompensation\tprograms | 172.7 | 220.7 | 115.8 |
| Settlement\tof\taccelerated\tshare\trepurchase\tprogram | 4.6 | — | — |
| Paid-in\tcapital,\tend\tof\tyear | 979.0 | 801.7 | 581.0 |
| Retained\tearnings,\tbeginning\tof\tyear | 2,731.5 | 2,361.9 | 2,203.2 |
| Cumulative\teffect\tof\tadjustments\tresulting\tfrom\tadoption\tof\tnew\taccounting\tstandards | (13.1) | 24.2 | — |
| Adjusted\tretained\tearnings,\tbeginning\tof\tyear | 2,718.4 | 2,386.1 | 2,203.2 |
| Common\tstock\tdividends | (106.8) | (103.8) | (85.5) |
| Stock-based\tcompensation\tprograms | (0.3) | — | — |
| Net\tearnings\tfor\tthe\tyear | 473.8 | 449.2 | 244.2 |
| Retained\tearnings,\tend\tof\tyear | 3,085.1 | 2,731.5 | 2,361.9 |
| Accumulated\tother\tcomprehensive\tincome,\tbeginning\tof\tyear | 54.7 | 64.7 | 9.4 |
| Other\tcomprehensive\tincome\t(loss) | 56.1 | 47.3 | 55.3 |
|  | — | (57.3) | — |
| Accumulated\tother\tcomprehensive\tincome,\tend\tof\tyear | 110.8 | 54.7 | 64.7 |
| Treasury\tstock,\tbeginning\tof\tyear | (2,391.5) | (1,387.8) | (987.5) |
| Acquisition\tof\ttreasury\tstock,\tnet\tof\tissuances | (132.8) | (1,003.7) | (400.3) |
| Treasury\tstock,\tend\tof\tyear | (2,524.3) | (2,391.5) | (1,387.8) |
| Total\tstockholders'\tequity | $1,653.2 | $1,199.0 | $1,622.3 |
| COMPREHENSIVE\tINCOME |  |  |  |
| Net\tearnings | $473.8 | $449.2 | $244.2 |
| Other\tcomprehensive\tincome\t(loss): |  |  |  |
| Net\tunrealized\tinvestment\tgains\t(losses),\tnet\tof\ttax | (0.5) | 0.3 | 0.1 |
| Net\tderivative\tinstrument\tgains\t(losses),\tnet\tof\ttax | (0.3) | (2.1) | (1.7) |
| Net\tminimum\tpension\tliability\tadjustments,\tnet\tof\ttax | — | (4.0) | 29.9 |
| Net\tactuarial\tgains\t(losses),\tnet\tof\ttax | (17.8) | — | — |
| Net\tprior\tservice\tcredit\t(cost),\tnet\tof\ttax | (23.7) | — | — |
| Net\ttransition\tasset\t(obligation),\tnet\tof\ttax | 0.1 | — | — |
| Translation\tadjustments | 98.3 | 53.1 | 27.0 |
| Other\tcomprehensive\tincome\t(loss) | 56.1 | 47.3 | 55.3 |
| Total\tcomprehensive\tincome | $529.9 | $496.5 | $299.5 |

CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) |  |
| Cash\tFlows\tfrom\tOperating\tActivities |  |  |  |
| Net\tearnings | $473.8 | $449.2 | $244.2 |
| Adjustments\tto\treconcile\tnet\tearnings\tto\tnet\tcash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 250.7 | 207.2 | 198.4 |
| Deferred\tincome\ttaxes | (115.6) | 9.9 | (74.3) |
| Minority\tinterest,\tnet\tof\ttax | 10.2 | 7.1 | 11.6 |
| Non-cash\tstock-based\tcompensation | 47.2 | 43.3 | 35.9 |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation\tarrangements | (1.1) | (9.4) | (6.7) |
| Loss\ton\tdisposal\tof\tfixed\tassets | 12.5 | 13.4 | 13.2 |
| Discontinued\toperations,\tnet\tof\ttax | — | (0.5) | 80.3 |
| Other\tnon-cash\titems | 15.7 | 11.8 | 0.8 |
| Changes\tin\toperating\tassets\tand\tliabilities: |  |  |  |
| Decrease\t(increase)\tin\taccounts\treceivable,\tnet | (86.5) | (68.0) | 14.6 |
| Decrease\t(increase)\tin\tinventory\tand\tpromotional\tmerchandise,\tnet | (70.7) | (70.8) | 1.9 |
| Decrease\t(increase)\tin\tother\tassets | (5.7) | (26.3) | 7.0 |
| Increase\tin\taccounts\tpayable | 17.1 | 46.4 | 9.1 |
| Increase\tin\taccrued\tincome\ttaxes | 122.6 | 44.9 | 63.5 |
| Increase\tin\tother\taccrued\tliabilities | 32.5 | 13.1 | 66.2 |
| Increase\t(decrease)\tin\tother\tnoncurrent\tliabilities | (12.6) | (4.0) | 61.6 |
| Net\tcash\tflows\tprovided\tby\toperating\tactivities\tof\tcontinuing\toperations | 690.1 | 667.3 | 727.3 |
| Net\tcash\tflows\tused\tfor\toperating\tactivities\tof\tdiscontinued\toperations | — | (5.7) | (17.5) |
| Net\tcash\tflows\tprovided\tby\toperating\tactivities | 690.1 | 661.6 | 709.8 |
| Cash\tFlows\tfrom\tInvesting\tActivities |  |  |  |
| Capital\texpenditures | (357.8) | (312.1) | (260.6) |
| Capital\texpenditures\tof\tdiscontinued\toperations | — | — | (0.6) |
| Acquisition\tof\tbusinesses,\tnet\tof\tcash\tacquired | (116.0) | (61.2) | (51.7) |
| Proceeds\tfrom\tdivestitures | — | — | 9.3 |
| Proceeds\tfrom\tdisposition\tof\tlong-term\tinvestments | — | — | 0.5 |
| Purchases\tof\tlong-term\tinvestments | (4.7) | (0.5) | (0.1) |
| Net\tcash\tflows\tused\tfor\tinvesting\tactivities | (478.5) | (373.8) | (303.2) |
| Cash\tFlows\tfrom\tFinancing\tActivities |  |  |  |
| Increase\t(decrease)\tin\tshort-term\tdebt,\tnet | 54.8 | (31.6) | (82.0) |
| Proceeds\tfrom\tissuance\tof\tlong-term\tdebt,\tnet | — | 590.6 | — |
| Net\tsettlement\tof\tinterest\trate\tderivatives | — | (11.1) | — |
| Repayments\tand\tredemptions\tof\tlong-term\tdebt | (5.9) | (5.6) | (97.8) |
| Net\tproceeds\tfrom\temployee\tstock\ttransactions | 117.3 | 154.1 | 67.3 |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation\tarrangements | 1.1 | 9.4 | 6.7 |
| Payments\tto\tacquire\ttreasury\tstock | (129.6) | (1,004.3) | (400.5) |
| Dividends\tpaid\tto\tstockholders | (106.6) | (103.6) | (85.4) |
| Distributions\tmade\tto\tminority\tholders\tof\tconsolidated\tsubsidiaries | (9.2) | (9.5) | (2.9) |
| Net\tcash\tflows\tused\tfor\tfinancing\tactivities | (78.1) | (411.6) | (594.6) |
| Effect\tof\tExchange\tRate\tChanges\ton\tCash\tand\tCash\tEquivalents | 14.5 | 8.9 | 3.3 |
| Net\tIncrease\t(Decrease)\tin\tCash\tand\tCash\tEquivalents | 148.0 | (114.9) | (184.7) |
| Cash\tand\tCash\tEquivalents\tat\tBeginning\tof\tYear | 253.7 | 368.6 | 553.3 |
| Cash\tand\tCash\tEquivalents\tat\tEnd\tof\tYear | $401.7 | $253.7 | $368.6 |
| Supplemental\tdisclosures\tof\tcash\tflow\tinformation\t(Note\t20) |  |  |  |
| Cash\tpaid\tduring\tthe\tyear\tfor: |  |  |  |
| Interest | $74.1 | $44.6 | $33.8 |
| Income\tTaxes | $249.9 | $199.6 | $256.9 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 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 the	following	brand	names:		Estée	Lauder,	Aramis,	Clinique,	Prescriptives,	Lab	Series,	Origins,	MžAžC,	Bobbi	Brown,	La	Mer,	Aveda,	Jo	Malone,	Bumble	and	bumble, Darphin,	American	Beauty,	Flirt!,	Good	Skin™,	Grassroots,	Ojon	and	Eyes	by	Design.		The	Estée	Lauder	Companies	Inc.	is	also	the	global	licensee	of	the	Tommy Hilfiger,	Kiton,	Donna	Karan,	Michael	Kors,	Sean	John,	Missoni,	Daisy	Fuentes,	Tom	Ford	and	Mustang	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")	as continuing	operations,	with	the	exception	of	the	operating	results	of	its	reporting	unit	that	marketed	and	sold	Stila	brand	products,	which	have	been	reflected	as discontinued	operations	for	fiscal	2007	and	2006	(see	Note	7).		All	significant	intercompany	balances	and	transactions	have	been	eliminated.

Certain	amounts	in	the	consolidated	financial	statements	of	prior	years	have	been	reclassified	to	conform	to	current	year	presentation	for	comparative	purposes.

# Management	Estimates

The	preparation	of	financial	statements	and	related	disclosures	in	conformity	with	U.S.	generally	accepted	accounting	principles	requires	management	to	make	estimates and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities	and	disclosure	of	contingent	assets	and	liabilities	at	the	date	of	the	financial	statements	and	the reported	amounts	of	revenues	and	expenses	reported	in	those	financial	statements.		Actual	results	could	differ	from	those	estimates	and	assumptions.

# 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	year.		Unrealized	translation	gains	or	losses	are	reported	as	cumulative	translation	adjustments	through	other	comprehensive	income.		Such adjustments	amounted	to	$98.3	million,	$53.1	million	and	$27.0	million	of	unrealized	translation	gains	in	fiscal	2008,	2007	and	2006,	respectively.

The	Company	enters	into	foreign	currency	forward	and	option	contracts	to	hedge	foreign	currency	transactions	for	periods	consistent	with	its	identified	exposures. Accordingly,	the	Company	categorizes	these	instruments	as	entered	into	for	purposes	other	than	trading.

The	accompanying	consolidated	statements	of	earnings	include	net	exchange	gains	(losses)	of	$3.9	million,	$(0.6)	million	and	$4.0	million	in	fiscal	2008,	2007	and 2006,	respectively.

# Cash	and	Cash	Equivalents

Cash	and	cash	equivalents	include	$66.6	million	and	$51.3	million	of	short-term	time	deposits	at	June	30,	2008	and	2007,	respectively.		The	Company	considers	all highly	liquid	investments	with	original	maturities	of	three	months	or	less	to	be	cash	equivalents.

# Accounts	Receivable

Accounts	receivable	is	stated	net	of	the	allowance	for	doubtful	accounts	and	customer	deductions	of	$26.3	million	and	$23.3	million	as	of	June	30,	2008	and	2007, 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	first-in,	first-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 merchandise	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	realizable	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,	specific reserves	for	future	known	or	anticipated	events	may	be	established.

# Derivative	Financial	Instruments

The	Company	accounts	for	derivative	financial	instruments	in	accordance	with	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	133,	"Accounting	for Derivative	Instruments	and	Hedging	Activities,"	("SFAS	No.	133")	as	amended,	which	establishes	accounting	and	reporting	standards	for	derivative	instruments, including	certain	derivative	instruments	embedded	in	other	contracts,	and	for	hedging	activities.		SFAS	No.	133	also	requires	the	recognition	of	all	derivative	instruments as	either	assets	or	liabilities	on	the	balance	sheet	and	that	they	be	measured	at	fair	value.

# 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 accumulated	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	financial	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.		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.

# 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. Unrealized	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	adjustment,	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.

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	financial	accounting	and	reporting	standards	for	acquired	goodwill	and	other	intangible	assets.		Specifically,	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	financial	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 classified	as	goodwill	or	as	other	intangibles	with	indefinite	lives	are	no	longer	amortized.

In	accordance	with	SFAS	No.	142,	the	impairment	testing	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	comparing	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	public	companies,	acquisition	analysis	and discounted	cash	flow.		For	goodwill	valuation	purposes	only,	the	revised	fair	value	of	a	reporting	unit	is	allocated	to	the	assets	and	liabilities	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	flows	from	the	use	and	eventual	disposition	of	an	asset	are	less	than	the	carrying	value	of	that	asset.

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	not	believe	it	is	exposed	significantly to	any	undue	concentration	of	credit	risk.

During	fiscal	2006,	Federated	Department	Stores,	Inc.	acquired	The	May	Department	Stores	Company,	resulting	in	the	merger	of	the	Company's	previous	two	largest customers	(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	fiscal	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.

Revenues	from	merchandise	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	recognized	at	the	time	the	product	is	shipped	to	the	customer	and	in	the	Europe,	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 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	fiscal	quarter	is	comprised	of	two	4-week	periods	and	one	5-week	period,	with	one	extra	week	in	one	quarter	every	seven	years.		As	a	result,	the	retail	quarter-end and	the	fiscal	quarter-end	may	be	different	by	up	to	six	days.

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,	authorized	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	4.4%,	4.2%	and	5.0%	in	fiscal	2008,	2007	and	2006,	respectively.

# Payments	to	Customers

The	Company	is	subject	to	the	provisions	of	Emerging	Issues	Task	Force	("EITF")	Issue	No.	01-9,	"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	purchase	promotions	as	cost	of	sales.		Certain	other	incentive	arrangements	require	the payment	of	a	fee	to	customers	based	on	their	attainment	of	pre-established	sales	levels.		These	fees	have	been	recorded	as	a	reduction	of	Net	sales	in	the	accompanying consolidated	statements	of	earnings	and	were	not	material	to	the	results	of	operations	in	any	period	presented.

The	Company	enters	into	transactions	related	to	advertising,	product	promotions	and	demonstrations,	some	of	which	involve	cooperative	relationships	with	customers. These	activities	may	be	arranged	either	with	unrelated	third	parties	or	in	conjunction	with	the	customer.		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	consolidated	statements	of	earnings	and	were approximately	$1,098	million,	$978	million	and	$912	million	in	fiscal	2008,	2007	and	2006,	respectively.

# Advertising	and	Promotion

Global	net	expenses	for	advertising,	merchandising,	sampling	and	promotion	were	$2,034.6	million,	$1,841.9	million	and	$1,721.1	million	in	fiscal	2008,	2007	and 2006,	respectively,	and	are	expensed	as	incurred.		These	amounts	include	activities	relating	to	purchase	with	purchase	and	gift	with	purchase	promotions	that	are reflected	in	net	sales	and	cost	of	sales.		Excluding	the	impact	of	purchase	with	purchase	and	gift	with	purchase	promotions,	advertising,	merchandising,	sampling	and promotion	expenses	included	in	operating	expenses	were	$1,836.1	million,	$1,640.9	million	and	$1,514.3	million	in	fiscal	2008,	2007	and	2006,	respectively.

Research	and	development	costs	amounted	to	$80.9	million,	$74.4	million	and	$72.0	million	in	fiscal	2008,	2007	and	2006,	respectively.		Research	and	development costs	are	expensed	as	incurred.

# Operating	Leases

The	Company	recognizes	rent	expense	from	operating	leases	with	periods	of	free	and	scheduled	rent	increases	on	a	straight-line	basis	over	the	applicable	lease	term.		The Company	considers	lease	renewals	in	the	useful	life	of	its	leasehold	improvements	when	such	renewals	are	reasonably	assured.		From	time	to	time,	the	Company	may receive	capital	improvement	funding	from	its	lessors.		These	amounts	are	recorded	as	deferred	liabilities	and	amortized	over	the	remaining	lease	term	as	a	reduction	of rent	expense.

# License	Arrangements

The	Company's	license	agreements	provide	the	Company	with	worldwide	rights	to	manufacture,	market	and	sell	beauty	and	beauty-related	products	(or	particular categories	thereof)	using	the	licensors'	trademarks.		The	licenses	typically	have	an	initial	term	of	approximately	3	years	to	11	years,	and	are	renewable	subject	to	the Company's	compliance	with	the	license	agreement	provisions.		The	remaining	terms,	including	the	potential	renewal	periods,	range	from	approximately	2	years	to	22 years.		Under	each	license,	the	Company	is	required	to	pay	royalties	to	the	licensor,	at	least	annually,	based	on	net	sales	to	third	parties.

Most	of	the	Company's	licenses	were	entered	into	to	create	new	business.		In	some	cases,	the	Company	acquired,	or	entered	into,	a	license	where	the	licensor	or	another licensee	was	operating	a	pre-existing	beauty	products	business.		In	those	cases,	intangible	assets	are	capitalized	and	amortized	over	their	useful	lives	based	on	the	terms of	the	agreement	and	are	subject	to	impairment	testing	if	certain	events	or	circumstances	indicate	a	potential	impairment.

# Stock-Based	Compensation

The	Company	accounts	for	stock-based	compensation	in	accordance	with	SFAS	No.	123(R),	"Share-Based	Payment"	("SFAS	No.	123(R)").		This	statement	requires that	all	stock-based	compensation	be	recognized	as	an	expense	in	the	financial	statements	and	that	such	cost	be	measured	at	the	fair	value	of	the	award.		SFAS No.	123(R)	also	requires	that	excess	tax	benefits	related	to	stock	option	exercises	be	reflected	as	financing	cash	inflows	instead	of	operating	cash	inflows.

The	Company	accounts	for	income	taxes	in	accordance	with	SFAS	No.	109,	"Accounting	for	Income	Taxes,"	as	amended.		This	statement	establishes	financial accounting	and	reporting	standards	for	the	effects	of	income	taxes	that	result	from	an	enterprise's	activities	during	the	current	and	preceding	years.		It	requires	an	asset and	liability	approach	for	financial	accounting	and	reporting	of	income	taxes.

In	June	2006,	the	Financial	Accounting	Standards	Board	("FASB")	issued	FASB	Interpretation	No.	("FIN")	48,	"Accounting	for	Uncertainty	in	Income	Taxes	–	an interpretation	of	FASB	Statement	No.	109"	("FIN	48").		FIN	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	two-step	evaluation	process	for	tax	positions	taken,	or	expected	to	be	taken,	in	a	tax	return.		The	first step	is	recognition	and	the	second	is	measurement.		FIN	48	also	provides	guidance	on	derecognition,	measurement,	classification,	disclosures,	transition	and	accounting for	interim	periods.		In	May	2007,	the	FASB	issued	FASB	Staff	Position	("FSP")	No.	FIN	48-1,	"Definition	of	Settlement	in	FASB	Interpretation	No.	48,	an amendment	of	FASB	Interpretation	(FIN)	No.	48,	Accounting	for	Uncertainty	in	Income	Taxes"	("FSP	No.	FIN	48-1").		FSP	No.	FIN	48-1	provides	guidance	on	how to	determine	whether	a	tax	position	is	effectively	settled	for	the	purpose	of	recognizing	previously	unrecognized	tax	benefits.		The	Company	adopted	the	provisions	of FIN	48,	as	amended,	effective	July	1,	2007.

SFAS	No.	157	becomes	effective	for	the	Company	in	the	beginning	of	fiscal	2009.		The	Company	is	currently	evaluating	the	impact	of	the	provisions	of	SFAS	No.	157 on	its	consolidated	financial	statements.		In	February	2008,	the	FASB	issued	FSP	No.	FAS	157-2,	"Effective	Date	for	FASB	Statement	No.	157."		This	FSP	permits	the delayed	application	of	SFAS	No.	157	for	nonfinancial	assets	and	nonfinancial	liabilities,	as	defined	in	this	FSP,	except	for	those	that	are	recognized	or	disclosed	at	fair value	in	the	financial	statements	at	least	annually,	until	the	beginning	of	the	Company's	fiscal	2010.

In	February	2007,	the	FASB	issued	SFAS	No.	159,	"The	Fair	Value	Option	for	Financial	Assets	and	Financial	Liabilities"	("SFAS	No.	159"),	to	permit	all	entities	to choose	to	elect,	at	specified	election	dates,	to	measure	eligible	financial	instruments	at	fair	value.		An	entity	shall	report	unrealized	gains	and	losses	on	items	for	which the	fair	value	option	has	been	elected	in	earnings	at	each	subsequent	reporting	date,	and	recognize	upfront	costs	and	fees	related	to	those	items	in	earnings	as	incurred and	not	deferred.		SFAS	No.	159	applies	to	fiscal	years	beginning	after	November	15,	2007,	with	early	adoption	permitted	for	an	entity	that	has	also	elected	to	apply	the provisions	of	SFAS	No.	157.		An	entity	is	prohibited	from	retrospectively	applying	SFAS	No.	159,	unless	it	chooses	early	adoption.		The	Company	is	currently evaluating	the	impact	of	the	provisions	of	SFAS	No.	159	on	its	consolidated	financial	statements,	if	any,	when	it	becomes	effective	in	the	beginning	of	fiscal	2009.

In	December	2007,	the	FASB	issued	SFAS	No.	160,	"Noncontrolling	Interests	in	Consolidated	Financial	Statements,	an	Amendment	of	ARB	No.	51"	("SFAS	No.	160") to	establish	accounting	and	reporting	standards	for	the	noncontrolling	interest	in	a	subsidiary	and	for	the	deconsolidation	of	a	subsidiary.		Among	other	requirements, SFAS	No.	160	clarifies	that	a	noncontrolling	interest	in	a	subsidiary,	which	is	sometimes	referred	to	as	minority	interest,	is	to	be	reported	as	a	separate	component	of equity	in	the	consolidated	financial	statements.		SFAS	No.	160	also	requires	consolidated	net	income	to	include	the	amounts	attributable	to	both	the	parent	and	the noncontrolling	interest	and	to	disclose	those	amounts	on	the	face	of	the	consolidated	statement	of	income.		SFAS	No.	160	must	be	applied	prospectively	for	fiscal	years, and	interim	periods	within	those	fiscal	years,	beginning	in	the	Company's	fiscal	2010,	except	for	the	presentation	and	disclosure	requirements,	which	will	be	applied retrospectively	for	all	periods	presented.

In	December	2007,	the	FASB	ratified	the	consensus	reached	on	EITF	Issue	No.	07-1,	"Collaborative	Arrangements,"	("EITF	No.	07-1").		This	EITF	addresses accounting	for	collaborative	arrangement	activities	that	are	conducted	without	the	creation	of	a	separate	legal	entity	for	the	arrangement.		Revenues	and	costs	incurred with	third	parties	in	connection	with	the	collaborative	arrangement	should	be	presented	gross	or	net	by	the	collaborators	pursuant	to	the	guidance	in	EITF	99-19,

"Reporting	Revenue	Gross	as	a	Principal	versus	Net	as	an	Agent,"	and	other	applicable	accounting	literature.		Payments	to	or	from	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	to	be	disclosed.		The	requirements	under	this	EITF	must	be	applied	to collaborative	arrangements	in	existence	at	the	beginning	of	the	Company's	fiscal	2010	using	a	modified	version	of	retrospective	application.		The	Company	is	currently evaluating	the	impact	the	provisions	of	EITF	No.	07-1	will	have	on	its	consolidated	financial	statements.

In	March	2008,	the	FASB	issued	SFAS	No.	161,	"Disclosures	about	Derivative	Instruments	and	Hedging	Activities	–	an	amendment	of	FASB	Statement	No.	133" ("SFAS	No.	161").		SFAS	No.	161	requires	companies	to	provide	qualitative	disclosures	about	their	objectives	and	strategies	for	using	derivative	instruments, quantitative	disclosures	of	the	fair	values	and	gains	and	losses	of	these	derivative	instruments	in	a	tabular	format,	as	well	as	more	information	about	liquidity	by requiring	disclosure	of	a	derivative	contract's	credit-risk-related	contingent	features.		SFAS	No.	161	also	requires	cross-referencing	within	footnotes	to	enable	financial statement	users	to	locate	important	information	about	derivative	instruments.		The	Company	is	currently	evaluating	the	disclosure	requirements	of	SFAS	No.	161.		As this	is	a	disclosure-only	standard,	the	Company	does	not	anticipate	an	impact	on	the	consolidated	financial	statements	as	a	result	of	its	adoption.		SFAS	No.	161 becomes	effective	for	the	March	2009	interim	consolidated	financial	statements.

In	April	2008,	the	FASB	issued	FSP	No.	FAS	142-3,	"Determination	of	the	Useful	Life	of	Intangible	Assets."		This	FSP	amends	the	factors	that	should	be	considered	in developing	renewal	or	extension	assumptions	used	to	determine	the	useful	life	of	a	recognized	intangible	asset	under	SFAS	No.	142,	"Goodwill	and	Other	Intangible Assets"	("SFAS	No.	142").		This	FSP	also	adds	certain	disclosures	to	those	already	prescribed	in	SFAS	No.	142.		FSP	No.	FAS	142-3	becomes	effective	for	fiscal	years, and	interim	periods	within	those	fiscal	years,	beginning	in	the	Company's	fiscal	2010.		The	guidance	for	determining	useful	lives	must	be	applied	prospectively	to intangible	assets	acquired	after	the	effective	date.		The	disclosure	requirements	must	be	applied	prospectively	to	all	intangible	assets	recognized	as	of	the	effective	date.

In	June	2008,	the	FASB	issued	FSP	No.	EITF	03-6-1,	"Determining	Whether	Instruments	Granted	in	Share-Based	Payment	Transactions	Are	Participating	Securities." This	FSP	provides	that	unvested	share-based	payment	awards	that	contain	nonforfeitable	rights	to	dividends	or	dividend	equivalents	(whether	paid	or	unpaid)	are participating	securities	and	shall	be	included	in	the	computation	of	earnings	per	share	pursuant	to	the	two-class	method.		This	FSP	is	effective	for	financial	statements issued	for	fiscal	years	beginning	after	December	15,	2008,	and	interim	periods	within	those	years.		Upon	adoption,	a	company	is	required	to	retrospectively	adjust	its earnings	per	share	data	(including	any	amounts	related	to	interim	periods,	summaries	of	earnings	and	selected	financial	data)	to	conform	with	the	provisions	in	this	FSP. Early	application	of	this	FSP	is	prohibited.		The	Company	does	not	issue	share-based	payment	awards	that	contain	nonforfeitable	rights	to	dividends	or	dividend equivalents.

# NOTE	3	–	STAFF	ACCOUNTING	BULLETIN	NO.	108

In	September	2006,	the	Securities	and	Exchange	Commission	("SEC")	issued	Staff	Accounting	Bulletin	("SAB")	No.	108,	"Considering	the	Effects	of	Prior	Year Misstatements	when	Quantifying	Misstatements	in	Current	Year	Financial	Statements"	("SAB	No.	108"),	which	sets	forth	the	SEC	Staff's	views	on	the	proper	methods for	quantifying	errors	when	there	were	uncorrected	errors	in	a	prior	year.		Under	SAB	No.	108,	companies	should	evaluate	a	misstatement	that	existed	in	prior	years based	on	its	impact	on	the	current	year	income	statement	(the	"rollover"	approach),	as	well	as	the	cumulative	effect	of	correcting	such	misstatements	in	the	current year's	ending	balance	sheet	(the	"iron	curtain"	approach),	or	collectively,	the	"dual"	approach.

SAB	No.	108	became	effective	for	the	Company's	fiscal	year	ended	June	30,	2007.		Prior	to	application	of	this	guidance,	the	Company	utilized	the	"rollover"	approach to	evaluate	uncorrected	misstatements	and	believed	the	conclusions	reached	regarding	its	quantitative	and	qualitative	assessments	of	materiality	of	such	items,	both individually	and	in	the	aggregate,	were	appropriate.		In	accordance	with	the	transition	guidance	set	forth	in	SAB	No.	108,	the	Company	elected	to	record	a	one-time cumulative	effect	adjustment	to	opening	retained	earnings	to	correct	errors	in	certain	balance	sheet	accounts	that	arose	in	prior	years,	which	previously	had	been considered	immaterial	using	the	"rollover"	approach.

Since	the	fiscal	1996	acquisition	of	the	Bobbi	Brown	brand	and	through	the	application	of	SAB	No.	108	on	July	1,	2006,	the	Company	made	payments	to	the	sellers based	on	a	percentage	of	Bobbi	Brown	sales	internationally,	which	should	have	been	capitalized	as	goodwill	in	accordance	with	SFAS	No.	141,	"Business Combinations,"	as	amended.		These	payments	were	previously	recorded	as	Selling,	general	and	administrative	expenses	in	the	consolidated	statements	of	earnings.		As such,	goodwill	increased	by	$10.5	million	and	opening	retained	earnings	increased	by	$6.7	million,	net	of	tax,	in	the	accompanying	fiscal	2007	consolidated	balance sheet.

In	connection	with	the	Company's	defined	benefit	pension	obligations,	certain	liability	amounts	were	incorrectly	reflected	on	the	balance	sheet	in	years	prior	to	fiscal 2002,	the	majority	of	which	related	to	benefit	plans	for	the	Company's	international	operations.		As	such,	upon	initial	application	of	SAB	No.	108	on	July	1,	2006,	other noncurrent	liabilities	decreased	by	$8.7	million	and	opening	retained	earnings	increased	by	$5.0	million,	net	of	tax,	in	the	accompanying	fiscal	2007	consolidated	balance sheet.

Beginning	in	years	prior	to	fiscal	2003,	inventory	valuation	was	impacted	by	the	incorrect	application	of	profit	in	ending	inventory	partially	offset	by	the	overstatement of	inventory	obsolescence	reserves,	culminating	in	a	fiscal	2007	decrease	to	inventory	of	$2.5	million	and	an	opening	retained	earnings	decrease	of	$2.0	million,	net	of tax	pursuant	to	initial	application	of	SAB	No.	108.

In	years	prior	to	fiscal	2004	and	through	the	initial	application	of	SAB	No.	108,	the	Company	overstated	certain	accrued	liability	positions.		As	such,	Other	accrued liabilities	decreased	by	$19.1	million	and	opening	retained	earnings	increased	by	$14.5	million,	net	of	tax,	in	the	accompanying	fiscal	2007	consolidated	balance	sheet.

# NOTE	4	–	INVENTORY	AND	PROMOTIONAL	MERCHANDISE

| Raw	materials | $205.4 | $179.5 |
| :--- | :--- | :--- |
| Work\tin\tprocess | 56.8 | 49.2 |
| Finished\tgoods | 494.7 | 431.3 |
| Promotional\tmerchandise | 230.3 | 195.8 |
|  | $987.2 | $855.8 |

# NOTE	5	–	PROPERTY,	PLANT	AND	EQUIPMENT

Asset	(Useful	Life)

(In	millions)

| Land | $14.9 | $14.4 |
| :--- | :--- | :--- |
| Buildings\tand\timprovements\t(10\tto\t40\tyears) | 183.5 | 167.5 |
| Machinery\tand\tequipment\t(3\tto\t10\tyears) | 1,008.9 | 905.0 |
| Furniture\tand\tfixtures\t(5\tto\t10\tyears) | 95.6 | 108.2 |
| Leasehold\timprovements | 1,090.7 | 917.2 |
|  | 2,393.6 | 2,112.3 |
| Less\taccumulated\tdepreciation\tand\tamortization | 1,350.5 | 1,231.5 |
|  | $1,043.1 | $880.8 |

Depreciation	and	amortization	of	property,	plant	and	equipment	was	$233.9	million,	$198.1	million	and	$189.9	million	in	fiscal	2008,	2007	and	2006,	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.

# NOTE	6	–	GOODWILL	AND	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,	the	exclusive	rights	to	sell	and	distribute	Ojon	products worldwide.		In	addition,	the	Company	acquired	a	business	engaged	in	the	wholesale	distribution	and	retail	sale	of	Aveda	products	and	recorded	goodwill	for	earn-out payments	related	to	the	acquisition	of	the	Bobbi	Brown	brand.		These	activities	resulted	in	an	increase	to	goodwill	of	$51.9	million	and	other	intangible	assets	of	$85.5 million.

During	fiscal	2007,	the	Company	purchased	the	remaining	minority	equity	interest	in	the	Bumble	and	bumble	business,	recorded	additional	goodwill	related	to	payments made	in	prior	years	in	connection	with	the	acquisition	of	the	Bobbi	Brown	brand	(see	Note	3),	and	acquired	businesses	engaged	in	the	wholesale	distribution	and	retail sale	of	the	Company's	products	in	the	United	States	and	other	countries.		The	combined	results	of	these	activities	increased	goodwill	by	$20.4	million	and	other intangible	assets	by	$47.0	million.		Also	during	fiscal	2007,	as	a	result	of	the	Company's	annual	impairment	testing,	the	Company	determined	that	the	carrying	values	of its	goodwill	and	intangible	assets	related	to	the	Darphin	and	Rodan	+	Fields	brands	exceeded	their	respective	fair	values.		As	such,	the	Company	reduced	its	goodwill	by $7.3	million	and	other	intangible	assets	by	$4.3	million,	which	are	reported	in	Selling,	general	and	administrative	expenses	in	the	accompanying	consolidated	statements of	earnings.

# Goodwill

The	Company	assigns	goodwill	of	a	reporting	unit	to	the	product	category	in	which	that	reporting	unit	predominantly	operates	at	the	time	of	its	acquisition.		The	change in	the	carrying	amount	of	goodwill,	including	the	effect	of	foreign	exchange	rates	is	as	follows:

|  |  |  |  | Year	Ended	or	at	June	30 |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (In\tmillions) | 2006 | Additions | Reductions | 2007 | Additions | Reductions | 2008 |
| Skin\tCare | $20.3 | $1.3 | $7.3 | $14.3 | $8.1 | $— | $22.4 |
| Makeup | 227.3 | 18.5 | — | 245.8 | 6.6 | — | 252.4 |
| Fragrance | 53.9 | 0.6 | — | 54.5 | 0.4 | — | 54.9 |
| Hair\tCare | 334.3 | 2.4 | — | 336.7 | 42.5 | — | 379.2 |
| Total | $635.8 | $22.8 | $7.3 | $651.3 | $57.6 | $— | $708.9 |

# Other	Intangible	Assets

Other	intangible	assets	include	trademarks	and	patents,	as	well	as	license	agreements	and	other	intangible	assets	resulting	from	or	related	to	businesses	and	assets purchased	by	the	Company.		Indefinite	lived	assets	(e.g.,	trademarks)	are	not	subject	to	amortization	and	are	evaluated	annually	for	impairment	or	more	frequently	if certain	events	or	circumstances	indicate	a	potential	impairment.		Patents	are	amortized	on	a	straight-line	basis	over	the	shorter	of	the	legal	term	or	the	useful	life	of	the patent,	approximately	20	years.		Other	intangible	assets	(e.g.,	non-compete	agreements,	customer	lists)	are	amortized	on	a	straight-line	basis	over	their	expected	period of	benefit,	approximately	5	years	to	14	years.		Intangible	assets	related	to	license	agreements	are	amortized	on	a	straight-line	basis	over	their	useful	lives	based	on	the term	of	the	respective	agreement,	currently	approximately	10	years	to	16	years,	and	are	subject	to	impairment	testing	if	certain	events	or	circumstances	indicate	a potential	impairment.

Other	intangible	assets	consist	of	the	following:

|  |  | June	30,	2008 |  |  | June	30,	2007 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross |  |  | Gross |  |  |
|  | Carrying | Accumulated | Total\tNet | Carrying | Accumulated | Total\tNet |
| (In\tmillions) | Value | Amortization | Book\tValue | Value | Amortization | Book\tValue |
| Amortizable\tintangible\tassets: |  |  |  |  |  |  |
| License\tagreements | $43.2 | $28.1 | $15.1 | $42.9 | $23.8 | $19.1 |
| Trademarks\tand\tother | 184.3 | 102.7 | 81.6 | 125.8 | 93.0 | 32.8 |
| Patents | 0.2 | 0.1 | 0.1 | 0.6 | 0.2 | 0.4 |
|  | 227.7 | 130.9 | 96.8 | 169.3 | 117.0 | 52.3 |
| Non-amortizable\tintangible\tassets: |  |  |  |  |  |  |
| Trademarks\tand\tother | 99.7 | 4.6 | 95.1 | 65.4 | 4.3 | 61.1 |
| Total\tintangible\tassets | $327.4 | $135.5 | $191.9 | $234.7 | $121.3 | $113.4 |

The	aggregate	amortization	expense	related	to	amortizable	intangible	assets	for	the	years	ended	June	30,	2008,	2007	and	2006	was	$14.0	million,	$6.3	million	and	$5.5 million,	respectively.		The	estimated	aggregate	amortization	expense	for	each	of	the	next	five	fiscal	years	is	as	follows:

|  |  |  | Estimated	Expense	in	Fiscal |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2009 | 2010 | 2011 | 2012 | 2013 |
|  |  |  | (In\tmillions) |  |  |
| Aggregate\tamortization\texpense | $11.4 | $11.1 | $10.9 | $10.6 | $10.1 |

# NOTE	7	–	ACQUISITION	AND	DIVESTITURE	OF	BUSINESSES	AND	LICENSE	ARRANGEMENTS

During	fiscal	2008,	the	Company	acquired	Ojon	Corporation.		In	conjunction	with	this	acquisition,	the	Company	purchased,	from	an	unrelated	party,	the	exclusive rights	to	sell	and	distribute	Ojon	products	worldwide.		The	initial	purchase	price,	paid	at	closing,	was	funded	by	cash	provided	by	operations	and	the	issuance	of commercial	paper	as	well	as	the	issuance	of	two	promissory	notes,	as	described	in	Note	11.		The	purchase	agreement	also	provides	for	an	additional	payment,	which	is expected	to	be	made	in	fiscal	2013,	contingent	upon	the	attainment	of	certain	net	sales	targets	of	Ojon	products.

During	fiscal	2007,	the	Company	purchased	the	remaining	minority	equity	interests	in	Bumble	and	Bumble	Products,	LLC	and	Bumble	and	Bumble,	LLC,	which	have 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	other	countries	and	made	earn-out	payments	related	to	the	acquisition	of	the	Bobbi	Brown	brand.

The	aggregate	cost	for	these	activities,	which	includes	purchase	price,	earn-out	payments	and	acquisition	costs,	was	$150.8	million,	$61.2	million,	and	$51.7	million	in fiscal	2008,	2007	and	2006,	respectively.		The	results	of	operations	for	each	of	the	acquired	businesses	are	included	in	the	accompanying	consolidated	financial statements	commencing	with	its	date	of	original	acquisition.		Pro	forma	results	of	operations	have	not	been	presented,	as	the	impact	on	the	Company's	consolidated financial	results	would	not	have	been	material.

In	fiscal	2006,	the	Company	completed	the	sale	of	certain	assets	and	operations	of	the	reporting	unit	that	marketed	and	sold	Stila	brand	products	to	Stila	Corp.	(the "Purchaser"),	an	affiliate	of	Sun	Capital	Partners,	Inc.		The	Company	recorded	charges	of	$80.3	million	(net	of	$43.3	million	tax	benefit)	to	discontinued	operations, which	reflected	the	loss	on	the	disposition	of	the	business	of	$69.9	million,	net	of	tax,	and	adjustments	to	the	fair	value	of	assets	sold,	the	costs	to	dispose	of	those	assets not	acquired	by	the	Purchaser	and	other	costs	in	connection	with	the	sale.		The	charges	also	included	the	operating	losses	of	$10.4	million,	net	of	tax,	for	fiscal	year ended	June	30,	2006.		Net	sales	associated	with	the	discontinued	operations	were	$45.1	million	for	the	fiscal	year	ended	June	30,	2006.

Since	fiscal	2007,	the	Company	signed	an	exclusive	agreement	to	create	fragrances	and	related	products	to	be	sold	to	Coach	Inc.,	which	are	available	at	Coach	retail stores	in	the	United	States.		Also	since	fiscal	2007,	the	Company	entered	into	a	license	agreement	with	Ford	Motor	Company	to	create	a	fragrance	using	the	name Mustang.		Since	fiscal	2006,	the	Company	developed	and	sold	fragrance	products	pursuant	to	a	license	agreement	with	Daisy	Fuentes.

Certain	license	agreements	may	require	minimum	royalty	payments,	incremental	royalties	based	on	net	sales	levels	and	minimum	spending	on	advertising	and promotional	activities.		Royalty	expenses	are	accrued	in	the	period	in	which	net	sales	are	earned	while	advertising	and	promotional	expenses	are	accrued	at	the	time these	costs	are	incurred.

# NOTE	8	–	COST	SAVINGS	INITIATIVE

During	fiscal	2006,	the	Company	recorded	special	charges	associated	with	a	cost	savings	initiative	that	was	designed	to	support	its	long-term	financial	objectives.		As part	of	this	multi-faceted	initiative,	the	Company	had	identified	savings	opportunities	that	include	streamlined	processes	and	organizational	changes.		The	principal component	of	the	initiative	was	a	voluntary	separation	program	offered	primarily	to	North	America-based	employees.		During	the	fourth	quarter	of	fiscal	2006, involuntary	separations	were	communicated	to	certain	employees.		Under	this	initiative,	the	Company	incurred	expenses	related	to	one-time	termination	benefits	for	494 employees,	of	which	28	were	involuntary,	which	benefits	were	based	principally	upon	years	of	service.		Employees	designated	for	separation	under	the	cost	savings initiative	were	separated	by	June	30,	2007.

In	addition,	the	Company	identified	other	cost	savings	opportunities	to	improve	efficiencies	in	the	Company's	distribution	network	and	product	offerings	and	to eliminate	other	nonessential	costs.		These	charges	primarily	related	to	employee	severance	for	facilities	that	were	closed,	contract	cancellations,	counter	and	door closings	and	product	returns.

For	the	years	ended	June	30,	2008,	2007	and	2006,	aggregate	expenses	of	$0.4	million,	$1.1	million	and	$92.1	million,	respectively,	were	recorded	as	Special	charges related	to	cost	savings	initiative	in	the	accompanying	consolidated	statements	of	earnings.		The	fiscal	2008	charges	were	related	to	employee	separation	expenses	while the	2007	charges	were	primarily	related	to	facility	closings.		At	June	30,	2008	and	2007,	$4.4	million	and	$15.4	million,	respectively,	and	$1.8	million	and	$7.5	million, respectively,	related	to	the	cost	savings	initiative	were	recorded	in	Other	accrued	liabilities	and	Other	noncurrent	liabilities,	respectively,	in	the	accompanying consolidated	balance	sheets.

The	following	table	summarizes	the	cost	savings	initiative,	which	impacted	the	Company's	operating	expenses	and	cost	of	sales:

| (In	millions) | Accrued<br>at<br>June	30,<br>2006 | Fiscal<br>2007<br>expense | Fiscal<br>2007<br>payments | Accrued<br>at<br>June	30,<br>2007 | Fiscal<br>2008<br>expense | Fiscal<br>2008<br>payments | Accrued<br>at<br>June	30,<br>2008 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Employee\tseparation\texpenses | $55.2 | $0.3 | $34.2 | $21.3 | $0.5 | $15.6 | $6.2 |
| Facility\tclosures\tand\tproduct/distribution |  |  |  |  |  |  |  |
| rationalization | 12.5 | 0.8 | 11.7 | 1.6 | (0.1) | 1.5 | — |
| Advertising\tand\tpromotional\teffectiveness | 1.2 | — | 1.2 | — | — | — | — |
| Total | $68.9 | $1.1 | $47.1 | $22.9 | $0.4 | $17.1 | $6.2 |

# NOTE	9	–	INCOME	TAXES

The	provision	for	income	taxes	is	comprised	of	the	following:

Current:

| Federal | $141.4 | $66.6 | $164.3 |
| :--- | :--- | :--- | :--- |
| Foreign | 214.1 | 166.7 | 158.2 |
| State\tand\tlocal | 20.0 | 12.0 | 11.5 |
|  | 375.5 | 245.3 | 334.0 |
| Deferred: |  |  |  |
| Federal | (110.9) | 11.3 | (73.7) |
| Foreign | (4.1) | (4.8) | (0.3) |
| State\tand\tlocal | (0.6) | 3.4 | (0.3) |
|  | (115.6) | 9.9 | (74.3) |
|  | $259.9 | $255.2 | $259.7 |

A	reconciliation	between	the	provision	for	income	taxes	computed	by	applying	the	statutory	Federal	income	tax	rate	to	earnings	before	income	taxes	and	minority interest	and	the	actual	provision	for	income	taxes	is	as	follows:

|  | Year	Ended	June	30 | Year	Ended	June	30 |  |
| :--- | :--- | :--- | :--- |
|  | 2008 | 2007 | 2006 |
|  |  | ($\tin\tmillions) |  |
| Provision\tfor\tincome\ttaxes\tat\tstatutory\trate | $260.3 | $248.9 | $208.5 |
| Increase\t(decrease)\tdue\tto: |  |  |  |
| State\tand\tlocal\tincome\ttaxes,\tnet\tof\tFederal\ttax\tbenefit | (5.9) | 11.2 | 9.7 |
| Effect\tof\tforeign\toperations | 4.3 | (0.5) | 7.0 |
| IRS\ttax\tsettlement\t(Fiscal\tYears\t1998-2001) | — | — | 46.0 |
| AJCA\tincremental\tdividend | — | (5.7) | (10.9) |
| Preferred\tstock\tdividends\tnot\tdeductible\tfor\tU.S.\ttax\tpurposes | — | — | 0.2 |
| Other\tnondeductible\texpenses | 3.5 | 3.4 | 3.4 |
| Tax\tcredits | (4.2) | (3.0) | (2.2) |
| Other,\tnet | 1.9 | 0.9 | (2.0) |
| Provision\tfor\tincome\ttaxes | $259.9 | $255.2 | $259.7 |
| Effective\ttax\trate | 34.9% | 35.9% | 43.6% |

The	state	and	local	tax	benefit	of	$5.9	million	in	fiscal	2008	includes	the	favorable	resolution	of	several	state	and	local	income	tax	examinations	as	well	as	statute	lapses.

On	July	13,	2006,	the	Company	announced	a	settlement	with	the	Internal	Revenue	Service	("IRS")	regarding	its	examination	of	the	Company's	consolidated	Federal income	tax	returns	for	the	fiscal	years	ended	June	30,	1998	through	June	30,	2001.		The	settlement	resolved	previously	disclosed	issues	raised	during	the	IRS's examination,	including	transfer	pricing	and	foreign	tax	credit	computations.		The	settlement	of	these	issues	resulted	in	a	tax	charge	of	approximately	$46	million	in	the fourth	quarter	of	fiscal	2006	and	represents	the	aggregate	earnings	impact	of	the	settlement	through	fiscal	2006.		In	addition,	during	the	fourth	quarter	of	fiscal	2006,	the Company	completed	the	repatriation	of	foreign	earnings	through	intercompany	dividends	as	required	under	the	provisions	of	the	American	Jobs	Creation	Act	of	2004 (the	"AJCA").		In	connection	with	the	repatriation,	the	Company	updated	the	computation	of	the	related	aggregate	tax	impact,	resulting	in	a	favorable	adjustment	of approximately	$11	million.		The	tax	settlement,	coupled	with	the	AJCA	favorable	tax	adjustment,	resulted	in	a	net	increase	to	the	Company's	fiscal	2006	income	tax provision	of	approximately	$35	million.

Federal	income	and	foreign	withholding	taxes	have	not	been	provided	on	approximately	$813	million	of	undistributed	earnings	of	international	subsidiaries	at	June	30, 2008.		The	Company	intends	to	reinvest	these	earnings	in	its	foreign	operations	indefinitely,	except	where	it	is	able	to	repatriate	these	earnings	to	the	United	States without	material	incremental	tax	provision.		As	of	June	30,	2007	and	2006,	the	Company	had	not	provided	federal	income	and	foreign	withholding	taxes	on approximately	$539	million	and	$336	million,	respectively,	of	undistributed	earnings	of	international	subsidiaries.		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	repatriation.		Accordingly,	it	is	not	practicable	to	determine	the	amount	of	tax	associated with	such	undistributed	earnings.

Significant	components	of	the	Company's	deferred	income	tax	assets	and	liabilities	as	of	June	30,	2008	and	2007	were	as	follows:

| Compensation	related	expenses | $80.9 | $75.5 |
| :--- | :--- | :--- |
| Inventory\tobsolescence\tand\tother\tinventory\trelated\treserves | 61.5 | 55.6 |
| Retirement\tbenefit\tobligations | 41.9 | 31.6 |
| Various\taccruals\tnot\tcurrently\tdeductible | 113.2 | 78.1 |
| Net\toperating\tloss\tand\tcredit\tcarryforwards | 7.9 | 3.4 |
| Unrecognized\tstate\ttax\tbenefits\tand\taccrued\tinterest | 41.0 | — |
| Other\tdifferences\tbetween\ttax\tand\tfinancial\tstatement\tvalues | 53.9 | 16.1 |
|  | 400.3 | 260.3 |
| Valuation\tallowance\tfor\tdeferred\ttax\tassets | (5.7) | (5.5) |
| Total\tdeferred\ttax\tassets | 394.6 | 254.8 |

| Depreciation	and	amortization | (150.4) | (142.6) |
| :--- | :--- | :--- |
| Other\tdifferences\tbetween\ttax\tand\tfinancial\tstatement\tvalues | (4.3) | (4.8) |
| Total\tdeferred\ttax\tliabilities | (154.7) | (147.4) |
| Total\tnet\tdeferred\ttax\tassets | $239.9 | $107.4 |

As	of	June	30,	2008	and	2007,	the	Company	had	current	net	deferred	tax	assets	of	$184.6	million	and	$124.0	million,	respectively,	which	are	included	in	Prepaid expenses	and	other	current	assets	in	the	accompanying	consolidated	balance	sheets.		In	addition,	the	Company	had	noncurrent	net	deferred	tax	assets	of	$55.3	million	as of	June	30,	2008	which	are	included	in	Other	assets,	net	in	the	accompanying	consolidated	balance	sheet	and	noncurrent	net	deferred	tax	liabilities	of	$16.6	million	as	of June	30,	2007	which	are	included	in	Other	noncurrent	liabilities	in	the	accompanying	consolidated	balance	sheet.

As	of	June	30,	2008	and	2007,	certain	international	subsidiaries	had	tax	loss	carryforwards	for	local	tax	purposes	of	approximately	$27	million	and	$11	million, respectively.		With	the	exception	of	$21.6	million	of	losses	with	an	indefinite	carryforward	period	as	of	June	30,	2008,	these	losses	expire	at	various	dates	through	fiscal 2023.		Deferred	tax	assets,	net	of	valuation	allowances,	in	the	amount	of	$4.5	million	and	$1.2	million	as	of	June	30,	2008	and	2007,	respectively,	have	been	recorded	to reflect	the	tax	benefits	of	the	losses	not	utilized	to	date.

A	full	valuation	allowance	has	been	provided	for	those	deferred	tax	assets	for	which,	in	the	opinion	of	management,	it	is	more	likely	than	not	that	the	deferred	tax	assets will	not	be	realized.

Earnings	before	income	taxes	and	minority	interest	include	amounts	contributed	by	the	Company's	international	operations	of	approximately	$905	million,	$696	million and	$603	million	for	fiscal	2008,	2007	and	2006,	respectively.		A	portion	of	these	earnings	are	taxed	in	the	United	States.

The	Company	adopted	the	provisions	of	FIN	48,	as	amended,	effective	July	1,	2007.		As	a	result,	the	Company	recognized	an	increase	in	the	liability	for	unrecognized tax	benefits	and	interest	of	$13.1	million	(after	tax),	which,	as	required,	was	recorded	as	an	adjustment	to	opening	retained	earnings	as	of	July	1,	2007.		The	Company elected	to	continue	its	historical	practice	of	classifying	applicable	interest	and	penalties	as	a	component	of	the	provision	for	income	taxes.		At	adoption,	the	Company had	$142.7	million	of	gross	unrecognized	tax	benefits.		The	Company's	gross	accrual	for	interest	and	penalties	related	to	unrecognized	tax	benefits	was	$42.0	million upon	adoption	of	FIN	48.		As	of	June	30,	2008,	the	Company	had	gross	unrecognized	tax	benefits	of	$199.0	million.		The	total	amount	of	unrecognized	tax	benefits	that, if	recognized,	would	affect	the	effective	tax	rate	was	$119.4	million.		The	total	gross	accrued	interest	and	penalties	during	the	fiscal	year	ended	June	30,	2008	in	the accompanying	consolidated	statement	of	earnings	was	$12.0	million	and	the	total	gross	accrued	interest	and	penalties	in	the	accompanying	consolidated	balance	sheet	at June	30,	2008	was	$54.0	million.		As	of	June	30,	2008,	current	and	noncurrent	liabilities	have	been	increased	by	$90.8	million,	with	a	correlative	increase	in	current	and noncurrent	assets	to	reflect	the	Companny's	gross	income	tax	and	interest	liabilities	for	unrecognized	tax	benefits	as	well	as	related	deferred	tax	assets.		A	reconciliation of	the	beginning	and	ending	amount	of	gross	unrecognized	tax	benefits	is	as	follows:

|  | June	30,	2008<br>(In	millions) |
| :--- | :--- |
| Balance\tof\tgross\tunrecognized\ttax\tbenefits\tas\tof\tJuly\t1,\t2007 | $142.7 |
| Gross\tamounts\tof\tincreases\tas\ta\tresult\tof\ttax\tpositions\ttaken\tduring\ta\tprior\tperiod | 85.7 |
| Gross\tamounts\tof\tdecreases\tas\ta\tresult\tof\ttax\tpositions\ttaken\tduring\ta\tprior\tperiod | (47.0) |
| Gross\tamounts\tof\tincreases\tas\ta\tresult\tof\ttax\tpositions\ttaken\tduring\tthe\tcurrent\tperiod | 22.5 |
| Amounts\tof\tdecreases\tin\tthe\tunrecognized\ttax\tbenefits\trelating\tto\tsettlements\twith\ttaxing\tauthorities | (2.1) |
| Reductions\tto\tunrecognized\ttax\tbenefits\tas\ta\tresult\tof\ta\tlapse\tof\tthe\tapplicable\tstatute\tof\tlimitations | (2.8) |
| Balance\tof\tgross\tunrecognized\ttax\tbenefits\tas\tof\tJune\t30,\t2008 | $199.0 |

Included	in	the	balance	at	June	30,	2008	are	$31.6	million	of	tax	positions	for	which	the	ultimate	deductibility	is	highly	certain	but	for	which	there	is	uncertainty	about the	timing	of	such	deductibility.		Because	of	the	impact	of	deferred	tax	accounting,	other	than	interest	and	penalties,	the	disallowance	of	the	shorter	deductibility	period would	not	affect	the	annual	effective	tax	rate	but	would	accelerate	the	payment	of	cash	to	the	taxing	authority	to	an	earlier	period.

Earnings	from	the	Company's	global	operations	are	subject	to	tax	in	various	jurisdictions	both	within	and	outside	the	United	States.		The	Company	is	routinely	audited and	examined	in	these	jurisdictions.		The	Company	provides	tax	reserves	for	U.S.	federal,	state,	local	and	international	unrecognized	tax	benefits	for	periods	subject	to audit.		The	development	of	reserves	for	these	exposures	requires	judgments	about	tax	issues,	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	tax	positions	where	it	is	more-likely-than-not	that	a	tax	benefit	will	be	sustained,	the	Company	has	recorded	the largest	amount	of	tax	benefit	with	a	greater	than	50%	likelihood	of	being	realized	upon	settlement	with	a	tax	authority	that	has	full	knowledge	of	all	relevant information.		For	those	tax	positions	where	it	is	not	more-likely-than-not	that	a	tax	benefit	will	be	sustained,	no	tax	benefit	has	been	recognized	in	the	financial statements.		Where	applicable,	associated	interest	and	penalties	have	also	been	recognized.		Although	the	outcome	related	to	these	exposures	is	uncertain,	in management's	opinion,	adequate	provisions	for	income	taxes	have	been	made	for	estimable	potential	liabilities	emanating	from	these	exposures.		In	certain circumstances,	the	ultimate	outcome	of	exposures	and	risks	involve	significant	uncertainties	which	render	them	inestimable.		If	actual	outcomes	differ	materially	from these	estimates,	including	those	that	cannot	be	quantified,	they	could	have	a	material	impact	on	the	Company's	results	of	operations.

The	Company	is	currently	subject	to	a	U.S.	federal	tax	audit	as	well	as	examinations	and	controversies	in	several	state,	local,	and	international	jurisdictions.		These matters	are	in	various	stages	of	completion	and	involve	complex	multi-jurisdictional	issues	common	among	multinational	enterprises,	including	transfer	pricing,	that may	require	an	extended	period	of	time	for	resolution.		During	the	fourth	quarter	of	fiscal	2008,	the	IRS	completed	the	examination	phase	of	fiscal	years	2002	through 2005.		The	Company	has	brought	disputed	adjustments	concerning	U.S.	foreign	tax	credit	determinations	to	the	Appeals	Division	of	the	IRS	for	review	as	well	as entered	a	claim	pursuant	to	an	administrative	process	of	the	tax	treaty	between	the	U.S.	and	Belgium	(commonly	referred	to	as	the	"Competent	Authority"	process). Notwithstanding	the	matters	pending	before	the	Appeals	Division	and	Competent	Authority,	the	Company	has	reached	a	tentative	agreement	with	the	IRS	concerning	the examination	adjustments	proposed.		In	the	fourth	quarter,	the	Company	made	a	cash	payment	of	$35.0	million	to	the	U.S.	Treasury	as	an	advance	deposit	in	anticipation of	a	formal	resolution	to	the	tentatively	agreed-to	adjustments.		Although	the	advance	deposit	limits	the	accrual	of	additional	interest	that	would	be	due	to	the	U.S. Treasury,	there	is	no	impact	on	the	amount	of	unrecognized	tax	benefits	until	a	formal	settlement	is	reached.		Separately,	the	IRS	has	informally	advised	the	Company that	it	intends	to	commence	an	examination	of	the	fiscal	years	2006	and	2007	during	the	second	quarter	of	fiscal	2009.

The	Company	had	been	notified	of	a	disallowance	of	tax	deductions	claimed	by	its	subsidiary	in	Spain	for	the	fiscal	years	1999	through	2002.		As	a	result,	the	subsidiary was	reassessed	corporate	income	tax	of	$3.3	million	for	this	period,	at	current	exchange	rates.		An	appeal	against	this	reassessment	was	filed	with	the	Chief	Tax Inspector.		On	July	18,	2005,	the	final	assessment	made	by	the	Chief	Tax	Inspector	was	received,	confirming	the	reassessment	made	by	the	tax	auditors.		During	fiscal 2006,	an	appeal	against	this	final	assessment	was	filed	with	the	Madrid	Regional	Economic	Administrative	Tribunal	("TEAR").		In	view	of	the	TEAR's	silence,	during fiscal	2007	the	claim	was	presumed	to	be	dismissed	and	an	appeal	was	filed	against	it	with	the	Central	Economic-Administrative	Tribunal	("TEAC").		During	the	fourth

quarter	of	fiscal	2008,	the	TEAC	dismissed	the	claim	and,	on	June	10,	2008,	the	Company	filed	an	appeal	for	judicial	review	with	the	National	Appellate	Court.		While no	assurance	can	be	given	as	to	the	outcome	in	respect	of	this	assessment	and	pending	appeal	in	the	Spanish	courts,	management	believes	it	is	more-likely-than-not	that the	subsidiary	will	be	successful	in	its	defense	against	the	assessment	and	continues	to	measure	the	full	amount	of	the	tax	benefit.		Accordingly,	no	tax	reserve	has	been established	for	this	potential	exposure.

During	fiscal	2008,	the	Company	concluded	various	state,	local	and	foreign	income	tax	audits	and	examinations	while	several	other	matters,	including	those	noted above,	remained	pending.		On	the	basis	of	the	information	available	in	this	regard	as	of	June	30,	2008,	it	is	reasonably	possible	that	a	reduction	in	a	range	of	$30	million to	$60	million	of	unrecognized	tax	benefits	may	occur	within	12	months	as	a	result	of	projected	resolutions	of	global	tax	examinations	and	controversies.

The	tax	years	subject	to	examination	vary	depending	on	the	tax	jurisdiction.		As	of	June	30,	2008,	the	following	tax	years	remain	subject	to	examination	by	the	major	tax jurisdictions	indicated:

| Major	Jurisdiction | Open	Fiscal	Years |
| :--- | :--- |
| Belgium | 2004–2008 |
| Canada | 2001–2008 |
| France | 2005–2008 |
| Germany | 1999–2008 |
| Japan | 2006–2008 |
| Korea | 2002–2008 |
| Spain | 1999–2002,\t2004–2008 |
| Switzerland | 2004–2008 |
| United\tKingdom | 2007–2008 |
| United\tStates | 2002–2008 |
| State\tof\tCalifornia | 2002–2008 |
| State\tof\tMinnesota | 2001–2008 |
| State\tof\tNew\tYork | 2007–2008 |

The	Company	is	also	subject	to	income	tax	examinations	in	numerous	other	state,	local	and	foreign	jurisdictions.		The	Company	believes	that	its	tax	reserves	are adequate	for	all	years	subject	to	examination.

# NOTE	10	–	OTHER	ACCRUED	LIABILITIES

Other	accrued	liabilities	consist	of	the	following:

| Advertising,	merchandising	and	sampling | $356.9 | $324.7 |
| :--- | :--- | :--- |
| Employee\tcompensation | 303.7 | 281.0 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative | 4.4 | 15.4 |
| Other | 402.6 | 342.8 |
|  | $1,067.6 | $963.9 |

The	Company's	short-term	and	long-term	debt	and	available	financing	consist	of	the	following:

|  |  |  |  | Available	financing	at |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Debt\tat |  |  | June\t30 |  |  |
|  | June\t30 |  | Committed |  | Uncommitted |  |
| (In\tmillions) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| 6.00%\tSenior\tNotes,\tdue\tMay\t15,\t2037\t("2037\tSenior |  |  |  |  |  |  |
| Notes") | $296.2 | $296.2 | $— | $— | $— | $— |
| 5.75%\tSenior\tNotes,\tdue\tOctober\t15,\t2033\t("2033 |  |  |  |  |  |  |
| Senior\tNotes") | 197.5 | 197.4 | — | — | — | — |
| 5.55%\tSenior\tNotes,\tdue\tMay\t15,\t2017\t("2017\tSenior |  |  |  |  |  |  |
| Notes") | 310.4 | 290.9 | — | — | — | — |
| 6.00%\tSenior\tNotes,\tdue\tJanuary\t15,\t2012\t("2012 |  |  |  |  |  |  |
| Senior\tNotes") | 242.0 | 239.7 | — | — | — | — |
| $13.5\tmillion\tpromissory\tnote\tdue\tAugust\t31,\t2012 | 15.7 | — | — | — | — | — |
| $7.0\tmillion\tpromissory\tnote\tdue\tJuly\t31,\t2009 | 7.4 | — | — | — | — | — |
| Commercial\tpaper | 83.9 | 26.5 | — | — | 666.1 | 723.5 |
| Turkish\tlira\toverdraft\tborrowing\tfacility | 13.1 | 9.4 | — | — | — | — |
| Loan\tparticipation\tnotes | — | — | — | — | 150.0 | 150.0 |
| Japanese\tyen\trevolving\tcredit\tfacility | — | — | 28.5 | 24.3 | — | — |
| Other\tlong-term\tborrowings | 9.0 | 3.9 | — | — | — | — |
| Other\tshort-term\tborrowings | 21.7 | 24.5 | — | — | 181.4 | 150.0 |
| Revolving\tcredit\tfacility | — | — | 750.0 | 750.0 | — | — |

As	of	June	30,	2008,	the	Company	had	outstanding	$296.2	million	of	2037	Senior	Notes	consisting	of	$300.0	million	principal	and	unamortized	debt	discount	of	$3.8 million.		The	2037	Senior	Notes,	when	issued	in	May	2007,	were	priced	at	98.722%	with	a	yield	of	6.093%.		Interest	payments	are	required	to	be	made	semi-annually	on May	15	and	November	15.		In	April	2007,	in	anticipation	of	the	issuance	of	the	2037	Senior	Notes,	the	Company	entered	into	a	series	of	forward-starting	interest	rate swap	agreements	on	a	notional	amount	totaling	$210.0	million	at	a	weighted	average	all-in	rate	of	5.45%.		The	forward-starting	interest	rate	swap	agreements	were settled	upon	the	issuance	of	the	new	debt	and	the	Company	recognized	a	loss	in	other	comprehensive	income	of	$0.9	million	that	will	be	amortized	to	interest	expense over	the	life	of	the	2037	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	Notes	consisting	of	$200.0	million	principal	and	unamortized	debt	discount	of	$2.5 million.		The	2033	Senior	Notes,	when	issued	in	September	2003,	were	priced	at	98.645%	with	a	yield	of	5.846%.		Interest	payments	are	required	to	be	made	semi- annually	on	April	15	and	October	15.		In	May	2003,	in	anticipation	of	the	issuance	of	the	5.75%	Senior	Notes,	the	Company	entered	into	a	series	of	treasury	lock agreements	on	a	notional	amount	totaling	$195.0	million	at	a	weighted	average	all-in	rate	of	4.53%.		The	treasury	lock	agreements	were	settled	upon	the	issuance	of	the new	debt	and	the	Company	received	a	payment	of	$15.0	million	that	will	be	amortized	against	interest	expense	over	the	life	of	the	2033	Senior	Notes.		As	a	result	of	the treasury	lock	agreements,	the	debt	discount	and	debt	issuance	costs,	the	effective	interest	rate	on	the	2033	Senior	Notes	will	be	5.395%	over	the	life	of	the	debt.

As	of	June	30,	2008,	the	Company	had	outstanding	$310.4	million	of	2017	Senior	Notes	consisting	of	$300.0	million	principal,	an	unamortized	debt	discount	of	$0.4 million,	and	a	$10.8	million	adjustment	to	reflect	the	fair	value	of	outstanding	interest	rate	swaps.	The	2017	Senior	Notes,	when	issued	in	May	2007,	were	priced	at 99.845%	with	a	yield	of	5.570%.		Interest	payments	are	required	to	be	made	semi-annually	on	May	15	and	November	15.		In	April	2007,	the	Company	entered	into interest	rate	swap	agreements	with	a	notional	amount	totaling	$250.0	million	to	effectively	convert	the	fixed	rate	interest	on	its	outstanding	2017	Senior	Notes	to	variable interest	rates	based	on	six-month	LIBOR.

As	of	June	30,	2008,	the	Company	had	outstanding	$242.0	million	of	2012	Senior	Notes	consisting	of	$250.0	million	principal,	an	unamortized	debt	discount	of	$0.4 million,	and	a	$7.6	million	adjustment	to	reflect	the	remaining	termination	value	of	an	interest	rate	swap.		The	2012	Senior	Notes,	when	issued	in	January	2002,	were priced	at	99.538%	with	a	yield	of	6.062%.		Interest	payments	are	required	to	be	made	semi-annually	on	January	15	and	July	15.		In	May	2003,	the	Company	entered	into an	interest	rate	swap	agreement	with	a	notional	amount	of	$250.0	million	to	effectively	convert	the	fixed	rate	interest	on	its	outstanding	2012	Senior	Notes	to	variable interest	rates	based	on	six-month	LIBOR.		In	April	2007,	the	Company	terminated	this	interest	rate	swap.		The	instrument,	which	was	classified	as	a	liability,	had	a	fair value	of	$11.1	million	at	cash	settlement,	which	included	$0.9	million	of	accrued	interest	payable	to	the	counterparty.		Hedge	accounting	treatment	was	discontinued prospectively	and	the	offsetting	adjustment	to	the	carrying	amount	of	the	related	debt	will	be	amortized	to	interest	expense	over	the	remaining	life	of	the	debt.

In	July	2007,	the	Company	acquired	Ojon	Corporation.		As	part	of	the	purchase	price,	the	Company	issued	(i)	a	promissory	note	due	July	31,	2009	with	a	notional	value of	$7.0	million	(present	value	of	$7.4	million	at	June	30,	2008),	bearing	interest	at	10.00%	due	at	maturity	and	(ii)	a	promissory	note	due	August	31,	2012	with	a notional	amount	of	$13.5	million	(present	value	of	$15.7	million	at	June	30,	2008),	bearing	interest	at	10.00%	payable	annually	on	July	31.		The	notes	due	in	2009	and 2012	were	recorded	in	the	accompanying	consolidated	balance	sheet	at	present	value	using	effective	rates	of	5.11%	and	5.42%,	respectively.

The	Company	has	a	$750.0	million	commercial	paper	program	under	which	it	may	issue	commercial	paper	in	the	United	States.		The	Company's	commercial	paper	is currently	rated	A-1	by	Standard	&	Poor's	and	P-1	by	Moody's.		The	Company's	long-term	credit	ratings	are	A	with	a	stable	outlook	by	Standard	&	Poor's	and	A2	with a	stable	outlook	by	Moody's.		At	June	30,	2008,	the	Company	had	$83.9	million	of	commercial	paper	outstanding,	due	at	various	dates	through	July	2008	at	an	average interest	rate	of	2.24%,	which	may	be	refinanced	on	a	periodic	basis	as	it	matures	at	then-prevailing	market	interest	rates.

As	of	June	30,	2008,	the	Company	had	an	overdraft	borrowing	agreement	with	a	financial	institution	pursuant	to	which	its	subsidiary	in	Turkey	may	be	credited	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	or	the	lender's	floating	call	rate	agreed	to	by the	Company	at	each	borrowing.		There	were	no	debt	issuance	costs	incurred	related	to	this	agreement.		The	outstanding	balance	at	June	30,	2008	($13.1	million	at	the exchange	rate	at	June	30,	2008)	is	classified	as	short-term	debt	on	the	Company's	consolidated	balance	sheet.

As	of	June	30,	2008,	the	Company	had	a	fixed	rate	promissory	note	agreement	with	a	financial	institution	pursuant	to	which	the	Company	may	borrow	up	to	$150.0 million	in	the	form	of	loan	participation	notes	through	one	of	its	subsidiaries	in	Europe.		The	interest	rate	on	borrowings	under	this	agreement	is	at	an	all-in	fixed	rate determined	by	the	lender	and	agreed	to	by	the	Company	at	the	date	of	each	borrowing.		At	June	30,	2008,	no	borrowings	were	outstanding	under	this	agreement.		Debt issuance	costs	incurred	related	to	this	agreement	were	de	minimis.

As	of	June	30,	2008,	the	Company	had	a	3.0	billion	yen	revolving	credit	facility	that	expires	on	March	24,	2009.		The	interest	rate	on	borrowings	under	the	credit	facility is	based	on	TIBOR	(Tokyo	Interbank	Offered	Rate)	and	a	10	basis	point	facility	fee	is	incurred	on	the	undrawn	balance.		At	June	30,	2008,	the	Company	did	not	have any	borrowings	outstanding	under	this	facility.

The	Company	has	an	undrawn	$750.0	million	senior	unsecured	revolving	credit	facility	that	expires	on	April	26,	2012.		This	facility	may	be	used	primarily	to	provide credit	support	for	the	Company's	commercial	paper	program,	to	repurchase	shares	of	its	common	stock	and	for	general	corporate	purposes.		Up	to	the	equivalent	of	$250 million	of	the	credit	facility	is	available	for	multi-currency	loans.		The	interest	rate	on	borrowings	under	the	credit	facility	is	based	on	LIBOR	or	on	the	higher	of	prime, which	is	the	rate	of	interest	publicly	announced	by	the	administrative	agent,	or	½%	plus	the	Federal	funds	rate.		The	Company	incurred	costs	of	approximately	$0.3 million	to	establish	the	facility	which	will	be	amortized	over	the	term	of	the	facility.		The	credit	facility	has	an	annual	fee	of	$0.4	million,	payable	quarterly,	based	on	the Company's	current	credit	ratings.		The	credit	facility	contains	various	covenants,	including	one	financial	covenant	which	requires	the	Company's	interest	expense coverage	ratio	(as	defined	in	the	facility)	at	the	last	day	of	each	fiscal	quarter	to	be	greater	than	3.0:1.0.		As	of	June	30,	2008,	the	Company	was	in	compliance	with	this financial	covenant.		There	are	no	other	conditions	where	the	lender's	commitments	may	be	withdrawn,	other	than	certain	events	of	default,	as	defined	in	the	facility, which	are	customary	for	facilities	of	this	type.

The	Company	maintains	uncommitted	credit	facilities	in	various	regions	throughout	the	world.		Interest	rate	terms	for	these	facilities	vary	by	region	and	reflect prevailing	market	rates	for	companies	with	strong	credit	ratings.		During	fiscal	2008	and	2007,	the	monthly	average	amount	outstanding	was	approximately	$17.4

million	and	$20.0	million,	respectively,	and	the	annualized	monthly	weighted	average	interest	rate	incurred	was	approximately	5.76%	and	5.96%,	respectively.

Refer	to	Note	15	for	the	Company's	projected	debt	service	payments	over	the	next	five	fiscal	years.

# NOTE	12	–	FINANCIAL	INSTRUMENTS

The	Company	addresses	certain	financial	exposures	through	a	controlled	program	of	risk	management	that	includes	the	use	of	derivative	financial	instruments.		The Company	primarily	enters	into	foreign	currency	forward	and	option	contracts	to	reduce	the	effects	of	fluctuating	foreign	currency	exchange	rates.		The	Company,	if necessary,	enters	into	interest	rate	derivatives	to	manage	the	effects	of	interest	rate	movements	on	the	Company's	aggregate	liability	portfolio.		The	Company	categorizes these	instruments	as	entered	into	for	purposes	other	than	trading.

All	derivatives	are	recognized	at	their	fair	value	and	are	included	in	Prepaid	expenses	and	other	current	assets	or	Other	accrued	liabilities	in	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	as	(i)	a	hedge	of	the	fair	value	of	a	recognized	asset	or liability	or	of	an	unrecognized	firm	commitment	("fair-value"	hedge),	(ii)	a	hedge	of	a	forecasted	transaction	or	of	the	variability	of	cash	flows	to	be	received	or	paid related	to	a	recognized	asset	or	liability	("cash-flow"	hedge),	(iii)	a	foreign-currency	fair-value	or	cash-flow	hedge	("foreign-currency"	hedge),	(iv)	a	hedge	of	a	net investment	in	a	foreign	operation,	or	(v)	other.		Changes	in	the	fair	value	of	a	derivative	that	is	highly	effective	as	(and	that	is	designated	and	qualifies	as)	a	fair-value hedge,	along	with	the	loss	or	gain	on	the	hedged	asset	or	liability	that	is	attributable	to	the	hedged	risk	(including	losses	or	gains	on	firm	commitments),	are	recorded	in current-period	earnings.		Changes	in	the	fair	value	of	a	derivative	that	is	highly	effective	as	(and	that	is	designated	and	qualifies	as)	a	cash-flow	hedge	are	recorded	in other	comprehensive	income,	until	earnings	are	affected	by	the	variability	of	cash	flows	(e.g.,	when	periodic	settlements	on	a	variable-rate	asset	or	liability	are	recorded in	earnings).		Changes	in	the	fair	value	of	derivatives	that	are	highly	effective	as	(and	that	are	designated	and	qualify	as)	foreign-currency	hedges	are	recorded	in	either current-period	earnings	or	other	comprehensive	income,	depending	on	whether	the	hedge	transaction	is	a	fair-value	hedge	(e.g.,	a	hedge	of	a	firm	commitment	that	is	to be	settled	in	a	foreign	currency)	or	a	cash-flow	hedge	(e.g.,	a	foreign-currency-denominated	forecasted	transaction).		If,	however,	a	derivative	is	used	as	a	hedge	of	a	net investment	in	a	foreign	operation,	its	changes	in	fair	value,	to	the	extent	effective	as	a	hedge,	are	recorded	in	accumulated	other	comprehensive	income	within	equity. Furthermore,	changes	in	the	fair	value	of	other	derivative	instruments	are	reported	in	current-period	earnings.

For	each	derivative	contract	entered	into	where	the	Company	looks	to	obtain	special	hedge	accounting	treatment,	the	Company	formally	documents	all	relationships between	hedging	instruments	and	hedged	items,	as	well	as	its	risk-management	objective	and	strategy	for	undertaking	the	hedge	transaction,	the	nature	of	the	risk	being hedged,	how	the	hedging	instruments'	effectiveness	in	offsetting	the	hedged	risk	will	be	assessed	prospectively	and	retrospectively,	and	a	description	of	the	method	of measuring	ineffectiveness.		This	process	includes	linking	all	derivatives	that	are	designated	as	fair-value,	cash-flow,	or	foreign-currency	hedges	to	specific	assets	and liabilities	on	the	balance	sheet	or	to	specific	firm	commitments	or	forecasted	transactions.		The	Company	also	formally	assesses,	both	at	the	hedge's	inception	and	on	an ongoing	basis,	whether	the	derivatives	that	are	used	in	hedging	transactions	are	highly	effective	in	offsetting	changes	in	fair	values	or	cash	flows	of	hedged	items.		If	it	is determined	that	a	derivative	is	not	highly	effective,	or	that	it	has	ceased	to	be	a	highly	effective	hedge,	the	Company	will	be	required	to	discontinue	hedge	accounting with	respect	to	that	derivative	prospectively.

The	Company	enters	into	foreign	currency	forward	contracts	to	hedge	anticipated	transactions,	as	well	as	receivables	and	payables	denominated	in	foreign	currencies,	for periods	consistent	with	the	Company's	identified	exposures.		The	purpose	of	the	hedging	activities	is	to	minimize	the	effect	of	foreign	exchange	rate	movements	on	costs and	on	the	cash	flows	that	the	Company	receives	from	foreign	subsidiaries.		The	majority	of	foreign	currency	forward	contracts	are	denominated	in	currencies	of	major industrial	countries	and	are	with	large	financial	institutions	rated	as	strong	investment	grade	by	a	major	rating	agency.		The	Company	also	enters	into	foreign	currency option	contracts	to	hedge	anticipated	transactions	where	there	is	a	high	probability	that	anticipated	exposures	will	materialize.		The	foreign	currency	forward	and	option contracts	entered	into	to	hedge	anticipated	transactions	have	been	designated	as	cash-flow	hedges.		Hedge	effectiveness	of	foreign	currency	forward	contracts	is	based	on a	hypothetical	derivative	methodology	and	excludes	the	portion	of	fair	value	attributable	to	the	spot-forward	difference	which	is	recorded	in	current-period	earnings. Hedge	effectiveness	of	foreign	currency	option	contracts	is	based	on	a	dollar	offset	methodology.		The	ineffective	portion	of	both	foreign	currency	forward	and	option contracts	is	recorded	in	current-period	earnings.		For	hedge	contracts	that	are	no	longer	deemed	highly	effective,	hedge	accounting	is	discontinued	and	gains	and	losses accumulated	in	other	comprehensive	income	are	reclassified	to	earnings	when	the	underlying	forecasted	transaction	occurs.		If	it	is	probable	that	the	forecasted transaction	will	no	longer	occur,	then	any	gains	or	losses	accumulated	in	other	comprehensive	income	are	reclassified	to	current-period	earnings.		As	of	June	30,	2008, these	cash-flow	hedges	were	highly	effective,	in	all	material	respects.

As	a	matter	of	policy,	the	Company	only	enters	into	contracts	with	counterparties	that	have	at	least	an	"A"	(or	equivalent)	credit	rating.		The	counterparties	to	these contracts	are	major	financial	institutions.		The	Company	does	not	have	significant	exposure	to	any	one	counterparty.		Exposure	to	credit	loss	in	the	event	of nonperformance	by	any	of	the	counterparties	is	limited	to	only	the	recognized,	but	not	realized,	gains	attributable	to	the	contracts.		Management	believes	risk	of	loss under	these	hedging	contracts	is	remote	and	in	any	event	would	not	be	material	to	the	Company's	consolidated	financial	results.		The	contracts	have	varying	maturities through	the	end	of	June	2009.		Costs	associated	with	entering	into	such	contracts	have	not	been	material	to	the	Company's	consolidated	financial	results.		The	Company does	not	utilize	derivative	financial	instruments	for	trading	or	speculative	purposes.

At	June	30,	2008,	the	Company	had	foreign	currency	forward	and	option	contracts	in	the	amount	of	$1,229.0	million	and	$64.9	million,	respectively.		The	foreign currencies	included	in	foreign	currency	forward	contracts	(notional	value	stated	in	U.S.	dollars)	are	principally	the	Euro	($221.6	million),	British	pound	($220.7	million), Swiss	franc	($206.5	million),	Canadian	dollar	($130.0	million),	Australian	dollar	($91.8	million),	Russian	ruble	($71.9	million)	and	Japanese	yen	($64.4	million).		The foreign	currencies	included	in	the	foreign	currency	option	contracts	(notional	value	stated	in	U.S.	dollars)	are	principally	the	Canadian	dollar	($36.8	million)	and	the South	Korean	won	($23.1	million).

At	June	30,	2007,	the	Company	had	foreign	currency	forward	contracts	in	the	amount	of	$862.0	million.		The	foreign	currencies	included	in	foreign	currency	forward contracts	(notional	value	stated	in	U.S.	dollars)	are	principally	the	British	pound	($148.1	million),	Canadian	dollar	($140.3	million),	Euro	($124.1	million),	Swiss	franc ($113.1	million),	Australian	dollar	($79.3	million),	Japanese	yen	($42.6	million)	and	South	Korean	won	($33.6	million).

The	Company	enters	into	interest	rate	derivative	contracts	to	manage	the	exposure	to	fluctuations	of	interest	rates	on	its	funded	indebtedness	and	anticipated	issuance	of debt	for	periods	consistent	with	the	identified	exposures.		All	interest	rate	derivative	contracts	are	with	large	financial	institutions	rated	as	strong	investment	grade	by	a major	rating	agency.

In	April	2007,	the	Company	entered	into	interest	rate	swap	agreements	with	a	notional	amount	totaling	$250.0	million	to	effectively	convert	the	fixed	rate	interest	on	its 2017	Senior	Notes	to	variable	interest	rates	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.

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	six-month	LIBOR.		This	instrument	was	classified	as	a	liability	and	had	a	termination	fair	value	of	$11.1	million	at	cash settlement,	which	included	$0.9	million	of	accrued	interest	payable	to	the	counterparty.		Hedge	accounting	treatment	was	discontinued	prospectively	and	the	offsetting adjustment	to	the	carrying	amount	of	the	related	debt	will	be	amortized	to	interest	expense	over	the	remaining	life	of	the	debt.

Information	regarding	the	Company's	interest	rate	swap	agreements	is	presented	in	the	following	table:

|  |  | Year	Ended	or	at	June	30,	2008 |  |  | Year	Ended	or	at	June	30,	2007 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Notional | Weighted\tAverage | Weighted\tAverage | Notional | Weighted\tAverage | Weighted\tAverage |
| ($\tin\tmillions) | Amount | Pay\tRate | Receive\tRate | Amount | Pay\tRate | Receive\tRate |
| Interest\trate\tswaps\ton\t2017\tSenior\tNotes | $250.0 | 3.17% | 5.55% | $250.0 | 5.70% | 5.55% |

# Fair	Value	of	Financial	Instruments

The	following	methods	and	assumptions	were	used	to	estimate	the	fair	value	of	each	class	of	financial	instruments	for	which	it	is	practicable	to	estimate	that	value:

The	carrying	amount	approximates	fair	value,	primarily	because	of	the	short	maturity	of	cash	equivalent	instruments.

# Investment	securities:

Investment	securities	are	primarily	designated	as	available-for-sale	securities	and	are	recorded	at	market	value	based	on	quoted	market	prices.

# Note	receivable:

The	fair	value	of	the	note	receivable	reflects	the	creditworthiness	of	the	counterparty,	interest	rates	prevailing	in	the	market	for	notes	with	comparable remaining	maturities	and	an	assessment	of	the	ultimate	collectability	of	the	instrument.

# Short-term	and	long-term	debt:

The	fair	value	of	the	Company's	debt	was	estimated	based	on	the	current	rates	offered	to	the	Company	for	debt	with	the	same	remaining	maturities.		To	a lesser	extent,	debt	also	includes	capital	lease	obligations	for	which	the	carrying	amount	approximates	the	fair	value.

# Foreign	exchange	and	interest	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:

|  | Carrying | Fair | Carrying | Fair |
| :--- | :--- | :--- | :--- | :--- |
| (In\tmillions) | Amount | Value | Amount | Value |
| Nonderivatives |  |  |  |  |
| Cash\tand\tcash\tequivalents | $401.7 | $401.7 | $253.7 | $253.7 |
| Investment\tsecurities\t^(1) | 15.8 | 15.8 | 17.3 | 17.3 |
| Note\treceivable\t^(1) | — | — | 11.1 | 11.1 |
| Short-term\tand\tlong-term\tdebt | 1,196.9 | 1,159.9 | 1,088.5 | 1,082.0 |
| Derivatives |  |  |  |  |
| Foreign\tcurrency\tforward\tcontracts\t–\tasset\t(liability) | (2.0) | (2.0) | (0.4) | (0.4) |
| Foreign\tcurrency\toption\tcontracts\t–\tasset\t(liability) | 3.5 | 3.5 | — | — |
| Interest\trate\tswap\tcontracts\t–\tasset\t(liability) | 10.8 | 10.8 | (8.6) | (8.6) |

													The	fiscal	2008	carrying	amount	and	fair	value	included	an	increase	in	valuation	reserves	reflecting	the	diminishing	likelihood	of	realizing	value	from	a	promissory note	and	convertible	preferred	stock	received	in	connection	with	the	fiscal	2006	divestiture	of	the	reporting	unit	that	marketed	and	sold	Stila	products. (1)

# NOTE	13	–	PENSION,	DEFERRED	COMPENSATION	AND	POST-RETIREMENT	BENEFIT	PLANS

The	Company	maintains	pension	plans	covering	substantially	all	of	its	full-time	employees	for	its	U.S.	operations	and	a	majority	of	its	international	operations.		Several plans	provide	pension	benefits	based	primarily	on	years	of	service	and	employees'	earnings.		In	certain	instances,	the	Company	adjusts	benefits	in	connection	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	benefits	and	maintains	appropriate	funded	percentages.		Such	contribution	is	not	less	than	the	minimum	required	by the	Employee	Retirement	Income	Security	Act	of	1974,	as	amended,	("ERISA")	and	subsequent	pension	legislation	and	is	not	more	than	the	maximum	amount deductible	for	income	tax	purposes.

# Restoration	Plan	(U.S.)

The	Company	also	has	an	unfunded,	non-qualified	domestic	noncontributory	pension	Restoration	Plan	to	provide	benefits	in	excess	of	Internal	Revenue	Code limitations.

# International	Pension	Plans

The	Company	maintains	International	Pension	Plans,	the	most	significant	of	which	are	defined	benefit	pension	plans.		The	Company's	funding	policies	for	these	plans are	determined	by	local	laws	and	regulations.		The	Company's	most	significant	defined	benefit	pension	obligations	are	included	in	the	plan	summaries	below.		Fiscal 2008	plan	data	reflects	a	plan	amendment	designed	to	provide	certain	employees	of	a	particular	affiliate	an	opportunity	to	participate	in	a	defined	benefit	pension	plan with	enhanced	benefits	as	compared	with	their	current	defined	contribution	plan.		In	addition,	fiscal	2008	plan	data	reflects	the	growth	and	relative	significance	of	certain other	defined	benefit	plans.

# Post-retirement	Benefits

The	Company	maintains	a	domestic	post-retirement	benefit	plan	which	provides	certain	medical	and	dental	benefits	to	eligible	employees.		Employees	hired	after January	1,	2002	are	not	eligible	for	retiree	medical	benefits	when	they	retire.		Certain	retired	employees	who	are	receiving	monthly	pension	benefits	are	eligible	for participation	in	the	plan.		Contributions	required	and	benefits	received	by	retirees	and	eligible	family	members	are	dependent	on	the	age	of	the	retiree.		It	is	the Company's	practice	to	fund	these	benefits	as	incurred.

Certain	of	the	Company's	international	subsidiaries	and	affiliates	have	post-retirement	plans,	although	most	participants	are	covered	by	government-sponsored	or administered	programs.

# Plan	Summaries

In	September	2006,	the	FASB	issued	SFAS	No.	158,	"Employers'	Accounting	for	Defined	Benefit	Pension	and	Other	Postretirement	Plans	-	an	amendment	of	FASB Statements	No.	87,	106,	and	132(R)"	("SFAS	No.	158").		SFAS	No.	158	requires	employers	to	recognize	a	net	liability	or	asset	and	an	offsetting	adjustment	to accumulated	other	comprehensive	income	to	report	the	funded	status	of	defined	benefit	pension	and	other	post-retirement	benefit	plans.		Previous	standards	required employers	to	disclose	the	complete	funded	status	of	its	plans	only	in	the	notes	to	the	consolidated	financial	statements.		Changes	in	the	funded	status	of	these	plans	will be	recognized	as	they	occur	through	other	comprehensive	income.		Additional	minimum	liability	adjustments	are	no	longer	recognized	upon	adoption	of	SFAS	No.	158. As	of	June	30,	2007,	the	Company	prospectively	adopted	the	balance	sheet	recognition	provisions	of	SFAS	No.	158,	which	resulted	in	a	net	adjustment	of	$57.3	million (after	tax)	to	reduce	accumulated	other	comprehensive	income.

The	significant	components	of	the	above	mentioned	plans	as	of	and	for	the	years	ended	June	30	are	summarized	as	follows:

|  |  |  |  |  | Other	than | Other	than |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Pension\tPlans |  |  | Pension\tPlans | Pension\tPlans |
|  | U.S. |  | International | International | Post-retirement | Post-retirement |
| (In\tmillions) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| Change\tin\tbenefit\tobligation: |  |  |  |  |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | $440.5 | $417.5 | $294.8 | $284.3 | $105.3 | $101.8 |
| Service\tcost | 19.7 | 18.4 | 17.1 | 16.2 | 3.8 | 4.1 |
| Interest\tcost | 26.2 | 25.0 | 15.1 | 12.8 | 6.2 | 5.9 |
| Plan\tparticipant\tcontributions | — | — | 1.9 | 1.5 | 0.4 | 0.3 |
| Actuarial\tloss\t(gain) | (13.1) | 4.4 | (13.2) | (10.2) | (2.0) | (4.0) |
| Foreign\tcurrency\texchange\trate\timpact | — | — | 26.3 | 11.9 | 0.6 | 0.7 |
| Benefits,\texpenses,\ttaxes\tand\tpremiums\tpaid | (42.8) | (24.8) | (19.8) | (20.3) | (3.9) | (3.5) |
| Plan\tamendments | 2.1 | — | 31.9 | — | — | — |
| Special\ttermination\tbenefits | — | — | 1.2 | 1.6 | — | — |
| Acquisitions,\tdivestitures,\tadjustments | — | — | 51.8 | (1.7) | — | — |
| Settlements\tand\tcurtailments | — | — | (2.7) | (1.3) | — | — |
| Benefit\tobligation\tat\tend\tof\tyear | $432.6 | $440.5 | $404.4 | $294.8 | $110.4 | $105.3 |
| Change\tin\tplan\tassets: |  |  |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | $430.5 | $376.0 | $281.8 | $242.1 | $— | $— |
| Actual\treturn\ton\tplan\tassets | (0.4) | 54.0 | (18.9) | 26.1 | — | — |
| Foreign\tcurrency\texchange\trate\timpact | — | — | 20.6 | 9.7 | — | — |
| Employer\tcontributions | 32.7 | 25.3 | 35.3 | 24.0 | 3.5 | 3.2 |
| Plan\tparticipant\tcontributions | — | — | 1.9 | 1.5 | 0.4 | 0.3 |
| Settlements\tand\tcurtailments | — | — | (2.7) | (1.3) | — | — |
| Acquisitions,\tdivestitures,\tadjustments | — | — | 47.5 | — | — | — |
| Benefits,\texpenses,\ttaxes\tand\tpremiums\tpaid\tfrom\tplan |  |  |  |  |  |  |
| assets | (42.8) | (24.8) | (19.8) | (20.3) | (3.9) | (3.5) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $420.0 | $430.5 | $345.7 | $281.8 | $— | $— |
| Funded\tstatus | $(12.6) | $(10.0) | $(58.7) | $(13.0) | $(110.4) | $(105.3) |
| Amounts\trecognized\tin\tthe\tBalance\tSheet\tconsist\tof: |  |  |  |  |  |  |
| Other\tassets,\tnet | $71.9 | $79.2 | $23.7 | $48.8 | $— | $— |
| Other\taccrued\tliabilities | (6.3) | (11.3) | (4.6) | (4.6) | (3.6) | (3.1) |
| Other\tnoncurrent\tliabilities | (78.2) | (77.9) | (77.8) | (57.2) | (106.8) | (102.2) |
| Funded\tstatus | (12.6) | (10.0) | (58.7) | (13.0) | (110.4) | (105.3) |
| Accumulated\tother\tcomprehensive\tloss | 72.1 | 53.4 | 81.6 | 35.3 | 8.0 | 10.0 |
| Net\tamount\trecognized | $59.5 | $43.4 | $22.9 | $22.3 | $(102.4) | $(95.3) |

|  |  |  | Pension	Plans |  |  |  |  | Other	than<br>Pension	Plans |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | U.S. |  |  | International |  |  | Post-retirement |  |
| ($\tin\tmillions) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 |
| Components\tof\tnet\tperiodic |  |  |  |  |  |  |  |  |  |
| benefit\tcost: |  |  |  |  |  |  |  |  |  |
| Service\tcost,\tnet | $19.7 | $18.4 | $21.5 | $17.1 | $16.2 | $16.2 | $3.8 | $4.1 | $5.1 |
| Interest\tcost | 26.2 | 25.0 | 21.2 | 15.1 | 12.8 | 10.8 | 6.2 | 5.9 | 5.6 |
| Expected\treturn\ton\tassets | (31.7) | (28.7) | (24.9) | (15.3) | (13.8) | (12.1) | — | — | — |
| Amortization\tof: |  |  |  |  |  |  |  |  |  |
| Transition\t(asset)\tobligation | — | — | — | 0.1 | 0.1 | 0.1 | — | — | — |
| Prior\tservice\tcost | 0.7 | 0.6 | 0.8 | 0.3 | 0.3 | 0.2 | — | — | — |
| Actuarial\tloss\t(gain) | 1.7 | 1.7 | 6.1 | 5.9 | 7.8 | 8.3 | 0.1 | 0.2 | 1.3 |
| Settlements\tand\tcurtailments | — | — | — | 0.7 | 0.5 | (0.7) | — | — | — |
| Acquisitions,\tdivestitures, |  |  |  |  |  |  |  |  |  |
| adjustments | — | — | — | — | (1.7) | — | — | — | — |
| Special\ttermination\tbenefits | — | — | — | 1.2 | 1.6 | 0.3 | — | — | — |
| Net\tperiodic\tbenefit\tcost | $16.6 | $17.0 | $24.7 | $25.1 | $23.8 | $23.1 | $10.1 | $10.2 | $12.0 |
| Weighted-average |  |  |  |  |  |  |  |  |  |
| assumptions\tused\tto |  |  |  |  |  |  |  |  |  |
| determine\tbenefit |  |  |  |  |  |  |  |  |  |
| obligations\tat\tJune\t30: |  |  |  |  |  |  |  |  |  |
| Pre-retirement\tdiscount\trate | 6.75% | 6.25% | 6.25% | 2.00\t–\t9.00% | 2.25\t-\t6.25% | 2.25\t-\t6.25% | 6.25\t-\t6.75% | 5.50\t-\t6.25% | 5.75\t-\t6.25% |
| Post-retirement\tdiscount\trate | 5.00% | 5.25% | 5.25% | 2.00\t- | 2.25\t- | 2.25\t- | 6.25\t- | 5.50\t- | 5.75\t- |
|  |  |  |  | 9.00% | 5.75% | 5.75% | 6.75% | 6.25% | 6\t.25% |
| Rate\tof\tcompensation\tincrease | 4.00\t- | 3.00\t- | 3.00\t- | 1.75\t- | 1.75\t- | 1.75\t- | N/A | N/A | N/A |
|  | 12.00% | 9.50% | 9.50% | 6.00% | 5.00% | 5.00% |  |  |  |
| Weighted-average |  |  |  |  |  |  |  |  |  |
| assumptions\tused\tto |  |  |  |  |  |  |  |  |  |
| determine\tnet\tperiodic |  |  |  |  |  |  |  |  |  |
| benefit\tcost\tfor\tthe\tyear |  |  |  |  |  |  |  |  |  |
| ending\tJune\t30: |  |  |  |  |  |  |  |  |  |
| Pre-retirement\tdiscount\trate | 6.25% | 6.25% | 5.25% | 2.25\t- | 2.25\t- | 1.75\t- | 5.50\t- | 5.75\t- | 5.25% |
|  |  |  |  | 8.25% | 6.25% | 5.50% | 6.25% | 6.25% |  |
| Post-retirement\tdiscount\trate | 5.25% | 5.25% | 4.75% | 2.25\t- | 2.25\t- | 1.75\t- | 5.50\t- | 5.75\t- | 5.25% |
|  |  |  |  | 8.25% | 5.75% | 5.50% | 6.25% | 6.25% |  |
| Expected\treturn\ton\tassets | 7.75% | 7.75% | 7.75% | 3.00\t- | 2.75\t- | 2.75\t- | N/A | N/A | N/A |
|  |  |  |  | 8.25% | 7.25% | 7.50% |  |  |  |
| Rate\tof\tcompensation\tincrease | 3.00\t- | 3.00\t- | 3.00\t- | 1.75\t- | 1.75\t- | 1.75\t- | N/A | N/A | N/A |
|  | 9.50% | 9.50% | 9.50% | 6.00% | 5.00% | 5.00% |  |  |  |

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	Aa	rating,	or	equivalent,	from	a	major	rating agency.		The	Company	believes	the	timing	and	amount	of	cash	flows	related	to	the	bonds	included	in	this	portfolio	is	expected	to	match	the	estimated	defined	benefit payment	streams	of	its	U.S.	Plans.		In	determining	the	long-term	rate	of	return	for	a	plan,	the	Company	considers	the	historical	rates	of	return,	the	nature	of	the	plan's investments	and	an	expectation	for	the	plan's	investment	strategies.

Assumed	health	care	cost	trend	rates	have	a	significant	effect	on	the	amounts	reported	for	the	health	care	plans.		The	assumed	weighted-average	health	care	cost	trend rate	for	the	coming	year	is	9.34%	while	the	ultimate	trend	rate	of	5.00%	is	expected	to	be	reached	in	fiscal	2016.		A	one-percentage-point	change	in	assumed	health	care cost	trend	rates	for	fiscal	2008	would	have	had	the	following	effects:

Amounts	recognized	in	accumulated	other	comprehensive	(income)	loss	(before	tax)	as	of	June	30,	2008	are	as	follows:

| (In	millions) | Pension	Plans<br>U.S. | International | Other	than<br>Pension	Plans<br>Post-retirement | Total |
| :--- | :--- | :--- | :--- | :--- |
| Net\tactuarial\t(gains)\tlosses,\tbeginning\tof\tyear | $48.2 | $33.6 | $10.1 | $91.9 |
| Actuarial\t(gains)\tlosses\trecognized | 19.0 | 21.1 | (1.9) | 38.2 |
| Amortization\tof\tamounts\tincluded\tin\tnet\tperiodic\tbenefit\tcost | (1.7) | (6.6) | (0.1) | (8.4) |
| Translation\tadjustments | — | 0.3 | — | 0.3 |
| Net\tactuarial\t(gains)\tlosses,\tend\tof\tyear | 65.5 | 48.4 | 8.1 | 122.0 |
| Net\tprior\tservice\tcost\t(credit),\tbeginning\tof\tyear | 5.2 | 1.7 | (0.1) | 6.8 |

| Prior	service	cost	(credit)	recognized | 2.1 | 31.9 | — | 34.0 |
| :--- | :--- | :--- | :--- | :--- |
| Amortization\tof\tamounts\tincluded\tin\tnet\tperiodic\tbenefit\tcost | (0.7) | (0.3) | — | (1.0) |
| Net\tprior\tservice\tcost\t(credit),\tend\tof\tyear | 6.6 | 33.3 | (0.1) | 39.8 |
| Net\ttransition\tobligation\t(asset),\tbeginning\tof\tyear | — | — | — | — |
| Amortization\tof\tamounts\tincluded\tin\tnet\tperiodic\tbenefit\tcost | — | (0.1) | — | (0.1) |
| Net\ttransition\tobligation\t(asset),\tend\tof\tyear | — | (0.1) | — | (0.1) |
| Total\tamounts\trecognized\tin\taccumulated\tother\tcomprehensive\n(income)\tloss | $72.1 | $81.6 | $8.0 | $161.7 |

Amounts	in	accumulated	other	comprehensive	(income)	loss	expected	to	be	amortized	as	components	of	net	periodic	benefit	cost	during	fiscal	2009	are	as	follows:

| (In	millions) | Pension	Plans<br>U.S. | International | Pension	Plans<br>Post-retirement |
| :--- | :--- | :--- | :--- |
| Prior\tservice\tcost | $0.7 | $2.8 | $— |
| Net\tactuarial\tloss | $1.7 | $0.8 | $— |

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:

| (In	millions) | Retirement	Growth<br>Account<br>2008 | 2007 | Restoration<br>2008 | 2007 | International<br>2008 | 2007 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $348.1 | $351.2 | $84.5 | $89.3 | $404.4 | $294.8 |
| Accumulated\tbenefit\tobligation | $299.1 | $299.4 | $65.7 | $71.8 | $353.0 | $255.1 |
| Fair\tvalue\tof\tplan\tassets | $420.0 | $430.5 | $— | $— | $345.7 | $281.8 |

International	pension	plans	with	projected	benefit	obligations	in	excess	of	the	plans'	assets	had	aggregate	projected	benefit	obligations	of	$298.6	million	and	$115.4 million	and	aggregate	fair	value	of	plan	assets	of	$216.2	million	and	$53.6	million	at	June	30,	2008	and	2007,	respectively.		International	pension	plans	with accumulated	benefit	obligations	in	excess	of	the	plans'	assets	had	aggregate	accumulated	benefit	obligations	of	$95.2	million	and	$81.2	million	and	aggregate	fair	value of	plan	assets	of	$41.4	million	and	$35.3	million	at	June	30,	2008	and	2007,	respectively.

|  |  |  | Other	Than |
| :--- | :--- | :--- | :--- |
|  | Pension\tPlans |  | Pension\tPlans |
| (In\tmillions) | U.S. | International | Post-retirement |
| Expected\tCash\tFlows: |  |  |  |
| Expected\temployer\tcontributions\tfor\tyear\tending\tJune\t30,\t2009 | $15.0 | $45.9 | N/A |
| Expected\tbenefit\tpayments\tfor\tyear\tending\tJune\t30, |  |  |  |
| 2009 | 33.6 | 18.7 | $4.1 |
| 2010 | 34.2 | 14.1 | 4.6 |
| 2011 | 35.0 | 18.0 | 5.3 |
| 2012 | 34.5 | 19.4 | 5.9 |
| 2013 | 36.1 | 17.9 | 6.7 |
| Years\t2014\t-\t2018 | 205.9 | 113.4 | 43.5 |
| Plan\tAssets: |  |  |  |
| Target\tasset\tallocation\tat\tJune\t30,\t2008 |  |  |  |
| Equity | 44% | 41% | N/A |
| Debt\tsecurities | 34% | 42% | N/A |
| Other | 22% | 17% | N/A |
|  | 100% | 100% | N/A |
| Actual\tasset\tallocation\tat\tJune\t30,\t2008 |  |  |  |
| Equity | 40% | 45% | N/A |
| Debt\tsecurities | 42% | 38% | N/A |
| Other | 18% | 17% | N/A |
|  | 100% | 100% | N/A |
| Actual\tasset\tallocation\tat\tJune\t30,\t2007 |  |  |  |
| Equity | 49% | 55% | N/A |
| Debt\tsecurities | 31% | 29% | N/A |
| Other | 20% | 16% | N/A |
|  | 100% | 100% | N/A |

The	target	asset	allocation	policy	was	set	to	maximize	returns	with	consideration	to	the	long-term	nature	of	the	obligations	and	maintaining	a	lower	level	of	overall volatility	through	the	allocation	to	fixed	income.		During	the	year,	the	asset	allocation	is	reviewed	for	adherence	to	the	target	policy	and	is	rebalanced	periodically towards	the	target	weights.

The	Company's	401(k)	Savings	Plan	("Savings	Plan")	is	a	contributory	defined	contribution	plan	covering	substantially	all	regular	U.S.	employees	who	have	completed the	hours	and	service	requirements,	as	defined	by	the	plan	document.		Regular	full-time	employees	are	eligible	to	participate	in	the	Savings	Plan	thirty	days	following their	date	of	hire.		The	Savings	Plan	is	subject	to	the	applicable	provisions	of	ERISA.		The	Company	matches	a	portion	of	the	participant's	contributions	after	one	year	of

service	under	a	predetermined	formula	based	on	the	participant's	contribution	level.		The	Company's	contributions	were	approximately	$18.7	million,	$13.7	million	and $10.6	million	for	the	fiscal	years	ended	June	30,	2008,	2007	and	2006,	respectively.		Shares	of	the	Company's	Class	A	Common	Stock	are	not	an	investment	option	in the	Savings	Plan	and	the	Company	does	not	use	such	shares	to	match	participants'	contributions.

# Deferred	Compensation

The	Company	accrues	for	deferred	compensation	and	interest	thereon,	and	for	the	increase	in	the	value	of	share	units	pursuant	to	agreements	with	certain	key	executives and	outside	directors.		The	amounts	included	in	the	accompanying	consolidated	balance	sheets	under	these	plans	were	$67.9	million	and	$69.6	million	as	of	June	30, 2008	and	2007.		The	expense	for	fiscal	2008,	2007	and	2006	was	$9.2	million,	$8.5	million	and	$11.6	million,	respectively.

# NOTE	14	–	POST-EMPLOYMENT	BENEFITS	OTHER	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	benefits	is	accrued	and	any	incremental	benefits were	not	material	to	the	Company's	consolidated	financial	results.

# NOTE	15	–	COMMITMENTS	AND	CONTINGENCIES

The	following	table	summarizes	scheduled	maturities	of	the	Company's	contractual	obligations	for	which	cash	flows	are	fixed	and	determinable	as	of	June	30,	2008:

|  |  |  |  |  |  |  | Payments	Due	in	Fiscal |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter |
|  |  |  |  |  |  |  | (In\tmillions) |  |  |  |
| Debt\tservice | (1) |  |  | $2,192.2 | $176.6 | $70.4 | $61.1 | $309.8 | $56.8 | $1,517.5 |
| Operating\tlease\tcommitments | Operating\tlease\tcommitments | (2) |  | 1,338.5 | 200.8 | 180.9 | 156.0 | 132.6 | 119.3 | 548.9 |
| Unconditional\tpurchase\tobligations | Unconditional\tpurchase\tobligations | Unconditional\tpurchase\tobligations | (3) | 2,081.2 | 1,157.0 | 228.4 | 191.3 | 158.4 | 150.0 | 196.1 |
| Gross\tunrecognized\ttax\tbenefits\tand\tinterest\t– |  |  |  |  |  |  |  |  |  |  |
| (4) |  |  |  |  |  |  |  |  |  |  |
| current |  |  |  | 75.7 | 75.7 | — | — | — | — | — |
| Total\tcontractual\tobligations | Total\tcontractual\tobligations |  |  | $5,687.6 | $1,610.1 | $479.7 | $408.4 | $600.8 | $326.1 | $2,262.5 |

Includes	long-term	and	short-term	debt	and	the	related	projected	interest	costs,	and	to	a	lesser	extent,	capital	lease	commitments.	Interest	costs	on	long-term	and short-term	debt	are	projected	to	be	$57.6	million	in	fiscal	2009,	$58.8	million	in	fiscal	2010,	$57.4	million	in	each	of	the	years	from	fiscal	2011	through	fiscal 2012,	$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.

Total	rental	expense	included	in	the	accompanying	consolidated	statements	of	earnings	was	$230.8	million	in	fiscal	2008,	$201.6	million	in	fiscal	2007	and	$182.9 million	in	fiscal	2006.

Unconditional	purchase	obligations	primarily	include	inventory	commitments,	estimated	future	earn-out	payments,	estimated	royalty	payments	pursuant	to	license agreements,	advertising	commitments,	capital	improvement	commitments,	planned	funding	of	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	for	the	term	that	was	in	effect	at	June	30,	2008,	without	consideration	for	potential renewal	periods.

Refer	to	Note	9	for	information	regarding	unrecognized	tax	benefits.	During	the	fourth	quarter	of	fiscal	2008,	the	Company	made	a	cash	payment	of	$35.0	million to	the	U.S.	Treasury	as	an	advance	deposit,	which	is	not	reflected	as	a	reduction	to	the	$75.7	million.	As	of	June	30,	2008,	the	noncurrent	portion	of	the Company's	unrecognized	tax	benefits,	including	related	accrued	interest	and	penalties	was	$177.3	million.	At	this	time,	the	settlement	period	for	the	noncurrent portion	of	the	unrecognized	tax	benefits,	including	related	accrued	interest	and	penalties,	cannot	be	determined	and	therefore	was	not	included.

# Legal	Proceedings

The	Company	is	involved,	from	time	to	time,	in	litigation	and	other	legal	proceedings	incidental	to	its	business.		Management	believes	that	the	outcome	of	current litigation	and	legal	proceedings	will	not	have	a	material	adverse	effect	upon	the	Company's	results	of	operations	or	financial	condition.		However,	management's assessment	of	the	Company's	current	litigation	and	other	legal	proceedings	could	change	in	light	of	the	discovery	of	facts	with	respect	to	legal	actions	or	other proceedings	pending	against	the	Company	not	presently	known	to	the	Company	or	determinations	by	judges,	juries	or	other	finders	of	fact	which	are	not	in	accord	with management's	evaluation	of	the	possible	liability	or	outcome	of	such	litigation	or	proceedings.

In	1999,	the	Office	of	the	Attorney	General	of	the	State	of	New	York	(the	"State")	notified	the	Company	and	ten	other	entities	that	they	had	been	identified	as potentially	responsible	parties	("PRPs")	with	respect	to	the	Blydenburgh	landfill	in	Islip,	New	York.		Each	PRP	may	be	jointly	and	severally	liable	for	the	costs	of investigation	and	cleanup,	which	the	State	estimated	in	2006	to	be	approximately	$19.7	million	for	all	PRPs.		In	2001,	the	State	sued	other	PRPs	(including	Hickey's Carting,	Inc.,	Dennis	C.	Hickey	and	Maria	Hickey,	collectively	the	"Hickey	Parties"),	in	the	U.S.	District	Court	for	the	Eastern	District	of	New	York	to	recover	such costs	in	connection	with	the	site,	and	in	September	2002,	the	Hickey	Parties	brought	contribution	actions	against	the	Company	and	other	Blydenburgh	PRPs.		These contribution	actions	seek	to	recover,	among	other	things,	any	damages	for	which	the	Hickey	Parties	are	found	liable	in	the	State's	lawsuit	against	them,	and	related	costs and	expenses,	including	attorneys'	fees.		In	June	2004,	the	State	added	the	Company	and	other	PRPs	as	defendants	in	its	pending	case	against	the	Hickey	Parties.		In April	2006,	the	Company	and	other	defendants	added	numerous	other	parties	to	the	case	as	third-party	defendants.		The	Company	and	certain	other	PRPs	have	engaged in	settlement	discussions	which	to	date	have	been	unsuccessful.		Settlement	negotiations	with	the	new	third-party	defendants,	the	State,	the	Company	and	other defendants	began	in	July	2006.		The	Company	has	accrued	an	amount	which	it	believes	would	be	necessary	to	resolve	its	share	of	this	matter.		If	settlement	discussions are	not	successful,	the	Company	intends	to	vigorously	defend	the	pending	claims.		While	no	assurance	can	be	given	as	to	the	ultimate	outcome,	management	believes

that	the	resolution	of	the	Blydenburgh	matters	will	not	have	a	material	adverse	effect	on	the	Company's	consolidated	financial	condition.

# NOTE	16	–	COMMON	STOCK

As	of	June	30,	2008,	the	Company's	authorized	common	stock	consists	of	650	million	shares	of	Class	A	Common	Stock,	par	value	$.01	per	share,	and	240	million shares	of	Class	B	Common	Stock,	par	value	$.01	per	share.		Class	B	Common	Stock	is	convertible	into	Class	A	Common	Stock,	in	whole	or	in	part,	at	any	time	and from	time	to	time	at	the	option	of	the	holder,	on	the	basis	of	one	share	of	Class	A	Common	Stock	for	each	share	of	Class	B	Common	Stock	converted.		Holders	of	the Company's	Class	A	Common	Stock	are	entitled	to	one	vote	per	share	and	holders	of	the	Company's	Class	B	Common	Stock	are	entitled	to	ten	votes	per	share.

Information	about	the	Company's	common	stock	outstanding	is	as	follows:

| Balance	at	June	30,	2005 | 132,663.4 | 87,640.9 |
| :--- | :--- | :--- |
| Acquisition\tof\ttreasury\tstock | (11,216.3) | — |
| Conversion\tof\tClass\tB\tto\tClass\tA | 2,335.0 | (2,335.0) |
| Stock-based\tcompensation | 2,673.0 | — |
| Balance\tat\tJune\t30,\t2006 | 126,455.1 | 85,305.9 |
| Acquisition\tof\ttreasury\tstock | (22,477.6) | — |
| Conversion\tof\tClass\tB\tto\tClass\tA | 3,501.1 | (3,501.1) |
| Stock-based\tcompensation | 5,044.8 | — |
| Balance\tat\tJune\t30,\t2007 | 112,523.4 | 81,804.8 |
| Acquisition\tof\ttreasury\tstock | (3,106.3) | — |
| Conversion\tof\tClass\tB\tto\tClass\tA | 3,737.5 | (3,737.5) |
| Stock-based\tcompensation | 3,685.2 | — |
| Balance\tat\tJune\t30,\t2008 | 116,839.8 | 78,067.3 |

On	September	18,	1998,	the	Company's	Board	of	Directors	authorized	a	share	repurchase	program	to	repurchase	a	total	of	up	to	8.0	million	shares	of	Class	A	Common Stock	in	the	open	market	or	in	privately	negotiated	transactions,	depending	on	market	conditions	and	other	factors.		The	Board	of	Directors	authorized	the	repurchase	of up	to	10.0	million	additional	shares	of	Class	A	Common	Stock	in	both	October	2002	and	May	2004,	and	an	additional	20.0	million	in	each	of	May	2005,	February	2007 and	November	2007,	increasing	the	total	authorization	under	the	share	repurchase	program	to	88.0	million	shares.		As	of	June	30,	2008,	approximately	64.1	million shares	have	been	purchased	under	this	program.

# Accelerated	Share	Repurchase	Program

In	March	2007,	the	Company	repurchased	approximately	15,960,800	shares	of	its	outstanding	Class	A	Common	Stock	for	$750.0	million	through	an	accelerated	share repurchase	program	with	a	financial	counterparty.		These	shares	were	accounted	for	as	treasury	stock,	carried	at	cost,	and	reflected	as	a	reduction	to	stockholders'	equity. In	August	2007,	the	financial	counterparty	informed	the	Company	that	it	had	completed	its	obligations	under	the	agreement.		The	per-share	price	paid	by	the	Company at	inception	of	the	program	exceeded	the	final	volume	weighted	average	price	per	share,	as	defined	by	the	contract.		Accordingly,	the	Company	received	97,417	shares of	its	Class	A	Common	Stock	from	the	financial	counterparty	as	a	price	adjustment	and	final	settlement,	which	was	recorded	as	treasury	stock	and	additional	paid-in capital	in	the	consolidated	balance	sheet.

# NOTE	17	–	STOCK	PROGRAMS

As	of	June	30,	2008,	the	Company	has	three	active	equity	compensation	plans	which	include	the	Amended	and	Restated	Fiscal	2002	Share	Incentive	Plan,	the	Fiscal 1999	Share	Incentive	Plan	and	the	Non-Employee	Director	Share	Incentive	Plan	(collectively,	the	"Plans").		These	Plans	currently	provide	for	the	issuance	of 33,194,400	shares,	which	consist	of	shares	originally	provided	for	and	shares	transferred	to	the	Plans	from	a	previous	plan	and	employment	agreement,	to	be	granted	in the	form	of	stock-based	awards	to	key	employees,	consultants	and	non-employee	directors	of	the	Company.		As	of	June	30,	2008,	approximately	7,184,400	shares	of Class	A	Common	Stock	were	reserved	and	available	to	be	granted	pursuant	to	these	Plans,	subject	to	the	approval	by	the	Stock	Plan	Subcommittee	of	the	Company's Board	of	Directors	of	expected	payouts	for	performance	share	units	("PSU")	vested	as	of	June	30,	2008.		The	Company	may	satisfy	the	obligation	of	its	stock-based compensation	awards	with	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	of,	stock	options,	PSUs,	RSUs	and	share	units. Compensation	expense	attributable	to	net	stock-based	compensation	for	fiscal	2008,	2007	and	2006	was	$47.2	million	($31.2	million	after	tax),	$43.2	million	($28.3 million	after	tax)	and	$35.7	million	($23.4	million	after	tax),	respectively.		As	of	June	30,	2008,	the	total	unrecognized	compensation	cost	related	to	nonvested	stock- based	awards	was	$27.6	million	and	the	related	weighted-average	period	over	which	it	is	expected	to	be	recognized	is	approximately	1.6	years.

# Stock	Options

A	summary	of	the	Company's	stock	option	programs	as	of	June	30,	2008	and	changes	during	the	fiscal	year	then	ended,	is	presented	below:

|  |  | Weighted- | Aggregate |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Average | Intrinsic | Weighted-\tAverage |
|  |  |  | (1) |  |
| (Shares\tin\tthousands) | Shares | Exercise\nPrice\tPer\tShare | Value\n(in\tmillions) | Contractual\tLife\nRemaining\tin\tYears |
| Outstanding\tat\tJune\t30,\t2007 | 22,572.0 | $41.42 |  |  |
| Granted\tat\tfair\tvalue | 1,693.7 | 42.64 |  |  |
| Exercised | (3,338.5) | 35.18 |  |  |
| Expired | (252.0) | 44.32 |  |  |
| Forfeited | (368.0) | 40.50 |  |  |
| Outstanding\tat\tJune\t30,\t2008 | 20,307.2 | 42.53 | $\t110.6 | 4.0 |
| Exercisable\tat\tJune\t30,\t2008 | 17,179.4 | 42.89 | $92.2 | 3.2 |

	The	intrinsic	value	of	a	stock	option	is	the	amount	by	which	the	current	market	value	of	the	underlying	stock	exceeds	the	exercise	price	of	the	option.

The	exercise	period	for	all	stock	options	generally	may	not	exceed	ten	years	from	the	date	of	grant.		Stock	option	grants	to	individuals	generally	become	exercisable	in three	substantively	equal	tranches	over	a	service	period	of	up	to	four	years.		The	Company	attributes	the	value	of	option	awards	on	a	straight-line	basis	over	the	requisite service	period	for	each	separately	vesting	portion	of	the	award	as	if	the	award	was,	in	substance,	multiple	awards.

The	fair	value	of	each	option	grant	was	estimated	on	the	date	of	grant	using	the	Black-Scholes	option-pricing	model	with	the	following	assumptions:

# Performance	Share	Units

During	fiscal	2008,	the	Company	issued	119,200	PSUs,	which	will	be	settled	in	stock	subject	to	the	achievement	of	the	Company's	net	sales	and	net	earnings	per	share goals	for	the	three	years	ending	June	30,	2010	and	subject	to	the	continued	employment	of	the	grantees.		Settlement	will	be	made	pursuant	to	a	range	of	opportunities relative	to	the	net	sales	and	diluted	net	earnings	per	common	share	targets	of	the	Company	and,	as	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	threshold	and	additional	shares	shall	be	issued	if performance	exceeds	the	targeted	performance	goals.		PSUs	are	accompanied	by	dividend	equivalent	rights	that	will	be	payable	in	cash	upon	settlement	of	the	PSU. These	awards	are	subject	to	the	provisions	of	the	agreement	under	which	the	PSUs	are	granted.		The	PSUs	were	valued	at	the	closing	market	value	of	the	Company's Class	A	Common	Stock	on	the	date	of	grant	and	generally	vest	at	the	end	of	the	performance	period.		Approximately	78,400	shares	of	the	Company's	Class	A	Common Stock	are	anticipated	to	be	issued,	relative	to	the	target	goals	set	at	the	time	of	issuance,	in	settlement	of	the	96,600	PSUs	that	vested	as	of	June	30,	2008.		These	awards will	be	settled	in	the	first	quarter	of	fiscal	2009,	subject	to	the	approval	of	the	Stock	Plan	Subcommittee	of	the	Company's	Board	of	Directors.

The	following	is	a	summary	of	the	status	of	the	Company's	PSUs	as	of	June	30,	2008	and	activity	during	the	fiscal	year	then	ended:

|  |  | Weighted-Average |
| :--- | :--- | :--- |
|  |  | Grant\tDate |
| (Shares\tin\tthousands) | Shares | Fair\tValue\tPer\tShare |
| Nonvested\tat\tJune\t30,\t2007 | 230.1 | $37.36 |
| Granted | 119.2 | 42.58 |
| Vested | (96.6) | 35.00 |
| Forfeited | (63.4) | 39.76 |
| Nonvested\tat\tJune\t30,\t2008 | 189.3 | 41.05 |

# Restricted	Stock	Units

The	Company	granted	approximately	585,000	RSUs	during	fiscal	2008.		At	the	time	of	grant,	324,700	were	scheduled	to	vest	on	October	31,	2008,	169,000	on November	2,	2009	and	91,300	on	November	1,	2010,	all	subject	to	the	continued	employment	or	retirement	of	the	grantees.		Certain	RSUs	granted	in	fiscal	2008	are accompanied	by	dividend	equivalent	rights	that	will	be	payable	in	cash	upon	settlement	of	the	RSU	and,	as	such,	were	valued	at	the	closing	market	value	of	the Company's	Class	A	Common	Stock	on	the	date	of	grant.		Other	RSUs	granted	in	fiscal	2008	are	not	accompanied	by	dividend	equivalent	rights	and,	as	such,	were valued	at	the	closing	market	value	of	the	Company's	Class	A	Common	Stock	on	the	date	of	grant	less	the	discounted	present	value	of	the	dividends	expected	to	be	paid on	the	shares	during	the	vesting	period.

The	following	is	a	summary	of	the	status	of	the	Company's	RSUs	as	of	June	30,	2008	and	activity	during	the	fiscal	year	then	ended:

|  |  | Weighted-Average |
| :--- | :--- | :--- |
|  |  | Grant\tDate |
| (Shares\tin\tthousands) | Shares | Fair\tValue\tPer\tShare |
| Nonvested\tat\tJune\t30,\t2007 | 659.4 | $38.74 |
| Granted | 585.0 | 42.02 |
| Vested | (346.7) | 38.90 |
| Forfeited | (83.7) | 40.48 |
| Nonvested\tat\tJune\t30,\t2008 | 814.0 | 40.85 |

# Share	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	units	are	accompanied	by	dividend	equivalent	rights	that	are	converted	to	additional	share	units	when	such dividends	are	declared.		The	following	is	a	summary	of	the	status	of	the	Company's	share	units	as	of	June	30,	2008	and	activity	during	the	fiscal	year	then	ended:

Weighted-Average

Grant	Date

| (Shares	in	thousands) | Shares | Fair	Value	Per	Share |
| :--- | :--- | :--- |
| Outstanding\tat\tJune\t30,\t2007 | 13.8 | $37.65 |
| Granted | 4.1 | 44.25 |
| Dividend\tequivalents | 0.2 | 43.79 |
| Converted | — | — |
| Outstanding\tat\tJune\t30,\t2008 | 18.1 | 39.21 |

# Cash	Units

Certain	non-employee	directors	defer	cash	compensation	in	the	form	of	cash	payout	share	units,	which	are	not	subject	to	the	Plans.		These	share	units	are	classified	as liabilities	and,	as	such,	their	fair	value	is	adjusted	to	reflect	the	current	market	value	of	the	Company's	Class	A	Common	Stock.		The	Company	recorded	$0.5	million, $0.8	million	and	$0.5	million	as	compensation	expense	to	reflect	additional	deferrals	and	the	change	in	the	market	value	for	fiscal	2008,	2007	and	2006,	respectively.

# NOTE	18	–	NET	EARNINGS	PER	COMMON	SHARE

For	the	years	ended	June	30,	2008,	2007	and	2006,	net	earnings	per	common	share	("basic	EPS")	is	computed	by	dividing	net	earnings	by	the	weighted	average	number of	common	shares	outstanding	and	contingently	issuable	shares	(which	satisfy	certain	conditions).		Net	earnings	per	common	share	assuming	dilution	("diluted	EPS")	is computed	by	reflecting	potential	dilution	from	stock-based	awards	and	contingently	issuable	shares.

A	reconciliation	between	the	numerators	and	denominators	of	the	basic	and	diluted	EPS	computations	is	as	follows:

| Net	earnings	from	continuing	operations | $473.8 | $448.7 | $324.5 |
| :--- | :--- | :--- | :--- |
| Discontinued\toperations,\tnet\tof\ttax | — | 0.5 | (80.3) |
| Net\tearnings\tattributable\tto\tcommon\tstock | $473.8 | $449.2 | $244.2 |
| Denominator: |  |  |  |
| Weighted\taverage\tcommon\tshares\toutstanding\t–\tBasic | 193.9 | 204.3 | 215.0 |
| Effect\tof\tdilutive\tstock\toptions | 2.6 | 3.2 | 2.4 |
| Effect\tof\trestricted\tstock\tunits\tand\tperformance\tshare\tunits | 0.6 | 0.2 | 0.0 |
| Effect\tof\tcontingently\tissuable\tshares\tpursuant\tto\taccelerated |  |  |  |
| \tshare\trepurchase\tprogram | — | 0.1 | — |
| Weighted\taverage\tcommon\tshares\toutstanding\t–\tDiluted | 197.1 | 207.8 | 217.4 |
| Basic\tnet\tearnings\tper\tcommon\tshare: |  |  |  |
| Net\tearnings\tfrom\tcontinuing\toperations | $2.44 | $2.20 | $1.51 |
| Discontinued\toperations,\tnet\tof\ttax |  |  |  |
|  | — | .00 | (.37) |
| Net\tearnings | $2.44 | $2.20 | $1.14 |
| Diluted\tnet\tearnings\tper\tcommon\tshare: |  |  |  |
| Net\tearnings\tfrom\tcontinuing\toperations | $2.40 | $2.16 | $1.49 |
| Discontinued\toperations,\tnet\tof\ttax | — | .00 | (.37) |
| Net\tearnings | $2.40 | $2.16 | $1.12 |

As	of	June	30,	2008,	2007	and	2006,	outstanding	options	to	purchase	7.1	million,	6.0	million	and	13.6	million	shares,	respectively,	of	Class	A	Common	Stock	were	not included	in	the	computation	of	diluted	EPS	because	their	inclusion	would	be	anti-dilutive.		As	of	June	30,	2008,	2007	and	2006,	0.2	million,	0.2	million	and	0.1	million, respectively,	of	performance	share	units	have	been	excluded	from	the	calculation	of	diluted	EPS	because	the	number	of	shares	ultimately	issued	is	contingent	on	the achievement	of	certain	performance	targets	of	the	Company,	as	discussed	in	Note	17.

# NOTE	19	–	ACCUMULATED	OTHER	COMPREHENSIVE	INCOME

The	components	of	Accumulated	other	comprehensive	income	("OCI")	included	in	the	accompanying	consolidated	balance	sheets	consist	of	the	following:

|  |  | Year	Ended	June	30 |  |
| :--- | :--- | :--- | :--- |
|  | 2008 | 2007 | 2006 |
|  |  | (In\tmillions) |  |
| Net\tunrealized\tinvestment\tgains,\tbeginning\tof\tyear | $0.8 | $0.5 | $0.4 |
| Unrealized\tinvestment\tgains\t(losses) | (0.9) | 0.5 | 0.1 |
| Benefit\t(provision)\tfor\tdeferred\tincome\ttaxes | 0.4 | (0.2) | — |
| Net\tunrealized\tinvestment\tgains,\tend\tof\tyear | 0.3 | 0.8 | 0.5 |
| Net\tderivative\tinstruments,\tbeginning\tof\tyear | 8.2 | 10.3 | 12.0 |

| Gain	(loss)	on	derivative	instruments | (4.7) | (7.4) | 5.2 |
| :--- | :--- | :--- | :--- |
| Benefit\t(provision)\tfor\tdeferred\tincome\ttaxes\ton\tderivative\tinstruments | 1.6 | 2.5 | (1.7) |
| Reclassification\tto\tearnings\tduring\tthe\tyear | 4.2 | 4.2 | (8.3) |
| Benefit\t(provision)\tfor\tdeferred\tincome\ttaxes\ton\treclassification | (1.4) | (1.4) | 3.1 |
| Net\tderivative\tinstruments,\tend\tof\tyear | 7.9 | 8.2 | 10.3 |
| Net\tminimum\tpension\tliability\tadjustments,\tbeginning\tof\tyear | — | (6.1) | (36.0) |
| Minimum\tpension\tliability\tadjustments | — | (6.7) | 41.4 |
| Benefit\t(provision)\tfor\tdeferred\tincome\ttaxes | — | 2.7 | (11.5) |
| Adjustment\tto\tinitially\tapply\tSFAS\tNo.\t158,\tnet\tof\ttax | — | 10.1 | — |
| Net\tminimum\tpension\tliability\tadjustments,\tend\tof\tyear | — | — | (6.1) |
| Net\tpension\tand\tpost-retirement\tadjustments,\tbeginning\tof\tyear | (67.4) | — | — |
| Adjustment\tto\tinitially\tapply\tSFAS\tNo.\t158 | — | (98.7) | — |
| Changes\tin\tplan\tassets\tand\tbenefit\tobligations: |  |  |  |
| Net\tactuarial\tgains\t(losses)\trecognized | (38.2) | — | — |
| Net\tprior\tservice\tcredit\t(cost)\trecognized | (34.0) | — | — |
| Translation\tadjustments | (0.3) | — | — |
| Amortization\tof\tamounts\tincluded\tin\tnet\tperiodic\tbenefit\tcost: |  |  |  |
| Net\tactuarial\t(gains)\tlosses | 8.4 | — | — |
| Net\tprior\tservice\tcost\t(credit) | 1.0 | — | — |
| Net\ttransition\tasset\t(obligation) | 0.1 | — | — |
| Benefit\t(provision)\tfor\tdeferred\tincome\ttaxes | 21.6 | 31.3 | — |
| Net\tpension\tand\tpost-retirement\tadjustments,\tend\tof\tyear | (108.8) | (67.4) | — |
| Cumulative\ttranslation\tadjustments,\tbeginning\tof\tyear | 113.1 | 60.0 | 33.0 |
| Translation\tadjustments | 103.7 | 53.1 | 27.0 |
| Benefit\t(provision)\tfor\tdeferred\tincome\ttaxes | (5.4) | — | — |
| Cumulative\ttranslation\tadjustments,\tend\tof\tyear | 211.4 | 113.1 | 60.0 |
| Accumulated\tother\tcomprehensive\tincome | $110.8 | $54.7 | $64.7 |

Of	the	$7.9	million,	net	of	tax,	derivative	instrument	gain	recorded	in	OCI	at	June	30,	2008,	$9.0	million,	net	of	tax,	related	to	the	October	2003	gain	from	the	settlement of	the	treasury	lock	agreements	upon	the	issuance	of	the	Company's	5.75%	Senior	Notes	due	October	2033,	which	is	being	reclassified	to	earnings	as	an	offset	to	interest expense	over	the	life	of	the	debt.		Partially	offsetting	this	gain	was	$0.6	million,	net	of	tax,	related	to	a	loss	from	the	settlement	of	a	series	of	forward-starting	interest	rate swap	agreements	upon	the	issuance	of	the	Company's	6.00%	Senior	Notes	due	May	2037,	which	will	be	reclassified	to	earnings	as	an	addition	to	interest	expense	over the	life	of	the	debt.		Also	partially	offsetting	the	net	derivative	instrument	gain	recorded	in	OCI	was	$0.5	million	in	losses,	net	of	tax,	related	to	foreign	currency	forward and	option	contracts	which	the	Company	will	reclassify	to	earnings	during	the	next	twelve	months.

Refer	to	Note	13	for	the	discussion	regarding	the	net	pension	and	post-retirement	adjustments.

# NOTE	20	–	STATEMENT	OF	CASH	FLOWS

Supplemental	cash	flow	information	related	to	certain	non-cash	investing	and	financing	transactions	for	fiscal	2008,	2007	and	2006	is	as	follows:

| Long-term	debt	issued	upon	acquisition	of	business | $23.9 | $— | $— |
| :--- | :--- | :--- | :--- |
| Incremental\ttax\tbenefit\tfrom\tthe\texercise\tof\tstock\toptions | $10.9 | $16.0 | $6.4 |
| Change\tin\tliability\tassociated\twith\tacquisition\tof\tbusiness | $8.3 | $2.1 | $(36.1) |
| Capital\tlease\tobligations\tincurred | $9.7 | $5.1 | $1.5 |
| Accrued\tdividend\tequivalents | $0.2 | $0.2 | $0.1 |
| Interest\trate\tswap\tderivative\tmark\tto\tmarket | $19.5 | $0.6 | $(16.5) |

# NOTE	21	–	SEGMENT	DATA	AND	RELATED	INFORMATION

Reportable	operating	segments,	as	defined	by	SFAS	No.	131,	"Disclosures	about	Segments	of	an	Enterprise	and	Related	Information,"	include	components	of	an enterprise	about	which	separate	financial	information	is	available	that	is	evaluated	regularly	by	the	chief	operating	decision	maker	(the	"Chief	Executive")	in	deciding how	to	allocate	resources	and	in	assessing	performance.		As	a	result	of	the	similarities	in	the	manufacturing,	marketing	and	distribution	processes	for	all	of	the Company's	products,	much	of	the	information	provided	in	the	consolidated	financial	statements	is	similar	to,	or	the	same	as,	that	reviewed	on	a	regular	basis	by	the Chief	Executive.		Although	the	Company	operates	in	one	business	segment,	beauty	products,	management	also	evaluates	performance	on	a	product	category	basis.

While	the	Company's	results	of	operations	are	also	reviewed	on	a	consolidated	basis,	the	Chief	Executive	reviews	data	segmented	on	a	basis	that	facilitates	comparison to	industry	statistics.		Accordingly,	net	sales,	depreciation	and	amortization,	and	operating	income	are	available	with	respect	to	the	manufacture	and	distribution	of	skin care,	makeup,	fragrance,	hair	care	and	other	products.		These	product	categories	meet	the	FASB's	definition	of	operating	segments	and,	accordingly,	additional	financial data	are	provided	below.		The	"other"	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,	net	interest	expense	and discontinued	operations.		The	accounting	policies	for	each	of	the	reportable	segments	are	the	same	as	those	described	in	the	summary	of	significant	accounting	policies, except	for	depreciation	and	amortization	charges,	which	are	allocated,	primarily,	based	upon	net	sales.		The	assets	and	liabilities	of	the	Company	are	managed	centrally and	are	reported	internally	in	the	same	manner	as	the	consolidated	financial	statements;	thus,	no	additional	information	is	produced	for	the	Chief	Executive	or	included herein.

Year	Ended	June	30

|  | 2008 | 2007 | 2006 |
| :--- | :--- | :--- | :--- |
|  |  | (In\tmillions) |  |
| PRODUCT\tCATEGORY\tDATA |  |  |  |
| Net\tSales: |  |  |  |
| Skin\tCare | $2,996.8 | $2,601.0 | $2,400.8 |
| Makeup | 3,000.4 | 2,712.7 | 2,504.2 |
| Fragrance | 1,432.0 | 1,308.6 | 1,213.3 |
| Hair\tCare | 427.1 | 377.1 | 318.7 |
| Other | 54.5 | 38.1 | 26.8 |
|  | $7,910.8 | $7,037.5 | $6,463.8 |

|  |  | Year	Ended	June	30 |  |
| :--- | :--- | :--- | :--- |
|  | 2008 | 2007 | 2006 |
|  |  | (In\tmillions\t) |  |
| Depreciation\tand\tAmortization: |  |  |  |
| Skin\tCare | $88.5 | $75.4 | $71.1 |
| Makeup | 94.6 | 84.6 | 81.3 |
| Fragrance | 45.2 | 36.7 | 35.4 |
| Hair\tCare | 20.3 | 9.3 | 9.8 |
| Other | 2.1 | 1.2 | 0.8 |
|  | $250.7 | $207.2 | $198.4 |
| Operating\tIncome\t(Loss): |  |  |  |
| Skin\tCare | $405.6 | $341.5 | $346.4 |
| Makeup | 359.4 | 339.3 | 329.4 |
| Fragrance | 36.2 | 28.1 | 7.7 |
| Hair\tCare | 11.5 | 42.5 | 26.5 |
| Other | (1.6) | (0.4) | 1.7 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative | (0.4) | (1.1) | (92.1) |
|  | 810.7 | 749.9 | 619.6 |
| Reconciliation: |  |  |  |
| Interest\texpense,\tnet | (66.8) | (38.9) | (23.8) |
| Earnings\tbefore\tincome\ttaxes,\tminority\tinterest\tand\tdiscontinued\toperations | $743.9 | $711.0 | $595.8 |
| GEOGRAPHIC\tDATA |  |  |  |
| Net\tSales: |  |  |  |
| The\tAmericas | $3,711.5 | $3,560.9 | $3,446.4 |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica | 3,006.7 | 2,493.4 | 2,147.7 |
| Asia/Pacific | 1,192.6 | 983.2 | 869.7 |
|  | $7,910.8 | $7,037.5 | $6,463.8 |
| Operating\tIncome\t(Loss): |  |  |  |
| The\tAmericas | $228.3 | $336.4 | $344.1 |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica | 433.1 | 321.4 | 297.5 |
| Asia/Pacific | 149.7 | 93.2 | 70.1 |
| Special\tcharges\trelated\tto\tcost\tsavings\tinitiative | (0.4) | (1.1) | (92.1) |
|  | $810.7 | $749.9 | $619.6 |
| Total\tAssets: |  |  |  |
| The\tAmericas | $2,931.0 | $2,534.5 | $2,305.9 |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica | 1,672.0 | 1,268.1 | 1,175.0 |
| Asia/Pacific | 408.2 | 323.1 | 303.2 |
|  | $5,011.2 | $4,125.7 | $3,784.1 |
| Long-Lived\tAssets\t(property,\tplant\tand\tequipment,\tnet): |  |  |  |
| The\tAmericas | $670.8 | $580.1 | $500.5 |
| Europe,\tthe\tMiddle\tEast\t&amp;\tAfrica | 312.3 | 250.7 | 213.2 |
| Asia/Pacific | 60.0 | 50.0 | 44.3 |
|  | $1,043.1 | $880.8 | $758.0 |

NOTE	22	–	UNAUDITED	QUARTERLY	FINANCIAL	DATA

The	following	summarizes	the	unaudited	quarterly	operating	results	of	the	Company	for	the	years	ended	June	30,	2008	and	2007:

|  |  | Quarter	Ended |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | September\t30 | December\t31 | March\t31 | June\t30 | Total\tYear |
|  |  | (In\tmillions,\texcept\tper\tshare\tdata\t) | (In\tmillions,\texcept\tper\tshare\tdata\t) |  |  |
| Fiscal\t2008 |  |  |  |  |  |
| Net\tsales | $1,710.1 | $2,308.8 | $1,879.8 | $2,012.1 | $7,910.8 |
| Gross\tprofit | 1,254.3 | 1,730.3 | 1,407.9 | 1,521.5 | 5,914.0 |
| Operating\tincome | 77.9 | 370.5 | 161.2 | 201.1 | 810.7 |
| Net\tearnings\tfrom\tcontinuing\toperations | 39.1 | 224.4 | 90.1 | 120.2 | 473.8 |
| Net\tearnings | 39.1 | 224.4 | 90.1 | 120.2 | 473.8 |
| Net\tearnings\tper\tcommon\tshare\tfrom\tcontinuing |  |  |  |  |  |
| operations: |  |  |  |  |  |
| Basic | .20 | 1.16 | .47 | .62 | 2.44 |
| Diluted | .20 | 1.14 | .46 | .61 | 2.40 |
| Net\tearnings\tper\tcommon\tshare: |  |  |  |  |  |
| Basic | .20 | 1.16 | .47 | .62 | 2.44 |
| Diluted | .20 | 1.14 | .46 | .61 | 2.40 |
| Fiscal\t2007 |  |  |  |  |  |
| Net\tsales | $1,593.5 | $1,991.1 | $1,690.5 | $1,762.4 | $7,037.5 |
| Gross\tprofit | 1,165.4 | 1,492.1 | 1,264.5 | 1,340.7 | 5,262.7 |
| Operating\tincome | 99.9 | 332.4 | 156.7 | 160.9 | 749.9 |
| Net\tearnings\tfrom\tcontinuing\toperations | 58.0 | 208.5 | 93.8 | 88.4 | 448.7 |
| Net\tearnings | 58.3 | 208.4 | 93.9 | 88.6 | 449.2 |
| Net\tearnings\tper\tcommon\tshare\tfrom\tcontinuing |  |  |  |  |  |
| operations: |  |  |  |  |  |
| Basic | .28 | 1.00 | .46 | .46 | 2.20 |
| Diluted | .27 | .99 | .45 | .45 | 2.16 |
| Net\tearnings\tper\tcommon\tshare: |  |  |  |  |  |
| Basic | .28 | 1.00 | .46 | .46 | 2.20 |
| Diluted | .27 | .99 | .45 | .45 | 2.16 |

# SCHEDULE	II	–	VALUATION	AND	QUALIFYING	ACCOUNTS

| Description | Balance<br>at	Beginning<br>of	Period | Charged	to<br>Costs	and<br>Expenses | Charged	to<br>Other<br>Accounts | Deductions | Balance<br>at	End	of<br>Period |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Reserves\tdeducted\tin\tthe\tbalance\tsheet\tfrom\tthe\nassets\tto\twhich\tthey\tapply: |  |  |  |  |  |
| Allowance\tfor\tdoubtful\taccounts\tand\tcustomer\ndeductions: |  |  |  |  |  |
| Year\tended\tJune\t30,\t2008 | $23.3 | $13.2 | $— | $10.2(a) | $26.3 |
| Year\tended\tJune\t30,\t2007 | $27.1 | $14.4 | $— | $18.2(a) | $23.3 |
| Year\tended\tJune\t30,\t2006 | $28.9 | $10.2 | $— | $12.0(a) | $27.1 |
| Accrued\trestructuring\tand\tspecial\tcharges: |  |  |  |  |  |
| Year\tended\tJune\t30,\t2008 | $39.9 | $0.4 | $— | $17.5 | $22.8 |
| Year\tended\tJune\t30,\t2007 | $88.0 | $1.1 | $— | $49.2 | $39.9 |
| Year\tended\tJune\t30,\t2006 | $21.9 | $92.1 | $— | $26.0 | $88.0 |

(a)										Includes	amounts	written-off,	net	of	recoveries.

THE	ESTÉE	LAUDER	COMPANIES	INC. INDEX	TO	EXHIBITS

10.17f Form	of	Restricted	Stock	Unit	Agreement	under	The	Estee	Lauder	Companies	Inc.	Amended	and	Restated	Fiscal	2002	Share	Incentive	Plan	for Employees	other	than	Executive	Officers	(including	Form	of	Notice	of	Grant)	(filed	as	Exhibit	10.6	to	the	Company's	Current	Report	on	Form	8-K	filed on	September	25,	2006)	(SEC	File	No.	1-14064).*†



Question: considering the 2008 net deferred loss , what is the percentage of amortization expenses?
Calculation: amortization_percent = 34 / 66.3
answer = amortization_percent * 100
Answer: 51.28%