Estee Lauder 2011 Annual Report Download - page 144

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142 THE EST{E LAUDER COMPANIES INC.
NOTE 13
—
PENSION, DEFERRED COMPENSATION
AND POST-RETIREMENT BENEFIT PLANS
The Company maintains pension plans covering substan-
tially 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 inter-
national 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 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 Retire-
ment 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.
The following methods and assumptions were used to
estimate the fair value of the Company’s other classes of
financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents — The carrying amount approx-
imates fair value, primarily because of the short maturity
of cash equivalent instruments.
Available-for-sale securities — Available-for-sale securities
are generally comprised of mutual funds and are valued
using quoted market prices on an active exchange.
Available-for-sale securities are included in Other assets in
the accompanying consolidated balance sheets.
Foreign currency forward contracts — The fair values of the
Company’s foreign currency forward contracts were
determined using an industry-standard valuation model,
which is based on an income approach. The significant
observable inputs to the model, such as swap yield curves
and currency spot and forward rates, were obtained from
an independent pricing service. To determine the fair
value of contracts under the model, the difference
between the contract price and the current forward rate
was discounted using LIBOR for contracts with maturities
up to 12 months, and swap yield curves for contracts with
maturities greater than 12 months.
Interest rate swap contracts — The fair values of the
Company’s interest rate swap contracts were determined
using the market approach and were based on non-bind-
ing offers from the counterparties that are corroborated
by observable market data using the income approach.
The non-binding offers represented the prices offered by
the counterparties in the over-the-counter market to
unwind and terminate these instruments (exclusive of
accrued interest) and incorporated the counterparties’
respective overall credit exposure to the Company. The
Company performed a discounted cash flow analysis to
corroborate the fair values of the non-binding offers using
inputs such as swap yield curves and six-month LIBOR
forward rates, which were obtained from an independent
pricing service. During fiscal 2011, the Company termi-
nated its interest rate swap agreements. See Note 11—
Derivative Financial Instruments.
Current 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 approxi-
mates the fair value.
The estimated fair values of the Company’s financial instruments are as follows:
JUNE 30, 2011 JUNE 30, 2010
Carrying Amount Fair Value Carrying Amount Fair Value
(In millions)
Nonderivatives
Cash and cash equivalents $1,253.0 $1,253.0 $1,120.7 $1,120.7
Available-for-sale securities 6.6 6.6 5.4 5.4
Current and long-term debt 1,218.1 1,293.5 1,228.4 1,325.3
Derivatives
Foreign currency forward contracts —
asset (liability) (15.9) (15.9) 6.6 6.6
Interest rate swap contracts — asset — — 38.7 38.7