Estee Lauder 2013 Annual Report Download - page 149

THE EST{E LAUDER COMPANIES INC. 147
If entities determine, on the basis of qualitative factors,
that the fair value of the reporting unit is more-likely-than-
not less than the carrying amount, the two-step impair-
ment test would be required. This guidance became
effective in the beginning of the Company’s fiscal 2013.
The adoption of this guidance did not have an impact on
the Company’s consolidated financial statements.
In June 2011, the FASB amended its authoritative guid-
ance related to the presentation of comprehensive
income, requiring entities to present items of net income
and other comprehensive income either in one continu-
ous statement or in two separate consecutive statements.
This guidance also required entities to present reclassifica-
tion adjustments for each component of accumulated
other comprehensive income in both net income and
other comprehensive income on the face of the financial
statements. In December 2011, the FASB issued an
update to this guidance deferring the requirement to
present reclassification adjustments on the face of the
financial statements. However, the Company is still
required to present reclassification adjustments on either
the face of the financial statement where comprehensive
income is reported or disclose the reclassification adjust-
ments in the notes to the financial statements. This guid-
ance, including the deferral, became effective for the
Company’s fiscal 2013 first quarter, with full retrospective
application required. The Company has elected to present
the items of net income and other comprehensive income
in two separate consecutive statements. The adoption of
this disclosure-only guidance did not have an impact on
the Company’s results of operations, financial position or
cash flows.
Recently Issued Accounting Standards
In July 2013, the FASB issued authoritative guidance that
requires an entity to present an unrecognized tax benefit,
or a portion of an unrecognized tax benefit, in the finan-
cial statements as a reduction to a deferred tax asset for a
net operating loss (“NOL”) carryforward, a similar tax loss,
or a tax credit carryforward. If either (i) an NOL carry-
forward, a similar tax loss, or tax credit carryforward is not
available as of the reporting date under the governing tax
law to settle taxes that would result from the disallowance
of the tax position or (ii) the entity does not intend to use
the deferred tax asset for this purpose (provided that the
tax law permits a choice), an entity should present an
unrecognized tax benefit in the financial statements as a
liability and should not net the unrecognized tax benefit
with a deferred tax asset. This guidance becomes effective
prospectively for unrecognized tax benefits that exist as of
the Company’s fiscal 2015 first quarter, with retrospective
Income Taxes
The Company accounts for income taxes using an asset
and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in
its consolidated financial statements or tax returns. 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 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 the Company’s assessments, no
additional valuation allowance is required. If the Company
determines that a deferred tax asset will not be realizable,
an adjustment to the deferred tax asset will result in a
reduction of net earnings at that time.
The Company provides tax reserves for U.S. federal,
state, local and foreign exposures relating to periods sub-
ject to audit. The development of reserves for these expo-
sures 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 consolidated financial statements. The
Company classifies applicable interest and penalties as a
component of the provision for income taxes. 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. If actual outcomes differ
materially from these estimates, they could have a
material impact on the Company’s consolidated results
of operations.
Recently Adopted Accounting Standards
In September 2011, the Financial Accounting Standards
Board (“FASB”) amended its authoritative guidance
related to testing goodwill for impairment. Under the
revised guidance, entities testing goodwill for impairment
have the option of performing a qualitative assessment
before performing Step 1 of the goodwill impairment test.