Estee Lauder 2015 Annual Report Download - page 64

THE EST{E LAUDER COMPANIES INC. 61
in net deferred tax assets is a valuation allowance of
$120.9 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 allow-
ance is required. If our assessment of realizability of a
deferred tax asset changes, an increase to a valuation
allowance will result in a reduction of net earnings at that
time while the reduction of a valuation allowance will
result in an increase of net earnings at that time.
We provide tax reserves for U.S. federal, state, local
and foreign exposures relating to periods subject to audit.
The development of reserves for these exposures requires
judgments about tax issues, potential outcomes and tim-
ing, 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 consolidated financial
statements. We classify 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 our consolidated results
of operations.
QUANTITATIVE ANALYSIS
During the three-year period ended June 30, 2015, there
have not been material changes in the assumptions under-
lying these critical accounting policies, nor to the related
significant estimates. The results of our business underly-
ing 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 or
our provision for income taxes as they relate to the
provisions for anticipated sales returns, inventory obsoles-
cence reserve and income taxes. For fiscal 2015, had
these estimates been changed simultaneously by 2.5% in
either direction, our reported gross profit would have
increased or decreased by approximately $5.9 million and
the provision for income taxes would have increased or
decreased by approximately $0.2 million. The collective
impact of these changes on operating income, net earn-
ings attributable to The Estée Lauder Companies Inc., and
net earnings attributable to The Estée Lauder Companies
Inc. per diluted common share would be an increase or
decrease of approximately $5.9 million, $5.7 million and
$.01, respectively.
RESULTS OF OPERATIONS
We manufacture, market and sell beauty products includ-
ing those in the skin care, makeup, fragrance and hair
care categories which are distributed in over 150 coun-
tries and territories. The following table is a comparative
summary of operating results for fiscal 2015, 2014 and
2013 and reflects the basis of presentation described in
“Note 2 — Summary of Significant Accounting Policies and
Note 20 — Segment Data and Related Information” of
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.