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78 THE EST{E LAUDER COMPANIES INC.
For additional contingencies refer to “Note 14 —
Commitments and Contingencies (Contractual Obligations)”
of Notes to Consolidated Financial Statements.
Contractual Obligations
For a discussion of our contractual obligations, see
“Note 14 — Commitments and Contingencies (Contractual
Obligations)” of Notes to Consolidated Financial Statements.
Derivative Financial Instruments and Hedging Activities
For a discussion of our derivative financial instruments
and hedging activities, see “Note 11 — Derivative Financial
Instruments” of Notes to Consolidated Financial Statements.
Foreign Exchange Risk Management
For a discussion of foreign exchange risk management,
see “Note 11 — Derivative Financial Instruments (Cash-Flow
Hedges)” of Notes to Consolidated Financial Statements.
Credit Risk
For a discussion of credit risk, see “Note 11 — Derivative
Financial Instruments (Credit Risk)” of Notes to Consoli-
dated Financial Statements.
Market Risk
We use a value-at-risk model to assess the market risk of
our derivative financial instruments. Value-at-risk rep-
resents 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 high, low
and average measured value-at-risk during fiscal 2015
and 2014 related to our derivative financial instruments is
as follows:
JUNE 30, 2015 JUNE 30, 2014
High Low Average High Low Average
(In millions)
Foreign exchange contracts $28.6 $7.4 $17.8 $27.4 $7.4 $18.9
Interest rate contracts 16.1 16.1 16.1 — — —
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 gen
-
erated 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 deriva-
tive 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, other than operating leases,
that would be expected to have a material current
or future effect upon our financial condition or results
of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to “Note 2 — Summary of Significant Accounting
Policies” of Notes to Consolidated Financial Statements
for discussion regarding the impact of accounting
standards that were recently issued but not yet effective,
on our consolidated financial statements.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make writ-
ten or oral forward-looking statements, including state-
ments 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, earn-
ings or other future financial performance and liquidity,
product introductions, entry into new geographic regions,
information systems initiatives, new methods of sale, our
long-term strategy, restructuring and other charges and
resulting cost savings, and future operations or operating
results. Although we believe that our expectations are
based on reasonable assumptions within the bounds of