Estee Lauder 2005 Annual Report Download - page 74

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NOTE 10 – PENSION, DEFERRED COMPENSATION
AND POSTRETIREMENT 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 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 con-
tribution 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, nonqualified domes-
tic 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 deter-
mined by local laws and regulations.
Postretirement Benefits
The Company maintains a domestic postretirement 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. The cost of the Company-
sponsored programs is not significant.
Certain of the Company’s international subsidiaries
and affiliates have postretirement plans, although most
participants are covered by government-sponsored or
administered programs.
THE EST{E LAUDER COMPANIES INC.73
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:
Cash and cash equivalents:
The carrying amount approximates fair value, primarily because of the short maturity of cash equivalent instruments.
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.
The estimated fair values of the Company’s financial instruments are as follows:
JUNE 30, 2005 JUNE 30, 2004
Carrying Amount Fair Value Carrying Amount Fair Value
(In millions)
Nonderivatives
Cash and cash equivalents $553.3 $553.3 $611.6 $611.6
Short-term and long-term debt 714.7 763.4 535.3 545.5
Derivatives
Forward exchange contracts 2.6 2.6 1.7 1.7
Foreign currency option contracts 5.3 5.3 2.7 2.7
Interest rate swap contract (2.9) (2.9) (12.5) (12.5)