Estee Lauder 2007 Annual Report Download - page 75

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NOTE 10
—
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 benefi ts based primarily on years of ser-
vice and employees’ earnings. In certain instances, the
Company adjusts benefi ts in connection with international
employee transfers.
Retirement Growth Account Plan (U.S.)
The Retirement Growth Account Plan is a trust-based,
noncontributory qualifi ed defi ned benefi t pension plan.
The Company’s funding policy consists of an annual con-
tribution at a rate that provides for future plan benefi ts
and maintains appropriate funded percentages. Such
contribution 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, non-qualifi ed domes-
tic noncontributory pension Restoration Plan to provide
benefi ts in excess of Internal Revenue Code limitations.
International Pension Plans
The Company maintains International Pension Plans, the
most signifi cant of which are defi ned benefi t pension
plans. The Company’s funding policies for these plans are
determined by local laws and regulations.
74 THE EST{E LAUDER COMPANIES INC.
Information regarding the Company’s interest rate swap agreements is presented in the following table:
YEAR ENDED OR AT JUNE 30, 2007 YEAR ENDED OR AT JUNE 30, 2006
Notional Weighted Average Notional Weighted Average
Amount Pay Rate Receive Rate Amount Pay Rate Receive Rate
($ in millions)
Interest rate swaps on 2017 Senior Notes
$250.0 5.70% 5.55% $ — — —
Interest rate swap on 2012 Senior Notes
$ — — — $250.0 6.22% 6.00%
YEAR ENDED
O
R AT JUNE 30, 2007
N
otiona
l
Weighted Average
Amount Pa
y
Rate Receive Rate
$
250.0 5.70% 5.55%
$
— — —
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of fi nancial 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 fi nancial instruments are as follows:
JUNE 30, 2007 JUNE 30, 2006
Carrying Amount Fair Value Carrying Amount Fair Value
(In millions)
Nonderivatives
Cash and cash equivalents $ 253.7 $ 253.7 $368.6 $368.6
Short-term and long-term debt 1,088.5 1,082.0 521.5 533.2
Derivatives
Forward exchange contracts (0.4) (0.4) 2.0 2.0
Foreign currency option contracts —— 1.2 1.2
Interest rate swap contracts (8.6) (8.6) (19.4) (19.4)
JUNE 30
,
2007
Carrying Amount Fair Va
l
ue
$
253.
7
$
253.
7
1
,
088.
5
1
,
082.
0
(
0.4
)
(
0.4
)
—
—
(
8.6
)
(
8.6
)