Estee Lauder 2009 Annual Report Download - page 127

126 THE EST{E LAUDER COMPANIES INC.
recognized or disclosed at fair value in the fi nancial state-
ments at least annually, until the beginning of the
Company’s fi scal 2010. As of July 1, 2008, the Company
adopted SFAS No. 157 (see Note 12), with the exception
of its application to nonfi nancial assets and nonfi nancial
liabilities, which the Company will defer in accordance
with FSP No. FAS 157-2 until the beginning of fi scal 2010.
Nonfi nancial assets and nonfi nancial liabilities principally
consist of intangible assets acquired through business
combinations, long-lived assets when assessing potential
impairment, and liabilities associated with restructuring
activities. The Company is currently evaluating the impact
of the provisions for such nonfi nancial assets and non-
fi nancial liabilities on its consolidated fi nancial statements.
In October 2008, the FASB issued FSP No. FAS 157-3,
“Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active” (“FSP No. FAS
157-3”), which clarifi es the application of SFAS No. 157 in
a market that is not active and provides an example to
illustrate key considerations in determining the fair value
of a fi nancial asset when the market for that fi nancial asset
is not active. The FSP is effective upon issuance, including
prior periods for which fi nancial statements have not been
issued. Revisions resulting from a change in the valuation
technique or its application should be accounted for as a
change in accounting estimate following the guidance in
SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS No. 154”). However, the disclosure provisions in
SFAS No. 154 for a change in accounting estimate are not
required for revisions resulting from a change in valuation
technique or its application. The Company adopted SFAS
No. 157 beginning in its fi scal 2009 fi rst quarter. As part of
this adoption, the Company evaluated the fair value
measurements of its fi nancial assets and liabilities and
determined that these instruments are valued in active
markets. As such, the guidance in this FSP did not impact
the Company’s consolidated fi nancial statements.
In April 2009, the FASB issued FSP No. FAS 157-4,
“Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly” (“FSP No. FAS 157-4”). This FSP provides addi-
tional guidance for estimating fair value in accordance
with SFAS No. 157 when there has been a signifi cant
decrease in market activity for a fi nancial asset. An entity
is required to base its conclusion about whether a trans-
action was distressed on the weight of the evidence pre-
sented. This FSP also re-affi rms that the objective of fair
value, when the market for an asset is not active, is the
price that would be received to sell the asset in an orderly
market (as opposed to a distressed or forced transaction).
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities— an amendment of FASB Statement No. 133”
(“SFAS No. 161”). SFAS No. 161 requires companies to
provide qualitative disclosures about their objectives and
strategies for using derivative instruments, quantitative
disclosures of the fair values of, and gains and losses on,
these derivative instruments in a tabular format, as well as
more information about liquidity by requiring disclosure
of a derivative contract’s credit-risk-related contingent fea-
tures. SFAS No. 161 also requires cross-referencing within
footnotes to enable fi nancial statement users to locate
important information about derivative instruments. The
Company adopted this disclosure-only standard begin-
ning in its fi scal 2009 third quarter (see Note 11).
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements” (“SFAS No. 157”), to clarify
the defi nition of fair value, establish a framework for mea-
suring fair value and expand the disclosures on fair value
measurements. SFAS No. 157 defi nes fair value as the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between mar-
ket participants at the measurement date (an exit price).
SFAS No. 157 also stipulates that, as a market-based mea-
surement, fair value measurement should be determined
based on the assumptions that market participants would
use in pricing the asset or liability, and establishes a fair
value hierarchy that distinguishes between (a) market par-
ticipant assumptions developed based on market data
obtained from sources independent of the reporting
entity (observable inputs) and (b) the reporting entity’s
own assumptions about market participant assumptions
developed based on the best information available in the
circumstances (unobservable inputs).
In February 2008, the FASB issued FASB Staff Position
(“FSP”) No. FAS 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements
for Purposes of Lease Classifi cation or Measurement
under Statement 13.” This FSP amends SFAS No. 157 to
exclude certain leasing transactions accounted for under
previously existing accounting guidance. However,
this scope exception does not apply to assets acquired
and liabilities assumed in a business combination, regard-
less of whether those assets and liabilities are related
to leases.
In February 2008, the FASB issued FSP No. FAS 157-2,
“Effective Date for FASB Statement No. 157” (“FSP No.
FAS 157-2”). This FSP permits the delayed application of
SFAS No. 157 for nonfi nancial assets and nonfi nancial lia-
bilities, as defi ned in this FSP, except for those that are