Estee Lauder 2009 Annual Report Download - page 142

THE EST{E LAUDER COMPANIES INC. 141
Quoted Prices in
Active Markets for Signifi cant Other Signifi cant
Identical Asset Observable Inputs Unobservable Inputs
(Level 1) (Level 2) (Level 3) Total
(In millions)
Assets:
Foreign currency forward contracts $ — $16.7 $ — $16.7
Interest rate swap contracts — 24.5 — 24.5
Available-for-sale securities 5.5 — — 5.5
Total $5.5 $41.2 $ — $46.7
Liabilities:
Foreign currency forward contracts $ — $26.2 $ — $26.2
Fair Value of Financial Instruments
The following methods and assumptions were used to
estimate the fair value of the Company’s other classes of
fi nancial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents — The carrying amount approx-
imates fair value, primarily because of the short maturity
of cash equivalent instruments.
Available-For-Sale Securities — Available-for-sale securities
are generally comprised of mutual funds and are valued
using quoted market prices on an active exchange.
Available-for-sale securities are included in investments in
the accompanying consolidated balance sheets.
Foreign Currency Forward and Option Contracts — The fair
values of the Company’s foreign currency forward and
option contracts were valued using pricing models, with
all signifi cant inputs derived from or corroborated by
observable market data such as yield curves, currency
spot and forward rates and currency volatilities.
Interest Rate Swap Contracts — The fair values of the
Company’s outstanding interest rate swap contracts
were determined based on non-binding offers from the
counterparties that are corroborated by observable
market data.
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 approxi-
mates the fair value.
Accordingly, management believes risk of loss under these
hedging contracts is remote.
Certain of the Company’s derivative fi nancial instru-
ments contain credit-risk-related contingent features. As
of June 30, 2009, the Company was in compliance with
such features and there were no derivative financial
instruments with credit-risk-related contingent features
that were in a net liability position.
NOTE 12 — FAIR VALUE MEASUREMENTS
The Company records its fi nancial assets and liabilities at
fair value, which is defi ned as the price that would be
received to sell an asset or paid to transfer a liability, in the
principal or most advantageous market for the asset or
liability, in an orderly transaction between market partici-
pants at the measurement date. The Company is required
to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
The three levels of inputs that may be used to measure fair
value are as follows:
Level 1: Inputs based on quoted market prices for identical
assets or liabilities in active markets at the mea-
surement date.
Level 2: Observable inputs other than quoted prices
included in Level 1, such as quoted prices for
similar assets and liabilities in active markets;
quoted prices for identical or similar assets and
liabilities in markets that are not active; or other
inputs that are observable or can be corroborated
by observable market data.
Level 3: Inputs refl ect management’s best estimate of
what market participants would use in pricing
the asset or liability at the measurement date.
The inputs are unobservable in the market and
signifi cant to the instruments valuation.
The following table presents the Company’s hierarchy for
its fi nancial assets and liabilities measured at fair value on
a recurring basis as of June 30, 2009: