Estee Lauder 2010 Annual Report Download - page 107

106 THE EST{E LAUDER COMPANIES INC.
standards that were recently issued but not yet effective,
on our consolidated financial statements.
FORWARD-LOOKING INFORMATION
We and our representatives from time to time make
written or oral forward-looking statements, including
statements 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 expecta-
tions regarding sales, earnings 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 future operations or
operating results. Although we believe that our expecta-
tions are based on reasonable assumptions within the
bounds of our knowledge of our business and operations,
actual results may differ materially from our expectations.
Factors that could cause actual results to differ from
expectations include, without limitation:
(1) increased competitive activity from companies in the
skin care, makeup, fragrance and hair care businesses,
some of which have greater resources than we do;
(2) our ability to develop, produce and market new prod-
ucts on which future operating results may depend and to
successfully address challenges in our business;
(3) consolidations, restructurings, bankruptcies and reor-
ganizations in the retail industry causing a decrease in the
number of stores that sell our products, an increase in
the ownership concentration within the retail industry,
ownership of retailers by our competitors or ownership of
competitors by our customers that are retailers and our
inability to collect receivables;
The change in the average value-at-risk measures from the
prior year related to our foreign exchange contracts
reflected a different size and mix of the portfolio. The
change in the average value-at-risk measures from the prior
year related to our interest rate contracts reflected lower
interest rate volatilities. The model estimates were made
assuming normal market conditions and a 95 percent con-
fidence level. We used a statistical simulation model that
valued our derivative financial instruments against one
thousand randomly generated 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 instru-
ments 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 that would be expected to have a
material current or future effect upon our financial condi-
tion or results of operations.
RECENTLY ADOPTED AND 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 recently adopted
accounting standards, as well as the impact of accounting
Market Risk
We use a value-at-risk model to assess the market risk of our derivative financial instruments. Value-at-risk represents 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 for the
twelve months ended June 30, 2010 and 2009 related to our foreign exchange and interest rate contracts are as follows:
JUNE 30, 2010 JUNE 30, 2009
(In millions) High Low Average High Low Average
Foreign exchange contracts $31.7 $19.0 $22.7 $28.4 $14.2 $21.6
Interest rate contracts 31.3 10.5 18.1 34.3 23.0 29.5
JUNE 30, 2010
High
Low
Average
$31.7
$19.0
$22.7
31.3
10.5
18.1