Estee Lauder 2010 Annual Report Download - page 137

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136 THE EST{E LAUDER COMPANIES INC.
corroborate the fair values of the non-binding offers using
inputs such as swap yield curves and six-month LIBOR
forward rates, which are obtained from an independent
pricing service.
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.
Interest rate swap contracts — The fair values of the
Company’s outstanding interest rate swap contracts were
determined using the market approach and were based
on non-binding offers from the counterparties that are
corroborated by observable market data using the income
approach. The non-binding offers represented the prices
offered by the counterparties in the over-the-counter mar-
ket to unwind and terminate these instruments (exclusive
of accrued interest) and incorporated the counterparties’
respective overall credit exposure to the Company. The
Company performs a discounted cash flow analysis to
The estimated fair values of the Company’s financial instruments are as follows:
JUNE 30, 2010 JUNE 30, 2009
Carrying Amount Fair Value Carrying Amount Fair Value
(In millions)
Nonderivatives
Cash and cash equivalents $1,120.7 $1,120.7 $ 864.5 $ 864.5
Available-for-sale securities 5.4 5.4 5.5 5.5
Short-term and long-term debt 1,228.4 1,325.3 1,421.4 1,425.0
Derivatives
Foreign currency forward contracts —
asset (liability) 6.6 6.6 (9.5) (9.5)
Interest rate swap contracts —
asset (liability) 38.7 38.7 24.5 24.5
J
UNE
30, 2010
Carrying Amount
Fair Value
$1,120.7
$1,120.7
5.4
5.4
1,228.4
1,325.3
6.6
6.6
38.7
38.7
NOTE 13
—
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 benefits based primarily on years of ser-
vice 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 contributions at
a rate that provides for future plan benefits 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-qualified 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
determined by local laws and regulations. The Company’s
most significant defined benefit pension obligations are
included in the plan summaries below.
Post-retirement Benefits
The Company maintains a domestic post-retirement ben-
efit plan which provides certain medical and dental
benefits to eligible employees. Employees hired after
January 1, 2002 are not eligible for retiree medical bene-
fits when they retire. Certain retired employees who are
receiving monthly pension benefits are eligible for par-
ticipation 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 and to provide
discretionary funding for the future liability up to the max-
imum amount deductible for income tax purposes.
Certain of the Company’s international subsidiaries
and affiliates have post-retirement plans, although most
participants are covered by government-sponsored or
administered programs.