Estee Lauder 2011 Annual Report Download - page 128

126 THE EST{E LAUDER COMPANIES INC.
The Company provides tax reserves for U.S. federal,
state, local and foreign exposures relating to periods sub-
ject to audit. The development of reserves for these expo-
sures requires judgments about tax issues, potential
outcomes and timing, and is a subjective critical estimate.
The Company assesses its tax positions and records tax
benefits for all years subject to examination based upon
management’s evaluation of the facts, circumstances, and
information available at the reporting dates. For those tax
positions where it is more-likely-than-not that a tax benefit
will be sustained, the Company has recorded the largest
amount of tax benefit with a greater than 50% likelihood
of being realized upon settlement with a tax authority that
has full knowledge of all relevant information. For those
tax positions where it is not more-likely-than-not that a
tax benefit will be sustained, no tax benefit has been
recognized in the consolidated financial statements. The
Company classifies applicable interest and penalties as a
component of the provision for income taxes. Although
the outcome relating to these exposures is uncertain, in
management’s opinion adequate provisions for income
taxes have been made for estimable potential liabilities
emanating from these exposures. In certain circum-
stances, the ultimate outcome of exposures and risks
involves significant uncertainties which render them
inestimable. If actual outcomes differ materially from
these estimates, they could have a material impact on the
Company’s consolidated results of operations.
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board
(“FASB”) issued authoritative guidance to eliminate the
exception to consolidate a qualifying special-purpose
entity, change the approach to determining the primary
beneficiary of a variable interest entity and require com-
panies to more frequently re-assess whether they must
consolidate variable interest entities. Under the new guid-
ance, the primary beneficiary of a variable interest entity
is identified qualitatively as the enterprise that has both
(i) the power to direct the activities of a variable interest
entity that most significantly impact the entity’s economic
performance, and (ii) the obligation to absorb losses of
the entity that could potentially be significant to the vari-
able interest entity or the right to receive benefits from
the entity that could potentially be significant to the vari-
able interest entity. This guidance became effective for
the Company’s fiscal 2011 year end. The adoption did not
have a material impact on the Company’s consolidated
financial statements.
Recently Issued Accounting Standards
In June 2011, the FASB amended its authoritative guid-
ance related to the presentation of comprehensive
income, requiring entities to present items of net income
and other comprehensive income either in one continu-
ous statement or in two separate consecutive statements.
This guidance becomes effective for the Company’s fiscal
2013 first quarter. The Company is currently evaluating
the impact of adopting this guidance but believes that
it will result only in changes in the presentation of its
financial statements and will not have a material impact
on the Company’s results of operations, financial position
or cash flows.
In May 2011, the FASB amended its authoritative guid-
ance related to fair value measurements to provide a con-
sistent definition and measurement of fair value, as well as
similar disclosure requirements between U.S. GAAP and
International Financial Reporting Standards. This guidance
clarifies the application of existing fair value measurement
and expands the existing disclosure requirements. This
guidance becomes effective for the Company’s fiscal
2012 third quarter. This guidance is not expected to have
a material impact on the Company’s results of operations,
financial position or cash flows, but may require certain
additional disclosures.
In December 2010, the FASB amended its authoritative
guidance related to Step 1 of the goodwill impairment
test for reporting units with zero or negative carrying
amounts. For those reporting units, an entity is required
to perform Step 2 of the goodwill impairment test if it
is more-likely-than-not that a goodwill impairment exists.
In determining whether it is more-likely-than-not that a
goodwill impairment exists, consideration should be
made as to whether there are any adverse qualitative fac-
tors indicating that an impairment may exist. This guid-
ance becomes effective for the Company’s fiscal 2012
first quarter. The adoption of this standard is not expected
to have a material impact on the Company’s consolidated
financial statements.
In December 2010, the FASB amended its authoritative
guidance related to business combinations entered into
by an entity that are material on an individual or aggre-
gate basis. These amendments clarify existing guidance
that if an entity presents comparative financial statements
that include a material business combination, the entity
should disclose revenue and earnings of the combined
entity as though the business combination that occurred
during the current year had occurred as of the beginning
of the comparable prior annual reporting period. The
amendments also expand the supplemental pro forma
disclosures to include a description of the nature and