Estee Lauder 2011 Annual Report Download - page 98

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96 THE EST{E LAUDER COMPANIES INC.
Our derivative financial instruments are recorded
as either assets or liabilities on the balance sheet and
measured at fair value. All derivatives outstanding as of
June 30, 2011 are (i) designated as a hedge of the fair
value of a recognized asset or liability or of an unrecog-
nized firm commitment (“fair-value” hedge), (ii) desig-
nated as a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a
recognized asset or liability (“foreign currency cash-flow”
hedge), or (iii) not designated as a hedging instrument.
Changes in the fair value of a derivative that is designated
and qualifies as a fair-value hedge that is highly effective
are recorded in current-period earnings, along with the
loss or gain on the hedged asset or liability that is attribut-
able to the hedged risk (including losses or gains on
unrecognized firm commitments). Changes in the fair
value of a derivative that is designated and qualifies as a
foreign currency cash-flow hedge of a foreign-currency-
denominated forecasted transaction that is highly
effective are recorded in other comprehensive income
(loss) (“OCI”). Gains and losses deferred in OCI are then
recognized in current-period earnings when earnings are
affected by the variability of cash flows of the hedged
foreign-currency-denominated forecasted transaction
(e.g., when periodic settlements on a variable-rate asset or
liability are recorded in earnings). Changes in the fair
value of derivative instruments not designated as hedging
instruments are reported in current-period earnings.
For a discussion on the quantitative impact of market
risks related to our derivative financial instruments,
see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources — Market Risk.”
QUANTITATIVE ANALYSIS
During the three-year period ended June 30, 2011 there
have not been material changes in the assumptions under-
lying these critical accounting policies, nor to the related
significant estimates. The results of our business underly-
ing these assumptions have not differed significantly from
our expectations.
While we believe that the estimates that we have made
are proper and the related results of operations for the
period are presented fairly in all material respects, other
assumptions could reasonably be justified that would
change the amount of reported net sales, cost of sales,
operating expenses or our provision for income taxes as
they relate to the provisions for anticipated sales returns,
allowance for doubtful accounts, inventory obsolescence
reserve and income taxes. For fiscal 2011, had these esti-
mates been changed simultaneously by 2.5% in either
direction, our reported gross profit would have increased
or decreased by approximately $4.8 million, operating
expenses would have changed by approximately $0.8 mil-
lion and the provision for income taxes would have
increased or decreased by approximately $0.7 million.
The collective impact of these changes on operating
income, net earnings attributable to The Estée Lauder
Companies Inc., and net earnings attributable to The
Estée Lauder Companies Inc. per diluted common share
would be an increase or decrease of approximately $5.6
million, $6.3 million and $.03, respectively.
RESULTS OF OPERATIONS
We manufacture, market and sell beauty products includ-
ing those in the skin care, makeup, fragrance and hair
care categories which are distributed in over 150 coun-
tries and territories. The following table is a comparative
summary of operating results from continuing operations
for fiscal 2011, 2010 and 2009 and reflects the basis of
presentation described in “Note 2 — Summary of Signifi-
cant Accounting Policies and Note 20 — Segment Data and
Related Information” of Notes to Consolidated Financial
Statements for all periods presented. Products and
services that do not meet our definition of skin care,
makeup, fragrance and hair care have been included in
the “other” category.