Estee Lauder 2014 Annual Report Download - page 95

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THE EST{E LAUDER COMPANIES INC. 93
To determine fair value of the Darphin trademark at
April 1, 2013, the Company assessed the future performance
of the related reporting unit and determined that negative
cash flows in future forecasted periods would not support
a royalty rate for the calculation of fair value of the trade-
mark at that time. The Company therefore concluded that
the carrying value of this asset was not recoverable.
See Note 5
—
Goodwill and Other Intangible Assets for
further discussion of the Company’s impairment testing.
The following methods and assumptions were used to
esti mate
the fair value of the Company’s other classes of
financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
—
The carrying amount
approximates fair value, primarily because of the short
maturity of cash equivalent instruments
.
Available-for-sale securities
—
Available-for-sale securities
a
re generally comprised of mutual funds and are valued
using quoted market prices on an active exchange.
Avail
able-for-sale securities are included in Other assets in
the accompanying consolidated balance sheets.
Note receivable — During the second quarter of fiscal
2013, the Company amended the agreement related to the
August 2007 sale of Rodan + Fields (a brand then owned by
the Company) to receive a fixed amount in lieu of future
contingent consideration and other rights. The fair value of
the receivable under the amended agreement was deter-
mined by discounting the future cash flows using an implied
market rate of 6.1%. This implied market rate reflects the
Company’s estimate of interest rates prevailing in the
market for notes with comparable remaining maturities,
the creditworthiness of the counterparty, and an assess-
ment of the ultimate collectability of the instrument. The
implied market rate is deemed to be an unobservable
input and as such the Company’s note receivable is classi-
fied within Level 3 of the valuation hierarchy. An increase
or decrease in the risk premium of 100 basis points would
not result in a significant change to the fair value of the
receivable. See Note 13
—
Commitments and Contingencies
for further discussion on the amended agreement.
Foreign currency forward contracts
—
The fair values of the
Company’s foreign currency forward contracts were deter-
mined using an industry-standard valuation model, which is
based on an income approach. The significant observable
inputs to the model, such as swap yield curves and currency
spot and forward rates, were obtained from an independent
pricing service. To determine the fair value of contracts under
the model, the difference between the contract price
and
the current forward rate was discounted using LIBOR
for
contracts with maturities up to 12 months, and swap
yield
curves for contracts with maturities greater than 12 months.
Current 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
approximates the fair value. The Company’s debt is classi-
fied within Level 2 of the valuation hierarchy.
The estimated fair values of the Company’s financial
instruments are as follows:
JUNE 30, 2014 JUNE 30, 2013
Carrying Amount Fair Value Carrying Amount Fair Value
(In millions)
Nonderivatives
Cash and cash equivalents $1,629.1 $1,629.1 $1,495.7 $1,495.7
Available-for-sale securities 7.6 7.6 6.5 6.5
Note receivable 8.4 8.5 16.8 16.9
Current and long-term debt 1,343.1 1,428.3 1,344.3 1,387.8
Derivatives
Foreign currency forward contracts — asset (liability) (14.9) (14.9) 12.6 12.6
JUNE 30, 2014JUNE 30, 2014
Carrying AmountCarrying Amount
Fair ValueFair Value
$1,629.1$1,629.1
$1,629.1$1,629.1
7.67.6
7.67.6
8.48.4
8.58.5
1,343.11,343.1
1,428.31,428.3
(14.9)(14.9)
(14.9)(14.9)
NOTE 12
—
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
service and employees’ earnings. In certain instances, the
Company adjusts benefits in connection with inter-
national 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 Retire-
ment Income Security Act of 1974 (“ERISA”), as amended,
and subsequent pension legislation and is not more than
the maximum amount deductible for income tax purposes.