Estee Lauder 2004 Annual Report Download - page 63

THE EST{E LAUDER COMPANIES INC.
business, the Company determined that the carrying value
of this unit was slightly greater than the derived fair value,
indicating an impairment in the recorded goodwill. To
determine fair value, the Company relied on three valua-
tion models: guideline public companies, acquisition
analysis and discounted cash flow. For goodwill valuation
purposes only, the revised fair value of this unit was allo-
cated to the assets and liabilities of the business unit to
arrive at an implied fair value of goodwill, based upon
known facts and circumstances, as if the acquisition
occurred at that time. This allocation resulted in a write-
down of recorded goodwill in the amount of $20.6 mil-
lion, which has been reported as a component of
discontinued operations in the accompanying consoli-
dated statements of earnings and cash flows. On a prod-
uct category basis, this write-down would have primarily
impacted the Company’s makeup category.
In February 2004, the Company sold the assets and
operations of its reporting unit that sold jane brand prod-
ucts. Prior to the sale of the business, in December 2003,
the Company committed to a plan to sell such assets and
operations. At the time the decision was made, circum-
stances warranted that the Company conduct an assess-
ment of the tangible and intangible assets of the jane
business. Based on this assessment, the Company deter-
mined that the carrying amount of these assets as then
reflected on the Company’s consolidated balance sheet
exceeded their estimated fair value. In accordance with
the assessment, the Company recorded a goodwill
impairment charge in the amount of $26.4 million for
fiscal 2004, which is reported as a component of discon-
tinued operations in the accompanying consolidated
statements of earnings. This write-down primarily
impacted the Company’s makeup product category and
the Americas region.
During fiscal 2002, the Company recorded a goodwill
impairment charge related to its Gloss.com business as a
component of its restructuring expense (see Note 5).
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Goodwill
The Company assigns goodwill of a reporting unit to the product category in which that reporting unit predominantly
operates at the time of its acquisition. The change in the carrying amount of goodwill is as follows:
YEAR ENDED JUNE 30 2002 Additions Reductions 2003 Additions Reductions 2004
(In millions)
Skin Care $ — $14.0 $— $ 14.0 $1.0 $ — $ 15.0
Makeup 342.2 — — 342.2 — (26.4) 315.8
Fragrance 15.5 — — 15.5 — — 15.5
Hair Care 317.9 5.7 — 323.6 2.4 — 326.0
Total $675.6 $19.7 $— $695.3 $3.4 $(26.4) $672.3
Other Intangible Assets
Other intangible assets consist of the following:
Gross Total
Carrying Accumulated Net Book
JUNE 30, 2004 Value Amortization Value
(In millions)
License agreements $40.3 $11.4 $28.9
Trademarks and other 48.6 5.6 43.0
Patents 0.5 0.5 —
Total $89.4 $17.5 $71.9
Gross Total
Carrying Accumulated Net Book
JUNE 30, 2003 Value Amortization Value
(In millions)
License agreements $32.4 $ 8.1 $24.3
Trademarks and other 46.7 6.6 40.1
Patents 1.6 0.6 1.0
Total $80.7 $15.3 $65.4
Pursuant to the adoption of SFAS No. 142 and effective
July 1, 2001, trademarks have been classified as indefinite
lived assets, are no longer amortized and are evaluated
periodically for impairment. The cost of other intangible
assets is amortized on a straight-line basis over their esti-
mated useful lives. The aggregate amortization expenses
related to amortizable intangible assets for the years
ended June 30, 2004, 2003 and 2002 were $4.0 million,
$1.9 million and $1.5 million, respectively.
Long-Lived Assets
In accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” long-lived
assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount of the assets in question may not be recoverable.
An impairment would be recorded in circumstances
where undiscounted cash flows expected to be generated
by an asset are less than the carrying value of that asset.