Estee Lauder 2010 Annual Report Download - page 123

122 THE EST{E LAUDER COMPANIES INC.
jected future cash flows (relief-from-royalty method) for
the trademark and discounted projected future cash flows
for the customer list. As a result, the Company recognized
asset impairment charges of $6.0 million for the trade-
mark and $17.2 million for the customer list, at the
exchange rate in effect at that time. After adjusting
the carrying value of the trademark and customer list, the
Company completed an interim impairment test for
goodwill and recorded a goodwill impairment charge
related to the Ojon reporting unit of $16.6 million at the
exchange rate in effect at that time. The fair value of the
reporting unit was based upon weighting of the income
and market approaches, utilizing estimated cash flows and
a terminal value, discounted at a rate of return that reflects
the relative risk of the cash flows, as well as valuation
multiples derived from comparable publicly traded
companies that are applied to operating performance of
the reporting unit. These impairment charges were
reflected in the hair care and skin care product categories
and in the Americas region. As of June 30, 2010, the
carrying value of goodwill related to the Ojon reporting
unit was $28.0 million.
During the fourth quarter of fiscal 2010, the Company
approved a restructuring initiative that included the refor-
mulation of Ojon brand products. The Company con-
cluded that this change in the formulation was an indicator
that the carrying amount of the product formulation intan-
gible asset may not be recoverable. The Company per-
formed an impairment test of the product formulation
intangible asset and concluded that the carrying value of
this intangible asset exceeded its estimated fair value,
which was determined based on discounted projected
future cash flows. As a result, the Company recognized an
asset impairment charge of $8.8 million, which is included
in Restructuring and other special charges in the accom-
panying consolidated statement of earnings.
Fiscal 2009 Impairments
During the third quarter of fiscal 2009, the Company
concluded that the Darphin reporting unit met certain
indicators triggering an interim impairment review of
goodwill and trademarks. Those indicators included
a decline in recent operating activities, restructuring
Fiscal 2010 Impairments
During the second quarter of fiscal 2010, the Darphin
reporting unit identified issues related to the planned
streamlining of its distribution process, resulting in revi-
sions to its internal forecasts. The Company concluded
that these changes in circumstances in the Darphin
reporting unit triggered the need for an interim impair-
ment test of its trademark and goodwill. The Company
determined that the trademark was impaired, with fair
value estimated based upon the relief-from-royalty
method, and therefore recorded an impairment charge of
$5.8 million, at the exchange rate in effect at that time, in
the skin care product category and in the Europe, the
Middle East & Africa region. After adjusting the carrying
value of the trademark, the Company completed step one
of the impairment test for goodwill and concluded that
the fair value of the Darphin reporting unit was in excess
of its carrying value including goodwill. The fair value of
the reporting unit was based upon the income approach,
utilizing estimated cash flows and a terminal value, dis-
counted at a rate of return that reflects the relative risk of
the cash flows. As of June 30, 2010, the carrying value
of goodwill related to the Darphin reporting unit was
$9.2 million.
During the second quarter of fiscal 2010, the Ojon
reporting unit altered and delayed certain components of
its future expansion plans, resulting in revisions to its inter-
nal forecasts. The Company concluded that these changes
in circumstances in the Ojon reporting unit triggered the
need for an interim impairment review of its goodwill and
trademark. Additionally, these changes in circumstances
were also an indicator that the carrying amount of the
product formulation intangible asset and customer list
may not be recoverable. The Company performed an
interim impairment test for the trademark and a recover-
ability test for the product formulation intangible asset
and customer list as of December 31, 2009. For the prod-
uct formulation intangible asset, the Company concluded
that the carrying amount of this asset was recoverable.
However, for the Ojon trademark and customer list, the
Company concluded that the carrying values exceeded
their estimated fair values, which were determined based
on the application of a royalty rate to discounted pro-
The aggregate amortization expense related to amortizable intangible assets for the years ended June 30, 2010, 2009 and
2008 was $9.1 million, $11.5 million and $14.0 million, respectively. The estimated aggregate amortization expense for
each of the next five fiscal years is as follows:
ESTIMATED EXPENSE IN FISCAL 20 11 2012 2013 2014 2015
(In millions)
Aggregate amortization expense $7.3 $6.7 $6.7 $6.6 $6.6