Estee Lauder 2005 Annual Report Download - page 62

THE EST{E LAUDER COMPANIES INC.
the Company relied on three valuation models: guideline
public companies, acquisition analysis and discounted cash
flow. For goodwill valuation purposes only, the revised fair
value of a reporting unit would be allocated 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.
In February 2004, the Company sold the assets and oper-
ations of its reporting unit that sold jane brand products.
Based on an assessment of the tangible and intangible
assets of this business, the Company determined 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 discontinued operations in the
accompanying consolidated statements of earnings. This
write-down primarily impacted the Company’s makeup
product category and the Americas region.
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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 OR AT JUNE 30 2003 Additions Reductions 2004 Additions Reductions 2005
(In millions)
Skin Care $ 14.0 $1.0 $ — $ 15.0 $ 4.0 $— $ 19.0
Makeup 342.2 — (26.4) 315.8 2.8 — 318.6
Fragrance 15.5 — — 15.5 39.7 — 55.2
Hair Care 323.6 2.4 — 326.0 1.8 — 327.8
Total $695.3 $3.4 $(26.4) $672.3 $48.3 $— $720.6
Included in fiscal 2005 additions to goodwill was $37.7 million related to an expected payment to be made in fiscal 2006
to satisfy an earn-out provision related to the Company’s acquisition of Jo Malone Limited in October 1999.
Other Intangible Assets
Other intangible assets include trademarks and patents, as
well as license agreements and other intangible assets
resulting from or related to businesses purchased by the
Company. Indefinite lived assets (e.g., trademarks) are not
subject to amortization and are evaluated annually for
impairment or sooner if certain events or circumstances
indicate a potential impairment. Patents are amortized on a
straight-line basis over the shorter of the legal term or the
useful life of the patent, approximately 20 years. Other
intangible assets (e.g., non-compete agreements, customer
lists) are amortized on a straight-line basis over their
expected period of benefit, approximately 5 years to 8
years. Intangible assets related to license agreements are
amortized on a straight-line basis over their useful lives
based on the terms of their respective agreements, cur-
rently approximately 10 years to 16 years, and are subject
to periodic impairment testing.
Other intangible assets consist of the following:
Gross Total
Carrying Accumulated Net Book
JUNE 30, 2005 Value Amortization Value
(In millions)
License agreements $42.9 $15.5 $27.4
Trademarks and other 49.5 5.3 44.2
Patents 0.5 0.3 0.2
Total $92.9 $21.1 $71.8
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
The aggregate amortization expenses related to amortiz-
able intangible assets for the years ended June 30, 2005,
2004 and 2003 were $4.6 million, $4.0 million and $1.9
million, respectively. The estimated aggregate amortization
expense for each of the next five fiscal years is as follows:
ESTIMATED EXPENSE IN FISCAL 2006 2007 2008 2009 2010
(In millions)
Aggregate amortization expense $4.7 $4.7 $4.7 $3.3 $3.0