Estee Lauder 2008 Annual Report Download - page 89

NOTE 7 — ACQUISITION AND DIVESTITURE OF
BUSINESSES AND LICENSE ARRANGEMENTS
During fi scal 2008, the Company acquired Ojon Corpora-
tion. In conjunction with this acquisition, the Company
purchased, from an unrelated party, the exclusive rights to
sell and distribute Ojon products worldwide. The initial
purchase price, paid at closing, was funded by cash pro-
vided by operations and the issuance of commercial
paper as well as the issuance of two promissory notes, as
described in Note 11. The purchase agreement also pro-
vides for an additional payment, which is expected to be
made in fi scal 2013, contingent upon the attainment of
certain net sales targets of Ojon products.
During fiscal 2007, the Company purchased the
remaining minority equity interests in Bumble and Bumble
Products, LLC and Bumble and Bumble, LLC, which have
been accounted for as indefi nite lived intangible assets in
the accompanying consolidated balance sheet.
At various times during fi scal 2008, 2007 and 2006,
the Company also acquired businesses engaged in the
wholesale distribution and retail sale of the Company’s
products in the United States and other countries and
made earn-out payments related to the acquisition of the
Bobbi Brown brand.
The aggregate cost for these activities, which includes
purchase price, earn-out payments and acquisition costs,
was $150.8 million, $61.2 million, and $51.7 million in fi s-
cal 2008, 2007 and 2006, respectively. The results of
operations for each of the acquired businesses are
included in the accompanying consolidated fi nancial
statements commencing with its date of original acquisi-
tion. Pro forma results of operations have not been pre-
sented, as the impact on the Company’s consolidated
fi nancial results would not have been material.
In fi scal 2006, the Company completed the sale of
certain assets and operations of the reporting unit that
marketed and sold Stila brand products to Stila Corp.
(the “Purchaser”), an affi liate of Sun Capital Partners, Inc.
The Company recorded charges of $80.3 million (net of
$43.3 million tax benefi t) to discontinued operations,
which refl ected the loss on the disposition of the business
of $69.9 million, net of tax, and adjustments to the fair
value of assets sold, the costs to dispose of those assets
not acquired by the Purchaser and other costs in connec-
tion with the sale. The charges also included the operating
losses of $10.4 million, net of tax, for fi scal year ended
June 30, 2006. Net sales associated with the discontinued
operations were $45.1 million for the fi scal year ended
June 30, 2006.
Since fi scal 2007, the Company signed an exclusive
agreement to create fragrances and related products to
be sold to Coach Inc., which are available at Coach retail
stores in the United States. Also since fi scal 2007, the
Company entered into a license agreement with Ford
Motor Company to create a fragrance using the name
Mustang. Since fi scal 2006, the Company developed and
sold fragrance products pursuant to a license agreement
with Daisy Fuentes.
Certain license agreements may require minimum roy-
alty payments, incremental royalties based on net sales
levels and minimum spending on advertising and promo-
tional activities. Royalty expenses are accrued in the
period in which net sales are earned while advertising and
promotional expenses are accrued at the time these costs
are incurred.
NOTE 8 — COST SAVINGS INITIATIVE
During fiscal 2006, the Company recorded special
charges associated with a cost savings initiative that was
designed to support its long-term fi nancial objectives. As
part of this multi-faceted initiative, the Company had iden-
tifi ed savings opportunities that include streamlined pro-
cesses and organizational changes. The principal
component of the initiative was a voluntary separation
program offered primarily to North America-based
employees. During the fourth quarter of fi scal 2006, invol-
untary separations were communicated to certain employ-
ees. Under this initiative, the Company incurred expenses
related to one-time termination benefi ts for 494 employ-
ees, of which 28 were involuntary, which benefi ts were
based principally upon years of service. Employees desig-
nated for separation under the cost savings initiative were
separated by June 30, 2007.
In addition, the Company identifi ed other cost savings
opportunities to improve effi ciencies in the Company’s
distribution network and product offerings and to elimi-
nate other nonessential costs. These charges primarily
related to employee severance for facilities that were
closed, contract cancellations, counter and door closings
and product returns.
THE EST{E LAUDER COMPANIES INC. 87
The aggregate amortization expense related to amortizable intangible assets for the years ended June 30, 2008, 2007 and
2006 was $14.0 million, $6.3 million and $5.5 million, respectively. The estimated aggregate amortization expense for
each of the next fi ve fi scal years is as follows:
ESTIMATED EXPENSE IN FISCAL 2009 2010 2011 2012 2013
(In millions)
Aggregate amortization expense $11.4 $11.1 $10.9 $10.6 $10.1