Estee Lauder 2009 Annual Report Download - page 132

THE EST{E LAUDER COMPANIES INC. 131
NOTE 6
— ACQUISITION OF BUSINESSES
During fi scal 2009, the Company acquired AGI. The pur-
chase price was paid in cash at closing. During fi scal
2008, the Company acquired Ojon Corporation. In con-
junction with this acquisition, the Company purchased,
from an unrelated party, the exclusive rights to sell and
distribute Ojon products worldwide. The initial purchase
price was funded by cash, the issuance of commercial
paper and the issuance of two promissory notes, as
described in Note 10. 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 fi scal
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.
At various times during fi scal 2009, 2008 and 2007, the
Company also acquired businesses engaged in the whole-
sale 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 $68.4 million, $150.8 million, and $61.2 million in
fi scal 2009, 2008 and 2007, 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 as if each of such
businesses had been acquired as of the beginning of the
year of acquisition and as of the prior-year period have
not been presented, as the impact on the Company’s con-
solidated fi nancial results would not have been material.
NOTE 7 — CHARGES ASSOCIATED WITH
RESTRUCTURING ACTIVITIES
In an effort to drive down costs and achieve synergies
within the organization, in February 2009, the Company
announced the implementation of a multi-faceted cost
savings program (the “Program”) to position itself to
achieve long-term profi table growth. The Company antic-
ipates the Program will result in related restructuring and
As previously discussed, the Company performed an
interim impairment test as of March 31, 2009 for trade-
marks related to the Darphin reporting unit. The Company
concluded that the carrying value of the Darphin trade-
mark exceeded its estimated fair value and, as a result,
recognized an impairment charge of $12.3 million at the
exchange rate in effect at that time. This charge was
refl ected in the skin care product category and in the
Europe, the Middle East & Africa region. In addition,
during the third quarter of fi scal 2009, the Company iden-
tifi ed a license agreement intangible asset which was
tested for impairment based upon a history of operating
losses in excess of projections and revisions in internal
forecasts. The Company determined that the intangible
asset was impaired and therefore recorded an asset
impairment charge of $2.3 million in the fragrance prod-
uct category and in the Americas region.
During the fourth quarter of fi scal 2009, the Company
identifi ed intangible assets related to the Michael Kors
license agreement, as well as distributor relationships and
core ingredients technology, to test for impairment due to
lower than expected operating cash fl ow performances
and the impact of the current economic environment on
their projected future operating results. The Company
determined that the intangible assets were impaired and
therefore recorded asset impairment charges of $14.7 mil-
lion in the fragrance and skin care product categories and
in the Americas region.
The Company completed its annual impairment test of
indefi nite-lived intangible assets during the fourth quarter
of fi scal 2009. Due to the current economic environment
and revised expectations regarding future net sales gener-
ated from the use of Ojon and Bumble and bumble trade-
marks, the Company determined that their carrying values
exceeded the estimated fair value, by approximately $9.8
million, predominantly in the hair care product category
and in the Americas region. Additionally, during the fourth
quarter of fi scal 2009, the Company wrote-off approxi-
mately $1.2 million of trademarks, primarily in the makeup
and skin care product categories and in the Americas
region, which are no longer expected to generate operat-
ing cash fl ows.
The aggregate amortization expense related to amortizable intangible assets for the years ended June 30, 2009, 2008 and
2007 was $11.5 million, $14.0 million and $6.3 million, respectively. The estimated aggregate amortization expense for
each of the next fi ve fi scal years is as follows:
ESTIMATED EXPENSE IN FISCAL 2010 2011 2012 2013 2014
(In millions)
Aggregate amortization expense $9.5 $9.3 $8.9 $8.5 $6.2