Estee Lauder 2010 Annual Report Download - page 124

THE EST{E LAUDER COMPANIES INC. 123
to a continued decline in operating results during the
fourth quarter and additional revisions to internal fore-
casts, recorded a goodwill impairment charge related to
the Darphin reporting unit of $12.5 million at the
exchange rate in effect at that time, primarily in the skin
care product category and in the Europe, the Middle East
& Africa region. Due to the same factors, the Company
recorded other goodwill impairment charges of $1.8 mil-
lion, primarily in the skin care product category and in the
Americas region.
NOTE 6 — ACQUISITION OF BUSINESSES
During fiscal 2009, the Company acquired AGI. The pur-
chase price was paid in cash at closing. In addition, at vari-
ous times during fiscal 2010 and 2009, 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
(related to the fiscal 2009 acquisitions), was $10.7 million
and $68.4 million in fiscal 2010 and 2009, respectively.
The results of operations for each of the acquired busi-
nesses are included in the accompanying consolidated
financial statements commencing with its date of original
acquisition. 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
consolidated financial 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 profitable growth. The Company antic-
ipates the Program will result in related restructuring and
other special charges, inclusive of cumulative charges
recorded to date and over the next few fiscal years, total-
ing between $350 million and $450 million before taxes.
The Program focuses on a redesign of the Company’s
organizational structure in order to integrate the Com-
pany in a more cohesive way and operate more globally
across brands and functions. A principal aspect of the
Program is the reduction of the workforce by approxi-
mately 2,000 employees. Specific actions taken during
the year ended June 30, 2010 included:
activities, revisions in internal forecasts and an application
of the Company’s continued decline in market capitaliza-
tion to this reporting unit. The Company performed an
interim impairment test for goodwill and trademarks as of
March 31, 2009 on this reporting unit. The Company con-
cluded that the carrying value of the Darphin trademark
exceeded its estimated fair value and, as a result, recog-
nized an impairment charge of $12.3 million at the
exchange rate in effect at that time. This charge was
reflected 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 com-
pleted 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.
In addition, during the third quarter of fiscal 2009, the
Company identified 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
product category and in the Americas region.
During the fourth quarter of fiscal 2009, the Company
identified other 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 flow perfor-
mances and the impact of the current economic environ-
ment on their projected future operating results. The
Company determined that the other intangible assets
were impaired and therefore recorded asset impairment
charges of $14.7 million in the fragrance and skin care
product categories and in the Americas region.
The Company completed its annual impairment test of
indefinite-lived intangible assets during the fourth quarter
of fiscal 2009. Due to the economic environment and
revised expectations regarding future net sales generated
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 fiscal 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 flows.
During the fourth quarter of fiscal 2009, the Company
completed its annual goodwill impairment test and, due