Estee Lauder 2012 Annual Report Download - page 138

136 THE EST{E LAUDER COMPANIES INC.
Impairment Testing During Fiscal 2011
During the third quarter of fiscal 2011, the Ojon reporting
unit reassessed and subsequently altered the timing of new
market initiatives, including the rollout of reformulated
product lines and certain components of its future inter-
national expansion plans, resulting in revisions to its internal
forecasts. The Company concluded that these changes in
circumstances in the Ojon reporting unit triggered the
need for an interim impairment review of its trademark
and goodwill. Additionally, these changes in circum-
stances were also an indicator that the carrying amount of
the customer list may not be recoverable. The Company
performed an interim impairment test for the trademark
and a recoverability test for the customer list as of February
28, 2011. For the customer list, the Company concluded
that the carrying amount of this asset was recoverable.
However, for the Ojon trademark, the Company con-
cluded that the carrying value exceeded its estimated fair
value, based on the relief-from-royalty method. As a result,
the Company recognized an impairment charge of $7.0
million. After adjusting the carrying value of the trade-
mark, the Company completed an interim impairment test
for goodwill and recorded an impairment charge for the
remaining goodwill related to the Ojon reporting unit of
$29.3 million, at the exchange rate in effect at that time.
The fair value of the reporting unit was based upon the
income approach, utilizing estimated cash flows and a ter-
minal value, discounted at a rate of return that reflects the
relative risk of the cash flows. These impairment charges
were reflected in the hair care and skin care product
categories and in the Americas region.
As of the Company’s annual indefinite-lived asset
impairment test on April 1, 2011, the Company deter-
mined, as a result of a planned discontinuation, that the
carrying values of two brand trademarks exceeded their
estimated fair values, which were based on the use of the
relief-from-royalty method. As a result, the Company
recognized an impairment charge of $1.7 million for the
carrying values of the related trademarks. These impair-
ment charges were reflected in the makeup and skin care
product categories and in the Americas region.
NOTE 6 — ACQUISITION OF BUSINESS
On July 1, 2010, the Company acquired Smashbox. The
purchase price was funded by cash provided by opera-
tions. The results of operations are included in the accom-
panying consolidated financial statements commencing
with the date it was acquired. The aggregate cost of this
transaction, net of cash acquired, and continuing earn-out
obligations incurred during fiscal 2011 related to the
acquisition of the Bobbi Brown brand was $257.6 million.
NOTE 7 — RETURNS AND 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
anticipates the Program will result in related restructuring
and other charges, inclusive of cumulative charges
recorded to date and through the remainder of the
Program, totaling between $350 million and $450 million
before taxes. While the Company will continue to seek
cost savings opportunities, the Company’s current plans
are to identify and approve specific initiatives under the
Program through calendar 2012 and execute those
initiatives through fiscal 2013. The total amount of
charges (pre-tax) associated with the Program, recorded,
plus other initiatives approved through June 30, 2012,
is approximately $361 million to $366 million, of which
approximately $251 million to $253 million relates to
restructuring charges, approximately $50 million of other
costs to implement the initiatives, approximately $42 mil-
lion to $45 million in sales returns and approximately $18
million in inventory write-offs. The restructuring charges
are comprised of approximately $188 million to $190 mil-
lion of employee-related costs, approximately $40 million
of other exit costs and contract terminations (substantially
all of which have resulted in or will result in cash expendi-
tures), and approximately $23 million in non-cash asset
write-offs. The total amount of cumulative charges
(pre-tax) associated with the Program recorded from
inception through June 30, 2012 was $302.6 million.
The Program focuses on a redesign of the Company’s
organizational structure in order to integrate it in a more
cohesive way and operate more globally across brands
and functions. The principal aspect of the Program was
the reduction of the workforce by approximately 2,000
employees. Specific actions taken since the inception of
the Program included:
•฀฀Resize and Reorganize the Organization— The Company
continued the realignment and optimization of its
organization to better leverage scale, improve produc-
tivity, reduce complexity and achieve cost savings in
each region and across various functions. This included
reduction of the workforce which occurred through the
consolidation of certain functions, which the Company
achieved through a combination of normal attrition and
job eliminations, and the closure and consolidation of
certain distribution and office facilities.