Estee Lauder 2012 Annual Report Download - page 149

THE EST{E LAUDER COMPANIES INC. 147
The following table presents the Company’s hierarchy and impairment charges for certain of its nonfinancial assets
measured at fair value on a nonrecurring basis during fiscal 2012:
Impairment Date of
Charges Carrying Value Carrying Value Level 3
(In millions)
Other intangible assets, net (trademark) $ 6.7 December 31, 2011 $3.3 $3.3
Other intangible assets, net (trademark) 3.3 April 1, 2012 — —
Other intangible assets, net (customer list) 11.7 April 1, 2012 — —
Total $21.7
To determine fair value of the trademark at December 31, 2011, the Company used the relief-from-royalty method. This
method, which is an income approach, assumed that, in lieu of ownership, a third party would be willing to pay a royalty
in order to obtain the rights to use the comparable asset. The calculation of fair value requires significant judgment in
determining both the assets’ estimated cash flows as well as the appropriate discount and royalty rates applied to those
cash flows to determine fair value. As these inputs are unobservable in the market and significant to the fair value calcula-
tion, the trademark was classified as Level 3. In determining its fair value, a terminal growth rate of 3% was applied to
future cash flows, and was used in conjunction with a 1.5% royalty rate discounted to present value at a 17% rate.
To determine fair value of the trademark and customer list at April 1, 2012, the Company assessed the future perfor-
mance of the related reporting unit and determined that negative cash flows in future forecasted periods would not sup-
port a royalty rate for the calculation of fair value of the trademark and negative income associated with existing
customers would not support a value for the customer list. The Company therefore concluded that the carrying value of
these assets were not recoverable.
See Note 5 — Goodwill and Other Intangible Assets for further discussion of the Company’s impairment testing.
The following table presents the Company’s hierarchy and impairment charges for certain of its nonfinancial assets
measured at fair value on a nonrecurring basis during fiscal 2011:
Impairment Date of
Charges Carrying Value Carrying Value Level 3(1)
(In millions)
Goodwill $29.3 March 31, 2011 $— $—
Other intangible assets, net (trademark) 7.0 March 31, 2011 10.0 10.0
Other intangible assets, net (trademark) 1.7 April 1, 2011 — —
Total $38.0
(1) See Note 5 — Goodwill and Other Intangible Assets for discussion of the valuation techniques used to measure fair value, the description of the
inputs and information used to develop those inputs.
The following methods and assumptions were used to
estimate the fair value of the Company’s other classes of
financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents — The carrying amount
approximates fair value, primarily because of the short
maturity of cash equivalent instruments.
Available-for-sale securities — Available-for-sale securi-
ties are generally comprised of mutual funds and are
valued using quoted market prices on an active exchange.
Available-for-sale securities are included in Other assets in
the accompanying consolidated balance sheets.
Foreign currency forward contracts — The fair values of
the Company’s foreign currency forward contracts were
determined using an industry-standard valuation model,
which is based on an income approach. The significant
observable inputs to the model, such as swap yield curves
and currency spot and forward rates, were obtained from
an independent pricing service. To determine the fair
value of contracts under the model, the difference
between the contract price and the current forward rate
was discounted using LIBOR for contracts with maturities
up to 12 months, and swap yield curves for contracts with
maturities greater than 12 months.
Current and long-term debt — The fair value of the
Company’s debt was estimated based on the current rates
offered to the Company for debt with the same remaining
maturities. To a lesser extent, debt also includes capital
lease obligations for which the carrying amount approxi-
mates the fair value. The Company’s debt is classified
within Level 2 of the valuation hierarchy.