Estee Lauder 2013 Annual Report Download - page 126

During fiscal 2013, we recorded $1.5 million reflecting
sales returns (less related cost of sales of $0.2 million) and
a write-off of inventory of $1.4 million associated with
exiting unprofitable operations.
During fiscal 2012, we recorded $2.1 million reflecting
sales returns (less related cost of sales of $0.3 million) and
a write-off of inventory of $1.8 million associated with
exiting unprofitable operations.
During fiscal 2011, we recorded $4.6 million reflecting
sales returns (less related cost of sales of $1.2 million) and
a write-off of inventory of $7.0 million associated with
turnaround operations, primarily related to the reformula-
tion of Ojon brand products.
Other charges in connection with the implementation
of the Program primarily relate to consulting and other
professional services.
GOODWILL AND OTHER INTANGIBLE
ASSET IMPAIRMENTS
As of our annual step-one goodwill impairment test on
April 1, 2013, all reporting units’ fair values substantially
exceeded their respective carrying values, with the
exception of our Darphin reporting unit. As a result, we
recorded an impairment charge for the remainder of the
goodwill related to the Darphin reporting unit of $9.6 mil-
lion. The fair value of the reporting unit was based upon
the income approach, utilizing estimated cash flows and a
terminal value, discounted at a rate of return that reflects
the relative risk of cash flows. As of our annual indefinite-
lived asset impairment test on April 1, 2013, the fair values
of all other indefinite-lived intangible assets substantially
exceeded their respective carrying values, with the excep-
tion of our Darphin trademark. We determined that the
carrying value of this trademark exceeded its estimated
fair value, which was based on the relief-from-royalty
method. As a result, we recognized an impairment charge
of $8.1 million for the remaining carrying value of the
related trademark. These impairment charges were
reflected in the skin care product category and in the
Europe, the Middle East & Africa region.
We will continue to monitor and evaluate the potential
impact of the volatility of global economic conditions and
uncertainties on our business and on our annual impair-
ment testing. Accordingly, it is possible that we could rec-
ognize an impairment charge in the future with respect to
goodwill, other intangible assets and/or long-lived assets.
FISCAL 2013 AS COMPARED WITH FISCAL 2012
NET SALES
Net sales increased 5%, or $468.1 million, to $10,181.7
million, reflecting growth in all of our major product
categories within each geographic region. Excluding
the impact of foreign currency translation, net sales
increased 6%.
The following discussions of Net Sales by Product
Categories and Geographic Regions exclude the impact
of returns associated with restructuring activities of $1.5
million and $2.1 million recorded during fiscal 2013 and
fiscal 2012, respectively. We believe the following analysis
of net sales better reflects the manner in which we
conduct and view our business.
Product Categories
Skin Care Net sales of skin care products increased 6%,
or $240.1 million, to $4,465.3 million. The recent launches
of Perfectionist CP+R, Advanced Time Zone, Advanced
Night Repair Eye Serum Infusion and the Optimizer line of
products from Estée Lauder contributed approximately
$273 million, combined, to the increase. Also contributing
approximately $99 million, combined, to the increase
were the recent launches of The Moisturizing Soft Cream
from La Mer and Even Better Eyes Dark Circle Corrector
from Clinique. Partially offsetting these increases were
lower sales of Perfectionist CP+ Serum and Time Zone,
as well as Idealist Even Skintone Illuminator, which was
a new launch in the prior year, from Estée Lauder of
approximately $162 million, combined. Excluding the
impact of foreign currency translation, skin care net sales
increased 7%.
Makeup Makeup net sales increased 5%, or $180.1 mil-
lion, to $3,876.9 million, primarily reflecting an increase in
net sales from our makeup artist brands of approximately
$156 million, combined. The recent launches of High
Impact Extreme Volume Mascara and Chubby Stick
Intense from Clinique and Pure Color Vivid Shine Lipstick
from Estée Lauder contributed approximately $47 million
of incremental sales, combined to the increase. Partially
offsetting these increases were lower sales of Repairwear
Laser Focus Makeup from Clinique and Pure Color
Eyeshadow and Doublewear Stay-In-Place Makeup from
Estée Lauder, all of which were new launches in the prior
year, of approximately $45 million, combined. Excluding
the impact of foreign currency translation, makeup net
sales increased 6%.
124 THE EST{E LAUDER COMPANIES INC.