Estee Lauder 2015 Annual Report Download - page 63

60 THE EST{E LAUDER COMPANIES INC.
GOODWILL, OTHER INTANGIBLE ASSETS AND
LONG-LIVED ASSETS
Goodwill is calculated as the excess of the cost of pur-
chased businesses over the fair value of their underlying
net assets. Other indefinite-lived intangible assets princi-
pally consist of trademarks. Goodwill and other indefinite-
lived intangible assets are not amortized.
We assess goodwill and other indefinite-lived intangi-
ble assets at least annually for impairment as of the begin-
ning of the fiscal fourth quarter, or more frequently if
certain events or circumstances exist. We test goodwill for
impairment at the reporting unit level, which is one level
below our operating segments. We identify our reporting
units by assessing whether the components of our operat-
ing segments constitute businesses for which discrete
financial information is available and management of each
operating segment regularly reviews the operating results
of those components. We make certain judgments and
assumptions in allocating assets and liabilities to deter-
mine carrying values for our reporting units. When testing
goodwill for impairment, we have the option of first per-
forming a qualitative assessment to determine whether it
is more-likely-than-not that the fair value of a reporting
unit is less than its carrying amount as a basis for deter-
mining whether it is necessary to perform a quantitative
goodwill impairment test. If necessary, the quantitative
impairment test is performed in two steps: (i) we deter-
mine if an indication of impairment exists by comparing
the fair value of a reporting unit with its carrying value,
and (ii) if there is an impairment, we measure the amount
of impairment loss by comparing the implied fair value of
goodwill with the carrying amount of that goodwill. When
testing other indefinite-lived intangible assets for impair-
ment, we also have the option of first performing a
qualitative assessment to determine whether it is more-
likely-than-not that the indefinite-lived intangible asset is
impaired as a basis for determining whether it is necessary
to perform a quantitative test. The quantitative impair-
ment test for indefinite-lived intangible assets encom-
passes calculating the fair value of an indefinite-lived
intangible asset and comparing the fair value to its carry-
ing value. If the carrying value exceeds the fair value, an
impairment charge is recorded.
For fiscal 2015, we elected to perform the qualitative
assessment for all of our reporting units and indefi-
nite-lived intangible assets. This qualitative assessment
included the review of certain macroeconomic factors
and entity-specific qualitative factors to determine if it was
more-likely-than-not that the fair values of our reporting
units were below carrying value. We considered macro-
economic factors including the global economic growth,
general macroeconomic trends for the markets in which
the reporting units operate and the intangible assets are
employed, and the growth of the global prestige beauty
industry. In addition to these macroeconomic factors,
among other things, we considered the reporting units’
current results and forecasts, any changes in the nature of
the business, any significant legal, regulatory, contractual,
political or other business climate factors, changes in the
industry/competitive environment, changes in the com-
position or carrying amount of net assets and our inten-
tion to sell or dispose of a reporting unit or cease the use
of a trademark. With regard to our fiscal 2015 acquisitions
of RODIN olio lusso, Le Labo, Editions de Parfums
Frédéric Malle and GLAMGLOW, the carrying values of
the related goodwill and other indefinite-lived intangible
assets as of the assessment date approximated their fair
values. As a result of our qualitative assessment, we con-
cluded that it was more-likely-than-not that our goodwill
and other indefinite-lived intangible assets were not
impaired and we did not need to perform a quantitative
assessment.
For fiscal 2014, we tested our reporting units for
impairment using the two-step approach and our other
indefinite-lived intangible assets for impairment by com-
paring their fair values to their carrying values. As a result
of these tests, we concluded the fair values of our report-
ing units and the fair values of our indefinite-lived intangi-
ble assets substantially exceeded their carrying values.
We review long-lived assets for impairment whenever
events or changes in circumstances indicate that the
carry ing amount may not be recoverable. When such
events or changes in circumstances occur, a recoverability
test is performed comparing projected undiscounted cash
flows from the use and eventual disposition of an asset or
asset group to its carrying value. If the projected undis-
counted cash flows are less than the carrying value, an
impairment would be recorded for the excess of the
carrying value over the fair value, which is determined by
discounting estimated future cash flows.
INCOME TAXES
We account for income taxes using an asset and liability
approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax conse-
quences of events that have been recognized in our con-
soli dated financial statements or tax returns. As of June 30,
2015, we have current net deferred tax assets of $279.0
million and non-current net deferred tax assets of $72.1
million. The net deferred tax assets assume sufficient
future earnings for their realization, as well as the contin-
ued application of currently anticipated tax rates. Included