NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company assigns goodwill of a reporting unit to the product category in which that reporting unit predominantly operates at the time of acquisition. The following table presents goodwill by product category and the related change in the carrying amount:
|
(In millions) |
|
Skin |
|
Makeup |
|
Fragrance |
|
Hair |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance as of June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Goodwill |
|
$ |
70.4 |
|
$ |
412.6 |
|
$ |
55.0 |
|
$ |
406.9 |
|
$ |
944.9 |
|
|
Accumulated impairments |
|
(24.4 |
) |
— |
|
— |
|
(43.2 |
) |
(67.6 |
) | |||||
|
|
|
46.0 |
|
412.6 |
|
55.0 |
|
363.7 |
|
877.3 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Goodwill acquired during the year |
|
— |
|
8.8 |
|
— |
|
— |
|
8.8 |
| |||||
|
Translation and other adjustments |
|
(1.5 |
) |
(0.3 |
) |
(0.2 |
) |
(1.5 |
) |
(3.5 |
) | |||||
|
|
|
(1.5 |
) |
8.5 |
|
(0.2 |
) |
(1.5 |
) |
5.3 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance as of June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Goodwill |
|
68.1 |
|
421.1 |
|
54.8 |
|
403.4 |
|
947.4 |
| |||||
|
Accumulated impairments |
|
(23.6 |
) |
— |
|
— |
|
(41.2 |
) |
(64.8 |
) | |||||
|
|
|
44.5 |
|
421.1 |
|
54.8 |
|
362.2 |
|
882.6 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Goodwill acquired during the year |
|
— |
|
9.2 |
|
— |
|
— |
|
9.2 |
| |||||
|
Impairment charges |
|
(9.6 |
) |
— |
|
— |
|
— |
|
(9.6 |
) | |||||
|
Translation and other adjustments |
|
0.3 |
|
0.1 |
|
— |
|
(1.1 |
) |
(0.7 |
) | |||||
|
|
|
(9.3 |
) |
9.3 |
|
— |
|
(1.1 |
) |
(1.1 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance as of June 30, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Goodwill |
|
67.7 |
|
430.4 |
|
54.8 |
|
401.6 |
|
954.5 |
| |||||
|
Accumulated impairments |
|
(32.5 |
) |
— |
|
— |
|
(40.5 |
) |
(73.0 |
) | |||||
|
|
|
$ |
35.2 |
|
$ |
430.4 |
|
$ |
54.8 |
|
$ |
361.1 |
|
$ |
881.5 |
|
Other Intangible Assets
Other intangible assets include trademarks and patents, as well as license agreements and other intangible assets resulting from or related to businesses and assets purchased by the Company. Indefinite-lived intangible assets (e.g., trademarks) are not subject to amortization and are assessed at least annually for impairment during the fiscal fourth quarter, or more frequently if certain events or circumstances exist. Other intangible assets (e.g., non-compete agreements, customer lists) are amortized on a straight-line basis over their expected period of benefit, approximately 2 years to 20 years. Intangible assets related to license agreements were amortized on a straight-line basis over their useful lives based on the terms of the respective agreements. The costs incurred and expensed by the Company to extend or renew the term of acquired intangible assets during fiscal 2013 and 2012 were not significant to the Company’s results of operations.
Other intangible assets consist of the following:
|
|
|
June 30, 2013 |
|
June 30, 2012 |
| ||||||||||||||
|
(In millions) |
|
Gross |
|
Accumulated |
|
Total Net |
|
Gross |
|
Accumulated |
|
Total Net |
| ||||||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Customer lists and other |
|
$ |
268.0 |
|
$ |
204.1 |
|
$ |
63.9 |
|
$ |
268.4 |
|
$ |
191.9 |
|
$ |
76.5 |
|
|
License agreements |
|
43.0 |
|
43.0 |
|
— |
|
43.0 |
|
43.0 |
|
— |
| ||||||
|
|
|
$ |
311.0 |
|
$ |
247.1 |
|
63.9 |
|
$ |
311.4 |
|
$ |
234.9 |
|
76.5 |
| ||
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Trademarks and other |
|
|
|
|
|
105.7 |
|
|
|
|
|
113.6 |
| ||||||
|
Total intangible assets |
|
|
|
|
|
$ |
169.6 |
|
|
|
|
|
$ |
190.1 |
| ||||
The aggregate amortization expense related to amortizable intangible assets for fiscal 2013, 2012 and 2011 was $12.5 million, $13.9 million and $14.6 million, respectively. The estimated aggregate amortization expense for each of the next five fiscal years is as follows:
|
|
|
Fiscal |
| |||||||||||||
|
(In millions) |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Estimated aggregate amortization expense |
|
$ |
12.4 |
|
$ |
12.1 |
|
$ |
12.0 |
|
$ |
9.9 |
|
$ |
8.4 |
|
Impairment Testing During Fiscal 2013
As of the Company’s annual step-one goodwill impairment test on April 1, 2013, the Company determined that the carrying value of the Darphin reporting unit exceeded its fair value. As a result, the Company recorded an impairment charge for the remainder of the goodwill related to the Darphin reporting unit of $9.6 million. 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. The Company also determined that the carrying value of the Darphin trademark exceeded its estimated fair value, which was based on the use of a royalty rate to determine discounted projected future cash flows (“relief-from-royalty method”). As a result, the Company 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.
Impairment Testing During Fiscal 2012
During the second quarter of fiscal 2012, the Ojon reporting unit identified a potential decline in its projected results of operations, primarily resulting from a softness in the direct response television channel, which caused the Company to review and revise Ojon’s long-term forecast. The Company concluded that these changes in the business of the Ojon reporting unit triggered the need for an interim impairment test of its trademarks as of December 31, 2011. These changes in circumstances 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 trademarks and a recoverability test for the customer list as of December 31, 2011. For the trademarks, the Company concluded that the carrying value exceeded its estimated fair value, which was based on the relief-from-royalty method. As a result, the Company recognized an impairment charge of $6.7 million. This charge was reflected in the hair care product category and in the Americas region. The Company concluded that the carrying value of the customer list was recoverable.
As of the Company’s annual indefinite-lived asset impairment test on April 1, 2012, the Company determined that the carrying value of the Ojon brand trademark exceeded its estimated fair value, which was based on the relief-from-royalty method. As a result, the Company recognized an impairment charge of $3.3 million for the remaining carrying value of the related trademark. The Company also determined that the future cash flows associated with the Ojon brand customer list were less than its carrying value. As the remaining carrying value of the customer list was not recoverable, the Company recognized an impairment charge of $11.7 million. These impairment charges were reflected in the hair care product category and in the Americas region.