Estée Lauder Cos. Inc. (EL)

Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Other indefinite-lived intangible assets principally consist of trademarks. Goodwill and other indefinite-lived intangible assets are not amortized.

Estée Lauder assesses goodwill and other indefinite-lived intangible assets at least annually for impairment as of the beginning of the fiscal fourth quarter or more frequently if certain events or circumstances exist. Estée Lauder tests goodwill for impairment at the reporting unit level, which is one level below Estée Lauder’s operating segments. Estée Lauder identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management of each operating segment regularly reviews the operating results of those components. Estée Lauder makes certain judgments and assumptions in allocating assets and liabilities to determine carrying values for its reporting units. When testing goodwill for impairment, Estée Lauder has the option of first performing 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 determining whether it is necessary to perform a quantitative goodwill impairment test. As of its fiscal 2019 second quarter, Estée Lauder uses a single quantitative step when determining the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit. When testing other indefinite-lived intangible assets for impairment, Estée Lauder also has 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 impairment test for indefinite-lived intangible assets encompasses calculating the fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the fair value, an impairment charge is recorded.

For fiscal 2019, Estée Lauder performed interim impairment tests as of December 31, 2018 and March 31, 2019 relating to the Smashbox reporting unit’s trademark and goodwill due to revisions to its internal forecasts reflecting the continued slowdown of its makeup business driven by ongoing competitive activity and lower than expected growth in key retail channels for the brand. Estée Lauder concluded that these changes in circumstances in the Smashbox reporting unit triggered the need for interim impairment reviews of its trademark and goodwill.

For fiscal 2019 and 2018, Estée Lauder elected to perform the qualitative assessment for certain of its reporting units and indefinite-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 its reporting units were below carrying value. Estée Lauder considered macroeconomic 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, Estée Lauder 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 composition or carrying amount of net assets and its intention to sell or dispose of a reporting unit or cease the use of a trademark.

For Estée Lauder’s other reporting units and other indefinite-lived intangible assets, a quantitative assessment was performed. Estée Lauder engaged third-party valuation specialists and used industry accepted valuation models and criteria that were reviewed and approved by various levels of management. To determine the fair value of the reporting units, Estée Lauder used an equal weighting of the income and market approaches. Under the income approach, Estée Lauder determined fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, as well as a terminal value, and discounting such cash flows at a rate of return that reflected the relative risk of the cash flows. Under the market approach, Estée Lauder utilized market multiples from publicly traded companies with similar operating and investment characteristics as the reporting unit. The key estimates and factors used in these two approaches include revenue growth rates and profit margins based on internal forecasts, terminal value, the weighted-average cost of capital used to discount future cash flows and comparable market multiples. To determine the fair value of other indefinite-lived intangible assets, Estée Lauder uses an income approach, the relief-from-royalty method. This method assumes 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.

Source: 10-K (filing date: 2019-08-23).

Estée Lauder Cos. Inc., Statement of Financial Position, Goodwill and Intangible Assets

US$ in millions

		Jun 30, 2019		Jun 30, 2018		Jun 30, 2017		Jun 30, 2016		Jun 30, 2015		Jun 30, 2014
	Goodwill
	Customer lists and other
	License agreements
	Amortizable intangible assets, gross carrying value
	Accumulated amortization
	Amortizable intangible assets, net book value
	Trademarks and other
	Non-amortizable intangible assets
	Intangible assets
	Goodwill and other intangible assets

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Estée Lauder Cos. Inc., adjustments to financial data

US$ in millions

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Stockholders’ Equity, The Estée Lauder Companies Inc.
	Stockholders’ equity, The Estée Lauder Companies Inc. (as reported)
	Less: Goodwill
	Stockholders’ equity, The Estée Lauder Companies Inc. (adjusted)
	Adjustment to Net Earnings Attributable To The Estée Lauder Companies Inc.
	Net earnings attributable to The Estée Lauder Companies Inc. (as reported)
	Add: Goodwill impairment charges
	Net earnings attributable to The Estée Lauder Companies Inc. (adjusted)

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Estée Lauder Cos. Inc., Financial Data: Reported vs. Adjusted

Estée Lauder Cos. Inc., adjusted ratios

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Estée Lauder Cos. Inc., Ratios: Reported vs. Adjusted

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings attributable to The Estée Lauder Companies Inc.
	Net sales
	Ratio
	Net profit margin1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net earnings attributable to The Estée Lauder Companies Inc.
	Net sales
	Ratio
	Adjusted net profit margin2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net sales
	Total assets
	Ratio
	Total asset turnover1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Net sales
	Adjusted total assets
	Ratio
	Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Stockholders’ equity, The Estée Lauder Companies Inc.
	Ratio
	Financial leverage1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
	Ratio
	Adjusted financial leverage2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings attributable to The Estée Lauder Companies Inc.
	Stockholders’ equity, The Estée Lauder Companies Inc.
	Ratio
	ROE1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net earnings attributable to The Estée Lauder Companies Inc.
	Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
	Ratio
	Adjusted ROE2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net earnings attributable to The Estée Lauder Companies Inc.
	Total assets
	Ratio
	ROA1
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted net earnings attributable to The Estée Lauder Companies Inc.
	Adjusted total assets
	Ratio
	Adjusted ROA2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations