GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

As previously discussed in Note 5 – Acquisition of Businesses, in May 2021 the Company increased its investment in DECIEM, which resulted in the inclusion of additional goodwill of $1,283 million, amortizable intangible assets (customer lists) of $701 million with amortization periods of 7 years to 14 years, and non-amortizable intangible assets (trademarks) of $1,216 million. Goodwill associated with the acquisition is primarily attributable to the future revenue growth opportunities associated with sales growth in the skin care category, as well as the value associated with DECIEM's assembled workforce. As such, the goodwill has been allocated to the Company’s skin care product category. The goodwill recorded in connection with this acquisition will not be deductible for tax purposes. These amounts are provisional pending the final purchase price, finalization of the opening balance sheet, the final valuation report, and allocation of the total consideration transferred.

During the year ended June 30, 2020, the Company acquired Have & Be, which included the addition of goodwill of $346 million, amortizable intangible assets (customer lists) of $937 million with amortization periods of 7.5 years to 17.5 years, and non-amortizable intangible assets (trademarks) of $722 million.

During the year ended June 30, 2021 and 2020, the Company recognized $6 million and $11 million, respectively, of goodwill associated with the continuing earn-out obligations related to the acquisition of the Bobbi Brown brand. The earn-out obligations ceased in fiscal 2021.

The intangible assets acquired in connection with the acquisitions of DECIEM and Have & Be are classified as level 3 in the fair value hierarchy. The estimate of the fair values of the acquired amortizable intangible assets were determined using a multi-period excess earnings income approach by discounting the incremental after-tax cash flows over multiple periods. Fair value was determined under this approach by estimating future cash flows over multiple periods, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. The estimate of the fair values of the acquired intangible assets not subject to amortization were determined using an income approach, specifically 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.

Goodwill

The Company assigns goodwill of a reporting unit to the product categories in which that reporting unit 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 Care		Makeup		Fragrance		Hair Care		Total
Balance as of June 30, 2019
Goodwill	$	185	$	1,199	$	254	$	390	$	2,028
Accumulated impairments	(36)		(68)		(22)		(34)		(160)
	149		1,131		232		356		1,868

Goodwill acquired during the year	346		11		—		—		357
Impairment charges	(60)		(749)		(3)		—		(812)
Translation adjustments, goodwill	(12)		—		—		(1)		(13)
Translation adjustments, accumulated impairments	1		—		(1)		1		1
	275		(738)		(4)		—		(467)

Balance as of June 30, 2020
Goodwill	519		1,210		254		389		2,372
Accumulated impairments	(95)		(817)		(26)		(33)		(971)
	424		393		228		356		1,401

Goodwill acquired during the year	1,283		6		—		4		1,293
Impairment charges(1)	(54)		(13)		(4)		—		(71)
Translation adjustments and write-offs, goodwill	(16)		(2)		8		(38)		(48)
Translation adjustments and write-offs, accumulated impairments	8		—		—		33		41
	1,221		(9)		4		(1)		1,215

Balance as of June 30, 2021
Goodwill	1,786		1,214		262		355		3,617
Accumulated impairments	(141)		(830)		(30)		—		(1,001)
	$	1,645	$	384	$	232	$	355	$	2,616

(1)Goodwill impairment charges of $13 million, recorded in connection with the exit of the global distribution of BECCA products, and $4 million, other, are included in Restructuring and other charges in the accompanying consolidated statements of earnings for the year ended June 30, 2021. See Note 8 – Charges Associated with Restructuring and Other Activities for further information relating to the Post-COVID Business Acceleration Program. See “Fiscal 2021 Impairment Testing” below for further information relating to fiscal 2021 impairment charges related to GLAMGLOW and Smashbox.

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., customer lists) are amortized on a straight-line basis over their expected period of benefit, approximately 5 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 2021 and 2020 were not significant to the Company’s results of operations.

Other intangible assets consist of the following:


	June 30, 2021						June 30, 2020
(In millions)	Gross Carrying Value		Accumulated Amortization		Total Net Book Value		Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Amortizable intangible assets:
Customer lists and other	$	2,273	$	544	$	1,729	$	1,590	$	475	$	1,115
License agreements	43		43		—		43		43		—
	$	2,316	$	587	1,729		$	1,633	$	518	1,115
Non-amortizable intangible assets:
Trademarks and other					2,366						1,223
Total intangible assets					$	4,095					$	2,338

The aggregate amortization expense related to amortizable intangible assets for fiscal 2021, 2020 and 2019 was $110 million, $73 million and $51 million, respectively. The estimated aggregate amortization expense for each of the next five fiscal years is as follows:


	Fiscal
(In millions)	2022		2023		2024		2025		2026
Estimated aggregate amortization expense	$	160	$	160	$	159	$	159	$	159

Fiscal 2021 Impairment Testing

The Company assesses goodwill and other indefinite-lived intangible assets at least annually for impairment or more frequently if certain events or circumstances exist.

During November 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company and lower than expected results from geographic expansion, the Company made further revisions to the internal forecasts relating to its GLAMGLOW reporting unit. The Company concluded that the changes in circumstances in this reporting unit triggered the need for an interim impairment review of its trademark and goodwill. These changes in circumstances were also an indicator that the carrying amounts of GLAMGLOW's long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed an interim impairment test for the trademark and a recoverability test for the long-lived assets as of November 30, 2020. The Company concluded that the carrying value of the trademark for GLAMGLOW exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded an impairment charge of $21 million. In addition, the Company concluded that the carrying value of the GLAMGLOW customer lists intangible asset was fully impaired and recorded an impairment charge of $6 million. The fair value of all other long-lived assets of GLAMGLOW exceeded their carrying values and were not impaired as of November 30, 2020. After adjusting the carrying values of the trademark and customer lists intangible assets, the Company completed an interim quantitative impairment test for goodwill and recorded a goodwill impairment charge of $54 million, reducing the carrying value of goodwill for the GLAMGLOW reporting unit to zero. The fair value of the GLAMGLOW reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

Based on the Company’s annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2021, the Company determined that the carrying value of the GLAMGLOW and Smashbox trademarks exceeded their fair values. This determination was made based on updated internal forecasts, finalized and approved in June 2021, that reflected lower net sales growth projections due to a softer than expected retail environment for these brands, as well as the continued impacts relating to the uncertainty of the duration and severity of the COVID-19 pandemic. These changes in circumstances were also indicators that the carrying amounts of their respective long-lived assets may not be recoverable. The Company concluded that the carrying values of the trademarks exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment charges. The Company concluded that the carrying amounts of the long-lived assets were recoverable. The carrying values of the customer lists and goodwill relating to the GLAMGLOW and Smashbox reporting units were zero as of November 30, 2020 and June 30, 2020, respectively.

A summary of the impairment charges for the three and twelve months ended June 30, 2021 and the remaining trademark, customer lists and goodwill carrying values as of June 30, 2021, for each reporting unit, are as follows:


		Impairment Charge
(In millions)		Three Months Ended June 30, 2021						Twelve Months Ended June 30, 2021						Carrying Value as of June 30, 2021
Reporting Unit:	Product Category	Trademark		Customer Lists		Goodwill		Trademark		Customer Lists		Goodwill		Trademark		Customer Lists		Goodwill
GLAMGLOW	Skin care	$	25	$	—	$	—	$	46	$	6	$	54	$	11	$	—	$	—
Smashbox	Makeup	11		—		—		11		—		—		21		—		—
Total		$	36	$	—	$	—	$	57	$	6	$	54	$	32	$	—	$	—

The impairment charges for the three and twelve months ended June 30, 2021 were reflected in the Americas region.

Fiscal 2020 Impairment Testing

During December 2019, given the continuing declines in prestige makeup, generally in North America, and the ongoing competitive activity, the Company’s Too Faced, BECCA and Smashbox reporting units made revisions to their internal forecasts concurrent with the Company’s brand strategy review process. During March 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company, the Company made additional revisions to the internal forecasts relating to its Too Faced, BECCA, Smashbox and GLAMGLOW reporting units. The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review of their respective trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of their respective long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and recoverability tests for the long-lived assets as of December 31, 2019 and March 31, 2020. The Company concluded that the carrying amounts of the long-lived assets were recoverable. For December 31, 2019 and March 31, 2020, the Company also concluded that the carrying values of the trademarks exceeded their estimated fair values and recorded impairment charges. For December 31, 2019, the Company utilized the relief-from-royalty method to determine discounted projected future cash flows, and for March 31, 2020, the relief-from-royalty method was based on probability weighted cash flows. After adjusting the carrying values of the trademarks, the Company completed interim quantitative impairment tests for goodwill and recorded goodwill impairment charges for each of these reporting units. For December 31, 2019, the fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. For March 31, 2020, the fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows, based on probability weighted undiscounted cash flows, and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

Based on the Company’s annual goodwill and other indefinite-lived intangible asset impairment testing as of April 1, 2020, the Company determined that the carrying value of the Editions de Parfums Frédéric Malle reporting unit exceeded its fair value. This determination was made based on updated internal forecasts, finalized and approved in June 2020, that reflected lower net sales growth projections due to a softer than expected retail environment for the brand, as well as the impacts relating to the uncertainty of the duration and severity of COVID-19. These changes in circumstances were also an indicator that the carrying amounts of its respective long-lived assets, including customer lists, may not be recoverable. The Company concluded that the carrying value of the trademarks exceeded its estimated fair value, which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment charges. The Company concluded that the carrying amounts of the long-lived assets were recoverable. After adjusting the carrying value of the trademarks, the Company completed the quantitative impairment test for goodwill and recorded a goodwill impairment charge for this reporting unit. The fair value of this reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

During June 2020, given the actual and the estimate of the potential future impacts relating to the uncertainty of the duration and severity of COVID-19 impacting the Company, the Company made further revisions to the internal forecasts relating to its BECCA and GLAMGLOW reporting units. The Company concluded that the changes in circumstances in these reporting units triggered the need for an interim impairment review of their respective trademarks and goodwill. These changes in circumstances were also an indicator that the carrying amounts of their respective long-lived assets, including customer lists, may not be recoverable. Accordingly, the Company performed interim impairment tests for the trademarks and recoverability tests for the long-lived assets as of June 30, 2020. The Company concluded that the carrying values of the trademarks for BECCA and GLAMGLOW exceeded their estimated fair values, which were determined utilizing the relief-from-royalty method to determine discounted projected future cash flows, and recorded impairment charges. In addition, the Company concluded that the carrying value of the BECCA customer lists intangible asset exceeded its estimated fair value, which was determined utilizing the multi-period excess earnings income approach by discounting the incremental after-tax cash flows over multiple periods, and recorded an impairment charge. The Company concluded that the carrying amounts of the long-lived assets of GLAMGLOW were recoverable. After adjusting the carrying values of the trademarks and the BECCA customer lists, the Company completed interim quantitative impairment tests for goodwill and recorded goodwill impairment charges for each of these reporting units. The fair value of each reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

A summary of the impairment charges for the three and twelve months ended June 30, 2020 and the remaining trademark, customer lists and goodwill carrying values as of June 30, 2020, for each reporting unit, are as follows:


		Impairment Charge
(In millions)		Three Months Ended June 30, 2020						Twelve Months Ended June 30, 2020						Carrying Value as of June 30, 2020
Reporting Unit:	Product Category	Trademark		Customer Lists		Goodwill		Trademark		Customer Lists		Goodwill		Trademark		Customer Lists		Goodwill
Too Faced	Makeup	$	—	$	—	$	—	$	253	$	—	$	592	$	272	$	217	$	13
BECCA	Makeup	24		35		15		71		35		85		27		7		13
Smashbox	Makeup	—		—		—		23		—		72		32		—		—
GLAMGLOW	Skin care	5		—		8		6		—		60		57		6		54
Editions de Parfums Frédéric Malle	Fragrance	11		—		3		11		—		3		21		2		3
Total		$	40	$	35	$	26	$	364	$	35	$	812	$	409	$	232	$	83

The impairment charges for the three and twelve months ended June 30, 2020 were reflected in the Americas region.

Fiscal 2019 Impairment Testing

During fiscal 2019, the Company’s Smashbox reporting unit made 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. The Company concluded that these changes in circumstances triggered the need for an interim impairment review of the Smashbox trademark and the Smashbox reporting unit goodwill. Accordingly, the Company performed interim impairment tests as of December 31, 2018 and March 31, 2019. The Company concluded that the carrying values of the Smashbox trademark exceeded their estimated fair values, which were determined utilizing a royalty rate to determine discounted projected future cash flows. As a result, the Company recognized impairment charges totaling $22 million for the trademark in fiscal 2019. After adjusting the carrying values of the trademark, the Company completed interim quantitative impairment tests for goodwill and recorded goodwill impairment charges related to the Smashbox reporting unit. The fair values of the reporting unit as of December 31, 2018 and March 31, 2019 were based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. In fiscal 2019, the Company recorded goodwill impairment charges related to the Smashbox reporting unit totaling $68 million. These impairment charges were reflected in the makeup product category and in the Americas region.