Avon 2006 Annual Report Download - page 81

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NOTE 16. Goodwill and Intangible
Assets
In August 2006, we purchased all of the remaining 6.155%
outstanding shares in our two joint venture subsidiaries in China
from the minority interest shareholders for approximately $39.1.
We previously owned 93.845% of these subsidiaries and con-
solidated their results, while recording minority interest for the
portion not owned. Upon completion of the transaction, we
eliminated the minority interest in the net assets of these sub-
sidiaries. The purchase of these shares did not have a material
impact on our consolidated net income. Avon China is a stand-
alone operating segment. The purchase price allocation resulted
in goodwill of $33.3 and customer relationships of $1.9 with a
ten-year weighted-average useful life.
On October 18, 2005, we purchased the Avon direct-selling
business of our licensee in Colombia for approximately $154.0 in
cash, pursuant to a share purchase agreement that Avon
International Holdings Company, a wholly-owned subsidiary of
the Company, entered into with Sarastro Ltd. Ldc. on October 7,
2005. The acquired business is being operated by a new wholly-
owned subsidiary under the name “Avon Colombia” and is
included in our Latin America operating segment. We had a
pre-existing license arrangement with the acquired business. The
negotiated terms of the license agreement were considered to
be at market rates; therefore, no settlement gain or loss was
recognized upon acquisition. During the fourth quarter of 2005,
we recorded a preliminary purchase price allocation, which
resulted in goodwill of $94.8, licensing agreement of $32.0
(four-year useful life), customer relationships of $35.1 (seven-
year weighted-average useful life), and a noncompete agree-
ment of $3.9 (three-year useful life). During 2006, we gathered
additional data to refine certain assumptions of the valuation.
The revised purchase price allocation resulted in goodwill of
$94.6, licensing agreement of $36.0 (four-year useful life), cus-
tomer relationships of $28.6 (five-year weighted-average useful
life), and a noncompete agreement of $3.9 (three-year useful
life).
Goodwill
Latin
America
Western
Europe,
Middle
East &
Africa
Central
& Eastern
Europe
Asia
Pacific China Total
Balance at December 31, 2005 $95.7 $24.6 $8.7 $10.1 $32.5 $171.6
Goodwill acquired – – – – 33.3 33.3
Impairment loss (.7) (.7)
Adjustments (.2) – – – – (.2)
Foreign exchange .3 (.4) .1 .1 (.4) (.3)
Balance at December 31, 2006 $95.1 $24.2 $8.8 $10.2 $65.4 $203.7
The impairment losses relate to the write-off of goodwill associated with the closure of unprofitable operations in Asia Pacific as a result of
the implementation of certain restructuring initiatives (see Note 13, Restructuring Initiatives).
A V O N 2006 F-31