Avon 2012 Annual Report Download - page 113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the exchange rate on December 31, 2012. The 2002 and the 2012 assessments assert that the establishment in 1995 of separate
manufacturing and distribution companies in that country was done without a valid business purpose and that Avon Brazil did not observe
minimum pricing rules to define the taxable basis of excise tax. The structure adopted in 1995 is comparable to that used by many other
companies in Brazil. We believe that our Brazilian corporate structure is appropriate, both operationally and legally, and that the 2002 and
2012 assessments are unfounded.
These matters are being vigorously contested. In January 2013, we filed a protest seeking a first administrative level review with respect to
the 2012 assessments. In October 2010, the 2002 assessment was upheld at the first administrative level at an amount reduced to $32 from
$75, including penalties and accrued interest, at the exchange rate on December 31, 2012. We have appealed this decision to the second
administrative level. In the event that the 2002 or 2012 assessments are upheld at the third and last administrative level, it may be necessary
for us to provide security to pursue further appeals, which, depending on the circumstances, may result in a charge to income.
It is not possible to reasonably estimate the amount or range of potential loss that we could incur related to the 2002 and 2012 assessments
or any additional assessments that may be issued for subsequent periods (tax years up through 2007 are closed by statute). However, other
similar excise tax (IPI) assessments involving different periods (1998-2001) have been canceled and officially closed in our favor by the second
administrative level, and management believes that the likelihood that the 2002 and 2012 assessments will be upheld is remote.
Other Matters
Various other lawsuits and claims, arising in the ordinary course of business or related to businesses previously sold, are pending or
threatened against Avon. In management’s opinion, based on its review of the information available at this time, the total cost of resolving
such other contingencies at December 31, 2012, is not expected to have a material adverse effect on our consolidated financial position,
results of operations or cash flows.
NOTE 17. Goodwill and Intangible Assets
Acquisitions
In July 2010, we acquired substantially all the assets and liabilities of Silpada Designs, Inc. (“Silpada”), for approximately $650 in cash, plus a
potential additional payment in early 2015 based on the achievement of earnings growth of the Silpada North America business during the
periods between 2012 through 2014. Silpada is included within our North America segment. The purchase price allocation resulted in
goodwill of $314.7, an indefinite-lived trademark of $150.0 and customer relationships of $172.8. The customer relationships have an
average 10-year useful life. At the date of the acquisition, a liability of approximately $26 was recorded associated with this potential
additional consideration (“contingent consideration”), based on a valuation of the estimated fair value of the liability after probability-
weighting and discounting various potential payments. At December 31, 2010, we estimated that the fair value of the contingent
consideration liability was $11, and zero at both December 31, 2011 and 2012. The changes in the fair value of the contingent
consideration were recorded within selling, general and administrative expenses in the respective periods.
In March 2010, we acquired Liz Earle Beauty Co. Limited (“Liz Earle”). The acquired business is included in our Europe, Middle East & Africa
operating segment. The purchase price allocation resulted in goodwill of $123.6, indefinite-lived trademarks of $22.8, licensing agreements
of $8.7 and customer relationships of $4.7. The licensing agreements and customer relationships have a weighted average 8-year useful life.
The following unaudited pro forma summary presents the Company’s consolidated information as if Silpada and Liz Earle had been acquired
on January 1, 2010:
2010
Pro forma Revenue results including Acquisitions $10,975.8
Pro forma Operating profit results including Acquisitions 1,084.9
Pro forma Income from continuing operations, net of tax results including Acquisitions 601.9
Impairment Assessment Methods and Assumptions
The quantitative test to evaluate goodwill for impairment is a two step process. In the first step, we compare the fair value of each reporting
unit to its carrying value. If the fair value of any reporting unit is less than its carrying value, we perform a second step to determine the