Avon 2012 Annual Report Download - page 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the
asset exceeds the fair value of the asset.
We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost
of the related asset and depreciated over the useful life of the related asset. We capitalized interest of $2.0 for 2012, $.4 for 2011, and $5.3
for 2010.
Capitalized Software
Certain systems development costs related to the purchase, development and installation of computer software are capitalized and
amortized over the estimated useful life of the related project, generally not to exceed five years. Costs incurred prior to the development
stage, as well as maintenance, training costs, and general and administrative expenses are expensed as incurred. Other assets included
unamortized capitalized software costs of $235.4 at December 31, 2012 and $176.7 at December 31, 2011.
Goodwill and Intangible Assets
Goodwill is not amortized and is assessed for impairment annually during the fourth quarter or on the occurrence of an event that indicates
impairment may have occurred, at the reporting unit level. A reporting unit is the operating segment, or a component, which is one level
below that operating segment. Components are aggregated as a single reporting unit if they have similar economic characteristics. When
testing goodwill for impairment, we perform either a qualitative or quantitative assessment for each of our reporting units. Factors
considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, cost factors and overall
financial performance specific to the reporting unit. If the qualitative analysis results in a more likely than not probability of impairment, the
first quantitative step, as described below, is required.
The quantitative test to evaluate goodwill for impairment is a two-step process. In the first step, we compare the fair value of a reporting
unit to its carrying value. If the fair value of a reporting unit is less than its carrying value, we perform a second step to determine the implied
fair value of the reporting unit’s goodwill. The second step of the impairment analysis requires a valuation of a reporting unit’s tangible and
intangible assets and liabilities in a manner similar to the allocation of the purchase price in a business combination. If the resulting implied
fair value of the reporting unit’s goodwill is less than its carrying value, that difference represents an impairment. The impairment analysis
performed for goodwill requires several estimates in computing the estimated fair value of a reporting unit. We use a discounted cash flow
(“DCF”) approach to estimate the fair value of a reporting unit, which we believe is the most reliable indicator of fair value of this business,
and is most consistent with the approach a marketplace participant would use.
Indefinite-lived intangible assets are not amortized, but rather are assessed for impairment annually during the fourth quarter or on the
occurrence of an event that indicates impairment may have occurred. When testing indefinite-lived intangible assets for impairment, we
perform either a qualitative or quantitative assessment. If the qualitative analysis results in a more likely than not probability of impairment, a
quantitative assessment is required. The quantitative test to evaluate indefinite-lived intangible assets for impairment compares the fair value
of the intangible asset to its carrying value. If the fair value of the asset is less than its carrying value, that difference represents an
impairment. The impairment analysis performed for indefinite-lived intangible asset requires several estimates in computing the estimated
fair value of the asset. We use a risk-adjusted DCF model under the relief-from-royalty method.
Finite-lived intangible assets are amortized using a straight-line method over the estimated useful lives of the assets. Intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If
such a change in circumstances occurs, the related estimated future undiscounted cash flows expected to result from the use of the asset
and its eventual disposition are compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an
impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of
the asset. The fair value of the asset is determined using probability weighted expected cash flow estimates, quoted market prices when
available and appraisals, as appropriate.
If applicable, the impairment testing should be performed in the following order: indefinite-lived intangible assets, finite-lived intangible
assets, and then goodwill.
We completed our annual goodwill and indefinite-lived intangible assets impairment assessments for 2012 during the year-end close process
and our analysis of the Silpada business indicated an impairment as the carrying value of the business exceeded the estimated fair value and