Avon 2012 Annual Report Download - page 93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$198.0. In addition, the carrying amount of Silpada’s indefinite-lived trademark was reduced from $150.0 to its estimated fair value of
$85.0, resulting in a non-cash impairment charge of $65.0.
Fair Value Measurement – Silpada and China
The impairment analyses performed for goodwill and intangible assets require several estimates in computing the estimated fair value of a
reporting unit, an indefinite-lived intangible asset, and a finite-lived intangible asset. We use a DCF approach to estimate the fair value of a
reporting unit, which we believe is the most reliable indicator of fair value of a business, and is most consistent with the approach a
marketplace participant would use. The estimation of fair value utilizing a DCF approach includes numerous uncertainties which require our
significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions
regarding general economic and business conditions, among other factors. Key assumptions used in measuring the fair values of Silpada and
China included the discount rate (based on the weighted-average cost of capital) and revenue growth, as well as silver prices and
Representative growth and activity rates for Silpada. The fair value of Silpada’s indefinite-lived trademark was determined using a risk-
adjusted DCF model under the relief-from-royalty method. The royalty rate used was based on a consideration of market rates. The fair value
of the Silpada finite-lived customer relationships was determined using a DCF model under the multi-period excess earnings method. A
significant decline in expected future cash flows and growth rates or a change in the discount rate used to fair value expected future cash
flows may result in future impairment charges.
See Note 17, Goodwill and Intangible Assets for further information on Silpada and China.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, available-for-sale securities, short-term investments, money market funds,
accounts receivable, loans receivable, debt maturing within one year, accounts payable, long-term debt, foreign exchange forwards
contracts, and interest-rate swap agreements. The carrying value for cash and cash equivalents, accounts receivable, accounts payable, and
short-term investments approximate fair value because of the short-term nature of these instruments. The net asset (liability) amounts
recorded in the balance sheet (carrying amount) and the estimated fair values of our remaining financial instruments at December 31
consisted of the following:
2012 2011
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Available-for-sale securities $ 1.9 $ 1.9 $ 1.8 $ 1.8
Money market funds 26.9 26.9 – –
Debt maturing within one year(1) 572.0 572.2 849.3 849.3
Long-term debt(1) 2,623.9 2,547.8 2,459.1 2,445.2
Foreign exchange forward contracts 3.4 3.4 (4.9) (4.9)
Interest-rate swap agreements 93.1 93.1 147.6 147.6
(1) The carrying value of debt maturing within one year and long-term debt is net of related discount or premium as well as unrealized gains from interest-rate
swap agreements.
The methods and assumptions used to estimate fair value are as follows:
Available-for-sale securities and money market funds – The fair values of these investments were the quoted market prices for issues listed
on securities exchanges.
Debt maturing within one year and long-term debt – The fair values of all debt and other financing were determined using Level 2 inputs
based on indicative market prices.
Foreign exchange forward contracts – The fair values of forward contracts were estimated based on quoted forward foreign exchange prices
at the reporting date.
Interest-rate swap agreements – The fair values of interest-rate swap agreements were estimated based on LIBOR yield curves at the
reporting date.