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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. As part of our goodwill impairment analysis, we
typically 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 that we would generally expect a market participant would use. In estimating the fair
value of our reporting units utilizing a DCF approach, we typically forecast revenue and the resulting cash flows for periods of five to ten
years and include an estimated terminal value at the end of the forecasted period. When determining the appropriate forecast period for the
DCF approach, we consider the amount of time required before the reporting unit achieves what we consider a normalized, sustainable level
of cash flows. The estimation of fair value utilizing a DCF approach includes numerous uncertainties which require 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, and the structure that would yield the highest economic value, among other factors.
Key assumptions used in measuring the fair value of Egypt during this impairment assessment included projections of revenue and the
resulting cash flows, as well as the discount rate (based on the estimated weighted-average cost of capital). To estimate the fair value of
Egypt, we forecasted revenue and the resulting cash flows over five years using a DCF model which included a terminal value at the end of
the projection period. We believed that a five-year period was a reasonable amount of time in order to return Egypt’s cash flows to
normalized, sustainable levels.
March 31, 2015 – Venezuela Long-Lived Assets
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of
March 31, 2015, and indicates the placement in the fair value hierarchy of the valuation techniques utilized to determine such fair value:
Level 1 Level 2 Level 3 Total
Assets:
Venezuela long-lived assets $ – $ – $15.7 $15.7
Total $ – $ – $15.7 $15.7
In February 2015, we reviewed Avon Venezuela’s long-lived assets to determine whether the carrying amount of the assets was recoverable.
Based on our expected cash flows associated with the asset group, we determined that the carrying amount of the assets, carried at their
historical U.S. dollar cost basis, was not recoverable. As such, an impairment charge of $90.3 to selling, general and administrative expenses
in the Latin America segment was recorded to reflect the write-down of the long-lived assets to their estimated fair value, which was $15.7
at March 31, 2015. The fair value of Avon Venezuela’s long-lived assets was determined using both market and cost valuation approaches.
The valuation analysis performed required several estimates, including market conditions and inflation rates.
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 and foreign exchange forwards
contracts. 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:
2015 2014
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Available-for-sale securities $ 2.8 $ 2.8 $ 2.7 $ 2.7
Debt maturing within one year(1) (55.2) (55.2) (121.7) (121.7)
Long-term debt(1) (2,159.6) (1,622.7) (2,428.7) (2,207.2)
Foreign exchange forward contracts .1 .1 (4.3) (4.3)
(1) The carrying value of debt maturing within one year and long-term debt includes any related discount or premium and unamortized deferred gains on
terminated interest-rate swap agreements, as applicable.
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