Avon 2015 Annual Report Download - page 49

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China
During the first half of 2013, China performed generally in line with our revenue and earnings projections. As assumed in our projections,
China’s revenue in the first half of 2013 continued to deteriorate versus the prior-year period; however, beginning in the third quarter of
2013, this revenue decline was significantly in excess of our assumptions. As a result, in the third quarter of 2013, it became apparent that
we would not achieve our 2013 and long-term forecasted revenue and earnings, and we completed an interim impairment assessment of
the fair value of goodwill related to our operations in China. The revenue decline in China during the third quarter of 2013 resulted in the
recognition of an operating loss while we had expected operating profit in our projections. In the third quarter of 2013, we significantly
lowered our long-term revenue and earnings projections for China that was included in our DCF model utilized in our interim impairment
assessment. As a result of our impairment testing, we recorded a non-cash impairment charge of $42.1 in the third quarter of 2013 to
reduce the carrying amounts of goodwill and finite-lived intangible assets. There are no amounts remaining associated with goodwill or
intangible assets for our China reporting unit as a result of this impairment charge.
Key Assumptions – Egypt and China
Key assumptions used in measuring the fair value of Egypt and China during these impairment assessments 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 and China, we forecasted revenue and the resulting cash flows over five years and ten years, respectively, using a DCF model
which included a terminal value at the end of the projection period. We believed that a five-year period and a ten-year period was a
reasonable amount of time in order to return cash flows of Egypt and China, respectively, to normalized, sustainable levels.
See Note 16, Goodwill and Intangible Assets on pages F-51 through F-53 of our 2015 Annual Report for more information on Egypt and
China.
A V O N 2015 37
7553_fin.pdf 39