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 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 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 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, and the structure that would yield the highest economic value, 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.

2012 Silpada Impairment Assessment

During our year-end 2012 close process, we completed our annual goodwill impairment assessment as of November 30, 2012 and subsequently determined that the goodwill associated with Silpada was impaired. Specifically, the results of our annual impairment testing during the quarter ended December 31, 2012, indicated that the estimated fair value of our Silpada reporting unit was less than its respective carrying amount. This was primarily the result of the weaker than expected performance in the fourth quarter of 2012, largely due to lower Representative counts and activity rates, and as a result we lowered our revenue and earnings projections for Silpada. The decline in the fair values of the Silpada reporting unit, the trademark, and customer relationships was driven by the reduction in the forecasted growth rates and cash flows used to estimate fair value. As a result of our impairment testing, we recorded a non-cash before tax impairment charge of $72.1 ($45.6 after tax) to reduce the carrying amount of goodwill for Silpada to its estimated fair value. Following the impairment charge, the carrying value of the Silpada goodwill was $44.6.

Our impairment testing for indefinite-lived intangible assets as of November 30, 2012, also indicated a decline in the fair value of our Silpada trademark intangible asset below its respective carrying value. This resulted in a non-cash before tax impairment charge of $45.0 ($28.5 after tax) to reduce the carrying amount of this asset to its estimated fair value. Following the impairment charge, the carrying value of the Silpada trademark was $40.0.

We also performed an impairment test for our Silpada finite-lived intangible assets as of November 30, 2012, which indicated the carrying value of our Silpada customer relationships asset exceeded estimated future undiscounted cash flows of the business. This resulted in a non-cash before tax impairment charge of $91.9 ($58.1 after tax) to reduce the carrying amount of this asset to its estimated fair value. Following the impairment charge, the carrying value of the Silpada customer relationships was $40.0.

2012 China Impairment Assessment

Based on the continued decline in revenue performance in China during the third quarter of 2012 and a corresponding lowering of our long-term growth estimates in China, we completed an interim impairment assessment of the fair value of goodwill related to our operations in China. The changes to our long-term growth estimates were based on the state of our China business, which was predominantly retail at that time. We are still analyzing our long-term strategic plan for China and any changes to our long-term strategic plan may impact our expectations of future financial performance. Based upon this interim analysis, we determined that the goodwill related to our operations in China was impaired. Specifically, the results of our interim impairment test indicated the estimated fair value of our China reporting unit was less than its respective carrying amount. As a result of our impairment testing, we recorded a non-cash impairment charge of $44.0 ($44.0 after tax) to reduce the carrying amount of goodwill for China to its estimated fair value. Following the impairment charge, the carrying value of the China goodwill was approximately $37.3.

2011 Silpada Impairment Assessment

In the second quarter of 2011, due to the impact of rising silver prices and declines in revenues relative to our internal forecasts, we completed an interim impairment assessment of the fair value of goodwill and an indefinite-lived intangible asset related to Silpada. Based upon this interim analysis, the estimated fair value of the Silpada reporting unit and its trademark exceeded their respective carrying value. In the third quarter of 2011, we considered whether any circumstances existed that would more likely than not reduce the estimated fair values of the Silpada reporting unit and its trademark below their respective carrying values and concluded another interim impairment analysis was not considered necessary.

During our year-end 2011 close process, we completed our annual goodwill impairment assessment as of November 30, 2011 and subsequently determined that the goodwill associated with Silpada was impaired. Specifically, the results of our annual impairment testing during the quarter ended December 31, 2011, indicated that the estimated fair value of our Silpada reporting unit was less than its respective carrying amount. As a result of our impairment testing, we recorded a non-cash before tax impairment charge of $198.0 ($125.1 after tax) to reduce the carrying amount of goodwill for Silpada to its estimated fair value. Following the impairment charge, the carrying value of the Silpada goodwill was $116.7.

Our impairment testing for indefinite-lived intangible assets as of November 30, 2011, also indicated a decline in the fair value of our Silpada trademark intangible asset below its respective carrying value. This resulted in a non-cash before tax impairment charge of $65.0 ($41.1 after tax) to reduce the carrying amount of this asset to its estimated fair value. Following the impairment charge, the carrying value of the Silpada trademark was $85.0.

Following weaker than expected performance in the fourth quarter, we lowered our revenue and earnings projections for Silpada largely due to the rise in silver prices, which nearly doubled since the acquisition, and the negative impact of pricing on revenues and margins. The decline in the fair values of the Silpada reporting unit and the underlying trademark was driven by the reduction in the forecasted growth rates and cash flows used to estimate fair value.

Goodwill



	Latin America		Europe, Middle East & Africa		North America			Asia Pacific			Total
Gross balance at December 31, 2011	$	111.8	$	160.8	$	314.7		$	83.8		$	671.1
Accumulated impairments	—		—		(198.0		)	—			(198.0		)
Net balance at December 31, 2011	$	111.8	$	160.8	$	116.7		$	83.8		$	473.1

Changes during the period ended December 31, 2012:
Impairment	$	—	$	—	$	(72.1	)	$	(44.0	)	$	(116.1	)
Other⁽¹⁾	11.0		6.5		—			.4			17.9

Gross balance at December 31, 2012	$	122.8	$	167.3	$	314.7		$	84.2		$	689.0
Accumulated impairments	—		—		(270.1		)	(44.0		)	(314.1		)
Net balance at December 31, 2012	$	122.8	$	167.3	$	44.6		$	40.2		$	374.9

(1) Other is primarily comprised of foreign currency translation.

Other intangible assets



	2012					2011
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
Finite-Lived Intangible Assets
Customer relationships	$	93.5	$	(47.1	)	$	221.8	$	(65.2	)
Licensing agreements	62.8		(53.6		)	58.2		(47.4		)
Noncompete agreements	8.6		(8.6		)	8.1		(6.6		)
Trademarks	6.6		(6.3		)	6.6		(4.0		)
Indefinite-Lived Trademarks	64.4		—			108.4		—
Total	$	235.9	$	(115.6	)	$	403.1	$	(123.2	)



Estimated Amortization Expense:
2013	$	8.5
2014	7.3
2015	6.7
2016	5.9
2017	5.5

Actual amortization expense may differ from the amounts above due to, among other things, future acquisitions, disposals, impairments, accelerated amortization or fluctuations in foreign currency exchange rates. Aggregate amortization expense was $25.8, $21.5, and $13.1 for the years ended December 31, 2012, 2011, and 2010, respectively.