Avon 2001 Annual Report Download - page 30

PAGE 54
Income Taxes
Deferred tax assets (liabilities) resulting from temporary
differences in the recognition of income and expense for
tax and financial reporting purposes at December 31 con-
sisted of the following:
2002 2001
Deferred tax assets:
Postretirement benefits $ 74.8 $ 76.5
Accrued expenses 54.2 51.0
Special and non-recurring charges 22.9 30.7
Employee benefit plans 88.2 79.6
Foreign operating loss carryforwards 38.9 29.1
Postemployment benefits 10.3 7.4
Revenue recognition 3.0 3.0
All other 38.9 36.1
Valuation allowance (37.7) (28.8)
Total deferred tax assets 293.5 284.6
Deferred tax liabilities:
Depreciation (37.2) (40.4)
Prepaid retirement plan costs (13.2) (47.8)
Capitalized interest (6.5) (7.7)
Capitalized software (11.0) (15.4)
Unremitted foreign earnings (7.8) (15.0)
All other (21.5) (33.5)
Total deferred tax liabilities (97.2) (159.8)
Net deferred tax assets $196.3 $ 124.8
Deferred tax assets (liabilities) at December 31 were
classified as follows:
2002 2001
Deferred tax assets:
Prepaid expenses and other $110.5 $107.7
Other assets 134.3 55.4
Total deferred tax assets 244.8 163.1
Deferred tax liabilities:
Income taxes (13.1) (15.3)
Deferred income taxes (35.4) (23.0)
Total deferred tax liabilities (48.5) (38.3)
Net deferred tax assets $196.3 $124.8
The valuation allowance primarily represents
amounts for foreign operating loss and capital loss carry-
forwards. The basis used for recognition of deferred tax
assets included the profitability of the operations and
related deferred tax liabilities. The net increase in the val-
uation allowance of $8.9 during 2002 was mainly due to
several of the Company’s foreign entities continuing to
incur losses during 2002, thereby increasing the net oper-
ating loss carryforwards for which a valuation allowance
was provided.
6Income from continuing operations before taxes,
minority interest and cumulative effect of accounting
changes for the years ended December 31 was as follows:
2002 2001 2000
United States $271.1 $169.8 $173.1
Foreign 564.5 519.9 519.1
Total $835.6 $689.7 $692.2
The provision for income taxes for the years ended
December 31 was as follows:
2002 2001 2000
Federal:
Current $ 60.9 $ 61.8 $ (3.2)
Deferred 36.4 (2.5) 11.5
97.3 59.3 8.3
Foreign:
Current 203.6 197.2 183.8
Deferred (15.2) (20.4) —
188.4 176.8 183.8
State and other:
Current (3.3) 3.0 7.6
Deferred 9.9 1.2 2.5
6.6 4.2 10.1
Total $292.3 $240.3 $202.2
The effective tax rate for the years ended December
31 was as follows:
2002 2001 2000
Statutory federal rate 35.0% 35.0% 35.0%
State and local taxes,
net of federal tax benefit .5 .4 .5
Tax-exempt operations (.2) .6 (.2)
Taxes on foreign income,
including translation (1.1) (.7) .3
Tax refund, net of taxes —— (5.8)
Other .8 (.5) (.6)
Effective tax rate 35.0% 34.8% 29.2%
At December 31, 2002, Avon had foreign operating
loss carryforwards of approximately $123.5. The loss car-
ryforwards expiring between 2003 and 2010 were $81.5
and the loss carryforwards which do not expire were $42.0.
Avon had capital loss carryforwards which expire in
2007 and may be used to offset capital gains, if any, of
approximately $.4 at December 31, 2002.
In January 2001, Avon received a federal income tax
refund consisting of $32.5 of tax and $62.7 of interest
related to the carryback of foreign tax credits and general