Avon 2005 Annual Report Download - page 31

2005฀ANNUAL฀REPORT฀฀51
Payments for the purchases, proceeds and gross realized gains and
losses from the sales of these securities totaled $20.0, $28.6, $.4
and $13.9, respectively, during 2004. During the fourth quarter
of 2004, Avon reclassified $13.7 ($12.2 after tax) of unrealized
losses from accumulated other comprehensive loss to other
expense, net, for declines in the fair values of investments in
equity securities below their cost bases that were judged to be
other-than-temporary. These equity securities were available to
fund select benefit plan obligations.
For the years ended December 31, 2005 and 2004, unrealized
losses on available-for-sale securities impacted accumulated other
comprehensive loss as follows:
2005 2004
Net unrealized gains (losses) at
beginning of year, net of taxes $2.0 $(8.5)
Net unrealized (losses) gains, net of taxes (.1) 1.4
Reclassification of net (gains) losses
to earnings, net of taxes (1.7) 9.1
Net unrealized gains end of year,
net of taxes $ .2 $ 2.0
6฀ 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 consisted of the following:
2005 2004
Deferred tax assets:
Postretirement benefits $ 70.2 $ 78.5
Accrued expenses and reserves 103.5 89.1
Special and non-recurring charges 5.8 2.1
Employee benefit plans 135.1 124.4
Foreign operating loss carryforwards 141.9 70.0
Postemployment benefits 14.7 15.8
Revenue recognition 2.4 3.2
Minimum tax credit carryforwards 40.4 29.5
Foreign tax credit carryforwards – 8.8
Capital loss carryforwards 3.8 –
All other 55.5 45.5
Valuation allowance (145.2) (70.2)
Total deferred tax assets 428.1 396.7
Deferred tax liabilities:
Depreciation and amortization (68.0) (43.4)
Prepaid retirement plan costs (9.6) (9.9)
Capitalized interest (5.6) (4.9)
Capitalized software (6.9) (7.9)
Unremitted foreign earnings (3.7) (5.1)
All other (28.2) (24.2)
Total deferred tax liabilities (122.0) (95.4)
Net deferred tax assets $ 306.1 $301.3
Deferred tax assets (liabilities) at December 31 were classified
as follows:
2005 2004
Deferred tax assets:
Prepaid expenses and other $119.9 $ 95.4
Other assets 231.5 222.9
Total deferred tax assets 351.4 318.3
Deferred tax liabilities:
Income taxes (11.0) (4.9)
Deferred income taxes (34.3) (12.1)
Total deferred tax liabilities (45.3) (17.0)
Net deferred tax assets $306.1 $301.3
The valuation allowance primarily represents amounts for foreign
operating loss and capital loss carryforwards. The basis used for
recognition of deferred tax assets included the profitability of the
operations, related deferred tax liabilities and the likelihood of
utilizing tax credit carryforwards during the carryover periods. The
net increase in the valuation allowance of $75.0 during 2005 was
mainly due to several of our foreign entities continuing to incur
losses during 2005 as well as losses generated as a result of cash
management and tax strategies, thereby increasing the net operat-
ing loss carryforwards for which a valuation allowance was provided.
Income before taxes and minority interest for the years ended
December 31 was as follows:
2005 2004 2003
United States $ 206.0 $ 249.5 $302.3
Foreign 918.2 938.0 691.2
Total $1,124.2 $1,187.5 $993.5
The provision for income taxes for the years ended December 31
was as follows:
2005 2004 2003
Federal:
Current $ (29.8) $108.4 $ 63.7
Deferred (7.2) (14.4) 27.1
(37.0) 94.0 90.8
Foreign:
Current 319.8 264.5 227.0
Deferred (20.0) (36.5) (6.1)
299.8 228.0 220.9
State and other:
Current 11.4 12.7 5.5
Deferred (4.5) (4.1) 1.7
6.9 8.6 7.2
Total $269.7 $330.6 $318.9