Avon 2008 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
products based on this classification to determine the level of
obsolescence provision.
Prepaid Brochure Costs
Costs to prepare brochures are deferred and amortized over the
period during which the benefits are expected, which is typically
the sales campaign length of two to four weeks. At Decem-
ber 31, 2008 and 2007, prepaid expenses and other included
deferred brochure costs of $44.0 and $40.8, respectively. Addi-
tionally, paper stock is purchased in advance of creating the
brochures. At December 31, 2008 and 2007, prepaid expenses
and other included paper supply of $31.6 and $14.7,
respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreci-
ated using a straight-line method over the estimated useful lives
of the assets. The estimated useful lives generally are as follows:
buildings, 45 years; land improvements, 20 years; machinery and
equipment, 15 years; and office equipment, five to ten years.
Leasehold improvements are depreciated over the shorter of the
lease term or the estimated useful life of the asset. Upon dis-
posal of property, plant and equipment, the cost of the assets
and the related accumulated depreciation are removed from the
accounts and the resulting gain or loss is reflected in earnings.
Costs associated with repair and maintenance activities are
expensed as incurred.
We capitalize interest on borrowings during the active
construction period of major capital projects. Capitalized interest
is added to the cost of the related asset and depreciated over the
useful lives of the assets. For 2008, 2007 and 2006, Avon
capitalized $4.9, $0 and $1.0 of interest, respectively.
Deferred Software
Certain systems development costs related to the purchase,
development and installation of computer software are
capitalized and amortized over the estimated useful life of the
related project, not to exceed five years. Costs incurred prior to
the development stage, as well as maintenance, training costs,
and general and administrative expenses are expensed as
incurred. At December 31, 2008 and 2007, other assets included
unamortized deferred software costs of $98.3 and $95.9,
respectively.
Investments in Debt and Equity Securities
Debt and equity securities that have a readily determinable fair
value and that we do not intend to hold to maturity are classified
as available-for-sale and carried at fair value. Unrealized holding
gains and losses, net of applicable taxes, are recorded as a sepa-
rate component of shareholders’ equity, net of deferred taxes.
Realized gains and losses from the sale of available-for-sale secu-
rities are calculated on a specific identification basis. Declines in
the fair values of investments below their cost basis that are
judged to be other-than-temporary are recorded in other
expense, net. In determining whether an other-than-temporary
decline in market value has occurred, we consider various
factors, including the duration and the extent to which market
value is below cost.
Goodwill and Intangible Assets
Goodwill is not amortized, but rather is assessed for impairment
annually and upon the occurrence of an event that indicates
impairment may have occurred. Intangible assets with estimable
useful lives are amortized using a straight-line method over the
estimated useful lives of the assets. We completed annual
goodwill impairment assessments and no adjustments to
goodwill were necessary for the years ended December 31,
2008, 2007 or 2006.
Financial Instruments
We use derivative financial instruments, including interest rate
swaps, treasury lock agreements, forward foreign currency
contracts and options, to manage interest rate and foreign cur-
rency exposures. We record all derivative instruments at their fair
values on the Consolidated Balance Sheets as either assets or
liabilities. See Note 7, Financial Instruments and Risk
Management.
Deferred Income Taxes
Deferred income taxes have been provided on items recognized
for financial reporting purposes in different periods than for
income tax purposes using tax rates in effect for the year in
which the differences are expected to reverse. A valuation
allowance is provided for deferred tax assets if it is more likely
than not these items will not be realized. The ultimate realization
of our deferred tax assets depends upon generating sufficient
future taxable income during the periods in which our temporary
differences become deductible or before our net operating loss
and tax credit carryforwards expire. Deferred taxes are not pro-
vided on the portion of unremitted earnings of subsidiaries out-
side of the U.S. when management concludes that these
earnings are indefinitely reinvested. Deferred taxes are provided
on earnings not considered indefinitely reinvested. U.S. income
taxes have not been provided on approximately $2,463.1 of
undistributed income of subsidiaries that has been or is intended
to be indefinitely reinvested outside the U.S.
Uncertain Tax Positions
Effective January 1, 2007, we adopted Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes – an interpretation of FASB