Avon 2008 Annual Report Download - page 66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
increase in the valuation allowance of $5.8 during 2008 was
mainly due to several of our foreign entities continuing to incur
losses during 2008, thereby increasing the net operating loss
carryforwards for which a valuation allowance was provided.
Income before taxes and minority interest for the years ended
December 31 was as follows:
2008 2007 2006
United States $ (19.2) $ (31.6) $ (33.5)
Foreign 1,257.5 827.7 737.0
Total $1,238.3 $796.1 $703.5
The provision for income taxes for the years ended December 31
was as follows:
2008 2007 2006
Federal:
Current $ (45.9) $ 23.2 $ (16.7)
Deferred (2.6) (37.2) (38.6)
(48.5) (14.0) (55.3)
Foreign:
Current 469.8 348.2 348.4
Deferred (59.4) (75.8) (67.0)
410.4 272.4 281.4
State and other:
Current 1.2 3.8 2.4
Deferred (0.4) .6 (5.1)
0.8 4.4 (2.7)
Total $362.7 $262.8 $223.4
The effective tax rate for the years ended December 31 was as
follows:
2008 2007 2006
Statutory federal rate 35.0% 35.0% 35.0%
State and local taxes, net
of federal tax benefit .2 .4 .1
Taxes on foreign income,
including translation (2.8) .5 (.5)
Tax audit settlements,
refunds, and amended
returns (4.5) (1.0) (5.7)
Repatriation of prior years
foreign earnings – – 3.1
Net change in valuation
allowances 1.2 (2.0) –
Other .2 .1 (.2)
Effective tax rate 29.3% 33.0% 31.8%
At December 31, 2008, we had foreign operating loss carryfor-
wards of approximately $1,009.2. The loss carryforwards
expiring between 2009 and 2023 are $115.1 and the loss carry-
forwards which do not expire are $894.1. We also had minimum
tax credit carryforwards of $32.5 which do not expire, capital
loss carryforwards of $7.1 that will expire in 2010, and foreign
tax credit carryforwards of $93.9 that will expire between 2016
and 2018.
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 State-
ment No. 109, (“FIN 48”). As a result of the implementation of
FIN 48, we recognized an $18.3 increase in the liability for
unrecognized tax benefits (including interest and penalties),
which was accounted for as a reduction to the January 1, 2007
balance of retained earnings. At December 31, 2008 and 2007,
we had $104.3 and $154.3 of total gross unrecognized tax
benefits, respectively, of which approximately $91 and $141
would impact the effective tax rate, if recognized.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
Balance at January 1, 2007 $135.6
Additions based on tax positions related to the
current year 24.2
Additions for tax positions of prior years 5.4
Reductions for tax positions of prior years (3.6)
Reductions due to lapse of statute of limitations (2.9)
Reductions due to settlements with tax authorities (4.4)
Balance at December 31, 2007 154.3
Additions based on tax positions related to the
current year 22.2
Additions for tax positions of prior years 3.9
Reductions for tax positions of prior years (59.0)
Reductions due to lapse of statute of limitations (4.2)
Reductions due to settlements with tax authorities (12.9)
Balance at December 31, 2008 $104.3
We recognize interest and penalties accrued related to unrecog-
nized tax benefits in the provision for income taxes. We had
$22.5 and $29.7 accrued for interest and penalties, net of tax
benefit, at December 31, 2008 and 2007, respectively. During
2008 and 2007, we recorded a benefit of $3.2 and an expense
of $3.3 for interest and penalties, net of taxes, respectively.
We file income tax returns in the U.S. federal jurisdiction, and
various states and foreign jurisdictions. As of December 31, 2008,