Avon 2011 Annual Report Download - page 69

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. We capitalized interest of $0.4 for 2011, $5.3 for 2010, and $4.9 for
2009.
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. Other assets included unamortized
deferred software costs of $176.7 at December 31, 2011 and $140.6 at December 31, 2010.
Goodwill and Intangible Assets
Goodwill is not amortized, but rather is assessed for impairment annually and on 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 our annual goodwill and indefinite-lived intangible assets impairment assessments for 2011 during the year-end close process
and determined that the estimated fair values substantially exceeded the carrying values of each of our reporting units, with the exception of
our Silpada reporting unit. Our analysis of the Silpada business indicated an impairment as the carrying value of the business exceeded the
estimated fair value. Accordingly, an estimated non-cash impairment charge of $263.0 was recorded in the fourth quarter of 2011 to reduce
the carrying amounts of goodwill and an indefinite-lived intangible asset. See Note 17, Goodwill and Intangible Assets. For the years ended
December 31, 2010 and 2009, we completed our annual goodwill and indefinite-lived intangible assets impairment assessments and no
adjustments were necessary.
Financial Instruments
We use derivative financial instruments, including interest-rate swap agreements and forward foreign currency contracts to manage interest
rate and foreign currency exposures. We record all derivative instruments at their fair values on the Consolidated Balance Sheets as either
assets or liabilities. See Note 8, 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 provided on the portion of unremitted earnings of subsidiaries
outside of the U.S. when management concludes that these earnings are indefinitely reinvested. It is not practicable to determine the
amount of unrecognized deferred taxes with respect to these unremitted earnings. Deferred taxes are provided on earnings not considered
indefinitely reinvested. At December 31, 2011, U.S. income taxes have not been provided on $2,530.7 of undistributed income of
subsidiaries that has been or is intended to be indefinitely reinvested outside the U.S.
Uncertain Tax Positions
We recognize the benefit of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits
of the position.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs associated with selling; marketing; and distribution activities, including shipping
and handling costs; advertising; net brochure costs; research and development; information technology; and other administrative costs,
including finance, legal and human resource functions.
Shipping and Handling
Shipping and handling costs are expensed as incurred and amounted to $1,071.7 in 2011, $968.8 in 2010 and $920.0 in 2009.
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