Avon 2013 Annual Report Download - page 82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accordingly, we asserted that these undistributed earnings of foreign subsidiaries were no longer indefinitely reinvested and, therefore,
recorded an additional provision for income taxes of $168.3 on such earnings. At December 31, 2012, we had a deferred tax liability in the
amount of $224.8 for the U.S. tax cost on the undistributed earnings of subsidiaries outside of the U.S. of $3.1 billion.
At December 31, 2013, we continue to assert that our foreign earnings are not indefinitely reinvested, as a result of our domestic liquidity
profile. Accordingly, we adjusted our deferred tax liability to account for our 2013 undistributed earnings of foreign subsidiaries and for
earnings that were actually repatriated to the U.S. during the year. Additionally, the deferred tax liability was reduced due to the lower cost
to repatriate the undistributed earnings of our foreign subsidiaries compared to 2012. The net impact on the deferred tax liability associated
with the Company’s undistributed earnings is a reduction of $81.9, resulting in a deferred tax liability balance of $142.8 related to the
incremental U.S. tax cost on $2.6 billion of undistributed foreign earnings at December 31, 2013. This deferred income tax liability amount is
net of the estimated foreign tax credits that would be generated upon the repatriation of such earnings. The repatriation of foreign earnings
should result in the utilization of foreign tax credits in the year of repatriation; therefore, the utilization of foreign tax credits is dependent on
the amount and timing of repatriations, as well as the jurisdictions involved. We have not included the undistributed earnings of our
subsidiary in Venezuela in the calculation of this deferred income tax liability as local regulations restrict cash distributions denominated in
U.S. dollars.
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 $990.1 in 2013, $1,027.7 in 2012 and $1,068.9 in 2011.
Advertising
Advertising costs, excluding brochure preparation costs, are expensed as incurred and amounted to $201.9 in 2013, $251.3 in 2012 and
$308.9 in 2011.
Research and Development
Research and development costs are expensed as incurred and amounted to $67.2 in 2013, $73.3 in 2012 and $75.7 in 2011. Research and
development costs include all costs related to the design and development of new products such as salaries and benefits, supplies and
materials and facilities costs.
Share-based Compensation
All share-based payments to employees are recognized in the financial statements based on their fair value at the date of grant. We use a
Black-Scholes-Merton option-pricing model to calculate the fair value of options.
Restructuring Reserves
We record the estimated expense for our restructuring initiatives when such costs are deemed probable and estimable, when approved by
the appropriate corporate authority and by accumulating detailed estimates of costs for such plans. These expenses include the estimated
costs of employee severance and related benefits, impairment or accelerated depreciation of property, plant and equipment and capitalized
software, and any other qualifying exit costs. Such costs represent our best estimate, but require assumptions about the programs that may
change over time, including attrition rates. Estimates are evaluated periodically to determine whether an adjustment is required.
Pension and Postretirement Expense
Pension and postretirement expense is determined based on a number of actuarial assumptions, which are reviewed and determined on an
annual basis. These assumptions include discount rates, hybrid plan maximum interest crediting rates and expected return on plan assets,
rate of compensation increase of plan participants, interest cost, health care cost trend rates, benefits earned, mortality rates, the number of