Avon 2009 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance primarily represents amounts for foreign
tax 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 $110.0 during 2009 was mainly due
to several of our foreign entities continuing to incur losses during
2009, thereby increasing the tax loss carryforwards for which a
valuation allowance was provided.
Income before taxes for the years ended December 31 was
as follows:
2009 2008 2007
United States $(144.1) $(19.2) $(31.6)
Foreign 1,070.6 1,257.5 827.7
Total $926.5 $1,238.3 $796.1
The provision for income taxes for the years ended December 31
was as follows:
2009 2008 2007
Federal:
Current $(17.5) $(45.9) $23.2
Deferred (38.5) (2.6) (37.2)
(56.0) (48.5) (14.0)
Foreign:
Current 476.4 469.8 348.2
Deferred (121.4) (59.4) (75.8)
355.0 410.4 272.4
State and other:
Current 2.1 1.2 3.8
Deferred (2.8) (.4) .6
(0.7) .8 4.4
Total $298.3 $362.7 $262.8
The effective tax rate for the years ended December 31 was
as follows:
2009 2008 2007
Statutory federal rate 35.0% 35.0% 35.0%
State and local taxes, net
of federal tax benefit .2 .2 .4
Taxes on foreign income (4.9) (2.8) .5
Tax audit settlements,
refunds, and amended
returns (.7) (4.5) (1.0)
Net change in valuation
allowances 3.4 1.2 (2.0)
Other (.8) .2 .1
Effective tax rate 32.2% 29.3% 33.0%
At December 31, 2009, we had foreign tax loss carryforwards of
$1,255.4. The loss carryforwards expiring between 2010 and
2024 are $110.7 and the loss carryforwards which do not expire
are $1,144.7. We also had minimum taxcredit carryforwards of
$32.9 which do not expire,capital loss carryforwards of $4.0
that will expire between 2010 and 2013, and foreign tax credit
carryforwards of $144.2 that will expire between 2016 and 2019.
Uncertain Tax Positions
Effective January 1, 2007, we adopted the provisions for recog-
nizing and measuring tax positions taken or expected to be
taken in atax return that affect amounts reported in the finan-
cial statements as required by the Income Taxes Topic of the
Codification. As aresult of the implementation, 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, 2009, we had $113.4 of total gross unrecognized
tax benefits of which approximately $102 would impact the
effective tax rate, if recognized.
Areconciliation of the beginning and ending amount of unrecog-
nized 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
Additions based on tax positions related to the
current year 16.8
Additions for tax positions of prior years 9.7
Reductions for tax positions of prior years (5.8)
Reductions due to lapse of statute of limitations (2.9)
Reductions due to settlements with tax authorities (8.7)
Balance at December 31, 2009 $113.4