Income Taxes

At December 31, 2014, we had recognized deferred tax assets relating to tax loss carryforwards of $726.2 primarily from foreign jurisdictions, for which a valuation allowance of $717.9 has been provided. Prior to December 31, 2014, we had recognized deferred tax assets of $617.7 relating to excess U.S. foreign tax credit carryforwards that will expire in the 2018-2024 period.

During the fourth quarter of 2012, as a result of the uncertainty of our financing arrangements and our domestic liquidity profile at that time, we determined that we may repatriate offshore cash to meet certain domestic funding needs. 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, 2014, 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 2014 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 2013. The net impact on the deferred tax liability associated with the Company’s undistributed earnings is a reduction of $128.5, resulting in a deferred tax liability balance of $14.3 related to the incremental tax cost on $1.9 billion of undistributed foreign earnings at December 31, 2014. 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.

Deferred tax assets (liabilities) resulting from temporary differences in the recognition of income and expense for tax and financial reporting purposes at December 31 consisted of the following:



	2014			2013
Deferred tax assets:
Accrued expenses and reserves	$	217.4		$	274.2
Pension and postretirement benefits	161.5			132.0
Asset revaluations	12.1			37.4
Capitalized expenses	161.4			156.4
Depreciation and amortization	15.4			15.0
Deferred loss on foreign currency	37.2			13.3
Share-based compensation	57.7			63.7
Restructuring initiatives	22.7			23.9
Postemployment benefits	6.8			8.1
Tax loss carryforwards	726.2			756.1
Foreign tax credit carryforwards	617.7			585.4
Minimum tax and business credit carryforwards	57.1			53.2
All other	55.7			39.3
Valuation allowance	(1,208.6		)	(783.4		)
Total deferred tax assets	940.3			1,374.6
Deferred tax liabilities:
Depreciation and amortization	(24.6		)	(27.9		)
Unremitted foreign earnings	(14.3		)	(142.8		)
Prepaid expenses	(8.7		)	(16.6		)
Capitalized interest	(8.7		)	(9.4		)
All other	(26.5		)	(33.7		)
Total deferred tax liabilities	(82.8		)	(230.4		)
Net deferred tax assets	$	857.5		$	1,144.2

Deferred tax assets (liabilities) at December 31 were classified as follows:



	2014			2013
Deferred tax assets:
Prepaid expenses and other	$	204.7		$	233.6
Other assets	685.8			944.7
Total deferred tax assets	890.5			1,178.3
Deferred tax liabilities:
Income taxes	(.3		)	(1.1		)
Long-term income taxes	(32.7		)	(33.0		)
Total deferred tax liabilities	(33.0		)	(34.1		)
Net deferred tax assets	$	857.5		$	1,144.2

The valuation allowance primarily represents amounts for U.S. deferred tax assets and foreign tax loss carryforwards. The basis used for recognition of deferred tax assets included tax planning strategies, the current and future profitability of the operations, related deferred tax liabilities and the likelihood of utilizing tax credit and/or loss carryforwards during the carryover periods. The net increase in the valuation allowance of $425.2 during 2014 was mainly due to the recording of the valuation allowance of $441 to reduce our U.S. deferred tax assets (as discussed below). In addition, the net increase in the valuation allowance was attributable to several of our foreign entities continuing to incur losses during 2014, thereby increasing the tax loss carryforwards for which a valuation allowance was also provided, as well as the favorable impact of foreign currency translation, as the strengthening of the U.S. dollar against many of our foreign currencies resulted in lower reported valuation allowances.

During the fourth quarter of 2014, the Company’s expected net foreign source income was reduced significantly, primarily due to the strengthening of the U.S. dollar against currencies for some of our key markets and, to a lesser extent, the finalization of the Foreign Corrupt Practices Act ("FCPA") settlements. This strengthening of the U.S. dollar reduced the expected dividends and royalties that could be remitted to the U.S. by our foreign subsidiaries, particularly Russia, Brazil, Mexico and Colombia. The effectiveness of our tax planning strategies, including the repatriation of foreign earnings and the acceleration of royalties from our foreign subsidiaries, was also negatively impacted by the strengthening of the U.S. dollar. In addition, the finalization of the FCPA settlements, which included a $68 fine related to Avon China in connection with the U.S. Department of Justice ("DOJ") settlement and $67 in disgorgement and prejudgment interest related to Avon Products, Inc. in connection with the U.S. Securities and Exchange Commission ("SEC") settlement, negatively impacted expected future repatriation of foreign earnings and reduced current U.S. taxable income, respectively. As a result of these developments, we may not generate sufficient taxable income to realize all of our U.S. deferred tax assets. As such, we recorded a valuation allowance of $441 to reduce our U.S. deferred tax assets to an amount that is "more likely than not" to be realized, of which $367 was recorded to income taxes in the Consolidated Statements of Income and the remainder was recorded to various components of other comprehensive (loss) income.

(Loss) income from continuing operations, before taxes for the years ended December 31 was as follows:



	2014			2013			2012
United States	$	(214.7	)	$	(500.8	)	$	(227.7	)
Foreign	378.9			663.4			656.4
Total	$	164.2		$	162.6		$	428.7

The U.S. loss from continuing operations, before taxes, for the years ended December 31, 2014, 2013 and 2012, does not include dividend income from foreign subsidiaries.

The provision for income taxes for the years ended December 31 was as follows:



	2014			2013			2012
Federal:
Current	$	58.0		$	76.6		$	38.8
Deferred	208.0			(212.5		)	(111.5		)
	266.0			(135.9		)	(72.7		)
Foreign:
Current	246.7			216.3			267.5
Deferred	(3.3		)	90.5			143.6
	243.4			306.8			411.1
State and other:
Current	(.1		)	(.7		)	1.2
Deferred	39.8			(6.6		)	(4.2		)
	39.7			(7.3		)	(3.0		)
Total	$	549.1		$	163.6		$	335.4

The foreign provision for income taxes includes the U.S. tax benefit on foreign earnings of $3.5, and the U.S. tax cost on foreign earnings of $9.9 and $156.8 for the years ended December 31, 2014, 2013 and 2012, respectively.

The effective tax rate for the years ended December 31 was as follows:



	2014		2013		2012
Statutory federal rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of federal tax benefit	8.8		(2.1	)	(.5	)
Taxes on foreign income, including translation	(4.8	)	(22.0	)	(2.0	)
Audit settlements, statute expirations and amended returns	(3.2	)	(6.9	)	(2.1	)
Additional tax on unremitted prior year foreign earnings	—		—		39.3
Venezuela devaluation and highly inflationary accounting	33.5		28.2		—
FCPA accrual	(8.7	)	19.2		—
China goodwill impairment	—		8.4		3.6
Reserves for uncertain tax positions	24.4		4.5		3.0
Net change in valuation allowances	244.1		31.4		1.5
Blocked income	4.3		3.9		1.1
Other	1.0		1.0		(.7	)
Effective tax rate	334.4	%	100.6	%	78.2	%

In the fourth quarter of 2014, as a result of the finalization of the FCPA settlements, we recorded a net tax benefit of $18.5. See Note 15, Contingencies for further discussion of the FCPA settlements.

At December 31, 2014, we had tax loss carryforwards of $2,486.2. The loss carryforwards expiring between 2015 and 2029 are $177.0 and the loss carryforwards which do not expire are $2,309.2. We also had minimum tax credit carryforwards of $39.0 which do not expire, business credit carryforwards of $18.0 that will expire between 2021 and 2034, and foreign tax credit carryforwards of $617.7 that will expire between 2018 and 2024.

Uncertain Tax Positions

At December 31, 2014, we had $58.7 of total gross unrecognized tax benefits of which approximately $33.6 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 December 31, 2011	$	36.0
Additions based on tax positions related to the current year	7.4
Additions for tax positions of prior years	9.3
Reductions for tax positions of prior years	(3.7		)
Reductions due to lapse of statute of limitations	(6.4		)
Reductions due to settlements with tax authorities	(6.6		)
Balance at December 31, 2012	36.0
Additions based on tax positions related to the current year	5.3
Additions for tax positions of prior years	1.9
Reductions for tax positions of prior years	(7.8		)
Reductions due to lapse of statute of limitations	(3.1		)
Reductions due to settlements with tax authorities	(4.3		)
Balance at December 31, 2013	28.0
Additions based on tax positions related to the current year	1.5
Additions for tax positions of prior years	37.7
Reductions for tax positions of prior years	(4.8		)
Reductions due to lapse of statute of limitations	(1.7		)
Reductions due to settlements with tax authorities	(2.0		)
Balance at December 31, 2014	$	58.7

We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. We had $4.9 at December 31, 2014 and $4.4 at December 31, 2013, accrued for interest and penalties, net of tax benefit. We recorded expense of $1.0, and benefits of $.1 and $1.1 for interest and penalties, net of taxes during 2014, 2013 and 2012, respectively.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2014, the tax years that remained subject to examination by major tax jurisdiction for our most significant subsidiaries were as follows:



Jurisdiction	Open Years
Brazil	2009-2014
Mexico	2008-2014
Poland	2009-2014
Russia	2011-2014
United States (Federal)	2014

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $1 to $18 within the next twelve months due to the closure of tax years by expiration of the statute of limitations and audit settlements.