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Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 59
The฀income฀tax฀provision฀consisted฀of฀the฀following:
A฀reconciliation฀of฀the฀U.S.฀federal฀statutory฀income฀tax฀rate฀to฀our฀฀
actual฀income฀tax฀rate฀is฀provided฀below:
Taxes฀impacted฀shareholders’฀equity฀with฀credits฀of฀$275฀and฀$351฀for฀
the฀years฀ended฀June฀30,฀2005฀and฀2004,฀respectively.฀These฀primarily฀
relate฀to฀the฀tax฀effects฀of฀net฀investment฀hedges฀and฀the฀minimum฀
pension฀liability฀and฀tax฀benefits฀from฀the฀exercise฀of฀stock฀options.฀
The฀American฀Jobs฀Creation฀Act฀of฀2004฀(the฀“AJCA”)฀permits฀U.S.฀฀
corporations฀to฀repatriate฀earnings฀of฀foreign฀subsidiaries฀at฀a฀one-time฀
favorable฀effective฀federal฀statutory฀tax฀rate฀of฀5.25%฀as฀compared฀to฀the฀
highest฀corporate฀tax฀rate฀of฀35%.฀We฀plan฀to฀repatriate฀approximately฀
$7.2฀billion฀in฀earnings฀previously฀considered฀indefinitely฀invested.฀The฀฀
income฀tax฀expense฀associated฀with฀this฀repatriation฀is฀$295฀for฀the฀
year฀ended฀June฀30,฀2005.
We฀have฀undistributed฀earnings฀of฀foreign฀subsidiaries฀of฀approximately฀
$10.3฀billion฀at฀June฀30,฀2005,฀for฀which฀deferred฀taxes฀have฀not฀been฀
provided.฀Such฀earnings฀are฀considered฀indefinitely฀invested฀in฀the฀฀
foreign฀subsidiaries.฀If฀such฀earnings฀were฀repatriated,฀additional฀tax฀
expense฀may฀result,฀although฀the฀calculation฀of฀such฀additional฀taxes฀
is฀not฀practicable.฀The฀amount฀of฀unremitted฀earnings฀for฀which฀no฀
tax฀has฀been฀provided฀decreased฀in฀2005฀due฀to฀our฀repatriation฀plan฀฀
under฀the฀AJCA.
Deferred฀ income฀ tax฀ assets฀ and฀ liabilities฀ were฀ comprised฀ of฀฀
the฀following:
Net฀operating฀loss฀carryforwards฀were฀$1,418฀and฀$1,398฀at฀June฀
30,฀2005฀and฀June฀30,฀2004,฀respectively.฀If฀unused,฀$505฀will฀expire฀฀
between฀2006฀and฀2025.฀The฀remainder,฀totaling฀$913฀at฀June฀30,฀
2005,฀may฀be฀carried฀forward฀indefinitely.฀
Note฀10฀Commitments฀and฀Contingencies
Guarantees
In฀conjunction฀with฀certain฀transactions,฀primarily฀divestitures,฀we฀may฀
provide฀routine฀indemnifications฀(e.g.,฀retention฀of฀previously฀existing฀
environmental,฀tax฀and฀employee฀liabilities)฀whose฀terms฀range฀in฀
duration฀and฀often฀are฀not฀explicitly฀defined.฀Generally,฀the฀maximum฀
obligation฀under฀such฀indemnifications฀is฀not฀explicitly฀stated฀and,฀as฀
a฀result,฀the฀overall฀amount฀of฀these฀obligations฀cannot฀be฀reasonably฀
estimated.฀Other฀than฀obligations฀recorded฀as฀liabilities฀at฀the฀time฀
of฀divestiture,฀we฀have฀not฀made฀significant฀payments฀for฀these฀
indemnifications.฀We฀believe฀that฀if฀we฀were฀to฀incur฀a฀loss฀in฀any฀of฀
these฀matters,฀the฀loss฀would฀not฀have฀a฀material฀effect฀on฀our฀financial฀
position,฀results฀of฀operations฀or฀cash฀flows.
In฀certain฀situations,฀we฀guarantee฀loans฀for฀suppliers฀and฀customers.฀
The฀total฀amount฀of฀guarantees฀issued฀under฀such฀arrangements฀is฀฀
not฀material.
Notes฀to฀Consolidated฀Financial฀Statements 59The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
Millions฀of฀dollars฀except฀per฀share฀amounts฀or฀otherwise฀specified.
฀ ฀ June฀30
   2004
฀ ฀ ฀
฀Unrealized฀loss฀on฀financial฀฀
฀ and฀foreign฀exchange฀transactions฀ ฀ $436
฀ Loss฀and฀other฀carryforwards฀ ฀ 365
฀ Advance฀payments฀ ฀ 226
฀ Pension฀and฀postretirement฀benefits฀ ฀ 95
฀ Accrued฀marketing฀and฀promotion฀expense฀ ฀ 81
฀ Fixed฀assets฀ ฀ 134
฀ Other฀ ฀ 986
฀ Valuation฀allowances฀ ฀ (342)
฀ ฀ ฀ 1,981
฀ ฀ ฀
 
฀ Fixed฀assets฀ ฀ ฀ ฀(1,437)
฀ Goodwill฀and฀other฀intangible฀assets฀ ฀ (1,281)
฀ AJCA฀repatriation฀ ฀ ฀ –฀
฀ Other฀ ฀ ฀ (352)
฀ ฀ ฀ ฀(3,070)
฀ Years฀ended฀June฀30
 2004฀ 2003
  
U.S.฀Federal฀ ฀ $1,508฀ $1,595
International฀ ฀ 830฀ 588
U.S.฀State฀and฀Local฀ ฀ 116฀ 98
฀฀ 2,454฀ 2,281
  
U.S.฀Federal฀ ฀ ฀348฀ ฀125฀
International฀and฀other฀ ฀ 67฀ ฀(62)
฀฀ 415฀ ฀63฀
฀฀ 2,869฀ ฀2,344฀
฀ Years฀ended฀June฀30
 2004฀ 2003
U.S.฀Federal฀statutory฀฀
฀income฀tax฀rate฀ ฀ 35.0%฀ 35.0%
Country฀mix฀impacts฀of฀฀
฀foreign฀operations฀฀ -฀ -4.1%฀ -3.0%
AJCA฀repatriation฀tax฀charge฀ ฀ –฀ –
Income฀tax฀reserve฀reversals฀ ฀ –฀ -1.4%
Other฀ ฀ -0.2%฀ 0.5%
฀฀ 30.7%฀ 31.1%