Proctor and Gamble 2007 Annual Report Download - page 68

Millions of dollars except per share amounts or as otherwise specied.
Notes to Consolidated Financial Statements
The Procter & Gamble Company
66
Earnings before income taxes consisted of the following:
Years ended June 30  2006 2005
United States   $ 7,410 $6,266
International  5,003 3,715
 12,413 9,981
The income tax provision consisted of the following:
Years ended June 30  2006 2005

U.S. federal  $1,961 $1,466
International  1,702 886
U.S. state and local  178 142
 3,841 2,494

U.S. federal  226 215
International and other  (338) 349
 (112) 564
  3,729 3,058
A reconciliation of the U.S. federal statutory income tax rate to our
actual income tax rate is provided below:
Years ended June 30  2006 2005
U.S. federal statutory
income tax rate  35.0% 35.0%
Country mix impacts of
foreign operations  -3.6% -4.8%
AJCA repatriation tax charge
 — 2.8%
Income tax reserve adjustments  -1.5% -2.3%
Other  0.1% -0.1%
  30.0% 30.6%
Income tax reserve adjustments represent changes in estimated
exposures related to prior year tax positions. Tax benets credited to
shareholders’ equity totaled $1,066 and $174 for the years ended
June 30, 2007 and 2006, respectively. These primarily relate to the
tax effects of net investment hedges, excess tax benets from the
exercise of stock options and the impacts of certain adjustments to
pension and other retiree benet obligations recorded in shareholders’
equity, including the impact of adopting SFAS 158 in 2007.
The American Jobs Creation Act of 2004 (the AJCA) permitted 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%. For the year ended June 30, 2006,
we repatriated $7.2 billion in earnings previously considered indenitely
invested. We provided for $295 of deferred income tax expense
associated with this repatriation in the year ended June 30, 2005.
We have undistributed earnings of foreign subsidiaries of approximately
$17 billion at June 30, 2007, for which deferred taxes have not been
provided. Such earnings are considered indenitely 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.
Deferred income tax assets and liabilities were comprised of the
following:
June 30  2006

Stock-based compensation   $ 1,063
Unrealized loss on financial and
foreign exchange transactions  507
Pension and postretirement benefits  547
Loss and other carryforwards  615
Goodwill and other intangible assets  19
Advance payments  219
Accrued marketing and promotion expense  183
Accrued Gillette exit costs  173
Fixed assets  87
Other  1,025
Valuation allowances  (398)
  4,040

Goodwill and other intangible assets  12,036
Fixed assets  1,861
Other  436
 14,333
Net operating loss carryforwards were $1,442 and $2,134 at June 30,
2007 and 2006, respectively. If unused, $663 will expire between 2008
and 2027. The remainder, totaling $779 at June 30, 2007, may be
carried forward indenitely.
NOTE 11


In conjunction with certain transactions, primarily divestitures, we may
provide routine indemnications (e.g., indemnication for representations
and warranties, and retention of previously existing environmental,
tax and employee liabilities) whose terms range in duration and in
some circumstances are not explicitly dened. The maximum obligation
under some such indemnications 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 signicant payments for these
indemnications. We believe that if we were to incur a loss on any
of these matters, the loss would not have a material effect on our
nancial position, results of operations or cash ows.