Proctor and Gamble 2009 Annual Report Download - page 69

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Notes to Consolidated Financial Statements The Procter & Gamble Company 67
Amounts in millions of dollars except per share amounts or as otherwise specified.
The series A and B preferred shares of the ESOP are allocated to
employees based on debt service requirements, net of advances
made by the Company to the Trust. The number of preferred shares
outstanding at June30 was as follows:
Shares in thousands 2009 2008 2007
Allocated 56,818 58,557 60,402
Unallocated 16,651 18,665 20,807
TOTAL SERIES A 73,469 77,222 81,209
Allocated 20,991 21,134 21,105
Unallocated 42,522 43,618 44,642
TOTAL SERIES B 63,513 64,752 65,747
For purposes of calculating diluted net earnings per common share,
the preferred shares held by the ESOP are considered converted from
inception.
In connection with the Gillette acquisition, we assumed the Gillette
ESOP, which was established to assist Gillette employees in financing
retiree medical costs. These ESOP accounts are held by participants and
must be used to reduce the Company’s other retiree benefit obligations.
Such accounts reduced our obligation by $171 at June30,2009.
NOTE 9
INCOME TAXES
Income taxes are recognized for the amount of taxes payable for the
current year and for the impact of deferred tax liabilities and assets,
which represent future tax consequences of events that have been
recognized differently in the financial statements than for tax purposes.
Deferred tax assets and liabilities are established using the enacted
statutory tax rates and are adjusted for any changes in such rates in
the period of change.
Earnings from continuing operations before income taxes consisted
of the following:
Years ended June 30 2009 2008 2007
United States $9,064 $8,696 $8,692
International 6,261 6,936 5,572
TOTAL 15,325 15,632 14,264
The provision for income taxes on continuing operations consisted of
the following:
Years ended June 30 2009 2008 2007
CURRENT TAX EXPENSE
U.S. federal $1,867 $860 $2,511
International 1,316 1,546 1,325
U.S. state and local 253 214 112
3,436 2,620 3,948
DEFERRED TAX EXPENSE
U.S. federal 577 1,267 231
International and other 19 (53)22
596 1,214 253
TOTAL TAX EXPENSE 4,032 3,834 4,201
A reconciliation of the U.S. federal statutory income tax rate to our
actual income tax rate on continuing operations is provided below:
Years ended June 30 2009 2008 2007
U.S. federal statutory income
tax rate 35.0% 35.0% 35.0%
Country mix impacts of foreign
operations -6.9% -6.8% -4.5%
Income tax reserve adjustments -1.2% -3.2% -0.3%
Other -0.6% -0.5% -0.7%
EFFECTIVE INCOME TAX RATE 26.3% 24.5% 29.5%
Income tax reserve adjustments represent changes in our net liability
for unrecognized tax benefits related to prior year tax positions.
Tax benefits credited to shareholders’ equity totaled $556 and $1,823
for the years ended June30,2009 and 2008, respectively. These
primarily relate to the tax effects of net investment hedges, excess tax
benefits from the exercise of stock options and the impacts of certain
adjustments to pension and other retiree benefit obligations recorded
in shareholders’ equity.
We have undistributed earnings of foreign subsidiaries of approxi-
mately $25billion at June30,2009, 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.
On July1,2007, we adopted new accounting guidance on the
accounting for uncertainty in income taxes. The adoption of the new
guidance resulted in a decrease to retained earnings as of July1, 2007,
of $232, which was reflected as a cumulative effect of a change in
accounting principle, with a corresponding increase to the net liability
for unrecognized tax benefits. The impact primarily reflects the accrual
of additional statutory interest and penalties as required by the new
accounting guidance, partially offset by adjustments to existing
unrecognized tax benefits to comply with measurement principles.
The implementation of the new guidance also resulted in a reduction