Notes to Consolidated Financial Statements 42 The Procter & Gamble Company and Subsidiaries Note 11 Income Taxes Components of the net periodic benefit cost are as follows: Under SFAS No. 109, ”Accounting for Income Taxes,” income taxes are  recognized for the following: a) amount of taxes payable for the current  year, and b) deferred tax liabilities and assets for future tax conse- quences 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 adjusted for tax  rate changes. Earnings before income taxes consist of the following: The income tax provision consists of the following: In addition to the net periodic benefit cost, additional expense of $46  was recognized during the year ended June 30, 2002, for special termi- nation benefits provided as part of early retirement packages in con- nection with the Company’s restructuring program. Assumed health care cost trend rates have a significant effect on the  amounts reported for the health care plans. A one-percentage point  change in assumed health care cost trend rates would have the following effects: The Company’s effective income tax rate was 31.8%, 36.7% and  36.0% in 2002, 2001 and 2000, respectively, compared to the U.S.  statutory rate of 35.0%. The country mix impacts of foreign operations  reduced the Company’s effective tax rate to a larger degree than prior  years – 3.1% for 2002. Excluding restructuring costs and adjustments  to remove amortization of goodwill and indefinite-lived intangibles that  is no longer required, and their related tax effects, the effective tax rate  was 31.1%, 31.1% and 32.5% in 2002, 2001 and 2000, respectively. Taxes impacted shareholders’ equity with a $477 credit for the year  ended June 30, 2002 and a $155 charge for the year ended June 30,  2001. These primarily relate to the tax effects of net investment hedges  and tax benefits from the exercise of stock options.  Undistributed earnings of foreign subsidiaries that are considered to be  reinvested indefinitely were $10,698 and $9,231 at June 30, 2002 and  2001, respectively. If such earnings were repatriated, additional taxes  may result.  2002 Years Ended June 30 Pension Benefits Other Retiree Benefits Components of Net  Periodic Benefit Cost Service cost Interest cost Expected return on  plan assets Amortization of  prior service cost Amortization of prior  transition amount Settlement loss (gain) Curtailment loss (gain)  Recognized net  actuarial loss (gain) Gross benefit cost Dividends on ESOP  preferred stock Net periodic  benefit cost  $114 153  (133) 4 3 – 1 9  151 –  151  $115  149   (127) 5 3 6  (13) 3  141  –   141   $120  151  (122) 7 4 (6)  (3) 4  155  –   155   $49  116  (320) (1) – – (1)  (64)  (221)  (76)  (297)  $40  101  (317) (1) – – –  (85)  (262) (76)  (338)  $39 90  (294) (2) – – –  (92)  (259) (77)  (336) 2000 2001 2002 2000 2001 Years Ended June 30 United States International $4,411  1,972  6,383 $3,340  1,276  4,616 $3,006  2,530  5,536 2002 2000 2001 Years Ended June 30 2002 Current Tax Expense U.S. Federal International U.S. State & Local Deferred Tax Expense U.S. Federal International & other  $975 551  116  1,642  571  (182)  389  2,031  $1,030 676 90  1,796 142 (244) (102)  1,694 $648 816 67  1,531 241 222 463  1,994 2000 2001 One-Percentage Point Increase One-Percentage  Point Decrease Effect on total of service and  interest cost components Effect on postretirement  benefit obligation  $(23)  (239)  $29  291 Millions of dollars except per share amounts