Note 11 Income taxes Plan assets Postemployment The Company’s year-end VEBA trust weighted-average asset allo- cations by asset category were: Earnings before income taxes and cumulative effect of accounting change, and the provision for U.S. federal, state, and foreign taxes on these earnings, were: The Company’s asset investment strategy for its VEBA trusts is consistent with that described for its pension trusts in Note 9. The current target asset allocation is 80% equity securities and 20% debt securities. Actual asset allocations at year-end 2003 and 2002 differ significantly from the target due to late-year cash con- tributions not yet invested. The Company currently expects to con- tribute approximately $67 million to its VEBA trusts during 2004. Under certain conditions, the Company provides benefits to former or inactive employees in the United States and several foreign lo- cations, including salary continuance, severance, and long-term disability. The Company recognizes an obligation for any of these benefits that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with service (such as sev- erance based solely on annual pay rather than years of service) or costs arising from actions that offer benefits to employees in ex- cess of those specified in the respective plans are charged to ex- pense when incurred. The Company’s postemployment benefit plans are unfunded. Actuarial assumptions used are consistent with those presented for postretirement benefits above. The aggre- gate change in accumulated postemployment benefit obligation and the net amount recognized were: The difference between the U.S. federal statutory tax rate and the Company’s effective rate was: Components of postemployment benefit expense were: The effective income tax rate for 2001 of approximately 40% re- flected the impact of the Keebler acquisition (refer to Note 2) on nondeductible goodwill and the level of U.S. tax on foreign sub- sidiary earnings. As a result of the Company’s adoption of SFAS No. 142 on January 1, 2002 (refer to Note 1), goodwill amortiza- tion expense – and the resulting impact on the effective income tax rate – has been eliminated in periods subsequent to adop- tion. Accordingly, the 2002 effective income tax rate was re- duced to 37%. Due primarily to the implementation of various tax planning initiatives and audit closures, the 2003 effective in- come tax rate was lowered to 32.7%, which includes over 200 basis points of single-event benefits such as revaluation of de- ferred state tax liabilities. Earning Our Stripes 46 (a) Results for 2001 have been restated to reflect the adoption of SFAS No. 145 in 2003 concerning the income statement classification of losses from debt extinguishment. The net loss incurred in 2001, which was originally classified as an extraordinary loss, has been reclassified as follows (in millions): Earnings before income taxes and cumulative effect of accounting change reduced by $11.6; Income taxes currently payable reduced by $4.2. Refer to Note 1 for further infor- mation. 2003 2002 Equity securities 66% 44% Debt securities 21% 19% Other 13% 37% Total 100% 100% (millions) 2003 2002 2001 (a) Earnings before income taxes  and cumulative effect of accounting change United States $7 9 9.9 $7 91.3 $452.6 Foreign 369.6 353.0 339.9 $1,169.5 $1,144.3 $792.5 Income taxes Currently payable: Federal $1 4 1 . 9 $1 5 7 . 1 $116.8 State 40.5 46.2 30.0 Foreign 12 5.2 108.9 99.6 307.6 312.2 246.4 Deferred: Federal 91.7 82.8 53.1 State (8.6) 8.4 1.2 Foreign (8.3) 20.0 17.2 74.8 111.2 71.5 Total income taxes $3 82.4 $ 423.4 $ 317.9 2003 2002 2001 U.S. statutory rate 35.0% 35.0% 35.0% Foreign rates varying from 35% -.9 -.8 -1.1 State income taxes, net of federal benefit 1.8 3.1 2.5 Foreign earnings repatriation — 2.8 — Donation of appreciated assets — -1.5 — Net change in valuation allowances -.1 -.2 .1 Nondeductible goodwill amortization — — 2.9 Statutory rate changes, deferred tax impact -.1 — -.1 Other -3.0 -1.4 .8 Effective income tax rate 32.7% 37.0% 40.1% (millions) 2003 2002 Change in accumulated benefit obligation Accumulated benefit obligation at beginning of year $27.1 $35.6 Service cost 3.0 2.0 Interest cost 2.0 1.7 Actuarial loss 11.3 (6.9) Benefits paid (9.2) (5.5) Foreign currency adjustmensts .8 .2 Accumulated benefit obligation at end of year $35.0 $27.1 Funded status ($ 35.0) ($ 27.1) Unrecognized net loss 11.8 3.7 Accrued postemployment benefit cost recognized as a liability ($ 23.2) ($ 23.4) (millions) 2003 2002 2001 Service cost $ 3.0 $ 2.0 $ 1.8 Interest cost 2.0 1.7 1.9 Recognized net losses  3.0 1.4 .9 Postemployment benefit expense $ 8.0 $ 5.1 $ 4.6