Creating opportunities through innovation

The provision for income taxes consisted of:

U.S. and international components of income before income taxes were:

 

(In millions)
Year Ended June 30	2001		2002		2003
U.S.	$ 9,189		$ 8,920		$ 11,346
International	2,336		2,593		3,380
Income before income taxes	$ 11,525		$ 11,513		$ 14,726

 

In 2001, the effective tax rate was 33.0% and included the effect of a 3.1% reduction from the U.S. statutory rate for tax credits and a 1.1% increase for other items. The effective tax rate in 2002 was 32.0% and included the effect of a 2.4% reduction from the U.S. statutory rate for the extraterritorial income exclusion tax benefit and a 0.6% reduction for other items. The effective tax rate in 2003 was 32.1% and included the effect of a one-time benefit of $126 million from the reversal of previously accrued taxes related to a favorable tax court ruling and a 2.0% reduction from the U.S. statutory rate for other items. Excluding this reversal, the effective tax rate in 2003 would have been 33.0%.

Deferred income taxes were:

We have not provided for U.S. deferred income taxes or foreign withholding taxes on $1.64 billion of our undistributed earnings for certain non-U.S. subsidiaries, all of which relate to fiscal 2002 and 2003 earnings, because these earnings are intended to be reinvested indefinitely.

On September 15, 2000, the U.S. Tax Court issued an adverse ruling with respect to our claim that the Internal Revenue Service (IRS) incorrectly assessed taxes for 1990 and 1991. On December 3, 2002, the Ninth Circuit Court of Appeals substantially reversed the U.S. Tax Court decision. Income taxes, except for one issue remanded to the U.S. Tax Court by the Ninth Circuit Court of Appeals for additional consideration, have been settled with the IRS for all years through 1996. The IRS is examining our 1997 through 1999 U.S. income tax returns. Management believes any adjustments which may be required will not be material to the financial statements. Income taxes paid were $1.3 billion in 2001, $1.9 billion in 2002, and $2.8 billion in 2003.

 

Note 14—Stockholders’ Equity

Shares of common stock outstanding were as follows:

We repurchase our common shares primarily to manage the dilutive effects of our stock option and stock purchase plans, and other issuances of common shares. In 2002, we acquired 10.2 million of our shares as a result of a structured stock repurchase transaction entered into in 2001, which gave us the right to acquire such shares in exchange for an up-front net payment of $264 million. To enhance our stock repurchase program, we have sold put warrants to independent third parties. These put warrants entitled the holders to sell shares of our common stock to us on certain dates at specified prices. In the third quarter of fiscal 2001, we issued 5.6 million shares to settle a portion of the outstanding put warrants. At June 30, 2001, 2002, and 2003 no put warrants were outstanding. In any period, cash used in financing activities related to common stock repurchased may differ from the comparable change in Stockholders’ Equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash.

On January 16, 2003, our Board of Directors declared an annual dividend on our common stock of $0.08 per share, payable March 7, 2003 to shareholders of record at the close of business on February 21, 2003.

 

(In millions)
Year Ended June 30	2001		2002		2003
Cumulative effect of accounting change, net of tax effect of $(37)	$ (75)		$ –		$ –
Net gains/(losses) on derivative instruments:
Unrealized gains/(losses), net of tax effect of $246 in 2001, $30 in 2002, and $(69) in 2003	499		55		(129)
Reclassification adjustment for (gains)/losses included in net income, net of tax effect of $67 in 2001, $(79) in 2002, and $15 in 2003	135		(146)		27
Net gains/(losses) on derivative instruments	634		(91)		(102)
Net unrealized investment gains/(losses):
Unrealized holding gains/(losses), net of tax effect of $(351) in 2001, $(955) in 2002, and $610 in 2003	(1,200)		(1,774)		1,132
Reclassification adjustment for (gains)/losses included in net income, net of tax effect of $(128) in 2001, $958 in 2002, and $60 in 2003	(260)		1,779		111
Net unrealized investment gains/(losses)	(1,460)		5		1,243
Translation adjustments and other	(39)		82		116
Other comprehensive income/(loss)	$ (940)		$ (4)		$ 1,257

 

The components of accumulated other comprehensive income were:

 

(In millions)
June 30	2002		2003
Net gains/(losses) on derivative instruments	$ 86		$ (16)
Net unrealized investment gains	603		1,846
Translation adjustments and other	(106)		10
Accumulated other comprehensive income	$ 583		$ 1,840