Proctor and Gamble 2005 Annual Report Download - page 60

Management’s฀Discussion฀and฀AnalysisThe฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
56
The฀accumulated฀benefit฀obligation฀for฀all฀defined฀benefit฀retirement฀
plans฀was฀$4,610฀and฀$3,822฀at฀June฀30,฀2005฀and฀June฀30,฀2004,฀฀
respectively.฀Plans฀with฀accumulated฀benefit฀obligations฀in฀excess฀of฀
plan฀assets฀and฀plans฀with฀projected฀benefit฀obligations฀in฀excess฀of฀
plan฀assets฀as฀of฀June฀30,฀consist฀of฀the฀following:
Net฀Periodic฀Benefit฀Cost.฀Components฀of฀the฀net฀periodic฀benefit฀cost฀
were฀as฀follows:฀
Assumptions.฀We฀determine฀our฀actuarial฀assumptions฀on฀an฀annual฀
basis.฀These฀assumptions฀are฀weighted฀to฀reflect฀each฀country฀that฀
may฀have฀an฀impact฀on฀the฀cost฀of฀providing฀retirement฀benefits.฀The฀
weighted-average฀assumptions฀for฀the฀defined฀benefit฀and฀other฀retiree฀
benefit฀calculations,฀as฀well฀as฀assumed฀health฀care฀trend฀rates฀are฀฀
as฀follows:฀
Several฀factors฀are฀considered฀in฀developing฀the฀estimate฀for฀the฀long-term฀
expected฀rate฀of฀return฀on฀plan฀assets.฀For฀the฀defined฀benefit฀plans,฀
these฀include฀historical฀rates฀of฀return฀of฀broad฀equity฀and฀bond฀indices฀and฀
projected฀long-term฀rates฀of฀return฀from฀pension฀investment฀consultants.฀
The฀expected฀long-term฀rates฀of฀return฀for฀plan฀assets฀are฀8%-9%฀for฀
equities฀and฀5%-6%฀bonds.฀The฀rate฀of฀return฀on฀other฀retiree฀benefit฀
plan฀assets,฀comprised฀primarily฀of฀Company฀stock,฀is฀based฀on฀the฀
long-term฀projected฀return฀of฀9.5%฀and฀reflects฀the฀historical฀pattern฀
Notes฀to฀Consolidated฀Financial฀StatementsThe฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
Millions฀of฀dollars฀except฀per฀share฀amounts฀or฀otherwise฀specified.
฀ ฀ ฀ Years฀ended฀June฀30
฀ ฀ Pension฀Benefits฀ Other฀Retiree฀Benefits
฀ ฀ ฀ ฀ 2004฀ 2003฀ ฀ 2004฀ 2003
Service฀cost฀ ฀ $157฀ $124฀ ฀ $89฀ $62
Interest฀cost฀ ฀ 204฀ 173฀ ฀ 172฀ 150
Expected฀return
฀ on฀plan฀assets฀ ฀ (153)฀ (127)฀ ฀ (329)฀ (333)
Amortization฀of฀฀
฀ deferred฀amounts฀ ฀ 3฀ 4฀ ฀ (1)฀ (1)
Curtailment฀and฀
฀ settlement
฀ loss฀(gain)฀ ฀ –฀ 5฀ ฀ –฀ –
Recognized฀net฀฀
฀ actuarial฀loss฀(gain)฀ ฀ 28฀ 13฀ ฀ 1฀ (27)
฀฀ 239฀ 192฀ ฀ (68)฀ (149)
Dividends฀on฀ESOP฀
฀ preferred฀stock฀ ฀ –฀ –฀ ฀ (73)฀ (74)

 ฀฀ ฀239฀ 192฀ ฀ (141)฀ (223)
฀ Years฀ended฀June฀30
฀ ฀ ฀ ฀ Other
฀ Pension฀Benefits฀ ฀ ฀ ฀Retiree฀Benefits
Actuarial฀assumptions฀  2004  2004
Assumptions฀used
฀ to฀determine
฀ benefit฀obligations1
Discount฀rate฀ ฀ 5.2%฀ ฀ 6.1%
Rate฀of฀compensation
฀ increase฀฀ ฀ 3.1%฀ ฀ –
Assumptions฀used฀to
฀ determine฀net
฀ periodic฀benefit฀cost2
Discount฀rate฀ ฀ 5.1%฀ ฀ 5.8%
Expected฀return
฀ on฀plan฀assets฀ ฀ 7.4%฀ ฀ 9.5%
Rate฀of฀compensation
฀ increase฀ ฀ 3.0%฀ ฀฀ –
Assumed฀health฀care
฀ cost฀trend฀rates
Health฀care฀cost฀trend฀rates
฀ assumed฀for฀next฀year3฀฀ ฀–฀฀ ฀ 9.7%
Rate฀that฀the฀health฀care฀
฀ cost฀trend฀rate฀is
฀ assumed฀to฀decline฀to฀
฀ (ultimate฀trend฀rate)฀ ฀฀฀ ฀–฀ ฀ 5.1%
Year฀that฀the฀rate฀reaches
฀ the฀ultimate฀trend฀rate฀ ฀ –฀ ฀ 2010
1฀ Determined฀as฀of฀end฀of฀year.
2฀ Determined฀as฀of฀beginning฀of฀year.
3฀ Rate฀ is฀ applied฀ to฀ current฀ plan฀ costs฀ net฀ of฀ Medicare;฀ estimated฀ initial฀ rate฀ for฀“gross฀
eligible฀charges”฀(charges฀inclusive฀of฀Medicare)฀is฀7.7%฀for฀2005฀and฀2004.฀ ฀
฀ Years฀ended฀June฀30
฀ Accumulated฀Benefit฀฀ Projected฀Benefit฀
฀ ฀Obligation฀Exceeds฀Fair฀฀ Obligation฀Exceeds฀Fair
฀ Value฀of฀Plan฀Assets฀ Value฀of฀Plan฀Assets
฀ 2004฀  2004
Projected฀benefit
฀ obligation฀ ฀ $2,809฀ ฀ $4,059
Accumulated
฀ benefit฀obligation฀ ฀ 2,396฀ ฀ 3,320
Fair฀value฀of
฀ plan฀assets฀ ฀ 638฀ ฀ 1,676