Proctor and Gamble 2002 Annual Report Download - page 42

40 The Procter & Gamble Company and Subsidiaries
The number of preferred shares outstanding were:
As permitted by American Institute of Certified Public Accountants
(AICPA) Statement of Position 93-6, “Employers’ Accounting for
Employee Stock Ownership Plans,” the Company has elected, where
applicable, to continue its practices, which are based on Statement of
Position 76-3, “Accounting Practices for Certain Employee Stock
Ownership Plans.” ESOP debt which is guaranteed by the Company is
recorded in short- and long-term liabilities (see Note 6). Preferred
shares issued to the ESOP are offset by the reserve for ESOP debt
retirement in the Consolidated Balance Sheet and the Consolidated
Statement of Shareholders’ Equity. Interest incurred on the ESOP debt is
recorded as interest expense. Dividends on all preferred shares, net of
related tax benefits, are charged to retained earnings.
The preferred shares held by the ESOP are considered outstanding from
inception for purposes of calculating diluted net earnings per common
share. Diluted net earnings are calculated assuming that all preferred
shares are converted to common, and therefore are adjusted to reflect
the incremental ESOP funding that would be required due to the
difference in dividend rate between preferred and common shares (see
Note 8).
Note 10 Postretirement Benefits
The Company offers various postretirement benefits to its employees.
Defined Contribution Retirement Plans
The most significant employee benefit plan offered is the defined
contribution plan in the United States, which is fully funded.
Under the defined contribution profit sharing plan, annual credits to
participants’ accounts are based on individual base salaries and years
of service and do not exceed 15% of total participants’ annual salaries
and wages. The fair value of the ESOP Series A shares serves to reduce
the Company’s cash contribution required to fund the profit sharing
plan contributions earned. Under SOP 76-3, shares of the ESOP are
allocated at original cost based on debt service requirements, net of
advances made by the Company to the trust. The defined contribution
expense pursuant to this plan was $279, $303 and $89 in 2002, 2001
and 2000, respectively.
Other Retiree Benefits
The Company also provides certain health care and life insurance
benefits for substantially all U.S. employees who become eligible for
these benefits when they meet minimum age and service requirements.
Generally, the health care plans require contributions from retirees and
pay a stated percentage of expenses, reduced by deductibles and other
coverages. Retiree contributions change annually in line with health
care cost trends. These benefits primarily are funded by ESOP Series B
shares as well as certain other assets contributed by the Company.
Certain other employees, primarily outside the U.S., are covered by local
defined benefit pension, health care and life insurance plans.
The following table sets forth the aggregate change in benefit
obligation for the Company‘s defined benefit plans:
Notes to Consolidated Financial Statements
Millions of dollars except per share amounts
2002
June 30
Shares in thousands
Outstanding, June 30
Allocated
Unallocated
Total Series A
Allocated
Unallocated
Total Series B
34,459
19,761
54,220
9,267
27,338
36,605
33,095
17,687
50,782
9,869
26,454
36,323
33,610
22,315
55,925
8,661
28,424
37,085
2000
2001
Years Ended June 30
Other Retiree Benefits
Pension Benefits
2002
Change in Benefit Obligation
Benefit obligation
at beginning of year
Service cost
Interest cost
Participants’ contributions
Amendments
Actuarial loss
Acquisitions/(Divestitures)
Curtailments and
settlements
Special termination benefits
Currency exchange
Benefit payments
Benefit obligation
at end of year
$ 2,567
114
153
7
1
72
40
(101)
9
255
(147)
2,970
$2,627
115
149
4
(10)
86
(14)
(22)
–
(232)
(136)
2,567
$1,577
49
116
22
5
401
32
(1)
37
5
(108)
2,135
$1,270
40
101
18
–
250
(5)
–
–
(4)
(93)
1,577
2001
2002 2001