Proctor and Gamble 2005 Annual Report Download - page 61

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 57
of฀favorable฀returns฀on฀the฀Company’s฀stock฀relative฀to฀broader฀market฀
indices฀(e.g.,฀S&P฀500).
Assumed฀health฀care฀cost฀trend฀rates฀could฀have฀a฀significant฀effect฀on฀
the฀amounts฀reported฀for฀the฀other฀retiree฀benefit฀plans.฀A฀one-percentage฀
point฀change฀in฀assumed฀health฀care฀cost฀trend฀rates฀would฀have฀the฀
following฀effects:
Plan฀Assets.฀Our฀target฀asset฀allocation฀for฀the฀year฀ending฀June฀30,฀
2006฀and฀actual฀asset฀allocation฀by฀asset฀category฀as฀of฀June฀30,฀2005,฀
and฀2004,฀are฀as฀follows:฀
Our฀investment฀objective฀for฀defined฀benefit฀plan฀assets฀is฀to฀meet฀the฀
plans’฀benefit฀obligations,฀while฀minimizing฀the฀potential฀for฀future฀
required฀Company฀plan฀contributions.฀The฀investment฀strategies฀focus฀
on฀asset฀class฀diversification,฀liquidity฀to฀meet฀benefit฀payments฀and฀
an฀appropriate฀balance฀of฀long-term฀investment฀return฀and฀risk.฀Target฀
ranges฀for฀asset฀allocations฀are฀determined฀by฀matching฀the฀actuarial฀
projections฀of฀the฀plan’s฀future฀liabilities฀and฀benefit฀payments฀with฀
expected฀long-term฀rates฀of฀return฀on฀the฀assets,฀taking฀into฀account฀
investment฀return฀volatility฀and฀correlations฀across฀asset฀classes.฀Plan฀
assets฀are฀diversified฀across฀several฀investment฀managers฀and฀are฀generally฀
invested฀in฀liquid฀funds฀that฀are฀selected฀to฀track฀broad฀market฀equity฀฀
and฀bond฀indices.฀Investment฀risk฀is฀carefully฀controlled฀with฀plan฀฀
assets฀rebalanced฀to฀target฀allocations฀on฀a฀periodic฀basis฀and฀฀
continual฀monitoring฀of฀investment฀managers฀performance฀relative฀to฀
the฀investment฀guidelines฀established฀with฀each฀investment฀manager.
Cash฀Flows. ฀Management’s฀best฀estimate฀of฀our฀cash฀requirements฀for฀
the฀defined฀benefit฀plans฀and฀other฀retiree฀benefit฀plans฀for฀the฀year฀
ending฀June฀30,฀2006฀is฀$241฀and฀$18,฀respectively.฀For฀the฀defined฀
benefit฀plans,฀this฀is฀comprised฀of฀expected฀benefit฀payments฀of฀$83,฀
which฀are฀paid฀directly฀to฀participants฀of฀unfunded฀plans฀from฀employer฀
assets,฀as฀well฀as฀expected฀contributions฀to฀funded฀plans฀of฀$158.฀For฀
other฀retiree฀benefit฀plans,฀this฀is฀comprised฀of฀expected฀contributions฀฀
that฀will฀be฀used฀directly฀for฀benefit฀payments.฀Expected฀contributions฀
are฀dependent฀on฀many฀variables,฀including฀the฀variability฀of฀the฀฀
market฀value฀of฀the฀plan฀assets฀as฀compared฀to฀the฀benefit฀obligation฀
and฀other฀market฀or฀regulatory฀conditions.฀In฀addition,฀we฀take฀into฀
consideration฀our฀business฀investment฀opportunities฀and฀resulting฀cash฀
requirements.฀Accordingly,฀actual฀funding฀may฀differ฀significantly฀from฀
current฀estimates.฀
Total฀benefit฀payments฀expected฀to฀be฀paid฀to฀participants,฀which฀
include฀payments฀funded฀from฀the฀Company’s฀assets,฀as฀discussed฀
above,฀as฀well฀as฀payments฀paid฀from฀the฀plans฀are฀as฀follows:
Employee฀Stock฀Ownership฀Plan฀
The฀Company฀maintains฀the฀ESOP฀to฀provide฀funding฀for฀certain฀
employee฀benefits฀discussed฀in฀the฀preceding฀paragraphs.฀
The฀ESOP฀borrowed฀$1.00฀billion฀in฀1989฀and฀the฀proceeds฀were฀used฀
to฀purchase฀Series฀A฀ESOP฀Convertible฀Class฀A฀Preferred฀Stock฀to฀fund฀a฀
portion฀of฀the฀defined฀contribution฀retirement฀plan฀in฀the฀U.S.฀Principal฀
and฀interest฀requirements฀were฀paid฀by฀the฀Trust฀from฀dividends฀on฀
the฀preferred฀shares฀and฀from฀advances฀from฀the฀Company.฀The฀final฀
payment฀for฀the฀original฀borrowing฀of฀$1.00฀billion฀was฀made฀in฀2004฀
and฀the฀remaining฀debt฀of฀the฀ESOP฀consists฀of฀amounts฀owed฀to฀the฀
Company.฀Each฀share฀is฀convertible฀at฀the฀option฀of฀the฀holder฀into฀one฀
share฀of฀the฀Company’s฀common฀stock.฀The฀dividend฀for฀the฀current฀
year฀was฀$1.03฀per฀share.฀The฀liquidation฀value฀is฀$6.82฀per฀share.
Notes฀to฀Consolidated฀Financial฀Statements The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
฀ Millions฀of฀dollars฀except฀per฀share฀amounts฀or฀otherwise฀specified.
฀ Target฀Allocation
฀ ฀ Other฀Retiree
฀ Pension฀Benefits฀ Benefits
Asset฀Category 2006฀ 2006
Equity฀securities1 ฀ 58%฀ 99%
Debt฀securities ฀ 38%฀ 1%
Real฀estate ฀ 4%฀ –%
 ฀ 100%฀ 100%
฀
฀ Plan฀Asset฀Allocation฀at฀June฀30
฀ Pension฀Benefits฀ Other฀Retiree฀Benefits
Asset฀Category  ฀2004฀฀2004
Equity฀securities1 ฀฀ 64%฀ ฀ 99%
Debt฀securities ฀฀ 32%฀ ฀ 1%
Real฀estate ฀฀ 4%฀ ฀ –%
 ฀ 100%฀ ฀ 100%
1฀ Equity฀securities฀for฀other฀retiree฀plan฀assets฀include฀Company฀stock,฀net฀of฀Series฀B฀ESOP฀
debt฀(see฀Note฀5),฀of฀$2,604฀and฀$2,744,฀as฀of฀June฀30,฀2005฀and฀2004,฀respectively.
฀ ฀ ฀ One-Percentage฀฀ One-Percentage
฀ ฀ ฀ Point฀Increase฀ Point฀Decrease
Effect฀on฀total฀service฀
฀ and฀interest฀cost฀components฀ ฀ ฀ ฀
Effect฀on฀postretirement
฀ benefit฀obligation฀ ฀ ฀ ฀
฀ Years฀ended฀June฀30฀
฀ ฀ Other฀Retiree
฀ Pension฀Benefits฀ ฀Benefits

2006฀ $191฀ $152
2007฀ 209฀ 164
2008฀ 226฀ 177
2009฀ 243฀ 188
2010฀ 255฀ 198
2011฀–฀2015฀ 1,489฀ 1,150