Proctor and Gamble 2007 Annual Report Download - page 66

Millions of dollars except per share amounts or as otherwise specied.
Notes to Consolidated Financial Statements
The Procter & Gamble Company
64
Assumptions. We determine our actuarial assumptions on an annual
basis. These assumptions are weighted to reect each country that
may have an impact on the cost of providing retirement benets.
The weighted average assumptions for the dened benet and other
retiree benet calculations, as well as assumed health care trend
rates, were as follows:
Pension Benets Other Retiree Benets
Years ended June 30  2006  2006


 (1)
Discount rate  5.2%  6.3%
Rate of compensation
increase  3.0%
 —


 (2)
Discount rate  4.7%  5.2%
Expected return on plan assets  7.3%  9.2%
Rate of compensation increase  3.2%
 —


Health care cost trend rates
assumed for next year
 —  10.0%
Rate to which the health care
cost trend rate is assumed to
decline (ultimate trend rate)
 —  5.1%
Year that the rate reaches the
ultimate trend rate
 —  2012
(1) Determined as of end of year.
(2) Determined as of beginning of year, and adjusted for acquisitions.
Several factors are considered in developing the estimate for the long-
term expected rate of return on plan assets. For the dened benet
retirement plans, these include historical rates of return of broad equity
and bond indices and projected long-term rates of return obtained
from pension investment consultants. The expected long-term rates
of return for plan assets are 8% – 9% for equities and 5% – 6% for
bonds. For other retiree benet plans, the expected long-term rate of
return reects the fact that the assets are comprised primarily of
Company stock. The expected rate of return on Company stock is
based on the long-term projected return of 9.5% and reects the
historical pattern of favorable returns on the Company’s stock.
Assumed health care cost trend rates could have a signicant effect
on the amounts reported for the other retiree benet plans. A one-
percentage point change in assumed health care cost trend rates
would have the following effects:
One-Percentage One-Percentage
Point Increase Point Decrease
Effect on total of service and interest
cost components $ 51 $ (41)
Effect on postretirement benefit obligation 526 (426)
Plan Assets. Our target asset allocation for the year ending June 30,
2008, and actual asset allocation by asset category as of June 30,
2007 and 2006, are as follows:
Target Asset Allocation
Asset Category Pension Benets
Other Retiree Benets
Equity securities (1) 57% 96%
Debt securities 41% 4%
Real estate 2%
—
 100% 100%
Asset Allocation at June 30
Pension Benets Other Retiree Benets
Asset Category  2006  2006
Equity securities (1)  59%  96%
Debt securities  39%  4%
Cash  0%
 —
Real estate  2%  —
  100%  100%
(1) Equity securities for other retiree plan assets include Company stock, net of Series B ESOP
debt of $2,932 and $2,693 as of June 30, 2007 and 2006, respectively.
Our investment objective for dened benet retirement plan assets is
to meet the plans’ benet obligations, while minimizing the potential
for future required Company plan contributions. The investment
strategies focus on asset class diversication, liquidity to meet benet
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 plans’ future liabilities and benet
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 diversied 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 dened benet retirement plans and other retiree benet plans
for the year ending June 30, 2008, is $468 and $42, respectively.
For the dened benet retirement plans, this is comprised of $147 in
expected benet payments from the Company directly to participants
of unfunded plans and $321 of expected contributions to funded
plans. For other retiree benet plans, this is comprised of expected
contributions that will be used directly for benet payments. Expected
contributions are dependent on many variables, including the variability
of the market value of the plan assets as compared to the benet
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
signicantly from current estimates.