POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN

12 Months Ended

Jun. 30, 2014

Notes to Financial Statements [Abstract]

Pension and Other Postretirement Benefits Disclosure

NOTE 9

POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN

We offer various postretirement benefits to our employees.

Defined Contribution Retirement Plans

We have defined contribution plans which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants' accounts based on individual base salaries and years of service. Total global defined contribution expense was $311, $314 and $353 in 2014, 2013 and 2012, respectively.

The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the expense for the Company's defined contribution plans. For the U.S. DC plan, the contribution rate is set annually. Total contributions for this plan approximated 15% of total participants' annual wages and salaries in 2014, 2013 and 2012.

We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan and other retiree benefits (described below). Operating details of the ESOP are provided at the end of this Note. The fair value of the ESOP Series A shares allocated to participants reduces our cash contribution required to fund the U.S. DC plan.

Defined Benefit Retirement Plans and Other Retiree Benefits

We offer defined benefit retirement pension plans to certain employees. These benefits relate primarily to local plans outside the U.S. and, to a lesser extent, plans assumed in previous acquisitions covering U.S. employees.

We also provide certain other retiree benefits, primarily health care and life insurance, for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. These benefits are primarily funded by ESOP Series B shares and certain other assets contributed by the Company.

Obligation and Funded Status. The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans:

	Pension  Benefits(1)						Other Retiree Benefits(2)
Years ended June 30	2014			2013			2014			2013
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year(3)	$	14,514		$	13,573		$	5,289		$	6,006
Service cost	298			300			149			190
Interest cost	590			560			256			260
Participants' contributions	20			20			72			66
Amendments	4			104			(5		)	—
Actuarial loss/(gain)	1,365			473			(46		)	(1,022		)
Acquisitions	—			51			—			—
Special termination benefits	5			39			9			18
Currency translation and other	797			(4		)	20			5
Benefit payments	(540		)	(602		)	(239		)	(234		)
BENEFIT OBLIGATION AT END OF YEAR(3)	17,053			14,514			5,505			5,289

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	8,561		7,974		3,553		2,713
Actual return on plan assets	964		796		124		954
Acquisitions	—		59		—		—
Employer contributions	1,549		391		31		23
Participants' contributions	20		20		72		66
Currency translation and other	544		(77	)	—		—
ESOP debt impacts(4)	—		—		33		31
Benefit payments	(540	)	(602	)	(239	)	(234	)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	11,098		8,561		3,574		3,553
FUNDED STATUS	(5,955	)	(5,953	)	(1,931	)	(1,736	)

⁽¹⁾  Primarily non-U.S.-based defined benefit retirement plans.

⁽²⁾  Primarily U.S.-based other postretirement benefit plans.

⁽³⁾  For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.

⁽⁴⁾  Represents the net impact of ESOP debt service requirements, which is netted against plan assets for other retiree benefits.

The underfunding of pension benefits is primarily a function of the different funding incentives that exist outside of the U.S. In certain countries, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations prior to their due date. In these instances, benefit payments are typically paid directly from the Company's cash as they become due.

	Pension Benefits						Other Retiree Benefits
June 30	2014			2013			2014			2013
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets	$	69		$	114		$	—		$	—
Current liabilities	(40		)	(40		)	(25		)	(23		)
Noncurrent liabilities	(5,984		)	(6,027		)	(1,906		)	(1,713		)
NET AMOUNT RECOGNIZED	(5,955		)	(5,953		)	(1,931		)	(1,736		)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net actuarial loss	$	5,169		$	4,049		$	1,871		$	1,772
Prior service cost /(credit)	344			353			(39		)	(54		)
NET AMOUNTS RECOGNIZED IN AOCI	5,513			4,402			1,832			1,718

The accumulated benefit obligation for all defined benefit pension plans was $14,949 and $12,652 as of June 30, 2014 and 2013, respectively. Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consist of the following:

	Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets				Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
June 30	2014		2013		2014		2013
Projected benefit obligation	$	14,229	$	12,024	$	15,325	$	12,962
Accumulated benefit obligation	12,406		10,406		13,279		11,149
Fair value of plan assets	8,353		6,086		9,301		6,895

Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:

	Pension Benefits									Other Retiree Benefits
Years ended June 30	2014			2013			2012			2014			2013			2012
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST
Service cost	$	298		$	300		$	267		$	149		$	190		$	142
Interest cost	590			560			611			256			260			276
Expected return on plan assets	(701		)	(587		)	(573		)	(385		)	(382		)	(434		)
Prior service cost /(credit) amortization	26			18			21			(20		)	(20		)	(20		)
Net actuarial loss amortization	214			213			102			118			199			99
Special termination benefits	5			39			—			9			18			27
Curtailments, settlements and other	—			4			6			—			—			—
GROSS BENEFIT COST	432			547			434			127			265			90
Dividends on ESOP preferred stock	—			—			—			(64		)	(70		)	(74		)
NET PERIODIC BENEFIT COST/(CREDIT)	432			547			434			63			195			16
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI
Net actuarial loss /(gain) - current year	1,102			264						215			(1,594		)
Prior service cost/(credit) - current year	4			104						(5		)	—
Amortization of net actuarial loss	(214		)	(213		)				(118		)	(199		)
Amortization of prior service (cost) / credit	(26		)	(18		)				20			20
Settlement / curtailment cost	—			(4		)				—			—
Currency translation and other	245			(2		)				2			1
TOTAL CHANGE IN AOCI	1,111			131						114			(1,772		)
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI	1,543			678						177			(1,577		)

Amounts expected to be amortized from AOCI into net periodic benefit cost during the year ending June 30, 2015, are as follows:

	Pension Benefits		Other Retiree Benefits
Net actuarial loss	$	299	$	106
Prior service cost/(credit)	31		(20		)

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 used to determine benefit obligations recorded on the Consolidated Balance Sheets as of June 30, were as follows⁽¹⁾:

	Pension Benefits				Other Retiree Benefits
	2014		2013		2014		2013
Discount rate	3.5	%	4.0	%	4.4	%	4.8	%
Rate of compensation increase	3.2	%	3.2	%	—	%	—	%
Health care cost trend rates assumed for next year	—	%	—	%	6.8	%	7.3	%
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)	—	%	—	%	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate	N/A		N/A		2021		2020

⁽¹⁾  Determined as of end of year.

The weighted average assumptions used to determine net benefit cost recorded on the Consolidated Statement of Earnings for the years ended June 30, were as follows⁽²⁾:

	Pension Benefits						Other Retiree Benefits
	2014		2013		2012		2014		2013		2012
Discount rate	4.0	%	4.2	%	5.3	%	4.8	%	4.3	%	5.7	%
Expected return on plan assets	7.2	%	7.3	%	7.4	%	8.3	%	8.3	%	9.2	%
Rate of compensation increase	3.2	%	3.3	%	3.5	%	—	%	—	%	—	%

⁽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 defined benefit retirement plans, these factors 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 benefit plans, the expected long-term rate of return reflects 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 8.5% and reflects the historical pattern of returns.

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:

	One-Percentage Point Increase		One-Percentage Point Decrease
Effect on the total service and interest cost components	$	80	$	(61	)
Effect on the accumulated postretirement benefit obligation	879		(696		)

Plan Assets. Our investment objective for defined benefit retirement 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 plans' 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 with continual monitoring of investment managers' performance relative to the investment guidelines established with each investment manager.

Our target asset allocation for the year ended June 30, 2014, and actual asset allocation by asset category as of June 30, 2014 and 2013, were as follows:

	Target Asset Allocation				Actual Asset Allocation at June 30
					Pension Benefits				Other Retiree  Benefits
Asset Category	Pension Benefits		Other Retiree Benefits		2014		2013		2014		2013
Cash	1	%	2	%	1	%	1	%	1	%	2	%
Debt securities	52	%	8	%	51	%	52	%	6	%	6	%
Equity securities	47	%	90	%	48	%	47	%	93	%	92	%
TOTAL	100	%	100	%	100	%	100	%	100	%	100	%

The following tables set forth the fair value of the Company's plan assets as of June 30, 2014 and 2013 segregated by level within the fair value hierarchy (refer to Note 5 for further discussion on the fair value hierarchy and fair value principles). Common collective funds are valued using the net asset value reported by the managers of the funds and as supported by the unit prices of actual purchase and sale transactions. Company stock listed as Level 2 in the hierarchy represents preferred shares which are valued based on the value of Company common stock. The majority of our Level 3 pension assets are insurance contracts. Their fair values are based on their cash equivalent or models that project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk and interest rate curves.

	Pension Benefits
	Level 1				Level 2				Level 3				Total
June 30	2014		2013		2014		2013		2014		2013		2014		2013
ASSETS AT FAIR VALUE
Cash and cash equivalents	$	79	$	71	$	—	$	—	$	—	$	—	$	79	$	71
Common collective fund - equity	—		—		5,336		3,993		—		—		5,336		3,993
Common collective fund - fixed income	—		—		5,539		4,361		—		—		5,539		4,361
Other	5		4		—		—		139		132		144		136
TOTAL ASSETS AT FAIR VALUE	84		75		10,875		8,354		139		132		11,098		8,561

	Other Retiree Benefits
	Level 1				Level 2				Level 3				Total
June 30	2014		2013		2014		2013		2014		2013		2014		2013
ASSETS AT FAIR VALUE
Cash and cash equivalents	$	30	$	56	$	—	$	—	$	—	$	—	$	30	$	56
Company stock	—		—		3,304		3,270		—		—		3,304		3,270
Common collective fund - equity	—		—		18		16		—		—		18		16
Common collective fund - fixed income	—		—		217		200		—		—		217		200
Other	—		—		—		—		5		11		5		11
TOTAL ASSETS AT FAIR VALUE	30		56		3,539		3,486		5		11		3,574		3,553

There was no significant activity within the Level 3 pension and other retiree benefits plan assets during the years presented.

Cash Flows. Management's best estimate of cash requirements and discretionary contributions for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, 2015, is $266 and $39, respectively. For the defined benefit retirement plans, this is comprised of $102 in expected benefit payments from the Company directly to participants of unfunded plans and $164 of expected contributions to funded plans. For other retiree benefit plans, this is comprised of $25 in expected benefit payments from the Company directly to participants of unfunded plans and $14 of expected contributions to funded plans. 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 from the plans, are as follows:

Years ending June 30	Pension Benefits		Other Retiree Benefits
EXPECTED BENEFIT PAYMENTS
2015	$	584	$	203
2016	578		218
2017	604		233
2018	614		248
2019	624		264
2020 - 2024	3,615		1,528

Employee Stock Ownership Plan

We maintain the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs.

The ESOP borrowed $1.0 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances provided by the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of $98 remain outstanding at June 30, 2014. 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 equal to the common stock dividend of $2.45 per share. The liquidation value is $6.82 per share.

In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP's debt, are considered plan assets of the other retiree benefits plan discussed above. Debt service requirements are funded by preferred stock dividends, cash contributions and advances provided by the Company, of which $602 is outstanding at June 30, 2014. 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 equal to the common stock dividend of $2.45 per share. The liquidation value is $12.96 per share.

Our ESOP accounting practices are consistent with current ESOP accounting guidance, including the permissible continuation of certain provisions from prior accounting guidance. ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 4) with an offset to the reserve for ESOP debt retirement, which is presented within shareholders' equity. Advances to the ESOP by the Company are recorded as an increase in the reserve for ESOP debt retirement. 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 series A and B preferred shares of the ESOP are allocated to employees based on debt service requirements, net of advances made by the Company to the Trust. The number of preferred shares outstanding at June 30 was as follows:

Shares in thousands	2014	2013	2012
Allocated	44,465	45,535	50,668
Unallocated	8,474	9,843	11,348
TOTAL SERIES A	52,939	55,378	62,016
Allocated	22,085	21,278	20,802
Unallocated	35,753	37,300	38,743
TOTAL SERIES B	57,838	58,578	59,545

For purposes of calculating diluted net earnings per common share, the preferred shares held by the ESOP are considered converted from inception.