Notes to Consolidated Financial Statements 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 Defined Contribution Retirement Plans Other Retiree Benefits The Company offers various postretirement benefits to its employees. 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. 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:  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 Millions of dollars except per share amounts