-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CypGyEIhK3cDyDRoDqJBEHFHnPEoavZ1xfBzsXbUsMOaA+7M60BsRYpAOctzfCFr x25kX778ZJNVdj9RrJzUfw== 0000080424-94-000021.txt : 19940920 0000080424-94-000021.hdr.sgml : 19940920 ACCESSION NUMBER: 0000080424-94-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940914 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROCTER & GAMBLE CO CENTRAL INDEX KEY: 0000080424 STANDARD INDUSTRIAL CLASSIFICATION: 2840 IRS NUMBER: 310411980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00434 FILM NUMBER: 94548929 BUSINESS ADDRESS: STREET 1: ONE PROCTER & GAMBLE PLZ CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5139831100 10-K 1 THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ==================== ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED JUNE 30, 1994 ****************************************** UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------------- ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1994 Commission File No. 1-434 -------------------------------------------------- THE PROCTER & GAMBLE COMPANY One Procter & Gamble Plaza, Cincinnati, Ohio 45202 Telephone (513) 983-1100 IRS Employer Identification No. 31-0411980 State of Incorporation: Ohio --------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each Exchange on which registered - - ------------------------------- ----------------------------------------- Common Stock, without Par Value New York, Cincinnati, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Antwerp, Brussels, Tokyo Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _________ There were 684,700,179 shares of Common Stock outstanding as of August 12, 1994. The aggregate market value of the voting stock held by non- affiliates amounted to $41 billion on August 12, 1994. Documents Incorporated By Reference ---------------------------------------------- Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 1994 are incorporated by reference into Part I and Part II of this report. Portions of the Proxy Statement for the 1994 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. -1- PART I ---------- Item 1. Business. --------- General Development of Business ----------------------------------- The Procter & Gamble Company is primarily a manufacturer and distributor of household products. Its products are sold throughout the United States and abroad. The Company was incorporated in Ohio in 1905 and was the outgrowth of a business founded in 1837 by William Procter and James Gamble. Unless the context indicates otherwise, the term the "Company" as used herein refers to The Procter & Gamble Company (the registrant) and its subsidiaries. Additional information required by this item is incorporated by reference to the letter to shareholders which appears on pages 1-5 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Financial Information About Industry Segments ------------------------------------------------- The information required by this item is incorporated by reference to Note 10. Segment Information which appears on pages 30 and 31 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Narrative Description of Business ------------------------------------- The products of Laundry and Cleaning, Personal Care and Food and Beverage segments are distributed primarily through grocery stores and other retail outlets. The products of the Pulp and Chemicals segment are sold direct and through jobbers. In March 1992 the Company established a plan to divest its commercial pulp business. The sale of the timberlands in July 1994 completed this plan. The class of products information required by this item is incorporated by reference to Note 10. Segment Information which appears on pages 30 and 31 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Among the well-known names under which the Company's products are sold are: Ace, Always, Ariel, Attends, Bold, Bounce, Bounty, Camay, Cascade, Charmin, Cheer, Cover Girl, Crest, Crisco, Dash, Dawn, Downy, Duncan Hines, Era, Fairy, Flash, Folgers, Gain, Hawaiian Punch, Head and Shoulders, Ivory, Jif, Lenor, Luvs, Max Factor, Mr. Proper, Olay, Old Spice, Pampers, Pantene, Pert, Pringles, Punica, Rejoice, Safeguard, Scope, Secret, Sunny Delight, Tide, Vicks, Vidal Sassoon, Whisper, and Zest. The Company's business, represented by the aggregate of the four segments, is essentially homogeneous. For the most part, the factors necessary for an understanding of these four segments are essentially identical. The markets in which the Company's products are sold are highly competitive. The products of the Company's business segments compete with many large and small companies and there is no dominant competitor or competitors. Advertising is used in conjunction with an extensive sales force because the Company believes this combination provides the most efficient method of marketing these types of products. Product quality, performance, value and packaging are also important competitive factors. -2- The creation of new products and the development of new performance benefits for consumers on the Company's existing products are vital ingredients in its continuing progress in the highly competitive markets in which it does business. Basic research and product development activities continued to carry a high priority during the past fiscal year. The Company spent $1,059 million in fiscal year 1994, $956 million in 1993 and $861 million in 1992 on such activities. While many of the benefits from these efforts will not be realized until future years, the Company believes these activities demonstrate its commitment to future growth. The Company has registered trademarks and owns or has licenses under patents which are used in connection with its business in all segments. Some of these patents or licenses cover significant product formulation and processing of the Company's products. The trade names of all major products in each segment are registered trademarks. In part, the Company's success can be attributed to the existence of these trademarks, patents and licenses. Most of the raw materials used by the Company are purchased from others. The Company purchases a substantial variety of raw materials, no one of which is material to the Company's business taken as a whole. The price volatility of agricultural commodities is, at particular periods, of importance to the products manufactured and sold in the Food and Beverage products segment. Expenditures in fiscal year 1994 for compliance with Federal, State and local environmental laws and regulations were not materially different from such expenditures in the prior year, and no material increase is expected in fiscal year 1995. International operations are generally characterized by the same conditions discussed in the description of the business above and may also be affected by additional elements including changing currency values and different rates of inflation and rates of economic growth. The effect of these additional elements is more significant in the Laundry and Cleaning and Personal Care products segments which comprise most of the Company's international business. The Company has approximately 96,500 employees. The Company provides an Employee Stock Ownership Plan ("ESOP") which is part of The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan. Convertible preferred stock of the Company and other assets owned by the ESOP are held through a trust (the "ESOP Trust"). The ESOP Trust has issued certain debt securities to the public. The Company has fully, unconditionally and irrevocably guaranteed payment of principal and interest on these debt securities. Holders of these debt securities have no recourse against the assets of the ESOP Trust except with respect to cash contributions made by the Company to the ESOP Trust, and earnings attributable to such contributions. Such cash contributions are made by the Company only to the extent that dividends on the convertible preferred stock are inadequate to fund repayment of the debt securities. Any such contributions and subsequent payments to holders are made on a same-day basis and such contributions would therefore not be held by the ESOP Trust unless there was a default in payment on the debt securities by the ESOP Trust after having received such contributions -3- from the Company. Such a default is not likely to occur and there is therefore little likelihood that there would be assets available to satisfy the claims of any holders of the debt securities. A summary description of the liabilities of the ESOP Trust and of the dividends paid by the Company on the convertible preferred stock and cash payments from the Company to the ESOP Trust for the three years ended June 30, 1994 are incorporated by reference to Note 8 of "Notes to Consolidated Financial Statements" on pages 26-28 of the 1994 Annual Report to Shareholders. Additional information required by this item is incorporated by reference to the letter to shareholders which appears on pages 1-5 and Financial Condition which appears on page 35 and 36 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Financial Information About Foreign and Domestic Operations ------------------------------------------------------------ The information required by this item is incorporated by reference to Note 10. Segment Information which appears on pages 30 and 31 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Item 2. Properties. ----------- In the United States, the Company owns and operates manufacturing facilities at 45 locations in 22 states. In addition, it owns and operates 89 manufacturing facilities in 39 other countries. Laundry and Cleaning products are produced at 39 of these locations; Personal Care products at 90; and Food and Beverage products at 20. Pulp and Chemicals are produced at 18 locations. The management considers that the Company's production facilities are adequate to support the business efficiently, and that the properties and equipment have been well maintained. Item 3. Legal Proceedings. ------------------ The Company is involved in clean-up efforts at off-site Superfund locations, many of which are in the preliminary stages of investigation. The amount accrued at June 30, 1994 representing the Company's probable future costs that can be reasonably estimated was $8 million. The Company is also involved in certain other environmental proceedings. No such proceeding is expected to result in material monetary or other sanctions being imposed by any governmental entity, or in other material liabilities. However, the Company has agreed to participate in the Toxic Substances Control Act ("TSCA") Section 8(e) Compliance Audit Program of the United States Environmental Protection Agency ("EPA"). As a participant, the Company has agreed to audit its files for materials which under current EPA guidelines would be subject to notification under Section 8(e) of TSCA and to pay stipulated penalties for each report submitted under this program. It is anticipated that the Company's liability under the Program will be $1,000,000. No administrative proceeding is pending; however the Company anticipates being required to enter an Administrative Order on Consent pursuant to this Program in late 1995. In addition, the EPA issued to a subsidiary of the Company a Finding and Notice of Violation (NOV") dated June 16, 1994, based on Section 113(a) of the Clean Air Act (as amended), for alleged violations of the California State Implementation Plan by the subsidiary's manufacturing plant in Sacramento, California. The violations relate to 1) a plant expansion project that was implemented on the basis of calculated emission data that later proved to be -4- inaccurate, with the result that the project allegedly failed to observe the federal construction ban and certain "new source review" provisions; and 2) the subsequent installation of a material recovery unit that is now alleged to be pollution control equipment for which a permit was required. The NOV does not specify the relief that will be sought by EPA, but any penalties are not expected to be material to the Company. Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- Not applicable. Executive Officers of the Registrant -------------------------------------- The names, ages and positions held by the executive officers of the Company on August 12, 1994 are: Elected to Present Name Position Age Position - - ------------- -------------------- --- ----------- Edwin L. Artzt Chairman of the Board and 64 1989 Chief Executive. Director from 1972-75 and since October 14, 1980. John E. Pepper President. 56 1986 Director since June 12, 1984. Durk I. Jager Executive Vice President. 51 1989 Director since December 12, 1989. Michael J. Allen Group Vice President. 56 1991 Wolfgang C. Berndt Group Vice President. 51 1986 Benjamin L. Bethell Senior Vice President. 54 1991 Robert T. Blanchard Group Vice President. 49 1991 Gordon F. Brunner Senior Vice President. 55 1987 Director since March 1, 1991. Bruce L. Byrnes Group Vice President. 46 1991 Larry G. Dare Group Vice President. 54 1989 -5- Elected to Present Name Position Age Position - - ------------- -------------------- --- --------- Stephen P. Donovan, Jr. Group Vice President. 53 1986 Harald Einsmann Group Vice President. 60 1984 Director since June 10, 1991. Robert J. Herbold Senior Vice President. 52 1990 James J. Johnson Senior Vice President 47 1992 and General Counsel. Jeffrey D. Jones Group Vice President. 41 1992 Alan G. Lafley Group Vice President. 47 1992 Gary T. Martin Senior Vice President. 49 1991 Lawrence D. Milligan Senior Vice President. 58 1990 Jorge P. Montoya Group Vice President. 48 1991 Thomas A. Moore Group Vice President. 43 1992 Erik G. Nelson Senior Vice President. 54 1993 Robert L. Wehling Senior Vice President. 55 1994 Edwin H. Eaton, Jr. Vice President and 56 1987 Comptroller. Todd A. Garrett Vice President, Procter 52 1992 & Gamble Worldwide. All of the above Executive officers are members of the Executive Committee of The Procter & Gamble Company and have been employed by the Company over five years. PART II ---------- Item 5. Market for the Common Stock and Related Stockholder Matters ----------------------------------------------------------- The stock exchanges on which the common stock is listed, the quarterly price range and dividends for the past two years and the number of common shareholders are incorporated by reference to page 42 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. -6- Item 6. Selected Financial Data -----------------------
(millions of dollars except per share amounts) 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- Net sales $24,081 $27,026 $29,362 $30,433 $30,296 Net earnings/(Loss) 1,602 1,773 1,872 (656) 2,211 Net earnings/(Loss) per common share 2.25 2.46 2.62 (1.11) 3.09 Net earnings/(Loss) per common share assuming full dilution 2.13 2.31 2.45 (.96) 2.91 Dividends per common share .875 .975 1.025 1.10 1.24 Total assets 18,487 20,468 24,025 24,935 25,535 Long-term debt 3,588 4,111 5,223 5,174 4,980
In 1993 the Company adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions" and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". The effect of these accounting changes was to reduce net earnings by $988 million ($1.45 per share). During 1993 the Company announced one-time charges of $2,402 million for manufacturing consolidations and organizational restructuring and $303 million related to the divestiture of the 100% juice business. The after- tax effect of these provisions is $1,746 million or $2.57 per share. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ---------------------------------------------------------------- This information is incorporated by reference to the Analysis and Discussion and Financial Condition shown on pages 32-36 and the letter to shareholders on pages 1-5 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Item 8. Financial Statements and Supplemental Data ------------------------------------------ The financial statements and supplemental data are incorporated by reference to pages 16-31 of the Annual Report to Shareholders for the fiscal year ended June 30, 1994. Item 9. Disagreements on Accounting and Financial Disclosure ---------------------------------------------------- Not applicable. PART III ---------- Item 10. Directors and Executive Officers -------------------------------- The information required by this item is incorporated by reference to pages 3-5 and 17-18 of the proxy statement filed since the close of the fiscal year ended June 30, 1994, pursuant to Regulation 14A which involved the election of directors. Pursuant to Item 401(b) of Regulation S-K, Executive Officers of the Registrant are reported in Part I of this report. -7- Item 11. Executive Compensation ---------------------- The information required by this item is incorporated by reference to pages 7-14 of the proxy statement filed since the close of the fiscal year ended June 30, 1994, pursuant to Regulation 14A which involved the election of directors. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The information required by this item is incorporated by reference to pages 15-17 of the proxy statement filed since the close of the fiscal year ended June 30, 1994, pursuant to Regulation 14A which involved the election of directors. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- The information required by this item is incorporated by reference to page 18 of the proxy statement filed since the close of the fiscal year ended June 30, 1994, pursuant to Regulation 14A which involved the election of directors. PART IV --------- Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K ----------------------------------------------------------------- A. 1. Financial Statements: The following consolidated financial statements of The Procter & Gamble Company and subsidiaries and the report of independent accountants are incorporated by reference in Part II, Item 8. - Report of independent accountants - Consolidated statement of earnings -- for years ended June 30, 1994, 1993 and 1992 - Consolidated balance sheet -- as of June 30, 1994 and 1993 - Consolidated statement of retained earnings -- for years ended June 30, 1994, 1993 and 1992 - Consolidated statement of cash flows -- for years ended June 30, 1994, 1993 and 1992 - Notes to consolidated financial statements 2. Financial Statement Schedules: Schedule V -- Property, plant, and equipment - page 15 -8- Schedule VI -- Accumulated depreciation - page 16 Schedule IX -- Short-term borrowings - page 17 Schedule X -- Supplementary income statement information - page 18 The schedules other than those listed above are omitted because of the absence of the conditions under which they are required, or because the information is set forth in the financial statements or notes thereto. 3. Exhibits: Exhibit (3-1) -- Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (3-2) -- Regulations (Incorporated by reference to Exhibit (3-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). Exhibit (4) -- Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission. Exhibit (10-1) -- The Procter & Gamble 1992 Stock Plan (as amended December 14, 1993) which was adopted by the shareholders at the annual meeting on October 13, 1992. (10-2) -- The Procter & Gamble 1983 Stock Plan (as amended May 11, 1993) which was adopted by the shareholders at the annual meeting on October 11, 1983 (Incorporated by reference to Exhibit (10-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-3) -- The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-4) -- Additional Remuneration Plan (as amended June 12, 1990) which was adopted by the Board of Directors on April 12, 1949 (Incorporated by reference to Exhibit (10-4) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-5) -- The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-5) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). -9- Exhibit (10-6) -- The Procter & Gamble Retirement Plan for Directors which was adopted by the Board of Directors on December 12, 1989 (Incorporated by reference to Exhibit (10-6) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-7) -- The Procter & Gamble Board of Directors Charitable Gifts Program which was adopted by the Board of Directors on November 12, 1991 (Incorporated by Reference to Exhibit (10-7) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-8) -- The Procter & Gamble 1993 Non-Employee Directors' Stock Plan which was on November 9, 1993, approved by the Board of Directors for submission to the Shareholders on October 11, 1994 (Incorporated by reference to Appendix A of the proxy statement filed since the close of the fiscal year ended June 30, 1994). (10-9) -- Richardson-Vicks Inc. Special Stock Equivalent Incentive Plan which was authorized by the Board of Directors of The Procter & Gamble Company and adopted by the Board of Directors of Richardson-Vicks Inc. on December 31, 1985. Exhibit (11) -- Computation of earnings per share. Exhibit (12) -- Computation of ratio of earnings to fixed charges. Exhibit (13) -- Annual Report to shareholders. (Pages 1-5, 16-36, and 42) Exhibit (21) -- Subsidiaries of the registrant. Exhibit (23) -- Consent of Deloitte & Touche LLP. Exhibit (27) -- Financial Data Schedule. Exhibit (99-1) -- Directors and Officers Liability Policy (the "Policy Period" has been extended to 6/30/97). (99-2) -- Directors and Officers (First) Excess Liability Policy (the "Policy Period" has been extended to 6/30/95). (99-3) -- Directors and Officers (Second) Excess Liability Policy (the "Policy Period" has been extended to 6/30/95). (99-4) -- Fiduciary Responsibility Insurance Policy (the "Policy Period" has been extended to 6/30/95). The exhibits listed are filed with the Securities and Exchange Commission but are not included in this booklet. Copies of these exhibits may be obtained by sending a request to: Linda D. Rohrer, Assistant Secretary, The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201 -10- B. Reports on Form 8-K: An 8-K Report containing an exhibit under Item 7 entitled "Press Release Issued by Registrant on April 12, 1994" was filed on April 13, 1994. SIGNATURES -------------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Cincinnati, State of Ohio. THE PROCTER & GAMBLE COMPANY By /s/EDWIN L. ARTZT --------------------------- Edwin L. Artzt Chairman of the Board and Chief Executive September 13, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date - - --------- ----- ----- _______ /s/EDWIN L. ARTZT Chairman of the Board and | - - -------------------- Chief Executive and Director | (Edwin L. Artzt) (Principal Executive Officer) | | /s/ERIK G. NELSON Senior Vice President | - - -------------------- (Principal Financial Officer) | (Erik G. Nelson) September 13, 1994 | /s/EDWIN H. EATON, JR. Vice President and Comptroller | - - -------------------- (Principal Accounting Officer) | (Edwin H. Eaton, Jr.) | | /s/DAVID M. ABSHIRE | - - -------------------- Director | (David M. Abshire) | | /s/NORMAN R. AUGUSTINE | - - -------------------- Director | (Norman R. Augustine) ___________| -11- Signature Title Date - - --------- ------ ---- __________ | /s/DONALD R. BEALL | - - -------------------- Director | (Donald R. Beall) | | /s/GORDON F. BRUNNER | - - -------------------- Director | Gordon F. Brunner) | | /s/RICHARD B. CHENEY | - - -------------------- Director | (Richard B. Cheney) | | /s/HARALD EINSMANN | - - -------------------- Director | (Harald Einsmann) | | | - - -------------------- Director | (Richard J. Ferris) | | /s/JOSEPH T. GORMAN | - - -------------------- Director September 13, 1994 (Joseph T. Gorman) | | /s/ROBERT A. HANSON | - - -------------------- Director | /s/(Robert A. Hanson) | | /s/DURK I. JAGER | - - -------------------- Director | (Durk I. Jager) | | /s/JERRY R. JUNKINS | - - -------------------- Director | (Jerry R. Junkins) | | /s/JOSHUA LEDERBERG | - - -------------------- Director | (Joshua Lederberg) | | /s/CHARLES R. LEE | - - -------------------- Director | (Charles R. Lee) | __________ -12- Signature Title Date - - --------- ------ ----- _________ /s/JOHN E. PEPPER | - - ------------------- Director | (John E. Pepper) | | /s/JOHN G. SMALE | - - ------------------- Director | (John G. Smale) September 13, 1994 | /s/ROBERT D. STOREY | - - ------------------- Director | (Robert D. Storey) | | /s/MARINA v.N. WHITMAN | - - ------------------- Director | (Marina v.N. Whitman) _______| -13- DELOITTE & TOUCHE LLP 250 East Fifth Street Post Office Box 5340 Cincinnati, Ohio 45201 (513) 784-7100 REPORT OF INDEPENDENT ACCOUNTANTS - - -------------------------------------------------------------- The Procter & Gamble Company: We have audited the consolidated financial statements of The Procter & Gamble Company and subsidiaries as of June 30, 1994 and 1993, and for each of the three years in the period ended June 30, 1994, and have issued our report thereon dated August 10, 1994 (expressing an unqualified opinion and including an explanatory paragraph regarding the changes in accounting for other post retirement benefits and income taxes effective July 1, 1992); such financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of The Procter & Gamble Company and subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP August 10, 1994 -14- THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES =============================== SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT FOR THE YEARS ENDED JUNE 30, 1994, 1993 and 1992 - - --------------------------------------------------------------------------------------------------
MACHINERY AND Millions of Dollars BUILDINGS EQUIPMENT LAND TIMBERLANDS TOTAL - - -------------------------------------------------------------------------------------------------- Balance, June 30, 1993 $2,703 $11,607 $494 $ 73 $14,877 Additions at cost 296 1,510 31 4 1,841 Retirements or sales (48) (950) (5) (1) (1,004) Cost of timber harvested - credited to asset account (6) (6) Foreign currency translation adjustments 59 92 21 0 172 Other changes - debit (credit) 17 (10) 9 0 16(a) -------- ---------- ------ ----- ----------- Balance, June 30, 1994 $3,027 $12,249 $550 $ 70 $15,896 ====== ======= ====== ===== =========== Balance, June 30, 1992 $2,478 $12,092 $439 $175 $15,184 Additions at cost 420 1,441 34 16 1,911 Retirements or sales (173) (1,632) (12) (168) (1,985) Cost of timber harvested - credited to asset account (15) (15) Foreign currency translation adjustments (33) (300) 26 0 (307) Other changes - debit (credit) 11 6 7 65 89(a) --------- ---------- ------ ----- ---------- Balance, June 30, 1993 $2,703 $11,607 $494 $ 73 $14,877 ========= ========== ====== ===== ========== Balance, June 30, 1991 $2,019 $10,593 $250 $172 $13,034 Additions at cost 250 1,621 14 26 1,911 Retirements or sales (21) (610) (1) (2) (634) Cost of timber harvested - credited to asset account (18) (18) Foreign currency translation adjustments 99 359 34 0 492 Other changes - debit (credit) 131 129 142 (3) 399(a) --------- ---------- ------ ------ ---------- Balance, June 30, 1992 $2,478 $12,092 $439 $175 $15,184 ========= ========== ====== ====== ========== (a) Primarily acquisitions and reclassifications
Rates for Depreciation of Properties for financial accounting purposes are generally as follows: Buildings 1.5% to 10% Machinery & Equipment 3% to 33.3% -15- THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ================================ SCHEDULE VI - ACCUMULATED DEPRECIATION FOR THE YEARS ENDED JUNE 30, 1994, 1993 and 1992 - - --------------------------------------------------------------------------
MACHINERY AND Millions of Dollars EQUIPMENT BUILDINGS ETC. TOTAL - - --------------------------------------------------------------------------- BALANCE, JUNE 30, 1993 $657 $4,735 $5,392 Additions charged to costs and expenses 92 901 993 Retirements (23) (538) (561) Foreign currency translation adjustments 11 53 64 Other changes - (debit) credit 4 (20) (16)(a) ----- -------- -------- BALANCE, JUNE 30, 1994 $741 $5,131 $5,872 ===== ======== ======== BALANCE, JUNE 30, 1992 $660 $4,828 $5,488 Additions charged to costs and expenses 82 899 981 Retirements (66) (857) (923) Foreign currency translation adjustments (22) (126) (148) Other changes - (debit) credit 3 (9) (6)(a) ----- -------- -------- BALANCE, JUNE 30, 1993 $657 $4,735 $5,392 ===== ======== ======== BALANCE, JUNE 30, 1991 $561 $4,200 $4,761 Additions charged to costs and expenses 70 822 892 Retirements (10) (363) (373) Foreign currency translation adjustments 28 155 183 Other changes - (debit) credit 11 14 25(a) ----- -------- -------- BALANCE, JUNE 30, 1992 $660 $4,828 $5,488 ===== ======== ======== (a) Primarily acquisitions and reclassifications
-16- THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES =============================== SCHEDULE IX - SHORT-TERM BORROWINGS JUNE 30, 1994, 1993 AND 1992 Millions of Dollars
Weighted Maximum Average Amount Average Weighted Interest Outstanding Amount Average Balance at Rate at End at Any Outstanding Interest Rate Category of Borrowing End of Period of Period Month End During Year During Year* - - ---------------------------- ------------- ----------- ------------ ----------- ------------- Year Ended June 30, 1994 - - ---------------------------- U.S. commercial paper $ 350 3.9% $ 916 $ 694 3.4% Bank loans, principally of international subsidiaries 531 8.0% 723 619 8.3% Year Ended June 30, 1993 - - ---------------------------- U.S. commercial paper 477 3.2% 1,227 864 3.3% Bank loans, principally of international subsidiaries 685 9.2% 1,117 879 10.0% Year Ended June 30, 1992 - - ---------------------------- U.S. commercial paper 354 5.3% 1,721 913 5.4% Bank loans, principally of international subsidiaries 1,126 10.7% 1,702 1,286 10.8% *Actual interest expense on short-term debt divided by average short-term debt outstanding during year.
-17- THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES =============================== SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED JUNE 30, 1994, 1993 and 1992 - - ---------------------------------------------------------------------------
COLUMN A COLUMN B ITEM CHARGED TO COSTS AND EXPENSES Millions of Dollars - - --------------------------------------------------------------------------- 1994 1993 1992 ---- ---- ---- MAINTENANCE AND REPAIRS $ 532 $ 628 $ 671 TAXES, OTHER THAN INCOME TAXES 637 660 603 ADVERTISING COSTS 2,996 2,973 2,693
-18- EXHIBIT INDEX -------------- Exhibit (3-1) -- Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (3-2) -- Regulations (Incorporated by reference to Exhibit (3-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). Exhibit (4) -- Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission. Exhibit (10-1) -- The Procter & Gamble 1992 Stock Plan (as amended December 14, 1993) which was adopted by the shareholders at the annual meeting on October 13, 1992. (10-2) -- The Procter & Gamble 1983 Stock Plan (as amended May 11, 1993) which was adopted by the shareholders at the annual meeting on October 11, 1983 (Incorporated by reference to Exhibit (10-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-3) -- The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-4) -- Additional Remuneration Plan (as amended June 12, 1990) which was adopted by the Board of Directors on April 12, 1949 (Incorporated by reference to Exhibit (10-4) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-5) -- The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-5) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-6) -- The Procter & Gamble Retirement Plan for Directors which was adopted by the Board of Directors on December 12, 1989 (Incorporated by reference to Exhibit (10-6) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). -19- Exhibit (10-7) -- The Procter & Gamble Board of Directors Charitable Gifts Program which was adopted by the Board of Directors on November 12, 1991 (Incorporated by Reference to Exhibit (10-7) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993). (10-8) -- The Procter & Gamble 1993 Non-Employee Directors' Stock Plan which was on November 9, 1993, approved by the Board of Directors for submission to the Shareholders on October 11, 1994 (Incorporated by reference to Appendix A of the proxy statement filed since the close of the fiscal year ended June 30, 1994). (10-9) -- Richardson-Vicks Inc. Special Stock Equivalent Incentive Plan which was authorized by the Board of Directors of the Procter & Gamble Company and adopted by the Board of Directors of Richardson-Vicks Inc. on December 31, 1985. Exhibit (11) -- Computation of earnings per share. Exhibit (12) -- Computation of ratio of earnings to fixed charges. Exhibit (13) -- Annual Report to shareholders. (Pages 1-5, 16-36, and 42) Exhibit (21) -- Subsidiaries of the registrant. Exhibit (23) -- Consent of Deloitte & Touche LLP. Exhibit (27) -- Financial Data Schedule. Exhibit (99-1) -- Directors and Officers Liability Policy (the "Policy Period" has been extended to 6/30/97). (99-2) -- Directors and Officers (First) Excess Liability Policy (the "Policy Period" has been extended to 6/30/95). (99-3) -- Directors and Officers (Second) Excess Liability Policy (the "Policy Period" has been extended to 6/30/95). (99-4) -- Fiduciary Responsibility Insurance Policy (the "Policy Period" has been extended to 6/30/95). -20- EX-10.1 2 Exhibit (10-1) ----------------- THE PROCTER & GAMBLE 1992 STOCK PLAN (as approved by the shareholders on October 13, 1992 and last amended December 14, 1993) ARTICLE A -- PURPOSE. The purpose of The Procter & Gamble 1992 Stock Plan (hereinafter referred to as the "Plan") is to encourage those employees of The Procter & Gamble Company (hereinafter referred to as the "Company") and its subsidiaries who are largely responsible for the long-term success and development of the business to strengthen the alignment of interests between employees and the Company's shareholders through the increased ownership of shares of the Company's Common Stock, and to encourage those employees to remain in the employ of the Company and its subsidiaries. This will be accomplished through the granting to employees of options to purchase shares of the Common Stock of the Company, payment of a portion of the employees' remuneration in shares of the Common Stock, and the granting to them by the Company and a subsidiary, if appropriate, of deferred awards related to the increase in the price of the Common Stock of the Company as provided by the terms and conditions set forth in the Plan. ARTICLE B -- ADMINISTRATION. 1. The Plan shall be administered by the Compensation Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not less than three (3) members of the Board who are neither officers nor employees, or members of the Board who are "disinterested persons" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "1934 Act"), or any successor rule or definition adopted by the Securities and Exchange Commission, to be appointed by the Board from time to time and to serve at the discretion of the Board. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions, to report thereon not less than once each year to the Board and to make such recommendations of amendments or otherwise as it deem necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority: to grant nonstatutory and incentive stock options; to grant to recipients stock appreciation rights either freestanding, in tandem with simultaneously granted stock options, or in parallel with simultaneously granted stock options; to award a portion of a recipient's remuneration in shares of Common Stock of the Company subject to such conditions or restrictions, if any, as the Committee may determine; to determine all the terms and provisions of the respective stock option, stock appreciation right, and stock award agreements including setting the dates when each stock option or stock appreciation right or part thereof may be exercised and determining the conditions and restrictions, if any, of any shares of Common Stock acquired through the exercise of any stock option; and to make all other determinations it deems necessary or advisable for administering this Plan; provided, however, the Committee shall have the further authority to: (a) waive the provisions of Article F, paragraph 1(a); (b) waive the provisions of Article F, paragraph 1(b); (c) waive the provisions of Article G, paragraph 4(a); and (d) impose conditions at time of grant in lieu of those set forth in Article G, paragraphs 4 through 7, for nonstatutory stock options, stock appreciation rights, and stock award grants which do not increase or extend the rights of the recipient, to take into consideration the differences, limitations, and requirements of foreign laws or conditions including tax regulations, exchange controls or investment restrictions, possible unenforceability of any part of this Plan, or other matters deemed appropriate by it. 4. The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- PARTICIPATION. The Committee shall select those employees of the Company and its subsidiaries who, in the opinion of the Committee, have demonstrated a capacity for contributing in a substantial manner to the success of such companies and shall determine the number of shares of the Common Stock of the Company to be transferred under this Plan subject to such conditions or restrictions as the Committee may determine and the number of shares with respect to which stock options or stock appreciation rights will be granted. The Committee may consult with the Chief Executive, but nevertheless the Committee has the full authority to act, and the Committee's actions shall be final. ARTICLE D -- LIMITATION ON NUMBER OF SHARES FOR THE PLAN. 1. Unless otherwise authorized by the shareholders, the maximum aggregate number of shares available for award under this Plan for each calendar year the Plan is in effect shall be one percent (1%) of the total issued shares of Common Stock of the Company as of June 30 of the immediately preceding fiscal year. 2. Any of the authorized shares may be used in respect of any of the types of awards described in this Plan, except that no more than twenty- five percent (25%) of the authorized shares in any calendar year may be issued as restricted or unrestricted stock and no more than 25,000,000 of the authorized shares during the term of the Plan may be issued as incentive stock options. 3. Any authorized shares not used in a calendar year shall be available for awards under this Plan in succeeding calendar years. ARTICLE E -- SHARES SUBJECT TO USE UNDER THE PLAN. 1. The shares to be delivered by the Company upon exercise of stock options or stock appreciation rights shall be either authorized but unissued shares or treasury shares, as determined by the Board. In the case of redemption of stock appreciation rights by one of the Company's subsidiaries, such shares shall be shares acquired by that subsidiary. 2. For purposes of this Plan, restricted or unrestricted stock awarded under the terms of this Plan shall be authorized but unissued shares, treasury shares, or shares acquired for purposes of the Plan by the Company or a subsidiary, as determined by the Board. ARTICLE F -- STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. In addition to such other conditions as may be established by the Committee, in consideration of the granting of stock options or stock appreciation rights under the terms of this Plan, the recipient agrees as follows: (a) The right to exercise any stock option or stock appreciation right shall be conditional upon certification by the recipient at time of exercise that the recipient intends to remain in the employ of the Company or one of its subsidiaries (except in cases of retirement, disability or Special Separation as defined in section 6 of Article G) for at least one (1) year following the date of the exercise of the stock option or stock appreciation right, and, (b) In order to better protect the goodwill of the Company and its subsidiaries and to prevent the disclosure of the Company's or it subsidiaries' trade secrets and confidential information and thereby help insure the long-term success of the business, the recipient, without prior written consent of the Company, will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, adviser, consultant or otherwise, for a period of three (3) years following the date of the recipient's termination of employment with the Company, in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of the Company or its subsidiaries (including both existing products as well as products known to the recipient, as a consequence of the recipient's employment with the Company or one of its subsidiaries, to be in development): (1) with respect to which the recipient's work has been directly concerned at any time during the two (2) years preceding termination of employment with the Company or one of its subsidiaries or (2) with respect to which during that period of time the recipient, as a consequence of the recipient's job performance and duties, acquired knowledge of trade secrets or other confidential information of the Company or its subsidiaries. For purposes of this section, it shall be conclusively presumed that recipients have knowledge of information they were directly exposed to through actual receipt or review of memos or documents containing such information, or through actual attendance at meetings at which such information was discussed or disclosed. (c) The provisions of this Article are not in lieu of, but are in addition to the continuing obligation of the recipient (which recipient hereby acknowledges) to not use or disclose the Company's or its subsidiaries' trade secrets and confidential information known to the recipient until any particular trade secret or confidential information become generally known (through no fault of the recipient), whereupon the restriction on use and disclosure shall cease as to that item. Information regarding products in development, in test marketing or being marketed or promoted in a discrete geographic region, which information the Company or one of its subsidiaries is considering for broader use, shall not be deemed generally known until such broader use is actually commercially implemented. As used in this Article, "generally known" means known throughout the domestic U. S. industry or, in the case of recipients who have job responsibilities outside of the United States, the appropriate foreign country or countries' industry. (d) By acceptance of any offered stock option or stock appreciation rights granted under the terms of this Plan, the recipient acknowledges that if the recipient were, without authority, to use or disclose the Company's or any of its subsidiaries' trade secrets or confidential information or threaten to do so, the Company or one of its subsidiaries would be entitled to injunctive and other appropriate relief to prevent the recipient from doing so. The recipient acknowledges that the harm caused to the Company by the breach or anticipated breach of this Article is by its nature irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. The recipient consents that any interim or final equitable relief entered by a court of competent jurisdiction shall, at the request of the Company or one of its subsidiaries, be entered on consent and enforced by any court having jurisdiction over the recipient, without prejudice to any rights either party may have to appeal from the proceedings which resulted in any grant of such relief. (e) If any of the provisions contained in this Article shall for any reason, whether by application of existing law or law which may develop after the recipient's acceptance of an offer of the granting of stock appreciation rights or stock options, be determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, the recipient agrees to join the Company or any of its subsidiaries in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. If any one or more of the terms, provisions, covenants, or restrictions of this Article shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants, and restrictions of this Article shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 2. The fact that an employee has been granted a stock option or a stock appreciation right under this Plan shall not limit the right of the employer to terminate the recipient's employment at any time. The Committee is authorized to suspend or terminate any outstanding stock option or stock appreciation right prior to or after termination of employment if the Committee determines the recipient has acted significantly contrary to the best interests of the Company. 3. More than one stock option or stock appreciation right may be granted to any employee under this Plan but the maximum number of shares with respect to which stock options or stock appreciation rights may be granted to any employee in any calendar year shall not exceed five percent (5%) of the number of shares which can be issued or transferred annually hereunder. 4. The aggregate fair market value (determined at the time when the incentive stock option is exercisable for the first time by an employee during any calendar year) of the shares for which any employee may be granted incentive stock options under this Plan and all other stock option plans of the Company and its subsidiaries in any calendar year shall not exceed $100,000 (or such other amount as reflected in the limits imposed by Section 422(d) of the Internal Revenue Code of 1986, as it may be amended from time to time). 5. If the Committee grants incentive stock options, all such stock options shall contain such provisions as permit them to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as may be amended from time to time. 6. With respect to stock options granted in tandem with or parallel to stock appreciation rights, the exercise of either such stock options or such stock appreciation rights will result in the simultaneous cancellation of the same number of tandem or parallel stock appreciation rights or stock options, as the case may be. 7. The exercise price for all stock options and stock appreciation rights shall be established by the Committee at the time of their grant and shall be not less than one hundred percent (100%) of the fair market value of the Common Stock of the Company on the date of grant. ARTICLE G -- EXERCISE OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. All stock options and stock appreciation rights granted hereunder shall have a maximum life of no more than ten (10) years from the date of grant. 2. No stock options or stock appreciation rights shall be exercisable within one (1) year from their date of grant, except in the case of the death of the recipient. 3. During the lifetime of the recipient, stock options and stock appreciation rights may be exercised only by the recipient personally, or, in the event of the legal incompetence of the recipient, by the recipient's duly appointed legal guardian. 4. In case a recipient of stock options or stock appreciation rights ceases to be an employee of the Company or any of its subsidiaries while holding an unexercised stock option or stock appreciation right: (a) Any unexercisable portions thereof are then void, except in the case of: (1) death of the recipient; (2) any Special Separation (as defined in section 6 of this Article G) that occurs more than six months from the date the options were granted; or (3) any option as to which the Committee has waived, at the time of grant, the provisions of this Article G, paragraph 4(a) pursuant to the authority granted by Article B, paragraph 3. (b) Any exercisable portions thereof are then void, except in the case of death, retirement in accordance with the provisions of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries, or Special Separation (as defined in section 6 of this Article G) of the recipient. 5. In the case of the death of a recipient of stock options or stock appreciation rights while an employee of the Company or any of its subsidiaries, the persons to whom the stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising remaining stock options, stock appreciation rights or parts thereof, whether or not exercisable on the date of death of such employee, at any time prior to the expiration date of the stock options or stock appreciation rights. 6. Termination of employment under the permanent disability provision of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries shall be deemed the same as retirement. Special Separation means any termination of employment, except a termination for cause, of any person who is not a current or former member of the Executive Committee of the Company if it is certified in writing by a member of the Executive Committee of the Company, with the concurrence of the appropriate Vice President-Human Resources, that the termination should be treated as a Special Separation under this Plan. The death of a recipient of stock options or stock appreciation rights subsequent to retirement or Special Separation shall not render exercisable stock options or stock appreciation rights which were unexercisable at the time of the retirement or Special Separation. The persons to whom the exercisable stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising such remaining stock options, stock appreciation rights or parts thereof, at any time prior to the expiration date of the stock options or stock appreciation rights. 7. Stock options and stock appreciation rights are not transferable other than by will or by the laws of descent and distribution. For the purpose of exercising stock options or stock appreciation rights after the death of the recipient, the duly appointed executors and administrators of the estate of the deceased recipient shall have the same rights with respect to the stock options and stock appreciation rights as legatees or distributees would have after distribution to them from the recipient's estate. 8. Upon the exercise of stock appreciation rights, the recipient shall be entitled to receive a redemption differential for each such stock appreciation right which shall be the difference between the then fair market value of one share of the Common Stock of the Company and the exercise price of one stock appreciation right then being exercised. In the case of the redemption of stock appreciation rights by a subsidiary of the Company not located in the United States, the redemption differential shall be calculated in United States dollars and converted to the appropriate local currency on the exercise date. As determined by the Committee, the redemption differential may be paid in cash, Common Stock of the Company to be valued at its fair market value on the date of exercise, any other mode of payment deemed appropriate by the Committee or any combination thereof. The number of shares with respect to which stock appreciation rights are being exercised shall not be available for granting future stock options or stock appreciation rights under this Plan. 9. The Committee may, in its sole discretion, permit a stock option which is being exercised either (a) by an optionee whose retirement is imminent or who has retired or (b) after the death of the optionee, to be surrendered, in lieu of exercise, for an amount equal to the difference between the stock option exercise price and the fair market value of shares of the Common Stock of the Company on the day the stock option is surrendered, payment to be made in shares of the Company's Common Stock which are subject to this Plan valued at their fair market value on such date, cash, or a combination thereof, in such proportion and upon such terms and conditions as shall be determined by the Committee. The difference between the number of shares subject to stock options so surrendered and the number of shares, if any, issued upon such surrender shall represent shares which shall not be available for granting future stock options under this Plan. 10. Time spent on leave of absence shall be considered as employment for the purposes of this Plan. Leave of absence means any period of time away from work granted to any employee by his or her employer because of illness, injury, or other reasons satisfactory to the employer. 11. The Company reserves the right from time to time to suspend the exercise of any stock option or stock appreciation right where such suspension is deemed by it necessary or appropriate for corporate purposes. No such suspension shall extend the life of the stock option or stock appreciation right beyond its expiration date, and in no event will there be a suspension in the five (5) calendar days immediately preceding the expiration date. ARTICLE H -- PAYMENT FOR STOCK OPTIONS. Upon the exercise of a stock option, payment in full of the exercise price shall be made by the optionee. As determined by the Committee, the stock option exercise price may be paid for by the optionee either in cash, shares of the Common Stock of the Company to be valued at their fair market value on the date of exercise, or a combination thereof. ARTICLE I -- TRANSFER OF SHARES. 1. The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and with respect to particular employees or group of employees and may be set forth in agreements between the Company and the employee or in the awards of stock to them, all as the Committee determines. It is contemplated that the conditions and restrictions established by the Committee will be consistent with the objectives of this Plan and may be of the following types. In giving these examples, it is not intended to restrict the Committee's authority to impose other restrictions or conditions, or to waive restrictions or conditions under circumstances deemed by the Committee to be appropriate and not contrary to the best interests of the Company. (a) Restrictions The employee will not be able to sell, pledge, or dispose of the shares during a specified period except in accordance with the agreement or award. Such restrictions will lapse either after a period of, for example, five years, or in fifteen or fewer annual installments following retirement or termination of employment, as the Committee from time to time may determine. However, upon the transfer of shares subject to restrictions, an employee will have all incidents of ownership in the shares, including the right to dividends (unless otherwise restricted by the Committee), to vote the shares, and to make gifts of them to family members (still subject to the restrictions). (b) Lapse of Restrictions In order to have the restrictions lapse, an employee may be required to continue in the employ of the Company or a subsidiary for a prescribed period of time. Exemption from this requirement may be prescribed in the case of death, disability, or retirement, or as otherwise prescribed by the Committee. In addition, an employee may be required, following termination of employment other than by retirement or disability, to render limited consulting and advisory services and to refrain from conduct deemed contrary to the best interests of the Company. ARTICLE J -- ADJUSTMENTS. The amount of shares authorized to be issued annually under this Plan will be subject to appropriate adjustments in their numbers in the event of future stock splits, stock dividends, or other changes in capitalization of the Company occurring after the date of approval of this Plan by the Company's shareholders to prevent the dilution or enlargement of rights under this Plan; following any such change, the term "Common Stock" shall be deemed to refer to such class of shares or other securities as may be applicable. The number of shares and exercise prices covered by outstanding stock options and stock appreciation rights shall be adjusted to give effect to any such stock splits, stock dividends, or other changes in the capitalization. ARTICLE K -- ADDITIONAL PROVISIONS. 1. The Board may, at any time, repeal this Plan or may amend it from time to time except that no such amendment may amend this paragraph, increase the annual aggregate number of shares subject to this Plan, reduce the price at which stock options or stock appreciation rights may be granted, exercised, or surrendered, alter the class of employees eligible to receive stock options, or increase the percentage of shares authorized to be transferred as restricted or unrestricted stock. The recipient of awards under this Plan and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding stock options or stock appreciation rights are affected, notice thereof shall be given to the holders of such stock options and stock appreciation rights and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore granted unexercised stock options or stock appreciation rights shall continue to be exercisable in accordance with their terms and shares subject to conditions or restrictions transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions. 2. In the case of an employee of a subsidiary company, performance under this Plan, including the transfer of shares of the Company, may be by the subsidiary. Nothing in this Plan shall affect the right of the Company or any subsidiary to terminate the employment of any employee with or without cause. None of the participants, either individually or as a group, and no beneficiary or other person claiming under or through any participant, shall have any right, title, or interest in any shares of the Company purchased or reserved for the purpose of this Plan except as to such shares, if any, as shall have been granted or transferred to him or her. Nothing in this Plan shall preclude the issuance or transfer of shares of the Company to employees under any other plan or arrangement now or hereafter in effect. 3. "Subsidiary" means any company in which fifty percent (50%) or more of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company. In addition, the Board may designate for participation in this Plan as a "subsidiary," except for the granting of incentive stock options, those additional companies affiliated with the Company in which the Company's direct or indirect stock ownership is less than fifty percent (50%) of the total combined voting power of all classes of such company's stock. ARTICLE L -- CONSENT. Every recipient of a stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and of the stock option, stock appreciation right, or transfer of shares agreement referable thereto, and the acceptance of any stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company and its subsidiaries and any successors in interest to any of them. This Plan shall be governed by and construed in accordance with the laws of the State of Ohio, United States of America. ARTICLE M -- DURATION OF PLAN. This Plan will terminate on July 14, 2002 unless a different termination date is fixed by the shareholders or by action of the Board of Directors, but no such termination shall affect the prior rights under this Plan of the Company (or any subsidiary) or of anyone to whom stock options or stock appreciation rights were granted prior thereto or to whom shares have been transferred prior to such termination. EX-10.9 3 Exhibit (10-9) -------------- RICHARDSON-VICKS INC. SPECIAL STOCK EQUIVALENT INCENTIVE PLAN -------------------------------------------- (As authorized by the Board of Directors of The Procter & Gamble Company and adopted by the Board of Directors of Richardson-Vicks Inc. on 12/31/85.) ARTICLE A - THE PLAN AND ITS OBJECTIVES In retaining top caliber personnel, it is important for Richardson-Vicks Inc. (the "Company") to be in a position to pay a part or all of the additional remuneration portion of an employee's aggregate remuneration in Procter & Gamble Common Stock equivalents ("Contingent Stock Awards"). The granting of Contingent Stock Awards will strengthen the identity of their interests with those of other shareholders. Only those executives will participate in the Plan who will substantially contribute to the success and development of the business and upon whom the future of the Company chiefly depends. ARTICLE B - ADMINISTRATION 1. The Company, with the concurrence of the appropriate officers of The Procter & Gamble Company ("Procter & Gamble") as authorized by the Board of Directors of Procter & Gamble (the "P&G Board"), has determined those employees and officers of the Company initially eligible to participate in the Plan effective as of January 1, 1986, the amount of their participation and the terms, conditions and restrictions applicable to Contingent Stock Awards granted to such participants pursuant to the Plan, such terms, conditions and restrictions to be set forth in a Statement of Conditions and Restrictions (the "Statement") to accompany each grant. Future grants may be made in accordance with the procedures set forth in the preceding sentence. 2. A contingent Stock Awards Committee appointed by the Board of the Company with the concurrence of the P&G Board as set forth in paragraph 1 above, (the "Committee") will have full authority in the operation, administration and interpretation of the Plan and may issue rules and regulations governing the administration of the Plan. The Committee shall be composed of three members, at least two of whom shall be senior executive officers of the Company as of October 24, 1985, (the executive officers so serving being hereinafter referred to as the "RVI Executives"), or their successors designated by the RVI Executive(s) and approved by the Board of Directors of the Company (the "RVI Board"), which approval shall not be unreasonably withheld. The Committee may designate employees of the Company or of Procter & Gamble to assist the Committee in the administration of the Plan and may grant authority to such persons to execute documents upon behalf of the Committee. 3. The Committee may consult with the participants, but nevertheless the Committee has full authority to act and the Committee's action shall be final. ARTICLE C - SHARES SUBJECT TO THE PLAN The shares of Procter & Gamble Common Stock (the "Common Stock") transferred under this Plan will be authorized but unissued shares, treasury shares or shares acquired for purposes of the Plan by Procter & Gamble or the Company. ARTICLE D - LIMITATION ON NUMBER OF CONTINGENT STOCK AWARDS FOR THE PLAN 1. Subject to adjustment pursuant to Article D, paragraph 2 below, the aggregate number of Contingent Stock Awards granted under the Plan shall not exceed 150,000 units, with each unit representing one share of Common Stock. 2. Contingent Stock Awards granted or reserved for purposes of the Plan will be subject to appropriate adjustment in the event of future stock splits, stock dividends or other changes in capitalization; following any such change, the term "Contingent Stock Awards" or "Common Stock," as used in the Plan, shall be deemed to refer to such interests, class of shares or other securities as may be applicable. ARTICLE E - GENERAL PROVISIONS The granting of Contingent Stock Awards or the transfer of shares of Common Stock under the Plan shall be by the Company. Nothing in the Plan shall affect the right of the Company to terminate the employment of any employee with or without cause (subject to possible acceleration of the lapse of conditions and restrictions in accordance with the provisions of the Statement). None of the participants, either individually or as a group, and no beneficiary or other person claiming under or through any participant, shall have any right, title or interest in any Contingent Stock Awards except as to such Contingent Stock Awards, if any, as shall have been granted to him. Any Contingent Stock Awards reserved for purposes of the Plan shall, unless and until granted pursuant to the Plan, constitute and remain the property of the Company. Nothing in the Plan shall preclude the issuance or transfer of shares of Common Stock to employees under any other plan or arrangement now or hereafter in effect. ARTICLE F - AMENDMENT AND TERMINATION The Plan or the Statement may at any time or from time to time be amended by the RVI Board with the concurrence of the P&G Board in the manner set forth in Article B, paragraph 1 above, except that no such amendment may amend this Article or Article B, paragraph 2 or may increase the aggregate limitations on the number of Contingent Stock Awards as set forth above, or may, without the written consent of the participant, adversely affect the rights of anyone to whom Contingent Stock Awards have been granted prior to such amendment. The Plan may be terminated at any time by vote of a majority of the entire RVI Board, but no such termination shall affect the rights of the Company or of anyone to whom Contingent Stock Awards have been granted prior to such termination. EX-11 4 EXHIBIT (11) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Computation of Earnings Per Share ------------------------------------------ Dollars and Share Amounts in Millions
Years Ended June 30 ------------------------------------------------ NET EARNINGS PER SHARE 1990 1991 1992 1993 1994 - - ---------------------- ---- ---- ---- ---- ---- Net Earnings/(Loss) $1,602 $1,773 $1,872 $(656) $2,211 Deduct preferred stock dividends 47 78 94 102 102 ------ ------ ------ ------ ------ Net Earnings/(Loss) Applicable to Common Stock 1,555 1,695 1,778 (758) 2,109 - - --------------------------------------------- Average number of common shares outstanding 692.1 689.5 677.4 680.4 683.1 Per Share - - --------- Net earnings before prior years' effect of accounting changes -- -- -- $0.25 -- Prior year effect of accounting changes -- -- -- $(1.36) -- Net Earnings/(Loss) per share $2.25 $2.46 $2.62 $(1.11) $3.09 NET EARNINGS PER SHARE ASSUMING FULL DILUTION - - ------------------------------- Net Earnings/(Loss) $1,602 $1,773 $1,872 $(656) $2,211 Deduct differential -- preferred vs. common dividends 26 52 60 57 51 ------ ------ ------ ------- ------ Net Earnings/(Loss) Applicable to Common Stock 1,576 1,721 1,812 (713) 2,160 - - ---------------------------------------------- Average number of common shares outstanding 692.1 689.5 677.4 680.4 683.1 Add potential effect of: Exercise of options 10.0 7.7 7.5 7.2 6.0 Conversion of preferred stock 36.5 48.0 55.2 54.7 53.9 -------- -------- -------- -------- ------- Average number of common shares outstanding, assuming full dilution 738.6 745.2 740.1 742.3 743.0 Per Share Assuming full dilution - - -------------------------------- Net earnings before prior years' effect of accounting changes -- -- -- $0.29 -- Prior year effect of accounting changes -- -- -- $(1.25) -- Net Earnings/(Loss) $2.13 $2.31 $2.45 $(0.96) $2.91
EX-12 5 EXHIBIT (12) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES --------------------------------------------------- Millions of Dollars
Years Ended June 30 ------------------------------------------------- 1990 1991 1992 1993 1994 ------ ------ ------ ------ ------ EARNINGS AS DEFINED - - ------------------- Earnings from operations before income taxes after eliminating undistributed earnings of 20% to 50% owned affiliates $2,401 $2,652 $2,870 $ 294 $3,307 Fixed charges excluding capitalized interest 480 435 584 631 569 -------- -------- -------- -------- -------- TOTAL EARNINGS, AS DEFINED $2,881 $3,087 $3,454 $ 925 $3,876 ====== ====== ====== ====== ====== FIXED CHARGES, AS DEFINED - - ------------------------- Interest expense $ 442 $ 395 $ 510 $ 552 $ 482 1/3 of rental expense 38 40 74 79 87 ------- ------- ------- ------- ------- 480 435 584 $ 631 $ 569 Capitalized interest 3 17 25 25 19 ------- ------- ------- ------- ------- TOTAL FIXED CHARGES, AS DEFINED $ 483 $ 452 $ 609 $ 656 $ 588 ====== ====== ====== ====== ====== RATIO OF EARNINGS TO FIXED CHARGES 6.0 6.8 5.7 1.4 6.6
EX-13 6 Exhibit (13) ------------ Annual Report to shareholders. (Pages 1-5, 16-36, and 42) TO OUR SHAREHOLDERS Your company made strong progress in fiscal 1993/94 against its four primary business objectives: increasing the flow of innovative new products to the market place; expanding the global presence of P&G brands; offering better value to consumers; and increasing the efficiency and productivity of our operations. The Combination of these and many other efforts by our superb P&G organization produced another year of healthy growth in volume and earnings. Net earnings for fiscal year 1993/94 achieved a record level of $2.2 billion, or $3.09 per common share. This compares to a loss of $.7 billion in 1992/93, when results were significantly reduced by a provision for restructuring and the prior years' effect of accounting changes. Excluding these charges from our year-ago results, 1993/94 earnings were up 10%, equalling the average growth rate over the last 35 years. Earnings growth for 1993/94 was depressed 5% by a $102 million charge to write off the option portion of two interest rate swaps. HIGHLIGHTS OF THE YEAR - - - NET EARNINGS were $2.3 billion, up 15% over earnings of $2.0 billion in 1992/93, excluding the unusual items in both years. - - - EARNINGS PER SHARE, excluding unusual items in both years, were $3.24, up 15%. - - - AFTER-TAX PROFIT MARGIN in 1993/94 was 7.6%, excluding the derivatives write-off, the highest level in 21 years. - - - UNIT VOLUME, excluding the impact of acquisitions and divestitures, grew 5%, with International up 7% and the United States up 4%. Every business sector and geographic region increased unit volume versus year ago. - - - NET SALES of $30.3 billion were about even with the prior year. Less favorable foreign currency exchange rates reduced sales 4%. The divestiture of our pulp and 100% juice businesses and lower pricing reduced sales 1%. Excluding these effects, sales would have been up 5%, in line with volume growth. - - - CASH FLOW from operations set a new record at $3.6 billion. The improvement reflects higher earnings and continued reduction in working capital. This enabled the Company to reduce debt and further strengthen its financial condition. - - - DIVIDENDS increased 13% to $1.24 per share. Beginning with the August 1994 dividend, the annual dividend rate will be raised an additional 13% to $1.40 per share, marking the 39th consecutive year of increased dividend payments. - - - RETURN ON EQUITY was 23%, excluding unusual items. This is the highest level in 44 years, reflecting improved profitability and the write-off of underperforming assets included in the 1993 restructuring reserve. (Picture of Edwin L. Artzt, Chairman of the Board and Chief Executive) 1 P&G ACHIEVING RESTRUCTURING GOALS Among the most important achievements of 1993/94 was the Company's exceptional progress toward our plant consolidation and "Strengthening Global Effectiveness" (SGE) overhead reduction goals. Last year, P&G set aside $1.5 billion from net earnings to cover the cost of a worldwide restructuring that would result in a 20% reduction in the number of manufacturing plants and a 12% reduction in worldwide enrollment. The Company is making steady progress toward its restructuring goals and is already seeing benefits. In 1993/94, we achieved about a third of the $500 million ongoing after-tax savings goal for this program. These savings have enabled us to reduce pricing to provide better value for consumers and contributed to record margins. U.S. BUSINESS CONTINUES HEALTHY GROWTH TREND The U.S. business had an excellent year in 1993/94. Earnings were up 9% and unit volume was up 4%, even though total consumer purchases in our categories grew only 1% during the year. - - - LAUNDRY AND HOUSEHOLD CLEANING'S Hard Surface Cleaners business rolled out eight new products and turned in its strongest year of volume growth since the introduction of Mr. Clean in 1959. Fabric conditioners also turned in record volume behind new products on Bounce and Ultra Downy triple-concentrate. - - - BEAUTY CARE built volume in Hair Care with Pantene Pro-V and new shampoo, conditioning and styling products and packaging on Vidal Sassoon. Cover Girl strengthened its market leadership with continued share growth, though unit volume declined for cosmetics and fragrances overall, largely due to reductions in market size and the discontinuation of the unprofitable Clarion brand. Max Factor International completed the introduction of an all-new line of cosmetics worldwide and early consumer response has been encouraging. We expect the planned acquisition of Giorgio Beverly Hills Inc., announced in July 1994, to strengthen P&G's cosmetics and fragrances business. This acquisition will give the Company a strong foothold in the U.S. fine fragrance market, with leadership brands and a strong management team. - - - HEALTH CARE'S respiratory business grew both volume and market share, largely with the introduction of Vicks DayQuil Allergy and DayQuil Sinus. In addition, P&G entered the over-the-counter analgesics category with Aleve. This new P&G brand, a joint venture with Syntex, is a non- prescription strength, fast-acting form of the medicine in Naprosyn, the number one selling brand in its class for 10 years. Our pharmaceutical business delivered strong volume growth in 1993/94, led by its Didro-Kit therapy for osteoporosis which is now approved for use in nine countries outside the U.S. Asacol, a treatment for ulcerative colitis, achieved category leadership in the U.S. in the past year. And early results were very encouraging for Ziac, a new prescription blood pressure medication that P&G Pharmaceuticals is marketing with Lederle Laboratories. - - - PAPER'S Tissue and Towel category achieved outstanding results, exceeding last year's record volume and (Stylized picture of globe with caption "Unit volume was up 4% and earnings were up 9% versus 1992/93 for the U.S. business.") profit performance. This marks the seventh consecutive year of volume and profit growth for the Category. Our Bath Tissue business completed national expansion of Charmin Ultra and our Paper Towel business began national expansion of Bounty Extra Durable last quarter. Both of these introductions utilize a proprietary papermaking technology which enables us to improve absorbency, softness and strength while reducing manufacturing costs. Although diaper volume declined for the year, we've taken steps to improve consumer value through lower prices and have accelerated the pace of product innovation. During the year, we applied our new "curly fiber" technology to Pampers and Luvs, producing a diaper that is 50% thinner and more absorbent. Pampers Trainers was introduced nationally and, as the fiscal year ended, two new products entered test markets--Pampers Stretch and Luvs with Dri-Weave. Pampers Stretch has an elastic side panel for better fit and the new Luvs diaper has a dri-weave topsheet similar to the one on Always that keeps wetness away from the skin. - - - FOOD AND BEVERAGE continued to make excellent profit progress and in 1993/94 achieved its longstanding goal of delivering profit margins in line with the Company's average. The business is growing behind products such as Sunny Delight juice drink, which is now one of the Company's 10 largest U.S. brands, and Pringles potato crisps, which delivered strong growth in the U.S. and abroad. Pringles is now P&G's biggest export to international markets. INTERNATIONAL BUILDS WORLDWIDE LEADERSHIP THROUGH PRODUCT INNOVATION Despite sluggish economic conditions in key market, International had another good year in 1993/94. Every region achieved volume gains. Overall, unit volume was up 7%. Acquisitions added another three percentage points, bringing International's total volume growth to 10% above the prior year. Volume growth and improved profit margins, reflecting good cost control, led to a 15% increase in earnings. As in the U.S., International growth reflects a steady stream of product innovations, complemented by geographic expansions and better consumer value. - - - IN EUROPE, P&G's largest International business, the laundry category continued to build share with the introduction of a major product improvement for oily and greasy stains on market-leading Ariel. While the European laundry market remains intensely competitive, we are meeting this challenge through continued product innovation. - - - EUROPEAN HEALTH AND BEAUTY CARE achieved market leadership for the first time in shampoo--behind Pantene Pro-V. Europe also made significant gains in Cosmetics and Fragrances, increasing volume behind the successful launches of Boss Elements and Roma Uomo fragrances and continued good performance by Ellen Betrix cosmetics in Germany and Max Factor International in the United Kingdom. - - - EUROPEAN PAPER recorded strong growth led by Always, the region's leading feminine protection business. Europe now sells 38% of P&G's worldwide volume in feminine (Caption in second paragraph stating "The Company is making steady progress toward its restructuring goals and is already seeing benefits.") 3 protection and diaper products. During 1993/94, the European organization introduced Always Pantiliners into much of the region as well as consumer- preferred Pampers Baby Dry, Pampers Ultra Dry Thins and Pampers Trainers. - - - NEW TISSUE/TOWEL BUSINESS--More recently, P&G expanded its growth opportunities in Europe by entering the $5.5 billion tissue/towel market with the July 1994 acquisition of VP-Schickedanz. This is the Company's first move into the tissue business outside North America. VPS has an experienced organization with modern manufacturing facilities and high quality, profitable brands such as Tempo, the leading European paper handkerchief, and Bess bath tissue, the leading brand in Germany. Based on proven technology and successful brands in the U.S., along with significant growth potential in a market where per capita tissue usage is well below U.S. levels, we expect to significantly build this business over time. - - - EASTERN EUROPE continued its strong growth with volume up 20% in 1993/94. Laundry detergents are the Company's largest business in this region. P&G is the market leader in the Czech and Slovak Republics, with brands such as Tix, Tide and Ariel. In Russia, Tide is the best-selling western laundry detergent after only six months on the market. Pampers is the number one diaper in Hungary and Poland and is a strong second in the Czech and Slovak Republics. P&G also strengthened its dentifrice business in 1993/94. Blend-aMed is the number one dentifrice brand in Hungary and Poland. - - - ASIA/PACIFIC recorded 25% volume growth, led by gains in China, Taiwan, Malaysia, Singapore, Korea, Indonesia, Thailand and India. Japan remains the largest business in Asia/Pacific and set new volume records, despite a tough competitive climate and weak economic conditions. The introduction of the new Vidal Sassoon hair care line was a major factor in the broad-based growth in this region. Feminine protection products were also an important contributor. China was the fastest-growing country in the region. P&G is China's market leader in hair care and, with the completion of the three joint ventures during this fiscal year, is now the largest detergent manufacturer in China, as well. Our other Chinese businesses--Skin Care, Feminine Protection and Personal Cleansing--are also growing. - - - LATIN AMERICA continued broad-based volume growth. Mexico delivered the biggest volume gains on existing businesses, while acquisitions played an important role in the growth of other Latin American markets. The Company strengthened its position in the feminine protection category with the acquisition of the Higibras/ProHigiene companies in Brazil. In addition, we expanded our core laundry and dishwashing business through acquisition of the Quimica and Llauro companies in Argentina. - - - CANADA continued to build its Laundry and Cleaning business with the introduction of Tide with Advanced Color Guard. Paper led Canada in unit volume growth as P&G's technologies were applied to the Royale bath tissue, kitchen towel and facial tissue products. (Caption in paragraph "- New Tissue/Towel Business" stating "P&G people are characterized by their innovation, speed and ability to work together across both functional and geographic boundaries.") (Stylized picture of globe with caption "International earnings grew 15%, unit volume was up 7%--or 10% including acquisitions.") P&G POSITIONED FOR THE FUTURE Never has the Company been as well positioned in as many product categories and in as many regions of the world as it is today. The key to our success is and always has been our ability to develop and advance our people. That's why we're particularly proud of the Opportunity 2000 Award just given to P&G by the United States Department of Labor. This award, which is presented to a single company each year, recognizes the efforts of men and women throughout our organization to promote and advance employees of all origins and backgrounds. P&G has the strongest group of employees in any consumer goods company in the world--people who are characterized by their innovation, speed and ability to work together across both functional and geographic boundaries. These characteristics have always been our Company's greatest strength, and will continue to be Procter & Gamble's most valued resource in the years ahead. Respectfully, /s/EDWIN L. ARTZT Edwin L. Artzt Chairman of the Board and Chief Executive /s/JOHN E. PEPPER John E. Pepper President August 10, 1994 5 THE FINANCIAL STATEMENTS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS ------------------------------------------------------------ Company management is responsible for the preparation, accuracy and integrity of the financial statements and other financial information included in this Annual Report. This responsibility includes preparing the statements in accordance with generally accepted accounting principles and necessarily includes estimates that are based on management's best judgments. To help insure the accuracy and integrity of Company financial data, management maintains internal controls which are designed to provide reasonable assurance that transactions are executed as authorized and accurately recorded and that assets are properly safeguarded. These controls are monitored by an extensive and ongoing program of internal audits. It is essential for all Company employees to conduct their business affairs in keeping with the highest ethical standards as outlined in our code of conduct, P&G, Your Personal Responsibility. Careful selection of employees, and appropriate divisions of responsibility, also help us to achieve our control objectives. The financial statements have been audited by the Company's independent public accountants, Deloitte & Touche. Their report is also shown on this page. The Board of Directors, acting through its Audit Committee composed entirely of outside directors, oversees the adequacy of the Company's control environment. The Audit Committee meets periodically with representatives of Deloitte & Touche, and internal financial management to review accounting, control, auditing and financial reporting matters. The independent auditors and the internal auditors also have full and free access to meet privately with the Committee. /s/EDWIN L. ARTZT /s/ERIK G. NELSON Edwin L. Artzt Erik G. Nelson Chairman of the Board and Chief Executive Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS ------------------------------------------------------------- DELOITTE & 250 East Fifth Street TOUCHE Cincinnati, Ohio 45202 ---------------- D&T logo To the Board of Directors and Shareholders of The Procter & Gamble Company: We have audited the accompanying consolidated balance sheets of The Procter & Gamble Company and subsidiaries as of June 30, 1994 and 1993 and the related consolidated statements of earnings, retained earnings, and cash flows for each of the three years in the period ended June 30, 1994. These financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the companies at June 30, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, effective July 1, 1992, the Company changed its methods of accounting for other post retirement benefits and income taxes. /s/DELOITTE & TOUCHE August 10, 1994 16 The Procter & Gamble Company and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS
Years Ended June 30 (Millions of Dollars Except Per Share Amounts) 1994 1993 1992 __________________________________________________________________________________________________ NET SALES $30,296 $30,433 $29,362 Cost of products sold 17,355 17,683 17,324 Marketing, administrative, and other operating expenses 9,361 9,589 9,171 Provision for restructuring -- 2,705 -- __________________________________________________________________________________________________ OPERATING INCOME 3,580 456 2,867 Interest expense 482 552 510 Other income/expense, net 248 445 528 __________________________________________________________________________________________________ EARNINGS BEFORE INCOME TAXES & PRIOR YEARS' EFFECT OF ACCOUNTING CHANGES 3,346 349 2,885 Income taxes 1,135 80 1,013 __________________________________________________________________________________________________ NET EARNINGS BEFORE PRIOR YEARS' EFFECT OF ACCOUNTING CHANGES 2,211 269 1,872 Prior years' effect of accounting changes -- (925) -- __________________________________________________________________________________________________ NET EARNINGS/(LOSS) $ 2,211 $ (656) $ 1,872 __________________________________________________________________________________________________ _______ _________ ________ PER COMMON SHARE: NET EARNINGS BEFORE PRIOR YEARS' EFFECT OF ACCOUNTING CHANGES $ 3.09 $ 0.25 $ 2.62 Prior years' effect of accounting changes -- $ (1.36) -- NET EARNINGS/(LOSS) $ 3.09 $ (1.11) $ 2.62 NET EARNINGS/(LOSS) ASSUMING FULL DILUTION $ 2.91 $ (0.96) $ 2.45 DIVIDENDS $ 1.24 $ 1.10 $ 1.025 AVERAGE SHARES OUTSTANDING (IN MILLIONS) 683.1 680.4 677.4 __________________________________________________________________________________________________
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Years Ended June 30 (Millions of Dollars) 1994 1993 1992 __________________________________________________________________________________________________ BALANCE AT BEGINNING OF YEAR $ 6,248 $ 7,810 $ 6,775 Net earnings/(loss) 2,211 (656) 1,872 Dividends to shareholders Common (847) (748) (694) Preferred, net of related tax benefit (102) (102) (94) Excess of cost over the stated value of common shares purchased for treasury (14) (56) (49) __________________________________________________________________________________________________ BALANCE AT END OF YEAR $ 7,496 $ 6,248 $ 7,810 __________________________________________________________________________________________________ _______ ________ ________
See accompanying Notes To Consolidated Financial Statements. 17 The Procter & Gamble Company and Subsidiaries CONSOLIDATED BALANCE SHEET
June 30 (Millions of Dollars) 1994 1993 _______________________________________________________________________________________________ ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,373 $ 2,322 Marketable securities 283 306 Accounts receivable 3,115 3,111 Inventories 2,877 2,903 Deferred income taxes 716 740 Prepaid expenses and other current assets 624 593 _______________________________________________________________________________________________ 9,988 9,975 PROPERTY, PLANT, AND EQUIPMENT 10,024 9,485 GOODWILL AND OTHER INTANGIBLE ASSETS 3,754 3,762 OTHER ASSETS 1,769 1,713 _______________________________________________________________________________________________ TOTAL $25,535 $24,935 _______________________________________________________________________________________________ _______ _______ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable - trade $ 2,604 $ 2,269 Accounts payable - other 660 642 Accrued liabilities 2,961 2,838 Taxes payable 440 726 Debt due within one year 1,375 1,812 _______________________________________________________________________________________________ 8,040 8,287 LONG-TERM DEBT 4,980 5,174 OTHER LIABILITIES 3,336 3,850 DEFERRED INCOME TAXES 347 183 _______________________________________________________________________________________________ 16,703 17,494 _______________________________________________________________________________________________ SHAREHOLDERS' EQUITY Convertible Class A preferred stock 1,942 1,969 Common stock - shares outstanding: 1994 - 684,348,359; 1993 - 681,754,226 684 682 Additional paid-in capital 560 477 Currency translation adjustments (63) (99) Reserve for employee stock ownership plan debt retirement (1,787) (1,836) Retained earnings 7,496 6,248 _______________________________________________________________________________________________ 8,832 7,441 _______________________________________________________________________________________________ TOTAL $25,535 $24,935 _______________________________________________________________________________________________ _______ _______
See accompanying Notes To Consolidated Financial Statements. 18 The Procter & Gamble Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended June 30 (Millions of Dollars) 1994 1993 1992 __________________________________________________________________________________________________ CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 2,322 $ 1,776 $ 1,384 __________________________________________________________________________________________________ OPERATING ACTIVITIES Net earnings before prior years' effect of accounting changes 2,211 269 1,872 Provision for restructuring -- 2,705 -- Depreciation, depletion and amortization 1,134 1,140 1,051 Deferred income taxes 196 (1,065) 125 Change in accounts receivable 40 (9) 23 Decrease in inventories 25 97 160 Increase in payables and accrued liabilities 98 55 45 Change in other liabilities (353) 67 (48) Other 298 79 (203) __________________________________________________________________________________________________ 3,649 3,338 3,025 __________________________________________________________________________________________________ INVESTING ACTIVITIES Capital expenditures (1,841) (1,911) (1,911) Proceeds from asset sales and retirements 105 725 291 Acquisitions (295) (138) (1,240) Change in marketable securities 23 (306) -- __________________________________________________________________________________________________ (2,008) (1,630) (2,860) __________________________________________________________________________________________________ FINANCING ACTIVITIES Dividends to shareholders (949) (850) (788) Change in short-term debt (281) (277) (156) Additions to long-term debt 414 1,001 1,608 Reduction of long-term debt (797) (939) (433) Proceeds from stock options 36 77 71 Purchase of treasury shares (14) (55) (49) __________________________________________________________________________________________________ (1,591) (1,043) 253 __________________________________________________________________________________________________ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1 (119) (26) __________________________________________________________________________________________________ INCREASE IN CASH AND CASH EQUIVALENTS 51 546 392 __________________________________________________________________________________________________ CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,373 $ 2,322 $ 1,776 __________________________________________________________________________________________________ _______ _______ _______ SUPPLEMENTAL DISCLOSURE Cash payments for: Interest, net of amount capitalized $ 487 $ 592 $ 475 Income taxes 1,225 1,035 811 Non-cash transactions: Reductions in employee stock ownership plan debt, guaranteed by the Company 49 46 43 Liabilities assumed in acquisitions 65 83 660 Conversion of preferred to common shares 27 20 9 __________________________________________________________________________________________________
See accompanying Notes To Consolidated Financial Statements. 19 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions, except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The financial statements include the accounts of The Procter & Gamble Company and its majority-owned subsidiaries. Investments in 20% to 50% owned affiliates in which significant management control is exercised are included at original cost adjusted for the change in equity since acquisition. Other investments are carried at cost. ACCOUNTING CHANGES: Effective July 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106, Accounting for Postretirement Benefits Other than Pensions. The new Statement requires accrual of postretirement health care and life insurance benefits during an employee's years of active service rather than on the previous pay-as-you-go basis during the retirement years. Effective July 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The new Statement requires deferred taxes on the Balance Sheet to be stated at enacted tax rates expected to be in effect when these balances reverse, i.e. when taxes actually will be paid or recovered. Previously, deferred taxes were based on the enacted tax rate when these amounts were first recognized. Effective July 1, 1994, the Company will adopt Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits, and Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. The effects of adoption of these new standards are not expected to be material. CURRENCY TRANSLATION: Assets and liabilities denominated in most foreign currencies are translated into U.S. dollars at year-end exchange rates and related gains and losses are reflected in shareholders' equity. Significant currencies include the German mark, Belgian franc, British pound, Canadian dollar and Japanese yen, with any related exposure managed primarily through local financing. Gains and losses from foreign currency transactions and translation of balance sheets in highly inflationary economies are determined based on historical or current exchange rates as appropriate, and are included in earnings. Losses included in net earnings for 1994, 1993 and 1992 were $27, $42 and $50, respectively. CASH EQUIVALENTS: Highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. INVENTORY VALUATION: Inventories are valued at the lower of cost or market. Cost for inventories is primarily determined by the last-in, first-out method or the average cost method. Futures contracts are purchased primarily to hedge certain agricultural commodity requirements. Gains and losses on these contracts are included in earnings when the related products are sold. GOODWILL AND OTHER INTANGIBLE ASSETS: The cost of intangible assets is amortized on a straight-line basis over the estimated periods benefited, but not exceeding 40 years with an average remaining life of 28 years. The realizability of goodwill and other intangibles is evaluated periodically as events or circumstances indicate a possible inability to recover their carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate, as applicable, the impact on existing company businesses. The analyses necessarily involve significant management judgment to evaluate the capacity of an acquired business to perform within projections. Historically, the Company has generated sufficient returns from acquired businesses to recover the cost of their intangible assets. DEPRECIATION: For financial accounting purposes, depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. 20 OTHER EXPENSES: Research and development expenses are charged to earnings in the year incurred and were $1,059, $956 and $861 for the years ending June 30, 1994, 1993 and 1992. NET EARNINGS PER COMMON SHARE: Net earnings less preferred dividends (net of related tax benefits) are divided by the average number of common shares outstanding during the year to derive net earnings per common share. Fully diluted earnings per share are calculated using the treasury stock method and include an adjustment for preferred stock dividend requirements. RECLASSIFICATIONS: Certain reclassifications of prior years' amounts have been made to conform with the current year presentation. 2. PROVISION FOR RESTRUCTURING A restructuring provision of $2,705 which reduced after-tax earnings by $1,746 or $2.57 per share, was established in fiscal 1993. A charge of $2,402 covers a worldwide restructuring effort to optimize product supply systems and reduce overhead costs, and a $303 charge related to the divestiture of the 100% juice business. The provision includes costs associated with the closure or disposal of facilities, employee separation and exit from certain non-strategic businesses. The restructuring provision was determined based on estimates prepared at the time the restructuring actions were approved by management and the Board of Directors. The cost of completing the restructuring program is expected to approximate the original estimates. 3. ACQUISITIONS In fiscal 1992 the Company purchased Revlon, Inc.'s worldwide Max Factor and Betrix lines of cosmetics and fragrances for $1,025, net of cash acquired, including goodwill and other intangible assets of $927. Other acquisitions accounted for as purchases totaled $295, $138, and $215 in 1994, 1993 and 1992, respectively. The increase in goodwill and other intangible assets amounted to $209, $57, and $93 in those years. The pro forma full year effect of the above acquisitions on consolidated earnings would not have been material in the respective years. 4. BALANCE SHEET INFORMATION
June 30 1994 1993 _______________________________________________________________________ INVENTORIES Raw materials and supplies $ 1,087 $ 1,154 Work in process 213 196 Finished products 1,577 1,553 _______________________________________________________________________ 2,877 2,903 Replacement cost of LIFO inventories 663 1,097 Stated value of LIFO inventories 462 1,013 _______________________________________________________________________ Excess of replacement cost over the stated value 201 84 PROPERTY, PLANT, AND EQUIPMENT Buildings 3,027 2,703 Machinery and equipment 12,249 11,607 Land 550 494 Timberlands, less depletion 70 73 _______________________________________________________________________ 15,896 14,877 Less accumulated depreciation 5,872 5,392 _______________________________________________________________________ 10,024 9,485 21 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share amounts) 4. BALANCE SHEET INFORMATION (continued) June 30 1994 1993 _______________________________________________________________________ GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill $ 3,564 $ 3,472 Trademarks and other intangible assets 946 957 _______________________________________________________________________ 4,510 4,429 Less accumulated amortization 756 667 _______________________________________________________________________ 3,754 3,762 Marketing expenses 842 753 Compensation expenses 393 395 Restructuring reserves 870 817 Other 856 873 _______________________________________________________________________ 2,961 2,838 OTHER LIABILITIES Postretirement health care and life insurance benefits 1,432 1,410 Restructuring reserves 1,035 1,810 Other 869 630 _______________________________________________________________________ 3,336 3,850
5. LONG-TERM DEBT The following presents the carrying value of outstanding long-term debt:
June 30 1994 1993 _______________________________________________________________________ 9 1/2% notes due 1998 $ 200 $ 200 6 1/4% notes due 1995 200 200 8% notes due 2003 200 200 7.1% notes due 1994 200 200 6.85% notes due 1997 200 200 7 3/8% debentures due 2023 175 175 8.7% notes due 2001 175 175 5.2% notes due 1995 150 150 9 5/8% notes due 2001 150 150 8 1/2% notes due 2009 149 149 10 7/8% Canadian dollar bonds due 2001 145 157 Commercial paper 765 423 9.36% ESOP debentures, Series A, due 2021, guaranteed by the Company 1,000 1,000 8.08%-8.33% serial ESOP notes, due 1994-2004, guaranteed by the Company 787 836 Other, due in varying amounts through 2036 978 1,609 _______________________________________________________________________ 5,474 5,824 Less amounts included in debt due within one year 494 650 _______________________________________________________________________ Total long-term debt 4,980 5,174 _______________________________________________________________________
The following payments are required during the next five fiscal years: 1995-$494; 1996-$468; 1997-$416; 1998-$322; and 1999-$293. The fair value of the underlying long-term debt, excluding amounts due within one year, was $5,205 and $5,656 at June 30, 1994 and 1993, respectively. Certain commercial paper balances have been classified as long-term debt. The Company has the intent and ability to renew the commercial paper obligations on a long-term basis and has entered into swap arrangements that convert them to fixed rate obligations. 22 6. FINANCIAL INSTRUMENTS The Company is subject to market rate risk from exposure to changes in interest rates and currency exchange rates and enters into various financial instrument transactions to manage these exposures. Financial instruments used for these purposes are evaluated against the Company's policies in areas such as counterparty exposure and hedging practices, and are monitored using techniques such as market value and sensitivity analyses. INTEREST RATE INSTRUMENTS The Company's financing and cash management activities entail market rate risk from exposure to changes in interest rates. The Company assesses the exposure of its overall financing position on a net basis, after considering the extent to which variable rate liabilities can be offset with variable rate assets, typically cash equivalents and marketable securities. The Company's objective is to optimize interest expense consistent with maintaining an acceptable level of exposure to the risk of interest rate fluctuation. In order to achieve this objective, the Company targets a mix of fixed and variable rate debt based on an assessment of interest rate trends. To obtain this mix in a cost efficient manner, the Company primarily utilizes interest rate swaps, including foreign currency interest rate swaps, that have the effect of converting specific debt obligations of the Company from fixed to variable rate, or vice versa, as required. Amounts due to or from the counterparties to interest rate swaps are reflected in interest expense in the periods in which they accrue. A portion of interest rate exposure is managed through the use of options to manage the Company's overall risk profile and reduce interest expense. When using written option contracts, the Company receives a premium in exchange for providing a counterparty the right to enter into a swap. Gains and losses on such options are recognized currently. The notional amounts of such instruments were $1,094 and $845 at June 30, 1994 and 1993, respectively. The fair values were $40 at June 30, 1994 and $14 at June 30, 1993, reflecting the approximate cost to terminate the options. The net effect of interest rate instruments on interest expense for 1994 and 1993 was insignificant, but this measurement does not capture the value to the Company of managing to a targeted mix of fixed and variable rate debt. The option portion of the two out-of-policy leveraged interest rate swaps entered into during 1994 were closed in the January-March quarter. The related $157 charge in the quarter to close these options is reflected in other income/expense, net. Leveraged options can magnify the impact of interest rate changes. At June 30, 1994 no such instruments were in our portfolio and it is the Company's intent not to enter such leveraged contracts in the future. Based on the Company's overall variable rate exposure at June 30, 1994, including interest rate swaps and options, a 300 basis point interest rate change would not have a material effect on earnings. The following information includes all interest rate instruments. The notional amount is the reference point for determining amounts due or receivable under the contracts. The fair value approximates the cost to settle the outstanding contracts. The carrying value includes the net amount due to counterparties under swap contracts, the marked-to-market value of written options, and currency translation associated with currency interest rate swaps. 23 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share amounts)
June 30 1994 1993 _______________________________________________________________________ Notional amount $ 3,543 $ 3,773 _______________________________________________________________________ Fair value: gains 13 77 losses 252 199 _______________________________________________________________________ Net fair value 239 122 Less: carrying value 193 74 _______________________________________________________________________ Estimated unrealized loss 46 48 _______________________________________________________________________
The estimated unrealized losses shown above represent the incremental charge to earnings to immediately settle all interest rate swaps. However, it is the Company's current intention to leave these instruments outstanding until maturity over various periods extending to the year 2004, in which case no incremental charge to earnings will be realized. CURRENCY INSTRUMENTS The Company is subject to market rate risk from exposure to changes in currency exchange rates primarily in three areas: commercial transactions, intercompany financings and net investments in foreign subsidiaries. The primary purpose of the Company's foreign currency hedging activities is to protect against the risk that local currency cash flows associated with purchase transactions will be adversely affected by changes in exchange rates. Although this foreign currency exposure is managed locally, corporate policy prescribes the range of hedging activity into which the subsidiary operations may enter. To execute this policy, the Company utilizes forward exchange contracts and options with durations of generally less than twelve months. The impact of changes in the value of these instruments typically offsets changes in the value of the underlying transactions. For accounting purposes, gains and losses on option contracts that hedge identifiable anticipated transactions and on forward contracts that hedge firm commitments are included in the measurement of the related transaction. Gains and losses on instruments used for other purposes are recognized currently. The Company manages its foreign exchange exposure associated with intercompany financing transactions primarily using foreign currency swaps. Gains and losses on such instruments mitigate the impact on earnings of currency exchange rate changes on the underlying transactions. The impact of net asset exposures related to investments in foreign subsidiaries are managed primarily through local currency financing, and by foreign currency denominated debt issued by the parent company. As discussed in the interest rate instruments section, the Company has also entered into currency interest rate swaps, which effectively convert the principal and interest cash flows of certain existing debt to foreign currency obligations. The currency translation associated with these obligations is designated as a hedge of the net investment in the foreign subsidiaries and reflected in the currency translation adjustment in shareholders' equity. Currency instruments outstanding at June 30, 1994 were as follows: ( ) = Liability Notional Amount Carrying Value ____________________________________________________________________ Forward contracts $1,873 $ (10) Currency options 1,138 10 Currency swaps 646 (62) ______ ______ 3,657 (62) 24 The aggregate notional amount of currency instruments with off-balance sheet risk at June 30, 1993 was $2,409. The aggregate notional amount of currency instruments outstanding at June 30, 1994 increased over the prior year primarily due to an increased level of transaction hedging activity by our international subsidiaries, a timing change related to certain purchased option contracts, and the impact of a weaker dollar at year end which increased the notional value in dollars. The major currency exposures hedged by the Company include the German mark, Japanese yen and British pound sterling. The aggregate fair value of currency instruments at June 30, 1994 and 1993 included the following unrealized amounts: $11 in net gains ($16 in gains, offset by $5 in losses), and $17 in net gains ($36 in gains, offset by $19 in losses), respectively. OTHER FINANCIAL INSTRUMENTS The carrying value of other financial instruments approximated fair value at June 30, 1994 and 1993. CREDIT RISK Credit risk arising from the inability of a counterparty to meet the terms of the contracts is generally limited to the amounts, if any, by which the counterparties' obligations exceed the obligations of the Company. It is the Company's policy to only enter into financial instruments with a diversity of creditworthy counterparties. Therefore, the Company does not expect to incur credit losses on financial instruments. MARKET VALUATION METHODS The estimated fair value amounts of financial instruments presented have been determined using available market information and valuation methodologies, primarily discounted cash flow analysis. Such estimates require considerable judgments in interpreting market data, and changes in assumptions or estimation methods may significantly affect the fair value estimates. 7. SHAREHOLDERS' EQUITY (Share Amounts in Thousands) PREFERRED STOCK Authorized Class A preferred stock is 600,000 shares without par value with stated value of $1 per share. There were 34,269, 35,246, and 35,872 outstanding shares of Series A ESOP Convertible Class A Preferred Stock issued at $27.50 per share and held by the employee stock ownership plan at June 30, 1994, 1993 and 1992, respectively. There were 977, 626, and 324 shares converted into common shares and retired in 1994, 1993, and 1992 respectively. Each issued share has a liquidation value of $27.50 and is convertible at the option of the holder into one share of the Company's common stock. There were 19,142 shares of Series B ESOP Convertible Class A Preferred Stock issued to the employee stock ownership plan in December 1990 at $52.24 per share and are currently outstanding. Each issued share has a liquidation value of $52.24 and is convertible at the option of the holder into one share of the Company's common stock. At June 30, 1994 there were 200,000 shares of authorized and unissued Class B preferred stock (non-voting) without par value with stated value of $1 per share. COMMON STOCK Authorized common stock is 2,000,000 shares without par value and with stated value of $1 per share. Changes in outstanding shares were as follows: 25 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share amounts)
Years ended June 30 1994 1993 1992 ____________________________________________________________________________________ Shares outstanding beginning of year (excludes 55,521, 55,866 and 55,956 treasury shares) 681,754 678,794 676,179 Purchased for treasury (255) (1,401) (1,270) Issued for employee plans (includes 1,275, 1,746 and 1,360 treasury shares) 2,849 4,361 3,885 ____________________________________________________________________________________ Shares outstanding end of year (excludes 54,501, 55,521 and 55,866 treasury shares) 684,348 681,754 678,794
Under the Company's stock option plans, options have been granted to key employees to purchase common shares of the Company within a ten-year term at the market value on the dates of the grants. Stock option activity was as follows:
Years Ended June 30 1994 1993 1992 ______________________________________________________________________________________________ Average Average Average Shares Price Shares Price Shares Price ______________________________________________________________________________________________ Outstanding at beginning of year 28,497 $34.73 27,822 $30.56 26,820 $25.97 Options granted 3,880 56.81 4,279 51.56 4,616 51.02 Options exercised (1,673) 21.35 (3,380) 21.08 (3,341) 21.34 Options canceled (148) 43.16 (224) 43.94 (273) 38.34 _______________________________________________________________________________________________ Outstanding at end of year 30,556 38.23 28,497 34.73 27,822 30.56 Options exercisable at June 30 26,685 24,255 23,254
There were 6,418, 3,095, and 11,791 shares available for the granting of options at June 30, 1994, 1993, and 1992, respectively. ADDITIONAL PAID-IN CAPITAL Increases in additional paid-in capital resulted from the conversion of preferred shares and the excess amount realized over the stated value of common shares issued pursuant to employee stock option and remuneration plans and amounted to $83, $112 and $99 for the years ended June 30, 1994, 1993 and 1992, respectively. The transfer to common shares and related expenses of the two-for-one stock split reduced additional paid-in capital by $342 in 1992. CURRENCY TRANSLATION ADJUSTMENTS credited/(charged) to shareholders' equity amounted to $36, ($211) and $168 during the years ended June 30, 1994, 1993 and 1992, including tax effects of $30, ($1) and $39. RESERVE FOR EMPLOYEE STOCK OWNERSHIP PLAN DEBT RETIREMENT was reduced by $49, $46 and $43 during the years ended June 30, 1994, 1993 and 1992 for repayments of the Series A ESOP debt principal. 8. RETIREMENT PLANS PROFIT SHARING PLANS The Company maintains defined contribution profit sharing plans which provide retirement benefits to a significant number of employees. Amounts credited to these plans were:
Years Ended June 30 1994 1993 1992 _________________________________________________________________________________ Preferred shares of Procter & Gamble stock allocated at market value $117 $111 $104 Profit sharing expense-cash contributions 157 167 172 Benefits earned by participants 274 278 276
26 The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan is the largest plan and covers most employees in the United States. Annual credits to participants' accounts are based on individual base salary and years of service. The total credited to all accounts does not exceed 15% of total salaries and wages of participants. Within this plan, a leveraged employee stock ownership trust borrowed $1 billion in 1989 and the Company has guaranteed this debt. The proceeds were used to buy Series A ESOP Convertible Class A Preferred Stock and shares are allocated each year to individual accounts. Principal and interest payments of $117 on the borrowed funds were paid each fiscal year by the trust from dividends on preferred shares and cash payments from the Company as follows:
Years Ended June 30 1994 1993 1992 _____________________________________________________________________________________________________ Interest Principal Total Interest Principal Total Interest Principal Total ________ _________ _____ ________ _________ _____ ________ _________ _____ Preferred dividends $22 $49 $71 $26 $46 $72 $30 $43 $73 Company payment 46 -- 46 45 -- 45 44 -- 44 _____________________________________________________________________________________________________ Total debt service 68 49 117 71 46 117 74 43 117
PENSION PLANS Other employees, primarily outside the U.S., are covered by local pension or retirement plans. Pension expense included:
Years Ended June 30 1994 1993 1992 ____________________________________________________________________________ Benefits earned by participants during the year $ 84 $ 66 $ 57 Interest on projected benefit obligations 97 86 73 Return on plan assets (63) (71) (53) Net amortizations and other 3 15 (1) ____________________________________________________________________________ Pension expense 121 96 76
Funded plan assets are held in restricted trusts or foundations that are segregated from the assets of the Company. The assets are held in stocks, bonds, insurance contracts and other investments within the limits prescribed by local laws and in line with local investment practices for pension and retirement plans. Funding policies vary by country and consider such factors as actuarial reports, tax regulations and local practices. Obligations and assets at year-end were:
June 30 1994 1993 1992 ______________________________________________________________________________ Accumulated benefit obligation $1,125 $ 870 $ 857 Vested benefit obligation 979 770 760 Net assets at market value 806 690 636 Projected benefit obligation 1,488 1,158 1,126 Unrecognized prior service costs and losses 165 84 162 Accrued pension costs 517 384 328
Benefit obligations were based on a long term rate of return on plan assets of 9% and a rate of increase in compensation of 6% for all years presented; the average discount rate was 7.4% for 1994, and 8.0% for 1993 and 1992. OTHER RETIREE BENEFITS The Company provides certain health care and life insurance benefits for substantially all of the Company's domestic 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 medical cost trends. 27 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share amounts) In 1990, The P&G Profit Sharing Trust and Employee Stock Ownership Plan borrowed $1,000 which is guaranteed and carried as debt by the Company. The proceeds were used to buy plan assets of 19.142 million shares of Series B ESOP Convertible Class A Preferred Stock of the Company for the purpose of partially funding retiree medical benefits. The fair values of the shares at June 30, 1994 and 1993 were $1,022 and $1,000. There were also other employee benefit trust assets of $40 and $21 on June 30, 1994 and 1993. Interest payments on the loan amounted to $94, $94 and $101 in 1994, 1993 and 1992, with $79 funded each year by preferred stock dividends and the remainder by Company cash payments. The preferred stock dividends were presented as a reduction of interest expense in 1992; beginning in 1993, concurrent with the adoption of Statement of Financial Accounting Standards (SFAS) No. 106, Accounting For Postretirement Benefits Other Than Pensions, these dividends were considered a reduction of benefit expense. Effective July 1, 1992, the Company implemented SFAS No. 106, which requires earlier recognition of costs on an accrual basis rather than the previous cash, or pay-as-you-go, basis. The effect of the accounting change on prior years, or accumulated benefit obligation, was $1,422, or $900 after tax, at July 1, 1992. The accumulated benefit obligation and net liability at year-end were: ACCUMULATED BENEFIT OBLIGATION AND NET LIABILITY June 30 1994 1993 _______________________________________________________________ Retirees $ 512 $ 463 Employees eligible to retire 126 186 Other active employees 603 903 ______ ______ Accumulated benefit obligation 1,241 1,552 Unrecognized gain/(loss) 293 (80) Less: plan assets (61) (21) ______ ______ Net liability 1,473 1,451 In 1992, benefit expense was $31. In 1994 and 1993 expenses were: BENEFIT EXPENSE Years Ended June 30 1994 1993 _______________________________________________________________ Benefits earned by employees during the year $ 60 $ 59 Interest cost on accumulated benefit obligation 116 113 Return on plan assets (21) -- Net amortization and deferral (79) (90) ______ ______ Sub-total 76 82 Dividends on plan's preferred stock (79) (79) ______ ______ Benefit expense (3) 3 Expense is determined by using preceding year-end rate assumptions as follows: 1994 1993 _________________________________________________________________ Discount rate 8.0% 8.0% Assumed rate of return on plan assets 9.0% 9.0% Initial health care cost trend rate* 11.0% 12.7% *Assumed at June 30, 1994 to decline gradually to 5% in 2006 and thereafter. Assumed at June 30, 1993 to decline gradually to 6% in 2008 and thereafter. The pre-tax effect of a 1% increase in the assumed health care cost trend rate would increase the accumulated benefit obligations at June 30, 1994 and 1993 by approximately $185 and $243, along with increases of $33 and $34 in the 1994 and 1993 annual costs. 28 9. INCOME TAXES Effective July 1, 1992, the Company adopted SFAS #109, Accounting for Income Taxes. The cumulative effect of the accounting change in prior years was $25 added tax expense. The components of earnings before income taxes and prior years' effects of accounting changes were:
Years Ended June 30 1994 1993 1992 _______________________________________________________________________________ United States $2,216 $ 318 $ 2,166 International 1,130 31 719 _______________________________________________________________________________ Total 3,346 349 2,885
Income tax expenses including prior years' effect of accounting changes were: Years Ended June 30 1994 1993 1992 _______________________________________________________________________________ Current tax expense United States Federal $ 574 $ 635 $ 556 International 298 432 242 Other 67 78 90 _______________________________________________________________________________ Total 939 1,145 888 Deferred tax expense United States Federal 118 (489) 76 International & other 78 (576) 49 _______________________________________________________________________________ Total 196 (1,065) 125 Deferred Taxes on prior years' effect of accounting changes -- (497) --
Taxes credited to Shareholders' Equity for the years ended June 30, 1994 and 1993 were $91 and $74. Taxes generally are provided currently on undistributed earnings of foreign subsidiaries, except when those earnings are considered to be reinvested indefinitely ($2,731 at June 30, 1994). The components of deferred income tax expense were:
Years Ended June 30 1994 1993 1992 _______________________________________________________________________________ Depreciation $ 84 $ 73 $ 77 Provision for restructuring 223 (912) 52 Other (111) (226) (4) _______________________________________________________________________________ Total 196 (1,065) 125
Deferred tax assets and liabilities included:
June 30 1994 1993 _________________________________________________________________________________________________ Assets Liabilities Total Assets Liabilities Total ______ ___________ _____ ______ ___________ _____ Current deferred taxes Restructuring reserve $ 274 $ -- $ 274 $ 234 $ -- $ 234 Other 442 -- 442 506 -- 506 ______________________________________________________________________________________________ Total 716 -- 716 740 -- 740 Non-current deferred taxes Depreciation -- (1,173) (1,173) -- (1,133) (1,133) Restructuring reserve 364 -- 364 623 -- 623 Postretirement benefits 540 -- 540 522 -- 522 Loss carryforwards 282 -- 282 226 -- 226 Valuation reserves (262) -- (262) (226) -- (226) Other -- (98) (98) -- (195) (195) ______________________________________________________________________________________________ Total 924 (1,271) (347) 1,145 (1,328) (183)
29 The effective income tax rates, excluding prior years' effect of accounting changes were 33.9%, 22.9% and 35.1% in 1994, 1993 and 1992 compared to the U.S. statutory rate of 35% for 1994 and 34% for 1993 and 1992. In 1993, the effective rate was increased 4.2% by state and local taxes, and 5.1% by goodwill and other acquisition effects; and decreased 15.0% by the impact of international rates and credits. In 1992, state and local taxes increased the rate by 1.8%. 10. SEGMENT INFORMATION The Company's operations are characterized by interrelated raw materials and manufacturing facilities and centralized research and administrative staff functions, making any separate profit determination by product group dependent upon the assumptions regarding the allocation of common costs. Different assumptions or physical or organizational arrangements would produce different results. Sales between geographic areas and those between business segments included in net sales are made at prices approximating market and are eliminated from total net sales. Corporate earnings include interest income and expense and other general corporate income and expense. Corporate assets include primarily cash and cash equivalents. Laundry and Cleaning Products include detergents, hard surface cleaners and fabric conditioners. Personal Care Products include personal cleansing products, deodorants, hair care products, skin care products, cosmetics, oral care products, paper tissue products, disposable diapers, digestive health products, respiratory care products, and other pharmaceuticals. Sales of disposable diapers represented approximately 15%, 15% and 16% of consolidated sales in 1994, 1993 and 1992 respectively. Food and Beverage Products include shortening and oil, snacks, prepared baking mixes, peanut butter, coffee, and juice products. Products of the Laundry and Cleaning, Personal Care, and Food and Beverage segments are distributed primarily through grocery stores and other retail outlets. Pulp and Chemicals are sold direct to customers and through jobbers. Net sales of Pulp and Chemicals include intersegment sales amounting to $146 in 1994, $309 in 1993 and $449 in 1992.
GEOGRAPHIC AREAS International __________________________________ Canada, Asia, Latin America Years Ended June 30 United States Europe and Other Total Corporate Total ____________________________________________________________________________________________________________ Net Sales 1992 $15,579 $8,371 $6,211 $14,582 $ (799) $29,362 1993 15,362 9,206 6,650 15,856 (785) 30,433 1994 15,019 8,671 7,387 16,058 (781) 30,296 ____________________________________________________________________________________________________________ Net Earnings Before 1992 1,461 362* 263 625 (214) 1,872 Prior Years' Effect 1993** 415 28 59 87 (233) 269 of Accounting Changes 1994 1,691 424 343 767 (247)*** 2,211 ____________________________________________________________________________________________________________ Assets 1992 10,811 6,329 4,060 10,389 2,825 24,025 1993 10,027 5,471 4,641 10,112 4,796 24,935 1994 9,948 5,535 5,153 10,688 4,899 25,535 *Includes a 1992 gain of $61 on the sale of an Italian coffee business. **Includes 1993 after-tax provisions for restructuring in the United States $1,138; Europe $314; Canada, Asia, Latin America and Other - $266; and Corporate - $28. Total - $1,746. ***Includes a 1994 after-tax charge of $102 to close out the written option portion of two leveraged interest rate swaps.
30
BUSINESS SEGMENTS Product Groups _______________________________________________ Laundry and Personal Food and Pulp and Years Ended June 30 Cleaning Care Beverage Chemicals Corporate Total __________________________________________________________________________________________________________ Net Sales 1992 $ 9,531 $15,142 $3,709 $1,429 $ (449) $29,362 1993 10,061 16,238 3,271 1,172 (309) 30,433 1994 9,762 16,640 3,290 750 (146) 30,296 ____________________________________________________________________________________________________________ Earnings Before Income 1992 1,278 1,651 229* 74 (347) 2,885 Taxes & Prior Years' Effect 1993** 837 117 (195) (59) (351) 349 of Accounting Changes 1994 1,483 1,946 371 26 (480)*** 3,346 ____________________________________________________________________________________________________________ Assets 1992 4,399 12,630 2,492 1,679 2,825 24,025 1993 4,422 12,811 2,173 733 4,796 24,935 1994 4,690 13,184 2,054 708 4,899 25,535 ____________________________________________________________________________________________________________ Capital 1992 467 1,125 151 143 25 1,911 Expenditures 1993 575 1,134 107 80 15 1,911 1994 588 1,060 136 40 17 1,841 ____________________________________________________________________________________________________________ Depreciation, 1992 215 593 129 108 6 1,051 Depletion and 1993 233 675 144 78 10 1,140 Amortization 1994 248 720 113 40 13 1,134 *Includes a 1992 gain of $103 on the sale of an Italian coffee business. **Includes 1993 provisions for restructuring of Laundry and Cleaning - $559; Personal Care - $1,539; Food and Beverage - $450; Pulp and Chemicals - $123; and Corporate - $34. Total - $2,705. ***Includes a 1994 charge of $157 to close out the written option portion of two leveraged interest rate swaps.
11. QUARTERLY RESULTS (UNAUDITED)
Millions of Dollars Except Per Share Amounts Quarter Ended Total ____________________________________________________________________________________ Sept. 30 Dec. 31 Mar. 31 Jun. 30 Year _______________________________________________________ Net sales 1993-94 $7,564 $7,788 $7,441 $7,503 $30,296 1992-93 7,879 7,839 7,350 7,365 30,433 Operating income 1993-94 1,085 1,023 923 549 3,580 1992-93 720 914 767 (1,945) 456 Earnings/(Loss) before income 1993-94 1,054 1,005 726 561 3,346 taxes & prior years' effect of 1992-93 657 882 747 (1,937) 349 accounting changes *Net earnings 1993-94 670 653 482 406 2,211 1992-93 (515) 576 502 (1,219) (656) Per common share: *Net earnings/(loss) before 1993-94 .95 .92 .66 .56 3.09 prior years' effect of 1992-93 .57 .81 .70 (1.83) .25 accounting changes *Net earnings/(loss) 1993-94 .95 .92 .66 .56 3.09 1992-93 (.79) .81 .70 (1.83) (1.11) *Net earnings/(loss) 1993-94 .89 .85 .64 .53 2.91 assuming full dilution 1992-93 (.71) .76 .66 (1.67) (.96) *1992-93 includes a restructuring charge of $200 after tax in September and $1,546 after tax in June, and a $925 charge for the prior years' effect of accounting changes in the September quarter.
31 FINANCIAL REVIEW 1979-1994
Years Ended June 30 (Millions of Dollars Except Per Share Amounts) 1979 1980 1981 1982 1983 1984 ____________________________________________________________________________________________ Net Sales $9,329 $10,772 $11,416 $11,994 $12,452 $12,946 Operating Income $1,044 $ 1,123 $ 1,201 $ 1,365 $ 1,529 $ 1,387 Net Earnings $ 575 $ 640 $ 593** $ 777 $ 866 $ 890 Net Earnings Per Common Share $ .87 $ .97 $ .90** $ 1.17 $ 1.30 $ 1.34 Net Earnings as Percent of Net Sales 6.2% 5.9% 5.2%** 6.5% 7.0% 6.9% Dividends Per Common Share $ .388 $ .425 $ .475 $ .513 $ .563 $ .60 *Includes in 1987 a pre-tax charge of $805 for restructuring reserve and in 1993 a pre-tax charge of $2,705 for a restructuring reserve. **Includes in 1981 an extraordinary charge of $75 ($.12 per common share) associated with the suspension of sale of Rely tampons; in 1987, a charge of $459 ($.68 per common share) for a restructuring reserve; in 1993, a charge of $1,746 ($2.57 per share) for restructuring reserves and a charge for the prior years' effect of accounting changes of $925 ($1.36 per common share); and in 1994, a charge of $102 ($.15 per common share) to write-off the option portion of two interest rate swaps. Net earnings and dividends per common share have been adjusted for the stock splits in 1983, 1989 and 1992.
ANALYSIS AND DISCUSSION 1994 -- Worldwide net earnings were $2,211 million including a $102 million after-tax charge for writing off the option portion of two interest rate swap contracts. In the previous year, an after-tax loss of $656 million was recorded due to two unusual items: restructuring reserves totaling $1,746 million after-tax, and the prior years' effects of two accounting changes amounting to $925 million. Excluding these unusual items in both years, net earnings would have been $2,313 million in 1994, up 15% over earnings of $2,015 million in the previous year. Foreign exchange rates reduced net earnings by less than 3%. Net sales for the year just ended were $30.3 billion, about even with sales of $30.4 billion in the previous year. Growth in unit volume increased net sales by 5%. This increase was offset by less favorable foreign exchange rates, 4%, and the divestiture of our pulp and 100% juice businesses and lower selling prices, 1%. Excluding acquisitions and divestitures, worldwide unit volumes were up 5%, 4% in the United States and 7% in International. Including acquisitions and divestitures, worldwide unit volume would be up 5%, with U.S. up 1% and International up 10%. Cost of products sold as a percentage of net sales was 57.3%, which compares with 58.1% for the preceding year. Restructuring savings contributed .2% of this .8% decline as plant sourcing savings from lower depreciation and enrollment reductions are beginning to be realized. Marketing, administrative and other operating expenses were 30.9% of sales, down from 31.5% in the previous year which can entirely be ascribed to restructuring savings, primarily from enrollment reductions. Operating income, excluding restructuring reserves in the prior year, was up 13%, and pretax operating margins were 11.8% compared to 10.4% a year ago. Interest expenses decreased $70 million from the previous year due to lower borrowing rates and lower debt outstanding. Other income/expense, net decreased $197 million from the prior year reflecting the $157 million loss on two interest swaps this past year and $41 million one-time profit in the previous year from the sale of businesses. The effective tax rate was 33.9% for 1994, which compares with 22.9% for 1993. The 1993 restructuring reserve reduced pre-tax earnings significantly and accentuated the percent impact of certain cost elements not tax affected at the 34% U.S. statutory rate. Excluding the restructuring reserve, the 1993 effective tax rate would have been 34.0%. 32 The Procter & Gamble Company and Subsidiaries
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 ___________________________________________________________________________________________________________________________ $13,552 $15,439 $17,000 $19,336 $21,398 $24,081 $27,026 $29,362 $30,433 $30,296 $ 976 $ 1,305 $ 807* $ 1,796 $ 2,039 $ 2,302 $ 2,702 $ 2,867 $ 456* $ 3,580 $ 635 $ 709 $ 327** $ 1,020 $ 1,206 $ 1,602 $ 1,773 $ 1,872 $ (656)** $ 2,211** $ .95 $ 1.05 $ .47** $ 1.49 $ 1.78 $ 2.25 $ 2.46 $ 2.62 $ (1.11)** $ 3.09** 4.7% 4.6% 1.9%** 5.3% 5.6% 6.7% 6.6% 6.4% -- 7.3%** $ .65 $ .656 $ .675 $ .688 $ .75 $ .875 $ .975 $ 1.025 $ 1.10 $ 1.24
In the following year-to-year comparison of geographic and business segments, the previous year's earnings have been adjusted upward to exclude the cost impact of restructuring reserves and all volume comparisons exclude the impact of acquisitions and divestures to more comparably present on-going results of the year just ended with those of the prior year. In the United States, after-tax earnings were up 9% versus the previous year. Net profit margins improved to a record 11.3% with restructuring benefits and other cost improvements contributing to the increase over the previous year's 10.1% margin. Unit volume increased 4%, while net sales declined 2%, primarily due to the divestiture of the pulp and 100% juice businesses and, to a lesser degree, lower pricing. Total International after-tax earnings were up 15% over the previous year's results with net profit margins improving by 14%, from 4.2% to 4.8%. International unit volume increased 7%, and net sales were up just 1% from the prior year due primarily to the impact of exchange rates. Net earnings in Europe were up 24% on a unit volume gain of 5% primarily due to lower product cost. Net sales were down 6% due to exchange rates. Excluding exchange effects, sales in Europe would have been up 5%. In the balance of International, net earnings were up 6% on a unit volume increase of 9%. Net sales were up 11%. Worldwide laundry and cleaning products earnings were up 6% on unit volume growth of 3%, primarily in the U.S. Unit shipment increases in the global laundry and fabric conditioner categories accounted for the largest increases in unit volumes shipped, while hard surface cleaners led the U.S. in the percentage increase of units shipped. Net sales were down 3% due to exchange rate effects and lower pricing. Personal Care earnings were up 18% on an 8% unit volume increase. The global hair care business contributed about 50% of the unit volume growth largely due to the growth of Pantene Pro-V and Vidal Sassoon. The Personal Care net sales increase of 2% was depressed by the impact of exchange rates and lower pricing. Food and Beverage earnings were up 45% to a record $371 million, importantly due to the full year effect of the 100% juice divestiture in fiscal 1993. The profit margin was 11%, in line with the Company average. Unit volume was up 1% due largely to the growth of Sunny Delight juice in the U.S. and Pringles worldwide. 33 ANALYSIS AND DISCUSSION (continued) The recent crop freezes in Brazil will reduce the supply of coffee which has resulted in higher green coffee bean prices. The freeze did not negatively impact earnings in the year just ended. However, higher selling prices could contract the size of the coffee market in 1994/95 and beyond. Although this could negatively impact coffee profits, the effect is not expected to be material to the Company's earnings. Pulp and Chemicals earnings and sales declined substantially due to the sale of all but the timberland portion of our pulp business. This resulted in a total decline of $38 million in earnings and $422 million in sales. The sale of the timberlands was concluded in July 1994. The $163 million decline in pre-tax earnings in the Corporate segment is primarily due to the previously discussed $157 million pre-tax loss from closing the option portion of two interest rate swaps. 1993 -- Worldwide, the Company had a $656 million after-tax loss due to two unusual items, the restructuring reserves and accounting changes described below: - A $1,746 million after-tax provision for restructuring was established including (1) $1,546 million in the fourth quarter to cover worldwide manufacturing consolidations and an overhead reduction initiative through organizational restructuring under the Strengthening Global Effectiveness (SGE) program; and (2) an after-tax reserve of $200 million in September 1992 for divestiture of the 100% juice business. - Two new mandatory accounting standards covering retiree health and life insurance benefits, and deferred taxes, SFAS No.106 and No.109, respectively, were retroactively adopted effective July, 1992. The current and prior years' impacts on net earnings were $63 million and $925 million, respectively. Excluding the restructuring reserves and the prior years' effect of accounting changes, net earnings would have been $2,015 million. Also, excluding the $63 million current year effect of accounting changes, 1993 net earnings would have been $2,078 million up 11% from the previous year. Net sales exceeded $30 billion for the first time and were up 4% compared with the previous year. Worldwide unit volume grew 3% led by a 10% increase in the International businesses. United States unit volume excluding the divested juice and pulp business was up only 1% for the full year, but improved during each quarter of the year with volume up 6% in the April-June quarter. Worldwide cost of products sold as a percentage of net sales was 58.1% which compared with 59.0% for the previous year. Marketing, administrative and other expenses as a percentage of net sales was 31.5%, up from 31.2% in the previous year. Operating Income excluding the restructuring provision was up 10% from the previous year, and the operating margin was 10.4% in 1993, up from 9.8% and 10.0% in the previous two years. Interest expense increased $42 million. This included $79 million from preferred dividends no longer reducing interest expense for accounting purposes beginning in 1993, partially offset by $37 million lower interest expense primarily from lower borrowing rates. Other income/expense, net decreased $83 million, primarily due to a $103 million gain on the sale of the Italian coffee business in the previous year. The unusually low 22.9% effective tax rate in 1993 was due to the pre-tax restructuring reserve reducing before tax earnings to a relatively small amount which accentuated the percentage impact of certain cost elements not tax affected at the 34% U.S. statutory rate. Excluding the restructuring reserve, the 1993 effective tax rate would have been 34.0% which compares with 35.1% and 34.0% for the previous two years. 34 The Procter & Gamble Company and Subsidiaries In the following year-to-year comparisons of geographic and business segments, 1993 earnings have been adjusted upward to exclude the cost impact of the restructuring reserves and the current and prior years' effect of accounting changes to make the ongoing results for 1993 and 1992 more comparable. In the United States, after-tax earnings were $1,558 million, up 7% from the previous year. The net profit margin for the year was 10.1%, the highest level achieved over the past decade and up from 9.4% in 1992. Notable margin improvements were realized by laundry and cleaning products and food and beverage products, primarily coffee and peanut butter. International after-tax earnings were $681 million, up 9% over the previous year. International again established a unit volume record, with double-digit increases in Latin America, Asia-Pacific, European paper and citrus products, and the Middle East-Africa-General Export businesses. Worldwide laundry and cleaning earnings were $1,389 million, up 9% versus the previous year. The profit margin was 13.8%, up slightly from 13.4% in the previous year. Segment sales grew 6% to $10 billion on an 8% increase in unit volumes, led by double digit gains in International. Personal care earnings were virtually the same as the previous year. Lower domestic diaper earnings offset earnings growth elsewhere in the segment. Segment sales increased 7% to $16 billion in 1993. International sales were up 13% and broadly based. U.S. sales were up 1% with lower diaper volumes slowing the growth in domestic sales. Food and beverage segment earnings were up 98% to $249 million versus $126 million in the previous year, excluding the one-time 1992 gain from sale of the Italian coffee business. The profit margin more than doubled, increasing to 7.6% in 1993 due primarily to the divestiture of the 100% juice business. Sales were down $438 million, due to a 7% decline in shipment volume, primarily reflecting the divestiture of the 100% juice business. Pulp and chemicals earnings were down $12 million to $62 million and sales were down 18% with the declines largely attributable to the divestiture of the pulp business in 1993. During the year, the Company entered into agreements to dispose of most of its commercial pulp business. Although the pulp business has been profitable, Company strategy no longer recognizes an advantage to vertical integration of the pulp supply for its consumer paper brands. These assets have been sold to focus efforts on and to fund the growth of the Company's consumer businesses. The sales, which include pulp plants and timberlands, are expected to bring a total price of $1.2 billion, including $.7 billion received in 1993. The impact on 1993 earnings was not material, and the impact from the remaining sales is not expected to be material. FINANCIAL CONDITION JUNE 30, 1994 The Company's balance sheet remains strong. Cash and cash equivalents totaled $2,373 million, an increase of $51 million from the previous year. Cash flow from operating activities reached a record $3,649 million up $311 million over the previous year, despite the negative cash impact of executing the projects contained in the 1993 restructuring reserves. Charges in 1994 to the restructuring reserve established in June 1993 totaled $600 million of which $360 million impacted cash primarily due to separation costs. Increased earnings and continuing reductions in working capital were key factors in offsetting these charges. Total debt excluding exchange effects decreased $664 million from the previous year-end, reflecting reductions in both short term and long term debt. Accrued environmental liabilities for on-site remediation and certain settlement costs at June 30, 1994 and 1993 amounted to $127 million and $133 million respectively. At both year- 35 The Procter & Gamble Company and Subsidiaries FINANCIAL CONDITION (continued) ends, the majority of these liabilities were anticipated exit costs accrued in the 1993 restructuring reserve and related to the closing of manufacturing facilities. In addition, the Company is involved in clean-up efforts at off-site Superfund locations, many of which are still in the preliminary stages of investigation. The related off-site liabilities for these efforts at June 30, 1994 and 1993 were $8 million and $9 million respectively, with a high end of the range at June 30, 1994 of $12 million. Remediation and settlement expenses at all sites were not material during the past fiscal year. Regarding investing activities, capital expenditures were approximately the same level for each of the past three years and were $1.8 billion and $1.9 billion for 1994 and 1993 respectively. A similar level of capital expenditures is anticipated in the coming year. Dividends of $1.24 per common share were paid during the past year, up from $1.10 and $1.025 per share in the previous two years. In July 1994, the Company announced a 13% increase in the annual rate from $1.24 to $1.40 per common share, effective with the quarterly dividend paid in mid-August to shareholders of record on July 22, 1994. This marks the 39th consecutive fiscal year of increased common share dividend payments. The effects of inflation have not been a significant factor on earnings growth in recent years. In July 1994, the Company completed the acquisition of the European tissue business of Vereinigte Papierwerke Schickedanz AG which is primarily centered in Germany. This includes Tempo, the leading European paper handkerchief brand and Bess, the leading bath tissue brand in Germany. Also in July 1994, the Company announced the planned acquisition of the Giorgio Beverly Hills Inc. prestige fragrance business from Avon Products, Inc. This included the Giorgio, Red and Wings fragrances for men and women. Both of these acquisitions, with a purchase price totaling about $600 million, are being financed primarily from available cash funds. Also, in July 1994 the Company sold its timberland properties and thereby completed the divestiture of the commercial pulp business. As previously indicated, this divestiture did not have a material impact on earnings. JUNE 30, 1993 Cash and cash equivalents were $2,322 million, an increase of $546 million over the previous year-end. In addition, marketable securities of $306 million were added to the short-term investment portfolio during the year and carried on the balance sheet as a current asset. Cash flow from operating activities amounted to $3,338 million, up $313 million from the previous year. Reductions in working capital accounted for $143 million of this increase, and included a $97 million reduction in inventories. The increase of $611 million in other assets on the balance sheet was due to increases in joint venture investments and increased receivables from asset sales. In fiscal 1993, the Company established restructuring reserves of $2.7 billion, including $2.4 billion for manufacturing consolidations and other organizational restructuring. Of the latter amount, $1.2 billion related to non-cash charges, primarily the carrying value of anticipated disposals of fixed assets from manufacturing plant closings. The remaining $1.2 billion is anticipated cash outlays, primarily employee separations and costs related to separation partially offset by cash anticipated from asset disposals. These outlays will continue over the next several years and are expected to be funded from cash generated from operations. The Procter & Gamble Company SHAREHOLDER INFORMATION COMMON STOCK PRICE RANGE AND DIVIDENDS
Price Range Dividends _____________________________________________ __________________ 1993-94 1992-93 1993-94 1992-93 _____________________________________________ __________________ Quarter Ended High Low High Low _____________________________________________ __________________ September 30 $53.63 $45.25 $51.50 $45.88 $.310 $.275 December 31 58.88 46.88 55.75 47.50 .310 .275 March 31 60.00 51.25 54.38 49.00 .310 .275 June 30 58.63 51.75 52.38 45.25 .310 .275 ____________________________________________________________________
SHAREHOLDER RECORDS Shareholder records are maintained by the Company. Questions concerning shareholder accounts, stock transfer or name changes should be directed to the Shareholder Services Department address shown at right or by calling 1-800-742-6253. Stock certificates are valuable and should be safeguarded since replacement takes time and requires a service charge to the shareholder. If a stock certificate is lost, stolen or destroyed, notify the Shareholder Services Department promptly. Please also notify Shareholder Services in writing of any address change. This will help prevent returned dividend checks and other financial mailings. DUPLICATE MAILINGS Financial reports must be mailed for each separate account unless you instruct us otherwise. If you wish to help us reduce costs by discontinuing multiple mailings to your address, please contact Shareholder Services. DIVIDEND REINVESTMENT A Dividend Reinvestment Plan is available to shareholders of record. If interested, contact the Shareholder Services Department. SHAREHOLDERS' MEETING The next annual meeting of the shareholders will be held on Tuesday, October 11, 1994, at the Company's General Offices, Two Procter & Gamble Plaza, Cincinnati, OH 45202. TRANSFER AGENT The Procter & Gamble Company Shareholder Services Department P.O. Box 599 Cincinnati, Ohio 45201-0599 REGISTRAR PNC Bank, Ohio, N.A. P.O. Box 1198 Cincinnati, Ohio 45201-1198 EXCHANGE LISTING New York, Cincinnati, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Antwerp, Brussels, Tokyo. SHAREHOLDERS OF COMMON STOCK There were 198,078 Common Stock shareholders of record, including participants in the Dividend Reinvestment Plan and the Stock Investment Program, as of July 22, 1994. FORM 10-K Beginning in October 1994, shareholders may obtain a copy of the Company's 1994 report to the Securities and Exchange Commission on Form 10-K by sending a request to Mr. Robert J. Thompson, Manager, Shareholder Services, at the above Shareholder Services address. COMPANY INFORMATION Copies of P&G's global Environmental Report, corporate contributions and diversity program reports, corporate brochure and fact sheets are available by writing to the Shareholder Services address above. This report printed on recycled paper made from 50% recycled fiber including 10% post-consumer waste. EX-21 7 EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ================================ Subsidiaries --------------- Organized Under the Laws of -------------------- The Procter & Gamble Manufacturing Company Ohio The Procter & Gamble Distributing Company Ohio The Procter & Gamble Paper Products Company Ohio The Folger Coffee Company Ohio Procter & Gamble Far East, Inc. Ohio Richardson-Vicks Inc. Delaware Procter & Gamble Benelux Belgium Procter & Gamble Inc. Canada Procter & Gamble France France Procter & Gamble GmbH Germany Procter & Gamble Italia, S.p.A. Italy Procter & Gamble de Mexico, S.A. de C.V. Mexico Procter & Gamble Philippines, Inc. Philippines Procter & Gamble A.G. Switzerland Procter & Gamble Limited United Kingdom Procter & Gamble de Venezuela, C.A. Venezuela In addition to the subsidiaries listed above there are other subsidiary companies and 50% owned affiliates which if considered in the aggregate, would not constitute a significant subsidiary. EX-23 8 Exhibit (23) ---------------- Consent of Deloitte & Touche LLP DELOITTE & TOUCHE LLP 250 East Fifth Street Post Office Box 5340 Cincinnati, Ohio 45201-5340 Telephone: (513) 784-7100 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - - --------------------------------------------------- We consent to the incorporation by reference in the following documents of our reports dated August 10, 1994 (expressing an unqualified opinion and including an explanatory paragraph regarding the changes in accounting for other post retirement benefits and income taxes effective July 1, 1992), appearing in and incorporated by reference in this Annual Report on Form 10-K of The Procter & Gamble Company for the year ended June 30, 1994. 1. Amendment No. 2, Post-Effective Amendment No. 2 to Registration Statement No. 33-26514 on Form S-8 for The Procter & Gamble 1983 Stock Plan; 2. Amendment No. 1 on Form S-8 to Registration Statement No. 33-31855 on Form S-4 (now S-8) for the 1982 Noxell Employees' Stock Option Plan and the 1984 Noxell Employees' Stock Option Plan; 3. Amendment No. 1, Post-Effective Amendment No. 1 to Registration Statement No. 33-32111 on Form S-3 for The Procter & Gamble Stock Investment Program; 4. Amendment No. 1, Post-Effective Amendment No. 1 to Registration Statement No. 33-48835 for The Procter & Gamble Company Debt Securities and Warrants; 5. Amendment No. 1, Post-Effective Amendment No. 1 to Registration Statement No. 33-49289 on Form S-8 for The Procter & Gamble 1992 Stock Plan; 6. Registration Statement No. 33-47656 on Form S-8 for The Procter & Gamble International Stock Ownership Plan; 7. Registration Statement No. 33-49081 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan; 8. Registration Statement No. 33-49111 on Form S-3 for The Procter & Gamble Stock Investment Program; 9. Registration Statement No. 33-50273 on Form S-8 for The Procter & Gamble Commercial Company Employees' Savings Plan; and 10. Registration Statement No. 33-51469 on Form S-8 for The Procter & Gamble 1993 non-employee Directors' Stock Plan. DELOITTE & TOUCHE LLP September 14, 1994 EX-27 9
5 0000080424 THE PROCTER & GAMBLE COMPANY 1,000,000 U.S. DOLLARS 12-MOS JUN-30-1994 JUL-01-1993 JUN-30-1994 1 2,373 283 3,115 0 2,877 9,988 15,896 5,872 25,535 8,040 4,980 684 1,942 0 6,206 25,535 30,296 30,296 17,355 9,361 0 0 482 3,346 1,135 2,211 0 0 0 2,211 3.09 2.91
EX-99.1 10 Exhibit (99-1) -------------- Directors and Officers Liability Policy DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICY Issued By CODA CORPORATE OFFICERS & DIRECTORS ASSURANCE LTD. In Hamilton, Bermuda THIS IS A CLAIMS FIRST MADE POLICY. DEFENSE AND OTHER COSTS ARE INCLUDED IN THE LIMIT OF LIABILITY. THIS IS A THREE-YEAR POLICY WITH AN AUTOMATIC EXTENSION PROVISION. PLEASE READ THIS POLICY CAREFULLY. Words and phrases that appear below in all capital letters have the special meanings set forth in Clause 2 (Definitions). DECLARATIONS Policy No. PG-106C Item I COMPANY: The Procter & Gamble Company The Procter & Gamble Fund Principal Address: One Procter & Gamble Plaza Cincinnati, OH 45202 Item II POLICY PERIOD: From Mar 15, 1987 to June 30, 1996 12:01 a.m. Standard Time at the address of the Company stated above. Item III LIMIT OF LIABILITY: $25,000,000 Aggregate LIMIT OF LIABILITY for all LOSS paid on behalf of all INSUREDS arising from all CLAIMS first made during each POLICY YEAR. Item IV PREMIUM: At inception of first POLICY YEAR: 850,000 (prepaid total for three years) 6/30/93-94 Year - $325,000 6/30/94-95 Year - $340,000 6/30/95-96 Year - $345,000 At each anniversary thereafter: Subject to adjustment on each anniversary date in accordance with Clause 7 (Automatic Extension) of this POLICY. CODA 01 ED 05/92 Item V Any notice to the COMPANY or, except in accordance with Clause 17 (Representation) of this POLICY, to the INSUREDS, shall be given or made to the individual listed below, if any, or otherwise to the individual designated in the APPLICATION, if any, or otherwise to the signer of the APPLICATION, and shall be given or made in accordance with Clause 16 (Notice) of this POLICY. __________________________________________________________ __________________________________________________________ __________________________________________________________ Item VI Any notice to be given or payment to be made to the INSURER under this POLICY shall be given or made to Corporate Officers & Directors Assurance Ltd., The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08, Bermuda, Fax 809-295-5221, Telex 3543 ACEILBA, and shall be given or made in accordance with Clause 16 (Notice) of this POLICY. This POLICY shall constitute the entire contract between the INSUREDS, the COMPANY, and the INSURER. Endorsements 1 to 7 are made part of this POLICY at POLICY issuance. Countersigned at Hamilton, Bermuda on August 16, 1993 by /s/CHARLES D. SMITH Signature of Authorized Representative ii TABLE OF CONTENTS Clause Page 1. Insuring Clause. . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Appeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6. Assistance and Cooperation . . . . . . . . . . . . . . . . . . . 5 7. Automatic Extension. . . . . . . . . . . . . . . . . . . . . . . 5 8. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9. Changes and Assignments. . . . . . . . . . . . . . . . . . . . . 7 10. Payment of LOSS. . . . . . . . . . . . . . . . . . . . . . . . . 7 11. Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 13. INSUREDS' Reporting Duties . . . . . . . . . . . . . . . . . . . 7 14. LOSS Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 7 15. Other Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 8 16. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 17. Representation . . . . . . . . . . . . . . . . . . . . . . . . . 8 18. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 8 19. Special POLICY Revisions . . . . . . . . . . . . . . . . . . . . 8 20. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 21. Acquisition, Creation or Disposition of a Subsidiary . . . . . . 9 iii DIRECTORS AND OFFICERS LIABILITY INSURANCE In consideration of the payment of the premium and in reliance on all statements made and information furnished by the COMPANY to the INSURER in the APPLICATION, which is hereby made a part hereof, and subject to the foregoing Declarations and to all other terms of this POLICY, the COMPANY, the INSUREDS, and the INSURER agree as follows: 1. INSURING CLAUSE The INSURER shall pay on behalf of the INSUREDS or any of them, any and all LOSS that the INSUREDS shall become legally obligated to pay by reason of any CLAIM or CLAIMS first made against the INSUREDS or any of them during the POLICY PERIOD, for any WRONGFUL ACTS that are actually or allegedly caused, committed, or attempted prior to the end of the POLICY PERIOD by the INSUREDS, not exceeding the LIMIT OF LIABILITY. 2. DEFINITIONS (a) "APPLICATION" shall mean the signed, written application for this POLICY, the schedules thereto and all supplementary information submitted in connection therewith, and all underwriting data submitted in connection with the automatic extension of this POLICY, all of which materials shall be deemed attached hereto, as if physically attached hereto, and incorporated herein. (b) "CLAIM" shall mean: (1) any demand or any judicial or administrative suit or proceeding against any INSURED which seeks monetary, equitable or other relief, including any appeal therefrom; or (2) written notice to the INSURER by the INSUREDS and/or the COMPANY during the POLICY PERIOD describing circumstances that are likely to give rise to a CLAIM being made against the INSUREDS. Multiple demands, suits or proceedings arising out of the same WRONGFUL ACT shall be deemed to be a single CLAIM, which shall be treated as a CLAIM first made during the POLICY YEAR in which the first of such multiple demands, suits or proceedings is made against any INSURED or in which notice of circumstances relating thereto is first given in accordance with subpart (b) of Clause 14 (LOSS Provisions) below, whichever occurs first. (c) "COMPANY" shall mean the company shown in Item I of the Declarations, any company that was a predecessor company to the company shown in Item I of the Declarations, any SUBSIDIARY of either such company and, if covered in accordance with subpart (a) of Clause 21 (Acquisition, Creation or Disposition of a Subsidiary) below, any other subsidiary. (d) "INSUREDS" shall mean one or more of the following: (1) all persons who were, now are, or shall be duly elected or appointed directors or officers of the COMPANY; or (2) the estates, heirs, legal representatives or assigns of deceased INSUREDS and the legal representatives or assigns of INSUREDS in the event of their incompetency, insolvency or bankruptcy. (e) "INSURER" shall mean Corporate Officers & Directors Assurance, Ltd., Hamilton, Bermuda. (f) "LIMIT OF LIABILITY" shall mean the amount described in Item III of the Declarations. Regardless of the time of payment of LOSS by the INSURER, the LIMIT OF LIABILITY as stated in Item III of the Declarations shall be the maximum liability of the INSURER for all LOSS arising from all CLAIMS first made during each POLICY YEAR. Reasonable and necessary attorneys fees incurred in investigating and defending a CLAIM shall be part of and not in addition to the 1 LIMIT OF LIABILITY as stated in Item III of the Declarations, and payment by the INSURER of such attorneys fees shall reduce the LIMIT OF LIABILITY. (g) "LOSS" shall mean any and all amounts that the INSUREDS are legally obligated to pay by reason of a CLAIM made against the INSUREDS for any WRONGFUL ACT, and shall include but not be limited to compensatory, exemplary, punitive and multiple damages, judgments, settlements and reasonable and necessary costs of investigation and defense of CLAIMS and appeals therefrom (including but not limited to attorneys fees but excluding all salaries and office expenses of the COMPANY, amounts paid to counsel as general retainer fees, and all other expenses that cannot be directly allocated to a specific (CLAIM) and cost of attachment or similar bonds, providing always, however, LOSS shall not include taxes, fines or penalties imposed by law, or matters that may be deemed uninsurable under the law pursuant to which this POLICY shall be construed. ("Fines or penalties" do not include punitive, exemplary, or multiple damages). (h) "POLICY" shall mean this insurance policy, including the APPLICATION, the Declarations, and any endorsements hereto issued by the INSURER. (i) "POLICY PERIOD" shall mean the period of time stated in Item II of the Declarations, as may be automatically extended in accordance with Clause 7 (Automatic Extension) below. If this POLICY is cancelled in accordance with subpart (c) or (d) of Clause 8 (Cancellation) below, the POLICY PERIOD shall end upon the effective date of such cancellation. (j) "POLICY YEAR" shall mean a period of one year, within the POLICY PERIOD, commencing each year on the day and hour first named in Item II of the Declarations, or if the time between the inception date, or any anniversary date and the termination date of this POLICY is less than one year, then such lesser period. (k) "SUBSIDIARY" shall mean any corporation in which more than 50% of the outstanding securities representing the present right to vote for election of directors is owned, directly or indirectly, in any combination, by the COMPANY and/or by one or more of its SUBSIDIARIES, at the starting date of the POLICY PERIOD. (l) "WRONGFUL ACT" shall mean any actual or alleged error, misstatement, misleading statement or act, omission, neglect, or breach of duty by the INSUREDS while acting in their individual or collective capacities as directors or officers of the COMPANY, or any other matter claimed against them by reason of their being directors or officers of the COMPANY. All such errors, misstatements, misleading statements or acts, omissions, neglects, or breaches of duty actually or allegedly caused, committed, or attempted by or claimed against one or more of the INSUREDS arising out of or relating to the same or series of related facts, circumstances, situations, transactions or events shall be deemed to be a single WRONGFUL ACT. 3. EXCLUSIONS The INSURER shall not be liable to make any payment for LOSS in connection with that portion of any CLAIM made against the INSUREDS: (a) for which the COMPANY actually pays or indemnifies or is required or permitted to pay on behalf of or to indemnify the INSUREDS pursuant to the charter or other similar formative document or by-laws or written agreements of the COMPANY duly effective under applicable law, that determines and defines such rights of indemnity; provided, however, this exclusion shall not apply if: (1) the COMPANY refuses to indemnify or advance defense or other costs as required or permitted, or if the COMPANY is financially unable to indemnify; and (2) the INSUREDS comply with Clause 20 (Subrogation) below; 2 (b) based upon or attributable to the INSUREDS having gained any personal profit to which they were not legally entitled if a judgment or other final adjudication adverse to the insureds or any arbitration proceeding pursuant to Clause 5 (Arbitration) below establishes that the INSUREDS in fact gained any such personal profit; (c) for the return by the INSUREDS of any improper or illegal remuneration paid in fact to the INSUREDS if it shall be determined by a judgment or other final adjudication adverse to the INSUREDS that such remuneration is improper or illegal or if such remuneration is to be repaid to the COMPANY under a settlement agreement; (d) for an accounting of profits in fact made from the purchase or sale by the INSUREDS of securities of the COMPANY within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law; (e) brought about or contributed to by the dishonesty of the INSUREDS if a judgment or other final adjudication adverse to the INSUREDS or any arbitration proceeding pursuant to Clause 5 (Arbitration) below establishes that acts of active and deliberate dishonesty committed by the INSUREDS with actual dishonest purpose and intent were material to the CLAIM; (f) which is insured by any other existing valid policy or policies under which payment of the LOSS is actually made except in respect of any excess beyond the amounts of payments under such other policy or policies; (g) for which the INSUREDS are indemnified by reason of having given notice of a CLAIM or of any circumstance which might give rise to a CLAIM under any policy or policies of which this POLICY is a renewal or replacement or which it may succeed in time; (h) for personal injury, advertising injury, bodily injury, sickness, disease, or death of any person, or for damage to or destruction of any tangible property, including the loss of use thereof; however, this exclusion shall not apply to any derivative action brought against any INSURED; (i) by, on behalf of, at the behest of, or in the right of the COMPANY, if initiated by the management of the COMPANY; however, this exclusion shall not apply if, between the starting date of the POLICY PERIOD and the date of the CLAIM, the COMPANY shall have undergone any of the events listed in subpart (a) or (b) of Clause 8 (Cancellation) below, and the CLAIM is initiated by the management of the COMPANY after the date of such event; or (j) for any actual or alleged error, misstatement, misleading statement or act, omission, neglect or breach of duty by the INSUREDS while acting in their capacities as directors, officers, trustees, governors, partners, employees or agents of any entity other than the COMPANY or by reason of their being directors, officers, trustees, governors, partners, employees or agents of such other entity. It is agreed that any fact pertaining to any INSURED shall not be imputed to any other INSURED for the purpose of determining the application of the Exclusions. 4. APPEALS In the event the INSUREDS elect not to appeal a judgment, the INSURER may elect to make such appeal at its own expense, and shall be liable for any increased award, taxable costs and disbursements and any additional interest incidental to such appeal, to the extent such payments are not covered by other valid and collectible insurance. 5. ARBITRATION (a) Any dispute arising in connection with this POLICY shall be fully determined in Bermuda under the provisions of the Bermuda Arbitration Act of 1986, as amended and supplemented, by a Board of Arbitration composed of three arbitrators who shall all be disinterested, active or retired 3 business executives having knowledge relevant to the matters in dispute, and who shall be selected for each controversy as follows: Either party to the dispute may, once a CLAIM or demand on his part has been denied or remains unsatisfied for a period of twenty (20) calendar days by the other party, notify the other of its desire to arbitrate the matter in dispute and at the time of such notification the party desiring arbitration shall notify the other party of the name of the arbitrator selected by it. The other party who has been so notified shall within ten (10) calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of such second arbitrator. If the party notified of a desire for arbitration shall fail or refuse to nominate the second arbitrator within ten (10) calendar days following the receipt of such notification, the party who first served notice of a desire to arbitrate will, within an additional period of ten (10) calendar days, apply to the Supreme Court of Bermuda for the appointment of a second arbitrator and in such a case the arbitrator appointed by such a judge shall be deemed to have been nominated by the party who failed to select the second arbitrator. The two arbitrators, chosen as above provided, shall within ten (10) calendar days after the appointment of the second arbitrator choose a third arbitrator. In the event of the failure of the first two arbitrators to agree on a third arbitrator within the said ten (10) calendar day period, either of the parties may within a period of ten (10) calendar days thereafter, after notice to the other party, apply to the Supreme Court of Bermuda for the appointment of a third arbitrator and in such case the person so appointed shall be deemed and shall act as a third arbitrator. Upon acceptance of the appointment by said third arbitrator, the Board of Arbitration for the controversy in question shall be deemed fixed. (b) The Board of Arbitration shall fix, by a notice in writing to the parties involved, a reasonable time and place for the hearing and may prescribe reasonable rules and regulations governing the course and conduct of the arbitration proceeding, including without limitation discovery by the parties. (c) This POLICY shall be governed by and construed and enforced in accordance with the internal laws of Bermuda, except insofar as such laws may prohibit payment in respect of punitive damages hereunder; provided, however, that the provisions, stipulations, exclusions and conditions of this POLICY are to be construed in an evenhanded fashion as between the parties; without limitation, where the language of this POLICY is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions stipulations, exclusions and conditions (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the INSUREDS or the INSURER) and in accordance with the intent of the parties. (d) The Board of Arbitration shall, within ninety (90) calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing and shall cause a copy thereof to be served on all the parties thereto. In case the Board of Arbitration fails to reach a unanimous decision, the decision of the majority of the members of said Board shall be deemed to be the decision of the Board. (e) Each party shall bear the expense of its own arbitrator. The remaining costs of the arbitration shall be borne equally by the parties to such arbitration. (f) All decisions and awards by the Board of Arbitration shall be final and binding upon the parties. The parties hereby agree to exclude any right of appeal under Section 29 of the Bermuda Arbitration Act of 1986 against any award rendered by the Board of Arbitration and further agree to exclude any application under Section 30(1) of the Bermuda Arbitration Act of 1986 for a determination of any question of law by the Supreme Court of Bermuda. (g) All awards made by the Board of Arbitration may be enforced in the same manner as a judgment or order from the Supreme Court of Bermuda and judgment may be entered pursuant to the terms of the award by leave from the Supreme Court of Bermuda. (h) The INSURER and the INSUREDS agree that in the event that claims for indemnity or 4 contribution are asserted in any action or proceeding against the INSURER by any of the INSUREDS' other insurers in any jurisdiction or forum other than that set forth in this Clause 5, the INSUREDS will in good faith take all reasonable steps requested by the INSURER to assist the INSURER in obtaining a dismissal of these claims (other than on the merits) and will, without limitation, undertake to the court or other tribunal to reduce any judgment or award against such other insurers to the extent that the court or tribunal determines that the INSURER would have been liable to such insurers for indemnity or contribution pursuant to this POLICY. The INSUREDS shall be entitled to assert claims against the INSURER for coverage under this POLICY, including, without limitation, for amounts by which the INSUREDS reduced its judgment against such other insurers in respect of such claims for indemnity or contribution, in an arbitration between the INSURER and the INSUREDS pursuant to this Clause 5; provided, however, that the INSURER in such arbitration in respect of such reduction of any judgment shall be entitled to raise any defenses under this POLICY and any other defenses (other than jurisdictional defenses) as it would have been entitled to raise in the action or proceeding with such insurers. 6. ASSISTANCE AND COOPERATION The INSURER has no duty to defend any CLAIM and shall not be called upon to assume charge of the investigation, settlement or defense of any CLAIM, but the INSURER shall have the right and shall be given the opportunity to associate with the INSUREDS and the COMPANY in the investigation, settlement, defense and control of any CLAIM relative to any WRONGFUL ACT where the CLAIM is or may be covered in whole or in part by this POLICY. At all times, the INSUREDS and the COMPANY and the INSURER shall cooperate in the investigation, settlement and defense of such CLAIM. The failure of the COMPANY to assist and cooperate with the INSURER shall not impair the rights of the INSUREDS under this POLICY. The INSUREDS shall not settle or admit any liability with respect to any CLAIM which involves or appears reasonably likely to involve this POLICY without the INSURER'S consent, which shall not be unreasonably withheld. 7. AUTOMATIC EXTENSION Except in the event this POLICY is cancelled in whole or in part in accordance with Clause 8 (Cancellation) below, on each anniversary of this POLICY, upon submission of the extension application and payment of the charged premium, this POLICY shall automatically be continued to a date one year beyond its previously stated expiration date, unless written notice is given by the INSURER to the COMPANY, or by the COMPANY to the INSURER, that such POLICY extension is not desired. Such written notice may be given at any time prior to the anniversary of the POLICY, except that such notice by the INSURER to the COMPANY may be given only during the period commencing ninety (90) days and ending ten (10) days prior to such anniversary, in which case the POLICY shall automatically expire two years from such anniversary date. Such written notice shall be given by the INSURER to the COMPANY only if it is determined to be appropriate by an affirmative vote of 2/3 of the INSURER'S entire Executive Committee at a meeting of said Committee prior to mailing of such notice. Any non-extension by the INSURER shall be revoked as of the next meeting of the INSURER'S Board of Directors if the Board at such meeting so determines by an affirmative vote of a majority of the entire Board. If any such non- extension is so revoked or if during the remainder of the POLICY PERIOD the INSURER agrees to extend coverage, this POLICY shall be continued or such agreed coverage may be extended, respectively, to the expiration date which would otherwise be applicable if such notice of non-extension had not been given, provided the COMPANY submits the extension application and pays the charged premium. If the COMPANY or the INSURER gives written notice that the POLICY extension is not desired, the COMPANY shall pay on or before each of the two remaining anniversary dates the charged premium for the next succeeding POLICY YEAR respectively less a premium credit equal to the premium paid at inception of the POLICY for Year 2 and Year 3 of the POLICY, respectively. If any such premium credit exceeds the charged premium, the INSURER shall refund to the COMPANY the difference within ten days following such anniversary date. 5 The premium charged on each anniversary of this POLICY shall be determined by the rating plan and by-laws of the INSURER in force at such anniversary date. 8. CANCELLATION This POLICY shall not be subject to cancellation except as follows: (a) In the event during the POLICY PERIOD: (1) the company named in Item I of the Declarations shall merge into or consolidate with another organization in which the company named in Item I of the Declarations is not the surviving entity, or (2) any person or entity or group of persons and/or entities acting in concert shall acquire securities or voting rights which results in ownership or voting control by such person or entity or group of persons or entities of more than 50% of the outstanding securities representing the present right to vote for election of directors of the company named in Item I of the Declarations, this POLICY shall not apply to any WRONGFUL ACTS actually or allegedly taking place after the effective date of said merger, consolidation or acquisition; however, this POLICY shall remain in force for the remainder of the POLICY PERIOD as to CLAIMS based upon WRONGFUL ACTS alleged to have been committed prior to such date. All premiums paid or due at the time of said merger, consolidation or acquisition shall be fully earned and in no respect refundable. (b) In the event of the appointment by any state or federal official, agency or court of any receiver, conservator, liquidator, trustee, rehabilitator or similar official to take control of, supervise, manage or liquidate any entity included within the definition of the COMPANY, or in the event such entity becomes a debtor in possession, this POLICY shall not apply to any WRONGFUL ACTS by the directors and officers of such entity actually or allegedly taking place after the date of such event. This POLICY shall remain in force for the remainder of the POLICY PERIOD from said date as to CLAIMS for (i) WRONGFUL ACTS by any other INSUREDS, and (ii) WRONGFUL ACTS by the directors and officers of such entity alleged to have been committed prior to the date of such event. All premiums paid or due at the time of such event shall be fully earned, and in no respect refundable. With respect to CLAIMS first made after the date of such event for WRONGFUL ACTS by the directors and officers of such entity, (i) the LIMIT OF LIABILITY of this POLICY for the remainder of the POLICY PERIOD shall be a continuation of the same limit, and not a separate limit, as was in effect during the POLICY YEAR in which such event occurred; and (ii) such CLAIMS shall be deemed to have been first made during the POLICY YEAR in which such event occurred for purposes of the LIMIT OF LIABILITY. (c) This POLICY may be cancelled by mutual agreement and consent of the INSURER, the COMPANY, and the INSUREDS, upon such terms and conditions as respects return premium and/or future premium adjustments and/or loss adjustments as the parties may agree upon at the time of said cancellation. (d) This POLICY may be cancelled by the INSURER upon granting of 365 days written notice, providing such cancellation is determined to be appropriate by an affirmative vote of 3/4 of the INSURER'S entire Board at a meeting of said Board prior to mailing of said notice. Payment or tender of any unearned premium by the INSURER shall not be a condition precedent to the effectiveness of cancellation, but return of the pro rata unearned premium shall be made as soon as practicable. (e) In the event the charged premium for any POLICY YEAR is not paid as provided in Clause 7 (Automatic Extension), above, this POLICY shall not apply to any WRONGFUL ACTS actually or allegedly taking place after the anniversary date on which the additional premium was due; however, this POLICY shall remain in force for the remainder of the POLICY PERIOD as to CLAIMS first made during the POLICY PERIOD for WRONGFUL ACTS actually or allegedly 6 caused, committed or attempted prior to such anniversary date. With respect to all CLAIMS first made after such anniversary date, one LIMIT OF LIABILITY shall apply for the remainder of the POLICY PERIOD. Such LIMIT OF LIABILITY shall be separate from the LIMIT OF LIABILITY provided during the POLICY YEAR immediately preceding such anniversary date. All premiums paid as of such anniversary date shall be fully earned and in no respect refundable. 9. CHANGES AND ASSIGNMENTS The terms and conditions of this POLICY shall not be waived or changed, nor shall an assignment of interest under this POLICY be binding, except by an endorsement to this POLICY issued by the INSURER. 10. PAYMENT OF LOSS Except in those instances when the INSURER has denied liability for the CLAIM because of the application of one or more exclusions, or other coverage issues, if the COMPANY refuses or is financially unable to advance LOSS costs, the INSURER shall, upon request and if proper documentation accompanies the request, advance on behalf of the INSUREDS, or any of them, LOSS costs that they have incurred in connection with a CLAIM, prior to disposition of such CLAIM. In the event that the INSURER so advances LOSS costs and it is finally established that the INSURER has no liability hereunder, such INSUREDS on whose behalf advances have been made and the COMPANY, to the full extent legally permitted, agree to repay to the INSURER, upon demand, all monies advanced. 11. CURRENCY All premium, limits, retentions, LOSS and other amounts under this POLICY are expressed and payable in the currency of the United States of America. 12. HEADINGS The descriptions in the headings and sub-headings of this POLICY are inserted solely for convenience and do not constitute any part of the terms or conditions hereof. 13. INSUREDS' REPORTING DUTIES The INSUREDS and/or the COMPANY shall give written notice to the INSURER as soon as practicable of any: (a) CLAIM described in subpart (b)(1) of Clause 2 (Definitions) above, which notice shall include the nature of the WRONGFUL ACT, the alleged injury, the names of the claimants, and the manner in which the INSUREDS or COMPANY first became aware of the CLAIM; or (b) event described in subpart (a) or (b) of Clause 8 (Cancellation) above, and shall cooperate with the INSURER and give such additional information as the INSURER may reasonably require. 14. LOSS PROVISIONS (a) The time when a CLAIM shall be made for purposes of determining the application of Clause 1 (Insuring Clause) above shall be the date on which the CLAIM is first made against the INSURED. (b) If during the POLICY PERIOD, the INSUREDS or the COMPANY shall become aware of any circumstances that are likely to give rise to a CLAIM being made against the INSUREDS and shall give written notice to the INSURER of the circumstances and the reasons for anticipating a CLAIM, with particulars as to dates and persons involved, then any CLAIM that is subsequently 7 made against the INSUREDS arising out of such circumstances shall be treated as a CLAIM made during the first POLICY YEAR in which the INSUREDS or the COMPANY gave such notice. (c) The COMPANY and the INSUREDS shall give the INSURER such information and cooperation as it may reasonably require and as shall be in the COMPANY'S and the INSUREDS' power. 15. OTHER INSURANCE Subject to subparts (f) and (g) of Clause 3 (Exclusions) above, if other valid and collectible insurance with any other insurer, whether such insurance is issued before, concurrent with, or after inception of this POLICY, is available to the INSUREDS covering a CLAIM also covered by this POLICY, other than insurance that is issued specifically as insurance in excess of the insurance afforded by this POLICY, this POLICY shall be in excess of and shall not contribute with such other insurance. Nothing herein shall be construed to make this POLICY subject to the terms of other insurance. 16. NOTICE All notices under any provision of this POLICY shall be in writing and given by prepaid express courier or electronic service properly addressed to the appropriate party at the respective addresses as shown in Items V and VI of the Declarations. Notice so given shall be deemed to be received and effective upon actual receipt thereof by the party or one day following the date such notice is sent, whichever is earlier. 17. REPRESENTATION By acceptance of this POLICY, the company named in Item I of the Declarations agrees to represent the INSUREDS with respect to all matters under this POLICY, including, but not limited to, the giving and receiving of notice of CLAIM or cancellation or desire not to extend the POLICY, the payment of premiums, the receiving of LOSS payments and any return premiums that may become due under this POLICY, the requesting, receiving, and acceptance of any endorsement to this POLICY, and the submission of a dispute to arbitration. The INSUREDS agree that said company shall represent them but, for purposes of the investigation, defense, settlement, or appeal of any CLAIM, the INSUREDS who are named as defendants in the CLAIM may, upon their unanimous agreement and upon notice to the INSURER, replace said company with another agent to represent them with respect to the CLAIM, including giving and receiving of notice of CLAIM and other correspondence, the receiving of LOSS payments, and the submission of a dispute to arbitration. 18. SEVERABILITY (a) The APPLICATION for coverage shall be construed as a separate APPLICATION for coverage by each INSURED. With respect to the declarations and statements contained in such APPLICATION for coverage, no statement in the APPLICATION or knowledge possessed by any one INSURED shall be imputed to any other INSURED for the purpose of determining the availability of coverage with respect to CLAIMS made against any other INSURED. The acts, omissions, knowledge, or warranties of any INSURED shall not be imputed to any other INSURED with respect to the coverages applicable under this POLICY. (b) In the event that any provision of this POLICY shall be declared or deemed to be invalid or unenforceable under any applicable law, such invalidity or unenforceability shall not affect the validity or enforceability of the remaining portion of this POLICY. 19. SPECIAL POLICY REVISIONS The INSURER may change this POLICY at any time by an affirmative vote of a majority of the shareholders of the INSURER, in accordance with the by-laws of the INSURER. 8 20. SUBROGATION In the event of any payment under this POLICY, the INSURER shall be subrogated to the extent of such payment to all the INSUREDS' rights of recovery, and the INSUREDS shall execute all papers reasonably required and shall take all reasonable actions that may be necessary to secure such rights including the execution of such documents necessary to enable the INSURER effectively to bring suit in the name of the INSUREDS, including but not limited to an action against the COMPANY for nonpayment of indemnity due and owing to the INSUREDS by the COMPANY. 21. ACQUISITION, CREATION OR DISPOSITION OF A SUBSIDIARY (a) Coverage shall apply to the directors and officers of any subsidiary corporation in which more than 50% of the outstanding securities representing the present right to vote for election of directors is owned, directly or indirectly, in any combination, by the COMPANY and/or one or more of its SUBSIDIARIES, and which is acquired or created after the inception of this POLICY, if written notice is given to the INSURER within 30 days after the acquisition or creation, and any additional premium required by the INSURER is paid within thirty days of the request therefor by the INSURER. The INSURER waives the obligation to provide notice and to pay any additional premium if the assets of such newly created or acquired company are not more than 10% of the total assets of the COMPANY or $250,000,000, whichever is less. The coverage provided for the directors and officers of such new subsidiary shall be limited to CLAIMS for WRONGFUL ACTS actually or allegedly taking place subsequent to the date of acquisition or creation of the subsidiary. (b) Coverage shall not apply to directors and officers of any subsidiary, including a SUBSIDIARY as defined in Clause 2 (Definitions) above, for CLAIMS for WRONGFUL ACTS actually or allegedly taking place subsequent to the date that the COMPANY and/or one or more of its SUBSIDIARIES, directly or indirectly, in any combination, ceases to own more than 50% of the outstanding securities representing the present right to vote for election of directors in such subsidiary. IN WITNESS WHEREOF, the INSURER has caused this POLICY to be signed by its President and Secretary and countersigned on the Declarations Page by a duly authorized agent of the INSURER. /s/C. GRANT HALL /s/D. E. SNYDER Secretary President 9 CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 1 Effective Date of Endorsement June 30, 1993 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company The Procter & Gamble Fund It is understood and agreed that this POLICY is hereby amended as indicated below. All other terms of this POLICY remain unchanged. REVISED THREE-YEAR POLICY FORM ENDORSEMENT __________________________________________ (Replacement Policy Form) It is understood and agreed that pursuant to Clause 19 "Special Policy Revisions" and with the consent of the company named in Item I of the Declarations, this POLICY is changed as of the effective date set forth above by cancelling the POLICY form (including endorsements) in effect as of the effective date of this Endorsement and reissuing the revised POLICY form (including revised endorsement forms) to which this Endorsement is attached. Coverage under this POLICY for all CLAIMS first made against the INSUREDS prior to the effective date of this Endorsement shall be governed by such prior POLICY form (including endorsements thereto). Coverage under this POLICY for all CLAIMS first made against the INSUREDS on or after the effective date of this Endorsement shall be governed by the POLICY form (including endorsements) to which this Endorsement is attached. Except as may be agreed to by the INSURER in writing, such change in POLICY form shall not change the inception date, anniversary date, LIMIT OF LIABILITY, or POLICY YEAR of this POLICY. The maximum liability of the INSURER for all LOSS arising from all CLAIMS first made during the POLICY YEAR in which this Endorsement becomes effective shall be the amount described in Item III of the Declarations. _______________________________ /s/CHARLES D. SMITH Signature of Authorized Signature of Authorized Representative of COMPANY Representative of INSURER CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 2 Effective Date of Endorsement March 15, 1990 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company The Procter & Gamble Fund It is understood and agreed that this POLICY is hereby amended as indicated below. All other terms of this POLICY remain unchanged. OUTSIDE POSITIONS ENDORSEMENT: SUBLIMIT, NON-SPECIFIC INDIVIDUALS (A) Subject to the sublimit of liability set forth in (C) below, the definition of "INSUREDS" is hereby extended to include: (1) all persons who were, are, or shall be serving as directors, officers, trustees, governors, partners or the equivalent thereof for any corporation, partnership, joint venture, eleemosynary institution, non-profit organization, industry association, or foundation, (any such enterprises referred to below as "Entity"), if: (a) such activity is part of their duties regularly assigned by the COMPANY, or (b) they are a member of a class of persons so directed to serve by the COMPANY. (2) the estates, heirs, legal representatives or assigns of deceased persons who were INSUREDS, as defined in subpart (A)(1) above, and the legal representatives or assigns of INSUREDS in the event of their incompetency, insolvency or bankruptcy. (B) It is further understood and agreed that this extension of coverage: (1) is to be excess of any other insurance and excess of any director or officer liability insurance and/or company reimbursement insurance any conditions in such other insurance notwithstanding; (2) shall not apply to any LOSS for which such Entity or the COMPANY actually pays or indemnifies or is required or permitted to pay on behalf of or to indemnify the INSUREDS pursuant to the charter or other similar formative document or by-laws or written agreements of such Entity or the COMPANY duly effective under applicable law, that determines and defines such rights of indemnity; provided, however, this subpart (2) shall not apply if: (a) such Entity and the COMPANY refuse to indemnify or advance defense or other costs as required or permitted, or if such Entity and the COMPANY are financially unable to indemnify; and (b) the INSUREDS comply with Clause 20 (Subrogation) of the POLICY; (3) shall not apply to any LOSS in connection with any CLAIM made against the INSUREDS in their capacity as directors or officers of Corporate Officers & Directors Assurance Ltd. or Corporate Officers & Directors Assurance Holding, Ltd.; and END 06 ED 05 89 (4) is not to be construed to extend to the Entity nor to any other director, officer, trustee, governor, partner or employee of such Entity. (C) In lieu of the LIMIT OF LIABILITY stated in Item III of the Declarations, the limit of liability of the INSURER for this extension of coverage shall be $25,000,000 in the aggregate for all LOSS which is covered by reason of this extension of coverage and which is paid on behalf of all INSUREDS arising from all CLAIMS first made during each POLICY YEAR. It is understood that the amount stated in Item III of the Declarations is the maximum amount payable by the INSURER under this POLICY for all CLAIMS first made during each POLICY YEAR, and that this Endorsement extends coverage with a sublimit which further limits the INSURER'S liability and does not increase the INSURER'S maximum liability beyond the LIMIT OF LIABILITY stated in Item III the Declarations. It is further understood that such sublimit is separate from and payment of LOSS pursuant to this Endorsement does not reduce the sublimit or limit contained in any other Outside Positions Endorsement to this POLICY. (D) Solely for purposes of this extension of coverage, the definition of "WRONGFUL ACT" is hereby modified to replace the word "COMPANY" with the word "Entity" wherever the word "COMPANY" appears. (E) Solely for purposes of applying subparts (i) and (j) of Clause 3 (Exclusions) of the POLICY to this extension of coverage, the definition of "COMPANY" is hereby modified to include such Entity. /s/CHARLES D. SMITH Signature of Authorized Representative END 06 ED 05/89 CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 3 Effective Date of Endorsement March 15, 1987 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company The Procter & Gamble Fund It is understood and agreed that this POLICY is hereby amended as indicated below. All other terms of this POLICY remain unchanged. Divisional Managers Endorsement _______________________________ Subpart (d) of Clause 2 (Definitions) of the POLICY is hereby deleted in its entirety and replaced with the following: (d) "INSUREDS" shall mean: (1) all persons who were, now are, or shall be duly elected or appointed directors, officers or divisional managers of the COMPANY; or (2) the estates, heirs, legal representatives or assigns of deceased INSUREDS who were directors, officers or divisional managers of the COMPANY at the time of the WRONGFUL ACT upon which such CLAIMS are based were committed, and the legal representatives or assigns of INSUREDS in the event of their incompetency, insolvency or bankruptcy. By /s/CHARLES D. SMITH Authorized Representative CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 4 Effective Date of Endorsement March 15, 1987 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company/The Procter & Gamble Fund It is hereby understood and agreed exclusion 3(h) is amended to read as follows:- (h) for bodily injury, sickness, disease, or death of any person, or for damage to or destruction of any tangible property, including the loss of use thereof; however, this exclusion shall not apply to any derivative action brought against any INSURED. All other terms and conditions remain unchanged. By /s/CHARLES D. SMITH Authorized Representative CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 5 Effective Date of Endorsement March 15, 1991 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company/The Procter & Gamble Fund IN CONSIDERATION OF THE PREMIUM CHARGED, IT IS HEREBY UNDERSTOOD AND AGREED THAT ITEM 1 ON THE DECLARATIONS IS AMENDED TO INCLUDE:- "OFFICERS OF OPERATING UNITS OF PROCTER AND GAMBLE COMPANY" ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. By /s/CHARLES D. SMITH Authorized Representative CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 6 Effective Date of Endorsement March 15, 1992 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company/The Procter & Gamble Fund/ Officers of Operating Units of Procter & Gamble Company IN CONSIDERATION OF THE ADDITIONAL PREMIUM OF $95,000 IT IS HEREBY UNDERSTOOD AND AGREED THAT THE "POLICY PERIOD" OF THIS POLICY IS EXTENDED TO JUNE 30, 1994. ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. By /s/CHARLES D. SMITH Authorized Representative CODA CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 7 Effective Date of Endorsement June 30, 1993 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company/The Procter & Gamble Fund Officers of Operating Units of Procter & Gamble Company It is understood and agreed that this POLICY is hereby amended as indicated below. All other terms of this POLICY remain unchanged. THREE-YEAR POLICY REVISION GRANDFATHER ENDORSEMENT Clause 8(e) of the POLICY is deleted in its entirety and Clause 7 of the POLICY is amended to read in its entirety as follows: Except in the event this POLICY is canceled in whole or in part in accordance with Clause 8 (Cancellation) below, on each anniversary of this POLICY, upon submission of the extension application and payment of the charged premium, this POLICY shall automatically be continued to a date one year beyond its previously stated expiration date, unless written notice is given by the INSURER to the COMPANY, or by the COMPANY to the INSURER, that such POLICY extension is not desired. Such written notice may be given at any time prior to the anniversary of the POLICY, except that such notice by the INSURER to the COMPANY may be given only during the period commencing ninety (90) days and ending ten (10) days prior to such anniversary, in which case the POLICY shall automatically expire two years from such anniversary date. Such written notice shall be given by the INSURER to the COMPANY only if it is determined to be appropriate by an affirmative vote of a majority of the INSURER's entire Board at a meeting of said Board prior to mailing of such notice. The premium charged on each anniversary of this POLICY shall be determined by the rating plan and by-laws of the INSURER in force at such anniversary date. As of the second anniversary of the Effective Date of this Endorsement, (i) the foregoing deletion of Clause 8(e) and amendment of Clause 7 shall terminate, (ii) Clause 8(e) shall read in its entirety as set forth in the POLICY form to which this Endorsement is attached, and (iii) Clause 7 shall read in its entirety as follows: Except in the event this POLICY is canceled in whole or in part in accordance with Clause 8 (Cancellation) below, on each anniversary of this POLICY, upon submission of the extension application and payment of the charged premium, this POLICY shall automatically be continued to a date one year beyond its previously stated expiration date, unless written notice is given by the INSURER to the COMPANY, or by the COMPANY to the INSURER, that such POLICY extension is not desired. Such written notice may be given at any time prior to the anniversary of the POLICY, except that such notice by the INSURER to the COMPANY may be given only during the period commencing ninety (90) days and ending ten (10) days prior to such anniversary, in which case the POLICY shall automatically expire two years from such anniversary date. END 11 ED 05/92 Such written notice shall be given by the INSURER to the COMPANY only if it is determined to be appropriate by an affirmative vote of 2/3 of the INSURER'S entire Executive Committee at a meeting of said Committee prior to mailing of such notice. Any non- extension by the INSURER shall be revoked as of the next meeting of the INSURER'S Board of Directors if the Board at such meeting so determines by an affirmative vote of a majority of the entire Board. If any such non-extension is so revoked or if during the remainder of the POLICY PERIOD the INSURER agrees to extend coverage, this POLICY shall be continued or such agreed coverage may be extended, respectively, to the expiration date which would otherwise be applicable if such notice of Non-extension had not been given, provided the COMPANY submits the extension application and pays the charged premium. If the COMPANY or the INSURER gives written notice that the POLICY extension is not desired, the COMPANY shall pay on or before each of the two remaining anniversary dates the charged premium for the next succeeding POLICY YEAR respectively less a premium credit equal to the premium paid for the two respective POLICY YEARS remaining in the POLICY PERIOD as of the effective date of this Endorsement. If any such premium credit exceeds the charged premium, the INSURER shall refund to the COMPANY the difference within ten days following such anniversary date. The premium charged on each anniversary of this POLICY shall be determined by the rating plan and by-laws of the INSURER in force at such anniversary date. /s/CHARLES D. SMITH Authorized Representative CORPORATE OFFICERS AND DIRECTORS ASSURANCE LTD. Endorsement No. 8 Effective Date of Endorsement March 15, 1990 Attached to and forming part of POLICY No. PG-106C COMPANY The Procter & Gamble Company/The Procter & Gamble Fund Officers of Operating Units of Procter & Gamble Company In consideration of the premium charged it is hereby understood and agreed that on the outside positions Endorsements Section A(1) is amended to read after the word "foundation" as follows:- Employee Stock Ownership Trust of the Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan. All other terms and conditions remain unchanged. By /s/CHARLES D. SMITH Authorized Representative EX-99.2 11 Exhibit (99-2) -------------- Directors and Officers (First) Excess Liability Policy Form X.L. D&O-003B Policy No. XLD+O-00364-93 XL X.L. INSURANCE COMPANY, LTD. Producer: PARK INTERNATIONAL LIMITED In favor of: THE PROCTER & GAMBLE COMPANY Address: ONE PROCTER & GAMBLE PLAZA CINCINNATI, OHIO 45202 U.S.A. Type of Coverage: DIRECTORS AND OFFICERS LIABILITY In the amount as stated in Item 2 of the Declarations. Term: Beginning at 12:01 A.M. on the 30th day of June, 1993, prevailing time at the address of the Named Insured and in accordance with terms and conditions of the form(s) attached. PREMIUM: $150,000 IN WITNESS WHEREOF, this Policy has been made, entered into and executed by the undersigned in Hamilton, Bermuda this 21st day of FEBRUARY, 1993. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT DATE: FEBRUARY 21, 1994 POLICY NO: XLD+O-00364-93 X.L. INSURANCE COMPANY, LTD. POLICY FOR DIRECTORS AND OFFICERS LIABILITY IMPORTANT: THIS COVERAGE IS ON A CLAIMS MADE AND CLAIMS REPORTED BASIS. PLEASE READ THIS POLICY CAREFULLY. DECLARATIONS Item 1: (a) Named Company: THE PROCTER & GAMBLE COMPANY (b) Address of Named Company: ONE PROCTER & GAMBLE PLAZA CINCINNATI, OHIO 45202 U.S.A. Item 2: Aggregate Limit of Liability: $25,000,000 each policy period in excess of $25,000,000 each policy year. Item 3: Policy Period: JUNE 30, 1993 - JUNE 30, 1994 The Declarations along with the completed Application and this Policy and any Schedules hereto shall constitute the contract among the Named Company, the Designated Companies, the Directors and Officers and the Company. Item 4: Schedule of Current and Known Prospective Underlying Insurance: Policy MM Policy Carrier Number Limits Year ------- ------ ------ ------ i. Underlying Second Excess ii. Underlying Excess. . . . iii. Primary Insurer(s) . . . CODA PG-106C 25 JUNE 30, 1993- 96 Uninsured Retention under Primary Insurance: $NIL each Director or Officer each loss, but in no event exceeding $NIL in the aggregate each losS all Directors and Officers Liability. Item 5: Policy to be followed: CODA - POLICY NO. PG-106C Item 6: Representative of Named Company: THE PROCTER & GAMBLE COMPANY Item 7: Notice: X.L. Insurance Company, Ltd., Cumberland House, 1 Victoria St., P.O. Box HM 2245, Hamilton, Bermuda HM JX. Telex: 3626 XL BA Item 8: (a) Discovery Coverage Premium: 100% of policy period premium hereunder. (b) Discovery Coverage Period: 365 days. Item 9: Notice Cancellation Period: 60 days. Said insurance is subject to the provisions, stipulations, exclusions and conditions contained in this form and the representations and warranties contained in the Named Company's application for this policy of insurance, which is hereby made a part of said insurance, together with other provisions, stipulations, exclusions and conditions as may be endorsed on said policy or added thereto as therein provided (collectively hereinafter referred to as the "Policy"). D&O-003B 2 THE PROCTER & GAMBLE COMPANY DIRECTORS AND OFFICERS LIABILITY INSURANCE Named Company: As stated in Item 1 of the Declarations forming a part hereof (hereinafter called the "Named Company"). INSURING AGREEMENTS I. COVERAGE The X.L. Insurance Company, Ltd. (the "Company") hereby agrees with the Directors and Officers of the Named Company and any other companies listed in Schedule A hereto ("Designated Companies"), subject to the limitations, terms, exclusions and conditions hereinafter mentioned that, if during the policy period any claim or claims are made against any of the Directors and Officers for a Wrongful Act, and reported to the Company, the Company in accordance with its limits of liability shall pay on behalf of such Directors and Officers all loss which such Directors and Officers shall become legally obligated to pay, except for such loss which the Designated Companies shall indemnify such Directors and Officers. II. LIMIT OF LIABILITY A. It is expressly agreed that liability for any loss shall attach to the Company only after the Primary and Underlying Excess Insurers shall have paid, admitted or been held liable to pay the full amount of their respective liability and the Directors and Officers shall have paid the full amount of self-insured retentions, if any, as set forth in Item 4 of the Declarations (hereinafter referred to as the "Schedule of Underlying Insurance"), and the Company shall then be liable to pay only additional amounts for any and all losses up to its Aggregate Limit of Liability ("aggregate limit") as set forth in Item 2 of the Declarations, which shall be the maximum liability of the Company for all covered losses (with respect to Directors and Officers, collectively) during the policy period irrespective of the time of payment by the Company. B. In the event and only in the event of the reduction or exhaustion of the aggregate limits of liability under the said Primary and Underlying Excess Policies and under self-insured retentions, if any (as if such retentions were subject to the same terms, conditions, exclusions and structure of limits of liability as said policies) by reason of losses paid thereunder, this coverage shall: (i) in the event of reduction, pay the excess of the reduced Primary and Underlying Excess Limits, and (ii) in the event of exhaustion, continue in force as Primary Insurance; provided always that in the latter event this coverage shall only pay excess of the retention applicable to such Primary Insurance for such policy year as set forth in Item 4 (iii) of the Declarations, which shall be applied to any subsequent loss in the same manner as specified in such Primary Insurance. Except insofar as aggregate limits of liability under the Primary and Underlying Excess Policies have been reduced or exhausted by reason of losses paid thereunder and self-insured retentions, if any, have been fully paid (as if such retentions were subject to the same terms, conditions, exclusions and structure of limits of liability as said policies), this coverage shall apply only as if all Primary and Underlying Policies and self-insured retentions, if any, listed on the Schedule of Underlying Insurance covered and were fully collectable for any loss hereunder. III. PRIMARY AND UNDERLYING INSURANCE This Policy is subject to the same warranties, terms, conditions and exclusions (except as regards the premium, the amount and limits of liability, the policy period and except as otherwise provided herein) as are contained in or as may be added to the policy set forth in item 5 of the Declarations or, if no policy is set forth therein, the policy of the Primary Insurer(s) as respects coverage of the Directors and Officers. It is a condition of this Policy that the policies of the Primary and Underlying Excess Insurers shall be maintained in full effect during the policy year(s) listed in the Schedule of Underlying Insurance except for any reduction of the aggregate limits contained therein by reason of losses paid thereunder (as D&O-003B 3 THE PROCTER & GAMBLE COMPANY provided for in Paragraph II(B) above). This Policy shall automatically terminate upon the failure to satisfy this condition (i.e., when any of such listed policies ceases to be in full effect) unless otherwise agreed by the Company in writing. If the Named Company notifies the Company in writing of cancellation of any of the policies listed on the Schedule of Underlying Insurance at least thirty (30) days prior to the effectiveness thereof, the Company agrees that within twenty (20) days thereafter it will review the situation and formulate a proposal for the terms, conditions, exclusions, underlying amount, limit and premium for continuation of this Policy upon such cancellation; provided, however, that (i) the underlying amount shall be at least $20,000,000, (ii) the limit shall be a maximum of $25,000,000 and (iii) this Policy shall not continue after such cancellation unless there is an agreement in writing between the Named Company and the Company providing therefor. IV. COSTS, CHARGES AND EXPENSES No costs, charges or expenses shall be incurred or settlements made without the Company's consent, such consent not to be unreasonably withheld; however, in the event of such consent being given, the Company will pay, subject to the provisions of Article II, such costs, settlements, charges or expenses. V. NOTIFICATION A. If during the policy period or extended discovery period any claim is made against any Director or Officer, the Directors and Officers shall, as a condition precedent to their right to be indemnified under this Policy, give to the Company notice in writing as soon as practicable of such claims. B. If during the policy period or extended discovery period: (1) the Directors and Officers shall receive written or oral notice from any party that it is the intention of any such party to hold the Directors and Officers, or any of them, responsible for a Wrongful Act; or (2) the Directors and Officers shall become aware of any fact, circumstance or situation which may subsequently give rise to a claim being made against the Directors and Officers, or any of them, for a Wrongful Act; and shall in either case during such period give written notice as soon as practicable to the Company of the receipt of such written or oral notice under Clause (1) or of such fact, circumstance or situation under Clause (2), then any claim, which may subsequently be made against the Directors and Officers, arising out of such Wrongful Act shall for the purpose of this Policy be treated as a claim made during the policy period. C. Notice to the Company shall be given to the person or firm shown under Item 7 of the Declarations. Notice shall be deemed to be received if sent by prepaid mail properly addressed. VI. GENERAL CONDITIONS A. DEFINITIONS: The terms "Directors and Officers", "Wrongful Act", "Loss", "Subsidiary", and "Policy Year" shall be deemed to have the same meanings in this Policy as are attributed to them in the policy set forth in Item 5 of the Declarations or, if no policy is set forth therein, the policy of the Primary Insurer(s). The term "Company" shall mean the X.L. Insurance Company, Ltd. The term "policy period" shall mean the period stated in Item 3 of the Declarations. B. DISCOVERY CLAUSE: If the Company shall cancel or refuse to renew this Policy, the Named Company or the Directors and Officers shall have the right, upon payment of the additional premium set forth in Item 8(a) of the Declarations to a continuation of the coverage granted by this Policy in respect of any claim or claims which may be made against the Directors and Officers during the period stated in Item 8(b) of the Declarations after the date of cancellation or non-renewal, but only in respect of any Wrongful Act committed before the date of cancellation or non-renewal of this Policy. This right of extension shall terminate unless written notice is given to the Company within ten (10) days after the effective date of cancellation or non-renewal. D&O-003B 4 THE PROCTER & GAMBLE COMPANY C. APPLICATION OF RECOVERIES: All recoveries of payments recovered or received subsequent to a loss settlement under this Policy shall be applied as if recovered or received prior to such settlement and all necessary adjustments shall then be made between the Named Company or the Directors and Officers and the Company, provided always that nothing in this Policy shall be construed to mean that losses under this Policy are not payable until the Directors' and Officers' ultimate net loss has been finally ascertained. D. CANCELLATION CLAUSE: This coverage may be cancelled by the Named Company at any time by written notice or surrender of this Policy. This coverage may also be cancelled by, or on behalf of, the Company by delivering to the Named Company or by mailing to the Named Company by registered, certified or other first class mail, at the Named Company's address shown in Item 1 of the Declarations, written notice stating when, not less than the number of days set forth in Item 9 of the Declarations, the cancellation shall become effective. The mailing of such notice as aforesaid shall be sufficient proof of notice, and this Policy shall terminate at the date and hour specified in such notice. If this Policy shall be cancelled by the Named Company, the Company shall retain the customary short rate proportion of premium hereon. If this Policy shall be cancelled by or on behalf of the Company, the Company shall retain the pro rata proportion of the premium hereon. Payment or tender of any unearned premium by the Company shall not be a condition precedent to the effectiveness of cancellation, but such payment shall be made as soon as practicable. E. COOPERATION: The Named Company, the Designated Companies and the Directors and Officers shall give the Company such information and cooperation as it may reasonably require. F. PREMIUM: The premium under this Policy is a flat premium and is not subject to adjustment except as otherwise provided herein. The premium shall be paid to the Company. G. WRONGFUL ACT EXCLUSION: Notwithstanding any other provision of this Policy, this Policy shall not apply with respect to a Wrongful Act by any Director or Officer of the Company in his capacity as such. H. NUCLEAR EXCLUSION: This Policy shall not apply to, and the Company shall have no liability hereunder in respect of liability or alleged liability for: (1) personal injury, property damage or advertising liability in the United States, its territories or possessions, Puerto Rico or the Canal Zone (A) with respect to which the Named Company, the Designated Companies and/or Officers and Directors (collectively, the "Certain Parties") is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limited liability or (B) resulting from the hazardous properties of nuclear material and with respect to which (i) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954 or any law amendatory thereof or (ii) a Certain Party is, or had this Policy not been issued, would be entitled to indemnity from United States of America or any agency thereof under any agreement entered into by the United States of America or any agency thereof with any person or organization; (2) medical or surgical relief or expenses incurred with respect to bodily injury, sickness, disease or death resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization in the United States, its territories or possessions, Puerto Rico or the Canal Zone; (3) injury, sickness, disease, death or destruction resulting from hazardous properties of nuclear material, if (A) the nuclear material (i) is at any nuclear facility owned by or operated by or on behalf of any of the Certain Parties in the United States, its territories or possessions Puerto Rico or the Canal Zone or (ii) has been discharged or dispersed therefrom, (B) such nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, D&O-003B 5 THE PROCTER & GAMBLE COMPANY stored, transported or disposed by or on behalf of any of the Certain Parties in the United States, its territories or possessions, Puerto Rico or the Canal Zone or (C) the injury arises out of the furnishing by any of the Certain Parties of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of a nuclear facility, but if such facility is located within the United States of America, its territories or possessions or Canada, this clause (3)(C) applies only to injury to or destruction of property at such nuclear facility; (4) As used in this Section (H): (A) "hazardous properties" included radioactive, toxic or explosive properties; "nuclear material" means source material, special nuclear material or by-product material; "source material," "special nuclear material" and "by-product material" have the meanings given them by the Atomic Energy Act of 1954 or in law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (i) containing by-product materials and (ii) resulting from the operation by a person or organization of nuclear facility included within the definition of nuclear facility under clauses (B)(i) or (B)(ii) (below): (B) "nuclear facility" means (i) any nuclear reactor; (ii) any equipment or device designed or used for (x) separating the isotopes of uranium or plutonium, (y) processing or utilizing spent fuel, or (z) handling processing or packaging waste; (iii) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the Insured at such premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or combination thereof or more than 250 grams of uranium 235; (iv) any structure, basin, excavation, premises or place prepared for the storage or disposal of waste. (C) "Nuclear facility" includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations. (D) "Nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain critical mass of fissionable material. (E) With respect to injury or destruction of property, the word "injury" or "destruction" includes all forms of radioactive contamination of property or loss of use thereof or liability or alleged liability of whatsoever nature directly or indirectly caused by or contributed to by or arising from ionizing radiations or contamination by radioactivity outside the United States, its territories or possessions, Puerto Rico or the Canal Zone from any nuclear fuel or from any nuclear waste from the combustion, fission or fusion of nuclear fuel. I. EMPLOYEE BENEFITS PROGRAMS EXCLUSION: Notwithstanding any other provision of this Policy, this coverage shall not apply with respect to: (1) any liability or alleged liability arising out of or alleged to arise out of any negligent act, error or omission of any Director or Officer, or any other person for whose acts any Director or Officer is legally liable, in the administration of Employee Benefits Programs, as defined in subsection (2) below, including, without limitation, liability or alleged liability under the Employee Retirement Income Security Act of 1974, as amended. D&O-003B 6 THE PROCTER & GAMBLE COMPANY (2) As used in this Section I, the term "Employee Benefits Programs" means group life insurance, group accident or health insurance, profit sharing plans, pension plans, employee stock subscription plans, workers' compensation, unemployment insurance, social benefits, disability benefits, and any other similar employee benefits. (3) As used in this Section I, the unqualified word "administration" means: (A) giving counsel to employees with respect to the Employee Benefits Programs; (B) interpreting the Employee Benefits Programs; (C) handling of records in connection with the Employee Benefits Programs; and/or (D) effective enrollment, termination or cancellation of employees under the Employee Benefits Programs. J. INDEMNITY BY DESIGNATED COMPANIES: The Designated Companies agree with the Company to indemnify their respective Directors and Officers to the full extent permitted by applicable law. The Directors and Officers agree that to the extent of any payment of loss on their behalf or indemnification of them hereunder they will assign, convey, set over, transfer and deliver to the Company any and all rights and claims they may have to indemnification from the Designated Companies and will take all further steps requested by the Company to assist in prosecution of such rights and claims, and the Designated Companies hereby consent to any such assignment, conveyance, set over, transfer or delivery and agree that any payment by the Company on behalf of or to indemnify any Director or Officer shall not be raised as a defense to the Director's or Officer's right to indemnification from the Designated Companies as asserted by the Company pursuant hereto. K. OTHER CONDITIONS: This Policy is subject to the following additional conditions: (1) REPRESENTATION Except as respects the giving of notice to exercise extended discovery under Paragraph VI(B), the Named Company or such other person as it shall designate in Item 6 of the Declarations shall represent the Named Company, each of the Designated Companies and each Officer and Director of the Named Company and the Designated Companies in all matters under this Policy, including, without limitation, payment of premium, negotiation of the terms of renewal and/or reinstatement and the adjustment, settlement and payment of claims. (2) CHANGES Notice to or knowledge possessed by any person shall not effect waiver or change in any part of this Policy or estop the Company from asserting any right under the terms of this Policy; nor shall the terms of this Policy be waived or changed, except by endorsement issued to form a part hereof, signed by the Company or its authorized representative. (3) ASSIGNMENT Assignment of interest under this Policy shall not bind the Company unless and until consent is endorsed hereon. (4) ARBITRATION Any dispute arising under this Policy shall be finally and fully determined in London, England under the provisions of the English Arbitration Act of 1950, as amended and supplemented, by a Board composed of three arbitrators to be selected for each controversy as follows: Any party to the dispute may, once a claim or demand on his part has been denied or remains unsatisfied for a period of twenty (20) calendar days by any other, notify the others of its desire to arbitrate the matter in dispute and at the time of such notification the party desiring arbitration shall notify any other party or parties of the name of the arbitrator selected by it. Any party or parties who have been so notified shall within ten (10) calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of such second arbitrator. If the party or parties notified of a desire for arbitration shall fail or refuse to nominate the second arbitrator within ten (10) calendar days following the receipt of such notification, the party who D&O-003B 7 THE PROCTER & GAMBLE COMPANY first served notice of a desire to arbitrate will, within an additional period of ten (10) calendar days, apply to a judge of the High Court of England for the appointment of a second arbitrator and in such a case the arbitrator appointed by such a judge shall be deemed to have been nominated by the party or parties who failed to select the second arbitrator. The two arbitrators, chosen as above provided, shall within ten (10) calendar days after the appointment of the second arbitrator choose a third arbitrator. In the event of the failure of the first two arbitrators to agree on a third arbitrator within said ten (10) calendar day period, any of the parties may within a period of ten (10) calendar days thereafter, after notice to the other party or parties, apply to a judge of the High Court of England for the appointment of a third arbitrator and in such case the person so appointed shall be deemed and shall act as the third arbitrator. Upon acceptance of the appointment by said third arbitrator, the Board of Arbitration for the controversy in question shall be deemed fixed. All claims, demands, denials of claims and notices pursuant to this Section (K)(iv) shall be deemed made if in writing and mailed to the last known address of the other party or parties. The Board of Arbitration shall fix, by a notice in writing to the parties involved, a reasonable time and place for the hearing and may in said written notice or at the time of the commencement of said hearing, at the option of said Board, prescribe reasonable rules and regulations governing the course and conduct of said hearing. The Board shall, within ninety (90) calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing and shall cause a coy thereof to be served on all the parties thereto. In case the Board fails to reach a unanimous decision, the decision of the majority of the members of the Board shall be deemed to be the decision of the Board and the same shall be final and binding on the parties thereto, and such decision shall be a complete defense to any attempted appeal or litigation of such decision in the absence of fraud or collusion. All costs of arbitration shall be borne equally by the parties to such arbitration. The Company and the Insured agree that in the event that claims for indemnity or contribution are asserted in any action or proceeding against the Company by any of the Insured's other insurers in any jurisdiction or forum other than that set forth in this Section (K)(iv), the Insured will in good faith take all reasonable steps requested by the Company to assist the Company in obtaining a dismissal of these claims (other than on the merits) and will, without limitation, undertake to the court or other tribunal to reduce any judgment or award against such other insurers to the extent that the court or tribunal determines that the Company would have been liable to such insurers for indemnity or contribution pursuant to this Policy. The Insured shall be entitled to assert claims against the Company for coverage under this Policy, including, without limitation, for amounts by which the Insured reduced its judgment against such other insurers in respect of such claims for indemnity or contribution in an arbitration between the Company and the Insured pursuant to this Section (K)(iv); provided, however, that the Company in such arbitration in respect of such reduction of any judgment shall be entitled to raise any defenses under this Policy and any other defenses (other than jurisdictional defenses) as it would have been entitled to raise in the action or proceeding with such insurers. (5) GOVERNING LAW AND INTERPRETATION This Policy shall be governed by and construed in accordance with the internal laws of the State of New York, except insofar as such laws may prohibit payment in respect of punitive damages hereunder; provided, however, that the provisions, stipulations, exclusions and conditions of this Policy are to be construed in an evenhanded fashion as between the Insured and the Company; without limitation, where the language of this Policy is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the Insured or the Company and without reference to parol evidence). D&O-003B 8 THE PROCTER & GAMBLE COMPANY (6) LIABILITY OF THE COMPANY The Named Company, the Designated Companies and the Directors and Officers agree that the liability and obligations of the Company hereunder shall be satisfied from the funds of the Company alone and that the individual shareholders of the Company shall have no liability hereunder. (7) HEADINGS The descriptions in the headings and subheadings of this Policy are inserted solely for convenience and do not constitute any part of the terms and conditions hereof. X.L. INSURANCE COMPANY, LTD. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT Date: FEBRUARY 21, 1994 D&O-003B 9 THE PROCTER & GAMBLE COMPANY SCHEDULE A All Subsidiaries of the Named Insured D&O-003B 10 Insured: THE PROCTER & GAMBLE COMPANY Policy No: XLD+0-00364-93 Endorsement No: 1 Effective Date: JUNE 30, 1993 __________________________________________________________________________ POLICY INTERPRETATION ENDORSEMENT It is agreed that Condition K(5) is hereby deleted and the following is substituted therefore: "(5) Law of Construction and Interpretation "This Policy shall be construed in accordance with the internal laws of the State of New York, except insofar as such laws: "(a) may prohibit indemnity in respect of punitive damages hereunder; "(b) pertain to regulation under the New York Insurance Law, or regulations issued by the Insurance Department of the State of New York pursuant thereto, applying to insurers doing insurance business, or issuance, delivery or procurement of policies of insurance, within the State of New York or as respects risks or insureds situated in the State of New York; or "(c) are inconsistent with any provision of this Policy; "provided, however, that the provisions, stipulations, exclusions and conditions of this Policy are to be construed in an evenhanded fashion as between the Insured and the Company; without limitation, where the language of this Policy is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in the manner most consistent with the relevant provisions, stipulations, exclusions and conditions (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the Insured or the Company and without reference to parol or other extrinsic evidence)." X.L. INSURANCE COMPANY, LTD. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT Date: FEBRUARY 21, 1994 Ref: OD247.01 XL Insured: THE PROCTER & GAMBLE COMPANY Policy No: XLD+0-00364-93 Endorsement No: 2 Effective Date: JUNE 30, 1993 ___________________________________________________________________________ DIRECTORS' AND OFFICERS' COVERAGE ENDORSEMENT Notwithstanding any other provision of the Policy or this Endorsement, if the Lead Policy provides coverage for any person acting in the capacity as a Director or Officer of a company or entity which is not an Insured Company under the Policy and this Endorsement, no such coverage shall be provided pursuant to the Policy and/or this Endorsement unless (a) it is indicated below that "Outside Positions" coverage is being afforded, (b) such coverage is subject to a retention (whether self-insured and/or covered by underlying policy(ies)) in the amount listed below which shall be deemed to be listed in Item 4 of the Declarations, and such coverage in any event shall apply in excess of all Primary and Underlying Excess Insurance listed in Item 4 of the Declarations, and (c) such coverage is subject to an aggregate sublimit in the amount listed below, which sublimit shall be the maximum liability of the Company for all losses in respect of such coverage during the policy period irrespective of the time of payment by the Company and shall be a sublimit included within and shall not increase the Aggregate Limit of Liability stated in Item 2 of the Declarations. It is further understood and agreed that this extension of cover shall not apply to any person acting as a Director or Officer of the following companies: (a) Corporate Officers and Directors Assurance Ltd. (b) Corporate Officers and Directors Assurance Holdings Ltd. (c) Exel Ltd. (d) X. L Insurance Company, Ltd. Outside Positions Coverage: YES - As per schedule provided by the Named Insured Outside Positions Coverage (Self-Insured) Retention: $25,000,000 Outside Positions Coverage Aggregate Sublimit: $25,000,000 X.L. INSURANCE COMPANY, LTD. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT Date: FEBRUARY 21, 1994 Ref: 0D234.01-R XL Insured: THE PROCTER & GAMBLE COMPANY Policy No: XLD+0-00364-93 Endorsement No: 3 Effective Date: JUNE 30, 1993 ___________________________________________________________________________ AMENDMENT TO DECLARATIONS PAGE It is agreed that as of the Effective Date shown above, Item 1(a) NAMED COMPANY of the Declarations is amended to include OFFICERS OF OPERATING UNITS OF THE PROCTER & GAMBLE COMPANY. X.L. INSURANCE COMPANY, LTD. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT Date: FEBRUARY 21, 1994 Ref: 0D242.01 XL EX-99.3 12 Exhibit (99-3) -------------- Directors and Officers (Second) Excess Liability Policy PARK INTERNATIONAL LIMITED A.C.E. INSURANCE COMPANY (BERMUDA) LTD. DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICY THIS IS A CLAIMS MADE POLICY. Except as otherwise provided herein, this policy covers only claims first made against the Insureds during the Policy Period. PLEASE READ THIS POLICY CAREFULLY. DECLARATIONS ____________ Policy No.: PG-6797D Item 1. Insured Company: THE PROCTER & GAMBLE COMPANY Principal Address: One Procter & Gamble Plaza Cincinnati, Ohio 45202 U.S.A. Item 2. Schedule of Underlying Policies: Insurer Policy Limits Policy Number Period _______ ______ ______ ______ Primary Policy CODA PG-106C $25M 6/30/93-96 Excess Policies X.L. XLD&O-00364-93 $25M 6/30/93-94 Uninsured retention under primary insurance: $NIL each Insured Person each Loss, but in no event exceeding $NIL in the aggregate each Loss for all Insured Persons and $ N/A each Loss for the Insured Company. Item 3. Followed Policy: Insurer: CODA Policy No.: PG-106C Item 4. Policy Period: From 12:01 A.M. JUNE 30, 1993 To 12:01 A.M. JUNE 30, 1994 Greenwich Mean Time D & 0 12-88 (B) 1 Item 5. Aggregate Limit of Liability $50,000,000 U.S. dollars each Policy Year for all Loss paid on behalf of all Insureds arising from all claims first made during such Policy Year. Item 6. One Year Premium: $140,000 Three Year Premium: $ N/A (Prepaid) Discovery Period Premium: 100% of the Policy Period Premium Item 7. Insurer: A.C.E. Insurance Company (Bermuda) Ltd. P.O. Box HM 1015 Hamilton, Bermuda HM DX Telex: 3543 ACEILBA Telecopy: (809) 295-5221 Countersigned at Hamilton, Bermuda: Date: March 15, 1994 /s/CHARLES D. SMITH Authorized Representative THESE DECLARATIONS, TOGETHER WITH THE COMPLETED AND SIGNED APPLICATION AND THE POLICY FORM ATTACHED HERETO, CONSTITUTE THE INSURANCE POLICY. D & O 12-88 (B) 2 I. INSURING CLAUSE In consideration of the payment of the premium and in reliance upon all statements made in the application form including the information furnished in connection therewith, and subject to all terms, conditions, exclusions and limitations of this policy, the Insurer agrees to provide insurance coverage to the Insured Persons and, if applicable, the Insured Company in accordance with the terms, conditions, exclusions and limitations of the Followed Policy. II. LIMIT OF LIABILITY A. It is expressly agreed that liability for any covered Loss with respect to claims first made in each Policy Year shall attach to the Insurer only after the insurers of the Underlying Policies, the Insured Company and/or the Insured Persons shall have paid, admitted or been held liable to pay the full amount of the Underlying Limit for such Policy Year. The Insurer shall then be liable to pay only covered Loss in excess of such Underlying Limit up to its Aggregate Limit of Liability as set forth in Item 5 of the Declarations, which shall be the maximum aggregate liability of the Insurer under this policy with respect to all claims first made in each Policy Year against all Insured Persons irrespective of the time of payment by the Insurer. B. Multiple claims based upon or arising out of the same, repeated, interrelated or causally connected Wrongful Acts, whether made against the same or different Insured Persons, shall be deemed to be a single claim first made in the earliest Policy Year in which the first of such multiple claims is made against any Insured Person; the Aggregate Limit of Liability shall apply only once to such multiple claims. C. In the event and only in the event of the reduction or exhaustion of the Underlying Limit by reason of the insurers of the Underlying Policies, the Insured Company and/or the Insured Persons paying, admitting or being held liable to pay Loss otherwise covered hereunder, this policy shall: (i) in the event of reduction, pay excess of the reduced Underlying Limit, and (ii) in the event of exhaustion, continue in force as primary insurance; provided always that in the latter event this policy shall only pay excess of the retention applicable to the primary insurance as set forth in Item 2 of the Declarations, which retention shall be applied to any subsequent Loss in the same manner as specified in such primary insurance. D. Notwithstanding any of the terms of this policy which might be construed otherwise, this policy shall drop down only in the event of reduction or exhaustion of the Underlying Limit and shall not drop down for any other reason including, but not limited to, uncollectability (in whole or in part) of any underlying insurance. The risk of uncollectability of such underlying insurance (in whole or in part) whether because of financial impairment or insolvency of an underlying insurer or for any other reason, is expressly retained by the Insured Persons and the Insured Company and is not in any way or under any circumstances insured or assumed by the Insurer. III. UNDERLYING INSURANCE A. This policy is subject to the same warranties, terms, conditions, exclusions and limitations (except as regards the premium, the amount and limits of liability, the policy period and except as otherwise provided herein) as are contained in or as may be added to the Followed Policy. B. It is a condition of this policy that the Underlying Policies shall be maintained in full effect with solvent insurers during the policy period listed in Item 2 of the Declarations except for any reduction or exhaustion of the aggregate limits contained therein by reason of Loss paid thereunder (as provided for in Section II(C) above). Unless the Insurer otherwise agrees in writing, this policy shall: (i) immediately and automatically terminate on the date any of the Underlying Policies ceases to be in full effect; and (ii) automatically terminate 30 days following the date an insurer of any Underlying Policy becomes subject to a receivership, liquidation, dissolution, rehabilitation or any similar proceeding or is taken over by any regulatory authority unless the Insured Company obtains replacement coverage for such Underlying Policy within such 30 day period. In the event this policy automatically terminates pursuant to this Section III(B), the Insurer shall retain the pro-rata proportion of the premium. Payment or tender of any unearned premium by the Insurer shall not be a condition precedent to the effectiveness of such termination, but such payment shall be made as soon as practicable. D & O 12-88 (B) 3 C. If during the Policy Period or any discovery period the terms, conditions, exclusions or limitations of the Followed Policy are changed in any manner, the Insured Company or the Insured Persons shall as a condition precedent to their rights under this policy give to the Insurer as soon as practicable written notice of the full particulars thereof. This policy shall become subject to any such changes upon the effective date of the changes in the Followed Policy, provided that the Insured Company shall pay any additional premium reasonably required by the Insurer for such changes. IV. GENERAL CONDITIONS A. Discovery Period: If the Insurer or the Insured Company fails or refuses to renew or cancels this policy, or if this policy automatically terminates pursuant to Section III(B), the Insured Company or the Insured Persons shall have the right, upon payment of an additional premium as set forth in Item 6 of the Declarations, to elect an extension of the coverage granted by this policy, but only for any Wrongful Act committed, attempted or allegedly committed or attempted prior to the effective date of such nonrenewal, cancellation or termination. Any such election shall be made in writing in the time and manner and for the discovery period stated in the Followed Policy. B. Application of Recoveries: All recoveries or payments recovered or received subsequent to a Loss settlement under this policy shall be applied as if recovered or received prior to such settlement and all necessary adjustments shall then be made between the Insured Company or the Insured Person and the Insurer, provided always that the foregoing shall not affect the time when Loss under this policy shall be payable. C. Notice: All notices to the Insurer under any provisions of this policy shall be given by prepaid courier or electronic service properly addressed to the Insurer at its address as shown in the Declarations. Notice so given shall be deemed to be received by the Insurer on the next succeeding day. D. Cooperation: The Insured Company and the Insured Persons shall give the Insurer such information and cooperation as it may reasonably require. E. Premium: The premium under this policy is a flat premium and is not subject to adjustment except as otherwise provided herein. The premium shall be paid to the Insurer at its address as shown in the Declarations. F. Cancellation Clause: This policy may be cancelled by the Insured Company at any time by written notice or surrender of this policy to the Insurer. This policy may also be cancelled by, or on behalf of, the Insurer by delivering to the Insured Company or by mailing to the Insured Company by registered, certified or other first class mail, at the address shown in the Declarations, written notice stating when, not less than (365) days thereafter, the cancellation shall become effective. The mailing of such notice as aforesaid shall be sufficient proof of notice, and this policy shall terminate at the date and hour specified in such notice. If this policy shall be cancelled by the Insured Company, the Insurer shall retain the customary short rate proportion of premium hereon. If this policy shall be cancelled by or on behalf of the Insurer, the Insurer shall retain the pro-rata proportion of the premium hereon. Payment or tender of any unearned premium by the Insurer shall not be a condition precedent to the effectiveness of cancellation, but such payment shall be made as soon as practicable. G. Capacity: Notwithstanding any other provision of this policy, coverage hereunder shall not apply with respect to a Wrongful Act by any Insured Person in his capacity as director or officer of the Insurer. H. Changes: Notice to or knowledge possessed by any person shall not effect waiver or change in any part of this policy or estop the Insurer from asserting any right under the terms of this policy; nor shall the terms of this policy be waived or changed, except by endorsement issued to form a part hereof, signed by the Insurer or its authorized representative. I. Arbitration: Any dispute arising under or relating to this policy, or the breach thereof, shall be finally and fully determined in Hamilton, Bermuda under the provisions of the Bermuda Arbitration Act of 1986, as amended and supplemented, by an Arbitration Board composed of three arbitrators who shall be disinterested and active or retired business executives having knowledge relevant to the matters in dispute, and who shall be selected for each controversy as follows: Either party to the dispute, once a claim or demand on its part has been denied or remains unsatisfied for a period of twenty (20) calendar days by the other party, may notify the other party of its desire to arbitrate the matter in dispute and at the time of such notification the party desiring arbitration shall notify the other party of the name of the arbitrator selected by it. The other party who has been so D & O 12-88 (B) 4 notified shall within ten (10) calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of such second arbitrator. If the party notified of a desire for arbitration shall fail or refuse to nominate the second arbitrator within ten (10) calendar days following the receipt of such notification, the party who first served notice of a desire to arbitrate will, within an additional period of ten (10) calendar days, apply to the Supreme Court of Bermuda for the appointment of a second arbitrator and in such a case the arbitrator appointed by the Supreme Court of Bermuda shall be deemed to have been nominated by the party who failed to select the second arbitrator. The two arbitrators, chosen as above provided, shall within ten (10) calendar days after the appointment of the second arbitrator choose a third arbitrator. In the event of the failure of the first two arbitrators to agree on a third arbitrator within the said ten (10) calendar day period, either party may within a period of ten (10) calendar days thereafter, after notice to the other party, apply to the Supreme Court of Bermuda for the appointment of a third arbitrator and in such case the person so appointed shall be deemed and shall act as the third arbitrator. Upon acceptance of the appointment by said third arbitrator, the Arbitration Board for the controversy in question shall be deemed fixed. The Arbitration Board shall fix, by a notice in writing to the parties involved, a reasonable time and place for the hearing and may in said written notice or at the time of the commencement of said hearing, at the option of said Arbitration Board, prescribe reasonable rules and regulations governing the course and conduct of said hearing. The Board, shall, within ninety (90) calendar days following the conclusion of the hearing, render its decision on the matter or matters in controversy in writing and shall cause a copy thereof to be served on all parties thereto. In case the Board fails to reach a unanimous decision, the decision of the majority of the members of the Board shall be deemed to be the decision of the Board. Each party shall bear the expense of its own arbitrator. The remaining cost of the arbitration shall be borne equally by the parties to such arbitration. All awards made by the Arbitration Board shall be final and no right of appeal shall lie from any award rendered by the Arbitration Board. The parties agree that the Supreme Court of Bermuda: (i) shall not grant leave to appeal any award based upon a question of law arising out of the award; (ii) shall not grant leave to make an application with respect to an award; and (iii) shall not assume jurisdiction upon any application by a party to determine any issue of law arising in the course of the arbitration proceeding, including but not limited to whether a party has been guilty of fraud. All awards made by the Arbitration Board may be enforced in the same manner as a judgment or order from the Supreme Court of Bermuda and judgment may be entered pursuant to the terms of the award by leave from the Supreme Court of Bermuda. The Insurer and the Insureds agree that in the event that claims for indemnity or contribution are asserted in any action or proceeding against the Insurer by any of the Insureds' other insurers in any jurisdiction or forum other than that set forth in this clause, the Insureds will in good faith take all reasonable steps requested by the Insurer to assist the Insurer in obtaining a dismissal of these claims (other than on the merits) and will, without limitation, undertake to the court or other tribunal to reduce any judgment or award against such other insurers to the extent that the court or tribunal determines that the Insurer would have been liable to such insurers for indemnity or contribution pursuant to this policy. The Insureds shall be entitled to assert claims against the Insurer for coverage under this policy, including, without limitation, for amounts by which the Insureds reduced its judgment against such other insurers in respect of such claims for indemnity or contribution, in an arbitration between the Insurer and the Insureds pursuant to this clause; provided, however, that the Insurer in such arbitration in respect of such reduction of any judgment shall be entitled to raise any defenses under this policy and any other defenses (other than jurisdictional defenses) as it would have been entitled to raise in the action or proceeding with such insurers. J. Governing Law and Interpretation: This policy shall be construed and enforced in accordance with the internal laws of the State of New York (with the exception of Section IV(i), which shall be construed and enforced in accordance with the laws of Bermuda), except insofar as such laws may prohibit payment hereunder in respect of punitive damages; provided, however, that the terms, conditions, exclusions and limitations of this policy are to be construed in an evenhanded fashion as between the Insureds and the Insurer. Without limitation, where the language of this policy is deemed to be ambiguous or otherwise unclear, the issues shall be resolved in the manner most consistent with the relevant terms, conditions, exclusions and limitations (without regard to authorship of the D & O 12-88 (B) 5 language, without any presumption or arbitrary interpretation or construction in favour of either the Insureds or the Insurer and without reference to parol evidence). K. Liability of the Company: The Insured Company, the Insured Persons and the Insurer agree that the liability and obligations of the Insurer hereunder shall be satisfied from the funds of the Insurer alone and that the individual shareholders of the Insurer shall have no liability hereunder to the Insured Company or the Insured Persons. L. Headings: The descriptions in the headings and sub-headings of this policy are inserted solely for convenience and do not constitute any part of the terms or conditions hereof. M. Currency: The premiums and any Loss under this policy are payable in United States currency. N. Assignment: Assignment of interest under this policy shall not bind the Insurer unless and until its consent is endorsed hereon. V. DEFINITIONS A. The terms "Wrongful Act" and "Loss" shall have the same meanings in this policy as are attributed to them in the Followed Policy. The terms "Insurer", "Followed Policy", "Underlying Policies", "Policy Period" and "Aggregate Limit of Liability" shall have the meanings attributed to them in the Declarations. B. The term "Insured Persons" shall mean those directors, officers and other individuals insured by the Followed Policy. C. The term "Insured Company" shall mean the entity named in Item 1 of the Declarations and any subsidiaries or affiliates thereof insured by the Followed Policy. D. The term "Policy Year" shall mean the period of one year following the inception of this policy or any anniversary, or, if the time between inception or any anniversary and the termination of this policy is less than one year, the lesser period. If the discovery period hereunder is exercised as a result of the cancellation of or refusal to renew this policy by the Insurer, such period shall be considered a separate Policy Year. If the discovery period is otherwise exercised, such period shall be part of the last Policy Year and not an additional period. E. The term "Underlying Limit" shall mean an amount equal to the aggregate of all limits of liability as set forth in Item 2 of the Declarations for all Underlying Policies, plus the uninsured retention, if any, applicable to the primary insurance as set forth in Item 2 of the Declarations. IN WITNESS WHEREOF, this policy has been mae, entered into and executed by the Insurer in Hamilton, Bermuda as of the date set forth in the Declarations. A.C.E. INSURANCE COMPANY (BERMUDA) LTD. By: /s/CHARLES D. SMITH Charles D. Smith Title: Senior Vice President- Underwriting D & O 12-88 (B) 6 Endorsement No. 1 to A.C.E. Insurance Company (Bermuda) Ltd. Policy No. PG-6797D Insured Company: THE PROCTER & GAMBLE COMPANY CANCELLATION ENDORSEMENT ------------------------ (1 Year Policy) It is agreed and acknowledged that Section IV (F) of this policy is deleted in its entirety. It is further agreed and acknowledged that this policy shall not be subject to Clause 7 (Automatic Extension) of the Followed Policy. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, exclusions or limitations of the above- mentioned policy, except as expressly stated herein. This endorsement is part of such policy and takes effect as of June 30, 1993. /s/CHARLES D. SMITH ------------------------ Authorized Representative ADDITIONAL/RETURN PREMIUM NIL DISCOVERY PERIOD ENDORSEMENT It is agreed and acknowledged that Section IV(A) (Discovery Period) is deleted and replaced in its entirety by the following: IV(A)(1) If the INSURER or the Insured Company cancels or elects not to renew this POLICY, then the INSURED persons or INSURED company shall have the right, upon payment of an additional premium of 100% of the sum of all premiums otherwise paid or due for the POLICY YEAR in which such election is made, to a continuation of the reporting period of this POLICY in respect of any CLAIMS first made against the INSURED persons or INSURED company or any of them during a period (hereinafter referred to as the "Discovery Period") after the end of the Policy Period, but only if the CLAIMS are based on WRONGFUL ACTS alleged to have been committed prior to the end of the POLICY PERIOD. Such CLAIMS shall be deemed to have been made during the last POLICY YEAR provided that notification of each CLAIM is in accordance with Clause IV C below. The right to elect the Discovery Period shall terminate, however, unless written notice of such election together with the additional premium is received by the INSURER within ten (10) days after the end of the POLICY PERIOD. Any premium paid for the Discovery Period is not refundable. (2) The length of the Discovery Period shall be the same amount of time as the length of the POLICY PERIOD, subject to a maximum Discovery Period of one year. (3) The offer by the INSURER of renewal at a premium different from the premiums for the expiring POLICY YEAR shall not constitute an election by the INSURER not to renew this POLICY. (4) The Discovery Period does not reinstate or increase the LIMIT OF LIABILITY of this POLICY. The effective date of this endorsement is June 30, 1993. All other terms and conditions remain unchanged. This endorsement is attached to and made a part of Policy No. PG-6797D of A.C.E. INSURANCE COMPANY (BERMUDA) LTD. Issued to: THE PROCTER & GAMBLE COMPANY Date of Issue: March 15, 1994 End. No. 2 By /s/CHARLES D. SMITH Authorized Representative ADDITIONAL/RETURN PREMIUM NIL CLAUSE III B AMENDATORY ENDORSEMENT ----------------------------------- In consideration of the premium charged it is hereby understood and agreed that Clause IIIB (i) and (ii) is amended to read as follows: B. It is a condition of this policy that the Followed Policies shall be maintained in full effect with solvent insurers during the policy period listed in Item 2 of the Declarations except for any reduction or exhaustion of the aggregate limits contained therein by reason of Loss paid thereunder (as provided for in Section II (C) above). Unless the Insurer otherwise agrees in writing, this policy shall: (i) immediately and automatically terminate on the date any of the Followed Policies ceases to be in full effect; and (ii) automatically terminate 30 days following the date an insurer of any Followed Policy becomes subject to a receivership, liquidation, dissolution, rehabilitation or any similar proceeding or is taken over by any regulatory authority unless the Insured Company obtains replacement coverage for such Followed Policy within such 30 day period. In the event this policy automatically terminates pursuant to this Section III(B), the Insurer shall retain the pro-rata proportion of the premium. Payment or tender of any unearned premium by the Insurer shall not be a condition precedent to the effectiveness of such termination, but such payment shall be made as soon as practicable. The effective date of this endorsement is June 30, 1993 All other terms and conditions remain unchanged. This endorsement is attached to and made a part of Policy No. PG-6797D of A.C.E. INSURANCE COMPANY (BERMUDA) LTD. Issued to: THE PROCTER & GAMBLE COMPANY Date of Issue: March 15, 1994 End No. 3 By /s/CHARLES D. SMITH Authorized Representative END.D.1.-7/91 ADDITIONAL/RETURN PREMIUM $ NIL IT IS UNDERSTOOD AND AGREED THAT SECTION II - A & C IS REPLACED BY THE FOLLOWING: A. IT IS EXPRESSLY AGREED THAT LIABILITY FOR ANY COVERED LOSS WITH RESPECT TO CLAIMS FIRST MADE IN EACH POLICY YEAR SHALL ATTACH TO THE INSURER ONLY AFTER THE INSURERS OF THE UNDERLYING POLICIES, THE INSURED COMPANY AND/OR THE INSURED PERSONS SHALL HAVE PAID, IN THE APPLICABLE LEGAL CURRENCY, THE FULL AMOUNT OF THE UNDERLYING LIMITS FOR SUCH POLICY YEAR. THE INSURER SHALL THEN BE LIABLE TO PAY ONLY COVERED LOSS IN EXCESS OF SUCH UNDERLYING LIMIT UP TO ITS AGGREGATE LIMIT OF LIABILITY AS SET FORTH IN ITEM 5 OF THE DECLARATIONS, WHICH SHALL BE THE MAXIMUM AGGREGATE LIABILITY OF THE INSURER UNDER THIS POLICY WITH RESPECT TO ALL CLAIMS FIRST MADE IN EACH POLICY YEAR AGAINST ALL INSURED PERSONS IRRESPECTIVE OF THE TIME OF PAYMENT BY THE INSURER. C. IN THE EVENT AND ONLY IN THE EVENT OF THE REDUCTION OR EXHAUSTION OF THE UNDERLYING LIMITS BY REASON OF THE INSURERS OF THE UNDERLYING POLICY, THE INSURED COMPANY AND/OR THE INSURED PERSONS PAYING, IN THE APPLICABLE LEGAL CURRENCY, LOSS OTHERWISE COVERED HEREUNDER, THIS POLICY SHALL: (i) IN THE EVENT OF REDUCTION, PAY EXCESS OF THE REDUCED UNDERLYING LIMIT, AND (ii) IN THE EVENT OF EXHAUSTION, CONTINUE IN FORCE AS PRIMARY INSURANCE; PROVIDED ALWAYS THAT IN THE LATTER EVENT THIS POLICY SHALL ONLY PAY EXCESS OF THE RETENTION APPLICABLE TO THE PRIMARY INSURANCE AS SET FORTH IN ITEM 2 OF THE DECLARATIONS, WHICH RETENTION SHALL BE APPLIED TO ANY SUBSEQUENT LOSS IN THE SAME MANNER AS SPECIFIED IN SUCH PRIMARY INSURANCE. NOTHING HEREIN CONTAINED SHALL BE HELD TO VARY, ALTER, WAIVE OR EXTEND ANY OF THE TERMS, CONDITIONS, EXCLUSIONS OR LIMITATIONS OF THE ABOVE-MENTIONED POLICY, EXCEPT AS EXPRESSLY STATED HEREIN. The effective date of this endorsement is June 30, 1993 All other terms and conditions remain unchanged. This endorsement is attached to and made a part of Policy No. PG-6797D of A.C.E. INSURANCE COMPANY (BERMUDA) LTD. Issued to: THE PROCTER & GAMBLE COMPANY Date of Issue: March 15, 1994 End No. 4 By /s/CHARLES D. SMITH Authorized Representative ADDITIONAL/RETURN PREMIUM NIL DIRECTORS AND OFFICERS LIABILITY ENDORSEMENT -------------------------------------------- In consideration of the premium charged it is hereby agreed and acknowledged that coverage afforded by this Policy is only in respect of Directors and Officers Liability and not Company Reimbursement. The effective date of this endorsement is June 30, 1993 All other terms and conditions remain unchanged. This endorsement is attached to and made a part of Policy No. PG-6797D of A.C.E. INSURANCE COMPANY (BERMUDA) LTD. Issued to: THE PROCTER & GAMBLE COMPANY Date of Issue: March 15, 1994 End No. 5 By /s/CHARLES D. SMITH Authorized Representative ADDITIONAL/RETURN PREMIUM NIL In consideration of the premium charged, it is hereby understood and agreed that Item 1 on the declarations "INSURED COMPANY" is amended to include:- "OFFICERS OF OPERATING UNITS OF PROCTER & GAMBLE COMPANY" The effective date of this endorsement is June 30, 1993 All other terms and conditions remain unchanged. This endorsement is attached to and made a part of Policy No. PG-6797D of A.C.E. INSURANCE COMPANY (BERMUDA) LTD. Issued to: THE PROCTER & GAMBLE COMPANY Date of Issue: March 15, 1994 End No. 6 By /s/CHARLES D. SMITH Authorized Representative EX-99.4 13 Exhibit (99-4) -------------- Fiduciary Responsibility Insurance Policy Pension and Welfare Fund Fiduciary Responsibility Insurance Declarations 1. Designated Trust or Plan Policy Number The Procter & Gamble Company 68 FF 100827733 BCA Profit Sharing Trust; etal 2. Mailing Address One Procter & Gamble Plaza, Cincinnati, Ohio 45202 3. Policy Period From 6/30/93 to 6/30/94 12:01 a.m. Standard Time at the Mailing Address Stated in Item 2. 4. Annual Aggregate Limit of Liability Aetna Casualty and Surety Company $20,000,000 part of $30,000,000 Celtic Insurance Company $10,000,000 part of $30,000,000 5. Insurance Representative 6. Premium for the Policy Period $139,100 Gerald L. Leighton Premium Payable to The Aetna Casualty and Surety Company 7. Endorsements made a part of the policy (Designated by Endorsement Number) F-1282, F-1274, F-1401, F-1400, Deductible Endorsement, Impairment of Assets Endorsement, Pollution Exclusion Endorsement, Special Endorsement #1 Countersigned by /s/ROBERT D. LANG PENSION AND WELFARE FUND FIDUCIARY RESPONSIBILITY INSURANCE POLICY THIS IS A CLAIMS MADE POLICY IN CONSIDERATION of the payment of the premium stated in the Declarations and subject to all of the terms, conditions, and limitations of this Policy, the Company agrees as follows: I. INSURING AGREEMENT. The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages on account of any claim made against the Insured for any Wrongful Act and the Company shall have the right and duty to defend such claim against the Insured seeking such Damages, even if any of the allegations of the claim are groundless, false or fraudulent, and may make such investigation and settlement of any claim as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements. II. EXCLUSIONS. This insurance does not apply to any claim: (1) Arising out of any dishonest, fraudulent or criminal act, or willful or reckless violation of any statute, but this exclusion does not apply to a claim upon which suit may be brought by reason of any alleged dishonesty on the part of the Insured, unless: (a) A judgment or other final adjudication thereof adverse to the Insured shall establish that acts of active deliberate dishonesty committed by the Insured was material to the cause of action so adjudicated or (b) The claim is a claim by or on behalf of a fidelity insurer against a natural person whose dishonesty has resulted in a loss which has been paid under a fidelity bond. (2) Arising out of libel or slander; (3) Arising out of bodily injury, sickness, disease or death, or loss of, injury to, destruction of, or loss of use of, any tangible property, including loss of currency, coins, bank notes, bullion, travelers checks, register checks, money orders, and all negotiable and non-negotiable instruments or contracts representing money; (4) Arising out of the Insured's failure to comply with any law concerning Workers' Compensation, Unemployment Insurance, Social Security or Disability Benefits, or any similar law; (5) Arising out of the failure to procure or maintain adequate insurance or bonds on assets or property of the Trust or Employee Benefit Plan designated in the Declarations; (6) Arising out of liability of others assumed by the Insured under any contract or agreement, either oral or written, except in accordance with the Agreement and Declaration of Trust; (7) Arising out of the Insured gaining in fact any personal profit or advantage to which such Insured was not legally entitled or for the return by the Insured of any remuneration paid in fact to such Insured if payment of such remuneration shall be held by the courts to have been in violation of law; (8) For the failure to collect contributions owed to the Trust or Employee Benefit Plan described in the Declarations from employers unless such failure is due to the negligence of the Insured or for the return of any contributions to an employer if such amounts are or could be chargeable to the Trust or Employee Benefit Plan, but this exclusion shall not apply to the Company's obligation to defend such claim nor pay the costs and expenses thereof. III. DEFINITION OF INSURED. Each of the following is an Insured to the extent set forth below: (1) The Trust or Employee Benefit Plan designated in the Declarations and any additional Trust or Employee Benefit Plan created during the policy period by the sole sponsor referred to in Item (2) below, or by any interest owned or controlled by said sole sponsor, provided written notice of such is given to the Company within 90 days. (2) An employer who is the sole sponsor of such Trust or Employee Benefit Plan. (3) Any natural person who at any time holds or shall have held the position of: (a) Trustee of such Trust or Employee Benefit Plan. (b) Director, officer or employee of such Trust or Employee Benefit Plan or of such sole sponsor employer. (4) Any other person or organization designated in the Declarations as a Fiduciary. (5) Any other Trust or Employee Benefit Plan of any firm hereafter acquired through consolidation, merger or takeover by the sole sponsor or by any interest owned or controlled by said sole sponsor, provided: (a) Written notice of such acquisition is given to the Company within 90 days of the effective date of such acquisition, and (b) The Insured pays the Company an additional premium computed pro-rata from the date of such acquisition to the end of the Policy Period, and (c) That specific Application on the Company's form in use at the time of acquisition is made to the Company as soon as practicable after the aforesaid notice is given. The insurance applies separately to each Insured against whom claim is made or suit is brought except with respect to the application of the limits of liability, and it shall also apply to the estates, heirs and personal representatives of persons insured hereunder. IV. OTHER DEFINITIONS. (1) "Wrongful Act" means a breach of fiduciary duty by the Insured in the discharge of duties as respects the Trust or Employee Benefit Plan designated in the Declarations; the term includes any negligent act, error or omission of the Insured in the "Administration" of "Employee Benefits". "Administration" as used herein shall mean: (a) Giving counsel to employees with respect to Employee Benefits; (b) Interpreting Employee Benefits; (c) Handling records in connection with Employee Benefits; (d) Effecting enrollment, termination or cancellation of employees under an Employee Benefits program. "Employee Benefits" as used herein shall mean the Trust or Employee Benefit Plan designated in the Declarations, Workers' Compensation Insurance, Unemployment Insurance, Social Security or Disability Benefits. (2) "Insurance Representative" means the person designated in the Declarations as the exclusive agent to act on behalf of the Insureds, individually or collectively, in all matters relating to insurance under this policy. (3) "Damages" shall mean sums of money payable as compensation for loss or in discharge of an obligation of an Insured to make good a shortage in the Insured Trust or Employee Benefit Plan. The word "Damages" shall not include: (a) Fines, penalties, taxes or punitive or exemplary damage. (b) Benefits due or to become due under the terms of the Trust or Plan, unless and to the extent that recovery for such benefits is based upon a Wrongful Act and is payable as a personal obligation of an Insured. V. POLICY PERIOD: TERRITORY. This insurance applies only to claims first made during the policy period described in the Declarations within the United States of America, its territories or possessions or Canada; provided the Insured at the effective date of this insurance had no knowledge of or could not have reasonably foreseen any circumstances which might result in such claim. VI. LIMITS OF LIABILITY. Regardless of the number of persons or organizations bringing claims or suits against the Insured and regardless of the (F-1191-B) 6-80 2 CAT.796638 PRINTED IN U.S.A. number of persons or organizations insured hereunder, the total limit of the Company's liability to pay Damages because of all claims made against the Insured during any single policy year shall not exceed the amount shown in the Declarations as "Annual Aggregate Limit of Liability", regardless of time of payment. If the policy period described in the Declarations is for a term of more than one year, said "Annual Aggregate Limit of Liability" shall apply separately to each consecutive annual period. VII. CLAIMS MADE EXTENSION CLAUSE. If, during the policy period hereof, the Insured shall first become aware of any Wrongful Act which may subsequently give rise to a claim against any Insured and shall during the policy period hereof give written notice to the Company of such Wrongful Act, then any such claim which is subsequently made against the Insured arising out of such Wrongful Act shall for the purposes of this policy be deemed to have been first made against the Insured during the policy period. VIII. SUPPLEMENTARY PAYMENTS. The Company will pay in addition to the limits of liability shown in the Declarations all costs, charges and expenses incurred by the Company in the investigation, settlement, defense and negotiation of any claim coming within the terms of this insurance, but, in the event of any judgment in excess of the amount of the aggregate limit available under this policy, the Company's liability for the costs and expenses incurred by it or with its consent shall be such proportion thereof as the amount of the aggregate limit available under this policy bears to the amount paid to dispose of the claim. In no event shall the Company be obligated to pay any claim or judgment or to defend or continue the defense of any suit after the aggregate limit of the Company's liability has been exhausted by payment of judgments or settlements. The Company will pay in addition to the Limits of Liability shown in the Declarations reasonable expenses incurred by the Insured at the Company's request. IX. CONSENT TO SETTLE. The Company may, with the written consent of the Insured, make such settlement or such compromise of any claim or suit as the Company deems expedient, and if the Insured shall refuse to consent to the settlement of any claim or suit recommended by the Company, based upon a judgment or a bonafide offer of settlement, the Insured shall thereafter negotiate or defend such claim or suit independently of the Company and on said Insured's own behalf, and in such event the Damages and expenses accruing or determined through litigation or otherwise in excess of the amount for which settlement could have been made as so recommended by the Company shall not be recoverable under this policy. X. EXTENSION CLAUSE. It is agreed that at any time prior to termination or cancellation of this policy as an entirety, whether by the Insured or by the Company, the Insured may give to the Company notice that it desires to be insured for an additional period of twelve (12) months after the effective date of termination or cancellation, at an additional premium of 25% of the premium hereunder, for claims made against the Insured during the said twelve (12) month period by reason of a Wrongful Act committed or alleged to have been committed prior to the effective date of termination or cancellation and which would be otherwise insured by this policy, subject to the following provisions: (a) Such additional period shall be deemed part of the policy period and not an addition thereto; (b) Such additional period of time shall terminate forthwith on the effective date of any other insurance obtained by the Insured or its successors in business, replacing in whole or in part the insurance afforded by this policy. Where such other policy provides no coverage for loss sustained prior to its effective date, it shall not be deemed to be a replacement of this policy. If the policy period described in the Declarations is for a term of more than one year, the maximum premium for this extension shall be 25% of the equivalent annual premium. XI. CONDITIONS. (1) Insureds Duties In The Event Of Occurrence, Claim Or Suit. It is a condition precedent to the application of all insurance afforded herein that: (a) In the event the Insured shall first become aware of any claim or allegation of a Wrongful Act, or any occurrence which might reasonably give rise to such claim or allegation of a Wrongful Act, written notice containing particulars sufficient to identify the Insured and any claimant and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured parties and of available witnesses, shall be given by or for the Insured to the Company or any of its authorized agents as soon as practicable; (b) If claim is made or suit is brought against an Insured, the Insured or Insurance Representative shall immediately forward to the Company every demand, notice, summons or other process received; (c) The Insured shall cooperate with the Company and, upon the Company's request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the Insured because of an act with respect to which insurance is afforded under this policy; and the Insured shall attend hearings and trials and assist in securing and giving evidence and obtaining the attendance of witnesses. The Insured shall not voluntarily assume or admit any liability, nor, except at said Insured's own cost, voluntarily make any payment, assume any obligations or incur any expense without the Company's prior written consent. (2) Action Against The Company. No action shall lie against the Company unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Company. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by this policy. No person or organization shall have any right under this policy to join the Company as a party to any action against the Insured to determine the Insured's liability nor shall the Company be impleaded by the Insured or said Insured's legal representative. Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the Company of any of its obligations hereunder. (3) Other Insurance. This insurance shall apply only as excess insurance over any other valid and collectible insurance available to the Insured. (4) Subrogation. In the event of any payment under this policy, the Company shall be subrogated to all the Insured's rights of recovery therefor against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after loss to prejudice such rights. (5) Changes. Notice to any agent or knowledge possessed by any agent or by any other person shall not effect a waiver or a change in any part of this policy or estop the Company from asserting any right under the terms of this policy, nor shall the terms of this policy be waived or changed, except by endorsement issued to form a part of this policy. (6) Assignment. Assignment of interest under this policy shall not bind the Company until its consent is endorsed hereon; if, however, the Insured shall become incompetent or die, such insurance as is afforded by this policy shall apply to the Insured's legal representative as an Insured, but only while acting within the scope of said Insured's duties as such. (7) Cancellation. This policy may be cancelled on behalf of the Insureds at any time by written notice to the Company. This policy may also be cancelled on behalf of the Company by mailing to the Insurance Representative at the address of the Trust or Plan shown in the Declarations, written notice stating when, not less than thirty (30) days thereafter, the cancellation shall become effective. The mailing of such notice shall be sufficient proof of notice, and this policy shall terminate at the date and hour specified in such notice. 3 If this policy shall be cancelled by the Insureds the Company shall retain the customary short rate proportion of the premium hereon. If this policy shall be cancelled by or on behalf of the Company, the Company shall retain the pro-rata proportion of the premium hereon. Payment or tender of any unearned premium by the Company shall not be a condition precedent to the effectiveness of cancellation, but such payment shall be made as soon as practicable. (8) Declarations. By acceptance of this policy, each Insured agrees that the statements in the Application attached to this policy are said Insured's agreements and representations, that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements existing between said Insured and the Company or any of its agents relating to this insurance. (9) Authorization. By acceptance of this policy, the Insurance Representative agrees to act on behalf of all Insureds with respect to the payment of premiums and the receiving of any return premiums that may become due under this policy, and the receiving of all notices of cancellation, non- renewal or change of coverages and the Insureds agree that they have, individually and collectively, delegated this authority exclusively to the Insurance Representative. Nothing herein shall relieve each Insured from giving any notice to the Company that is required under Condition (1) of the policy. (10) Recourse. In the event that an Insured breaches any fiduciary obligation imposed by the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, it is agreed that the Company has the right of recourse against any such Insured for any amount paid by the Company on account of such a breach of fiduciary obligation, but the Company shall have no such right of recourse if this policy has been purchased by an Employer or by an Employee organization. (11) Liberalization Clause. If during the period that insurance is in force under this policy, or within 45 days prior to the inception date thereof, on behalf of the Company there be adopted, or filed with and approved or accepted by the insurance supervisory authorities, all in conformity with law, any changes in the form attached to this policy by which this form of insurance could be extended or broadened without increased premium charge by endorsement or substitution of form, then such extended or broadened insurance shall inure to the benefit of the Insured hereunder as though such endorsement or substitution of form had been made. IN WITNESS WHEREOF, the Company has caused this policy to be signed by its President and a Secretary at Hartford, Connecticut, and countersigned on the Declarations page by a duly authorized agent of the Company. /s/LOUISE L. MCCORMICK /s/RONALD E. COMPTON Secretary President PENSION AND WELFARE FUND FIDUCIARY RESPONSIBILITY INSURANCE POLICY OMNIBUS NAME OF DESIGNATED TRUST OR PLAN ENDORSEMENT (To be attached to and form part of Pension and Welfare Fund Fiduciary Responsibility Insurance Policy) It is agreed that: 1. From and after the time this endorsement becomes effective, the Name of Designated Trust or Plan referred to in Item 1. of the Declarations is: Any Employee Benefit Plan sponsored by the employer listed in Item 2., below, or jointly-sponsored by said employer and a labor organization, for the exclusive benefit of the employees of said employer; subject, however, to the notice requirement set forth in Section III (5) DEFINITION OF INSURED. 2. Name of employer: The Procter & Gamble Company This endorsement, issued by one of the below named companies, forms a part of the policy to which attached, effective on the inception date of the policy unless otherwise stated herein. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) Endorsement effective 6-30-93 Policy No. 68 FF 100827733 BCA Endorsement No. Name of Designated Trust or Plan The Procter & Gamble Company Profit Sharing Trust; etal Countersigned by /s/ROBERT D. LANG (Authorized Representative) The Aetna Casualty and Surety Company The Standard Fire Insurance Company Hartford, Connecticut 06156 (F-1282) ed. 6-80 CAT.04640A PRINTED IN U.S.A. PENSION AND WELFARE FUND FIDUCIARY RESPONSIBILITY INSURANCE POLICY CONTINUITY OF COVERAGE ENDORSEMENT It is agreed that the policy is amended as follows: 1. By deleting Section V. POLICY PERIOD: TERRITORY. and substituting in lieu thereof the following: V. POLICY PERIOD: TERRITORY. This insurance applies only to claims first made during the policy period described in the Declarations within the United States of America, its territories or possessions or Canada; provided the Insured at the effective date of this insurance, or at the time the Insured first purchased Prior Similar Coverage, had no knowledge of or could not have reasonably foreseen any circumstances which might result in such claim; but this insurance shall not apply to claims arising out of any Wrongful Act of which the Insured became aware while such Prior Similar Coverage was in effect and which was reported to the company which provided such Prior Similar Coverage. 2. By adding to Section IV. OTHER DEFINITIONS. the following new definition: (4) "Prior Similar Coverage" shall mean insurance which provides in whole or in part the insurance afforded by this policy which the Insured has maintained on an uninterrupted basis until the effective date of this policy. This endorsement forms a part of the policy to which attached, effective on the inception date of the policy unless otherwise stated herein. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) Endorsement effective 6-30-93 Policy No. 66 FF 100827733 BCA Endorsement No. Name of Designated Trust or Plan The Procter & Gamble Company Profit Sharing Trust; etal The Aetna Casualty and Surety Company Hartford, Connecticut 06156 Countersigned by /s/ROBERT D. LANG (Authorized Representative) CAT. 007900 (F-1274) ED. 1-80 PRINTED IN U.S.A. PENSION AND WELFARE FUND FIDUCIARY RESPONSIBILITY INSURANCE POLICY ENDORSEMENT FR-1 It is agreed that the policy is amended as follows: 1. By deleting paragraph (1) of Section II. EXCLUSIONS and substituting the following therefor: (1) Arising out of any dishonest, fraudulent or criminal act, or willful violation of any statute, but this exclusion does not apply a claim upon which suit may be brought by reason of any alleged dishonesty on the part of the Insured, unless: 2. By deleting Section X. EXTENSION CLAUSE in its entirety and substituting the following therefor: X. EXTENSION CLAUSE. It is agreed that if the Company terminates or refuses to renew this policy, the Insured may give to the Company notice that it desires to be insured for an additional period of twelve (12) months after the effective date of termination or nonrenewal, provided that written notice of its desire to be insured for said additional period is given to the Company prior to the effective date of termination or nonrenewal of the policy by the Company or within 10 days following the effective date of termination or nonrenewal. If the Insured terminates this policy or declines to accept renewal, the Insured may give to the Company notice that it desires to be insured for an additional period of twelve (12) months after the effective date of termination or nonrenewal, provided that written notice of its desire to be insured for said additional period is given to the Company prior to the effective date of termination or nonrenewal. The Company, at its sole option, may grant further extension periods beyond the twelve (12) months provided for herein. The insurance afforded during any extension period or periods shall apply only to claims made against the Insured during the said extension period or periods by reason of a Wrongful Act committed or alleged to have been committed prior to the effective date of termination or nonrenewal and which would be otherwise insured by this policy, subject to the following provisions: (a) Such additional period shall be deemed part of the policy period and not an addition thereto; (b) Such additional period of time shall terminate forthwith on the effective date of any other insurance obtained by the Insured or its successors in business, replacing in whole or in part the insurance afforded by this policy. Where such other policy provides no coverage for loss sustained prior to its effective date, it shall not be deemed to be a replacement of this policy. The Insured shall pay to the Company an additional premium of 25% of the equivalent annual premium hereunder for each 12 month period of extension. 3. By deleting subsection (1)(a) of Section XI. CONDITIONS and substituting the following therefor: (a) In the event the Insured shall first become aware of any claim or allegation of a Wrongful Act, written notice of such claim or allegation shall be given by or for the Insured to the Company or any of its authorized agents as soon as practicable and the Insured shall give the Company such information concerning such claim or allegation as the Company shall reasonably require. This endorsement forms a part of the policy to which attached, effective on the inception date of the policy unless otherwise stated herein. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) Endorsement effective 6-30-93 Policy No. 68 FF 100827733 BCA Name of Designated Trust or Plan The Procter & Gamble Company Profit Sharing Trust; etal Countersigned by /s/ROBERT D. LANG (Authorized Representative) CAT. 610836 (F-1401) ED. 1-83 PRINTED IN U.S.A. PENSION AND WELFARE FUND FIDUCIARY RESPONSIBILITY INSURANCE POLICY ENDORSEMENT FR-2 It is agreed that the policy is amended as follows: Section I. INSURING AGREEMENT is deleted in its entirety and the following is substituted therefor: I. INSURING AGREEMENT. The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages on account of any claim made against the Insured for any Wrongful Act committed or alleged to have been committed by the Insured or by any natural person for whose Wrongful Act the Insured is legally liable. The Company shall have the right and duty to defend the Insured in any claim seeking pecuniary or nonpecuniary relief for a Wrongful Act even if the allegations of the claim are groundless, false or fraudulent, and may make such investigation and settlement of any claim as it deems expedient, or may, at its sole option, give its written consent to the defense by the Insured of such claim, but the Company shall not be obligated to pay any claim or judgment or to defend any suit, nor pay for the defense of any suit being conducted by the Insured with the Company's written consent, after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements. This endorsement forms a part of the policy to which attached, effective on the inception date of the policy unless otherwise stated herein. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) Endorsement effective 6-30-93 Policy No. 68 FF 100827733 bca Name of Designated Trust or Plan The Procter & Gamble Company Profit Sharing Trust; etal Countersigned by /s/ROBERT D. LANG (Authorized Representative) CAT. 610844 (F-1400) ED. 1-83 PRINTED IN U.S.A. PENSION AND WELFARE FUND FIDUCIARY RESPONSIBILITY INSURANCE POLICY To be attached to and form part of Policy No. 68 FF 100827733 BCA issued to The Procter & Gamble Company Profit Sharing Trust; et al It is agreed that: The attached policy is amended by adding an additional section thereto as follows: "XII DEDUCTIBLE AMOUNT **Twenty Five Thousand and 00/100------ ($25,000.00) (hereinafter referred to as Deductible Amount) shall be deducted from the amount of each claim covered hereunder, including all expense incurred, and the Company shall be liable only in excess of such Deductible Amount. Claims based on or arising out of the same Wrongful Act or interrelated Wrongful Acts of one or more of the Insureds shall be considered a single claim and only one Deductible Amount shall be applied to each single claim. Subject to Section IX, CONSENT TO SETTLE, of the attached policy, the Company may pay any part or all of the Deductible Amount to effect settlement of any claim or suit and upon notification of the action taken, the Insured shall promptly reimburse the Company for such part of the Deductible Amount as has been paid by the Company. **This Endorsement has been amended as follows: The Deductible is to apply to defense costs only. THE AETNA CASUALTY AND SURETY COMPANY By: /s/ROBERT D. LANG Authorized Representative Accepted by: _____________________________ Insurance Representative (Excess over an underlying amount) ENDORSEMENT To be attached to and form part of Policy No. 68 FF 100827733 BCA issued to The Procter & Gamble Company Profit Sharing Trust; etal It is agreed that: 1. Section II of the attached policy, Exclusions, is amended by adding the following exclusion: (9) Arising out of plan terminations or restructures alleging impairment of assets, or alleging wrongful distribution of plan assets. This endorsement forms a part of the policy to which attached, effective on the inception date of the policy unless otherwise stated herein. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) Endorsement effective Policy No. Name of Designated Trust or Plan Countersigned by /s/ROBERT D. LANG (Authorized Representative) Accepted by: _______________________________ Insurance Representative TO EXCLUDE LOSS ALLEGING IMPAIRMENT OR WRONGFUL DISTRIBUTION OF ASSETS CAT. 852716 (F-2036) ED.11-89 PRINTED IN U.S.A. ENDORSEMENT To be attached to and form part of Policy No. 68 FF 100827733 BCA issued to The Procter & Gamble Company Profit Sharing Trust; etal It is agreed that: 1. Section II of the attached policy, EXCLUSIONS, is amended by adding the following exclusion: (10) Based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving, actual or alleged seepage, pollution or contamination of any kind. This endorsement forms a part of the policy to which attached, effective on the inception date of the policy unless otherwise stated herein. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) Endorsement effective Policy No. Name of Designated Trust or Plan Countersigned by /s/ROBERT D. LANG (Authorized Representative) Accepted by: _______________________________ Insurance Representative POLLUTION EXCLUSION ENDORSEMENT CAT.85266A (F-2035) ED.11-89 PRINTED IN U.S.A. SPECIAL ENDORSEMENT #1 To be attached to and form part of Policy 68 FF 100827733 BCA issued by The Aetna Casualty and Surety Company (hereinafter called Controlling Company) in favor of The Procter & Gamble Profit Sharing Trust; et al. It is agreed that: 1. The term "Underwriter" as used in the attached policy shall be construed to mean, unless otherwise specified in this rider, all the Companies executing the attached policy. 2. Each of said Companies shall be liable for such proportion of any loss under the attached policy as the amount underwritten by such Company as specified in the Schedule forming a part hereof, bears to the Annual Aggregate Limit of Liability of the attached policy. 3. Each of said Companies shall be liable for any payments made pursuant to Section VIII, Supplementary Payments in proportion for which each Companies' respective Limit of Liability bears to the Annual Aggregate Limit of the policy. 4. In the absence of a request from any of said Companies to pay premiums directly to it, premiums for the attached policy may be paid to the Controlling Company for the account of all of said Companies. 5. In the absence of a request from any of said Companies that notice of claim and proof of loss be given to or filed directly with it, the giving of such notice to and the filing of such proof with, the Controlling Company shall be deemed to be in compliance with the conditions of the attached policy for the giving of notice of loss and the filing of proof of loss, if given and filed in accordance with said conditions. 6. The Controlling Company may give notice in accordance with the terms of the attached policy, terminating or canceling the attached policy, and any notice so given shall terminate or cancel the liability of all of said Companies. 7. Any Company other than the Controlling Company may give notice in accordance with the terms of the attached policy, terminating or canceling the entire liability of such other Company under the attached policy. 8. In the absence of a request from any of said Companies that notice of termination or cancellation by the Insured of the attached policy in its entirety be given to or filed directly with it, the giving of such notice in accordance with the terms of the attached policy to the Controlling Company shall terminate or cancel the liability of all of said Companies as an entirety. The giving of notice for termination or cancellation in accordance with the terms of the attached bond to any Companies shall terminate or cancel the liability of the Controlling Company. 9. In the event of the termination or cancellation of the attached policy as an entirety, no Company shall be liable to the 68 FF 100827733 BCA Insured for a greater proportion of any return premium due the Insured than the amount underwritten by such Company bears to the Annual Aggregate Limit of Liability of the attached policy. 10. In the event of the termination or cancellation of the attached policy as to any Company, such Company alone shall be liable to the Insured for any return premium due the Insured on account of such termination or cancellation. The termination or cancellation of the attached policy as to any Company other than the Controlling Company shall not terminate, cancel or otherwise affect the liability of the other Companies under the attached policy. 11. This rider shall become effective as of 12:01 a.m. on 6/30/93 standard time. Underwritten for the sum of $20,000,000 except as follows: Controlling Company By: The Aetna Casualty and Surety Company Attest: /s/DANIEL A. WALLA Underwritten for the sum of $10,000,000 except as follows: By: Celtic Insurance Company Attest: Accepted: Insured By: The Procter & Gamble Company; etal THE PROCTER & GAMBLE COMPANY Cincinnati, Ohio AUTHORIZE GUARANTEE OF OBLIGATIONS OF - - --------- --------- -- ----------- -- CELTIC INSURANCE COMPANY, LTD. AND - - ------ --------- -------- ---- --- OTHER CAPTIVE INSURANCE COMPANIES: - - ----- ------- --------- --------- RESOLVED, That this Company is here by authorized to act as the Guarantor of the obligations of Celtic Insurance Company, Ltd. and other captive insurance companies, provided that such obligations are limited to those arising out of insurance coverage provided to this Company and its affiliated companies or to selected contractors while they are providing services to this Company and its affiliated companies and provided further that this Company shall only act as a Guarantor to the extent that and for so long as it is able to limit its exposure for any single occurrence to Twenty- Five Million Dollars ($25,000,000) through the purchase from non-affiliated companies of excess liability coverage; and RESOLVED FURTHER, That the appropriate officers of this Company are hereby authorized and directed to do or cause to be done all acts and things, and to make, execute and deliver all such statements, documents, agreements and instruments as they deem necessary or appropriate to fully effectuate the foregoing resolution. I, Rita M. Neago, Assistant Secretary of The Procter & Gamble Company do hereby certify that the above resolution was approved by the Board of Directors of The Procter & Gamble Company on December 8, 1992 and that said resolution is still in full force and effect. /s/RITA M. NEAGO Assistant Secretary Cincinnati, Ohio December 10, 1992 -----END PRIVACY-ENHANCED MESSAGE-----