-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ItHciiqFIx1dWEj4ST2MdoU4QFXM76AXilcZtlSwFo9m4O17JeahkdRxVSpJTxp5 WDdvnd4r+vYxTgPhQns2WQ== 0000080424-97-000062.txt : 19970912 0000080424-97-000062.hdr.sgml : 19970912 ACCESSION NUMBER: 0000080424-97-000062 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970910 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROCTER & GAMBLE CO CENTRAL INDEX KEY: 0000080424 STANDARD INDUSTRIAL CLASSIFICATION: SOAP, DETERGENT, CLEANING PREPARATIONS, PERFUMES, COSMETICS [2840] IRS NUMBER: 310411980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00434 FILM NUMBER: 97677990 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, 1997 ****************************************** UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ----------------------------------------------------------------------- ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 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 1,350,318,252 shares of Common Stock outstanding as of August 8, 1997 (restated for two-for-one stock split effective August 22, 1997). The aggregate market value of the voting stock held by non-affiliates amounted to $104 billion on August 8, 1997. Documents Incorporated By Reference ----------------------------------- Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 1997 are incorporated by reference into Part I and Part II of this report. Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. PART I ------ Item 1. Business. --------- General Development of Business ----------------------------------------- The Procter & Gamble Company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. Today, the Company manufactures and markets a broad range of consumer products in many countries throughout the world. 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 herein by reference to the Letter to Shareholders, which appears on pages 2-3, Management Q&A on pages 4-5, Procter and Gamble at a Glance on pages 6-7, and We Make Every Day Better, which appears on pages 8-17 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Financial Information About Industry Segments --------------------------------------------- The Company's products fall into five business segments: Laundry and Cleaning, Paper, Beauty Care, Food and Beverage, and Health Care. Additional information required by this item is incorporated herein by reference to Note 11 Segment Information of the Notes to the Consolidated Financial Statements, which appears on pages 43 and 44, and Financial Review, which appears on pages 22-29 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Narrative Description of Business --------------------------------- The Company's business, represented by the aggregate of its Laundry and Cleaning, Paper, Beauty Care, Food and Beverage, and Health Care segments, is essentially homogeneous. For the most part, the factors necessary for an understanding of these five 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. Most of the Company's products in each of its segments are distributed through grocery stores and other retail outlets. The Laundry category and Diaper category constitute approximately 21% and 12% of consolidated fiscal 1997 sales, respectively. These categories constituted approximately the same percentages of consolidated sales in the preceding two fiscal years. 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. 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 trademarks of all major products in each segment are registered. 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. Additionally, some raw materials, primarily chemicals, are produced by the Company for further use in the manufacturing process. The Company purchases and produces a substantial variety of raw materials, no one of which is material to the Company's business taken as a whole. Expenditures in fiscal year 1997 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 1998. Operations outside the United States 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 economic growth. The effect of these additional elements is less significant in the Food and Beverage segment than in the Company's other business segments. The Company has approximately 106,000 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 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 from the Company. Such a default is not likely to occur and therefore there is little likelihood that there would not 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, 1997 are incorporated by reference to Note 7 Postretirement Benefits and Note 8 Employee Stock Ownership Plan, which appear on pages 41-42 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Additional information required by this item is incorporated herein by reference to Note 11 Segment Information, which appears on pages 43 and 44, Note 1 Summary of Significant Accounting Policies - Major Customer on page 37, Financial Highlights, which appears on page 45, and Financial Review, which appears on pages 22-29 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Financial Information About Foreign and Domestic Operations ----------------------------------------------------------- The information required by this item is incorporated herein by reference to Note 11 Segment Information, which appears on pages 43 and 44, and Financial Review, which appears on pages 22-29 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Item 2. Properties. ----------- In the United States, the Company owns and operates manufacturing facilities at 35 locations in 20 states. In addition, it owns and operates 85 manufacturing facilities in 43 other countries. Laundry and Cleaning products are produced at 43 of these locations; Paper products at 38; Health Care products at 23; Beauty Care products at 43; and Food and Beverage products at 13. Management believes 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, 1997 representing the Company's probable future costs that can be reasonably estimated was $9 million. 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 8, 1997 are: Elected to Present Name Position Age Position - ----------------------- -------------------------------- ----- --------- John E. Pepper Chairman of the Board and 59 1995 Chief Executive. Director since June 12, 1984. Durk I. Jager President and Chief 54 1995 Operating Officer. Director since December 12, 1989. Wolfgang C. Berndt Executive Vice President. 54 1995 Harald Einsmann Executive Vice President. 63 1995 Director since June 10, 1991. Alan G. Lafley Executive Vice President. 50 1995 Jorge P. Montoya Executive Vice President. 51 1995 Benjamin L. Bethell Senior Vice President. 57 1991 Robert T. Blanchard Group Vice President. 52 1991 Gordon F. Brunner Senior Vice President. 58 1987 Director since March 1, 1991. Bruce L. Byrnes Group Vice President. 49 1991 R. Kerry Clark Group Vice President. 45 1995 Larry G. Dare Group Vice President. 57 1990 Stephen P. Donovan, Jr. Group Vice President. 56 1986 Todd A. Garrett Senior Vice President. 55 1996 Jacobus Groot Group Vice President. 46 1995 James J. Johnson Senior Vice President and 50 1992 General Counsel. Jeffrey D. Jones Group Vice President. 44 1992 Mark D. Ketchum Group Vice President. 47 1996 Fuad O. Kuraytim Group Vice President. 56 1995 Gary T. Martin Senior Vice President. 52 1991 Claude L. Meyer Group Vice President. 54 1995 Lawrence D. Milligan Senior Vice President. 61 1990 Erik G. Nelson Senior Vice President. 57 1993 Martin J. Nuechtern Group Vice President. 43 1997 John O'Keeffe Group Vice President. 47 1995 Charlotte R. Otto Senior Vice President. 43 1996 Dimitri Panayotopoulos Group Vice President. 45 1997 Herbert Schmitz Group Vice President. 60 1995 Robert L. Wehling Senior Vice President. 58 1994 Edwin H. Eaton, Jr. Vice President and Comptroller. 58 1987 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 information required by this item is incorporated by reference to Shareholder Information, which appears on page 48 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Item 6. Selected Financial Data ----------------------- The information required by this item is incorporated by reference to Financial Highlights, which appears on page 45 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ---------------------------------------------------------------- The information required by this item is incorporated by reference to Financial Review, which appears on pages 22-29, Note 10 Commitments and Contingencies, which appears on page 43, and Note 11 Segment Information, which appears on pages 43 and 44 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. The Company has made certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 1997, and will make such statements in other contexts, relating to volume growth, increases in market shares, total shareholder return and cost reduction, among others. These forward-looking statements represent challenging goals for the Company and are based on certain assumptions and estimates regarding the worldwide economy, technological innovation, competitive activity, interest rates, pricing, currency movements, product introductions, governmental action, and the development of certain markets. Some examples of key factors necessary to achieve the Company's goals are: 1) the ability to improve results in the face of strong competition, 2) the ability to reduce costs, in part via the ongoing simplification and standardization porgram, funded within existing budget targets, 3) the successful completion of the implementation of ECR and the ability to maintain key customer relationships in the important developed markets, 4) the continuation of substantial growth in significant developing markets such as China, Mexico, the Southern Cone of Latin America and the countries of Central and Eastern Europe, 5) obtaining successful outcomes in regulatory and tax matters, 6) the ability to continue technological innovation, 7) the avoidance of adverse foreign currency movements. If the Company's assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all these key factors, then the Company's actual performance could vary materially from the forward-looking statements made herein. Item 8. Financial Statements and Supplemental Data ------------------------------------------ The financial statements and supplemental data are incorporated by reference to pages 31-45 of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. 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 2-8 and 21 of the proxy statement filed since the close of the fiscal year ended June 30, 1997, pursuant to Regulation 14A which involved the election of directors. Pursuant to Item 401(b) of Regulation -K, Executive Officers of the Registrant are reported in Part I of this report. Item 11. Executive Compensation ---------------------- The information required by this item is incorporated by reference to pages 9-16 of the proxy statement filed since the close of the fiscal year ended June 30, 1997, 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 18-20 of the proxy statement filed since the close of the fiscal year ended June 30, 1997, 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 21 of the proxy statement filed since the close of the fiscal year ended June 30, 1997, 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 statements of earnings -- for years ended June 30, 1997, 1996 and 1995 - Consolidated balance sheets -- as of June 30, 1997 and 1996 - Consolidated statements of shareholders' equity -- for years ended June 30, 1997, 1996 and 1995 - Consolidated statements of cash flows -- for years ended June 30, 1997, 1996 and 1995 - Notes to consolidated financial statements 2. Financial Statement Schedules: These schedules 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 (Incorporated by reference to Exhibit (10-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 1994). (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 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). (10-7) -- The Procter & Gamble 1993 Non-Employee Directors' Stock Plan which was adopted by the shareholders at the annual meeting on October 11, 1994 and which was amended on January 10, 1995, by the Board of Directors, and ratified by the shareholders at the annual meeting on October 10, 1995, and which was further amended by the Board of Directors on June 11, 1996 to be effective on January 1, 1997. (10-8) -- 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 (Incorporated by reference to Exhibit (10-9) of the Company's Annual Report on Form 10-K for the year ended June 30, 1994). (10-9) -- The Procter & Gamble Executive Group Life Insurance Policy (Additional Policy) (Incorporated by reference to Exhibit 10-10 of the Company's Annual Report on Form 10-K for the year ended June 30, 1996). Exhibit (11) -- Computation of earnings per share. Exhibit (12) -- Computation of ratio of earnings to fixed charges. Exhibit (13) -- Annual Report to Shareholders. (Pages 2-17, 22-45, 48) 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 (Incorporated by reference to Exhibit 99-1 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/00). (99-2) -- Directors and Officers (First) Excess Liability Policy (the "Policy Period" has been extended to 6/30/98). (99-3) -- Directors and Officers (Second) Excess Liability Policy (Incorporated by reference to Exhibit 99-3 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/98). (99-4) -- Directors and Officers (Third) Excess Liability Policy (the "Policy Period" has been extended to 6/30/98). (99-5) -- Directors and Officers (Fourth) Excess Liability Policy (Incorporated by reference to Exhibit 99-5 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/98). (99-6) -- Fiduciary Responsibility Insurance Policy (Incorporated by reference to Exhibit 99-6 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/98). 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 B. Reports on Form 8-K: The Company filed Current Reports on Form 8-K containing information pursuant to Item 9 entitled "Sales of Equity Securities Pursuant to Regulations," dated May 15, 1997, May 29, 1997, June 16, 1997, June 27, 1997, July 11, 1997, July 22, 1997, August 27, 1997 and September 2, 1997 and an Amended Form 8-K on December 3, 1996. Also the Company filed a Current Report on Form 8-K pursuant to Item 5 entitled "Other Events" and Item 7 "Financial Statements and Exhibits" dated July 8, 1997 containing a press release by the Company declaring a two-for-one stock split and dividend increase. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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/JOHN E. PEPPER --------------------------------------- John E. Pepper Chairman of the Board and Chief Executive September 9, 1997 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/JOHN E. PEPPER Chairman of the Board and | - ------------------------- Chief Executive and Director | (John E. Pepper) (Principal Executive Officer) | | /s/ERIK G. NELSON Senior Vice President | - ------------------------- (Principal Financial Officer) | (Erik G. Nelson) | | /s/EDWIN H. EATON, JR. Vice President and Comptroller | - ------------------------- Principal Accounting Officer) | (Edwin H. Eaton, Jr.) September 9, 1997 | /s/EDWIN L. ARTZT | - ------------------------- Director | (Edwin L. Artzt) | | /s/NORMAN R. AUGUSTINE | - ------------------------- Director | (Norman R. Augustine) | | /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) | | /s/RICHARD J. FERRIS | - ------------------------- Director | (Richard J. Ferris) | | /s/JOSEPH T. GORMAN | - ------------------------- Director September 9, 1997 (Joseph T. Gorman) | | /s/DURK I. JAGER | - ------------------------- Director | (Durk I. Jager) | | /s/CHARLES R. LEE | - ------------------------- Director | (Charles R. Lee) | | /s/LYNN M. MARTIN | - ------------------------- Director | (Lynn M. Martin) | | /s/JOHN C. SAWHILL | - ------------------------- Director | (John C. Sawhill) | | /s/JOHN F. SMITH, JR. | - ------------------------- Director | (John F. Smith, Jr.) | | /s/RALPH SNYDERMAN | - ------------------------- Director | (Ralph Snyderman) | | /s/ROBERT D. STOREY | - ------------------------- Director September 9, 1997 (Robert D. Storey) | | | - ------------------------- Director | (Marina v.N. Whitman) | -----| 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 (Incorporated by reference to Exhibit (10-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 1994). (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 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). (10-7) -- The Procter & Gamble 1993 Non-Employee Directors' Stock Plan which was adopted by the shareholders at the annual meeting on October 11, 1994 and which was amended on January 10, 1995, by the Board of Directors, and ratified by the shareholders at the annual meeting on October 10, 1995, and which was further amended by the Board of Directors on June 11, 1996 to be effective on January 1, 1997. (10-8) -- 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 (Incorporated by Reference to Exhibit (10-9) of the Company's Annual Report on Form 10-K for the year ended June 30, 1994). (10-9) -- The Procter & Gamble Executive Group Life Insurance Policy (Additional Policy) (Incorporated by reference to Exhibit 10-10 of the Company's Annual Report on Form 10-K for the year ended June 30, 1996). Exhibit (11) -- Computation of earnings per share. Exhibit (12) -- Computation of ratio of earnings to fixed charges. Exhibit (13) -- Annual Report to Shareholders. (Pages 2-17, 22-45, 48) 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 (Incorporated by reference to Exhibit 99-1 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/00). (99-2) -- Directors and Officers (First) Excess Liability Policy (the "Policy Period" has been extended to 6/30/98). (99-3) -- Directors and Officers (Second) Excess Liability Policy (Incorporated by reference to Exhibit 99-3 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/98). (99-4) -- Directors and Officers (Third) Excess Liability Policy (the "Policy Period" has been extended to 6/30/98). (99-5) -- Directors and Officers (Fourth) Excess Liability Policy (Incorporated by reference to Exhibit 99-5 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/98). (99-6) -- Fiduciary Responsibility Insurance Policy (Incorporated by reference to Exhibit 99-6 of the Company's Annual Report on Form 10-K for the year ended June 30, 1995) (the "Policy Period" has been extended to 6/30/98). EX-11 2 EXHIBIT (11)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Computation of Earnings Per Share (Restated for two-for-one stock split effective August 22, 1997) ------------------------------------------- Dollars and Share Amounts in Millions Years Ended June 30 --------------------------------------------- NET EARNINGS PER SHARE 1993 1994 1995 1996 1997 - ---------------------- ------- ------- ------- -------- ------- Net Earnings/(Loss) $ (656) $ 2,211 $ 2,645 $ 3,046 $ 3,415 Deduct preferred stock dividends 102 102 102 103 104 -------- -------- -------- -------- -------- Net Earnings/(Loss) Applicable to Common Stock (758) 2,109 2,543 $ 2,943 $ 3,311 - ---------------------------------------------- Average number of common shares outstanding 1,360.8 1,366.2 1,372.0 1,372.6 1,360.3 Per Share - --------- Net earnings before prior years' effect of accounting changes $ 0.12 Prior year effect of accounting changes $ (.68) Net Earnings/(Loss) per share $ (0.56) $ 1.54 $ 1.85 $ 2.14 $ 2.43 NET EARNINGS PER SHARE ASSUMING FULL DILUTION - ------------------------------- Net Earnings/(Loss) $ (656) $ 2,211 $ 2,645 $ 3,046 $ 3,415 Deduct differential -- preferred vs. common dividends 57 51 45 39 32 -------- -------- -------- -------- -------- Net Earnings/(Loss) Applicable to Common Stock (713) 2,160 2,600 3,007 3,383 - ---------------------------------------------- Average number of common shares outstanding 1,360.8 1,366.2 1,372.0 1,372.6 1,360.3 Add potential effect of: Exercise of options 14.4 12.0 17.0 19.8 24.8 Conversion of preferred stock 109.4 107.8 105.6 103.8 101.9 -------- -------- -------- -------- -------- Average number of common shares outstanding, assuming full dilution 1,484.6 1,486.0 1,494.6 1,496.2 1,487.0 Per Share Assuming full dilution - -------------------------------- Net earnings before prior years' effect of accounting changes $ 0.15 Prior year effect of accounting changes $ (.63) Net Earnings/(Loss) $ (0.48) $1.45 $ 1.74 $ 2.01 $ 2.28
EX-12 3 EXHIBIT (12)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Computation of Ratio of Earnings to Fixed Charges ------------------------------------------------- Millions of Dollars Years Ended June 30 --------------------------------------------------- 1993 1994 1995 1996 1997 ------ ------ ------ ------ ------ EARNINGS AS DEFINED - ------------------- Earnings from operations before income taxes after eliminating undistributed earnings of equity method investees $ 294 $3,307 $4,022 $4,695 $5,274 Fixed charges, excluding capitalized interest 631 569 571 576 534 ------ ------ ------ ------ ------ TOTAL EARNINGS, AS DEFINED $ 925 $3,876 $4,593 $5,271 $5,808 ====== ====== ====== ====== ====== FIXED CHARGES, AS DEFINED - ------------------------- Interest expense (including capitalized interest) $ 577 $ 501 $ 511 $ 493 $ 457 1/3 of rental expense 79 87 83 92 77 ------ ------ ------ ------ ------ TOTAL FIXED CHARGES, AS DEFINED $ 656 $ 588 $ 594 $ 585 $ 534 ====== ====== ====== ====== ====== RATIO OF EARNINGS TO FIXED CHARGES 1.4 6.6 7.7 9.0 10.9
EX-13 4 TO OUR SHAREHOLDERS: (Top of page 2 - Picture of John E. Pepper and Durk I. Jager) EVERY DAY in more than 70 countries around the world, P&G people ask themselves how they can make life better for the billions of consumers who use and trust our products. And every year, our Company's growth assures us that we are answering that question with the quality, innovation and value that consumers expect and deserve - and with results that benefit you, our shareholders. This past year was no exception. We achieved record unit volume, sales and net earnings. Operating cash flow reached a record $5.9 billion - an increase of roughly 40% over the prior year. And our net earnings margin improved to its highest level in 47 years. The stock market recognized this strong performance, helping to push our Total Shareholder return to 38% per year over the last three years. And we finished the year by announcing a two-for-one stock split and a 12% increase in the common share dividend. FOCUSED ON THE FUTURE Of course, past performance is only a foundation to build upon - and we are focused on the future. One example is our recent acquisition of Tambrands and its market-leading tampon brand, Tampax. The tampon category is a $2 billion market - and a 44% global share, Tampax is by far the world leader. We're confident we can apply the experience we've gained in feminine protection, through our Always and Whisper feminine pad brands, and apply it to make Tampax an even stronger global leader. Our entry into new categories like this represents one of many ways in which we are pursuing our ambitious growth goals: - - To double our business in 10 years - - To grow share sin categories representing the majority of our volume - - To remain consistently among the top third of our peer companies in Total Shareholder Return THE MOST CHALLENGING GOALS EVER These are the most challenging goals in our history - and they should be, because our Company's growth potential has never been greater. To capture this potential, we'll need to accelerate the pace of sales and volume growth, while maintaining the double-digit earnings growth and strong cash flow performance that we have delivered over the past several years. PRIORITIES FOR GROWTH We plan to meet this challenge by focusing on five priorities. 1. EXPANDING P&G'S LEADERSHIP IN CORE CATEGORIES. We are focusing on the premium tier of our categories with products based on breakthrough, consumer-preferred technologies. This makes sense: P&G's point of distinction has long been our ability to bring truly superior products to market. 2. EXPANDING P&G'S LEADERSHIP IN EMERGING MARKETS. Today, in North America and Western Europe, for example, Procter & Gamble sells $40 worth of our brands annually for every man, woman and child. This compares to $2 in the remainder of the world. Clearly, the opportunity to grow in these markets is extraordinary. 3. CREATING NEW GLOBAL BUSINESSES. We intend to build more new global brands in the next decade than ever before. Some of these businesses will be in categories in which we already have a strong foundation: Snacks, tissue/ towel and Health Care. Other new brands and categories are in development and will start to reach the market in 1997/98. 4. CONTINUING TO CAPITALIZE ON THE SCALE OF OUR OPERATIONS. Our company-wide efforts to simplify and standardize products and operations helped us save more than $1 billion in costs in the last year along - and we will continue to look for ways to operate more efficiently. But cost savings aren't the only benefit. We also leverage our scale by sharing our best technologies and ideas through our regional and global organizations - which helps us build stronger brands around the world. 5. REMAINING THE CONCEPTUAL AND INTELLECTUAL LEADERS OF OUR INDUSTRY. For example, P&G has redefined the way we work with retail customers. Historically, retailers and manufacturers often approached each other as adversaries. Today, we and our customers are pioneering the use of common analytic systems, shared information resources and mutual business goals - to better serve the one customer we both share: the consumer. This new way of working is changing the way we go to market around the world. WE MAKE EVERY DAY BETTER. We're confident in these priorities, but we know we have our work cut out for us. We have the organization to do it - an extraordinary group of 106,000 committed men and women around the world who feel an enormous sense of ownership for the business and a passionate commitment to excel and to win...a commitment to make every day better for as many people as possible, in every way we can. /S/JOHN E. PEPPER John E. Pepper Chairman and Chief Executive /S/DURK I. JAGER Durk I. Jager President and Chief Operating Officer (Top of page 4 - Picture of John E. Pepper with caption "John Pepper answers a couple of commonly asked questions." /S/JOHN E. PEPPER) Q: Where do you anticipate your projected sales growth will come from over the next decade? A: We are setting out to double our business in the next decade. About 40% of this growth will come from our strongest core businesses - Laundry, Hair Care, Feminine Protection and Diapers. An additional 20-25% will be generated by our growth in key developing markets, including Eastern Europe, China and the Southern Cone of Latin America. The balance will come from totally new categories, which we are working at record levels to create. The balance will also come from the expansion of our strongest emerging global categories, such as Snacks, Tissue/Towel and several areas in health Care. Q: What role will acquisitions play in your growth strategies? A: We expect acquisitions to be a factor in all of our growth areas: core businesses, developing markets, new categories and new brands. For example, our recent acquisition of Tambrands will certainly help stimulate continued growth in Feminine Protection - in which P&G is already the world leader. The addition of the Bombril laundry business will help achieve our growth goals in the Southern Cone of Latin America. And the Baby Fresh baby wipes brand we acquired in 1996 is helping us enter this important new category. You can expect P&G to continue seeking acquisition opportunities like these. (Middle of pages 4 and 5 the following caption: "How do you create value? Increased consumer satisfaction leads to brand loyalty; brand loyalty drives growth; growth creates value.") (Top of page 4 - Picture of Durk I. Jager with caption "Durk Jager fields two more inquiries." /S/DURK I. JAGER) Q: Is it realistic to think that you can continue to build profit margins during the come decade? A: Absolutely. The greatest opportunities exist in our ability to leverage the scale of our regional operations and global businesses. For example, we're now in the midst of "regionalizing" our North American business: creating common packages, products and marketing elements that can be used throughout the United States and Canada. Nearly two-thirds of all our Canadian and U.S. packages are now in common sizes. The diaper category alone illustrates the kinds of benefits we can reap from this work. We've achieved savings of several million dollars, reduced inventory and improved customer service levels. We will pursue opportunities like this around the world. Q: What are you doing to accelerate the pace of breakthrough innovation needed to build core and new businesses: A: There is more innovative work underway at P&G today than at any time I can remember. We are creating product advantages that are important and obvious to consumers - and quickly globalizing those product ideas. We are increasing our innovative capacity by simplifying and standardizing product and package designs, which allows us to make better use of our worldwide resources. Finally, we are filling the upstream product pipeline with truly breakthrough ideas in existing businesses and in totally new categories. PROCTER & GAMBLE AT A GLANCE PRODUCT SECTORS - LAUNDRY & CLEANING (Page 6 left-hand margin - Picture of a lady with hands resting on top of a box of Tide.) PRODUCT LINES - Laundry detergents and bleaches, fabric conditioners, household cleaners and dishwashing detergents. KEY BRANDS - Ace Bleach, Ariel, Bounce, Cascade, Cheer, Comet, Dawn, Downy, Fairy, Joy, Lenor, Mr. Clean, Tide PRODUCT NEWS - For the first time ever, P&G enhanced all of its major U.S. laundry detergent brands at once, with new Ultra 2 power versions of Tide, Cheer, Gain, Ivory Snow and Dreft, among others. REVENUE CONTRIBUTION BY SECTOR - Pie chart showing $10.9 billion revenue contribution by Laundry & Cleaning. PRODUCT SECTORS - PAPER (Page 6 left-hand margin - Picture of a young girl holding a box of Always.) PRODUCT LINES - Feminine protection products, diapers, facial tissue, toilet tissue, paper towels, baby wipes and incontinence products. KEY BRANDS - Always, Whisper, Bounty, Charmin, Pampers PRODUCT NEWS - We introduced our new Pampers Premium diaper in the U.S. and Europe. Revolutionary side panels allow air to pass through the diaper, which keeps babies' skin drier. REVENUE CONTRIBUTION BY SECTOR - Pie chart showing $10.1 billion revenue contribution by Paper. PRODUCT SECTORS - BEAUTY CARE (Page 6 left-hand margin - Picture of a lady holding a bottle of Oil of Olay.) PRODUCT LINES - Facial cleansers and moisturizers, hand-and-body lotions, personal cleansing products, color and skin care cosmetics, deodorants, shampoos, hair conditioners, hair sprays, men's and women's fragrances. KEY BRANDS - Clearasil, Cover Girl, Head & Shoulders, Ivory, Max Factor, Oil of Olay, Old Spice, Pantene Pro-V, Pert Plus, Rejoice, Safeguard, Secret, SK-II, Vidal Sassoon, Zest PRODUCT NEWS - P&G introduced its new Oil of Olay Age Defying Series in North America, Europe and Asia. The new products use patented beta hydroxy technology to gently remove older skin and reveal fresher skin. REVENUE CONTRIBUTION BY SECTOR - Pie chart showing $7.1 billion revenue contribution by Beauty Care. PRODUCT SECTORS - FOOD & BEVERAGE (Page 6 left-hand margin - Picture of a man with a can of Folgers Coffee.) PRODUCT LINES - Coffee, snacks, baking mixes, juices, shortening, cooking oil, peanut butter. KEY BRANDS - Crisco, Duncan Hines, Folgers, Hawaiian Punch, Jif, Pringles, Punica, Sunny Delight PRODUCT NEWS - P&G expanded Sunny Delight into Canada and the U.K. Sunny Delight, which currently sells more than one billion bottles per year, is the #1 chilled juice drink in the U.S. REVENUE CONTRIBUTION BY SECTOR - Pie chart showing $4.1 billion revenue contribution by Food & Beverage. PRODUCT SECTORS - HEALTH CARE (Page 6 left-hand margin - Picture of a lady holding a box of Vicks Noctyl.) PRODUCT LINES - Cold, decongestant, allergy, sinus and stomach remedies, dentifrice products, toothbrushes, mouthwash products, denture adhesives, throat drops. Pharmaceuticals: anti-infective, bone, cardiac, gastrointestinal, hormone replacement. KEY BRANDS - Blend-A-Med, Crest, Didronel, NyQuil, Vicks Formula 44, Vicks VapoRub PRODUCT NEWS - P&G introduced Alora, a twice-a-week estrogen replacement therapy patch for the treatment of moderate-to-severe menopausal symptoms. REVENUE CONTRIBUTION BY SECTOR - Pie chart showing $2.9 billion revenue contribution by Health Care. (Page 8 - Picture of a lady with a 12 oz. spray bottle of Pantene Pro-V Flexible Hold with Elastesse Hairspray.) (Top of page 9 - A blue/green circle with the caption "WORLD'S #1 Hair CARE BRAND.") Consumers told us they wanted a hair spray that wouldn't leave them with "helmet head." WE UNDERSTAND We paid attention. And introduced Pantene Pro-V Flexible Hold with Elastesse. The revolutionary hair spray provides a hold that bounces back, even after being brushed or windblown. (Top of page 10 - A blue/green object with the caption "#1 TOOTHPASTE FOR 35 YEARS.") Crest has been America's favorite toothpaste for more than three decades. And we keep it that way by making it better and better. WE INNOVATE New Crest Multi-Care, for example. Its special formula helps protect teeth -- against cavities, the acids that cause them, and visible tartar. And our new toothbrush, Crest Multi-Clean, helps to clean deep between and around all teeth. (Page 11 - Picture of a young boy with a toothbrush in his right hand and a tube of Crest Multi-Care toothpaste in his left hand.) (Page 12 - Picture of a lady holding a little boy and a box of Ariel detergent.) (Top of page 13 - A blue/green object with the caption "P&G BRANDS SOLD IN 140 COUNTRIES.") WE DELIVER Consumers throughout China told us that they wanted P&G products like Tide and Ariel detergent -- but couldn't find them. Getting our products into outlying parts of a country that stretches across more than 3,000 miles was not easy. So, we created an entirely new distribution system. Today, more than 60% of Chinese consumers can find our products, and we are working hard to reach even more people in the months and years ahead. (Top of page 14 - A blue/green circle with the caption "PAMPERS PARENTING INSTITUTE WWW.PAMPERS.COM.") WE SHARE Consumers want more than superior products. They also want to know what our brands know. And we're eager to tell them. For example, at the pampers Parenting Institute on the World Wide Web, a first-time mom with a newborn...or an experienced dad with a three-year-old...can learn from the world's leading parenting experts. (Page 15 - Picture of a lady sitting in front of a desk holding a toddler. On the desk is a computer with the screen showing a picture of the World Wide Web regarding Pampers and also on the desk is a box of Pampers Premiums.) (Page 16 - Picture of a young couple sitting by a tree eating Pringles Fat Free.) (Top of page 17 - A blue/green circle with a Pringles Chip and the caption "P&G'S #1 EXPORT BRAND.") WE DO THE IMPOSSIBLE...just because our consumers ask us to. They told us, for example, that they wanted great tasting potato chips. With no fat. We discovered Olean, the first fat-and-calorie-free cooking oil. And then we introduced new Fat Free Pringles with Olean. Consumers love them. In fact, one consumer captured here enthusiasm in one word. She said, simply, "HALLELUJAH!" FINANCIAL REVIEW RESULTS OF OPERATIONS The Company achieved record sales, unit volume, earnings and cash flows for the year ended June 30, 1997. Earning per share, restated for the two-for-one stock split effective on August 22, 1997, increased 14% to $2.43, while operating cash flow was up 41% to $5,882 million. Worldwide net earnings for the year were $3,415 million, a 12% increase over the prior year of $3,046 million. The Company also achieved a net earnings margin of 9.5%, the highest in 47 years. Return on equity for the year was 29%. These results were broad-based, with cost reduction via global simplification and standardization being the key driver. NET EARNINGS (Billions of dollars) (Middle of Page 22, left-hand margin, a bar/line graph with pictures of eight boxes of Vicks Noctyl showing net earnings for 1997 - 3.4 billions of dollars, 1996 - 3.0 billions of dollars and 1995 - 2.6 billions of dollars.) The prior year results included settlement of the Bankers Trust lawsuit, profit from the sale of the Company's share of a health care joint venture, a reserve for estimated losses on a supply agreement entered into as part of the previous divestiture of the commercial pulp business, and adoption of FASB Statement No. 121 covering recognition of impairment of long-lived assets. If these items were excluded from the prior year earnings, the growth rate for the current year would have been 13%. RETURN ON EQUITY (Bottom of Page 22, left-hand margin, a bar/line graph with pictures of nine bottles of Pantene showing return on equity for 1997 - 29%, 1996 - 27% and 1995 - 27%.) This year, the Company completed its $2.4 billion restructuring program commenced in 1993, with annual cost savings in excess of $600 million after tax. The Company will continue its ongoing program of simplification and standardization, which includes consolidation of selected manufacturing facilities across all regions, re-engineering of the manufacturing and distribution processes, organization design projects, simplified product line-ups and sales of non-strategic brands and assets. The net costs of these activities in the current year was offset by increased licensing activity in the Health Care segment. NET SALES (Billions of dollars) (Middle of Page 22, right-hand margin, a bar/line graph with pictures of four boxes of Always showing net sales for 1997 - 35.8 billions of dollars, 1996 - 35.3 billions of dollars and 1995 - 33.5 billions of dollars.) Worldwide net sales for the current year were $35,764 million, up 1% on worldwide unit volume growth of 3%. The difference between the sales and volume growth rates was primarily due to weaker currencies in Europe and Asia. Worldwide gross margin for the current year was 43.2% compared to 41.2% in the prior year. The current year improvement reflects costs savings from the Company's simplification and standardization efforts and the continuing benefits of the restructuring project initiated in 1993. Worldwide marketing, research, and administrative expenses were $9,960 million compared to $9,707 million in the prior year. This equates to 27.8% of sales, compared with 27.5% in the prior year. The increase was primarily due to increases in advertising and research. Other income, net, which consists primarily of interest and investment income, contributed $218 million in the current year. In the prior year, other income, net was $338 million and contained a $120 million benefit from reversing the reserve for two interest rate swap contracts following settlement of a lawsuit against Bankers Trust; a $185 million gain on the sale of the Company's 50% share of a health care joint venture to its venture partner; and a $230 million charge to increase the reserve for estimated losses on a supply agreement entered into as part of the previous sale of the Company's commercial pulp business. NET EARNINGS MARGIN % (Middle of Page 23, left-hand margin, a bar/line graph with pictures of eight bottles of Oil of Olay showing net earnings margin % for 1997 - 9.5%, 1996 - 8.5% and 1995 - 7.9%.) Net earnings margin increased to 9.5% in the current year from 8.6% in the prior year, reflecting unit volume growth and continued emphasis on cost control through the Company's simplification and standardization programs. THE FOLLOWING PROVIDES PERSPECTIVE ON THE YEAR ENDED JUNE 30, 1996 VERSUS THE PRIOR YEAR. Worldwide net earnings increased 15% to $3,046 million, including the 1996 unusual items previously noted. Net earnings for 1995 were $2,645 million and included a $50 million after-tax charge for costs related to the earthquake in Kobe, Japan. Excluding the unusual items in both years, net earnings for the year ended June 30, 1996, grew 12%. Worldwide net sales were $35,284 million, up 5%. Worldwide unit volume increased 7%, with all geographic regions achieving record volume levels. Worldwide gross margin declined to 41.2% from 41.6% in 1995, impacted by difficult economic conditions in Mexico and the adoption of FASB Statement No. 121, which provided new guidance on recognition of impaired assets. Worldwide marketing, research, and administrative expenses were 27.5% of sales compared with 28.9% in 1995, reflecting cost control emphasis and benefits of the 1993 restructuring program. The Company's expansion of its value pricing and trade terms simplification initiatives reduced expenses in certain markets. Other income, net was $338 million in 1996 and included the unusual items previously noted. In 1995, other income, net was $244 million and contained a $77 million charge related to the Kobe, Japan earthquake. Net earnings margin increased to 8.6% in 1996 form 7.9% in 1995, including the effects of unusual items in both years. Excluding the unusual items, net earnings margin increased to 8.6% in 1996 form 8.0% in 1995. FINANCIAL CONDITION Cash flow from operations was $5,882 million, $4,158 million, and $3,568 million in 1997, 1996, and 1995, respectively. Current year improvement was driven by increased earnings, working capital control and the benefit of simplification and standardization programs. Generally, operating cash flow provided the primary source of funds to finance operating needs, capital expenditures, acquisitions, and the shared repurchase programs. OPERATING CASH FLOW (Billions of dollars) (Bottom of Page 23, right-hand margin, a bar/line graph with pictures of eleven cans of Pringles showing operating cash flow for 1997 - 5.9 billions of dollars, 1996 - 4.2 billions of dollars and 1995 - 3.6 billions of dollars.) Cash and cash equivalents were up $276 million from June 30, 1996. In addition, investment securities increased $314 million. The Company initiated a share repurchase program in 1995 which authorized the purchase of up to 6 million shares annually to mitigate the dilutive impact of management compensation programs. The Company also initiated a program to repurchase additional outstanding shares of up to $1 billion during 1997, in addition to purchases made under the 1995 program. Current year share purchases totaled $1,652 million compared to $432 million in the prior year. The Company has announced plans to continue the share repurchase programs in fiscal 1998. Capital expenditures were $2,129 million in 1997, $2,179 million in 1996, and $2,146 million in 1995. Current year expenditures reflected capacity expansions in the Paper and Food businesses, primarily in tissue/towel, Pringles, and Olean. Capital expenditures are expected to increase during the upcoming year, reflecting completion of these capacity projects and other planned capacity increases and technological advances. Funds for these activities generally are provided from operations. Common share dividends, restated for the August 1997 two-for-one stock split, grew 13% to $.90 per share in 1997, compared to $.80 and $.70 in 1996 and 1995, respectively. For the coming year, the annual dividend rate will increase to $1.01 per common share, marking the 42nd consecutive year of increased common share dividend payments. Total dividend payments, to both common and preferred shareholders, were $1,329 million, $1,202 million, and $1,062 million in 1997, 1996, and 1995, respectively. Total debt was down $794 million. Exchange effects, primarily the Japanese yen and German mark, reduced total debt by approximately $92 million. Long-term borrowing available under the Company's shelf registration statement filed in 1995, as amended in July 1997, was $2.0 billion. Additionally, the Company has the ability to issue commercial paper at favorable rates. Cash used for acquisitions completed during the year totaled $150 million and included laundry and cleaning businesses, primarily Bombril in Latin America. Net cash required for acquisition activities was $358 million and $623 million in 1996 and 1995, respectively. During the current year, the Company continued to divest certain non-strategic brands in order to focus organizational resources on the Company's core businesses. The proceeds from these sales, combined with other asset sales, generated $520 million in cash flow in the current year, and $402 million and $310 million in 1996 and 1995, respectively. In April 1997, the Company entered into an agreement to acquire Tambrands, Inc., a company in the feminine protection category, for approximately $1.85 billion in cash, funded by a combination of existing cash balances and the issuance of commercial paper. The acquisition was completed on July 21, 1997. RESTRUCTURING RESERVE STATUS In the year ended June 30, 1993, a reserve of $2.4 billion was established to cover a worldwide restructuring effort to consolidate manufacturing systems and reduce overhead costs. The primary elements of this reserve were costs related to fixed asset disposals and separation-related costs. This restructuring program was completed during 1997. The costs of completing the restructuring activities approximated the original estimate. THE FOLLOWING PAGES PROVIDE PERSPECTIVE ON THE COMPANY'S GEOGRAPHIC SEGMENTS. ADDITIONALLY, THE CORPORATE SEGMENT INCLUDES INTEREST INCOME AND EXPENSE, SEGMENT ELIMINATIONS, AND OTHER GENERAL CORPORATE INCOME AND EXPENSE. 1997 NET SALES BY BUSINESS SEGMENT (Bottom right-hand margin page 24 - Net Sales By Business Segment Pie Chart -- 31% - Laundry & Cleaning; 28% - Paper; 20% - Beauty Care; 11% - Food & Beverage; 8% - Health Care and 2% - Corporate) 1997 NET SALES BY GEOGRAPHIC SEGMENT (Top left-hand margin page 25 - Net Sales By Geographic Segment Pie Chart -- 50% - North America; 32% - Europe, Middle East and Africa; 10% - Asia; 6% - Latin America and 2% - Corporate) NORTH AMERICA REGION The North America region achieved record sales, unit volume, net earnings and net earnings margin, following a strong prior year. Net sales for the year were $17,702 million, up 2% from the prior year level of $17,303 million. Unit volume increased 4%. The difference between sales and unit volume growth was primarily due to product mix, lower pricing in laundry, and lower commodity-based paper pricing. Progress during the current year compares to a strong 1996, when net sales and unit volume grew 5% over 1995. NORTH AMERICA NET EARNINGS (Millions of dollars) (Middle left-hand margin page 25 - Bar/line graph with pictures of eight Secret products showing North America net earnings for 1997 - 2,296 millions of dollars, 1996 - 2,239 millions of dollars, and 1995 - 1,914 millions of dollars.) Net earnings for the region were up 3% to $2,296 million. Net earnings increased 8% excluding the prior year's gain on the sale of the Company's share of a health care joint venture. The region achieved this growth through unit volume progress and a continued focus on cost control, simplification, and standardization as well as an increase in health care licensing activity. Prior year net earnings were $2,239 million, which represented a 17% increase over 1995 (11% excluding the gain on sale of the Company's share of a health care joint venture). Net earnings margin for the region was 13.0%, compared to 12.2% and 11.75 in 1996 and 1995, respectively, excluding the unusual item in 1996. The Laundry and Cleaning segment continued to drive the region's current year unit volume progress, with a 7% increase generating over one half of the region's increase. The laundry and fabric conditioners categories contributed heavily to the segment's unit volume and earnings increases. In the prior year, the segment was also a key driver, delivering over 40% of the total region's unit volume increase. The strength of the Paper segment also contributed to the region's current year volume progress, generating 5% unit volume growth. The diapers category delivered increased unit volume following acquisition of baby wipes and the introduction of Pampers Baby-Dry, a significant new diaper initiative. The tissue/towel category also posted unit volume gains following a capacity increase. The Paper segment's operating profit for the year was negatively impacted by a reduction in the estimated lives of certain production lines to support the global standardization of equipment to enable faster re-application of global technology. In the prior year, operating results were driven by product initiatives and more favorable pricing related to the pulp price declines in the latter part of the year. The Food and Beverage segment achieved 3% unit volume growth in the current year, driven by the snacks category which achieved double digit unit volume growth supported by new production capacity. Overall, the segment achieved earnings progress in the current year due to increased volume and lower costs in key categories. In 1996, unit volume growth was led by the coffee category. Unit volume in the Beauty Care segment grew 1% during the year, led by the hair care category. This growth followed solid results in the prior year. Net earnings for the segment were comparable to the prior year. Excluding the negative impact of the provisions for simplification and standardization projects, the segment achieved double-digit earnings growth in both the current and prior year. Unit volume in the Health Care segment was flat, excluding the effect of the prior year's divestiture of its share of a health care joint venture. This compares to a 3% decline in 1996. Increased investment in key brand franchises was aimed at regenerating growth. Excluding the prior year gain on the sale of its share of a joint venture, earnings from the segment increased significantly, benefiting from increased licensing activities, including a global alliance with Hoechst Marion Roussel to market the Company's osteoporosis treatment drug Actonel. A high level of investment in research and development in the pharmaceuticals area continued in the current year and is expected to continue into the coming year. The segment has also increased investments in agreements with other health care companies for the co-development or co-promotion of pharmaceutical and over-the-counter products, most notably an agreement entered into in the current year with Regeneron Pharmaceuticals, Inc. EUROPE, MIDDLE EAST, AND AFRICA REGION Record unit volume, sales, earnings and net earnings margin in the Europe, Middle East, and Africa region were driven by continued strong volume growth and excellent cost control. Net sales grew 1% to $11,581 million, on 7% unit volume growth. The differential between sales and unit volume growth rates is due primarily to unfavorable exchange rates and lower commodity-based paper pricing. During the prior year, sales increased 7% to $11,458 million on comparable unit volume growth. EUROPE, MIDDLE EAST AND AFRICA NET EARNINGS (Millions of dollars) (Bottom left-hand margin page 26 - Bar/line graph with pictures of eight Head & Shoulders products showing Europe, Middle East and Africa Net Earnings for 1997 - 857 millions of dollars, 1996 - 711 millions of dollars, and 1995 - 589 millions of dollars.) The region's net earnings progress continued in the current year, growing 21% to $857 million. This follows 21% growth in the prior year with earnings of $711 million. The net earnings margin progress also continued in the current year to 7.4%, from 6.2% and 5.5%, in 1996 and 1995, respectively. The continued effort of the region to reduce costs via simplification and standardization, combined with strong volume growth, were the driving forces of the earnings progress. Central and Eastern Europe led the region's unit volume growth, with a 42% increase. This follows a 66% growth rate in 1996. Leadership shares in laundry, diapers and hair care grew by increasing distribution of these successful global categories. Earnings increased, as a 1996, as a result of the unit volume growth and economics of scale. Middle East and Africa increased unit volume well above the region average, as it did in the prior year. The progress is broadly based across countries and in all key categories. This contributed to earnings growth, on top of improved earnings in 1996. Western Europe unit volume increased by 1%, comparable to the prior year's growth rate. This growth continues to be impacted by the implementation of Efficient Consumer Response (ECR). ECR introduced value pricing and simplified trade terms to reward efficiency of trade customers and eliminate inefficient promotional spending, thereby providing consumers with better value for the Company's quality products. This strategic move followed experience in the United States where a similar program had some negative short-term impacts followed by significantly improved longer-term growth. Western Europe's earnings increased strongly, after solid growth in the prior year, as a result of significant progress in simplification and standardization projects. ASIA REGION Overall, Asia achieved record net earnings margins. Earnings results within the region were mixed, with particularly strong earnings growth in China and other developing markets being offset by competitive pressures in Japan, the impact of the ECR roll out and exchange rate effects. Net sales for the region were $3,572 million, 8% below the prior year on a 7% unit volume decline. Improved pricing and product mix were offset by the impact of unfavorable exchange rate movements. Excluding adverse exchange effects, sales were down 2%. In the prior year, net sales grew 5% on unit volume growth of 15%. Exchange effects reduced 1996 sales by 3% versus 1995. ASIA NET EARNINGS (Millions of dollars) (Middle left-hand margin page 27 - Bar/line graph with pictures of three boxes of Tide showing Asia Net Earnings for 1997 - 274 millions of dollars, 1996 - 254 millions of dollars, and 1995 - 245 millions of dollars.) The region's net earnings were $274 million, an 8% increase over the prior year. Current year earnings benefited from gains on the sale of non-strategic brands, which were partially offset by provisions for simplification and standardization projects. The prior year net earnings of $254 million represented a 4% increase over 1995. Net earnings margin for the current year was 7.7%, compared to 6.5% in 1996 and 6.6% in 1995. Margin progress has been achieved through lower costs, driven by strong focus on simplification, standardization and cost control, partially offset by the reduction in estimated lives of certain paper production lines as discussed earlier. China's unit volume was down 1%, compared to an 39% increase in the prior year. Higher pricing on local laundry brands led to a drop in unit volume but significantly improved the sales mix for the category, where Tide is a leading brand. Excluding laundry, unit volume in China was up 13% for the year. Net sales and earnings showed significant improvement, driven by pricing and improved product mix. Japan was negatively impacted in 1997 by a competitive market environment and the move to ECR, which has led to trade inventory draw downs and lower merchandising levels in the trade. Sales and earnings were also negatively impacted by unfavorable exchange rate movements. LATIN AMERICA REGION Latin America posted record sales and earnings, reflecting pricing and the continuation of cost control efforts. Net sales in the region grew 6% to $2,304 million as inflation-driven pricing action has more than offset the effects of lower volume. Unit volume was down 2%. In the prior year, unit volume grew 4%, while sales were flat, reflecting the full-year impact of the Mexican peso devaluation. LATIN AMERICA NET EARNINGS (Millions of dollars) (Middle right-hand margin page 27 - Bar/line graph with pictures of four boxes of ARIEL showing Latin America Net Earnings for 1997 - 217 millions of dollars, 1996 - 209 millions of dollars, and 1995 - 207 millions of dollars.) Net earnings for the region were $217 million, a 4% increase. Current year earnings were affected by provisions for simplification and standardization projects and the disposal of non-strategic brands. Prior year net earnings were $209 million, a 1% increase over 1995. Net earnings margin for the current year was 9.4% compared to 9.6% and 9.5% in 1996 and 1995 respectively, reflecting the reduction in estimated lives of certain paper production lines as discussed earlier, partially offset by pricing and the continuation of cost control efforts. In Mexico, the Company's largest operation in the region, the business results were strong, despite economic difficulties and a slower than anticipated recovery in consumption levels which has led to a 3% decline in unit volume. Net sales increased, primarily affected by pricing, and earnings advanced to a record level on increased margins and the divestiture of non-strategic brands. DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to market risk, including changes in interest rates, currency exchange rates, and certain commodity prices. To manage the volatility relating to these exposures, the Company enters into various derivative transactions pursuant to the Company's policies in areas such as counter-party exposure and hedging practices. The Company does not hold or issue derivative financial instruments for trading purposes. Derivative positions are monitored using techniques including market value, sensitivity analysis and a value at risk model. The tests discussed below for exposure to interest rate and currency rate exposures are based on a variance/co-variance value at risk model using a one-year horizon and a 95% confidence level. The model assumes that financial returns are normally distributed. For options and instruments with non-linear returns, the model uses the delta/gamma method to approximate the financial return. The value at risk model takes into account correlations and diversification across market factors, including currencies and interest rates. Estimates of volatility and correlations of market factors are drawn from the JP Morgan RiskMetrics(TM)dataset as of June 30, 1997. In cases where data is unavailable in RiskMetrics(TM), a reasonable approximation is included. The effect of these estimates did not significantly change the total value at risk. INTEREST RATE EXPOSURE Interest rate swaps are used to hedge underlying debt obligations. For qualifying hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. Certain currency interest rate swaps are designated as a hedge of the Company's related foreign net asset exposure, and currency effects of these hedges are reflected in the currency translation adjustments section of shareholders' equity, offsetting a portion of the translation of the net assets. Based on the Company's overall interest rate exposure at June 30, 1997, including derivative and other interest rate sensitive instruments, a near-term change in interest rates, within a 95% confidence level based on historical interest rate movements, would not materially affect the consolidated financial position, results of operations or cash flows of the Company. CURRENCY RATE EXPOSURE The primary purpose of the Company's foreign currency hedging activities is to protect against the volatility associated with foreign currency purchase transactions. Corporate policy prescribes the range of allowable hedging activity. The Company primarily utilizes forward exchange contracts and purchased options with durations of generally less than 12 months. In addition, the Company enters into foreign currency swaps to hedge intercompany financing transactions and purchases foreign currency options with durations of generally less than 18 months to hedge against the effect of exchange rate fluctuations on royalties and foreign source income. Gains and losses related to qualifying hedges of foreign currency firm commitments or anticipated transactions are deferred in prepaid expenses and are included in the basis of the underlying transactions. To the extent that a qualifying hedge is terminated or ceases to be effective as a hedge, any deferred gains and losses up to that point continue to be deferred and are included in the basis of the underlying transaction. All other foreign exchange contracts are marked-to-market on a current basis generally to marketing, research, and administration expense. To the extent that anticipated transactions are no longer likely to occur, the related hedges are closed with gains or losses charged to earnings on a current basis. Based on the Company's overall currency rate exposure at June 30, 1997, including derivative and other foreign currency sensitive instruments, a near-term change in currency rates within a 95% confidence level based on historical currency rate movements, would not materially affect the consolidated financial position, results of operations, or cash flows of the Company. COMMODITY PRICE EXPOSURE Certain raw materials used primarily in food and beverage products are subject to price volatility caused by weather and other unpredictable factors. The Company uses futures and options contracts to manage the volatility related to this exposure. Gains and losses relating to qualifying hedges of firm commitments or anticipated inventory transactions are deferred in prepaid expenses and are included in the basis of the underlying transactions. Commodity activity is not material to the Company's consolidated financial position, results of operations, or cash flow. FORWARD-LOOKING STATEMENTS The Company has made and will make certain forward-looking statements in the Annual Report and in other contexts relating to volume growth, increases in market shares, total shareholder return and cost reduction, among others. These forward-looking statements represent challenging goals for the Company and are based on certain assumptions and estimates regarding the worldwide economy, technological innovation, competitive activity, interest rates, pricing, currency movements, product introductions, governmental action, and the development of certain markets. Some examples of key factors necessary to achieve the Company's goals are: 1) the ability to improve results in the face of strong competition, 2) the ability to reduce costs, in part via the ongoing simplification and standardization program, funded within existing budget targets, 3) the successful completion of the implementation of ECR and the ability to maintain key customer relationship in important developed markets, 4) the continuation of substantial growth in significant developing markets such as China, Mexico, the Southern Cone of Latin America and the countries of Central and Eastern Europe, 5) obtaining successful outcomes in regulatory and tax matters, 6) the ability to continue technological innovation, 7) the avoidance of adverse foreign currency movements. If the Company's assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of these key factors, then the Company's actual performance could vary materially from the forward-looking statements made herein. YEAR 2000 The Company has developed preliminary plans to address the possible exposures related to the impact on its computer systems of the Year 2000. Key financial, information and operational systems have been assessed and detailed plans have been developed to address systems modifications required by December 31, 1999. The financial impact of making the required systems changes is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The consolidated financial statements and the related financial information included in this report are the responsibility of Company management. 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 a system of internal controls that is 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. These audits are supplemented by a self-assessment program that enables individual organizations to evaluate the effectiveness of their control structure. Careful selection of employees and appropriate divisions of responsibility also are designed to achieve our control objectives. The Company's "Worldwide Business Conduct Manual" sets forth management's commitment to conducting its business affairs in keeping with the highest ethical standards. Deloitte & Touche LLP, independent public accountants, have audited and reported on the Company's consolidated financial statements. Their audits were performed in accordance with generally accepted auditing standards. The Board of Directors, acting through its Audit Committee composed entirely of outside directors, oversees the adequacy of the Company's internal control structure. The Audit Committee meets periodically with representatives of Deloitte & Touche LLP and internal financial management to review internal control, auditing and financial reporting matters. The independent auditors and the internal auditors also have full and free access to meet privately with the Audit Committee. /S/JOHN E. PEPPER /S/ERIK G. NELSON John E. Pepper Erik G. Nelson Chairman and Chief Executive Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS DELOITTE & 250 East Fifth Street TOUCHE LLP Cincinnati, Ohio 45202 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, 1997 and 1996 and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's 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 Company at June 30, 1997 and 1996 and the results of its operations and cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. /S/DELOITTE & TOUCHE LLP July 31, 1997 CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in Millions Except Per Share Amounts)
Years Ended June 30 1997 1996 1995 NET SALES $35,764 $35,284 $33,482 Cost of products sold 20,316 20,762 19,561 Marketing, research, and administrative expenses 9,960 9,707 9,677 ------------------------------- OPERATING INCOME 5,488 4,815 4,244 Interest expense 457 484 488 Other income, net 218 338 244 ------------------------------- EARNINGS BEFORE INCOME TAXES 5,249 4,669 4,000 Income taxes 1,834 1,623 1,355 ------------------------------- NET EARNINGS $ 3,415 $ 3,046 $ 2,645 =============================== NET EARNINGS PER COMMON SHARE $ 2.43 $ 2.14 $ 1.85 FULLY DILUTED NET EARNINGS PER COMMON SHARE $ 2.28 $ 2.01 $ 1.74 DIVIDENDS PER COMMON SHARE $ .90 $ .80 $ .70 AVERAGE COMMON SHARES OUTSTANDING 1,360.3 1,372.6 1,372.0 =============================== Restated for two-for-one stock split effective August 22, 1997. See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheets (Amounts in Millions Except Per Share Amounts
June 30 1997 1996 ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,350 $ 2,074 Investment securities 760 446 Accounts receivable 2,738 2,841 Inventories Materials and supplies 1,131 1,254 Work in process 228 210 Finished goods 1,728 1,666 Deferred income taxes 661 598 Prepaid expenses and other current assets 1,190 1,718 ------------------------ TOTAL CURRENT ASSETS 10,786 10,807 PROPERTY, PLANT, AND EQUIPMENT Buildings 3,409 3,369 Machinery and equipment 14,646 14,174 Land 570 569 ------------------------ 18,625 18,112 Less accumulated depreciation 7,249 6,994 ------------------------ TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,376 11,118 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill 3,915 4,175 Trademarks and other intangible assets 1,085 1,095 ------------------------ 5,000 5,270 Less accumulated amortization 1,051 989 ------------------------ TOTAL GOODWILL AND OTHER INTANGIBLE ASSETS 3,949 4,281 OTHER NON-CURRENT ASSETS 1,433 1,524 ------------------------ TOTAL ASSETS $27,544 $27,730 ======================== See accompanying Notes to Consolidated Financial Statements.
June 30 1997 1976 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,203 $ 2,236 Accrued and other liabilities 3,802 3,981 Taxes payable 944 492 Debt due within one year 849 1,116 -------------------------- TOTAL CURRENT LIABILITIES 7,798 7,825 LONG-TERM DEBT 4,143 4,670 DEFERRED INCOME TAXES 559 638 OTHER NON-CURRENT LIABILITIES 2,998 2,875 -------------------------- TOTAL LIABILITIES 15,498 16,008 Shareholders' Equity Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) 1,859 1,886 Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized; none issued) - - Common stock, stated value $1 per share (2,000 shares authorized; shares outstanding: 1997-1,350.8 and 1996-1,371.1) 1,351 1,371 Additional paid-in capital 559 294 Currency translation adjustments (819) (418) Reserve for employee stock ownership plan debt retirement (1,634) (1,676) Retained earnings 10,730 10,265 -------------------------- TOTAL SHAREHOLDERS' EQUITY 12,046 11,722 -------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $27,544 $27,730 ========================== Restated for two-for-one stock split effective August 22, 1997.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Millions/Shares in Thousands) (Restated for two-for-one stock split effective August 22, 1997)
Common Additional Currency Reserve for Shares Common Preferred Paid-in Translation ESOP Debt Retained Outstanding Stock Stock Capital Adjustments Retirement Earnings Total BALANCE JUNE 30, 1994 1,368,696 $1,368 $1,942 $ - $ (63) $(1,787) $ 7,372 $ 8,832 ---------------------------------------------------------------------------------------------- Net earnings 2,645 2,645 Dividends to shareholders: Common (960) (960) Preferred, net of tax benefit (102) (102) Currency translation adjustments 128 128 Treasury purchases (3,416) (3) (112) (115) Employee plan issuances 5,766 6 102 108 Preferred stock conversions 2,102 2 (29) 27 0 ESOP debt guarantee reduction 53 53 ---------------------------------------------------------------------------------------------- BALANCE JUNE 30, 1995 1,373,148 1,373 1,913 129 65 (1,734) 8,843 10,589 ---------------------------------------------------------------------------------------------- Net earnings 3,046 3,046 Dividends to shareholders: Common (1,099) (1,099) Preferred, net of tax benefit (103) (103) Currency translation adjustments (483) (483) Treasury purchases (10,468) (10) (422) (432) Employee plan issuances 6,514 6 140 146 Preferred stock conversions 1,952 2 (27) 25 0 ESOP debt guarantee reduction 58 58 ---------------------------------------------------------------------------------------------- BALANCE JUNE 30, 1996 1,371,146 1,371 1,886 294 (418) (1,676) 10,265 11,722 ---------------------------------------------------------------------------------------------- Net earnings 3,415 3,415 Dividends to shareholders: Common (1,225) (1,225) Preferred, net of tax benefit (104) (104) Currency translation adjustments (401) (401) Treasury purchases (30,875) (31) (1,621) (1,652) Employee plan issuances 8,801 9 240 249 Preferred stock conversions 1,771 2 (27) 25 0 ESOP debt guarantee reduction 42 42 ---------------------------------------------------------------------------------------------- Balance June 30, 1997 1,350,843 $1,351 $1,859 $559 $(819) $(1,634) $10,730 $12,046 ============================================================================================== See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions)
Years Ended June 30 1997 1996 1995 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 2,074 $ 2,028 $ 2,373 ------------------------------------------ OPERATING ACTIVITIES Net earnings 3,415 3,046 2,645 Depreciation and amortization 1,487 1,358 1,253 Deferred income taxes (26) 328 181 Change in accounts receivable 8 17 (161) Change in inventories (71) 202 (401) Change in accounts payable, accrued and other liabilities 561 (948) 435 Change in other operating assets and liabilities 503 (134) (449) Other 5 289 65 ------------------------------------------ TOTAL OPERATING ACTIVITIES 5,882 4,158 3,568 ------------------------------------------ INVESTING ACTIVITIES Capital expenditures (2,129) (2,179) (2,146) Proceeds from asset sales 520 402 310 Acquisitions (150) (358) (623) Change in investment securities (309) (331) 96 ------------------------------------------ TOTAL INVESTING ACTIVITIES (2,068) (2,466) (2,363) ------------------------------------------ FINANCING ACTIVITIES Dividends to shareholders (1,329) (1,202) (1,062) Change in short-term debt (160) 242 (429) Additions to long-term debt 224 339 449 Reductions of long-term debt (724) (619) (510) Proceeds from stock options 134 89 67 Treasury purchases (1,652) (432) (115) ------------------------------------------ TOTAL FINANCING ACTIVITIES (3,507) (1,583) (1,600) ------------------------------------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (31) (63) 50 ------------------------------------------ CHANGE IN CASH AND CASH EQUIVALENTS 276 46 (345) ------------------------------------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,350 $ 2,074 $ 2,028 ========================================== SUPPLEMENTAL DISCLOSURE Cash payments for: Interest, net of amount capitalized $ 449 $ 459 $ 444 Income taxes 1,380 1,339 1,047 Liabilities assumed in acquisitions 42 56 575 ========================================== See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of Dollars Except Per Share Amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The consolidated financial statements include The Procter & Gamble Company and its controlled subsidiaries (the Company). Investments in companies that are at least 20% to 50% owned, and over which the Company exerts significant influence but does not control the financial and operating decisions, are accounted for by the equity method. These investments are managed as integral parts of the Company's segment operations, and the Company's share of their results is included in net sales and in earnings for the related segments. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the Company may undertake in the future, actual results ultimately may differ from the estimates. ACCOUNTING CHANGES: In 1996, the Company adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires review for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The effect of the adoption was not material. In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements, which are effective for periods beginning after December 15, 1997, expand or modify disclosures and, accordingly, will have no impact on the Company's reported financial position, results of operations or cash flows. CURRENCY TRANSLATION: The financial statements of subsidiaries outside the U.S. generally are measured using the local currency as the functional currency. Translation adjustments are accumulated in a separate component of shareholders' equity. For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement and other transactional exchange gains/(losses) reflected in earnings were $1, $(28) and $(38) for 1997, 1996 and 1995, respectively. CASH EQUIVALENTS: Highly liquid investments with maturities of three months or less when purchased are considered cash equivalents. INVENTORY VALUATION: Inventories are valued at cost, which is not in excess of current market price. Cost is primarily determined by either the average cost or the first-in, first-out method. The replacement cost of last-in, first-out inventories exceeds carrying value by approximately $122. GOODWILL AND OTHER INTANGIBLE ASSETS: The cost of intangible assets is amortized, principally on a straight-line basis, over the estimated periods benefited (not exceeding 40 years). The average remaining life is 30 years. The realizability of goodwill and other intangibles is evaluated periodically as events or circumstances indicate a possible inability to recover the carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate 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 the goodwill and other intangible assets. PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are recorded at cost reduced by accumulated depreciation. Depreciation expense is provided based on estimated useful lives using the straight-line method. SELECTED OPERATING EXPENSES: Research and development costs are charged to earnings as incurred and were $1,282 in 1997, $1,221 in 1996 and $1,148 in 1995. Advertising costs are charged to earnings as incurred and were $3,468 in 1997, $3,254 in 1996, and $3,284 in 1995. NET EARNINGS PER COMMON SHARE: Net earnings less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstanding during the year to calculate net earnings per common share. Fully diluted net earnings per common share are calculated to give effect to stock options and convertible preferred stock. In 1997, the FASB issued Statement No. 128, "Earnings Per Share," which revises the manner in which earnings per share is calculated. The statement is effective for the reporting period ending December 31, 1997 and is not expected to have a significant impact on the Company's earnings per share. STOCK SPLIT: In July 1997, the Company's board of directors approved a two-for-one stock split that is effective for common and preferred shareholders of record as of August 22, 1997. The financial statements, notes and other references to share and per share data have been retroactively restated to reflect the stock split for all periods presented. FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of cash equivalents, short and long-term investments, and short-term debt approximate cost. The estimated fair values of other financial instruments, including debt and risk management instruments, have been determined using available market information and valuation methodologies, primarily discounted cash flow analysis. These estimates require considerable judgment in interpreting market data, and changes in assumptions or estimation methods may significantly affect the fair value estimates. MAJOR CUSTOMER: The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 10% of consolidated net sales in 1997. RECLASSIFICATIONS: Certain reclassifications of prior years' amounts have been made to conform with the current year presentation, primarily related to the segment information. 2. ACQUISITIONS In April 1997, the Company entered into an agreement to acquire Tambrands, Inc., a company in the feminine protection category, for approximately $1.85 billion in cash. The acquisition was completed on July 21,1997. In 1995, the Company purchased the European tissue business of Vereinigte Papierwerke Schickedanz AG and the prestige fragrance business of Giorgio Beverly Hills, Inc. These 1995 acquisitions had an aggregate purchase price of $598. Other acquisitions accounted for as purchases totaled $150, $358, and $25 in 1997,1996, and 1995, respectively. 3. SUPPLEMENTAL LIABILITY INFORMATION
June 30 1997 1996 ACCRUED AND OTHER LIABILITIES Marketing expenses $1,129 $ 990 Restructuring reserves - 748 Compensation expenses 461 437 Other 2,212 1,806 ---------------------- 3,802 3,981 OTHER NON-CURRENT LIABILITIES Postretirement benefits $1,300 $1,347 Pension benefits 815 879 Other 883 649 ---------------------- 2,998 2,875
4. SHORT-TERM AND LONG-TERM DEBT
June 30 1997 1996 SHORT-TERM DEBT U. S. obligations $ 235 $ 465 Foreign obligations 291 231 Current portion of long-term debt 323 420 --------------------- 849 1,116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Millions of Dollars Except Per Share Amounts) The weighted average short-term interest rates were 6.9% and 7.4% as of June 30, 1997 and 1996, respectively.
Average June 30 Rate Maturities 1997 1996 LONG-TERM DEBT U.S. notes and debentures 8.01% 1998-2029 $1,896 $1,982 ESOP Series B 9.36% 2021 1,000 1,000 ESOP Series A 8.29% 1998-2004 613 676 U.S. commercial paper 601 772 Foreign obligations 356 660 Current portion of long-term debt (323) (420) ----------------- 4,143 4,670
The long-term weighted average interest rates are as of June 30, 1997 and exclude the effects of related interest rate swaps, as discussed in Note 5 below. Certain commercial paper balances have been classified as long-term debt based on the Company's intent and ability to renew the obligations on a long-term basis. The Company has entered into derivatives that convert certain of these commercial paper obligations into fixed-rate obligations. The fair value of the long-term debt was $4,509 and $5,014 at June 30, 1997 and 1996, respectively. Long-term debt maturities during the next five years are as follows: 1998-$323: 1999-$70; 2000-$226; 2001-$281 and 2002-$436. 5. RISK MANAGEMENT ACTIVITIES The Company is exposed to market risk including changes in interest rates, currency exchange rates, and certain commodity prices. To manage the volatility relating to these exposures, the Company enters into various derivative transactions pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. The Company does not hold or issue derivative financial instruments for trading purposes. INTEREST RATE MANAGEMENT The Company's policy is to manage interest cost using a mix of fixed and variable rate debt. To manage this mix in a cost-efficient manner, the Company enters into interest rate swaps, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. For qualifying hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. Certain currency interest rate swaps are designated as a hedge of the Company's related foreign net asset exposure. Currency effects of these hedges are reflected in the currency translation adjustments section of shareholders' equity, offsetting a portion of the translation of the net assets. The following table presents information for all interest rate instruments, including debt warrants. The notional amount does not necessarily represent amounts exchanged by the parties and, therefore, is not a direct measure of the exposure of the Company. The fair value approximates the cost to settle the outstanding contracts. The carrying value includes the net amount due to counterparties under swap contracts, currency translation associated with currency interest rate swaps, and any marked-to-market value adjustments of instruments.
June 30 1997 1996 Notional amount $1,488 $1,872 ----------------------- Fair value $ (54) $ (165) Carrying value (28) (121) ----------------------- Unrecognized loss (26) (44)
Although derivatives are an important component of the Company's interest rate management program, their incremental effect on interest expense for 1997, 1996 and 1995 was not material. CURRENCY RATE MANAGEMENT The primary purpose of the Company's foreign currency hedging activities is to protect against the volatility associated with foreign currency purchase transactions. Corporate policy prescribes the range of allowable hedging activity. The Company primarily utilizes forward exchange contracts and purchased options with durations of generally less than 12 months. Because these are entered into as a hedge of planned transactions, a change in the fair value of the instruments is offset by a corresponding change in the related exposure. In addition, the Company enters into foreign currency swaps to hedge intercompany financing transactions and purchases foreign currency options with durations of generally less than 18 months to hedge against the effect of exchange rate fluctuations on royalties and foreign source income. Gains and losses related to qualifying hedges of foreign currency firm commitments or anticipated transactions are deferred in prepaid expense and are included in the basis of the underlying transactions. To the extent that a qualifying hedge is terminated or ceases to be effective as a hedge, any deferred gains and losses up to that point continue to be deferred and are included in the basis of the underlying transaction. All other foreign exchange contracts are marked-to-market on a current basis, generally to marketing, research and administration expense. To the extent that anticipated transactions are no longer likely to occur, the related hedges are closed with gains or losses charged to earnings on a current basis. Currency exposure related to the net assets of subsidiaries is managed primarily through local currency financing entered into by the subsidiaries and foreign currency denominated financing instruments entered into by the parent. Gains or losses on instruments designated as a hedge of net assets are offset against the translation effects reflected in shareholders' equity. The Company had foreign currency instruments and foreign currency denominated debt that have been designated as hedges of the Company's net asset exposure in certain foreign subsidiaries with notional amounts totaling $936 and $1,458 at June 30, 1997 and 1996, respectively. These hedges resulted in gains of $63 and $129 that are net of $38 and $80 in tax effects reflected in shareholders' equity. Currency instruments outstanding are as follows:
June 30 1997 1996 Notional amount Forward contracts $2,607 $2,586 Purchased options 1,643 1,726 Currency swaps 358 505 Fair value Forward contracts $ (2) $ (23) Purchased options 38 41 Currency swaps (1) (17)
The deferred gains/losses on these instruments were not material. CREDIT RISK Credit risk arising from the inability of a counterparty to meet the terms of the Company's financial instrument 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 material credit losses on its risk management or other financial instruments. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Millions of Dollars Except Per Share Amounts) 6. STOCK OPTIONS The Company has stock-based compensation plans under which stock options are granted annually to key employees and directors at the market price on the date of grant. The grants are fully exercisable after one year and have a ten-year life. Pursuant to FASB Statement No. 123 "Accounting for Stock-Based Compensation," the Company has elected to account for its employee stock option plan under APB Opinion No. 25 "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for this plan. Had compensation cost for the plan been determined based on the fair value at the grant date consistent with FASB Statement No. 123, the Company's net earnings and earnings per share would have been as follows:
Years Ended June 30 1997 1996 Net earnings As reported $3,415 $3,046 Pro forma 3,305 2,981 Net earnings per common share As reported 2.43 2.14 Pro forma 2.35 2.10 Fully diluted net earnings per common share As reported 2.28 2.01 Pro forma 2.20 1.97
The fair value of each option grant is estimated on the date of grant using the Binomial option-pricing model with the following weighted average assumptions:
Years Ended June 30 1997 1996 Interest rate 6.6% 6.1% Dividend yield 2% 2% Expected volatility 22% 20% Expected life in years 6 6
Stock option activity was as follows:
Options in Thousands 1997 1996 1995 Outstanding, July 1 66,657 63,384 61,112 Granted 10,409 9,605 7,852 Exercised (8,357) (6,110) (5,278) Canceled (195) (222) (302) ----------------------------------------- Outstanding, June 30 68,514 66,657 63,384 Exercisable 58,098 57,048 55,554 Available for grant 28,538 24,418 19,510 Average price Outstanding, beginning of year $24.79 $21.36 $19.12 Granted 58.72 40.87 33.11 Exercised 16.02 14.52 12.59 Outstanding, end of year 31.00 24.79 21.36 Exercisable, end of year 26.03 22.09 19.70 Weighted average grant date fair value of options 17.14 10.88
The following table summarizes information about stock options outstanding at June 30, 1997:
Options Outstanding ---------------------------------------------------- Number Weighted-Avg Range of Outstanding Weighted-Avg Remaining Prices (Thousands) Exercise Price Contractual Life $ 8 to 21 19,942 $15.92 2.4 years 25 to 30 21,511 26.56 5.5 33 to 46 17,645 37.85 8.1 57 to 69 9,416 60.24 9.5
The following table summarizes information about stock options exercisable at June 30, 1997:
Options Exercisable -------------------------------- Number Range of Exercisable Weighted-Avg Prices (Thousands) Exercise Price $ 8 to 21 19,942 $15.92 25 to 30 21,498 26.56 33 to 46 16,658 37.46 57 to 69 - -
7. POSTRETIREMENT BENEFITS The Company offers various postretirement benefits to U.S. and international employees. PENSION BENEFITS Within the U.S., the most significant retirement benefit is the defined contribution profit sharing plan funded by an employee stock ownership plan (ESOP) and Company contributions. Annual credits to participants' accounts are based on individual base salaries and years of service, not exceeding 15% of total participants' annual salaries and wages
Years Ended June 30 1997 1996 1995 Preferred shares allocated at market value $247 $200 $155 Company contributions 35 75 112 --------------------------------------- Benefits earned 282 275 267
Certain other employees, primarily outside the U.S., are covered by local defined benefit pension plans, with summarized information as follows:
June 30 1997 1996 Vested benefit obligations $ 1,366 $ 1,315 Non-vested benefit obligations 190 188 ------------------------- Accumulated benefit obligations 1,556 1,503 Effect of projected salaries 435 383 ------------------------- Projected benefit obligations 1,991 1,886 Plan assets at market value (1,229) (1,019) ------------------------- Unfunded pension benefit obligations 762 867 Unrecognized Net transition obligations (35) (37) Prior service costs (43) (43) Net gains 95 32 ------------------------- Net accrued pension costs 779 819
Plan assets are held in restricted trusts or foundations. The assets are 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. In the U.S., plan assets exceeded the projected benefit obligation by $45 in 1997 and $27 in 1996.
PENSION EXPENSE Years Ended June 30 1997 1996 1995 Benefits earned during the year $ 100 $ 96 $ 89 Interest on projected benefit obligations 131 131 116 Actual return on plan assets (166) (132) (74) Net amortization and other 77 60 10 ---------------------------------------- 142 155 141
The actuarial assumptions vary by country and consider such factors as economic conditions and the nature of plan assets. The following is a summary of assumptions, reflecting an average for the Company:
ASSUMPTIONS Years Ended June 30 1997 1996 1995 Long-term rate of return on plan assets 9% 9% 9% Increase in compensation 5% 5% 6% Discount rate 7% 7% 7%
OTHER RETIREE BENEFITS The Company provides certain health care and life insurance benefits for substantially all U.S. employees and, to a lesser extent, certain foreign 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. These benefits are partially funded by an ESOP, as well as certain other assets contributed by the Company.
ACCUMULATED BENEFIT OBLIGATION AND NET LIABILITY June 30 1997 1996 Retirees $ 677 $ 613 Employees eligible to retire 112 125 Other active employees 671 667 ------------------------ Accumulated benefit obligation 1,460 1,405 Unrecognized gain 1,708 821 Plan assets at market value (1,828) (838) ------------------------ Net liability 1,340 1,388
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Millions of Dollars Except Per Share Amounts)
BENEFIT EXPENSE Years Ended June 30 1997 1996 1995 Benefits earned during the year $ 45 $ 47 $ 43 Interest on accumulated benefit obligation 109 102 98 Actual return on plan assets (999) (377) (364) Net amortization and other 841 239 241 ------------------------------ Gross benefit expense (4) 11 18 Dividends on ESOP preferred stock (79) (79) (79) ------------------------------ (83) (68) (61)
ASSUMPTIONS Years Ended June 30 1997 1996 1995 Discount rate 7.5% 7.5% 7.5% Long-term rate of return on plan assets 9% 9% 9% Initial health care cost trend rate 8.8% 9.5% 10.5% Assumed to decline gradually to 5% in 2006 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, 1997 and 1996 by approximately $217 and $210 and increase the respective annual Costs by $25 and $27. 8. EMPLOYEE STOCK OWNERSHIP PLAN The Company maintains the Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan (ESOP) to provide funding for two primary postretirement benefits described in Note 7: a defined contribution profit sharing plan and certain U.S. postretirement health care benefits. The ESOP borrowed $1,000 in 1989, which has been guaranteed by the Company. The proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the defined contribution plan. Principal and interest requirements are $117 per year, paid by the trust from dividends on the preferred shares and from cash contributions and advances from the Company. The shares are convertible at the option of the holder into one share of the Company's common stock. The liquidation value is equal to the issue price of $13.75 per share. In 1991 the ESOP borrowed an additional $1,000, also guaranteed by the Company. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. Debt service requirements are $94 per year, funded by preferred stock dividends and cash contributions from the Company. Each share is convertible at the option of the holder into one share of the Company's common stock. The liquidation value is equal to the issuance price of $26.12 per share.
Shares in Thousands 1997 1996 1995 Shares Outstanding Series A 62,952 64,562 66,436 Series B 38,045 38,204 38,284
Shares of the ESOP are allocated at original cost based on debt service requirements, net of advances made by the Company to the trust. The fair value of the Series A shares serves to reduce the Company's cash contribution required to fund the profit sharing plan contributions earned. The Series B shares are considered plan assets of the other retiree benefits plan. Dividends on all preferred shares, net of related tax benefit, are charged to retained earnings. The preferred shares held by the ESOP are considered outstanding from inception for purposes of calculating fully diluted net earnings per common share. 9. INCOME TAXES Earnings before income taxes consist of the following:
Years Ended June 30 1997 1996 1995 United States $3,232 $3,023 $2,683 International 2,017 1,646 1,317 ---------------------------- 5,249 4,669 4,000
The income tax provision consists of the following
Years Ended June 30 1997 1996 1995 Current tax expense U.S. Federal $ 967 $ 776 $ 718 International 805 413 399 U.S. State & Local 88 106 57 ---------------------------------- 1,860 1,295 1,174 Deferred tax expense U.S. Federal 1 220 124 International & other (27) 108 57 ---------------------------------- (26) 328 181
Taxes credited to shareholders' equity for the years ended June 30,1997 and 1996 were $97 and $3. Undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely were $6,108 at June 30, 1997. The effective income tax rate was 34.9%, 34.8% and 33.9% in 1997, 1996 and 1995, respectively, compared to the U.S. statutory rate of 35%. Deferred income tax assets and liabilities are comprised of the following:
June 30 1997 1996 Current deferred tax assets Restructuring reserve $ - $ 267 Other 661 331 ------------------------ 661 598 Non-current deferred tax assets (liabilities) Depreciation (1,031) (1,005) Postretirement benefits 475 492 Loss carryforwards 84 166 Other (87) (291) ------------------------ (559) (638)
10. Commitments and Contingencies The Company has various purchase commitments for materials, supplies, and property, plant, and equipment incidental to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market. The Company is subject to various lawsuits and claims with respect to matters such as governmental regulations, income taxes and other actions arising out of the normal course of business. The Company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the Company to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Accrued environmental liabilities for remediation and closure costs at June 30,1997 were $62 and, in management's opinion, such accruals are appropriate based on existing facts and circumstances. Under more adverse circumstances, however, this potential liability could be higher. Current year expenditures were not material. While the effect on future results of these items is not subject to reasonable estimation because considerable uncertainty exists, in the opinion of management and Company counsel, the ultimate liabilities resulting from such claims will not materially affect the consolidated financial position, results of operations or cash flows of the Company. 11. SEGMENT INFORMATION Geographic segments are aligned into four regions: North America - including the United States and Canada; Europe, Middle East and Africa; Asia; and Latin America. Business segments are aligned as follows: Laundry and Cleaning - laundry, dishcare, hard surface cleaners and fabric conditioners. Representative brands include Ariel, Tide, Cascade, Dawn, Mr. Proper, Downy. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Millions of Dollars Except Per Share Amounts) Paper - tissue/towel, feminine protection, incontinence, diapers and wipes. Representative brands include Bounty, Charmin, Always, Whisper, Pampers and Attends. Beauty Care - hair care, deodorants, personal cleansing, skin care and cosmetics and fragrances. Representative brands include Pantene, Vidal Sassoon, Secret, Safeguard, Oil of Olay, Cover Girl, Giorgio Beverly Hills. Food and Beverage - coffee, peanut butter, juice, snacks, shortening and oil, baking mixes and commercial services. Representative brands include Folgers, Jif, Sunny Delight, Pringles, Crisco, Duncan Hines. Health Care - oral care, gastro-intestinal, respiratory care, and pharmaceuticals. Representative brands include Crest, Scope, Metamucil, Vicks. Corporate items primarily include interest income and expense, segment eliminations, and other general corporate income and expense. The Company's operations are characterized by interrelated raw materials and manufacturing facilities and centralized research and staff functions. Accordingly, separate earnings determination by segment is dependent upon assumptions regarding allocations.
SEGMENT INFORMATION Europe, North Middle East Latin GEOGRAPHIC SEGMENTS America and Africa Asia America Corporate Total Net Sales 1997 $17,702 $11,581 $3,572 $2,304 $ 605 $35,764 1996 17,303 11,458 3,881 2,173 469 35,284 1995 16,408 10,696 3,689 2,178 511 33,482 ----------------------------------------------------------------------------------- Net Earnings 1997 2,296 857 274 217 (229) 3,415 1996 2,239 711 254 209 (367) 3,046 1995 1,914 589 245 207 (310) 2,645 ----------------------------------------------------------------------------------- Identifiable Assets 1997 11,569 6,438 2,634 1,581 5,322 27,544 1996 11,775 6,962 2,882 1,445 4,666 27,730 1995 11,334 7,501 3,311 1,305 4,674 28,125 ----------------------------------------------------------------------------------- Includes a gain on the sale of the Company's share of a health care joint venture: North America-$120 after tax, Health Care-$185 before tax.
Laundry and Beauty Food and Health BUSINESS SEGMENTS Cleaning Paper Care Beverage Care Corporate Total Net Sales 1997 $10,933 $10,113 $7,108 $4,108 $2,897 $ 605 $35,764 1996 10,705 10,166 6,920 4,067 2,957 469 35,284 1995 10,157 9,278 6,569 3,979 2,988 511 33,482 ---------------------------------------------------------------------------------------------- Earnings Before 1997 2,101 1,333 1,066 542 471 (264) 5,249 Income Taxes 1996 1,872 1,260 955 581 441 (440) 4,669 1995 1,686 1,144 735 515 358 (438) 4,000 ---------------------------------------------------------------------------------------------- Identifiable Assets 1997 5,112 6,858 5,036 2,454 2,762 5,322 27,544 1996 5,355 6,859 5,359 2,054 3,437 4,666 27,730 1995 5,375 7,082 5,511 2,148 3,335 4,674 28,125 ---------------------------------------------------------------------------------------------- Capital 1997 417 855 301 413 122 21 2,129 Expenditures 1996 541 804 344 288 175 27 2,179 1995 608 731 341 150 295 21 2,146 ---------------------------------------------------------------------------------------------- Depreciation and 1997 294 689 216 108 164 16 1,487 Amortization 1996 317 520 213 102 167 39 1,358 1995 279 500 189 108 144 33 1,253 ---------------------------------------------------------------------------------------------- Includes a gain on the sale of the Company's share of a health care joint venture: North America-$120 after tax, Health Care-$185 before tax.
12. QUARTERLY RESULTS (UNAUDITED)
Ouarters Ended ------------------------------------------- Total Sept. 30 Dec. 31 Mar 31 Jun. 30 Year Net Sales 1996-97 $8,903 $9,142 $8,771 $8,948 $35,764 1995-96 9,027 9,090 8,587 8,580 35,284 ------------------------------------------------------------------- Operating Income 1996-97 1,547 1,521 1,383 1,037 5,488 1995-96 1,435 1,352 1,193 835 4,815 ------------------------------------------------------------------- Net Earnings 1996-97 979 944 881 611 3,415 1995-96 896 836 760 554 3,046 ------------------------------------------------------------------- Net Earnings 1996-97 .70 .67 .63 .43 2.43 Per Common Share 1995-96 .63 .59 .54 .38 2.14 ------------------------------------------------------------------- Fully Diluted Net Earnings 1996-97 .65 .63 .59 .41 2.28 Per Common Share 1995-96 .59 .56 .50 .36 2.01 ------------------------------------------------------------------- Restated for two-for-one stock split effective August 22,1997.
FINANCIAL HIGHLIGHTS (Millions of Dollars Except Per Share Amounts)
1997 1996 1995 1994 1993 Net Sales 35,764 35,284 33,482 30,385 30,498 Operating Income 5,488 4,815 4,244 3,670 521 Net Earnings/(Loss) 3,415 3,046 2,645 2,211 (656) Net Earnings Margin 9.5% 8.6% 7.9% 7.3% - Net Earnings/(Loss) Per Common Share 2.43 2.14 1.85 1.54 (.56) Dividends Per Common Share .90 .80 .70 .62 .55 Research and Development Expense 1,282 1,221 1,148 964 868 Advertising Expense 3,468 3,254 3,284 2,996 2,973 Total Assets 27,544 27,730 28,125 25,535 24,935 Capital Expenditures 2,129 2,179 2,146 1,841 1,911 Long-Term Debt 4,143 4,670 5,161 4,980 5,174 Shareholders' Equity 12,046 11,722 10,589 8,832 7,441 Cash Flow from Operations 5,882 4,158 3,568 3,649 3,338 Restated for two-for-one stock split effective August 22,1997. Operating income includes a before-tax charge totaling $2,705 for restructuring Net earnings and net earnings per common share include an after-tax charge totaling $1,746 or $1.28 per share for restructuring and an after-tax charge of $925 or $.68 per share for the prior years' effect of accounting changes.
DIRECTORS AND OFFICERS OF THE PROCTER & GAMBLE COMPANY DIRECTORS Edwin L. Artzt Retired Chairman of the Board and Chief Executive Norman R. Augustine Chairman of the Board, Lockheed Martin Corporation- aerospace, electronics, information management, materials and energy systems and products Donald R. Beall Chairman and Chief Executive Officer, Rockwell International Corporation-automation, avionics and communications, semiconductor systems and automotive component systems Gordon F. Brunner Senior Vice President Richard B. Cheney Chairman of the Board and Chief Executive Officer, Halliburton Company - energy services, engineering and construction Harald Einsmann Executive Vice President Richard J. Ferris Co-Chairman, Doubletree Corporation Joseph T. Gorman Chairman and Chief Executive Officer, TRW Inc.-electronic, automotive, industrial and aerospace equipment Durk I. Jager President and Chief Operating Officer Charles R. Lee Chairman and Chief Executive Officer, GTE Corporation- telecommunication services Lynn M. Martin Professor, Davee Chair, J. L. Kellogg Graduate School of Management, Northwestern University John E. Pepper Chairman of the Board and Chief Executive John C. Sawhill President and Chief Executive Officer, The Nature Conservancy-an international conservation organization John F. Smith, Jr. Chairman, Chief Executive Officer and President, General Motors Corporation - automobile and related businesses Ralph Snyderman Chancellor for Health Affairs, Dean, School of Medicine at Duke University and Chief Executive Officer of Duke University Health System Robert D. Storey Partner in the law firm of Thompson, Hine & Flory P.L.L. Marina v.N. Whitman Professor of Business Administration and Public Policy University of Michigan BOARD COMMITTEES EXECUTIVE COMMITTEE COMPENSATION COMMITTEE BOARD ORGANIZATION AND E. L. Artzt, Chairman N. R. Augustine, Chairman NOMINATING COMMITTEE J. E. Pepper D. R. Beall M. v.N. Whitman, Chairman N. R. Augustine R. B. Cheney R. J. Ferris D. R. Beall J. T. Gorman C. R. Lee R. J. Ferris M. v.N. Whitman L. M. Martin J. T. Gorman J. C. Sawhill J. F. Smith, Jr. R. Snyderman R. D. Storey AUDIT COMMITTEE FINANCE COMMITTEE PUBLIC POLICY COMMITTEE D. R. Beall, Chairman R. J. Ferris, Chairman R. D. Storey, Chairman R. B. Cheney E. L. Artzt E. L. Artzt C. R. Lee N. R. Augustine R. B. Cheney J. C. Sawhill J. T. Gorman C. R. Lee J. F. Smith, Jr. L. M. Martin L. M. Martin R. Snyderman M. v.N. Whitman J. C. Sawhill R. D. Storey J. F. Smith, Jr. R. Snyderman CORPORATE OFFICERS John E. Pepper Chairman of the Board and Chief Executive Durk I. Jager President and Chief Operating Officer Wolfgang C. Berndt Executive Vice President (President-North America) Harald Einsmann Executive Vice President (President-Europe, Middle East and Africa) Alan G. Lafley Executive Vice President (President-Asia) Jorge P. Montoya Executive Vice President (President-Latin America) Benjamin L. Bethell Senior Vice President (Human Resources) Gordon F. Brunner Senior Vice President (Research and Development) Todd A. Garrett Senior Vice President (Chief Information Officer) James J. Johnson Senior Vice President and General Counsel Gary T. Martin Senior Vice President (Product Supply) Lawrence D. Milligan Senior Vice President (Customer Business Development) Erik G. Nelson Senior Vice President (Chief Financial Officer) Charlotte R. Otto Senior Vice President (Public Affairs) Robert L. Wehling Senior Vice President (Advertising, Market Research and Government Relations) Robert T. Blanchard Group Vice President (President, Beauty Care Products-North America, Procter & Gamble North America) Bruce L. Byrnes Group Vice President (President, Health Care Products-North America, Procter & Gamble North America) R. Kerry Clark Group Vice President (President, Laundry and Cleaning Products-North America, Procter & Gamble North America) Larry G. Dare Group Vice President (President, Paper and Beverage Products - Europe, Procter & Gamble Europe, Middle East and Africa) Stephen P. Donovan, Jr. Group Vice President (President, Food and Beverage Products-North America, Procter & Gamble North America) Jacobus Groot Group Vice President (President-Asia, North, and President, Paper Products-Asia, Procter & Gamble Asia) Jeffrey D. Jones Group Vice President (President- Latin America, South, Procter & Gamble Latin America) Mark D. Ketchum Group Vice President (President, Paper Products-North America, Procter & Gamble North America) Fuad O. Kuraytim Group Vice President (President-Middle East, Africa and General Export, Procter & Gamble Europe, Middle East and Africa) Claude L. Meyer Group Vice President (President, Laundry and Cleaning Products - Europe, Procter & Gamble Europe, Middle East and Africa) Martin J. Nuechtern Group Vice President (President-ASEAN and Australasia, Procter & Gamble Asia) John O'Keeffe Group Vice President (President, Health and Beauty Care Products-Europe, Procter & Gamble Europe, Middle East and Africa) Dimitri Panayotopoulos Group Vice President (President-China, Procter & Gamble Asia) Herbert Schmitz Group Vice President (President-Central and Eastern Europe, Procter & Gamble Europe, Middle East and Africa) Edwin H. Eaton, Jr. Vice President and Comptroller Clayton C. Daley, Jr. Vice President and Treasurer David R. Walker Vice President-Finance Terry L. Overbey Secretary and Associate General Counsel ORGANIZATION CHANGES The following changes in the senior management of the Company were announced during the past year: Todd A. Garrett was elected Senior Vice President Charlotte R. Otto was elected Senior Vice President Martin J. Nuechtern was elected Group Vice President Dimitri Panayotopoulos was elected Group Vice President SHAREHOLDER INFORMATION If... CONTACT P&G'S SHAREHOLDER SERVICES - - You need help with your account OFFICE IN CINCINNATI. or if you need automated access Call: 1-800-742-6253 to your account 1-513-983-3034 (outside the U.S.) - - You're interested in our Certifi- Write: The Procter & Gamble Company cate Safekeeping service Shareholder Services Department - - You need to change an address or P. O. Box 5572 discontinue duplicate mailings Cincinnati, Ohio 45201-5572 - - You want to arrange for direct deposit of dividends Financial information is available 24 hours a day. Just call 1-800-764-7483. A stock certificate is lost, stolen or destroyed You can also visit us on the World You want to participate in our Wide Web. Our address is www.pg.com Shareholder Investment Program ...
COMMON STOCK PRICE RANGE AND DIVIDENDS (Restated for two-for-one stock split effective August 22. 1997) Price Range Dividends ----------------------------------- ------------------- 1996-97 1995-96 1996-97 1995-96 --------------- --------------- ------------------- Quarter Ended High Low High Low - -------------------------------------------------------------------------------- September 30 $48.75 $41.19 $39.25 $33.07 $.225 $.20 December 31 55.50 45.75 44.75 38.25 .225 .20 March 31 64.81 51.81 45.32 40.57 .225 .20 June 30 71.94 56.63 46.94 39.69 .225 .20
CORPORATE HEADQUARTERS The Procter & Gamble Company P.O. Box 599 Cincinnati, Ohio 45201-0599 TRANSFER AGENT/SHAREHOLDER SERVICES The Procter & Gamble Company Shareholder Services Department P.O. Box 5572 Cincinnati, Ohio 45701-5572 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 242,216 Common Stock shareholders of record, including participants in the Shareholder Investment Program, as of July 18,1997. FORM 10-K Beginning October 1997, shareholders may obtain a copy of the Company's 1997 report to the Securities and Exchange Commission on Form 10-K by sending a request to Robert J. Thompson, Manager, Shareholder Services address, or by calling the toll-free number above. SHAREHOLDERS' MEETING The next annual meeting of shareholders will be held on Tuesday, October 14, 1997, at the Company's General Office, Two P&G Plaza, Cincinnati, Ohio, 45202. A full transcript of the meeting will be available from Linda D. Rohrer, Assistant Secretary, at a cost of $10. Ms. Rohrer can be reached at One P&G Plaza, Cincinnati, Ohio, 45202-3315. EX-21 5 EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Subsidiaries of the Registrant ------------------------------ The Procter & Gamble Company [Ohio] Arbora Capital, S.A. [Spain] Arbora Holding, S.A. [Spain] Ausonia Higiene, S.L. [Spain] Ausonia Portuguesa-Productos de Higiene, S.A. [Portugal] Richvest B.V. [Netherlands] Cotonificio Medical S.A. [Spain] The Dover Wipes Company [Ohio] Fisher Nut Company [Ohio] The Folger Coffee Company [Ohio] P&G Consultoria E Servicos Ltda. [Brazil] FPG Oleochemicals Sdn. Bhd. [Malaysia] Giorgio Beverly Hills, Inc.[Delaware] Giorgio Beverly Hills (Europe) Ltd. [United Kingdom] Industria de Concentrados Crush Limitada [Uruguay] Industrias Inextra, S.A. [Colombia] Inversiones Procter & Gamble de Venezuela, C.A. [Venezuela] Inversiones Industrias Mammi, C.A. [Venezuela] Midway Holdings Ltd. [Cayman Islands] Marcvenca Inversiones, C.A. [Venezuela] Procter & Gamble de Venezuela, C.A. [Venezuela] Jetco Chemicals, Inc. [Texas] Karm, S.A. [Liechtenstein] Millstone Coffee, Inc. [Washington] Noxell Corporation [Maryland] Max Factor & Co. [Delaware] Noxell (Barbados) Limited [Barbados] Noxell (Panama) S.A. [Panama] Noxell (Thailand) Limited [Thailand] Noxell de Venezuela, C.A. [Venezuela] Procter & Gamble do Brasil S.A. [Brazil] Procter & Gamble Quimica S.A. [Brazil] Phebo do Nordeste S/A [Brazil] P&G Holding B.V. [Netherlands] P&G Tissues B.V. [Netherlands] Richardson-Vicks B.V. [Netherlands] Richardson-Vicks Overseas Finance N.V. [Netherlands Antilles] Procter & Gamble A.G. [Switzerland] Betrix (Schweiz) AG [Switzerland] Detergent Products A.G. [Switzerland] Modern Industries Company - Dammam [Saudi Arabia] Modern Industries Company - Jeddah [Saudi Arabia] Modern Products Company - Jeddah [Saudi Arabia] Deurocos Cosmetic AG [Switzerland] Moroccan Modern Industries [Morocco] Comunivers sa [Morocco] Pantene A.G. [Switzerland] Procter & Gamble Austria GmbH [Austria] Eurocos Cosmetic Warenvertrieb GmbH [Austria] The Procter & Gamble Company of South Africa (Proprietary) Limited [S. Africa] Procter & Gamble South Africa Proprietary Limited [South Africa] Procter & Gamble Development Company A.G. Glarus [Switzerland] Procter & Gamble (East Africa) Limited [Kenya] Procter & Gamble Egypt [Egypt] Procter & Gamble (Egypt) Industrial and Commercial Company [Egypt] Procter & Gamble (Egypt) Manufacturing Company [Egypt] (Partnership) Procter & Gamble Hellas A.E. (Chemical Industries) [Greece] Procter & Gamble-Hutchison Ltd. [Hong Kong] Procter & Gamble (Chengdu) Ltd. [PRC] Procter & Gamble (China) Ltd. [PRC] Procter & Gamble Detergent (Guangzhou) Ltd. [PRC] Procter & Gamble (Guangzhou) Ltd. [PRC] Procter & Gamble Oral Care (Guangzhou) [China] Procter & Gamble Lonkey (Guangzhou) Ltd. [PRC] Procter & Gamble Lonkey (Shaoguan) Ltd. [PRC] Procter & Gamble Manufacturing (Tianjin) Co. Ltd. [PRC] Procter & Gamble Manufacturing Detergent (Tianjin) Co. Ltd. [PRC] Procter & Gamble Manufacturing Paper (Tianjin) Co. Ltd. [PRC] Procter & Gamble Panda Detergent Co. Ltd Beijing [PRC] Procter & Gamble Paper (Guangzhou) Ltd. [PRC] Procter & Gamble Personal Cleansing (Tianjin) Ltd. [PRC] Procter & Gamble Jamaica Ltd. [Jamaica] The Procter & Gamble Manufacturing Company of Lebanon, S.A.L.[Lebanon] Procter & Gamble Marketing A.G. [Switzerland] Procter & Gamble Maroc [Morocco] Procter & Gamble Nigeria Limited [Nigeria] Procter & Gamble Pakistan (Private) Limited [Pakistan] Procter & Gamble de Panama, S.A. [Panama] Procter & Gamble Tissues AG [Switzerland] Procter & Gamble (Yemen) Ltd [Yemen] Societe Immobiliere Les Colombettes, S.A. [Switzerland] Procter & Gamble Asia Pacific Ltd. [Hong Kong] Procter & Gamble Asia Pacific Ltd. Manila Regional Headquarters [Philippines] Procter & Gamble do Brazil, Inc. [Delaware] Procter & Gamble do Brasil & Cia [Brazil] (Partnership) The Procter & Gamble Cellulose Company [Delaware] Procter & Gamble Chile, Inc. [Ohio] The Procter & Gamble Commercial Company [Ohio] Procter & Gamble del Peru S.A. [Peru] PROGAM Leasing, Inc. [Puerto Rico] Procter & Gamble Commercial de Cuba, S.A. [Cuba] The Procter & Gamble Distributing Company [Ohio] Procter & Gamble FSC (Barbados) Inc. [Barbados] Procter & Gamble Eastern Europe, Inc. [Ohio] Detergenti SA Timisoara [Romania] Hyginett KFT [Hungary] Novomoskovskbytkhim [Russia] P&G Balkans, Inc. [Ohio] P&G C&CA, Inc. [Ohio] Procter & Gamble Bulgaria Ltd. [Bulgaria] Procter & Gamble Marketing and Services d.o.o. [Yugoslavia ] Procter & Gamble Hungary Wholesale Trading Partnership (KKT) [Hungary] Alvorada BT [Hungary] Beta BT [Hungary] Beauty-Care Beauty-Treatment Product Distribution Foreign Trade Ltd. [Hungary] Carlos BT [Hungary] Cleveland Export-Import Trading Ltd. [Hungary] Diego BT [Hungary] Elysee BT [Hungary] Ferraris BT [Hungary] Frank BT [Hungary] Helga BT [Hungary] Olga BT [Hungary] Pal BT [Hungary] Pannonia Trading Ltd. [Hungary] Shampoo-Trade Export Import Trading Ltd. [Hungary] Stan BT [Hungary] Transylvania Trading Ltd. [Hungary] Varadi BT [Hungary] Procter & Gamble Kereskedelmi BT [Hungary] Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia] Procter & Gamble Marketing Latvia Ltd. [Latvia] Procter & Gamble Marketing Romania SRL (Romania) Procter & Gamble Manufacturing Romania SRL [Romania] Procter & Gamble Operations Polska - Spolka Akcyjna [Poland] Procter & Gamble Polska Sp. zo.o [Poland] Procter & Gamble O.O.O. [Russia] Procter & Gamble Spol. s.r.o. (Ltd) [Slovak Republic] Procter & Gamble Ukraine (Ukraine) Procter & Gamble Rakona Ltd. [Czech Republic] Procter & Gamble European Technical Center N.V. [Belgium] Procter & Gamble European Supply Company N.V. [Belgium] Procter & Gamble Belgium BVBA [Belgium] Procter & Gamble Eurocor N.V. [Belgium] Procter & Gamble Europe BVBA[ Belgium] Procter & Gamble Manufacturing Belgium BVBA [Belgium] Procter & Gamble Nederland B.V. [Netherlands] Procter & Gamble Services Company S.A. [Belgium] Procter & Gamble Far East, Inc. [Ohio] Max Factor K.K. [Japan] American Cosmetics K.K. [Japan] Betrix Japan K.K. [Japan] Max Factor Hanbai K.K. [Japan] P&G Indochina [Vietnam] Procter & Gamble Asia Pte. Ltd. [Singapore] Procter & Gamble Distribution Company Limited [India] Procter & Gamble India Holdings, Inc. [Ohio] Procter & Gamble Bangladesh Private Ltd. [Bangladesh] Procter & Gamble Home Products (India) Limited [India] Procter & Gamble Sri Lanka Private Ltd. [Sri Lanka] Procter & Gamble Korea Inc. [Korea] Procter & Gamble NPD, Inc. [Ohio] Procter & Gamble Taiwan Limited [Taiwan] Procter & Gamble Technology (Beijing) Co., Ltd. [PRC] Procter & Gamble (Vietnam) Ltd. [Vietnam] Procter & Gamble FED, Inc. [Delaware] Procter & Gamble Finance Corporation [Canada] The Procter & Gamble Global Finance Company [Ohio] Procter & Gamble Inc. [Ontario, Canada] Crest Toothpaste Inc. [Canada] Procter & Gamble Financial Services [Ireland] Procter & Gamble Industrial e Comercial Ltda. [Brazil] Procter & Gamble Mississauga Real Estate Company [Canada] Shulton de Venezuela, C.A. S.A.[Venezuela] Procter & Gamble Inversiones S.A. [Chile] Productos Sanitarios S.A. [Chile] Procter & Gamble Investment Corporation [Canada] Procter & Gamble Italia, S.p.A. [Italy] Procter & Gamble Pescara Technical Center S.p.A. [Italy] Rapik S.p.A. [Italy] Procter & Gamble Limited [U.K.] European Beauty Products (U.K.) Limited [U.K.] Max Factor & Co. (U.K.) Ltd. [Bermuda] Max Factor Limited [U.K.] Gala Cosmetics & Fragrances Limited [U.K.] Gala Cosmetics International Limited [U.K.] Komal Manufacturing Chemists Ltd. [India] Gala of London Limited [U.K.] Girl Cosmetics Ltd. (U.K.) Max Factor Manufacturing Ltd. [U.K.] Procter & Gamble (Enterprise Fund) Limited [U.K.] Procter & Gamble (Health & Beauty Care) Limited [U.K.] Noxell Limited [U.K.] [453] Procter & Gamble (Cosmetics and Fragrances) Limited [U.K.] Shulton (Great Britain) Ltd. [U.K.] Colfax Laboratories (India) Ltd. [India] Procter & Gamble Laundry & Cleaning Products Limited [U.K.] Procter & Gamble (NTC) Limited [U.K.] Procter & Gamble Pharmaceuticals U.K., Limited [U.K.] Procter & Gamble Product Supply (U.K.) Limited [U.K.] Procter & Gamble (Properties) Ltd. [U.K.] Procter & Gamble Technical Centers Limited [U.K.] (Partnership) Procter & Gamble U.K. [U.K.] (Partnership) Vidal Sassoon Holdings Ltd. [U.K.] The Procter & Gamble Manufacturing Company [Ohio] Procter & Gamble Manufacturing (Thailand) Limited [Thailand] Procter & Gamble de Mexico, S.A. de C.V. [Mexico] Max Factor Mexicana, S.A. de C.V. [Mexico] The Procter & Gamble Paper Products Company [Ohio] Procter & Gamble Philippines, Inc. [Philippines] Progam Realty & Development Corporation [Philippines] Procter & Gamble Productions, Inc. [Ohio] Fountain Square Music Publishing Co., Inc. [Ohio] Riverfront Music Publishing Co., Inc. [Ohio] Sycamore Productions, Inc. [Ohio] Procter & Gamble S.A. [France] Fonciere des 96 et 104 Avenue Charles de Gaulle [France] Laboratoire Lachartre SNC [France] S. H. Equateur S.A.R.L. [France] Procter & Gamble Amiens SNC [France] Procter & Gamble France S.N.C.[France] Procter & Gamble Hygiene Beaute France SNC [France] Procter & Gamble Neuilly S.A.R.L. [France] Procter & Gamble Pharmaceuticals France S.A. [France] Procter & Gamble Tissues France Laboratoires Sofabel S.A.R.L. [France] Procter & Gamble Brionne S.N.C. [France] Procter & Gamble Scandinavia, Inc. [Ohio] Procter & Gamble Hygien AB [Sweden] Procter & Gamble Hygien A/S [Norway] Procter & Gamble Hygien OY [Finland] Procter & Gamble S.p.A. [Italy] Eczacibasi Yatirim Holding Ortakligi A.S. [Turkey] Eurocos Italia S.p.A. [Italy] Fater S.p.A. [Italy] Fameccanica Data S.p.A. [Italy] Procter & Gamble Distribution Company (Europe) N.V. [Belgium] Procter & Gamble Holding S.p.A.[Italy] Procter & Gamble Pharmaceuticals Italia S.p.A. [Italy] Procter & Gamble Tissues Italia S.p.A. [Italy] Progasud S.p.A. [Italy] Procter & Gamble Portugal S.A. (Portugal) Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal] Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey] Sanipak Saglik Urunleri Sanayi Ve Ticaret A.S. [Turkey] Eczacibasi Procter & Gamble Dagitim Ve Satis AS [Turkey] The Procter & Gamble U.K. Tissue Company [Ohio] Productos Sanitarios S.A. [Argentina] Eguimad S.A. [Argentina] Topsy S.A. [Argentina] Promotora de Bienes y Valores, S.A. de C.V. [Mexico] P.T. Procter & Gamble Home Products Indonesia [Indonesia] REVAC 2 Corp. [Delaware] Richardson-Vicks Inc. [Delaware] Celtic Insurance Company Limited [Bermuda] Olay Company, Inc. [Delaware] P&G do Brasil Comercial Ltda. [Brazil] Procter & Gamble Australia Proprietary Limited [Australia] Procter & Gamble (NBD) Pty. Ltd. [Australia] Procter & Gamble Espana S.A. [Spain] Procter & Gamble GmbH [Germany] Beautycos Cosmetic GmbH [Germany] Betrix Cosmetic GmbH [Germany] Blendax Dental Vertriebs-GmbH [Germany] Blendax GmbH [Germany] Blendax Unterstutzungskasse GmbH [Germany] Buscher GmbH [Germany] Cover Girl Cosmetic GmbH [Germany] Eurocos Cosmetic GmbH [Germany] EURO-Juice G.m.b.H. Import und Vertrieb [Germany] Euro-Juice y Compania, S. en C. [Spain] HELIX Speditions-und Lagerei GmbH [Germany] Medimas Media-und Marketing Service GmbH I.L. [Germany] Procter & Gamble European Service GmbH [Germany] Procter & Gamble GmbH & Co. Manufacturing OHG [Germany] Noris Transport GmbH [Germany] Papierhygiene GmbH [Germany] Tempo AG [Switzerland] Bess Hygiene AG [Switzerland] Unterstutzungskasse der Vereinigte Papierwerke AG Nurnberg e.V. [Germany] Procter & Gamble Pharmaceuticals-Germany GmbH [Germany] Rohm Pharma GmbH [Germany] Egnaro Arzneimittel GmbH [Germany] Rohm Pharma GmbH Wien [Austria] Rolf H. Dittmeyer GmbH [Germany] SCS Sales + Cosmetic Service GmbH [Germany] Shulton GmbH [Germany] TRAPOFA Leonhard-Speditions GmbH I.L. [Germany] Procter & Gamble Health & Beauty Care-Europe Limited [U.K.] Procter & Gamble Health Products, Inc. [Delaware] Procter & Gamble Hong Kong Limited [Hong Kong] Procter & Gamble India Limited [India] Procter & Gamble Interamericas Inc. [Delaware] Alejandro Llauro E Hijos S.A.I.C. [Argentina] Compania Quimica S.A. [Argentina] Procter & Gamble Ecuador Compania Anonima [Ecuador] Procter & Gamble Interamericas de Costa Rica, S.A. [Costa Rica] Procter & Gamble Interamericas de El Salvador, S.A. de C.V. [El Salvador] Procter & Gamble Interamericas de Guatemala, S.A. [Guatemala] Procter & Gamble Interamericas de Nicaragua, S.A. [Nicaragua] Surfac S.A. [Peru] Procter & Gamble (Malaysia) Sdn. Berhad [Malaysia] Procter & Gamble Pharmaceuticals, Inc. [Ohio] Norwich Overseas, Inc. [Delaware] Norwich Pharmacal Company del Peru [Peru] Procter & Gamble Pharmaceuticals Australia Pty. Limited [Australia] Procter & Gamble Pharmaceuticals Canada, Inc. [Canada] S.A. Procter & Gamble Pharmaceuticals N.V. [Belgium] Procter & Gamble Pharmaceuticals Puerto Rico, Inc. [Delaware] Procter & Gamble (Singapore) Pte. Ltd. [Singapore] P. T. Procter & Gamble Indonesia [Indonesia] Richardson-Vicks do Brasil Quimica e Farmaceutica S.A. [Brazil] Richardson-Vicks Limited [Thailand] Richardson-Vicks Real Estate Inc. [Ohio] R-V Chemicals Holdings Ltd. [Ireland] Procter & Gamble (Ireland) Limited [Ireland] Procter & Gamble (Manufacturing) Ireland Limited [Ireland] Vick International Corporation [Delaware] Vick Nigeria Limited [Nigeria] Rosemount Corporation [Delaware] Anjali Corporation [Delaware] Kangra Valley Enterprises Ltd. [Delaware] The Mandwa Company, Inc. [Delaware] Ramalayam Investments Company [Delaware] Yamuna Investments Company [Delaware] The Malabar Company [Delaware] Temple Trees [India] Sacoma, S.A. [Argentina] Shulton, Inc. [New Jersey] Shulton S.A. [Guatemala] Shulton (New Zealand) Limited [New Zealand] Shulton (Thailand) Ltd. [Thailand] Sundor Brands Inc. [Florida] Sundor Canada Inc. [Delaware] Sundor Brands Limited [U.K.] Sycamore Investment Company [Ohio] Tambrands Inc. [Delaware] Island Laboratories Inc. [Delaware] Shenyang Tambrands Company Limited [PRC] Talco, Inc. [Delaware] Tambrands Industria e Comercia Ltda. [Brazil] Tambrands PACE, Inc. [Delaware] Tambrands de Venezuela, C.A. [Venezuela] Tambrands Polska Sp.z.o.o. [ Poland] Tambrands, Spol. s.r.o. [Czech Republic] Tambrands Ukraine [Ukraine] Tambrands S.A. [Brazil] Tampax Corporation [Delaware] Industrial Calentation Services (Pty.) Ltd. [S. Africa] Tambrands South Africa (Pty.) Ltd. [S. Africa] Tambrands Properties (Pty.) Ltd. [S. Africa] Tambrands AG [Switzerland] Tambrands Canada Inc. [Canada] Tambrands France S.A. [France] Tambrands GmbH [Germany] Tambrands Limited [U.K.] Tambrands (Continental) Ltd. [U.K.] Tambrands Investments Ltd. (U.K.) [U.K.] Tambrands Ireland Limited [Ireland] Tambrands Manufacturing, Inc. [Delaware] Tambrands Sales Corporation [Delaware] ZAO Tambrands [Russia] Tesco, Inc. [Delaware] TIM International Investments, Inc. [Delaware] Adminser S.A. [Mexico] Tambrands Dosmil, S.A. de C.V. [Mexico] Thomas Hedley & Co. Limited [U.K.] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name. EX-23 6 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 report dated July 31, 1997, incorporated by reference in this Annual Report on Form 10-K of The Procter & Gamble Company for the year ended June 30, 1997. 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. 33-49289 on Form S-8 for The Procter & Gamble 1992 Stock Plan; 4. Registration Statement No. 33-47656 on Form S-8 for The Procter & Gamble International Stock Ownership Plan; 5. Registration Statement No. 33-49111 on Form S-3 for The Procter & Gamble Stock Investment Program; 6. Registration Statement No. 33-50273 on Form S-8 for The Procter & Gamble Commercial Company Employees' Savings Plan; 7. Registration Statement No. 33-51469 on Form S-8 for The Procter & Gamble 1993 Non-Employee Directors' Stock Plan; 8. Registration Statement No. 333-03821 on Form S-3 for The Procter & Gamble Company Debt Securities and Warrants; 9. Registration Statement No. 333-05715 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan; 10. Amendment No. 1, Post-Effective Amendment No. 1 to Registration Statement No. 33-59257 on Form S-3 for The Procter & Gamble Shareholder Investment Program; 11. Registration Statement No. 333-14381 on Form S-8 for Profit Sharing Retirement Plan of The Procter & Gamble Commercial Company; 12. Registration Statement No. 333-14387 on Form S-8 for Giorgio Employee Savings Plan; 13. Registration Statement No. 333-14389 on Form S-8 for Procter & Gamble Pharmaceuticals Savings Plan; 14. Registration Statement No. 333-14391 on Form S-8 for Richardson-Vicks Savings Plan; 15. Registration Statement No. 333-14397 on Form S-8 for Procter & Gamble Subsidiaries Savings Plan; 16. Registration Statement No. 333-14395 on Form S-8 for Procter & Gamble Subsidiaries Savings and Investment Plan; 17. Registration Statement No. 333-21783 on Form-8 for The Procter & Gamble 1992 Stock Plan (Belgian Version); and 18. Registration Statement No. 333-30949 on Form S-3 for The Procter & Gamble Company Debt Securities and Warrants. DELOITTE & TOUCHE LLP September 9, 1997 EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000080424 THE PROCTER & GAMBLE COMPANY 1,000,000 U.S. DOLLARS 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 1 2,350 760 2,738 0 3,087 10,786 18,625 7,249 27,544 7,798 4,143 0 1,859 1,351 8,836 27,544 35,764 35,764 20,316 9,960 0 0 457 5,249 1,834 3,415 0 0 0 3,415 2.43 2.28
EX-99.2 8 Exhibit (99.2) -------------- Directors and Officers (First) Excess Liability Policy Form X.L. D&O-003B Policy No. XLD+O-00364-96 XL X.L. INSURANCE COMPANY, LTD. Producer: PARK INTERNATIONAL LIMITED In favor of: THE PROCTER & GAMBLE COMPANY/ THE PROCTER AND GAMBLE FUND AND OFFICERS OF OPERATING UNITS OF PROCTER AND GAMBLE COMPANY Address: ONE PROCTER & GAMBLE PLAZA CINCINNATI, OHIO 45202-3314 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, 1996 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 4th day of SEPTEMBER, 1996. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT DATE: SEPTEMBER 20, 1996 POLICY NO: XLD+O-00364-96 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/ THE PROCTER AND GAMBLE FUND OFFICERS OF OPERATING UNITS OF PROCTER AND 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, 1996 - JUNE 30, 1997 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, 1996 - 99 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"). THE PROCTER & GAMBLE COMPANY/THE PROCTER & GAMBLE FUND AND OFFICERS OF OPERATING UNITS OF PROCTER AND 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 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. C. 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 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, 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. (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 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 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). (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: SEPTEMBER 4, 1996 THE PROCTER & GAMBLE COMPANY/THE PROCTER & GAMBLE FUND AND OFFICERS OF OPERATING UNITS OF PROCTER AND GAMBLE COMPANY SCHEDULE A All Subsidiaries of the names Insured Insured: THE PROCTER & GAMBLE COMPANY/THE PROCTER & GAMBLE FUND AND OFFICERS OF OPERATING UNITS OF PROCTER AND GAMBLE COMPANY Policy No: XLD+O-00364-96 Endorsement No: 1 Effective Date: JUNE 30, 1996 - -------------------------------------------------------------------------- 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: SEPTEMBER 4, 1996 Ref: OD247.01 XL Insured: THE PROCTER & GAMBLE COMPANY/THE PROCTER & GAMBLE FUND AND OFFICERS OF OPERATING UNITS OF PROCTER AND GAMBLE COMPANY Policy No: XLD+O-00364-96 Endorsement No: 2 Effective Date: JUNE 30, 1996 - --------------------------------------------------------------------------- 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: SEPTEMBER 4, 1996 Ref: 0D234.01-R XL Insured: THE PROCTER & GAMBLE COMPANY/THE PROCTER & GAMBLE FUND AND OFFICERS OF OPERATING UNITS OF PROCTER AND GAMBLE COMPANY Policy No: XLD+O-00364-96 Endorsement No: 3 Effective Date: JUNE 30, 1996 - --------------------------------------------------------------------------- DELETION OF GENERAL CONDITION I. In consideration of the premium charged, it is hereby understood and agreed that Paragraph I, EMPLOYEE BENEFITS PROGRAM EXCLUSION, of Section VI. General Conditions of the Policy is deleted in its entirety. All other terms and conditions of the Policy remain unchange. X.L. INSURANCE COMPANY, LTD. By: /s/PAUL B. MILLER PAUL B. MILLER Title: VICE PRESIDENT Date: SEPTEMBER 4, 1996 Ref: 0D999.01 XL EX-99.4 9 Exhibit (99.4) -------------- Directors and Officers (Third) Excess Liability Policy STARR EXCESS Liability Insurance Company, Ltd. --------------------------------- 29 Richmond Road, Pembroke HM 08, Hamilton, Bermuda EXCESS DIRECTORS AND OFFICERS INSURANCE POLICY NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE OF THIS POLICY IS LIMITED GENERALLY TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE FIRST MADE AGAINST THE INSUREDS AND REPORTED TO THE INSURER DURING THE POLICY PERIOD. PLEASE READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE THEREUNDER WITH YOUR INSURANCE AGENT OR BROKER. NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT. NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND. DECLARATIONS POLICY #: 700090 ITEM 1. NAMED CORPORATION: The Procter and Gamble Company MAILING ADDRESS: One Procter & Gamble Plaza Cincinnati Ohio 45202-3314 STATE OF INCORPORATION OF THE NAMED CORPORATION: Ohio ITEM 2. FOLLOWED POLICY: INSURER: CODA POLICY NO: PG-106C ITEM 3. POLICY PERIOD: From: June 30, 1996 To: June 30, 1997 (12:01 A.M. standard time at the address stated in Item 1.) ITEM 4. LIMIT OF LIABILITY: $50,000,000 aggregate for coverages combined (including Defense Costs) EXCESS OF TOTAL UNDERLYING LIMITS OF: $95,000,000 ITEM 5. RETENTIONS: A. $N/A per Director or Officer each Loss, but not exceeding B. $N/A in the aggregate each Loss 1 of 2 Date of Issuance - September 16, 1996 SELIC DOO(6/94)DEC (sedoopol) DECLARATIONS POLICY NO.: 700090 ITEM 6. SCHEDULE OF PRIMARY AND UNDERLYING EXCESS POLICIES: POLICY POLICY INSURER NUMBER LIMITS PERIOD PRIMARY POLICY: CODA PG-106C $25,000,000 6/30/96 to 6/30/99 EXCESS POLICIES: X.L. XLD+O-00364-96 $25,000,000 6/30/96 to 6/30/97 ACE PG-8117D $45,000,000 6/30/96 to 6/30/97 ITEM 7. PREMIUM: $125,000 ITEM 8. A. DISCOVERY PERIOD PREMIUM: 100% of Premium indicated in Item 7. B. DISCOVERY PERIOD: One Year ITEM 9. NOTICE OF CANCELLATION PERIOD: 60 days. ITEM 10. ADDRESS OF INSURER FOR ALL NOTICES UNDER THIS POLICY: STARR EXCESS LIABILITY INSURANCE COMPANY, LTD. P.O. BOX HM 152 HAMILTON, HM AX BERMUDA ITEM 11. POLICY FORM: EXCESS DIRECTORS AND OFFICERS INSURANCE POLICY SELIC DOO(6/94) ENDORSEMENT(S): 1-2 BROKER: Park International Limited 44 Church Street P.O. Box HM 2064 Hamilton HM HX Bermuda /s/ DAVID F. ALLEN Authorized Representative 2 of 2 EXCESS DIRECTORS AND OFFICERS INSURANCE POLICY In consideration of the payment of the premium, and in reliance upon the statements made to the Insurer by application forming a part hereof and its attachments and the material incorporated therein, STARR EXCESS LIABILITY INSURANCE COMPANY, LTD. herein called the "Insurer", agrees as follows: I. INSURING AGREEMENTS This policy shall provide the Insured(s) with Excess Directors and Officers Insurance coverage in accordance with the same warranties, terms, conditions, exclusions and limitations of the Followed Policy identified in Item 2 of the Declarations as they were in existence on the inception date of this policy (except as regards the premium, the amount and limits of liability and the policy period) subject to: (a) the warranties, terms, conditions, exclusions and limitations of this policy including any endorsement attached hereto, and (b) provided always that this policy shall, in no event and notwithstanding any other provision, provide coverage broader than that provided by the Followed Policy unless such broader coverage is specifically agreed to by the Insurer and identified as broader coverage in a written endorsement attached hereto. II. DEFINITIONS (a) The term "Director(s) or Officer(s)" and the term "Insured(s)" shall mean those directors, officers and other natural persons (if any) insured under the Followed Policy. (b) The term "Company" shall mean the Named Corporation designated in Item 1 of the Declarations. (c) The term "Loss" shall have the same meaning in this policy as is attributed to it in the Followed Policy except that the term "Loss" shall in no event include civil or criminal fines or penalties, punitive or exemplary damages, the multiplied portion of multiplied damages or any amount for which the Insureds are not financially liable or which are without legal recourse to the Insureds, or matters which may be deemed uninsurable under the law pursuant to which this policy shall be construed. (d) "Policy Period" shall mean the period of time from the inception date shown in Item 3 of the Declarations to the earlier of the expiration date shown in Item 3 of the Declarations or the effective date of cancellation of this policy. (e) The term "Underlying Policies" shall mean the Primary and Underlying Excess Policies set forth in Item 6 of the Declarations. The term "Underlying Insurer(s)" shall mean the insurer(s) of the Underlying Policies The term "Underlying Limit" shall mean an amount equal to the aggregate of all the limits of the Underlying Policies combined (excess of their retentions). (f) The term "Wrongful Act" and "Subsidiary" shall have the same meanings in this policy as are attributed to them in the Followed Policy. III. LIMIT OF LIABILITY The limit of liability stated in Item 4 of the Declarations is the limit of the Insurer's liability for all Loss under all Coverages combined, arising out of all claims first made against the Insureds and reported to the Insurer during the Policy Period and the Discovery period (if applicable); however, the limit of liability for the Discovery Period shall be part of, and not in addition to, the limit of liability for the Policy Period. Further ,any claim which is made subsequent to the Policy Period or Discovery Period (if applicable) which pursuant to Clause V(b) is considered made during the Policy Period or Discovery Period shall also be subject to the one aggregate limit of liability stated in item 4 of the Declarations. It is expressly agreed that liability for any covered Loss with respect to claims first made and reported during the Policy period shall attach to the Insurer only after the Underlying Limit, and the Insureds shall have paid or been held liable to pay the full amount of the Underlying Limit, and the Insureds shall have paid or been held liable to pay the full amount of the applicable Retention amount for such Policy Period. In the event and only in the event of the reduction or exhaustion of the Underlying Limit by reason of the Underlying Insurers, and/or the Insureds paying 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 amounts set forth in Item 5 of the Declarations, which Retention amount shall be applied to any subsequent Loss in the same manner as specified in the Followed Policy; provided however, that the Retention amounts set forth in Item 5 shall not apply if the retention amount of any Underlying Policy has been applied to such Loss. This policy shall pay only in the event of reduction or exhaustion of the Underlying Limit as described above and shall not drop down for any reason including, but not limited to, uncollectability (in whole or in part) of the Underlying Limit, existence of a sub-limit of liability in any Underlying Policy, or any Excess Policy containing terms and conditions different from the Followed Policy. The risk of uncollectability of such underlying insurance (in whole or in part) whether because of financial impairment or insolvency of an Underlying Insurer, the application of any underlying sub-limit of liability or differing terms and conditions or for any other reason is expressly retained by the Insureds and is not in any way or under any circumstances insured or assumed by the Insurer. IV. UNDERLYING LIMITS It is a condition of this policy that the Underlying Policies shall be maintained in full effect with solvent insurers during the Policy Period except for any reduction or exhaustion of the aggregate limits contained therein by reason of Loss paid thereunder (as provided for in Clause III above). Failure to comply with the foregoing shall not invalidate this policy, but in the event of such failure, the Insurer shall be liable only to the extent that it would have been liable had the Insureds and the company complied with such condition. Unless the Insurer otherwise agrees in writing, this policy shall immediately and automatically terminate if the Company fails to notify the Insurer as set forth in Clause V(c) of this policy that any of the Underlying Policies has ceased to be in full effect. If such notification is made, then this policy shall continue in effect but the Insured(s) (or an insurer providing replacement coverage if such replacement coverage is obtained) shall be liable for the amount of the underlying limit of such ceased Underlying Policy and the Insurer shall be liable only to the extent that it would have been liable had the Underlying Policy not ceased. Unless the Insurer otherwise agrees in writing, this policy shall automatically terminate thirty (30) days following the date any Underlying Insurer becomes subject to a receivership, liquidation, dissolution, rehabilitation or any similar proceeding or is taken over by any regulatory authority unless the Named Corporation obtains replacement coverage for such Underlying Policy within such thirty (30) day period. 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 Company or the Insureds shall as a condition precedent to the Insureds 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, but only upon the condition that the Insurer agrees to follow such changes by written endorsement attached hereto and the Named Corporation agrees to any additional premium and/or amendment of the provisions of this policy required by the Insurer relating to such changes. Further, such new coverage is conditioned upon the Named Corporation paying when due any additional premium required by the Insurer relating to such changes. V. NOTICES AND CLAIM REPORTING PROVISIONS (a) The Company or the Insureds shall, as a condition precedent to the obligations of the Insurer under this policy, give written notice to the Insurer at the address indicated in Item 10 of the Declarations and all Underlying Insurers as soon as practicable during the Policy Period, or during the Discovery Period (if applicable), of any claim made against the Insureds. (b) If during the Policy period or during the Discovery Period (if applicable) (i) written notice of a claim has been given to the Insurer pursuant to Clause V(a) above, or (ii) to the extent permitted by the terms and conditions of the Followed Policy, written notice of circumstances that might reasonably be expected to give rise to a claim, has been given to the Insurer and all Underlying Insurers, then any claim which is subsequently made against the Insureds and reported to the Insurer and all Underlying Insurers alleging, arising out of, based upon or attributable to the facts alleged in the claim or circumstances of which such notice has been given, or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged in the claim or circumstances of which such notice has been given, shall be considered made at the time such claim or circumstances has been given to the Insurer. (c) The Company or the Insureds shall, as a condition precedent to the obligations of the Insurer under this policy, give written notice to the Insurer of the following events as soon as practicable but in no event later than thirty (30) days of an Insured or the Company becoming aware of the event: (i) The cancellation, nonrenewal of any Underlying Policy or any Underlying Policy otherwise ceases to be in effect or uncollectible (in part or in whole); or (ii) Any insurer or any Underlying Policy becoming subject to a receivership, liquidation, dissolution, rehabilitation or any similar proceeding or being taken over by any regulatory authority; or (iii) The Named Corporation consolidating with or merging into, or selling all or substantially all of its assets to, any other person or entity or group of persons and/or entities acting in concert; or (iv) Any person or entity or group of persons and/or entities acting in concert acquiring an amount of the outstanding securities representing more than 50% of the voting power for the election of Directors of the Named Corporation, or acquiring the voting rights of such an amount of such securities. VI. CLAIM PARTICIPATION The Insurer shall have the right, in its sole discretion, but not the obligation to effectively associate with the Company and the Insureds in the defense and settlement of any claim that appears to the Insurer to be reasonably likely to involve the Insurer, including but not limited to effectively associating in the negotiation of a settlement. The Insureds shall defend and contest any such claim. The Company and the Insureds shall give the Insurer full cooperation and such information as it may reasonably require. The failure of the Insurer to exercise any right under this paragraph at any point in a claim shall not act as a waive or limit the right of the Insurer in any manner to exercise such rights at any other point in a claim including the right to effectively associate in the negotiation of a settlement. The Insurer does not under this policy assume any duty to defend. The Insureds shall not admit or assume any liability, enter into any settlement agreement, stipulate to any judgment or incur any Defense Costs without the prior written consent of the Insurer. Only those settlements, stipulated judgments and Defense Costs which have been consented to by the Insurer shall be recoverable as Loss under the terms of this policy. The Insurer's consent shall not be unreasonably withheld, provided that the Insurer shall be entitled to effectively associate in the defense and the negotiation of any settlement of any claim in order to reach a decision as to reasonableness. VII. DISCOVERY CLAUSE If the Insurer shall cancel or refuse to renew this policy the Named Corporation shall have the right, upon payment of the additional percentage set forth in Item 8A of the Declarations of the full annual premium, to the period set forth in Item 8B of the Declarations following the effective date of such cancellation or nonrenewal (herein referred to as the Discovery Period) in which to give written notice to the Insurer of claims first made against the Insureds during said period for any Wrongful Act occurring prior to the end of the Policy Period and otherwise covered by this policy. As used herein, "full annual premium" means the premium level in effect immediately prior to the end of the Policy Period. The rights contained in this clause shall terminate, however, unless written notice of such election together with the additional premium due is received by the Insurer within the time period and in the manner set forth in the Followed Policy. The Discovery Period is not available unless the Named Corporation has elected the Discovery Period (or Extended Reporting Period) in all Underlying Policies which have been canceled or non-renewed by their Underlying Insurers. The additional premium for the Discovery period shall be fully earned at the inception of the Discovery Period. The Discovery Period is not cancelable. The offer by the Insurer of renewal terms, conditions, limits of liability and/or premiums different from those of the expiring policy shall not constitute refusal to renew. VIII. CANCELLATION CLAUSE This policy may be canceled by the Named Corporation only by mailing written prior notice to the Insurer or by surrender of this policy to the Insurer or its authorized agent at the address set forth in Item 10 of the Declarations and within the time period and in the manner set forth in the Followed Policy. This policy may also be canceled by or on behalf of the Insurer by delivering to the Named Corporation or by mailing to the Named Corporation, by registered, certified, or other first class mail, at the Named Corporation's address set forth in the Declarations, written notice stating when, not less than the period set forth in Item 9 of the Declarations, thereafter the cancellation shall be effective. The mailing of such notice as aforesaid shall be sufficient proof of notice. The Policy Period terminates at the date and hour specified in such notice, or at the date and time of surrender. If this policy shall be canceled by the Named Corporation, the Insurer shall retain the customary short rate proportion of the premium hereon. If this policy shall be canceled by 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. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. IX. OTHER CONDITIONS (a) 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 therefor, and the Company and the Insureds shall execute all papers required and shall do everything 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. (b) OTHER INSURANCE Such insurance as is provided by this policy shall apply only as excess over any other valid and collectible insurance. Provided, however, that nothing in the foregoing shall be construed to compel the Insurer to drop down in the event of the invalidity or uncollectibility of any Underlying Policy. (c) NOTICE AND AUTHORITY It is agreed that the Named Corporation shall act on behalf of the Insureds with respect to the giving and receiving of notice of claim or cancellation, the payment of premiums and the receiving of any return premiums that may become due under this policy, the receipt and acceptance of any endorsements issued to form a part of this policy and the exercising or declining to exercise any right to a Discovery Period. (d) ASSIGNMENT This policy and any and all rights hereunder are not assignable without the written consent of the Insurer. (e) PREMIUM The premium under this policy is a flat premium and is not subject to adjustment except as otherwise provided herein. (f) CHANGES Notice to or knowledge possessed by any person shall not effect a waiver of or a change in any part of this policy or stop 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. (g) CURRENCY The premiums and any Loss under this policy are payable in United States currency. (h) 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 notified shall within ten (10) calendar days thereafter select an arbitrator and notify the party desiring arbitration o 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 the 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. Upon acceptance of the appointment by said third arbitrator, the Arbitration Board for he 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 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: (i0 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. No person or organization shall have any right under this policy to join the Insurer as a party to any action against the Insureds or the company to determine the Insureds liability, nor shall the Insurer be impleaded by the Insureds or the Company or their legal representatives. 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 a 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). The Insureds and the Company 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 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. (i) CHOICE OF LAW This policy shall be construed and enforced in accordance with the internal laws of the State of New York (with the exception of the procedural law set required by Clause IX(G), which shall be construed and enforced in accordance with the laws of Bermuda), provided, however, that, notwithstanding any legal principals to the contrary, the warranties, terms, conditions, exclusions and limitations of this policy are to be construed in an evenhanded fashion between the Insureds, the Company 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 warranties, terms, conditions, exclusions and limitations viewed as a whole (without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the Insureds, the Company or the Insurer). (j) HEADINGS The descriptions in the headings and any subheadings of this policy (including any titles given to any endorsement attached hereto) are inserted solely for convenience and do not constitute any part of the terms or conditions hereof. IN WITNESSETH WHEREOF, the Company has caused this policy to be signed by its President and a Secretary. /s/L. M. MURPHY /s/JOSEPH C. H. JOHNSON Secretary President ENDORSEMENT NO: 1 This endorsement, effective: June 30, 1996 forms a part of policy number: 700090 Issued to: The Procter and Gamble Company by: Starr Excess Liability Insurance Company, Ltd. In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable for Loss in connection with any claim or claims made against the Directors or Officers: (a) alleging, arising out of, based upon or attributable to the facts alleged, or to the same or related Wrongful Acts alleged or contained, in any claim which has been reported, or in any circumstances of which notice has been given, under any policy, whether excess or underlying, of which this policy is a renewal or replacement or which it may succeed in time; (b) alleging, arising out of, based upon or attributable to any pending or prior litigation prior to June 13, 1994, or alleging or derived from the same or essentially the same facts as alleged in such pending or prior litigation; All other terms and conditions remain the same. Authorized Representative: /s/DAVID F. ALLEN ENDORSEMENT NO: 2 This endorsement, effective: June 30, 1996 forms a part of policy number: 700090 Issued to: The Procter and Gamble Company by: Starr Excess Liability Insurance Company, Ltd. In consideration of the premium charged, it is hereby understood and agreed that this Policy shall not be subject to the Clause 7 (Automatic Extension) of the Followed Policy. All other terms and conditions remain the same. Authorized Representative: /s/DAVID F. ALLEN Excess Directors and Officers Insurance and Corporate Reimbursement Renewal Application NOTICE: THE POLICY PROVIDES THAT THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. FURTHER NOTE THAT AMOUNTS INCURRED FOR LEGAL DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT. IF A POLICY IS ISSUED, THE APPLICATION WILL BE ATTACHED TO AND BECOME A PART OF THE POLICY, THEREFORE IT IS NECESSARY THAT ALL QUESTIONS BE ANSWERED ACCURATELY AND COMPLETELY. IF A POLICY IS ISSUED, IT WILL BE ON A CLAIMS-MADE BASIS. -------------------------------------------------------- 1. APPLICANT'S (a) Corporation name The Procter & Gamble Company (b) State of Incorporation Ohio (c) Address One Procter & Gamble Plaza Cincinnati, Ohio 45202-3314 2. Are any plans for merger, acquisition, consolidation, tender offer or issuance of securities of or by the Applicant or any of its Subsidiaries being considered? Yes X No (If yes, please provide details) The Company's Board has approved a number of acquisitions, none of which is material or required submission to the Company's shareholders for approval. 3. Has the Applicant or any of its Subsidiaries filed any registration of securities under the Securities Act of 1933 or any other offering of securities within the last year? Yes X No Does it anticipate doing so within the next year? Yes X No (If yes, give details and submit offering materials if available) 4. Name of Risk Manager Harold L. Maxson, Director of Insurance 5. Loss experience for Directors & Officers Insurance or similar coverage (If yes, attach full details. If no losses, check here: X 6. Has any insurance carrier refused, canceled or nonrenewed Directors & Officers Insurance or similar coverage? Yes No X (If yes, attach full details including when and reason) 7. Attach copies of the following for the Applicant and, to the extent available, each of its Subsidiaries: (a) Latest annual report and 10-K filed with the SEC (b) Form 10-Q reports and interim financial statements for all quarters since last 10-K Report (c) All proxy statements and Notices of Annual Meeting of Stockholders within the last twelve months (d) All registration statements filed with the SEC within the last twelve months and/or any private placement offerings (e) Any Form 8-K filings made with the SEC within the last twelve months (f) If there has been a change since your last application, a conformed copy of the indemnification provisions of the charter and the by-laws. Also attach a copy of any corporate indemnification agreement(s) (g) Schedule of previous Directors & Officers Insurance, if not previously insured with Starr Excess (h) Schedule of current or proposed Directors & Officers Insurance 8. It is agreed that this renewal application is a supplement to the application(s) which are part of the expiring policy, and that those application(s) together with this renewal application, constitute the complete application that shall be the basis of the contract and shall form part of the policy should a policy be issued. THE UNDERSIGNED AUTHORIZED OFFICER OF THE APPLICANT DECLARES THAT THE STATEMENTS SET FORTH HEREIN ARE TRUE. THE UNDERSIGNED AUTHORIZED OFFICER AGREES THAT IF THE INFORMATION SUPPLIED ON THIS APPLICATION CHANGES BETWEEN THE DATE OF THIS APPLICATION AND THE EFFECTIVE DATE OF THE INSURANCE, HE/SHE (UNDERSIGNED) WILL, IN ORDER FOR THE INFORMATION TO BE ACCURATE ON THE EFFECTIVE DATE OF THE INSURANCE, IMMEDIATELY NOTIFY THE INSURER OF SUCH CHANGES, AND THE INSURER MAY WITHDRAW OR MODIFY ANY OUTSTANDING QUOTATIONS AND/OR AUTHORIZATIONS OR AGREEMENTS TO BIND THE INSURANCE. SIGNING OF THIS APPLICATION DOES NOT BIND THE APPLICANT OR THE INSURER TO COMPLETE THE INSURANCE, BUT IT IS AGREED THAT THIS APPLICATION SHALL BE THE BASIS OF THE CONTRACT SHOULD A POLICY BE ISSUED, AND WILL BE ATTACHED TO AND BECOME PART OF THE POLICY. ALL WRITTEN STATEMENTS AND MATERIALS FURNISHED TO THE INSURER IN CONJUNCTION WITH THIS APPLICATION ARE HEREBY INCORPORATED BY REFERENCE INTO THIS APPLICATION AND MADE A PART HEREOF. THE UNDERSIGNED AUTHORIZED OFFICER OF THE APPLICANT HEREBY ACKNOWLEDGES THAT HE/SHE IS AWARE THAT THE LIMIT OF LIABILITY CONTAINED IN THIS POLICY SHALL BE REDUCED, AND MAY BE COMPLETELY EXHAUSTED, BY THE COSTS OF LEGAL DEFENSE AND, IN SUCH EVENT, THE INSURER SHALL NOT BE LIABLE FOR THE COSTS OF LEGAL DEFENSE OR FOR THE AMOUNT OF ANY JUDGMENT OR SETTLEMENT TO THE EXTENT THAT SUCH EXCEEDS THE LIMIT OF LIABILITY OF THIS POLICY. THE UNDERSIGNED AUTHORIZED OFFICER OF THE APPLICANT HEREBY FURTHER ACKNOWLEDGES THAT HE/SHE IS AWARE THAT LEGAL DEFENSE COSTS THAT ARE INCURRED SHALL BE APPLIED AGAINST THE RETENTION AMOUNT. Applicant: The Procter & Gamble Company --------------------------------------------------------- By: /S/JOHN E. PEPPER --------------------------------------------------------- (must be signed by the Chairman of the Board or President Title: Chairman of the Board and Chief Executive --------------------------------------------------------- Date: --------------------------------------------------------- Corporation: -------------------------------------------------------- (Corporate seal) Private or Foreign Company Supplement (Companies outside the United States) 1. Stock Ownership (a) Total number of voting shares outstanding: 737,933,312 (b) Total number of voting shareholders: 200,134 (c) Total number of voting shares owned by its Directors (direct and beneficial): 375,774 (d) Total number of voting shares owned by its Officers (direct and beneficial) who are not Directors: 1,376,147 (e) Does any shareholder own five percent or more of the voting shares directly or beneficially? If so, designate name and percentage of holdings. (If no such shareholders, check here "none". ) P&G Profit Sharing Long Term Incentive Trust - 5.5% (f) Are there any other securities convertible to voting stock. If so, fully describe. (If none, check here "none". ) Preferred stock is not traded, but is held for retirees. These shares are convertible to common stock upon retirement. 2. (a) Complete list of all Directors of the Corporation named in 1(a) of the application by name and affiliation with other corporations. (If included as an attachment herein, check here X ) See Annual Report. 3. Complete list of all Officers of the Corporation named in 1(a) of the application by name and affiliation with other corporations. (If included as an attachment herein, check here X ) 4. List of all direct and indirect Subsidiary corporations: Business Percentage Date Domestic or Foreign or Type of of Acquired and Country of Name Operation Ownership or Created Incorporation - ---- ---------- ---------- ---------- ------------------ See Schedule I Coverage to include all Subsidiaries? Yes X No . If yes, include complete list of Directors and Officers of each Subsidiary. If no, include complete list of Directors and Officers of each Subsidiary for which coverage is requested. If included as an attachment herein, check here . 5. Attached complete copy of charter and by-laws Schedule G Schedule of Directors and Officers Insurance for previous policy period (a) Policy expiration date 7/1/96 (b) Policy term 7/1/95-7/1/96 (c) Primary Insurance Limit of Name of Insurer Liability Retention Premium --------------- --------- --------- ------- CODA $25 Million / / $355,000 (d) Excess Insurance (by layer) Limit of Name of Insurer Liability Premium --------------- --------- ------- X. L. $25 Million xs $ 25 Million $150,000 ACE $45 Million xs $ 50 Million $140,000 Starr Excess $50 Million xs $100 Million $125,000 ACE $ 5 Million xs $145 Million Included Above Schedule H Schedule of underlying insurance: List the underlying Directors and Officers insurance which will, or is proposed to, be carried by the Company for the policy period being applied for: (a) Primary Insurance Limit of Name of Insurer Liability Retention Premium --------------- --------- --------- ------- CODA $25 Million / / $355,000 (b) Excess Insurance (by layer) Limit of Name of Insurer Liability Premium --------------- --------- ------- X. L. $25 Million xs $ 25 Million $150,000 ACE $45 Million xs $ 50 Million $140,000 Starr Excess $50 Million xs $100 Million $125,000 ACE $ 5 Million xs $145 Million Included Above (c) Does any policy of excess insurance contain any coverage restrictions or exclusions which are not in the primary insurance? (If yes, attach full details. If "no", check here X ) -----END PRIVACY-ENHANCED MESSAGE-----