-----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, FK11s4LLQyr/ZfXFWuxvGdcQSANsEkLjoWYtKy1AQ9dJE3ZKWuX+ljwvLO062abp RMYAmWDqNSaeqB5DaT32iQ== /in/edgar/work/20000913/0000080424-00-000040/0000080424-00-000040.txt : 20000922 0000080424-00-000040.hdr.sgml : 20000922 ACCESSION NUMBER: 0000080424-00-000040 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROCTER & GAMBLE CO CENTRAL INDEX KEY: 0000080424 STANDARD INDUSTRIAL CLASSIFICATION: [2840 ] IRS NUMBER: 310411980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00434 FILM NUMBER: 721657 BUSINESS ADDRESS: STREET 1: ONE PROCTER & GAMBLE PLZ CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5139831100 10-K 1 0001.txt THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================ ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED JUNE 30, 2000 ********************************** 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, 2000 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, 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 1,306,135,586 shares of Common Stock outstanding as of July 31, 2000. The aggregate market value of the voting stock held by non-affiliates amounted to $74 billion on July 31, 2000. Documents Incorporated By Reference ----------------------------------- Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2000 are incorporated by reference into Part I, Part II and Part IV of this report. Portions of the Proxy Statement for the 2000 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 1-4 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. Financial Information About Industry Segments --------------------------------------------- The Company's products fall into five business segments: fabric and home care, paper, beauty care, health care, and food and beverage. Additional information required by this item is incorporated herein by reference to Note 12, Segment Information, of the Notes to the Consolidated Financial Statements, which appears on page 38, and Financial Review, which appears on pages 13-23 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. Narrative Description of Business --------------------------------- The Company's business, represented by the aggregate of its fabric and home care, paper, beauty care, health care, and food and beverage segments, is essentially homogeneous. Many of 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 food, drug, mass and other retail outlets. The laundry and diaper categories constitute approximately 20% and 12% of consolidated fiscal 2000 sales, respectively. These categories declined slightly as percentages of consolidated sales versus the prior year, but are comparable to the year before. 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 2000 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 2001. 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 Company has approximately 110,000 employees. Additional information required by this item is incorporated herein by reference to Note 8, Employee Stock Ownership Plan, and Note 9, Postretirement Benefits, which appear on pages 35-37; Note 12, Segment Information, which appears on page 38; Financial Highlights, which appears on page 39; and Financial Review, which appears on pages 13-23 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. Financial Information About Foreign and Domestic Operations ----------------------------------------------------------- The information required by this item is incorporated herein by reference to Note 12, Segment Information, which appears on page 38, and Financial Review, which appears on pages 13-23 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. Company sales by geography for the fiscal year ended June 30, 2000 were as follows: North America - 54%; Europe, Middle East and Africa - 28%; Asia - 11% and Latin America - 7%. The North American percentage increased slightly versus prior years primarily due to the acquisition of Iams.
Assets and net sales in the United States and internationally were as follows (in millions): Net Sales (for the year ended June 30) Assets (as of June 30) -------------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- United States $20,038 $18,314 $17,848 $17,227 $15,142 $15,159 International 19,913 19,811 19,306 16,967 16,971 15,807
Item 2. Properties. ---------- In the United States, the Company owns and operates manufacturing facilities at 41 locations in 23 states. In addition, it owns and operates 93 manufacturing facilities in 45 other countries. Fabric and home care products are produced at 47 of these locations; paper products at 48; health care products at 26; beauty care products at 34; and food and beverage products at 15. 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 the end of June 30, 2000 representing the Company's probable future costs that can be reasonably estimated was $7 million. The Company is the subject of a lawsuit alleging damages under the U.S. Securities laws relating to our March 7, 2000 and June 8, 2000 earnings releases. While the effect of future results of these suits is not currently subject to reasonable estimation, management presently believes that the ultimate liability arising from such claims will not materially affect the Company's financial condition. 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 July 31, 2000 are: Elected to Officer Name Position Age Position - --------------------- ---------------------------------- --- -------- John E. Pepper Chairman of the Board. 61 1978 Director since June 12, 1984 Alan G. Lafley President and Chief Executive. 53 1992 Director since June 8, 2000 Richard L. Antoine Global Human Resources & Product 54 1998 Supply Officer Wolfgang C. Berndt President - Global Fabric & Home 57 1984 Care Gordon F. Brunner Former Chief Technology Officer 61 1985 (External Technical Ventures). Director since March 1, 1991 Bruce L. Byrnes President - Global Beauty Care 52 1991 and Global Health Care R. Kerry Clark President - Global Market 48 1995 Development Organization G. Gilbert Cloyd Chief Technology Officer 54 2000 Clayton C. Daley, Jr. Chief Financial Officer 48 1998 Stephen N. David Chief Information Officer and 51 1998 Business-to-Business Officer James J. Johnson Chief Legal Officer 53 1991 Mark D. Ketchum President - Global Baby Care 50 1996 and Feminine Care Gary T. Martin President - Global Tissues & Towel 55 1990 Jorge P. Montoya President - Global Food & Beverage 54 1991 and Latin America David R. Walker Vice President and Comptroller 45 1997 All of the above named Executive Officers, except James J. Johnson and David R. Walker, are members of the Global Leadership Council of The Procter & Gamble Company. All of the Executive Officers named above have been employed by the Company for more than 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 the inside back cover of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. Item 6. Selected Financial Data ----------------------- The information required by this item is incorporated by reference to Financial Highlights, which appears on page 39 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. 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 13-23; Note 2, Organization 2005, which appears on pages 30-31; Note 11, Commitments and Contingencies, which appears on page 37; and Note 12, Segment Information, which appears on page 38 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. The Company has made and will make certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 2000 and in other contexts relating to volume growth, increases in market shares, Organization 2005, financial goals and cost reduction, among others. These forward-looking statements are based on assumptions and estimates regarding competitive activity, pricing, product introductions, economic conditions, technological innovation, currency movements, governmental action and the development of certain markets. Among the key factors necessary to achieve the Company's goals are: (1) the successful implementation of Organization 2005, including the achievement of expected cost and tax savings and successful management of organizational and work process restructuring; (2) the ability to achieve business plans, including volume growth and pricing plans, despite high levels of competitive activity; (3) the ability to maintain key customer relationships; (4) the achievement of growth in significant developing markets such as China, Mexico, the Southern Cone of Latin America and the countries of Central and Eastern Europe; (5) the ability to successfully manage regulatory, tax and legal matters, including resolution of pending matters within current estimates; (6) the successful execution of planned minor brand divestitures; (7) the ability to successfully implement cost improvement plans in manufacturing and overhead areas; and (8) the ability to successfully manage currency, interest rate and certain commodity cost exposures. 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The information required by this item is incorporated by reference to Financial Review, which appears on pages 13-23, and Note 6, Risk Management Activities, which appears on pages 32-34 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. Item 8. Financial Statements and Supplemental Data ------------------------------------------ The financial statements and supplemental data are incorporated by reference to pages 24-39 of the Annual Report to Shareholders for the fiscal year ended June 30, 2000. 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 4-9 and 24 of the proxy statement filed since the close of the fiscal year ended June 30, 2000, pursuant to Regulation 14A which involved the election of directors. Pursuant to Item 401(b) of Regulation S-K, Executive Officers of the Registrant are reported in Part I of this report. In addition to the Directors listed in the above-referenced proxy statement, Mr. Scott D. Cook was elected to the Board of Directors on September 12, 2000. Mr. Cook is a Director and Chairman of the Executive Committee of Intuit, Inc.; Director of Amazon.com; and Director of eBay, Inc. He is 48. Item 11. Executive Compensation ---------------------- The information required by this item is incorporated by reference to pages 10-19 of the proxy statement filed since the close of the fiscal year ended June 30, 2000, 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 21-23 of the proxy statement filed since the close of the fiscal year ended June 30, 2000, 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 24 of the proxy statement filed since the close of the fiscal year ended June 30, 2000, 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, 2000, 1999 and 1998 - Consolidated balance sheets -- as of June 30, 2000 and 1999 - Consolidated statements of shareholders' equity -- for years ended June 30, 2000, 1999 and 1998 - Consolidated statements of cash flows -- for years ended June 30, 2000, 1999 and 1998 - 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, 1998). (3-2) -- Regulations (Incorporated by reference to Exhibit (3-2) of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 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 July 11, 2000) which was adopted by the shareholders at the annual meeting on October 13, 1992 and was amended on January 12, 1999 by the Board of Directors. (10-2) -- The Procter & Gamble 1983 Stock Plan (as amended June 13, 2000) which was adopted by the shareholders at the annual meeting on October 11, 1983 and was amended on May 11, 1993 by the Board of Directors. (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, 1998). (10-4) -- Additional Remuneration Plan (as amended July 11, 2000) which was adopted by the Board of Directors on April 12, 1949 and was amended on June 12, 1990. (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, 1998). (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 (10-6) of the Company's Annual Report on Form 10-K for the year ended June 30, 1998). (10-7) -- The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (as amended July 11, 2000), 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, and which was also amended on August 22, 1997 for the 2-for-1 stock split, and was again amended on January 12, 1999. (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 (10-8) of the Company's Annual Report on Form 10-K for the year ended June 30, 1999). (10-9) -- The Procter & Gamble Executive Group Life Insurance Policy (Additional Policy) (Incorporated by reference to Exhibit (10-9) of the Company's Annual Report on Form 10-K for the year ended June 30, 1998). Exhibit (11) -- Computation of earnings per share. Exhibit (12) -- Computation of ratio of earnings to fixed charges. Exhibit (13) -- Annual Report to Shareholders (pages 1-4, 13-39 and inside back cover). 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, 1998) (the "Policy Period" has been extended to 6/30/03). (99-2) -- Directors and Officers (First) Excess Liability Policy (Incorporated by reference to Exhibit (99-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1998) (the "Policy Period" has been extended to 6/30/01). (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, 1998) (the "Policy Period" has been extended to 6/30/01). (99-4) -- Directors and Officers (Third) Excess Liability Policy. (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, 1998) (the "Policy Period" has been extended to 6/30/01). 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: During the quarter ended June 30, 2000, the Company filed Current Reports on Form 8-K containing information pursuant to Item 5. The first, regarding a group of shareholder lawsuits, was dated May 15, 2000. The second, regarding personnel changes and revised earnings estimates, was dated June 8, 2000. 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 A.G. LAFLEY ---------------------------------- (A.G. Lafley) President and Chief Executive September 12, 2000 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 - --------- ----- ---- ----| A.G. LAFLEY | - ----------------------- President and Chief Executive | (A.G. Lafley) (Principal Executive Officer) | | JOHN E. PEPPER | - ----------------------- Chairman of the Board | (John E. Pepper) | | CLAYTON C. DALEY, JR. | - ----------------------- Chief Financial Officer | (Clayton C. Daley, Jr.) (Principal Financial Officer) | | DAVID R. WALKER | - ----------------------- Vice President and Comptroller | (David R. Walker) (Principal Accounting Officer) | | NORMAN R. AUGUSTINE | - ----------------------- Director | (Norman R. Augustine) | | DONALD R. BEALL | - ----------------------- Director | (Donald R. Beall) | | GORDON F. BRUNNER | - ----------------------- Director | (Gordon F. Brunner) | | | - ----------------------- Director | (Richard B. Cheney) | | | - ----------------------- Director | (Scott D. Cook) September 12, 2000| | RICHARD J. FERRIS | - ----------------------- Director | (Richard J. Ferris) | | | - ----------------------- Director | (Joseph T. Gorman) | | CHARLES R. LEE | - ----------------------- Director | (Charles R. Lee) | | LYNN M. MARTIN | - ----------------------- Director | (Lynn M. Martin) | | JOHN F. SMITH, JR. | - ----------------------- Director | (John F. Smith, Jr.) | | RALPH SNYDERMAN | - ----------------------- Director | (Ralph Snyderman) | | ROBERT D. STOREY | - ----------------------- Director | (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, 1998). (3-2) -- Regulations (Incorporated by reference to Exhibit (3-2) of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 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 July 11, 2000) which was adopted by the shareholders at the annual meeting on October 13, 1992 and was amended on January 12, 1999 by the Board of Directors. (10-2) -- The Procter & Gamble 1983 Stock Plan (as amended June 13, 2000) which was adopted by the shareholders at the annual meeting on October 11, 1983 and was amended on May 11, 1993 by the Board of Directors. (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, 1998). (10-4) -- Additional Remuneration Plan (as amended July 11, 2000) which was adopted by the Board of Directors on April 12, 1949 and was amended on June 12, 1990. (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, 1998). (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 (10-6) of the Company's Annual Report on Form 10-K for the year ended June 30, 1998). (10-7) -- The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (as amended July 11, 2000), 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, and which was also amended on August 22, 1997 for the 2-for-1 stock split, and was again amended on January 12, 1999. (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 (10-8) of the Company's Annual Report on Form 10-K for the year ended June 30, 1999). (10-9) -- The Procter & Gamble Executive Group Life Insurance Policy (Additional Policy) (Incorporated by reference to Exhibit (10-9) of the Company's Annual Report on Form 10-K for the year ended June 30, 1998). Exhibit (11) -- Computation of earnings per share. Exhibit (12) -- Computation of ratio of earnings to fixed charges. Exhibit (13) -- Annual Report to Shareholders (pages 1-4, 13-39 and inside back cover). 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, 1998) (the "Policy Period" has been extended to 6/30/03). (99-2) -- Directors and Officers (First) Excess Liability Policy (Incorporated by reference to Exhibit (99-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1998) (the "Policy Period" has been extended to 6/30/01). (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, 1998) (the "Policy Period" has been extended to 6/30/01). (99-4) -- Directors and Officers (Third) Excess Liability Policy. (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, 1998) (the "Policy Period" has been extended to 6/30/01). EX-10.1 2 0002.txt Exhibit (10-1) THE PROCTER & GAMBLE 1992 STOCK PLAN (as amended July 11, 2000) ARTICLE A -- PURPOSE. The purpose of The Procter & Gamble 1992 Stock Plan (hereinafter referred to as the "Plan") is to encourage those employees of The Procter & Gamble Company (hereinafter referred to as the "Company") and its subsidiaries who are largely responsible for the long-term success and development of the business to strengthen the alignment of interests between employees and the Company's shareholders through the increased ownership of shares of the Company's Common Stock, and to encourage those employees to remain in the employ of the Company and its subsidiaries. This will be accomplished through the granting to employees of options to purchase shares of the Common Stock of the Company, payment of a portion of the employees' remuneration in shares of the Common Stock, and the granting to them by the Company and a subsidiary, if appropriate, of deferred awards related to the increase in the price of the Common Stock of the Company as provided by the terms and conditions set forth in the Plan. ARTICLE B -- ADMINISTRATION. 1. The Plan shall be administered by the Compensation Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not less than three (3) members of the Board who are neither officers nor employees, or members of the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (hereinafter referred to as the "1934 Act"), or any successor rule or definition adopted by the Securities and Exchange Commission, to be appointed by the Board from time to time and to serve at the discretion of the Board. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions, to report thereon not less than once each year to the Board and to make such recommendations of amendments or otherwise as it deems necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority: to grant nonstatutory and incentive stock options; to grant to recipients stock appreciation rights either freestanding, in tandem with simultaneously granted stock options, or in parallel with simultaneously granted stock options; to award a portion of a recipient's remuneration in shares of Common Stock of the Company subject to such conditions or restrictions, if any, as the Committee may determine; to determine all the terms and provisions of the respective stock option, stock appreciation right, and stock award agreements including setting the dates when each stock option or stock appreciation right or part thereof may be exercised and determining the conditions and restrictions, if any, of any shares of Common Stock acquired through the exercise of any stock option; and to make all other determinations it deems necessary or advisable for administering this Plan; provided, however, the Committee shall have the further authority to: (a) waive the provisions of Article F, paragraph 1(a); (b) waive the provisions of Article F, paragraph 1(b); (c) waive the provisions of Article G, paragraph 4(a); and (d) impose conditions at time of grant in lieu of those set forth in Article G, paragraphs 4 through 7, for nonstatutory stock options, stock appreciation rights, and stock award grants which do not increase or extend the rights of the recipient, to take into consideration the differences, limitations, and requirements of foreign laws or conditions including tax regulations, exchange controls or investment restrictions, possible unenforceability of any part of this Plan, or other matters deemed appropriate by it. 4. The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- PARTICIPATION. The Committee shall select those employees of the Company and its subsidiaries who, in the opinion of the Committee, have demonstrated a capacity for contributing in a substantial manner to the success of such companies and shall determine the number of shares of the Common Stock of the Company to be transferred under this Plan subject to such conditions or restrictions as the Committee may determine and the number of shares with respect to which stock options or stock appreciation rights will be granted. The Committee may consult with the Chief Executive, but nevertheless the Committee has the full authority to act, and the Committee's actions shall be final. ARTICLE D -- LIMITATION ON NUMBER OF SHARES FOR THE PLAN. 1. Unless otherwise authorized by the shareholders, the maximum aggregate number of shares available for award under this Plan for each calendar year the Plan is in effect shall be one percent (1%) of the total issued shares of Common Stock of the Company as of June 30 of the immediately preceding fiscal year. 2. Any of the authorized shares may be used in respect of any of the types of awards described in this Plan, except that no more than twenty-five percent (25%) of the authorized shares in any calendar year may be issued as restricted or unrestricted stock and no more than 50,000,000 of the authorized shares during the term of the Plan may be issued as incentive stock options. 3. Any authorized shares not used in a calendar year shall be available for awards under this Plan in succeeding calendar years. ARTICLE E -- SHARES SUBJECT TO USE UNDER THE PLAN. 1. The shares to be delivered by the Company upon exercise of stock options or stock appreciation rights shall be either authorized but unissued shares or treasury shares, as determined by the Board. In the case of redemption of stock appreciation rights by one of the Company's subsidiaries, such shares shall be shares acquired by that subsidiary. Notwithstanding any terms or conditions contained herein, the shares to be delivered by the Company upon exercise of stock options or stock appreciation rights by a participant located in Italy shall be authorized but unissued shares. 2. For purposes of this Plan, restricted or unrestricted stock awarded under the terms of this Plan shall be authorized but unissued shares, treasury shares, or shares acquired for purposes of the Plan by the Company or a subsidiary, as determined by the Board. ARTICLE F -- STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. In addition to such other conditions as may be established by the Committee, in consideration of the granting of stock options or stock appreciation rights under the terms of this Plan, the recipient agrees as follows: (a) The right to exercise any stock option or stock appreciation right shall be conditional upon certification by the recipient at time of exercise that the recipient intends to remain in the employ of the Company or one of its subsidiaries (except in cases of retirement, disability or Special Separation as defined in section 6 of Article G) for at least one (1) year following the date of the exercise of the stock option or stock appreciation right, and, (b) In order to better protect the goodwill of the Company and its subsidiaries and to prevent the disclosure of the Company's or it subsidiaries' trade secrets and confidential information and thereby help insure the long-term success of the business, the recipient, without prior written consent of the Company, will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, adviser, consultant or otherwise, for a period of three (3) years following the date of the recipient's termination of employment with the Company (except for terminations of employment resulting from retirement or Special Separation), in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of the Company or its subsidiaries (including both existing products as well as products known to the recipient, as a consequence of the recipient's employment with the Company or one of its subsidiaries, to be in development): (1) with respect to which the recipient's work has been directly concerned at any time during the two (2) years preceding termination of employment with the Company or one of its subsidiaries or (2) with respect to which during that period of time the recipient, as a consequence of the recipient's job performance and duties, acquired knowledge of trade secrets or other confidential information of the Company or its subsidiaries. For purposes of this section, it shall be conclusively presumed that recipients have knowledge of information they were directly exposed to through actual receipt or review of memos or documents containing such information, or through actual attendance at meetings at which such information was discussed or disclosed. (c) The provisions of this Article are not in lieu of, but are in addition to the continuing obligation of the recipient (which recipient hereby acknowledges) to not use or disclose the Company's or its subsidiaries' trade secrets and confidential information known to the recipient until any particular trade secret or confidential information become generally known (through no fault of the recipient), whereupon the restriction on use and disclosure shall cease as to that item. Information regarding products in development, in test marketing or being marketed or promoted in a discrete geographic region, which information the Company or one of its subsidiaries is considering for broader use, shall not be deemed generally known until such broader use is actually commercially implemented. As used in this Article, "generally known" means known throughout the domestic U. S. industry or, in the case of recipients who have job responsibilities outside of the United States, the appropriate foreign country or countries' industry. (d) By acceptance of any offered stock option or stock appreciation rights granted under the terms of this Plan, the recipient acknowledges that if the recipient were, without authority, to use or disclose the Company's or any of its subsidiaries' trade secrets or confidential information or threaten to do so, the Company or one of its subsidiaries would be entitled to injunctive and other appropriate relief to prevent the recipient from doing so. The recipient acknowledges that the harm caused to the Company by the breach or anticipated breach of this Article is by its nature irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. The recipient consents that any interim or final equitable relief entered by a court of competent jurisdiction shall, at the request of the Company or one of its subsidiaries, be entered on consent and enforced by any court having jurisdiction over the recipient, without prejudice to any rights either party may have to appeal from the proceedings which resulted in any grant of such relief. (e) If any of the provisions contained in this Article shall for any reason, whether by application of existing law or law which may develop after the recipient's acceptance of an offer of the granting of stock appreciation rights or stock options, be determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, the recipient agrees to join the Company or any of its subsidiaries in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. If any one or more of the terms, provisions, covenants, or restrictions of this Article shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants, and restrictions of this Article shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 2. The fact that an employee has been granted a stock option or a stock appreciation right under this Plan shall not limit the right of the employer to terminate the recipient's employment at any time. The Committee is authorized to suspend or terminate any outstanding stock option or stock appreciation right for actions taken prior to termination of employment if the Committee determines the recipient has acted significantly contrary to the best interests of the Company. 3. More than one stock option or stock appreciation right may be granted to any employee under this Plan but the maximum number of shares with respect to which stock options or stock appreciation rights may be granted to any employee in any calendar year shall not exceed five percent (5%) of the number of shares which can be issued or transferred annually hereunder. 4. The aggregate fair market value (determined at the time when the incentive stock option is exercisable for the first time by an employee during any calendar year) of the shares for which any employee may be granted incentive stock options under this Plan and all other stock option plans of the Company and its subsidiaries in any calendar year shall not exceed $100,000 (or such other amount as reflected in the limits imposed by Section 422(d) of the Internal Revenue Code of 1986, as it may be amended from time to time). 5. If the Committee grants incentive stock options, all such stock options shall contain such provisions as permit them to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as may be amended from time to time. 6. With respect to stock options granted in tandem with or parallel to stock appreciation rights, the exercise of either such stock options or such stock appreciation rights will result in the simultaneous cancellation of the same number of tandem or parallel stock appreciation rights or stock options, as the case may be. 7. The exercise price for all stock options and stock appreciation rights shall be established by the Committee at the time of their grant and shall be not less than one hundred percent (100%) of the fair market value of the Common Stock of the Company on the date of grant. ARTICLE G -- EXERCISE OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. All stock options and stock appreciation rights granted hereunder shall have a maximum life of no more than fifteen (15) years from the date of grant; provided, however, that any stock options or stock appreciation rights with a life of more than ten (10) years from the date of grant that have been conditionally granted to the Chief Executive or to any other executive officer subject to the provisions of Section 162(m) of the Internal Revenue Code and subject to taxation under United States law, as it may be amended from time to time, prior to the annual meeting of shareholders scheduled for October 12, 1999 shall automatically be canceled effective October 12, 1999 if the shareholders do not adopt a resolution at such annual meeting approving grants to such officers with a maximum life of up to fifteen (15) years from the date of grant. 2. No stock options or stock appreciation rights shall be exercisable within one (1) year from their date of grant, except in the case of the death of the recipient. 3. During the lifetime of the recipient, stock options and stock appreciation rights may be exercised only by the recipient personally, or, in the event of the legal incompetence of the recipient, by the recipient's duly appointed legal guardian. 4. In case a recipient of stock options or stock appreciation rights ceases to be an employee of the Company or any of its subsidiaries while holding an unexercised stock option or stock appreciation right: (a) Any unexercisable portions thereof are then void, except in the case of: (1) death of the recipient; (2) any Special Separation (as defined in section 6 of this Article G) that occurs more than six months from the date the options were granted; or (3) any option as to which the Committee has waived, at the time of grant, the provisions of this Article G, paragraph 4(a) pursuant to the authority granted by Article B, paragraph 3. (b) Any exercisable portions thereof are then void, except in the case of death, retirement in accordance with the provisions of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries, or Special Separation (as defined in section 6 of this Article G) of the recipient. 5. In the case of the death of a recipient of stock options or stock appreciation rights while an employee of the Company or any of its subsidiaries, the persons to whom the stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising remaining stock options, stock appreciation rights or parts thereof, whether or not exercisable on the date of death of such employee, at any time prior to the expiration date of the stock options or stock appreciation rights. 6. Termination of employment under the permanent disability provision of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries shall be deemed the same as retirement. Special Separation means any termination of employment, except a termination for cause or a voluntary resignation that is not initiated or encouraged by the Company, that occurs prior to the time a recipient is eligible to retire. The death of a recipient of stock options or stock appreciation rights subsequent to retirement or Special Separation shall not render exercisable stock options or stock appreciation rights which were unexercisable at the time of the retirement or Special Separation. The persons to whom the exercisable stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising such remaining stock options, stock appreciation rights or parts thereof, at any time prior to the expiration date of the stock options or stock appreciation rights. 7. Stock options and stock appreciation rights are not transferable other than by will or by the laws of descent and distribution. For the purpose of exercising stock options or stock appreciation rights after the death of the recipient, the duly appointed executors and administrators of the estate of the deceased recipient shall have the same rights with respect to the stock options and stock appreciation rights as legatees or distributees would have after distribution to them from the recipient's estate. 8. Upon the exercise of stock appreciation rights, the recipient shall be entitled to receive a redemption differential for each such stock appreciation right which shall be the difference between the then fair market value of one share of the Common Stock of the Company and the exercise price of one stock appreciation right then being exercised. In the case of the redemption of stock appreciation rights by a subsidiary of the Company not located in the United States, the redemption differential shall be calculated in United States dollars and converted to the appropriate local currency on the exercise date. As determined by the Committee, the redemption differential may be paid in cash, Common Stock of the Company to be valued at its fair market value on the date of exercise, any other mode of payment deemed appropriate by the Committee or any combination thereof. The number of shares with respect to which stock appreciation rights are being exercised shall not be available for granting future stock options or stock appreciation rights under this Plan. 9. The Committee may, in its sole discretion, permit a stock option which is being exercised either (a) by an optionee whose retirement is imminent or who has retired or (b) after the death of the optionee, to be surrendered, in lieu of exercise, for an amount equal to the difference between the stock option exercise price and the fair market value of shares of the Common Stock of the Company on the day the stock option is surrendered, payment to be made in shares of the Company's Common Stock which are subject to this Plan valued at their fair market value on such date, cash, or a combination thereof, in such proportion and upon such terms and conditions as shall be determined by the Committee. The difference between the number of shares subject to stock options so surrendered and the number of shares, if any, issued upon such surrender shall represent shares which shall not be available for granting future stock options under this Plan. 10. Time spent on leave of absence shall be considered as employment for the purposes of this Plan. Leave of absence means any period of time away from work granted to any employee by his or her employer because of illness, injury, or other reasons satisfactory to the employer. 11. The Company reserves the right from time to time to suspend the exercise of any stock option or stock appreciation right where such suspension is deemed by it necessary or appropriate for corporate purposes. No such suspension shall extend the life of the stock option or stock appreciation right beyond its expiration date, and in no event will there be a suspension in the five (5) calendar days immediately preceding the expiration date. ARTICLE H -- PAYMENT FOR STOCK OPTIONS. Upon the exercise of a stock option, payment in full of the exercise price shall be made by the optionee. As determined by the Committee, the stock option exercise price may be paid for by the optionee either in cash, shares of the Common Stock of the Company to be valued at their fair market value on the date of exercise, a combination thereof, or such other method as determined by the Committee. ARTICLE I -- TRANSFER OF SHARES. 1. The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and with respect to particular employees or group of employees and may be set forth in agreements between the Company and the employee or in the awards of stock to them, all as the Committee determines. It is contemplated that the conditions and restrictions established by the Committee will be consistent with the objectives of this Plan and may be of the following types. In giving these examples, it is not intended to restrict the Committee's authority to impose other restrictions or conditions, or to waive restrictions or conditions under circumstances deemed by the Committee to be appropriate and not contrary to the best interests of the Company. (a) Restrictions The employee will not be able to sell, pledge, or dispose of the shares during a specified period except in accordance with the agreement or award. Such restrictions will lapse either after a period of, for example, five years, or in fifteen or fewer annual installments following retirement or termination of employment, as the Committee from time to time may determine. However, upon the transfer of shares subject to restrictions, an employee will have all incidents of ownership in the shares, including the right to dividends (unless otherwise restricted by the Committee), to vote the shares, and to make gifts of them to family members (still subject to the restrictions). (b) Lapse of Restrictions In order to have the restrictions lapse, an employee may be required to continue in the employ of the Company or a subsidiary for a prescribed period of time. Exemption from this requirement may be prescribed in the case of death, disability, or retirement, or as otherwise prescribed by the Committee. In addition, an employee may be required, following termination of employment other than by retirement or disability, to render limited consulting and advisory services and to refrain from conduct deemed contrary to the best interests of the Company. ARTICLE J -- ADJUSTMENTS. The amount of shares authorized to be issued annually under this Plan will be subject to appropriate adjustments in their numbers in the event of future stock splits, stock dividends, or other changes in capitalization of the Company occurring after the date of approval of this Plan by the Company's shareholders to prevent the dilution or enlargement of rights under this Plan; following any such change, the term "Common Stock" shall be deemed to refer to such class of shares or other securities as may be applicable. The number of shares and exercise prices covered by outstanding stock options and stock appreciation rights shall be adjusted to give effect to any such stock splits, stock dividends, or other changes in the capitalization. ARTICLE K -- ADDITIONAL PROVISIONS. 1. The Board may, at any time, repeal this Plan or may amend it from time to time except that no such amendment may amend this paragraph, increase the annual aggregate number of shares subject to this Plan, reduce the price at which stock options or stock appreciation rights may be granted, exercised, or surrendered, alter the class of employees eligible to receive stock options, or increase the percentage of shares authorized to be transferred as restricted or unrestricted stock. The recipient of awards under this Plan and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding stock options or stock appreciation rights are affected, notice thereof shall be given to the holders of such stock options and stock appreciation rights and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore granted unexercised stock options or stock appreciation rights shall continue to be exercisable in accordance with their terms and shares subject to conditions or restrictions transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions. 2. In the case of an employee of a subsidiary company, performance under this Plan, including the transfer of shares of the Company, may be by the subsidiary. Nothing in this Plan shall affect the right of the Company or any subsidiary to terminate the employment of any employee with or without cause. None of the participants, either individually or as a group, and no beneficiary or other person claiming under or through any participant, shall have any right, title, or interest in any shares of the Company purchased or reserved for the purpose of this Plan except as to such shares, if any, as shall have been granted or transferred to him or her. Nothing in this Plan shall preclude the issuance or transfer of shares of the Company to employees under any other plan or arrangement now or hereafter in effect. 3. "Subsidiary" means any company in which fifty percent (50%) or more of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company. In addition, the Board may designate for participation in this Plan as a "subsidiary," except for the granting of incentive stock options, those additional companies affiliated with the Company in which the Company's direct or indirect stock ownership is less than fifty percent (50%) of the total combined voting power of all classes of such company's stock. 4. Notwithstanding anything to the contrary in the this Plan, stock options and stock appreciation rights granted hereunder shall vest immediately and any conditions or restrictions on Common Stock shall lapse upon a "Change in Control." A "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding Shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 4(a), Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of July 11, 2000 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least half of the members of the Board; or, following a Merger (as hereinafter defined) which results in a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless such Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger where: (A) the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least half of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and (C) no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such Merger was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Shares, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. ARTICLE L -- CONSENT. Every recipient of a stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and of the stock option, stock appreciation right, or transfer of shares agreement referable thereto, and the acceptance of any stock option, stock appreciation right, or transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company and its subsidiaries and any successors in interest to any of them. This Plan shall be governed by and construed in accordance with the laws of the State of Ohio, United States of America. ARTICLE M -- DURATION OF PLAN. This Plan will terminate on July 14, 2002 unless a different termination date is fixed by the shareholders or by action of the Board of Directors, but no such termination shall affect the prior rights under this Plan of the Company (or any subsidiary) or of anyone to whom stock options or stock appreciation rights were granted prior thereto or to whom shares have been transferred prior to such termination. ADDITIONAL INFORMATION 1. SHARES AWARDED AS A PORTION OF REMUNERATION Any shares of Common Stock of the Company awarded as a portion of a participant's remuneration shall be valued at not less than one hundred percent (100%) of the fair market value of the Company's Common Stock on the date of the award. These shares may be subject to such conditions or restrictions as the Committee may determine, including a requirement that the participant remain in the employ of the Company or one of its subsidiaries for a set period of time, or until retirement. Failure to abide by any applicable restriction will result in forfeiture of the shares. 2. TAX EFFECTS INCENTIVE STOCK OPTIONS With regard to tax effects which may accrue to the optionee, counsel advises that if the optionee has continuously been an employee from the time an option has been granted until at least three months before it is exercised, under existing law no taxable income results to the optionee from the exercise of an incentive stock option at the time of exercise. However, the spread at exercise is an "adjustment" item for alternative minimum tax purposes. Any gain realized on the sale or other disposition of stock acquired on exercise of an incentive stock option is considered as long-term capital gain for tax purposes if the stock has been held more than two years after the date the option was granted and more than one year after the date of exercise of the option. If the stock is disposed of within one year after exercise, the lesser of any gain on such disposition or the spread at exercise (i.e., the excess of the fair market value of the stock on the date of exercise over the option price) is treated as ordinary income, and any appreciation after the date of exercise is considered long-term or short-term capital gain to the optionee depending on the holding period prior to sale. However, the spread at exercise (even if greater than the gain on the disposition) is treated as ordinary income if the disposition is one on which a loss, if sustained, is not recognized--e.g., a gift, a "wash" sale or a sale to a related party. The amount of ordinary income recognized by the optionee is treated as a tax deductible expense to the Company. No other amount relative to an incentive stock option is a tax deductible expense to the Company. NONSTATUTORY STOCK OPTIONS With regard to tax effects which may accrue to the optionee, counsel advises that under existing tax law gain taxable as ordinary income to the optionee is deemed to be realized at the date of exercise of the option, the gain on each share being the difference between the market price on the date of exercise and the option price. This amount is treated as a tax deductible expense to the Company at the time of the exercise of the option. Any appreciation in the value of the stock after the date of exercise is considered a long-term or short-term capital gain to the optionee depending on whether or not the stock was held for the appropriate holding period prior to sale. STOCK APPRECIATION RIGHTS With regard to tax effects which may accrue to the recipient, counsel advises that "United States persons," as defined in the Internal Revenue Code of 1986 (the "I.R.C."), must recognize ordinary income as of the date of exercise equal to the amount paid to the recipient, i.e., the difference between the grant price and the value of the shares on the date of exercise. SHARES AWARDED AS A PORTION OF REMUNERATION With regard to tax effects which may accrue to the recipient, counsel advises that "United States persons" as defined in the Internal Revenue Code of 1986 (the "I.R.C."), must recognize ordinary income in the first taxable year in which the recipient's rights to the stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. Recipients who are "United States persons" may also elect to include the income in their tax returns for the taxable year in which they receive the shares by filing an election to do so with the appropriate office of the Internal Revenue Service within 30 days of the date the shares are transferred to them. The amount includable in income is the fair market value of the shares as of the day the shares are transferable or not subject to a substantial risk of forfeiture, whichever is applicable; if the recipient has elected to include the income in the year in which the shares are received, the amount of income includable is the fair market value of the shares at the time of transfer. For non-United States persons, the time when income is realized, its measurement and its taxation, will depend on the laws of the particular countries in which the recipients are residents and/or citizens at the time of transfer or when the shares are first transferable and not subject to a substantial risk of forfeiture, as the case may be. "United States persons" who receive shares awarded as a portion of remuneration may also have tax consequences with respect to the receipt of shares or the expiration of restrictions or substantial risk of forfeiture on such shares under the laws of the particular country other than the United States of which such person is a resident or citizen. Notwithstanding the above advice received by the Company, it is each individual recipient's responsibility to check with his or her personal tax adviser as to the tax effects and proper handling of stock options, stock appreciation rights and Common Stock acquired. The above advice relates specifically to the U.S. consequences of stock options, stock appreciation rights and Common Stock acquired, including the U.S. consequences to "United States persons" whether or not resident in the U.S. In addition to U.S. tax consequences, for all persons who are not U.S. residents, the time when income, if any, is realized, the measurement of such income and its taxation will also depend on the laws of the particular country other than the U.S. of which such persons are resident and/or citizens at the time of grant or the time of exercise, as the case may be. The Plan is not subject to the qualification requirements of Section 401(a) of the I.R.C. 3. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. 4. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Securities and Exchange Commission (File No. 1-434) pursuant to the 1934 Act are incorporated into this document by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999; 2. The Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000; and 3. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold. The Company will provide without charge to each participant in the Plan, upon oral or written request, a copy of any or all of these documents other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents. In addition, the Company will provide without charge to such participants a copy of the Company's most recent annual report to shareholders, proxy statement, and other communications distributed generally to security holders of the Company. Requests for such copies should be directed to Mr. Robert J. Thompson, Manager, Shareholder Services, The Procter & Gamble Company, P.O. Box 5572, Cincinnati, Ohio 45201, (513) 983-3413. 5. ADDITIONAL INFORMATION Additional information about the Plan and its administrators may be obtained from Mr. Terry L. Overbey, Secretary, The Procter & Gamble Company, One Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-4463. EX-10.2 3 0003.txt Exhibit (10-2) THE PROCTER & GAMBLE 1983 STOCK PLAN (As amended effective June 13, 2000) ARTICLE A - PURPOSE. The purpose of The Procter & Gamble 1983 Stock Plan (hereinafter referred to as the "Plan") is to encourage those key employees of The Procter & Gamble Company (herein referred to as the "Company") and its subsidiaries who are largely responsible for the long-term success and development of the business to increase their proprietary and other interest in the Company's progress, and to remain in the employ of the Company and its subsidiaries, by the granting to them by the Company of options to purchase shares of the Common Stock of the Company and the granting to them by the Company and a subsidiary, if appropriate, of deferred awards related to the increase in the price of the Common Stock of the Company as provided in this Plan. ARTICLE B - ADMINISTRATION. 1. The Plan shall be administered by the Compensation Committee (herein referred to as the "Committee") of the Board of Directors of the Company (herein referred to as the "Board"). The Committee shall operate, administer, and interpret the Plan and shall be composed of three or more members of the Board to be appointed by the Board from time to time to serve until they resign, die, or are removed by resolution of the Board. No member of the Committee shall participate or be eligible to participate in this Plan, but he or she may exercise stock options or stock appreciation rights previously granted to him or her in accordance with the terms of said stock options or stock appreciation rights. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions, to report thereon not less than once each year to the Board and to make such recommendations of amendments or otherwise as it may deem necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority: to grant nonstatutory and incentive stock options; to grant to recipients who are nonresidents of the United States on the date of grant stock appreciation rights either freestanding, in tandem with simultaneously granted stock options or in parallel with simultaneously granted stock options; to determine all the terms and provisions of the respective stock option and stock appreciation right agreements including setting the dates when each stock option or stock appreciation right or part thereof may be exercised; and to make all other determinations it deems necessary or advisable for administering this Plan; provided, however, for recipients who are nonresidents of the United States on the date of any grant, the Committee shall have the further authority to: (a) waive the provisions of Article G, paragraph 1(b); (b) except in the case of a recipient who is an executive officer of the Company subject to Section 16 of the Securities Exchange Act of 1934, waive the provisions of Article G, paragraph 1(a); (c) impose conditions in lieu of those set forth in Article J, paragraphs 4 through 7, for nonstatutory stock options and stock appreciation rights grants which do not increase or extend the rights of the recipient, to take into consideration the differences, limitations and requirements of local foreign laws or conditions including, but not limited to, tax regulations, exchange controls, investment restrictions, possible unenforceability of any part of this Plan and other similar matters deemed appropriate by it. 4. The Committee may establish from time to time such regulations, provisions and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C - PARTICIPATION. The Committee shall select those key employees of the Company and its subsidiaries who, in the opinion of the Committee, have demonstrated a capacity for contributing in a substantial manner to the success of such companies and shall determine the number of shares with respect to which stock options or stock appreciation rights are to be granted to each, the type of stock options or stock appreciation rights to be granted and the number of shares under each type. The Committee may consult with the Chairman of the Board or the President, but nevertheless the Committee has full authority to act, and the Committee's actions shall be final. ARTICLE D - NUMBER OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. The aggregate number of shares of the Common Stock of the Company which may be issued or transferred under all stock options to be granted, or with respect to which stock appreciation rights may be granted, pursuant to this Plan shall not exceed 25,996,446 shares. 2. With respect to stock options granted in tandem with or parallel to stock appreciation rights, the exercise of either such stock options or such stock appreciation rights will result in the simultaneous cancellation of the same number of tandem or parallel stock appreciation rights or stock options, as the case may be. ARTICLE E - SHARES SUBJECT TO USE UNDER THE PLAN. The shares to be delivered by the Company upon exercise of stock options or stock appreciation rights shall be either authorized but unissued shares or treasury shares, as determined by the Board. In the case of redemption of stock appreciation rights by one of the Company's subsidiaries, such shares shall be shares acquired by that subsidiary. ARTICLE F - PRICE. The exercise price for all stock options and stock appreciation rights shall be established by the Committee at the time of their grant and shall be not less than one hundred percent (100%) of the fair market value of the Common Stock of the Company on the date of grant. ARTICLE G - AGREEMENT OF OPTIONEE AND CONDITIONS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. In addition to such other conditions as may be established by the Committee, in consideration of the granting of stock options or stock appreciation rights under the terms of this Plan, the recipient agrees as follows: (a) To remain in the employ of the Company or one of its subsidiaries for at least one (1) year following the date of the granting of the stock option or stock appreciation right, and, (b) In order to better protect the goodwill of the Company and prevent the disclosure of the Company's trade secrets and other confidential information and thereby help insure the long-term success and development of the business, the recipient will not engage in competitive employment for a period of three (3) years following the date of the granting of a stock option or a stock appreciation right without first obtaining written permission from the Company. "Engage in competitive employment" means rendering services, or becoming associated in any way or in any capacity in the manufacture, development, advertising, promotion or sale of any product which is the same as or similar to or competitive with any products of the Company or one of its subsidiaries (including existing products and products known to the recipient to be in development) with respect to which the recipient's work has been directly concerned at any time during the two (2) years preceding termination of employment with the Company or any of its subsidiaries or with respect to which during that period of time recipient acquired knowledge of trade secrets or other confidential information. 2. The fact that an employee has been granted a stock option or a stock appreciation right under this Plan shall not affect or qualify the right of the employer to terminate the recipient's employment at any time. In the event the recipient breaches or violates section 1 above, the Company may seek injunctive or other appropriate relief. ARTICLE H - LIMITATIONS. 1. More than one stock option or stock appreciation right may be granted to any employee under this Plan but the maximum number of shares with respect to which stock options or stock appreciation rights may be granted to any employee shall not exceed five percent (5%) of the number of shares which can be issued or transferred hereunder. 2. The aggregate fair market value (determined at the time of the grant of the stock option) of the shares for which any employee may be granted incentive stock options under this Plan and all other stock option plans of the Company and its subsidiaries in any calendar year shall not exceed $100,000 plus any unused limit carry-over to such year as provided for in Section 422A(c)(4) of the Internal Revenue Code of 1954, as amended. (This amount will automatically change to reflect the limits imposed by Section 422A(b)(8) of the Internal Revenue Code of 1954 as it may be amended from time to time.) 3. If the Committee grants incentive stock options, all such stock options shall contain such provisions as permit them to qualify as "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code of 1954, as amended by the Economic Recovery Tax Act of 1981, and as the same may from time to time be amended. 4. Resale of securities offered under this Plan by Directors and executive officers of the Company subject to Section 16 of the Securities Exchange Act of 1934 must be pursuant to a valid registration statement on other than Form S-8 or pursuant to an exemption from registration provided under the Securities Act of 1933, as amended. Other employees of the Company or its subsidiaries are free to make resales of the securities offered hereunder without further registration. ARTICLE I - ADJUSTMENTS. Appropriate adjustments in the number of shares of stock options and stock appreciation rights which can be granted under this Plan and in the numbers and exercise prices covered by outstanding stock options and stock appreciation rights shall be made to give effect to any stock splits, stock dividends or other changes in the Common Stock of the Company occurring after October 11, 1983, the date of approval of this Plan by the Company's shareholders. ARTICLE J - EXERCISE OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. All stock options and stock appreciation rights granted hereunder shall have a maximum life of no more than ten (10) years from the date of grant. 2. No stock options or stock appreciation rights shall be exercisable within one (1) year from their date of grant, except in the case of the death of the recipient. 3. During the lifetime of the recipient, stock options and stock appreciation rights may be exercised only by the recipient personally. Stock options and stock appreciation rights are not assignable and are not transferable otherwise than by will or by the laws of descent and distribution. 4. In case a recipient of stock options or stock appreciation rights ceases to be an employee of the Company or any of its subsidiaries while holding an unexercised stock option or stock appreciation right: (a) Any unexercisable portions thereof are then void, except in the case of death of the recipient or in the case of any option as to which the Committee has waived, at the time of grant, the provisions of Article G, paragraph 1(a) pursuant to the authority granted by Article B, paragraph 3. (b) Any exercisable portions thereof are then void, except in the case of death, retirement in accordance with the provisions of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries, or Special Separation (as defined in section 7 of this Article J) of the recipient. 5. In the case of the death of a recipient of stock options or stock appreciation rights while an employee of the Company or any of its subsidiaries, the persons to whom the stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising remaining stock options, stock appreciation rights or parts thereof, whether or not exercisable on the date of death of such employee, at any time prior to the expiration date of the stock option or stock appreciation right. 6. Stock options and stock appreciation rights are not transferable other than by will or by the laws of descent and distribution. For the purpose of exercising stock options or stock appreciation rights after the death of the recipient, the duly appointed executors and administrators of the estate of the deceased recipient shall have the same rights with respect to the stock options and stock appreciation rights as legatees or distributees would have had after distribution to them from the deceased recipient's estate. 7. Termination of employment under the permanent disability settlement provision of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries shall be deemed the same as retirement. Special Separation means any termination of employment, except a termination for cause or a voluntary resignation that is not initiated or encouraged by the Company, that occurs prior to the time a recipient is eligible to retire. The death of a recipient of stock options or stock appreciation rights subsequent to retirement or Special Separation shall not render exercisable options or rights which were unexercisable at time of the retirement or Special Separation. 8. Upon the exercise of stock appreciation rights, the recipient shall be entitled to receive a redemption differential for each such stock appreciation right which shall be the difference between the then fair market value of one share of the Common Stock of the Company and the exercise price of one stock appreciation right then being exercised. In the case of the redemption of stock appreciation rights by a subsidiary of the Company not located in the United States the redemption differential shall be calculated in United States dollars and converted to the appropriate local currency on the exercise date. As determined by the Committee, the redemption differential may be paid in cash, Common Stock of the Company to be valued at its fair market value on the date of exercise, any other mode of payment deemed appropriate by the Committee or any combination thereof. The number of shares with respect to which stock appreciation rights are being exercised shall not be available for granting future stock options or stock appreciation rights under this Plan. 9. The Committee may, in its sole discretion, permit a stock option which is being exercised either (a) by an optionee whose retirement is imminent or who has retired or (b) after the death of the optionee, to be surrendered, in lieu of exercise, for an amount equal to the difference between the stock option exercise price and the fair market value of shares of the Common Stock of the Company on the day the stock option is surrendered, payment to be made in shares of the Company's Common Stock which are subject to this Plan valued at their fair market value on such date, cash or a combination thereof, in such proportion and upon such terms and conditions as shall be determined by the Committee. The difference between the number of shares subject to stock options so surrendered and the number of shares, if any, issued upon such surrender shall represent shares which shall not be available for granting future stock options under this Plan. 10. Time spent on leave of absence shall be considered as employment for the purposes of this Plan. Leave of absence means any period of time away from work granted to any employee by his or her employer because of illness, injury or other reasons satisfactory to the employer. 11. The Company reserves the right from time to time to suspend the exercise of any stock option or stock appreciation right where such suspension is deemed by it necessary or appropriate for corporate purposes. No such suspension shall extend the life of the stock option or stock appreciation right beyond its expiration date, and in no event will there be a suspension in the five (5) calendar days immediately preceding the expiration date. ARTICLE K - PAYMENT FOR STOCK OPTIONS. Upon the exercise of a stock option, payment in full of the exercise price shall be made by the optionee. As determined by the Committee, the stock option exercise price may be paid for by the optionee either in cash, shares of the Common Stock of the Company to be valued at their fair market value on the date of exercise or a combination thereof. ARTICLE L - ADDITIONAL PROVISIONS. 1. The Board may, at any time, repeal this Plan and may amend it from time to time except that no such amendment may amend this paragraph, increase the aggregate number of shares subject to this Plan or reduce the price at which stock options or stock appreciation rights may be granted, exercised or surrendered, or alter the class of employees eligible to receive stock options. The recipient of stock options and stock appreciation rights and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding stock options or stock appreciation rights are affected, notice thereof shall be given to the holders of such stock options and stock appreciation rights and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore granted unexercised stock options or stock appreciation rights shall continue to be exercisable in accordance with their terms. 2. In case any stock option or stock appreciation right is surrendered before exercise or for any reason other than exercise ceases to be exercisable, except as specifically required by the terms of this Plan, the shares reserved therefor shall continue to be set aside for, and be subject to, use under this Plan. 3. Subsidiary means any company in which fifty percent (50%) or more of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company. In addition, the Board may designate for participation in this Plan as a "subsidiary," except for the granting of incentive stock options, those additional companies affiliated with the Company in which the Company's direct or indirect stock ownership is less than fifty percent (50%) of the total combined voting power of all classes of such company's stock. ARTICLE M - CONSENT. Every recipient of a stock option or stock appreciation right granted under this Plan shall be bound by the terms and provisions of this Plan and of the stock option or stock appreciation right agreement referable thereto, and the acceptance of any stock option or stock appreciation right agreement shall constitute a binding agreement between the recipient and the Company and its subsidiaries and any successors in interest to any of them. ARTICLE N - DURATION OF THE PLAN. This Plan will terminate on June 14, 1993 unless a different termination date is fixed by action of the Board, but all stock options or stock appreciation rights granted prior thereto may be exercised in accordance with their terms. ADDITIONAL INFORMATION 1. TAX EFFECTS INCENTIVE STOCK OPTIONS With regard to tax effects which may accrue to the optionee, counsel advises that if the optionee has continuously been an employee from the time an option has been granted until at least three months before it is exercised, under existing law no taxable income results to the optionee from the exercise of an incentive stock option at the time of exercise. However, the spread at exercise is a "tax preference" item for alternative minimum tax purposes. Any gain realized on the sale or other disposition of stock acquired on exercise of an incentive stock option is considered as long-term capital gain for tax purposes if the stock has been held more than two years after the date the option was granted and more than one year after the date of exercise of the option. If the stock is disposed of within one year after exercise, the lesser of any gain on such disposition or the spread at exercise (i.e., the excess of the fair market value of the stock on the date of exercise over the option price) is treated as ordinary income, and any appreciation after the date of exercise is considered long-term or short-term capital gain to the owner depending on the holding period prior to sale. However, the spread at exercise (even if greater than the gain on the disposition) is treated as ordinary income if the disposition is one on which a loss, if sustained, is not recognized -- e.g., a gift, a "wash" sale or a sale to a related party. The amount of ordinary income recognized by the optionee is treated as a tax deductible expense to the Company. No other amount relative to an incentive stock option is a tax deductible expense to the Company. NONSTATUTORY STOCK OPTIONS With regard to tax effects which may accrue to the optionee, counsel advises that under existing tax law gain taxable as ordinary income to the optionee is deemed to be realized at the date of exercise of the option, the gain on each share being the difference between the market price on the date of exercise and the option price. This amount is treated as a tax deductible expense to the Company at the time of the exercise of the option. Any appreciation in the value of the stock after the date of exercise is considered a long-term or short-term capital gain to the owner depending on whether or not the stock was held for the appropriate holding period prior to sale. STOCK APPRECIATION RIGHTS With regard to tax effects which may accrue to the recipient, counsel advises that "United States persons," as defined in the Internal Revenue Code of 1986 (the "I.R.C."), must recognize ordinary income as of the date of exercise equal to the amount paid to the recipient, i.e., the difference between the grant price and the value of the shares on the date of exercise. For non-United States persons, the time when income is realized, the measurement of such income, and its taxation will depend on the laws of the particular country of which such persons are resident and/or citizens at the time of grant or the time of exercise, as the case may be. There may also be tax consequences with respect to an exercise by a United States person under the laws of the particular country other than the United States of which such person is a resident and/or citizen. Notwithstanding the above advice received by the Company, it is each individual recipient's responsibility to check with his or her personal tax adviser as to the tax effects and proper handling of stock options, stock appreciation rights and Common Stock acquired. The Plan is not subject to the qualification requirements of Section 401(a) of the I.R.C. 2. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission (File No. 1-434) pursuant to the Exchange Act are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999; 2. The Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000; and 3. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. The Company will provide without charge to each optionee, upon the request of the optionee, a copy of any or all of these documents other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents. In addition, the Company will provide without charge to such optionees, a copy of the annual report and all reports, proxy statements, and other communications distributed to its security holders generally. Requests for such copies, or for additional information about the Plan or its administrators, should be directed to Mr. Robert J. Thompson, Manager, Shareholder Services, The Procter & Gamble Company, One Procter & Gamble Plaza, Cincinnati, Ohio 45202, telephone: (513) 983-3413. EX-10.4 4 0004.txt Exhibit (10-4) ADDITIONAL REMUNERATION PLAN The Procter & Gamble Company (As amended July 11, 2000) RESOLVED, That the following plan for additional remuneration of the Chairman of the Board and such other officers and employees of The Procter & Gamble Company and subsidiary companies who, in the opinion of the Chief Executive, are largely responsible for the success and development of the business, be and the same is hereby adopted providing for additions to their compensation in relation to the consolidated profit of the Company for the fiscal year and the contribution by those persons to the operation of the Company. Such additional remuneration may be paid in recognition of the contribution of such persons during that year, and/or their contribution to earnings growth over the current and prior years. Credits to a fund established for this purpose are to be based upon a percentage of the annual consolidated profit of the companies. 1. Each fiscal year there shall be set aside in an additional remuneration fund an amount equal to five percent of the consolidated profit before providing for foreign and United States Federal Income Taxes, based on income of The Procter & Gamble Company and its subsidiary companies included in its Consolidated Statement of Profit and Loss for such fiscal year, conditional upon there being left for consolidated net profit an amount at least equal to the sum of the dividends on the outstanding Preferred Stock of The Procter & Gamble Company, plus the sum of the dividends on the outstanding Common Stock of The Procter & Gamble Company for said fiscal year, prior deductions having been provided for of the full amount of the contributions to the Profit Sharing Trust and Employee Stock Ownership Plan; provided, however, that if at the end of any fiscal year the full amount equal to said five percent cannot be set aside on account of the condition above stated, then the amount to be set aside shall be reduced to the extent necessary to meet said condition. Unawarded balances in any year shall remain in said fund and be available in later years; provided, however, that this Board reserves the right to withdraw from said fund any unawarded balances or part thereof remaining after the award at the end of any fiscal year. 2. For each fiscal year the Compensation Committee of the Board of Directors shall determine the method of payment and the amount of the additional remuneration to be awarded from said fund to each principal officer elected by the Board of Directors. The Chief Executive shall determine which other persons are to receive additional remuneration out of said fund and the method of payment and the amount to be awarded to each. 3. Awards may be made by the Chief Executive to any employee, including principal officers elected by the Board of Directors except the Chairman of the Board, upon the termination of their employment or the granting of a leave of absence where their last year of employment is less than the full fiscal year. Normally such awards will be made only if the period of employment for such fiscal year is one month or more. The Chief Executive may delegate to an appropriate Vice President the authority to make such awards to persons who are not principal officers. 4. The consolidated profit and the consolidated net profit of The Procter & Gamble Company and the subsidiary companies consolidated for each year shall be determined in accordance with generally accepted principles of accounting and approved by the independent certified public accountants selected by this Board, and no person who may, at any time, be selected to share in the fund provided for in paragraph 1 above shall have any right to question the consolidated profit or the consolidated net profit so determined. 5. While the amount received by any one individual for any year under this resolution shall be considered as earned remuneration in addition to salary paid, it shall be understood that this plan does not give to any officer or employee any contract rights, express or implied, against any Company for any award from the Fund or for compensation in addition to the salary paid to him, or any right to question the action of the Board of Directors, the Compensation Committee or the Chief Executive. 6. Notwithstanding the foregoing, if there is a Change in Control (as hereinafter defined) in any fiscal year, an additional remuneration fund shall be set aside and additional remuneration awards shall be made for the period from the beginning of the fiscal year in which a Change in Control occurred up to and including the date of such Change in Control ("CIC Period") pursuant to this Plan, substituting "CIC Period" for "fiscal year." If financial statements specified in paragraphs 1 and r are not available for the CIC Period, the Compensation Committee shall determine the amount of additional remuneration awarded from the fund in good faith. "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding Shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 6(a), Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of July 11, 2000 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least half of the members of the Board; or, following a Merger (as hereinafter defined) which results in a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless such Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger where: (A) the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least half of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and (C) no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such Merger had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Shares, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 7. This Board reserves the right to terminate this plan at any time during any fiscal year and any unawarded balance remaining in the fund shall be withdrawn. Original Plan - Adopted April 12, 1949 Amended - September 12, 1950 (Eff. 7/1/50) Paragraphs 1, 2, and 7 amended - June 14, 1960 (Eff. 7/1/59) Paragraphs 2 and 4 amended - June 13, 1961 (Eff. 7/1/60) Entire Plan amended - June 10, 1975 (Eff. 7/1/75) Paragraphs 1, 2 and 5 amended - March 13, 1979 (Eff. 10/10/78) Paragraphs 1 and 8 amended - May 13, 1980 (Eff. 5/13/80) Resolution and Paragraphs 1, 2 and 8 amended - April 14, 1981 (Eff. 4/14/81) Resolution and Paragraphs 2, 3 and 8 amended - July 12, 1983 (Eff. 7/12/83) Paragraphs 1 and 8 amended - June 11, 1985 (Eff. 6/11/85) Resolution and Paragraphs 2, 3 and 8 amended - June 10, 1986 (Eff. 6/10/86) Paragraphs 1 and 8 amended - June 14, 1988 (Eff. 6/14/88) Paragraphs 1, 2 and 8 amended - June 12, 1990 (Eff. 6/12/90) Paragraphs 3, 6 amended and Paragraph 8 deleted July 11, 2000 (eff.7/11/00) EX-10.7 5 0005.txt Exhibit (10-7) THE PROCTER & GAMBLE 1993 NON-EMPLOYEE DIRECTORS' STOCK PLAN (as amended July 11, 2000) ARTICLE A -- PURPOSE. The purpose of The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (hereinafter referred to as the "Plan") is to strengthen the alignment of interests between non-employee Directors (hereinafter referred to as "Participants") and the shareholders of The Procter & Gamble Company (hereinafter referred to as the "Company") through the increased ownership of shares of the Company's Common Stock. This will be accomplished by allowing Participants to elect voluntarily to convert a portion or all of their cash fees for services as a Director into Common Stock, by granting Participants a fixed value of shares of Common Stock restricted until retirement (hereinafter referred to as "Retirement Shares") and by granting Participants non-qualified options to purchase shares of Common Stock (hereinafter referred to as "Stock Options"). ARTICLE B -- ADMINISTRATION. 1. The Plan shall be administered by the Compensation Committee (hereinafter referred to as the "Committee") of the Board of Directors of the Company (hereinafter referred to as the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not less than three (3) members of the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or any successor rule or definition adopted by the Securities and Exchange Commission, to be appointed by the Board from time to time and to serve at the discretion of the Board. 2. It shall be the duty of the Committee to administer this Plan in accordance with its provisions and to make such recommendations of amendments or otherwise as it deems necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. 3. Subject to the express provisions of this Plan, the Committee shall have authority to allow Participants the right to elect to receive fees for services as a director in either cash or an equivalent amount of whole shares of Common Stock of the Company, or partly in cash and partly in whole shares of the Common Stock of the Company, subject to such conditions or restrictions, if any, as the Committee may determine. The Committee also has the authority to make all other determinations it deems necessary or advisable for administering this Plan. 4. The Committee may establish from time to time such regulations, provisions, and procedures within the terms of this Plan as, in its opinion, may be advisable in the administration of this Plan. 5. The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. ARTICLE C -- PARTICIPATION. Participation in the Plan shall be limited to all non-employee Directors of the Company. ARTICLE D -- LIMITATION ON NUMBER OF SHARES FOR THE PLAN. The total number of shares of Common Stock of the Company that may be awarded each year shall not exceed 50,000 shares. ARTICLE E -- SHARES SUBJECT TO USE UNDER THE PLAN. Shares of Common Stock to be awarded under the terms of this Plan shall be treasury shares. ARTICLE F -- RETIREMENT SHARES. 1. Commencing January 2, 1997 and on the first business day in each January thereafter, each Participant shall receive Retirement Shares with a fair market value of $20,000 on the date of grant. 2. All shares awarded under this Article shall be valued as set forth in Article I. ARTICLE G -- STOCK OPTIONS. 1. Each Participant shall, on the fifteenth day of September or on the next preceding business day if such day is not a business day, automatically be granted a Stock Option to purchase 2,000 shares of Common Stock (with such amount subject to adjustment as set forth in Article H) having an exercise price of one hundred percent (100%) of the fair market value of the Common Stock on the date of grant. On February 26, 1999, each Participant shall receive a one-time Stock Option grant to purchase 1,000 shares of Common Stock having an exercise price of one hundred percent (100%) of the fair market value of the Common Stock on the date of grant. 2. The Stock Options shall have a term of fifteen (15) years from the date of grant, subject to earlier termination as provided herein, and shall be exercisable three (3) years from the date of grant, except in the case of death, in which case the Stock Options shall be immediately exercisable. 3. Stock Options are not transferable other than by will or by the laws of descent and distribution. Legatees, distributees and duly appointed executors and administrators of the estate of a deceased Participant shall have the right to exercise such Stock Options at any time prior to the expiration date of the Stock Options. 4. If a Participant ceases to be a Director while holding unexercised Stock Options, such stock options are then void, except in the case of (i) death, (ii) disability, (iii) retirement at the end of a term, (iv) retirement after attaining the age of sixty-nine (69) or (v) resignation from the Board for reasons of the antitrust laws or the conflict of interest, corporate governance or continued service policies. 5. Upon the exercise of a Stock Option, payment in full of the exercise price shall be made by the Participant. The exercise price may be paid for by the Participant either in cash, shares of the Common Stock of the Company to be valued at their fair market value on the date of exercise, or a combination thereof. ARTICLE H -- ADJUSTMENTS. The amount of shares authorized to be issued annually under this Plan will be subject to appropriate adjustment in the event of future stock splits, stock dividends, or other changes in capitalization of the Company to prevent the dilution or enlargement of rights under this Plan; following any such change, the term "Common Stock" shall be deemed to refer to such class of shares or other securities as may be applicable. The number of shares and exercise prices covered by outstanding Stock Options and the number of shares to be granted as Stock Options pursuant to Article F, paragraph 1 shall be adjusted to give effect to any such stock splits, stock dividends, or other changes in the capitalization. ARTICLE I -- TRANSFER OF SHARES. 1. The Committee may transfer Common Stock of the Company under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. The conditions and restrictions may vary from time to time and may be set forth in agreements between the Company and the Participant or in the awards of stock to them, all as the Committee determines. 2. The shares awarded shall be valued at the average of the high and low quotations for Common Stock of the Company on the New York Stock Exchange on the day of the transfer to a Participant. All shares awarded shall be full shares, rounded up to the nearest whole share. ARTICLE J -- ADDITIONAL PROVISIONS. 1. The Board may, at any time, repeal this Plan or may amend it from time to time except that no such amendment may amend this paragraph, increase the annual aggregate number of shares subject to this Plan, or alter the persons eligible to participate in this Plan. The Participants and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding awards are affected, notice thereof shall be given to the holders of such awards and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all theretofore awarded shares subject to conditions or restrictions transferred pursuant to this Plan shall continue to be subject to such conditions or restrictions. 2. Every recipient of shares pursuant to this Plan shall be bound by the terms and provisions of this Plan and of the transfer of shares agreement referable thereto, and the acceptance of any transfer of shares pursuant to this Plan shall constitute a binding agreement between the recipient and the Company. 3. Notwithstanding anything to the contrary in the this Plan, stock options and stock appreciation rights granted hereunder shall vest immediately and any conditions or restrictions on Common Stock shall lapse upon a "Change in Control." A "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding Shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 4(a), Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of July 11, 2000 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least half of the members of the Board; or, following a Merger (as hereinafter defined) which results in a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless such Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger where: (A) the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Mergerconstitute at least half of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and (C) no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such Merger was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Shares, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. ARTICLE K -- DURATION OF PLAN. This Plan shall be effective as of January 1, 1994. This Plan will terminate on December 31, 2003 unless a different termination date is fixed by the shareholders or by action of the Board but no such termination shall affect the prior rights under this Plan of the Company or of anyone to whom shares have been transferred prior to such termination. Plan adopted November 9, 1993 Plan Amended January 10, 1995 Plan Amended June 11, 1996 Adjusted for August 22, 1997 stock split Plan amended January 12, 1999 Plan amended July 11, 2000 EX-11 6 0006.txt EXHIBIT (11)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Computation of Earnings Per Share --------------------------------- Amounts in millions except per share amounts Years Ended June 30 ----------------------------------------------------------- 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- BASIC NET EARNINGS PER SHARE - ---------------------------- Net earnings $ 3,046 $ 3,415 $ 3,780 $ 3,763 $ 3,542 Deduct preferred stock dividends 103 104 104 109 115 ------- ------- ------- ------- ------- Net earnings applicable to common stock $ 2,943 $ 3,311 $ 3,676 $ 3,654 $ 3,427 ======= ======= ======= ======= ======= Average number of common shares outstanding 1,372.6 1,360.3 1,343.4 1,328.1 1,313.2 ======= ======= ======= ======= ======= Basic net earnings per share $ 2.14 $ 2.43 $ 2.74 $ 2.75 $ 2.61 ======= ======= ======= ======= ======= DILUTED NET EARNINGS PER SHARE - ------------------------------ Net earnings $ 3,046 $ 3,415 $ 3,780 $ 3,763 $ 3,542 Deduct differential - preferred vs. common dividends 39 32 25 22 18 ------- ------- ------- ------- ------- Net earnings applicable to common stock $ 3,007 $ 3,383 $ 3,755 $ 3,741 $ 3,524 ======= ======= ======= ======= ======= Average number of common shares outstanding 1,372.6 1,360.3 1,343.4 1,328.1 1,313.2 Add potential effect of: Exercise of options 19.8 24.8 22.3 21.5 19.7 Conversion of preferred stock 103.8 101.9 99.8 97.2 94.3 ------- ------- ------- ------- ------- Average number of common shares outstanding, assuming dilution 1,496.2 1,487.0 1,465.5 1,446.8 1,427.2 ======= ======= ======= ======= ======= Diluted net earnings per share $ 2.01 $ 2.28 $ 2.56 $ 2.59 $ 2.47 ======= ======= ======= ======= =======
EX-12 7 0007.txt EXHIBIT (12)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Computation of Ratio of Earnings to Fixed Charges ------------------------------------------------- Millions of Dollars Years Ended June 30 ---------------------------------------------------------- 1996 1997 1998 1999 2000 ------ ------- ------ ------ ------ EARNINGS AS DEFINED Earnings from operations before income taxes after eliminating undistributed earnings of equity method investees $4,695 $5,274 $5,704 $5,866 $5,474 Fixed charges, excluding capitalized interest 576 534 639 751 811 ------ ------ ------ ------ ------ TOTAL EARNINGS, AS DEFINED $5,271 $5,808 $6,343 $6,617 $6,285 ====== ====== ====== ====== ====== FIXED CHARGES, AS DEFINED Interest expense (including capitalized interest) $ 493 $ 457 $ 548 $ 650 $ 792 1/3 of rental expense 92 77 91 101 89 ------ ------ ------ ------ ------ TOTAL FIXED CHARGES, AS DEFINED $ 585 $ 534 $ 639 $ 751 $ 881 ====== ====== ====== ====== ====== RATIO OF EARNINGS TO FIXED CHARGES 9.0 10.9 9.9 8.8 7.1
EX-13 8 0008.txt EXHIBIT (13) Annual Report to Shareholders. (pages 1-4, 13-39 and inside back cover) DEAR SHAREHOLDERS, Fiscal 2000 was a tough year. Earnings came in below the goals we had originally established and felt we could achieve. In our drive to meet changes in the marketplace -- globalization, the Internet, consolidation among retailers -- we tried to do too much too fast. As a result, we lost critical balance in several key areas: > We grew top-line sales more than we had over the past few years, but bottom-line earnings growth came in below historical rates. > We introduced more new brands than during any other period in our history, but our biggest, most profitable brands didn't grow at acceptable rates. > We invested for the future -- in new businesses and developing markets -- but some costs grew faster than revenues. > We made important leadership changes, placing people into new jobs as part of our organizational restructuring, but we lost continuity in some parts of the business. Even in the face of these challenges, our core earnings were above a year ago -- delivering record results. > Net sales grew 5% on 4% unit volume growth-- very strong improvement over last year, when volume was flat. > Net earnings were $3.5 billion or $2.47 per share, compared to $3.8 billion or $2.59 per share in 1999. > Core net earnings, which exclude $688 million of Organization 2005 costs, were $4.2 billion. Core earnings per share grew 4% to $2.95. While these results demonstrate progress, P&G is capable of delivering better results. We are confident we can reestablish the balance needed to deliver top-line revenue growth and bottom-line earnings growth. We have the core competencies and strengths to win; our new organizational design remains fundamentally right; and we have a focused plan to drive both sales and profit growth. FUNDAMENTALS TO WIN Our goal is simple: to create the most successful global brands in every category everywhere we compete. And we have the strengths to do it. Today P&G has more leading brands than any other consumer products company in the world. We have strong relationships with our retail customers around the world. And our innovative people continue to set industry standards. A.G. Lafley and John E. Pepper [Bottom of page 1, right-hand margin -- picture of A.G. Lafley and John E. Pepper] [Top of page 2, left-hand margin -- P&G brands: Pampers, Bounty, Charmin, Tide, Folgers, Ariel, Downy, Always, Ariel, Pringles, Pantene ProV and Pantene] TEN P&G BRANDS HAVE BILLION-DOLLAR SALES BIG LEADERSHIP BRANDS P&G's megabrands generate significant sales and hold strong leadership positions. Eight brands are global leaders in their categories. Ten P&G brands each generate over a billion dollars in sales a year - -- far more billion-dollar brands than our key competitors. Our 10 largest brands, together, would be a Fortune 100 company. And we have several other brands already in the market that we believe have billion-dollar potential. SUPERIOR CUSTOMER RELATIONSHIPS In a recent U.S. survey by Cannondale Associates, retailers were asked to rank manufacturers on a number of competencies. P&G was ranked number one in virtually every category: > "Clearest Company Strategy" > "Brands Most Important to Retailers" > "Best Brand Marketers Overall" > "Most Innovative Marketing Programs" This high regard by our customers is increasingly important. Today, our top 30 customers represent nearly 45% of our total volume, and we expect them to account for more than half of our volume by 2005. More importantly, these customers contributed about two-thirds of our recent volume growth and have a strong potential to drive future growth. INNOVATION LEADERSHIP The quality of our people continues to be our most valuable asset. And that quality is demonstrated by the innovation of our organization. > More than 8,000 scientists and researchers are accelerating the pace of new product and technology invention. > We have a global innovation network of 18 technical centers in nine countries on four continents. > P&G holds more than 27,000 patents and applies for 3,000 more each year -- or roughly 10 a day! In fact, we are among the top 10 patent-producing companies in the world -- well ahead of any other consumer products company. Importantly, innovation isn't limited to products alone. P&G people are innovative leaders in every part of our business. For example: > We are pioneering new Internet-based business models. Last year, we launched our initial Internet brand, reflect.com, the first to offer truly personalized beauty care products online. This venture is enabling us to get valuable experience in both Internet marketing and mass customization of products. > We led the formation of a consortium of more than 50 companies to create a consumer products industry marketplace called Transora. This business-to-business portal will enable companies in our industry to buy and sell more than $200 billion of supplies and services annually, and will result in substantial savings for P&G. What we hope you see from these examples is that P&G -- through the men and women who make up our Company -- is more than ever an industry innovator and leader. RIGHT ORGANIZATION DESIGN To gain even more value from our basic strengths, we have changed the way we're organized and the way we work. Our goals were to make it easy for innovation to flow across the enterprise and around the world; to learn directly from consumers as early as possible; and to profitably commercialize the best ideas and inventions quickly. We're doing all that. Global Business Units flow product innovations across categories and geographic markets. Market Development Organizations get initiatives to local markets faster, more creatively, at less cost. And our Global Business Services organization leverages our size to deliver better-quality services internally at significantly lower cost to the Company. We designed our new organization to be global and local at the same time -- a paradoxical challenge that we believe is key to our future success. OUR ACTION PLAN FOR PROFITABLE GROWTH We have learned a lot from our experience over the past year, and have applied this learning to a four-point plan to drive both sales and profit growth. First, we are focusing sharply on building our biggest, strongest global brands, the core of our business. We need to be sure we are consistently growing our market share on these brands. Second, we are making tougher choices about investing in new products and new businesses. We'll use fast-cycle learning techniques to get rapid consumer validation of our biggest ideas, and commercialize those ideas more quickly worldwide. Third, we are working hard to get even more value from our strong customer relationships. We'll build on this strength by collaborating more closely with customers. The result will be even more innovative marketing programs for new and established brands alike. [Bottom of page 3, right-hand margin, the following is in a graphic box: P&G'S ACTION PLAN FOR GROWTH 01 BUILD BIG BRANDS 02 INVEST IN INNOVATION 03 DEEPEN CUSTOMER PARTNERSHIPS 04 REDUCE COSTS AND IMPROVE CASH MANAGEMENT] Fourth, we are placing greater emphasis on rigorous cost control and cash management. We deployed teams to drive out waste and to find new efficiencies in overhead management, marketing support and product costs. In addition, we've renewed our emphasis on capital investment and working-capital efficiency. We highlight some of our efforts in these areas on pages 8 - 11. A PASSION FOR WINNING P&G people are accustomed to being winners and to doing what we commit to do -- or better. We take great pride in our brands, our innovation leadership, our customer relationships, the trust we've earned from consumers -- and our ability to deliver steady, reliable growth for our shareholders. Whenever our leadership in any of these areas is challenged, we take it seriously. And personally. For example, in the mid-'80s, we faced a significant financial setback. Earnings for fiscal 1985 declined 29% from the previous year. Back then we addressed the issues head-on, just as we're doing now. In the 15 years since, sales have grown from $13.6 billion to $40 billion -- a rate of 7% per year. And profits have increased from a little more than $600 million to $4.2 billion, an average growth rate of more than 13% per year. We don't point to these numbers as any kind of forecast, but they do underscore that we've faced major problems in the past and have overcome them. By addressing those problems just as we are tackling present issues, we continued to deliver the leadership levels of growth that both you and we expect from P&G. We are at our best when working on tough challenges because P&G people have such a tremendous passion for winning. In fact, that passion is our defining characteristic as an organization. And it is that passion that will ensure P&G maintains its rightful place as the preeminent consumer products company in the world. /S/JOHN E. PEPPER /S/A.G. LAFLEY John E. Pepper A.G. Lafley Chairman of the Board President and Chief Executive August 1, 2000 August 1, 2000 MANAGEMENT CHANGE After 30 years of service, Durk I. Jager retired July 1 as chairman, president, chief executive and a director of P&G. His visionary leadership and many contributions accelerated the pace of product innovation for the Company. He has left a legacy of innovation, not only in new brands, but also in areas such as use of the Internet and strengthening of customer relations. His emphasis on a culture that reaches out for breakthroughs has provided a strong foundation for future progress. FINANCIAL REVIEW The Procter & Gamble Company and Subsidiaries RESULTS OF OPERATIONS The Company's results reflected strong sales growth, with earnings impacted by higher spending on product initiatives and Organization 2005 costs. The Company introduced several new brands, expanded strong established brands into new markets, acquired new businesses and introduced significant product upgrades on major brands. The increased innovation resulted in significant investments at a time when commodity costs also increased, currency had a negative impact, the Company incurred additional costs to transition into its new global organizational structure and competition reacted strongly to business initiatives. Net earnings were $3.54 billion or $2.47 per share compared to $3.76 billion or $2.59 per share in 1999. Results included charges of $688 million after tax for current year costs of the Organization 2005 program. Organization 2005 is the Company's multi-year program designed to realign the organization into global product-based segments from a geographic structure and change the work processes and culture. For the fiscal year, core net earnings, which exclude Organization 2005 costs, increased 2% to $4.23 billion. Core net earnings per share were $2.95, an increase of 4% from the prior year. Volume and sales progress drove core earnings growth, but were partially offset by higher spending, primarily behind new product initiatives. Worldwide net sales for the current year were $39.95 billion, an increase of 5% versus last year. Excluding a negative 2% exchange rate impact, net sales increased 7% on 4% unit volume growth. This growth reflects strong product initiative activity, the acquisition of the Iams pet health and nutrition business and progress on flagship brands, largely in fabric and home care. Worldwide gross margin was 46.1%, compared to 44.8% in the prior year. Gross margin includes $496 million in charges related to the Organization 2005 program. These charges consisted primarily of accelerated depreciation, asset write-downs and employee separation costs. Excluding these charges, gross margin increased to 47.4%, reflecting the impact of high-performance, premium-priced initiatives and effective cost management in the face of rising material costs. Worldwide marketing, research and administrative expense was $12.48 billion versus $10.85 billion in the prior year. The increase to 31.2% of net sales from 28.4% was primarily due to increased spending on product initiatives. Organization 2005 costs increased marketing, research and administrative expense by $318 million, primarily due to employee separation expenses. Excluding these charges, marketing, research and administrative expense increased 13% over 1999. Operating income declined by 5%. Excluding the charges for Organization 2005, operating income improved 1% as business results were supplemented by lower employee benefit costs reflected in the Corporate segment. Interest expense increased 11% to $722 million on increased debt, primarily due to acquisitions and share repurchases. Other income, net, which consists primarily of interest and investment income, contributed $304 million in the current year compared to $235 million in the prior year, including impacts of the Company's ongoing minor brand divestiture program. The Company's effective tax rate for the year was 36.0%, compared to 35.5% in the prior year. This change reflects a reduction in the core earnings rate, more than offset by the impact of tax rate effects from the Organization 2005 program. Excluding Organization 2005 costs and related tax effects, the effective tax rate was 33.4% compared to 34.4% in the prior year. Net earnings margin was 8.9% versus 9.9% in the prior year. Excluding the Organization 2005 charges, core net earnings margin was 10.6%, down from 10.9% last year, reflecting the strong top-line growth offset by increased spending. The Company's action plan for the next year focuses on balancing top-line and bottom-line progress: growing big brands in core categories, investing smartly in commercialization of innovation, driving out costs and improving cash flow. THE FOLLOWING PROVIDES PERSPECTIVE ON THE YEAR ENDED JUNE 30, 1999, VERSUS JUNE 30, 1998: Worldwide net earnings were $3.76 billion in 1999, flat versus $3.78 billion in 1998. Worldwide net sales in 1999 were $38.13 billion, up 3% from $37.15 billion in the prior year on flat unit volume. The increase in sales was attributable to improved pricing in all regions and favorable volume and product mix in North America, partially offset by exchange impacts. Unfavorable exchange rates, primarily in Asia and Latin America, depressed sales by 1% for the year. Worldwide gross margin increased to 44.8% from 43.8% in 1998, reflecting effective cost savings, primarily in North America. Organization 2005 charges increased cost of products sold by $443 million in 1999, as a result of asset write-downs and accelerated depreciation. Excluding these charges, gross margin increased to 46.0%. Worldwide marketing, research and administrative expense was 28.4% of net sales, compared with 27.5% in 1998. The 6% increase in total spending was primarily due to increased research spending, primarily in the paper and health care businesses, and increased spending for new initiatives. Organization 2005 charges increased marketing, research and administrative expense by $38 million, related primarily to employee separation expenses. Operating income grew 3% in 1999. Excluding the charges for Organization 2005, operating income grew 11%. These trends reflected sales growth and cost control efforts. Net earnings margin was 9.9% in 1999 versus 10.2% in 1998. Excluding the Organization 2005 charges, core net earnings margin in 1999 was 10.9%, the highest in 58 years. Interest expense increased 19% to $650 million in 1999, on increased debt, due mainly to share repurchases. In 1998, interest expense was $548 million. Other income, net, was $235 million in 1999, versus $201 million in 1998. The Company's effective tax rate for the year was 35.5%, compared to 33.8% in 1998. The increase reflected a reduction in benefits for research and development tax credits in North America, which were included in 1998 results, as well as the impact of various country tax rates on Organization 2005 program costs. Excluding Organization 2005 program costs and related tax effects, the tax rate was 34.4%. Over the last several years, the Company maintained an ongoing program of simplification and standardization, which included projects to consolidate selected manufacturing facilities, re-engineer manufacturing and distribution processes, redesign organizations, simplify product line-ups and divest non-strategic brands and assets. This program did not have a significant impact on 1999 or 1998 net earnings. Beginning with the fourth quarter of 1999, the restructuring aspects of this program were superseded by Organization 2005. Certain reclassifications of the prior years' amounts have been made to conform with the current year presentation. FINANCIAL CONDITION Cash flow from operations was $4.68 billion, $5.54 billion and $4.89 billion in 2000, 1999 and 1998, respectively. Operating cash flow provided the primary source of funds to finance operating needs, capital expenditures and shareholder dividends. Supplemented by additional borrowings, cash flow from operations also provided funds to finance acquisitions and the share repurchase program. Cash and cash equivalents decreased $879 million in the current year to $1.42 billion, reflecting acquisition spending and lower net earnings, partially offset by the issuance of debt. In the prior year, cash and cash equivalents increased by $745 million to $2.29 billion, reflecting improved earnings, primarily concentrated in Europe. Capital expenditures were $3.02 billion in 2000, $2.83 billion in 1999 and $2.56 billion in 1998. Current year expenditures included initiatives and capacity increases in fabric and home care and paper, including spending on Organization 2005 projects. Capital expenditures are expected to increase in the upcoming year, behind the Organization 2005 program, including increased capacity. In 1999, capital spending was driven by standardization projects in paper and capacity expansions in the paper and food and beverage businesses. Net cash used for acquisitions completed during 2000 totaled $2.97 billion, primarily related to the acquisitions of The Iams Company and Affiliates, Recovery Engineering, Inc. and a joint venture ownership increase in China. This compares to acquisition spending of $137 million in 1999 and $3.27 billion in 1998. Transactions in fiscal 1998 were largely concentrated in paper businesses and included Tambrands, Inc., the Loreto y Pena paper company in Mexico and the Ssangyong Paper Company in Korea. The Company also increased ownership of various joint ventures in Asia and Latin America in 1998. The Company continues its program to divest certain non-strategic brands in order to focus resources on core businesses. The proceeds from these and other asset sales generated $419 million in cash flow in the current year, compared to $434 million and $555 million in 1999 and 1998, respectively. The Company maintains a share repurchase program, which authorizes the Company to purchase shares annually on the open market to mitigate the dilutive impact of employee compensation programs. The Company also has a discretionary buy-back program under which it currently intends to repurchase additional outstanding shares of up to $1 billion per year. Current year purchases under the combined programs were $1.77 billion, compared to $2.53 billion in 1999 and $1.93 billion in 1998. The Company issued equity put options in 2000 for 12 million shares at prices ranging from $60 to $71 per share, which reduce the Company's cash outlay for share repurchases. Common share dividends grew 12% to $1.28 per share in 2000, compared to $1.14 and $1.01 in 1999 and 1998, respectively. For the coming year, the annual dividend rate will increase to $1.40 per common share, marking the 45th consecutive year of increased common share dividend payments. Total dividend payments, to both common and preferred shareholders, were $1.80 billion, $1.63 billion and $1.46 billion in 2000, 1999 and 1998, respectively. Total debt was up $2.75 billion to $12.13 billion, due to the issuance of long-term debt to fund acquisitions and share repurchases. Long-term borrowing available under the Company's shelf registration statement filed in 1995, as amended in July 1997 and September 1999, was $1.87 billion at June 30, 2000. Additionally, the Company is able to issue commercial paper at favorable rates and to access general bank financing. THE FOLLOWING PAGES PROVIDE PERSPECTIVE ON THE COMPANY'S BUSINESS SEGMENTS. THE COMPANY MOVED TO A GLOBAL PRODUCT-BASED STRUCTURE FROM A GEOGRAPHIC STRUCTURE EFFECTIVE JULY 1, 1999, AND PRIOR YEARS' RESULTS HAVE BEEN RESTATED FOR THE CHANGE. PRODUCT-BASED SEGMENT RESULTS EXCLUDE ITEMS THAT ARE NOT INCLUDED IN MEASURING BUSINESS PERFORMANCE FOR MANAGEMENT REPORTING PURPOSES, MOST NOTABLY CERTAIN FINANCING, INVESTING AND EMPLOYEE BENEFIT COSTS, GOODWILL AMORTIZATION AND COSTS RELATED TO THE ORGANIZATION 2005 PROGRAM. SALES IN COMPANIES OVER WHICH THE COMPANY EXERTS SIGNIFICANT INFLUENCE, BUT DOES NOT CONTROL THE FINANCIAL AND OPERATING DECISIONS, ARE REPORTED FOR SEGMENT PURPOSES IN A MANNER SIMILAR TO CONSOLIDATED SUBSIDIARIES. TAXES ARE REFLECTED IN THE BUSINESSES AT LOCAL STATUTORY TAX RATES. THE EFFECTS OF THESE CONVENTIONS ARE ELIMINATED IN THE CORPORATE SEGMENT TO RECONCILE TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. FABRIC AND HOME CARE Net sales for fabric and home care were $12.16 billion, an increase of 7% over the prior year. Unit volume grew 5%. Excluding foreign exchange impacts, primarily in Western Europe, sales grew 9%. Net earnings for the segment were $1.45 billion, down 3% versus year ago. Fabric and home care represents the Company's largest business segment, accounting for nearly one third of sales and an even greater percentage of earnings. Strong sales growth was spurred by the introduction of new brands and solid base business performance in North America and Northeast Asia, as well as continued expansion within the Southern Cone (Brazil, Chile, Argentina) of Latin America. Despite volume and sales progress, earnings were down, primarily due to significant investments in product initiatives. Strong unit volume and sales growth was achieved in North America versus the prior year. Several new brand initiatives were launched, including Swiffer, Dryel and Mr. Clean Wipes, along with product upgrades on established brands, such as Tide. New business sales accounted for approximately half of the growth. Western Europe posted slight volume increases behind the introductions of Swiffer and Dryel, as well as the expansion of laundry tablets. Sales declined as pricing lagged unfavorable exchange trends. Progress in Central and Eastern Europe was strong following last year's economic crisis in Russia and reflecting an improved cost structure. Northeast Asia delivered high double-digit growth on volume and sales, despite a challenging economic environment. Strength on Ariel and Joy, as well as the introduction of Febreze in Japan and South Korea, drove the increases. In 1999, net sales increased 4% over 1998, on flat unit volume. Net earnings were $1.50 billion, a 6% increase. North America was a strong contributor to segment results, driving both sales and earnings gains. PAPER The paper segment had net sales of $12.04 billion, down 1% from the prior year on flat unit volume. Excluding the impact of exchange rates, primarily the euro, sales were up 1%. Excluding the impact of the prior year divestiture of the Attends adult incontinence brand, unit volume increased 2%. Net earnings were $1.07 billion, down 16%, reflecting tissues and towel expansion in Western Europe, investments in new product initiatives on Charmin, a tough competitive environment in baby care and feminine care businesses, increased capacity and unfavorable raw and packing material cost trends. In the current year, tissues and towel volume and sales grew 9% and 7%, respectively, behind geographic expansion, as well as a major product upgrade on Charmin. Volume growth was broad-based in all major markets, led by the North America expansion of Charmin and Bounty. Product introductions in the United Kingdom contributed to volume progress in Western Europe. In 1999, volume and sales increased 7%, primarily due to gains in North America and Northeast Asia. Tissues and towel earnings declined despite volume growth, as rising pulp and energy prices, combined with investments in geographic expansions and product initiatives, more than offset volume gains. In addition, two new paper machines in North America and another in the United Kingdom provided needed capacity, but resulted in higher start-up costs. Commodity-driven pricing actions were taken during the last quarter of the year, but were not sufficient to offset the full year impact of cost increases. Baby care volume was flat, as significant competitive challenges in Western Europe offset increases in other markets. Excluding a 3% negative exchange impact, sales increased 1%. Earnings were affected by increased marketing and administrative expense. The recent introductions of Pampers One-Ups! wipes and Luvs Splashwear, the expansion of Pampers into China and planned product improvements are expected to better position the baby care business by restoring consumer value in the face of the current price premium versus competition. For fiscal 1999, pricing actions drove sales up 5% on flat unit volume. Feminine care volume declined 9%, due primarily to the impact of the prior year divestiture of the Attends adult incontinence brand. Excluding the divestiture, volume declined by 3% primarily driven by competitive activity in Northeast Asia, China and Latin America. Sales decreased 7%. Excluding exchange impacts, sales declined 4%. Earnings were down due to lower volumes, combined with product initiative related cost increases primarily in North America and Western Europe. While unit volume declined 3% in 1999, sales increased marginally. In 1999, paper net sales increased 4% to $12.19 billion on 1% unit volume growth, led by tissues and towel and baby care. Net earnings were $1.28 billion, a 29% increase over 1998, primarily driven by baby care results. BEAUTY CARE Net sales in beauty care were $7.39 billion, comparable to the prior year, but up 1% excluding the impact of unfavorable exchange rates, primarily in Western Europe. Unit volume declined 2%, impacted by a difficult competitive environment in key European markets and significant contraction of the market in China. Net earnings were $894 million, a 3% decrease from the prior year. Sales in the current year were slightly ahead of volume due to the focus on high-performance, premium-priced initiatives, including the launch of the Physique styling-led line, cosmetics and skin care product initiatives and the expansion of Secret Platinum. Earnings for the current year reflected the weakness in China and Western Europe and higher marketing costs associated with the introduction of new products and initiatives on established brands, which more than offset gains from minor brand divestitures. Western Europe was negatively impacted by competitive factors and the euro devaluation. Plans to restore growth include improved focus on cost control, as well as the expansion of premium-priced initiatives such as the VS Sassoon and Head and Shoulders restages and expansion of Olay Total Effects. China, especially hair care, was challenged by a worsening economic situation, which fueled the growth of low cost local brands and a higher incidence of branded product counterfeiting. Going forward, the business will continue to focus on strengthening brand equities through several upgrades on large brands. North America increased volume behind premium product introductions. Physique, positioned as a salon-quality brand, was launched in the last half of the year and achieved solid share results. The introduction of Old Spice Red Zone and expansion of Secret Platinum also provided good share results. In 1999, net sales declined 1% to $7.38 billion on a 5% unit volume drop. Sales were negatively affected by the financial crisis in Eastern Europe, as well as competitive activity and the impact of divestitures of non-strategic brands in Western Europe. Net earnings were $917 million, a 9% increase from 1998, reflecting favorable pricing and steady progress on cost control. HEALTH CARE Health care net sales were $3.91 billion, with growth primarily coming from acquisitions. Volume and sales increased 34% and 36%, respectively, versus the prior year. Unfavorable exchange rates impacted sales by 2%. Net earnings were $335 million, a 38% increase over 1999. Excluding the impact of acquisitions, health care delivered sales growth of 4% despite a 2% volume decline, while earnings increased 17%. The Iams Company posted record results, doubling distribution with the expansion into new retail channels. Beyond the channel expansion, Iams introduced several successful product initiatives. Health care sales in North America grew behind strong consumption, favorable pricing and volume progress in pharmaceuticals. Oral care volume gains were driven by the launches of Crest MultiCare Advanced Cleaning and other premium dentifrice products. Actonel (risedronate sodium tablets) 5 mg., the Company's first major prescription drug, was launched in the fourth quarter. Actonel is a bisphosphonate for the prevention and treatment of osteoporosis and is the only therapy proven to significantly reduce spinal fractures in one year. A milestone payment received upon FDA approval of Actonel was essentially offset by launch costs in the current year. The launch is off to a good start in the United States, United Kingdom and Germany, with launches planned shortly in four more countries. Western Europe depressed sales, primarily due to the weak euro and lower volume. The Actonel launch is expected to impact Western Europe results more significantly next fiscal year. In 1999, net sales were flat versus the prior year at $2.88 billion on a 3% unit volume reduction. Net earnings were $242 million, a 4% increase over 1998. Earnings progress reflected a shift toward higher-margin pharmaceutical sales and pricing, mitigated by investments in product launches. FOOD AND BEVERAGE Food and beverage net sales were flat versus last year at $4.63 billion, including a 1% negative exchange impact. Unit volume also was flat. Excluding the prior year divestiture of Hawaiian Punch, unit volume increased 5% behind strong growth in Western Europe and Northeast Asia, partially due to the expansion of Pringles. Net earnings increased to $364 million, up 11% versus last year, primarily due to gross margin improvement. Results in North America reflected significant competitive activity, particularly in coffee and snacks. Initiative launches helped drive volume, partially offsetting the impact of the Hawaiian Punch divestiture. Despite product cost savings, earnings were impacted by marketing costs and other spending increases. Unit volume in Western Europe achieved double-digit growth with the successful expansion of Pringles. Juice volume suffered due to a temporary public relations setback with Sunny Delight in the United Kingdom that has now been addressed. Recent launches in France and Spain are expected to improve volume progress, along with additional launches in Western Europe. Northeast Asia posted double-digit progress on volume and sales driven by renewed strength in the snacks business, as well as strengthening of the Japanese yen. In 1999, net sales increased 1% to $4.66 billion, on a 4% volume increase. Net earnings were $328 million, a 12% increase versus $294 million in 1998, which included significant initiative related spending. CORPORATE The Corporate segment includes both operating and non-operating elements, such as: financing and investing activities, goodwill amortization, employee benefit costs, charges related to restructuring (including the Organization 2005 program), segment eliminations and other general corporate items. Corporate sales reflected adjustments to reconcile management reporting conventions to accounting principles generally accepted in the United States of America. Corporate results reflected increased charges from Organization 2005 and goodwill amortization, partially offset by lower corporate costs, including reduced employee benefit costs and the proceeds of a patent litigation settlement with Paragon Trade Brands, Inc. HEDGING AND DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. To manage the volatility relating to these exposures, the Company nets the exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, the Company enters into various derivative transactions pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. The financial impacts of these hedging instruments are offset in part or in whole by corresponding changes in the underlying exposures being hedged. The Company does not hold or issue derivative financial instruments for trading purposes. Note 6 to the consolidated financial statements includes a discussion of the Company's accounting policies for financial instruments. Derivative positions are monitored using techniques including market value, sensitivity analysis and value at risk modeling. The tests for interest rate and currency rate exposures discussed below are based on a variance/co-variance value at risk model using a one year horizon and a 95% confidence level. The model incorporates the impact of correlation and diversification from holding multiple currency and interest rate instruments, assumes that financial returns are normally distributed and approximates the financial return for options and other non-linear instruments. Estimates of volatility and correlations of market factors are drawn from the RiskMetric(TM) dataset as of June 30, 2000. In cases where data is unavailable in RiskMetrics(TM) a reasonable proxy is included. The Company's market risk exposures relative to interest and currency rates, as discussed below, have not changed materially versus the previous reporting period. In addition, the Company is not aware of any facts or circumstances that would significantly impact such exposures in the near term. INTEREST RATE EXPOSURE Interest rate swaps are used to hedge underlying debt obligations. Certain currency interest rate swaps are designated as hedges of the Company's foreign net investments. Based on the Company's overall interest rate exposure as of and during the year ended June 30, 2000, including derivative and other instruments sensitive to interest rates, a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect the Company's financial statements. CURRENCY RATE EXPOSURE The Company manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The Company's major foreign currency exposures involve the markets in Western and Eastern Europe, Asia and Mexico. The primary purpose of the Company's foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials and other assets and liabilities created in the normal course of business. Corporate policy prescribes the range of allowable hedging activity. The Company primarily utilizes forward exchange contracts and purchased options with maturities of less than eighteen months. In addition, the Company enters into certain foreign currency swaps to hedge intercompany financing transactions. The Company also utilizes purchased foreign currency options with maturities of generally less than eighteen months and forward exchange contracts to hedge against the effect of exchange rate fluctuations on royalties and income from international operations. Based on the Company's overall currency rate exposure as of and during the year ended June 30, 2000, including derivative and other instruments sensitive to foreign currency movements, a near-term change in currency rates, at a 95% confidence level based on historical currency rate movements, would not materially affect the Company's financial statements. COMMODITY PRICE EXPOSURE Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. The Company uses futures and options contracts, primarily in food and beverage products, to manage the volatility related to certain of these exposures. Commodity hedging activity is not material to the Company's financial statements. ORGANIZATION 2005 As also discussed in Note 2 to the consolidated financial statements, effective July 1, 1999, the Company reorganized its operations, moving from a geographic structure to product-based Global Business Units. This Organization 2005 program is designed to realign the organizational structure, work processes and culture to commercialize innovations faster and drive growth. This involves Global Business Units streamlining decision making to quickly flow innovation across categories and geographies, Market Development Organizations getting initiatives to market faster and more efficiently, and Global Business Services leveraging scale to deliver services at significantly lower cost. To achieve this, changes are required to administrative and manufacturing operations. As announced in June 1999, the Company has undertaken a multi-year program to consolidate and standardize manufacturing operations, reduce enrollment and effect other actions integral to the Organization 2005 objectives. The cost of this program is estimated to be $2.1 billion after tax over a six year period. Based on the nature and duration of the Organization 2005 program, costs incurred in future years are subject to varying degrees of estimation for key assumptions, such as normal employee attrition levels, the actual timing of the execution of plans and other variables. The estimated cost of the program has increased approximately $200 million after tax since its announcement, primarily due to refinement of estimates associated with the legal and organizational restructuring of the Company and expansion of certain manufacturing consolidation plans. Significant savings are expected to begin accruing next fiscal year, reaching going annual levels of approximately $1.2 billion after tax by fiscal 2004. This annual savings estimate has increased by approximately $300 million since announcement of the program, primarily due to the savings associated with the legal and organizational restructuring, which yields substantial tax and other savings. The Company recorded Organization 2005 charges of $814 million ($688 million after tax) and $481 million ($385 million after tax) in 2000 and 1999, respectively. These charges were recorded in the Corporate segment for management and external reporting purposes, although they affected substantially all business units. Savings for the current year were approximately $65 million after tax, with no individual business unit significantly impacted. Estimated costs for fiscal 2001 are $750 million ($550 million after tax). The balance of the charges are not expected to materially affect any single year, and savings are expected to offset the charges. Costs under Organization 2005 were related primarily to separation and relocation of employees as well as streamlining manufacturing facilities, including consolidations, closures and standardization projects. Certain other costs directly related to Organization 2005 also were included. The non-cash costs of the program primarily were related to manufacturing consolidations and asset write-downs. These accounted for 62% and 88% of charges in 2000 and 1999, respectively. Approximately 30% of future charges are expected to be non-cash. Cash requirements of the program, including capital spending requirements, will be met through normal operating cash flow. Approximately 45% of the plant and production module closings have occurred to date, with the majority of the remainder expected to be completed in fiscal 2001. Employee separation charges were $153 million ($102 million after tax) and $45 million ($29 million after tax) in 2000 and 1999, respectively. These costs related to severance packages for approximately 2,800 people in 2000 and 400 people in 1999, with all geographies and businesses impacted. The predominantly voluntary packages were formula driven, based on salary levels and past service. Severance costs related to voluntary separations were charged to earnings when the employee accepted the offer and were reflected in cost of products sold for manufacturing employees and in marketing, research and administrative expense for all other employees. The streamlined work processes and manufacturing consolidations under Organization 2005 are expected to affect approximately 15,000 jobs over six years (fiscal 1999 through 2004). The majority of the remaining separation costs are expected to occur by 2002, although additional costs will continue throughout the program. Net enrollment is expected to decline by less than the total separations, as terminations will be partially offset through increased enrollment at remaining sites and acquisition impacts. Asset write-downs were $64 million ($43 million after tax) in 2000 and $217 million ($142 million after tax) in 1999. The 2000 charges related to assets held for sale or disposal and represented excess capacity that is in the process of being removed from service. Such assets were written down to the lower of their current carrying basis or net amounts expected to be realized upon disposal. In the prior year, the charges primarily related to manufacturing assets that were expected to operate at levels significantly below their capacity because of a shift in global strategy enabled by Organization 2005, as well as demand trends below expectations. Because the expected cash flows of those assets were estimated to be less than their carrying values, the assets were written down to estimated fair value as determined using discounted cash flows. The remainder of the 1999 charges related to assets held for sale. Asset write-downs will not have a significant impact on future depreciation charges. Charges for accelerated depreciation were $386 million ($335 million after tax) in 2000 and $208 million ($206 million after tax) in 1999. The charges for accelerated depreciation related to long-lived assets that will be taken out of service prior to the end of their normal service period due to manufacturing consolidations, technology standardization and plant closures. The Company has shortened the estimated useful lives of such assets, resulting in an acceleration of depreciation. The underlying plant closures and consolidations will impact substantially all businesses. Accelerated depreciation charges are expected to be approximately $250 million in 2001. Both asset write-downs and accelerated depreciation are charged to cost of products sold. Other costs were $211 million ($208 million after tax) and $11 million ($8 million after tax) in 2000 and 1999, respectively. These costs were incurred as a direct result of Organization 2005 and were expensed as incurred. The nature of the costs included training, relocation, tax and other incremental costs relating to establishment of Global Business Services and the new legal and organizational structure of Organization 2005. Such before-tax costs were primarily charged to marketing, research and administrative expense and were included in the Corporate segment. Charges for other costs are expected to be approximately $225 million in 2001. Most charges under Organization 2005 are paid shortly after accrual or charged directly to the related assets. The reserve balances at June 30, 2000 and 1999 were $88 million and $44 million, respectively. FORWARD-LOOKING STATEMENT 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, Organization 2005, financial goals and cost reduction, among others. These forward-looking statements are based on assumptions and estimates regarding competitive activity, pricing, product introductions, economic conditions, technological innovation, currency movements, governmental action and the development of certain markets. Among the key factors necessary to achieve the Company's goals are: (1) the successful implementation of Organization 2005, including achievement of expected cost and tax savings and successful management of organizational and work process restructuring; (2) the ability to achieve business plans, including volume growth and pricing plans, despite high levels of competitive activity; (3) the ability to maintain key customer relationships; (4) the achievement of growth in significant developing markets such as China, Mexico, the Southern Cone of Latin America and the countries of Central and Eastern Europe; (5) the ability to successfully manage regulatory, tax and legal matters, including resolution of pending matters within current estimates; (6) the successful execution of planned minor brand divestitures; (7) the ability to successfully implement cost improvement plans in manufacturing and overhead areas; and (8) the ability to successfully manage currency, interest rate and certain commodity cost exposures. 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. RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries Consolidated financial statements and financial information included in this report are the responsibility of Company management. This includes preparing the statements in accordance with accounting principles generally accepted in the United States and necessarily includes estimates based on management's best judgments. To help insure the accuracy and integrity of Company financial data, management maintains internal controls 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 ongoing program of internal audits. These audits are supplemented by a self-assessment program that enables individual organizations to evaluate the effectiveness of their controls. Careful selection of employees and appropriate divisions of responsibility are designed to achieve control objectives. The Company's "Worldwide Business Conduct Manual" sets forth management's commitment to conduct its business affairs with the highest ethical standards. Deloitte & Touche, independent public accountants, have audited and reported on the Company's consolidated financial statements. Their audits were performed in accordance with auditing standards generally accepted in the United States of America. The Board of Directors, acting through its Audit Committee composed entirely of outside directors, oversees the adequacy of internal controls. The Audit Committee meets periodically with representatives of Deloitte & Touche 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/A. G. LAFLEY /S/CLAYTON C. DALEY, JR. John E. Pepper A. G. Lafley Clayton C. Daley Jr. Chairman of the Board President and Chief Executive Chief Financial Officer INDEPENDENT AUDITORS' REPORT DELOITTE 250 East Fifth Street & TOUCHE 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, 2000 and 1999 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999 and the results of its operations and cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. /S/DELOITTE & TOUCHE LLP Deloitte & Touche LLP August 1, 2000
CONSOLIDATED STATEMENTS OF EARNINGS The Procter & Gamble Company and Subsidiaries Amounts in millions except per share amounts Years Ended June 30 ------------------------------- 2000 1999 1998 ======================================================================================= NET SALES $39,951 $38,125 $37,154 Cost of products sold 21,514 21,027 20,896 Marketing, research and administrative expense 12,483 10,845 10,203 - ---------------------------------------------- ------- ------- ------- OPERATING INCOME 5,954 6,253 6,055 Interest expense 722 650 548 Other income, net 304 235 201 - ---------------------------------------------- ------- ------- ------- EARNINGS BEFORE INCOME TAXES 5,536 5,838 5,708 Income taxes 1,994 2,075 1,928 - ---------------------------------------------- ------- ------- ------- NET EARNINGS(1) $ 3,542 $ 3,763 $ 3,780 ============================================== ======= ======= ======= BASIC NET EARNINGS PER COMMON SHARE(1) $ 2.61 $ 2.75 $ 2.74 DILUTED NET EARNINGS PER COMMON SHARE(1) $ 2.47 $ 2.59 $ 2.56 DIVIDENDS PER COMMON SHARE $ 1.28 $ 1.14 $ 1.01 ============================================== ======= ======= ======= (1) Net earnings include an after-tax charge for Organization 2005 of $688 in 2000 and $385 in 1999. Basic and diluted net earnings per share include Organization 2005 charges of $.52 and $.48 in 2000 and $.29 and $.26 in 1999, respectively.
See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS The Procter & Gamble Company and Subsidiaries
Amounts in millions June 30 --------------------- 2000 1999 ======================================================================================= ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,415 $ 2,294 Investment securities 185 506 Accounts receivable 2,910 2,940 INVENTORIES Materials and supplies 1,254 1,176 Work in process 394 375 Finished goods 1,842 1,787 - --------------------------------------------------------- ------- ------- TOTAL INVENTORIES 3,490 3,338 Deferred income taxes 309 621 Prepaid expenses and other current assets 1,760 1,659 - --------------------------------------------------------- ------- ------- TOTAL CURRENT ASSETS 10,069 11,358 PROPERTY, PLANT AND EQUIPMENT Buildings 4,259 3,885 Machinery and equipment 18,366 16,953 Land 596 562 - --------------------------------------------------------- ------- ------- 23,221 21,400 Accumulated depreciation (9,529) (8,774) - --------------------------------------------------------- ------- ------- TOTAL PROPERTY, PLANT AND EQUIPMENT 13,692 12,626 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill 9,080 7,062 Trademarks and other intangible assets 1,305 1,115 - --------------------------------------------------------- ------- ------- 10,385 8,177 Accumulated amortization (1,599) (1,355) - --------------------------------------------------------- ------- ------- TOTAL GOODWILL AND OTHER INTANGIBLE ASSETS 8,786 6,822 OTHER NON-CURRENT ASSETS 1,647 1,307 - --------------------------------------------------------- ------- ------- TOTAL ASSETS $34,194 $32,113 ========================================================= ======= ======= Amounts in millions June 30 --------------------- 2000 1999 ======================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,209 $ 2,300 Accrued and other liabilities 3,721 4,083 Taxes payable 925 1,228 Debt due within one year 3,210 3,150 - --------------------------------------------------------- ------- ------- TOTAL CURRENT LIABILITIES 10,065 10,761 LONG-TERM DEBT 8,916 6,231 DEFERRED INCOME TAXES 625 362 OTHER NON-CURRENT LIABILITIES 2,301 2,701 - --------------------------------------------------------- ------- ------- TOTAL LIABILITIES 21,907 20,055 - --------------------------------------------------------- ------- ------- SHAREHOLDERS' EQUITY Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) 1,737 1,781 Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized) -- -- Common stock, stated value $1 per share (5,000 shares authorized; shares outstanding: 2000 - 1,305.9 and 1999 - 1,319.8) 1,306 1,320 Additional paid-in capital 1,794 1,337 Reserve for Employee Stock Ownership Plan debt retirement (1,418) (1,552) Accumulated other comprehensive income (1,842) (1,606) Retained earnings 10,710 10,778 - --------------------------------------------------------- ------- ------- TOTAL SHAREHOLDERS' EQUITY 12,287 12,058 - --------------------------------------------------------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $34,194 $32,113 ========================================================= ======= =======
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Procter & Gamble Company and Subsidiaries Accumulated Addi- Other Total Common tional Reserve for Compre- Compre- Dollars in Millions/ Shares Common Preferred Paid-in ESOP Debt hensive Retained hensive Shares in Thousands Outstanding Stock Stock Capital Retirement Income Earnings Total Income =================================================================================================================================== BALANCE JUNE 30, 1997 1,350,843 $1,351 $1,859 $ 559 $(1,634) $ (819) $10,730 $12,046 - ------------------------------- --------- ------ ------ ------ ------- ------- ------- ------- Net earnings 3,780 3,780 $3,780 Other comprehensive income: Currency translation, net of $25 tax (536) (536) (536) Other, net of tax (2) (2) (2) ------ Total comprehensive income $3,242 ====== Dividends to shareholders: Common (1,358) (1,358) Preferred, net of tax benefit (104) (104) Treasury purchases (24,716) (25) (1,904) (1,929) Employee plan issuances 8,777 9 312 321 Preferred stock conversions 2,557 2 (38) 36 - ESOP debt guarantee reduction 18 18 - ------------------------------- --------- ------ ------ ------ ------- ------- ------- ------- BALANCE JUNE 30, 1998 1,337,461 1,337 1,821 907 (1,616) (1,357) 11,144 12,236 - ------------------------------- --------- ------ ------ ------ ------- ------- ------- ------- Net earnings 3,763 3,763 $3,763 Other comprehensive income: Currency translation, net of $4 tax (232) (232) (232) Other, net of tax (17) (17) (17) ------ Total comprehensive income $3,514 ====== Dividends to shareholders: Common (1,517) (1,517) Preferred, net of tax benefit (109) (109) Treasury purchases (29,924) (30) (2,503) (2,533) Employee plan issuances 9,605 10 393 403 Preferred stock conversions 2,612 3 (40) 37 - ESOP debt guarantee reduction 64 64 - ------------------------------- --------- ------ ------ ------ ------- ------- ------- ------- BALANCE JUNE 30, 1999 1,319,754 1,320 1,781 1,337 (1,552) (1,606) 10,778 12,058 - ------------------------------- --------- ------ ------ ------ ------- ------- ------- ------- Net earnings 3,542 3,542 $3,542 Other comprehensive income: Currency translation, net of $88 tax (299) (299) (299) Other, net of tax 63 63 63 ------ Total comprehensive income $3,306 ====== Dividends to shareholders: Common (1,681) (1,681) Preferred, net of tax benefit (115) (115) Treasury purchases (24,296) (24) 72(1) (1,814) (1,766) Employee plan issuances 7,592 7 344 351 Preferred stock conversions 2,817 3 (44) 41 - ESOP debt guarantee reduction 134 134 - ------------------------------- --------- ------ ------ ------ ------- ------- ------- ------- BALANCE JUNE 30, 2000 1,305,867 $1,306 $1,737 $1,794 $(1,418) $(1,842) $10,710 $12,287 =============================== ========= ====== ====== ====== ======= ======= ======= ======= (1) Premium on equity put options.
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS The Procter & Gamble Company and Subsidiaries Amounts in millions Years Ended June 30 ----------------------------------------- 2000 1999 1998 ======================================================================================================================== CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $2,294 $ 1,549 $ 2,350 - ------------------------------------------------------------ ------- -------- -------- OPERATING ACTIVITIES Net earnings 3,542 3,763 3,780 Depreciation and amortization 2,191 2,148 1,598 Deferred income taxes 463 (60) (101) Change in accounts receivable 64 (207) 42 Change in inventories (176) (96) (229) Change in accounts payable, accrued and other liabilities (883) 792 (3) Change in other operating assets and liabilities (404) (926) (65) Other (122) 130 (137) - ------------------------------------------------------------ ------- -------- -------- TOTAL OPERATING ACTIVITIES 4,675 5,544 4,885 - ------------------------------------------------------------ ------- -------- -------- INVESTING ACTIVITIES Capital expenditures (3,018) (2,828) (2,559) Proceeds from asset sales 419 434 555 Acquisitions (2,967) (137) (3,269) Change in investment securities 221 356 63 - ------------------------------------------------------------ ------- -------- -------- TOTAL INVESTING ACTIVITIES (5,345) (2,175) (5,210) - ------------------------------------------------------------ ------- -------- -------- FINANCING ACTIVITIES Dividends to shareholders (1,796) (1,626) (1,462) Change in short-term debt 243 689 1,315 Additions to long-term debt 4,196 986 1,970 Reductions of long-term debt (1,409) (334) (432) Proceeds from stock options 336 212 158 Treasury purchases (1,766) (2,533) (1,929) - ------------------------------------------------------------ ------- -------- -------- TOTAL FINANCING ACTIVITIES (196) (2,606) (380) - ------------------------------------------------------------ ------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (13) (18) (96) - ------------------------------------------------------------ ------- -------- -------- CHANGE IN CASH AND CASH EQUIVALENTS (879) 745 (801) - ------------------------------------------------------------ ------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $1,415 $ 2,294 $ 1,549 ============================================================ ======= ======== ======== SUPPLEMENTAL DISCLOSURE Cash payments for: Interest, net of amount capitalized $ 700 $ 640 $ 536 Income taxes 1,712 1,743 1,873 Liabilities assumed in acquisitions 236 38 808 ============================================================ ======= ======== ========
See accompanying Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Procter & Gamble Company and Subsidiaries Millions of dollars except per share amounts NOTE 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 over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for using the equity method. These investments are managed as integral parts of the Company's business units, and segment reporting reflects such investments as consolidated subsidiaries. USE OF ESTIMATES: Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from estimates. NEW PRONOUNCEMENTS: In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement will be adopted effective July 1, 2000, but is not expected to materially impact the Company's financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements." The effective date has been deferred pending additional interpretive guidance. Based on current interpretations, no material impact on the Company's financial statements is anticipated. CURRENCY TRANSLATION: Financial statements of subsidiaries outside the U.S. generally are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars 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 adjustments for highly inflationary economies and other transactional exchange gains and losses are reflected in earnings. 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 exceeded carrying value by approximately $83 and $100 at June 30, 2000 and 1999, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS: The cost of intangible assets is amortized, principally on a straight-line basis, over the estimated periods benefited, generally forty years for goodwill and periods ranging from three to forty years for other intangible assets. The realizability of goodwill and other intangibles is evaluated periodically when 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 of the Company's existing 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 based on estimated useful lives using the straight-line method. Estimated useful lives are periodically reviewed, and where warranted, changes are made that result in an acceleration of depreciation. 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, equity 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. RECLASSIFICATIONS: Certain reclassifications of prior years' amounts have been made to conform with the current year presentation. NOTE 2. ORGANIZATION 2005 In June 1999, the Board of Directors approved a multi-year restructuring program in conjunction with the Company's Organization 2005 initiative. Due to the nature and duration of this program, the timing and amount of estimated costs and savings require significant judgment and may change over time. Based on current expectations, the total cost of the program is estimated to be $2.7 billion ($2.1 billion after tax) over a six year period (fiscal 1999 through fiscal 2004). The costs of this program primarily relate to separation and relocation of employees and streamlining manufacturing capabilities, including consolidation and closure. Certain other costs directly related to Organization 2005 also are included. Charges for the program were $814 ($688 after tax) and $481 ($385 after tax) in 2000 and 1999, respectively. Estimated costs for fiscal 2001 are $750 ($550 after tax). The balance of the charges are not expected to materially affect any single year, and savings are expected to offset the charges. All charges for the program are reflected in the Corporate segment for management and external reporting. The before-tax amounts consisted of the following:
Asset Accelerated Separations Write-Downs Depreciation Other Total ==================================================================================== 1999: Charges $ 45 $ 217 $ 208 $ 11 $ 481 Cash spent (10) -- -- (2) (12) Charged against assets -- (217) (208) -- (425) - --------------- ------------ ------------ ------------- ------ ------ Reserve balance June 30, 1999 35 -- -- 9 44 - --------------- ------------ ------------ ------------- ------ ------ 2000: Charges 153 64 386 211 814 Cash spent (100) -- -- (220) (320) Charged against assets -- (64) (386) -- (450) - --------------- ------------ ------------ ------------- ------ ------ Reserve balance June 30, 2000 88 -- -- -- 88 =============== ============ ============ ============= ====== ======
Employee separation charges related to severance packages for approximately 2,800 people in 2000 and 400 people in 1999. The packages are predominantly voluntary and are formula driven based on salary levels and past service. Severance costs related to voluntary separations are charged to earnings when the employee accepts the offer. Asset write-downs related primarily to assets held for sale or disposal and represented excess capacity that is in the process of being removed from service or disposed. These assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. The balance of the asset write-downs related primarily to manufacturing assets that are expected to operate at levels significantly below their capacity. The projected cash flows from such assets over their remaining useful lives are now estimated to be less than their current carrying values; therefore, the assets were written down to estimated fair value as determined using discounted cash flows. The asset write-downs charged to earnings will not have a significant impact on future depreciation charges. Charges for accelerated depreciation related to long-lived assets that will be taken out of service prior to the end of their normal service period due to manufacturing consolidations, technology standardization and plant closures. The Company has shortened the estimated useful lives of such assets, resulting in accelerated depreciation. Other costs included primarily relocation, training costs and legal entity restructuring costs directly related to the Organization 2005 initiative. NOTE 3. ACQUISITIONS In 2000, the Company acquired The Iams Company and Affiliates for approximately $2,222 in cash. Other acquisitions in 2000 totaled $745 and consisted primarily of Recovery Engineering, Inc. and a joint venture ownership increase in China. The 2000 acquisitions were accounted for using the purchase method, and resulted in goodwill of $2,508. Purchase acquisitions in 1999 totaled $137. In 1998, the Company acquired Tambrands, Inc., and its leading brand, Tampax, for approximately $1,844 in cash. Other acquisitions in 1998 totaled $1,425 and included the acquisition of paper businesses and increased ownership in various ventures in Latin America and Asia. The 1998 acquisitions, all of which were accounted for using the purchase method, resulted in goodwill of $3,335. NOTE 4. SUPPLEMENTAL FINANCIAL INFORMATION June 30 -------------------- 2000 1999 =============================================================== ACCRUED AND OTHER LIABILITIES Marketing expenses $1,142 $1,094 Compensation expenses 462 449 Other 2,117 2,540 - ----------------------------- --------- ---------- 3,721 4,083 =============================================================== OTHER NON-CURRENT LIABILITIES Other Postretirement benefits $ 824 $1,081 Pension benefits 975 926 Other 502 694 - ----------------------------- --------- ---------- 2,301 2,701 =============================================================== SELECTED OPERATING EXPENSES Research and development costs are charged to earnings as incurred and were $1,899 in 2000, $1,726 in 1999 and $1,546 in 1998. Advertising costs are charged to earnings as incurred and were $3,667 in 2000, $3,538 in 1999 and $3,704 in 1998. 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 basic net earnings per common share. Diluted net earnings per common share are calculated to give effect to stock options and convertible preferred stock. Basic and diluted net earnings per share are reconciled as follows: Years Ended June 30 ------------------------- 2000 1999 1998 ============================================================= Net earnings available to common shareholders $3,427 $3,654 $3,676 Effect of dilutive securities Preferred dividends, net of tax benefit 115 109 104 Preferred dividend impact on funding of ESOP (18) (22) (25) - ------------------------------- ------- -------- -------- Diluted net earnings 3,524 3,741 3,755 ============================================================= Years Ended June 30 -------------------------- Shares in Thousands 2000 1999 1998 ============================================================= Basic weighted average common shares outstanding 1,313.2 1,328.1 1,343.4 Effect of dilutive securities Conversion of preferred shares 94.3 97.2 99.8 Exercise of stock options 19.7 21.5 22.3 - -------------------------------- -------- -------- -------- Diluted weighted average common shares outstanding 1,427.2 1,446.8 1,465.5 ============================================================= EQUITY PUT OPTIONS During April 2000, the Company entered into a series of equity put options on its common stock. These agreements will be settled on a physical or net-share basis at the Company's option and expire in the October-December 2000 quarter. The premium received from the sale of the instruments was credited to equity and reduces the Company's cash outlay for share repurchases. As of June 30, 2000, put options equivalent to 12 million common shares were outstanding at prices ranging from $60 to $71 per share. The impact on diluted earnings per share is immaterial. NOTE 5. SHORT-TERM AND LONG-TERM DEBT June 30 ------------------ 2000 1999 ============================================================== Short-Term Debt U. S. obligations $2,142 $2,308 Foreign obligations 785 375 Current portion of long-term debt 283 467 - --------------------------------- --------- -------- 3,210 3,150 ============================================================== The weighted average short-term interest rates were 4.8% and 5.7% as of June 30, 2000 and 1999, respectively. June 30 ----------------- Average Rate Maturities 2000 1999 ======================================================================= LONG-TERM DEBT U.S. notes and debentures 5.73% 2000-2049 $7,664 $3,760 ESOP Series A 8.33% 2000-2004 392 472 ESOP Series B 9.36% 2007-2021 1,000 1,000 U.S. commercial paper -- 1,019 Foreign obligations 143 447 Current portion of long-term debt (283) (467) - ------------------- ------- ------- 8,916 6,231 ======================================================================= Long-term weighted average interest rates in the preceding table are as of June 30, 2000, and include the effects of related interest rate swaps discussed in Note 6. The fair value of the long-term debt was $8,929 and $6,517 at June 30, 2000 and 1999, respectively. Long-term debt maturities during the next five years are as follows: 2001--$283; 2002--$472; 2003--$534; 2004--$1,139 and 2005--$973. NOTE 6. RISK MANAGEMENT ACTIVITIES The Company is exposed to market risks, such as changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the Company nets the exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, the Company enters into various derivative transactions pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. The financial impacts of these hedging instruments are offset in part or in whole by corresponding changes in the underlying exposures being hedged. 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 hedges of the Company's foreign net investments. Currency effects of these hedges are reflected in the accumulated other comprehensive income section of shareholders' equity, offsetting a portion of the translation of the net assets. The following table presents information for all interest rate instruments. The notional amount does not necessarily represent amounts exchanged by the parties and, therefore, is not a direct measure of the Company's exposure to credit risk. 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 ------------------ 2000 1999 ============================================== Notional amount $7,955 $1,614 ============================================== Fair value $ 105 $ 7 Carrying value 149 15 - ----------------- ------ ------- Unrecognized loss (44) (8) ============================================== The increase in notional amount is due primarily to increased emphasis on matching the currency component of assets and liabilities on the Company's consolidated balance sheet. This activity hedges currency exposures in two ways. It hedges the Company's net investment position in major currencies and generates foreign currency interest payments which offset other transactional foreign exchange exposures in these currencies. Although derivatives are an important component of the Company's interest rate management program, their incremental effect on interest expense for 2000, 1999 and 1998 was not material. CURRENCY RATE MANAGEMENT The Company manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The Company's major foreign currency exposures involve the markets in Western and Eastern Europe, Asia and Mexico. The primary purpose of the Company's foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials and other assets and liabilities created in the normal course of business. Corporate policy prescribes the range of allowable hedging activity. The Company primarily utilizes forward exchange contracts and purchased options with maturities of less than eighteen months. In addition, the Company enters into certain foreign currency swaps to hedge intercompany financing transactions. The Company also utilizes purchased foreign currency options with maturities of generally less than eighteen months and forward exchange contracts to hedge against the effect of exchange rate fluctuations on royalties and income from international operations. 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 administrative expense. To the extent 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 instruments outstanding are as follows: June 30 --------------------- 2000 1999 ==================================================== Notional amount Forward contracts $1,822 $1,988 Purchased options 1,147 1,358 Currency swaps 0 33 Fair value Forward contracts 4 (6) Purchased options 18 19 Currency swaps 0 5 ==================================================== The reduction in the notional amount of currency instruments outstanding reflects the increased efficiencies of our centralized global hedge program, including the foreign exchange exposure offsets generated by foreign currency interest payments. The deferred gains and losses on these currency instruments were not material. In addition, in order to hedge currency exposures related to the net investments in foreign subsidiaries, the Company utilizes local currency financing entered into by the subsidiaries, currency interest rate swaps and other foreign currency denominated financing instruments entered into by the parent. Gains and losses on instruments designated as hedges of net investments are offset against the translation effects reflected in shareholders' equity. Currency interest rate swaps, foreign currency instruments and foreign currency denominated debt that have been designated as hedges of the Company's net investment exposure in certain foreign subsidiaries have notional amounts totaling $7,276 and $826 at June 30, 2000 and 1999, respectively. These hedges resulted in gains of $150 and $5, net of $88 and $4 in tax effects, respectively, reflected in shareholders' equity. 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 counterparty's obligations exceed the obligations of the Company. It is the Company's policy to 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. NOTE 7. STOCK OPTIONS The Company has stock-based compensation plans under which stock options are granted annually to key managers and directors at the market price on the date of grant. The 2000 and 1999 grants are fully exercisable after three years and have a fifteen year life, while prior years' grants are fully exercisable after one year and have a ten year life. Beginning in 1998, the Company began granting stock options to all eligible employees not covered by the key manager and director plans. These one-time grants, which comprised 8.7 million of the 20.3 million options granted in 1998, are fully exercisable after five years and have a ten year life. The Company issues stock appreciation rights in countries where stock options are not permitted by local governments. Pursuant to FASB Statement No. 123, "Accounting for Stock-Based Compensation," the Company has elected to account for its employee stock option plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under these plans, stock options have been issued at fair value and therefore, compensation cost has not been recognized. Had compensation cost for the plans 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 -------------------------------- 2000 1999 1998 ================================================================== Net earnings As reported $3,542 $3,763 $3,780 Pro forma 3,363 3,683 3,472 ================================================================== Net earnings per common share Basic As reported $ 2.61 $ 2.75 $ 2.74 Pro forma 2.47 2.69 2.51 Diluted As reported 2.47 2.59 2.56 Pro forma 2.34 2.53 2.35 ================================================================== The fair value of each option grant is estimated on the date of grant using a binomial option-pricing model with the following assumptions: Options Granted in Years Ended June 30 -------------------------------- 2000 1999 1998 ================================================================= Interest rate 6.0% 5.4% 5.6% Dividend yield 1.5% 1.5% 2.0% Expected volatility 28% 26% 26% Expected life in years 9 7 6 ================================================================= Stock option activity was as follows: Options in Thousands ----------------------------- 2000 1999 1998 ======================================================================== Outstanding, July 1 76,810 79,918 68,514 Granted 14,360 7,026 20,315 Exercised (7,401) (9,397) (8,477) Canceled (1,025) (737) (434) - -------------------------------------- ------- ------- ------- Outstanding, June 30 82,744 76,810 79,918 Exercisable 54,667 61,664 59,610 Available for grant 41,387 39,874 31,558 Average price Outstanding, beginning of year $52.11 $45.58 $31.00 Granted 96.10 89.72 83.26 Exercised 25.21 22.36 18.57 Outstanding, end of year 61.73 52.11 45.58 Exercisable, end of year 46.67 43.79 32.74 Weighted average fair value of options granted during the year 37.21 32.23 24.56 ======================================================================== The following table summarizes information about stock options outstanding at June 30, 2000: Options Outstanding --------------------------------------------------- Number Weighted Avg. Weighted Avg. Outstanding Exercise Price Remaining Range of Prices (Thousands) Contractual Life =========================================================================== $20 to 30 19,517 $25.61 2.2 years 33 to 46 15,124 37.89 5.1 57 to 85 28,044 75.52 7.3 86 to 107 20,059 95.59 13.5 =========================================================================== The following table summarizes information about stock options exercisable at June 30, 2000: Options Exercisable ------------------------------- Number Exercisable Weighted Avg. Range of Prices (Thousands) Exercise Price ======================================================= $20 to 30 19,517 $25.61 33 to 46 15,124 37.89 57 to 85 19,547 73.41 86 to 107 479 91.14 ======================================================= NOTE 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: 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. Annual credits to participants' accounts are based on individual base salaries and years of service, and do not exceed 15% of total participants' annual salaries and wages. The liquidation value is equal to the issue price of $13.75 per share. Years Ended June 30 ------------------------- 2000 1999 1998 ========================================================= ESOP preferred shares allocated at market value $313 $279 $235 Company contributions 1 18 35 - --------------------------- ---- ---- ---- Benefits earned 314 297 270 ========================================================= 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 issue price of $26.12 per share. Shares in Thousands -------------------------------- 2000 1999 1998 =========================================================== Outstanding, June 30 Series A 55,925 58,342 60,635 Series B 37,085 37,485 37,805 =========================================================== Shares of the ESOP are allocated at original cost based on debt service requirements, net of advances made by the Company to the trust. 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 diluted net earnings per common share. 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. NOTE 9. POSTRETIREMENT BENEFITS The Company offers various postretirement benefits to its employees. DEFINED CONTRIBUTION RETIREMENT PLANS Within the U.S., the most significant retirement benefit is the defined contribution profit sharing plan described in Note 8. OTHER RETIREE BENEFITS The Company also provides certain health care and life insurance benefits for substantially all U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require contributions from retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. Retiree contributions change annually in line with health care cost trends. These benefits are partially funded by an ESOP, as well as certain other assets contributed by the Company. Certain other employees, primarily outside the U.S., are covered by local defined benefit pension, health care and life insurance plans. The elements of the net amount recognized for the Company's postretirement plans are summarized below: Years Ended June 30 ------------------------------------- Other Pension Benefits Retiree Benefits ---------------- ---------------- 2000 1999 2000 1999 ===================================================================== CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $2,488 $2,282 $1,199 $1,465 Service cost 120 111 39 49 Interest cost 151 140 90 97 Participants' contributions 4 4 16 17 Amendments 9 (5) 20 (1) Actuarial loss (gain) 35 164 (7) (356) Acquisitions 47 4 0 0 Curtailments and settlements (20) (3) 0 0 Currency exchange (79) (73) (3) (1) Benefit payments (128) (136) (84) (71) - ----------------------------- ------- ------- ------- ------- Benefit obligation at end of year 2,627 2,488 1,270 1,199 - ----------------------------- ------- ------- ------- ------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 1,555 1,523 2,516 2,611 Actual return on plan assets 198 111 (1,178) (49) Acquisitions 28 4 0 0 Employer contributions 73 95 4 8 Participants' contributions 4 4 16 17 Settlements (2) 0 0 0 Currency exchange (37) (46) 0 0 Benefit payments (128) (136) (84) (71) - ----------------------------- ------- ------- ------- ------- Fair value of plan assets at end of year 1,691 1,555 1,274 2,516 - ----------------------------- ------- ------- ------- ------- FUNDED STATUS Funded status at end of year (936) (933) 4 1,317 Unrecognized net actuarial loss (gain) (30) 17 (828) (2,384) Unrecognized transition amount 21 27 0 0 Unrecognized prior service cost 39 37 1 (21) - ----------------------------- ------- ------- ------- ------- Net amount recognized (906) (852) (823) (1,088) ====================================================================== Prepaid benefit cost $ 59 $ 59 $ 2 $ 1 Accrued benefit cost (990) (936) (825) (1,089) Accumulated other comprehensive income 25 25 0 0 - ----------------------------- ------- ------- ------- ------- Net liability recognized (906) (852) (823) (1,088) ====================================================================== The Company's stock comprised $1,123 and $2,346 of other retiree plan assets, net of Series B ESOP debt, as of June 30, 2000 and 1999, respectively. Assumptions for the postretirement benefit calculations are as follows: Years Ended June 30 -------------------------------------- Other Pension Benefits Retiree Benefits ---------------- ---------------- 2000 1999 2000 1999 ================================================================= WEIGHTED AVERAGE ASSUMPTIONS Discount rate 6.1% 6.0% 8.0% 7.5% Expected return on plan assets 8.1% 7.9% 10.0% 10.0% Rate of compensation increase 4.5% 4.6% -- -- Initial health care cost trend rate* -- -- 5.8% 6.0% ================================================================= * Assumed to decrease to 5.0% by 2006 and remain at that level thereafter. Components of the net periodic benefit cost are as follows: Years Ended June 30 ----------------------------------------------- Other Pension Benefits Retiree Benefits --------------------- ------------------ 2000 1999 1998 2000 1999 1998 ========================================================================== COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 120 $ 111 $ 106 $ 39 $ 49 $ 42 Interest cost 151 140 148 90 97 102 Expected return on plan assets (122) (105) (103) (294) (218) (171) Amortization of prior service cost 7 8 7 (2) (2) (2) Amortization of transition amount 4 3 3 0 0 0 Settlement (gain) (6) 0 0 0 0 0 Curtailment loss (gain) (3) 0 12 0 0 0 Recognized net actuarial loss (gain) 4 4 0 (92) (58) (41) - ---------------------- ----- ----- ----- ----- ----- ----- Gross benefit cost 155 161 173 (259) (132) (70) Dividends on ESOP preferred stock 0 0 0 (77) (78) (78) - ---------------------- ----- ----- ----- ----- ----- ----- Net periodic benefit cost 155 161 173 (336) (210) (148) =========================================================================== The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $1,368, $1,073 and $189, respectively, as of June 30, 2000, and $1,382, $1,122 and $233, respectively, as of June 30, 1999. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects: One Percentage One Percentage Point Increase Point Decrease ===================================================================== Effect on total of service and $ 23 $ (18) interest cost components Effect on postretirement benefit obligation 167 (138) ===================================================================== NOTE 10. INCOME TAXES Earnings before income taxes consist of the following: Years Ended June 30 -------------------------------- 2000 1999 1998 ============================================================= United States $3,006 $3,474 $3,632 International 2,530 2,364 2,076 - ------------- ---------- ----------- --------- 5,536 5,838 5,708 ============================================================= The income tax provision consists of the following: Years Ended June 30 -------------------------------- 2000 1999 1998 ============================================================= CURRENT TAX EXPENSE U.S. Federal $ 648 $1,080 $ 996 International 816 934 918 U.S. State & Local 67 121 115 - ----------------------- ---------- ----------- --------- 1,531 2,135 2,029 DEFERRED TAX EXPENSE U.S. Federal 241 (74) 51 International & other 222 14 (152) - ----------------------- ---------- ----------- --------- 463 (60) (101) - ----------------------- ---------- ----------- --------- 1,994 2,075 1,928 ============================================================= Taxes credited to shareholders' equity for the years ended June 30, 2000 and 1999 were $59 and $222, respectively. Undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely were $8,828 at June 30, 2000. The Company's effective income tax rate was 36.0%, 35.5% and 33.8% in 2000, 1999 and 1998, respectively, compared to the U.S. statutory rate of 35.0%. Excluding the Organization 2005 program costs and related tax effects, the effective tax rate was 33.4% in 2000 and 34.4% in 1999. This change reflects the execution of tax planning opportunities which is offset by the impact of various country tax rates on Organization 2005 program costs. Deferred income tax assets and liabilities are comprised of the following: June 30 ----------------------- 2000 1999 ============================================================================= Current deferred tax assets $ 309 $ 621 ============================================================================= Non-current deferred tax assets (liabilities) Depreciation $ (951) $ (979) Other postretirement benefits 273 392 Loss and other carryforwards 332 206 Other (279) 19 - --------------------------------------------- -------- -------- (625) (362) ============================================================================= Included in the above are total valuation allowances of $207 and $140 in 2000 and 1999, respectively. NOTE 11. COMMITMENTS AND CONTINGENCIES The Company has 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, 2000 and 1999 were $47 and $58, respectively, and, in management's opinion, such accruals are appropriate based on existing facts and circumstances. Current year expenditures were not material. While considerable uncertainty exists, in the opinion of management and Company counsel, the ultimate liabilities resulting from such claims will not materially affect the Company's financial statements. NOTE 12. SEGMENT INFORMATION On July 1, 1999, as part of the Organization 2005 initiative, the Company changed its internal management structure to product-based global business units. Previously, the Company had been organized on a geographic basis. The segments manufacture and market products as follows: (bullet) Fabric and home care includes laundry care, dish care, fabric conditioners and hard surface cleaners. (bullet) Paper aggregates tissues and towel, feminine care and baby care, which contains diapers and wipes. (bullet) Beauty care includes cosmetics, hair care, deodorants, fragrances and other beauty products. (bullet) Health care includes personal health care, oral care, prescription drugs and pet health and nutrition. (bullet) Food and beverage includes coffee, snacks, commercial services, juice, peanut butter and shortening and oil. The Corporate segment includes both operating and non-operating elements such as financing and investing activities, goodwill amortization, employee benefit costs, charges related to restructuring (including the Organization 2005 program), segment eliminations and other general corporate items. The segment eliminations adjust management reporting principles to accounting principles generally accepted in the United States of America and primarily affect the treatment of unconsolidated investees and income taxes, which are reflected in the business segments using applicable local statutory tax rates. Corporate assets primarily include cash, investment securities and goodwill.
Fabric and Beauty Health Food and Home Care Paper Care Care Beverage Corporate Total =============================================================================================================================== NET SALES 2000 $12,157 $12,044 $7,389 $3,909 $4,634 $(182) $39,951 1999 11,415 12,190 7,376 2,876 4,655 (387) 38,125 1998 11,019 11,685 7,469 2,889 4,620 (528) 37,154 - -------------------- ---- ------- ------- ------ ------ ------ ------ ------- NET EARNINGS 2000 1,450 1,069 894 335 364 (570) 3,542 1999 1,497 1,278 917 242 328 (499) 3,763 1998 1,406 990 845 232 294 13 3,780 - -------------------- ---- ------- ------- ------ ------ ------ ------ ------- BEFORE-TAX EARNINGS 2000 2,318 1,817 1,393 540 566 (1,098) 5,536 1999 2,417 2,195 1,457 372 528 (1,131) 5,838 1998 2,240 1,772 1,379 381 477 (541) 5,708 - -------------------- ---- ------- ------- ------ ------ ------ ------ ------- DEPRECIATION AND 2000 354 664 194 159 153 667 2,191 AMORTIZATION 1999 293 638 198 107 149 763 2,148 1998 295 611 198 105 135 254 1,598 - -------------------- ---- ------- ------- ------ ------ ------ ------ ------- TOTAL ASSETS 2000 5,477 8,415 3,497 2,229 2,611 11,965 34,194 1999 5,047 8,184 3,754 1,556 2,598 10,974 32,113 - -------------------- ---- ------- ------- ------ ------ ------ ------ ------- CAPITAL EXPENDITURES 2000 807 1,282 310 195 235 189 3,018 1999 638 1,327 285 143 237 198 2,828 ==================== ==== ======= ======= ====== ====== ====== ====== =======
The Company had net sales in the United States of $20,038, $18,314 and $17,848 for the years ended June 30, 2000, 1999 and 1998, respectively. Assets in the United States totaled $17,227 and $15,142 as of June 30, 2000 and 1999, respectively. The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 14%, 12% and 11% of consolidated net sales in 2000, 1999 and 1998, respectively. These sales occurred primarily in the United States. NOTE 13. QUARTERLY RESULTS (UNAUDITED)
Quarters Ended Total ---------------------------------------------------- Sept. 30 Dec. 31 Mar. 31 June 30 Year =========================================================================================================================== Net Sales 1999-2000 $9,919 $10,588 $9,783 $9,661 $39,951 1998-1999 9,510 9,934 9,231 9,450 38,125 - -------------------- --------- ------ ------- ------ ------ ------- Operating Income* 1999-2000 1,847 1,842 1,320 945 5,954 1998-1999 1,874 1,837 1,665 877 6,253 - -------------------- --------- ------ ------- ------ ------ ------- Net Earnings* 1999-2000 1,147 1,126 753 516 3,542 1998-1999 1,167 1,142 1,040 414 3,763 - -------------------- --------- ------ ------- ------ ------ ------- Diluted Net Earnings 1999-2000 .80 .78 .52 .36 2.47 Per Common Share* 1998-1999 .80 .78 .72 .29 2.59 ==================== ========= ====== ======= ====== ====== =======
FINANCIAL HIGHLIGHTS 2000 1999 1998 1997 1996 ============================================================================================================================= Net Sales $39,951 $38,125 $37,154 $35,764 $35,284 Operating Income* 5,954 6,253 6,055 5,488 4,815 Net Earnings* 3,542 3,763 3,780 3,415 3,046 Core Net Earnings 4,230 4,148 3,780 3,415 3,046 Net Earnings Margin* 8.9% 9.9% 10.2% 9.5% 8.6% Core Net Earnings Margin 10.6% 10.9% 10.2% 9.5% 8.6% Basic Net Earnings per Common Share* 2.61 2.75 2.74 2.43 2.14 Diluted Net Earnings per Common Share* 2.47 2.59 2.56 2.28 2.01 Diluted Core Net Earnings per Common Share 2.95 2.85 2.56 2.28 2.01 Dividends Per Common Share 1.28 1.14 1.01 .90 .80 Research and Development Expense 1,899 1,726 1,546 1,469 1,399 Advertising Expense 3,667 3,538 3,704 3,466 3,254 Total Assets 34,194 32,113 30,966 27,544 27,730 Capital Expenditures 3,018 2,828 2,559 2,129 2,179 Long-Term Debt 8,916 6,231 5,765 4,143 4,670 Shareholders' Equity 12,287 12,058 12,236 12,046 11,722 =========================================== ======= ======= ======= ======= ======= *2000 and 1999 amounts include Organization 2005 program costs.
SHAREHOLDER INFORMATION If... > You need help with your account > You need automated access to your account > You are interested in our certificate safekeeping service > You want to arrange for direct deposit of dividends > A stock certificate is lost, stolen or destroyed CONTACT P&G... 24 HOURS A DAY Visit our Web site at www.pg.com/investor Call for financial information 1-800-764-7483 (1-513-945-9990 outside the U.S.) PERSON TO PERSON Shareholder Services representatives available Monday-Friday, 9-4 EST 1-800-742-6253 (1-513-983-3034 outside the U.S.) Automated service available after U.S. business hours OR WRITE The Procter & Gamble Company Shareholder Services Department P.O. Box 5572 Cincinnati, Ohio 45201-5572 GALLERIA You can order imprinted P&G merchandise from the P&G Galleria. Shop for umbrellas, business accessories and clothing online at www.ehowe.com or call 1-800-969-4693 (1-513-651-1888 outside the U.S.). [picture of P&G pens and picture of P&G water bottles]
COMMON STOCK PRICE RANGE AND DIVIDENDS Price Range ------------------------------------------------------ 1999-2000 1998-1999 Dividends ------------------- ------------------- ------------------------------- Quarter ended High Low High Low 1999-2000 1998-1999 ============================================================================================================================ September 30 $104.13 $84.56 $ 94.00 $65.13 $.32 $.2850 December 31 115.63 92.00 94.81 69.63 .32 .2850 March 31 118.38 52.75 101.81 82.00 .32 .2850 June 30 72.75 53.25 103.81 84.13 .32 .2850 ============= ======= ====== ======== ====== ==== ======
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 45201-5572 REGISTRAR Chase Manhattan Trust Company, N.A. 255 East Fifth Street, Suite 2115 Cincinnati, Ohio 45202 EXCHANGE LISTING New York, Cincinnati, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Brussels, Tokyo SHAREHOLDERS OF COMMON STOCK There were 291,965 Common Stock shareholders of record, including participants in the Shareholder Investment Program, as of July 21, 2000. FORM 10-K Shareholders may obtain a copy of the company's 2000 report to the Securities and Exchange Commission on Form 10-K by going to P&G's investor Web site at www.pg.com/investor or by calling us at 1-800-764-7483. This information is also available at no charge by sending a request to Shareholder Services at the address listed above. SHAREHOLDERS' MEETING The next annual meeting of shareholders will be held on Tuesday, October 10, 2000. 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 9 0009.txt EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ============================================= Subsidiaries of the Registrant ============================== Alejandro Llauro E Hijos S.A.I.C. [Argentina] Anjali Corporation [Delaware] AnPro Company [Ohio] Arbora & Ausonia, S.L. [Spain] Arbora S.A. [Spain] B&C International Co. (BVI) Ltd. Bess Hygiene AG [Switzerland] Beta BT [Hungary] Betrix Cosmetic GmbH [Germany] Blendax GmbH [Germany] Blendax Unterstutzungskasse GmbH [Germany] Buscher GmbH [Germany] Carlos BT [Hungary] Celtic Insurance Company Limited [Bermuda] Colfax Laboratories (India) Ltd. [India] Compania Procter & Gamble Mexico, S.de R.L. de C.V. [Mexico] Compania Quimica S.A. [Argentina] Comunivers sa [Morocco] Corpydes S.A. de C.V. [Mexico] Crest Toothpaste Inc. [Canada] Culinary Sol, Inc. [Ohio] Detergent Products A.G. [Switzerland] Detergenti SA Timisoara [Romania] Eczacibasi Yatirim Holding Ortakligi A.S. [Turkey] Elysee BT [Hungary] Eurocos Cosmetic GmbH [Germany] Eurocos Cosmetic Warenvertrieb GmbH [Austria] Eurocos Ltd [U.K.] EURO-Juice G.m.b.H. Import und Vertrieb [Germany] European Beauty Products (U.K.) Limited [U.K.] Fameccanica Data S.p.A. [Italy] Fater S.p.A. [Italy] Ferraris BT [Hungary] Food Ingredients Technology Company (FITCO) [Alabama] Fountain Square Music Publishing Co., Inc. [Ohio] FPG Oleochemicals Sdn. Bhd. [Malaysia] Frank BT [Hungary] Gala Cosmetics International Limited [U.K.] Gala of London Limited [U.K.] Giorgio Beverly Hills (Europe) Ltd. [U.K.] Giorgio Beverly Hills, Inc. [Delaware] Girl Cosmetics Ltd. (U.K.) Global Business Services de Costa Rica Limitada [Costa Rica] Herve Leger Parfums GmbH [Germany] Humatro Corporation [Delaware] Hyginett KFT [Hungary] Iams (Deutschland) Vertriebs GmbH [Germany] Iams Argentina S.R.L. [Argentina] Iams Australia/New Zealand Pty. Ltd. [Australia] Iams Canada Company [Canada] Iams Chile [Chile] Iams Companion Animal Research Institute (ICARI) [Ohio] Iams do Brasil [Brazil] Iams Europe B.V. [Netherlands] Iams France EURL [France] Iams Global Inc. [Ohio] Iams Japan K.K. [Japan] Iams Mexico [Mexico] Iams Pet Food GmbH & Co. KG [Germany] Iams S. Africa Pty. [S. Africa] Iams Services [Mexico] Iams U.K. Limited [U.K.] Industria de Concentrados Crush Limitada[Uruguay] Industrial Catenation Services (Pty.) Ltd. [S. Africa] Industrias Modernas, S.A. [Guatemala] Inmobiliaria Procter & Gamble de Venezuela, S.C.S. [Venezuela] Inmobiliaria Procter & Gamble de Venezuela, S.R.L. [Venezuela] Inversiones 1667, S.A. [Venezuela] Inversiones Industrias Mammi, C.A. [Venezuela] Inversiones PGV, S.R.L. [Venezuela] Inversiones PGV-1, S.C.S. [Venezuela] Inversiones Procter & Gamble de Venezuela, C.A. [Venezuela] Kangra Valley Enterprises Ltd. [Delaware] Karm, S.A. [Liechtenstein] Komal Manufacturing Chemists Ltd. [India] Laboratoire Lachartre S.N.C. [France] Liberty Street Music Publishing Company, Inc. [Ohio] Loreto y Pena Pobre, S.A. de C.V. [Mexico] Marcvenca Inversiones, C.A. [Venezuela] Max Factor & Co. (U.K.) Ltd. [Bermuda] Max Factor & Co. [Delaware] Max Factor K.K. [Japan] Max Factor Limited [U.K.] Max Factor Manufacturing Ltd. [U.K.] Midway Holdings Ltd. [Cayman Islands] Millstone Coffee, Inc. [Washington] Modern Industries Company - Dammam [Saudi Arabia] Modern Industries Company - Jeddah [Saudi Arabia] Modern Products Company - Jeddah [Saudi Arabia] Moroccan Modern Industries [Morocco] Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal] Novomoskovskbytkhim [Russia] Noxell (Barbados) Limited [Barbados] Noxell (Panama) S.A. [Panama] Noxell (Thailand) Limited [Thailand] Noxell Corporation [Maryland] Noxell de Venezuela, C.A. [Venezuela] Noxell Limited [U.K.] Olay Company, Inc. [Delaware] Olga BT [Hungary] OOO Procter & Gamble Services Company [Russia] P&G C&CA, Inc. [Ohio] P&G Consultoria E Servicos Ltda. [Brazil] P&G do Brasil Comercial Ltda. [Brazil] P&G Holding Denmark ApS [Denmark] P&G Holding N.V. [Netherlands] P&G Indochina [Vietnam] P&G Industrial Peru S.R.L. [Peru] P&G Prestige Beaute GmbH[Germany] P&G Prestige Beaute SARL [Switzerland] (Formerly Deurocos Cosmetic AG) P&G Prestige Food Products SARL [Switzerland] Papierhygiene GmbH [Germany] PFX Pet Supply, Inc. [Ohio] PFX Real Estate Company [Canada] PGV Chile S.A. [Chile] PGV-1 Investment, Ltd. [Cayman Islands] PGV-2 Investment, Ltd. [CaymanIslands] Phebo do Nordeste S/A [Brazil] PNX-Distributing, Inc. [Ohio] PNX-Real Estate, Inc. [Ohio] Procter & Gamble (Chengdu) Ltd. [PRC] Procter & Gamble (China) Ltd. [PRC] Procter & Gamble (Cosmetics and Fragrances) Limited[U.K.] Procter & Gamble (East Africa) Limited [Kenya] Procter & Gamble (Egypt) Industrial and Commercial Company [Egypt] Procter & Gamble (Egypt) Manufacturing Company [Egypt] Procter & Gamble (Enterprise Fund) Limited [U.K.] Procter & Gamble (Guangzhou) Ltd. [PRC] Procter & Gamble (Health & Beauty Care) Limited [U.K.] Procter & Gamble (Ireland) Limited [Ireland] Procter & Gamble (Malaysia) Sdn. Berhad [Malaysia] Procter & Gamble (Manufacturing) Ireland Limited [Ireland] Procter & Gamble (NBD) Pty. Ltd. [Australia] Procter & Gamble (NTC) Limited [U.K.] Procter & Gamble (Properties) Ltd. [U.K.] Procter & Gamble (Singapore) Pte. Ltd. [Singapore] Procter & Gamble (Vietnam) Ltd. [Vietnam] Procter & Gamble (Yemen) Ltd [Yemen] Procter & Gamble A.G. [Switzerland] Procter & Gamble A/S [Norway] Procter & Gamble Amiens S.N.C.[France] Procter & Gamble Asia Pacific Ltd. [Hong Kong] Procter & Gamble Asia Pacific Ltd. Manila Regional Headquarters [Philippines] Procter & Gamble Asia Pte. Ltd. [Singapore] Procter & Gamble Australia Proprietary Limited [Australia] Procter & Gamble Austria GmbH [Austria] Procter & Gamble Bangladesh Private Ltd. [Bangladesh] Procter & Gamble Belgium BVBA [Belgium] Procter & Gamble Beteiligungs GmbH [Germany] Procter & Gamble Beverages GmbH [Germany] Procter & Gamble Blois S.A.S. [France] (Formerly Procter & Gamble MSV S.A.S.) Procter & Gamble Bolivia S.R.L. [Bolivia] Procter & Gamble Bulgaria Ltd. [Bulgaria] Procter & Gamble C&EE Investment, Inc. [Ohio] Procter & Gamble Central & Eastern Europe GmbH [Germany] Procter & Gamble Chile, Inc. [Ohio] Procter & Gamble Colombia S.A. [Colombia] Procter & Gamble Commercial de Cuba, S.A. [Cuba] Procter & Gamble D.J.L. Sarajevo [Bosnia] Procter & Gamble d.o.o. za trgovinu [Croatia] Procter & Gamble Danmark AS [Denmark] Procter & Gamble Manufactura, S.de R.L. de C.V. [Mexico] Procter & Gamble de Panama, S.A. [Panama] Procter & Gamble de Venezuela, C.A. [Venezuela] Procter & Gamble Detergent (Guangzhou) Ltd. [PRC] Procter & Gamble Development Company A.G. [Switzerland] (Formerly Procter & Gamble Development Company A.G. Glarus) Procter & Gamble Distributing Limited [U.K.] Procter & Gamble Distribution Company (Europe) BVBA [Belgium] Procter & Gamble Distribution Company Limited [India] Procter & Gamble do Brasil & Cia (Partnership) [Brazil] Procter & Gamble do Brasil S.A. [Brazil] Procter & Gamble do Brazil, Inc. [Delaware] Procter & Gamble Eastern Europe, Inc. [Ohio] Procter & Gamble Ecuador Compania Anonima [Ecuador] Procter & Gamble Egypt [Egypt] Procter & Gamble Espana S.A. [Spain] Procter & Gamble Eurocor N.V. [Belgium] Procter & Gamble Europe BVBA [Belgium] Procter & Gamble Europe SA [Switzerland] (Formerly Tambrands AG) Procter & Gamble European Supply Company N.V. [Belgium] Procter & Gamble European Technical Center BVBA [Belgium] Procter & Gamble Export Operations SARL [Switzerland] (Formerly Procter & Gamble SARL) Procter & Gamble Far East, Inc. [Ohio] Procter & Gamble FED, Inc. [Delaware] Procter & Gamble Finance Corporation [Canada] Procter & Gamble Financial Services [Ireland] Procter & Gamble Finland OY [Finland] Procter & Gamble France S.N.C. [France] Procter & Gamble FSC (Barbados) Inc. [Barbados] Procter & Gamble Ghana, Ltd. [West Africa] Procter & Gamble GmbH & Co. Manufacturing OHG [Germany] Procter & Gamble GmbH [Germany] (Formerly Shulton GmbH) Procter & Gamble Health and Beauty Care-Europe Limited [U.K.] Procter & Gamble Health Products, Inc. [Delaware] Procter & Gamble Hellas A.E. (Chemical Industries) [Greece] Procter & Gamble Holding GmbH [Germany] (Formerly Procter & Gamble GmbH) Procter & Gamble Holding S.A. [Argentina] Procter & Gamble Holdings Singapore Pte. Ltd. [Singapore] Procter & Gamble Home Products Indonesia [Indonesia] Procter & Gamble Home Products Limited [India] Procter & Gamble Hong Kong Limited [Hong Kong] Procter & Gamble Hungary Wholesale Trading Partnership (KKT) [Hungary] Procter & Gamble Hygien AB [Sweden] Procter & Gamble Hygien OY [Finland] Procter & Gamble Hygiene & Health Care Limited [India] Procter & Gamble Inc. [Canada] Procter & Gamble India Holdings, Inc. [Ohio] Procter & Gamble Industrial e Comercial Ltda.[Brazil] Procter & Gamble Interamericas de Costa Rica, S.A. [Costa Rica] Procter & Gamble Interamericas de El Salvador, S.A. de C.V. [El Savador] Procter & Gamble Interamericas de Guatemala, S.A. [Guatemala] Procter & Gamble Interamericas de Honduras, S.A. [Honduras] Procter & Gamble Interamericas de Nicaragua, S.A. [Nicaragua] Procter & Gamble Interamericas Inc. [Delaware] Procter & Gamble International Operations SA [Switzerland] (Formerly Procter & Gamble Marketing A.G.) Procter & Gamble Investment Corporation [Canada] Procter & Gamble Investment Subsidiary Inc. [Canada] Procter & Gamble Investments U.K. Limited [U.K.] Procter & Gamble Italia, S.p.A. [Italy] Procter & Gamble Italy s.r.l. [Italy] Procter & Gamble Jamaica Ltd. [Jamaica] Procter & Gamble Kazakhstan [Kazakhstan] Procter & Gamble Kereskedelmi BT [Hungary] Procter & Gamble Korea Inc.[Korea] Procter & Gamble Laundry & Cleaning Products Limited [U.K.] Procter & Gamble Limited [U.K.] Procter & Gamble Limited Liability Company [Uzbekistan] Procter & Gamble Lonkey (Guangzhou) Ltd. [PRC] Procter & Gamble Lonkey (Shaoguan) Ltd. [PRC] Procter & Gamble Manufacturing (Thailand) Limited [Thailand] Procter & Gamble Manufacturing (Tianjin) Co. Ltd. [PRC] Procter & Gamble Manufacturing Belgium BVBA[Belgium] Procter & Gamble Manufacturing Istra [Russia] Procter & Gamble Manufacturing Romania SRL [Romania] Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia] Procter & Gamble Marketing and Services d.o.o. [Yugoslavia ] Procter & Gamble Marketing Latvia Ltd. [Latvia] Procter & Gamble Marketing Ltd. Skopje [Macedonia] Procter & Gamble Marketing Romania SRL (Romania) Procter & Gamble Maroc [Morocco] Procter & Gamble Mataro, S.L. [Spain] Procter & Gamble Mexico Holdings, B.V. [Netherlands] Procter & Gamble Mississauga Real Estate Company [Canada] Procter & Gamble Moldova SRL [Moldova] Procter & Gamble Nederland B.V. [Netherlands] Procter & Gamble Nigeria Limited [Nigeria] Procter & Gamble Nordic Inc. [Ohio] Procter & Gamble Norge AS [Norway] Procter & Gamble NPD, Inc. [Ohio] Procter & Gamble O.O.O.[Russia] Procter & Gamble Operations Polska - Spolka Akcyjna[Poland] Procter & Gamble Oral Care (Guangzhou) [China] Procter & Gamble Orleans S.A.S.[France] Procter & Gamble Pakistan (Private) Limited [Pakistan] Procter & Gamble Panda Detergent Co. Ltd. Beijing [PRC] Procter & Gamble Paper (Guangzhou) Ltd. [PRC] Procter & Gamble Personal Cleansing (Tianjin) Ltd. [PRC] Procter & Gamble Peru S.R.L. [Peru] Procter & Gamble Pharmaceuticals Canada, Inc.[Canada] Procter & Gamble Pharmaceuticals France [France] Procter & Gamble Pharmaceuticals Longjumeau S.A.S. [France] (Formerly S.H. Equateur S.A.S.) Procter & Gamble Pharmaceuticals N.V. [Belgium] Procter & Gamble Pharmaceuticals Nederland B.V. [Netherlands] Procter & Gamble Pharmaceuticals Puerto Rico, Inc. [Delaware] Procter & Gamble Pharmaceuticals SARL [Switzerland] Procter & Gamble Pharmaceuticals U.K. Limited [U.K.] Procter & Gamble Pharmaceuticals, Inc. [Ohio] Procter & Gamble Pharmaceuticals-Germany GmbH [Germany] Procter & Gamble Philippines, Inc. [Philippines] Procter & Gamble Polska Sp. zo.o[Poland] Procter & Gamble Portugal S.A. (Portugal) Procter & Gamble Portugal, Lda. [Portugal] Procter & Gamble Product Supply (U.K.) Limited [U.K.] Procter & Gamble Productions, Inc. [Ohio] Procter & Gamble Quimica S.A. [Brazil] Procter & Gamble reflect.com, Inc. [Delaware] Procter & Gamble RHD, Inc. [Ohio] Procter & Gamble S.A. [Chile] Procter & Gamble S.p.A. [Italy] Procter & Gamble Service GmbH [Germany] (Formerly Procter & Gamble European Service GmbH) Procter & Gamble Services (Switzerland) SA [Switzerland] (Formerly Procter & Gamble Financial Services (Switzerland) SA) Procter & Gamble Services Company N.V.[Belgium] Procter & Gamble Services France S.A.S. [France] Procter & Gamble South Africa Proprietary Limited [South Africa] Procter & Gamble Sri Lanka Private Ltd. [Sri Lanka] Procter & Gamble Switzerland SARL [Switzerland] (Formerly Betrix (Schweiz) AG) Procter & Gamble Taiwan Limited [Taiwan] Procter & Gamble Technical Centers Limited[U.K.] Procter & Gamble Technology (Beijing) Co., Ltd. [PRC] Procter & Gamble Tissues AG [Switzerland] Procter & Gamble Tissues Italia S.p.A. [Italy] Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey] Procter & Gamble U.K. [U.K.] Procter & Gamble Ukraine (Ukraine) Procter & Gamble, Spol. s r.o. (Ltd.)[Slovak Republic] Procter & Gamble-Hutchison Ltd. [Hong Kong] Procter & Gamble-Rakona, A.S.[Czech Republic] ProductosSanitarios S.A. [Argentina] Progam Realty & Development Corporation [Philippines] Progasud S.p.A. [Italy] Promotora de Bienes y Valores, S.de R.L. de C.V. [Mexico] PUR Water Purification Products, Inc. [Ohio] reflect.com corporation [Delaware] reflect.com llc [Delaware] Richardson-Vicks do Brasil Quimica e Farmaceutica S.A. [Brazil] Richardson-Vicks Limited [Thailand] Richardson-Vicks Overseas Finance N.V. [Netherlands Antilles Richardson-Vicks Real Estate Inc. [Ohio] Richvest B.V. [Netherlands] Riverfront Music Publishing Co., Inc. [Ohio] Rohm Pharma GmbH Wien[Austria] Rosemount Corporation [Delaware] R-V Chemicals Holdings Ltd. [Ireland] Sacoma, S.A. [Argentina] SCS Sales + Cosmetic Service GmbH [Germany] Shulton (Great Britain) Ltd. [U.K.] Shulton (New Zealand) Limited [New Zealand] Shulton (Thailand) Ltd. [Thailand] Shulton de Venezuela, C.A. [Venezuela] Shulton S.A. [Guatemala] Shulton, Inc. [New Jersey] Societe Immobiliere Les Colombettes, S.A. [Switzerland] Ssangyong Paper Co. Ltd. [Korea] Sundor Brands Inc. [Florida] Sundor Brands Limited [U.K.] Sundor Canada Inc. [Delaware] Surfac S. R. Ltda. [Peru] Suzhou Long Chen Paper Co. Ltd. [PRC] Sycamore Productions, Inc. [Ohio] T. Procter & Gamble Indonesia [Indonesia] Tambrands (Continental) Ltd. [U.K.] Tambrands Canada Inc. [Canada] Tambrands de Venezuela, C.A. [Venezuela] Tambrands Dosmil, S.A. de C.V. [Mexico] Tambrands France [France] Tambrands GmbH [Germany] Tambrands Inc. [Delaware] Tambrands Industria e Comercia Ltda. [Brazil] Tambrands International Trading (Shanghai) Co., Ltd. [PRC] Tambrands Investments Ltd.[U.K.] Tambrands Ireland Limited [Ireland] Tambrands Limited [U.K.] Tambrands Polska Sp.z.o.o. [Poland] Tambrands Ukraine Ltd. [Ukraine] Temple Trees [India] Tempo AG [Switzerland] The Dover Wipes Company [Ohio] The Folger Coffee Company [Ohio] The Iams Company [Ohio] The Malabar Company [Delaware] The Procter & Gamble Commercial Company [Ohio] The Procter & Gamble Company [Ohio] The Procter & Gamble Company of South Africa (Proprietary) Limited[S. Africa] The Procter & Gamble Distributing Company [Ohio] The Procter & Gamble Global Finance Corporation [Ohio] The Procter & Gamble iVenture Company [Ohio] The Procter & Gamble Manufacturing Company [Ohio] The Procter & Gamble Manufacturing Company of Lebanon, S.A.L.[Lebanon] The Procter & Gamble Paper Products Company [Ohio] Thomas Hedley & Co. Limited [U.K.] Topsy S.A. [Argentina] TRAPOFA Leonhard-Speditions GmbH I.L. [Germany] Unterstutzungskasse der Vereinigte Papierwerke AG berg [Germany] US/KK-Investments, Inc. [Ohio] Verwaltlungsgesellschaft Iams Pet Food mbH [Germany] Vick International Corporation [Delaware] Vick Nigeria Limited [Nigeria] Vidal Sassoon Co. [Ohio] Vidal Sassoon Holdings Ltd. [U.K.] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name EX-23 10 0010.txt 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 August 1, 2000, incorporated by reference in this Annual Report on Form 10-K of The Procter & Gamble Company for the year ended June 30, 2000. 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. 33-50273 on Form S-8 for The Procter & Gamble Commercial Company Employees' Savings Plan; 6. Registration Statement No. 33-51469 on Form S-8 for The Procter & Gamble 1993 Non-Employee Directors' Stock Plan; 7. Registration Statement No. 333-05715 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan; 8. Amendment No. 2, Post-Effective Amendment No. 2 to Registration Statement No. 33-59257 on Form S-3 for The Procter & Gamble Shareholder Investment Program; 9. Registration Statement No. 333-14381 on Form S-8 for Profit Sharing Retirement Plan of The Procter & Gamble Commercial Company; 10. Registration Statement No. 333-14387 on Form S-8 for Giorgio Employee Savings Plan; 11. Registration Statement No. 333-14389 on Form S-8 for Procter & Gamble Pharmaceuticals Savings Plan; 12. Registration Statement No. 333-14391 on Form S-8 for Richardson-Vicks Savings Plan; 13. Registration Statement No. 333-14397 on Form S-8 for Procter & Gamble Subsidiaries Savings Plan; 14. Registration Statement No. 333-14395 on Form S-8 for Procter & Gamble Subsidiaries Savings and Investment Plan; 15. Registration Statement No. 333-21783 on Form S-8 for The Procter & Gamble 1992 Stock Plan (Belgian Version); 16. Registration Statement No. 333-37905 on Form S-8 for The Procter & Gamble Future Shares Plan; 17. Registration Statement No. 333-51213 on Form S-8 for Group Profit Sharing, Incentive, and Employer Contribution Plan (France); 18. Registration Statement No. 333-51219 on Form S-8 for Procter & Gamble Ireland Employees Share Ownership Plan; 19. Registration Statement No. 333-51221 on Form S-8 for Employee Stock Purchase Plan (Japan); 20. Registration Statement No. 333-51223 on Form S-8 for Savings and Thrift Plan (Saudi Arabia); 21. Registration Statement No. 333-51225 on Form S-8 for The Procter & Gamble UK Matched Savings Share Purchase Plan; 22. Registration Statement No. 333-87133 on Form S-3 for The Procter & Gamble Company Debt Securities and Warrants; 23. Registration Statement No. 333-34606 on Form S-8 for The Procter & Gamble Future Shares Plan; 24. Registration Statement No. 333-40264 on Form S-8 for Savings and Thrift Plan Saudi Arabia; and 25. Registration Statement No. 333-44034 on Form S-8 for The Procter & Gamble International Stock Ownership Plan. /s/DELOITTE & TOUCHE LLP - ------------------------ Deloitte & Touche LLP September 12, 2000 EX-27 11 0011.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2000 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-30-2000 JUL-1-1999 JUN-30-2000 1 1,415 185 2,910 0 3,490 10,069 23,221 9,529 34,194 10,065 8,916 0 1,737 1,306 9,244 34,194 39,951 39,951 21,514 12,483 0 0 722 5,536 1,994 3,542 0 0 0 3,542 2.61 2.47
EX-99.4 12 0012.txt Exhibit (99-4) -------------- Directors and Officers (Third) Excess Liability Policy CHUBB ATLANTIC INDEMNITY LTD. EXCESS INSURANCE POLICY DECLARATIONS Item 1. Parent Corporation: The Procter & Gamble Company Principal Address: Policy Number: (01) 3310-04049 One P&G Plaza Cincinnati, Ohio U.S.A. 45202 Issued by the stock insurance company indicated below, herein called the Company. CHUBB ATLANTIC INDEMNITY LTD. Item 2. Premium: $115,000 Incorporated under the laws of Bermuda. Item 3. Limit of Liability: See Endorsement 1 Item 4. Underlying Policy(ies): (A) PRIMARY POLICY: Insurer CODA Limit of Liability $25,000,000 Deductible amount NONE Policy number PG-106C (B) Other Policy(ies): Insurer XL Insurance Limit of Liability $25,000,000 Excess of $25,000,000 Policy number XLD+O-00364-00 (C) Other Policy(ies): Insurer Ace Bermuda Insurance Ltd Limit of Liability $45,000,000 Excess of $50,000,000 Policy number PG-9271D Item 5. Policy Period: From: June 30, 2000 To: June 30, 2001 12:01 a.m. Standard Time of the address shown in Item 1. Item 6. Endorsement(s) Effective at Inception: 1 and 2 Item 7. Pending or Prior Date: June 30, 1994 Item 8. Termination of Prior Policy(ies): (99)3310-04-49 / (00)3310-04-49 Item 9. Claims Notification: All notices to the Company, including notices of loss or claim shall be sent via mail to: Chubb Atlantic Indemnity Ltd., Suite 773, #48 Par-la-Ville Road, Hamilton HM11, Bermuda IN WITNESS WHEREOF, this policy has been made, entered into, executed, issued and delivered by the undersigned in Hamilton, Bermuda on this 31st day of July, 2000. Senior Underwriter - --------------------- ------------------------ Authorized Officer Title CHUBB ATLANTIC INDEMNITY LTD. ALL DISPUTE RESOLUTION IS BY BINDING ARBITRATION HELD IN BERMUDA PURSUANT TO THE BERMUDA ARBITRATION ACT OF 1993 AND THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW ("UNCITRAL") ARBITRATION RULES. BERMUDA LAW IS THE GOVERNING LAW UNDER THIS POLICY. THE INSURED WAIVES ANY REQUIREMENT THAT THE COMPANY POST A BOND AS A CONDITION PRECEDENT TO THE FILING OF ANY PLEADING IN ANY DISPUTE. PLEASE REFER TO THE APPLICABLE SECTIONS OF THIS POLICY. EXCESS INSURANCE POLICY In consideration of payment of required premium and subject to the Declarations made a part hereof and the limitations, conditions, provisions and other terms of this policy, the Company agrees with the INSUREDS as follows: INSURING CLAUSE The Company shall provide the INSUREDS with insurance during the Policy Period excess of the UNDERLYING INSURANCE. Coverage for any loss attach only after: 1) all UNDERLYING INSURANCE carriers have paid in cash the full amount of their respective liabilities, and 2) the full amount of the UNDERLYING INSURANCE policies have been collected by the plaintiffs, the Insureds or the Insureds' counsel and 3) all UNDERLYING INSURANCE has been exhausted. Coverage under this policy shall then apply in conformance with the terms, conditions, exclusions and endorsements of the PRIMARY POLICY, together with all limitations, restrictions and exclusions contained in or added by endorsement to any other UNDERLYING INSURANCE, except as specifically set forth in the terms, conditions, exclusions and endorsements of this Policy. In no event shall this Policy grant broader coverage than would be provided by any of the exhausted UNDERLYING INSURANCE. MAINTENANCE OF UNDERLYING INSURANCE All of the Underlying Policy(ies) scheduled in Item 4. Of the Declarations shall be maintained during the Policy Period in full effect and affording coverage at least as broad as the PRIMARY POLICY, except for any reduction of the aggregate limit(s) of liability available under the UNDERLYING INSURANCE solely by reason of payment of losses thereunder. Failure to comply with the foregoing shall not invalidate this policy but the Company shall not be liable to a greater extent than if this condition had been complied with. In the event of any actual or alleged (a) failure by the INSUREDS to give notice or to exercise any extensions under any UNDERLYING INSURANCE or (b) misrepresentation of breach of warranties by any of the INSUREDS with respect to any UNDERLYING INSURANCE, the Company shall not be liable hereunder to a greater extent than it would have been in the absence of such actual or alleged failure, misrepresentation or breach. DEPLETION OF UNDERLYING LIMIT(S) In the event of the depletion of the limit(s) of liability of the UNDERLYING INSURANCE solely as the result of payment of losses thereunder, this policy shall, subject to the Company's limit of liability and to the other terms of the policy, continue to apply for subsequent losses as excess insurance over the amount of insurance remaining under such UNDERLYING INSURANCE. In the event of the exhaustion of all of the limit(s) of liability of such UNDERLYING INSURANCE solely as a result of payment of losses thereunder, the remaining limits available under this policy shall, subject to the Company's limit of liability and to the other terms of this policy, continue for subsequent losses as primary insurance and any retention specified in the PRIMARY POLICY shall be imposed under this policy; otherwise no retention shall be imposed under this policy. LIMIT OF LIABILITY The amounts set forth in Endorsement Number 1, Item 3(A) and (B) is the Limit of Liability of the Company and shall be the maximum liability for each LOSS and maximum aggregate liability for each POLICY YEAR. GOVERNING LAW, ARBITRATION AND JURISDICTION This policy and any dispute, controvery, difference or claim which arise from or relate to this policy, including but not limited to the express or implied rights or obligations of one party to the other, or the alleged breach, termination, invalidity or formation thereof, shall be governed by and construed in accordance with the laws of Bermuda, without regard to its conflict of law rules, provided, however, that the provisions, stipulations, exclusions and conditions of the policy are to be construed in an evenhanded fashion as between the Parent Corporation 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 of the policy without regard to authorship of the language, without any presumption or arbitrary interpretation or construction in favor of either the Parent Corporation or the Company, and without regard to parol or other evidence. Any and all disputes, controversies, claims or differences between the parties which arise from or relate to this policy, including but not limited to the express or implied rights or obligations of one party to the other, or the alleged breach, termination, invalidity or formation thereof, shall be solely and exclusively determined and resolved by final and binding arbitration held in Bermuda in accordance with the provisions of the Bermuda International Conciliation and Arbitration Act 1993 (exclusive of the Conciliation Part of such Act), and/or any statutory modifications or reenactments thereof, and the United Nations Commission on International Trade Law ("UNCITRAL") Arbitration Rules in effect as of the date of this policy. Such arbitration shall be conducted by a Board composed of three (3) arbitrators ("the Board"), each of whom shall be disinterested in the controversy, to be selected for each controversy as follows: Any party may, in the event of such a dispute, controversy, difference or claim arising from or relating to this policy, including but not limited to the express or implied rights or obligations of one party to the other, or the alleged breach, termination, invalidity or formation thereof, notify the other party or parties to such dispute, controversy, difference or claim of its desire to arbitrate the matter, 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 other party who has been so notified shall within thirty (30) calendar days thereafter select an arbitrator and notify the party desiring arbitration of the name of the second arbitrator. If the party notified of the desire for arbitration shall fail or refuse to nominate the second arbitrator within thirty (30) 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 thirty (30) calendar days, apply to a court of competent jurisdiction in Bermuda for the appointment of a second arbitrator and in such a case the arbitrator appointed by such a Judge shall be deemed to have been nominated by the party who failed to select the second arbitrator. The two arbitrators, chosen as above provided, shall within thirty (30) calendar days after the appointment of the second arbitrator choose a third arbitrator. If the first two arbitrators fail to agree on a third arbitrator within such thirty (30) calendar days, either party shall immediately apply to a court of competent jurisdiction in Bermuda for the appointment of a third arbitrator. In such a case, the arbitrator appointed by such a Judge shall be deemed to be accepted by the other two arbitrators. Upon acceptance of the appointment by the thhird arbitrator, the Board for the controversy in question shall be deemed fixed subject to each parties' acceptance of each arbitrators' conflicts disclosure. All notices and demands pursuant to this provision shall be delivered in accordance with the policy conditions hereunder. The Board shall fix, by a notice in writing to the parties involved, a reasonable time and place for the hearing and may prescribe reasonable rules and regulations governing the course and conduct of the arbitration proceeding, including, without limitation, discovery by the parties. The Board shall, within ninety (90) days following the conclusion of the hearing, render its decision on the matter in controversy in writing and shall cause a copy thereof to be served on all the parties thereto. Any award for damages by the Board shall be compensatory only. 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. Such decision shall be a complete defense to any attempted appeal or litigation of such decision in the absence of fraud or collusion. Without limiting the foregoing, the parties waive any right to appeal to and/or collateral review of the decisions of the Board by any court or other body to the fullest extent permitted by applicable law. Each party shall bear the costs of its legal representation, its own arbitrator and its prosecution or defense. If two of the arbitrators are chosen by one party, as above provided, then the expense of all three arbitrators shall be equally dividend between the parties. Irrespective of the decision and outcome of arbitration, all costs of the third arbitrator, any expert advice retained by the Board and all costs to hold the arbitration proceedings (such as stenographer, hearing room) shall be borne equally by the parties. The Company and the Parent Corporation 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 Parent Corporation other insurers in any jurisdiction or forum other than that set forth in this policy, the Parent Corporation 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 judgement or award against such other insurers to the extent that the court or tribunal determines that the Company will have been liable to such insurers for indemnity or contribution pursuant to the policy. The Parent Corporation shall be entitled to assert claims against the Company for coverage under the policy, including without limitation, for amounts by which the Parent Corporation reduced its claim or judgment against such other insurers in respect of such claims for indemnity or contribution, in an arbitration between the Company and the Parent Corporation pursuant to this provision of the policy and any dispute, controversy, difference or claim arising out of or relating to this policy, 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, (and no determination in any such actions or proceeding involving such other insurers) shall be collateral estoppel, res judicata or other issue preclusion effect against the Company in such arbitration, irrespective of whether or not the Company remained a party to such action or proceeding with such insurers. CLAIM PARTICIPATION The Company may, at its sole discretion, elect to participate in the investigation, settlement or defense of any claim against any of the INSUREDS for matters covered by this policy even if the UNDERLYING INSURANCE has not been exhausted. SUBROGATION - RECOVERIES In the event of any payment under this policy, the Company shall be subrogated to all the INSUREDS' rights of recovery against any person or organization, as state din the PRIMARY POLICY, and the INSUREDS shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Any amounts recovered after payment of loss hereunder shall be apportioned in the inverse order of payment to the extent of actual payment. The expenses of all such recover proceedings shall be apportioned in the ration of respective recoveries. The Company shall be given notice in writing as soon as is practicable (a) in the event of the cancellation of any UNDERLYING INSURANCE and (b) of any notice given or additional or return premiums charged or paid in connection with any UNDERLYING INSURANCE. Notice of any claim shall be given in writing to the Company. COMPANY AUTHORIZATION CLAUSE By acceptance of this policy, the Parent Corporation named in Item 1. of the Declarations agrees to act on behalf of all the INSUREDS with respect to the giving and receiving of notice of claim or cancellations, the payment of premiums and the receiving of any return premium that may become due under this policy; and the INSUREDS agree that the Parent Corporation shall act on their behalf. ALTERATION No change in or modification of this policy shall be effective except when made by written endorsements signed by an authorized officer of Chubb Atlantic Indemnity Limited. POLICY TERMINATION This policy may be cancelled by the PARENT CORPORATION at any time by written notice or by surrender of this policy to the Company. This policy may also be cancelled by or on behalf of the Company by delivery to the PARENT CORPORATION or by mailing to the PARENT CORPORATION, by registered, certified or other first class mail, at the address shown in Item 2. of the Declarations, written notice stating when, not less than thirty days thereafter, the cancellation shall become effective. The mailing of such notice as aforesaid shall be sufficient proof of notice and this policy shall terminate at the date and hour specified in such notice. If 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. The Company shall refund the unearned premium computed at customary short rates if the policy is terminated in its entirety by the PARENT CORPORATION. Under any other circumstances the refund shall be computed pro rata. TERMINATION OF PRIMARY POLICY This policy shall terminate immediately upon the termination of the PRIMARY POLICY, whether by the INSUREDS or the primary insurer. Notice of cancellation or non-renewal of the PRIMARY POLICY duly given by the primary insurer shall serve as notice of the cancellation or non-renewal of this policy by the Company. TERMINATION OF PRIOR POLICY(IES) The taking effect of this policy shall terminate, if not already terminated, the policy(ies) specified in Item 8. of the Declarations. POLICY DEFINITIONS INSUREDS means those persons insured under the PRIMARY POLICY. PRIMARY POLICY means the policy scheduled in Item 4.(A) of the Declarations or any policy of the same insurer replacing or renewing such policy. POLICY YEAR means the one year period between the anniversaries of the PRIMARY POLICY, provided that: (1) the first POLICY YEAR of this policy shall be the period between the inception of this policy and the next subsequent anniversary of the PRIMARY POLICY, and (2) the last POLICY YEAR of this policy shall be the period between the termination of this policy and the anniversary of the PRIMARY POLICY immediately preceding such termination. If any discovery period extension is exercised such extension shall be treated as set forth in the PRIMARY POLICY. UNDERLYING INSURANCE means all those policies scheduled in Item 4 of the Declarations and any policies replacing them. CHUBB ATLANTIC INDEMNITY LTD. ENDORSEMENT INSURED: The Procter & Gamble Company ENDORSEMENT NO.: 1 DATE ISSUED: July 31, 2000 TO BE ATTACHED TO AND FORM PART OF POLICY NO. (01)3310-04-49 NAME OF COMPANY: Chubb Atlantic Indemnity Ltd. PRODUCER: H&H Park International Limited EFFECTIVE DATE: June 30, 2000 PAGE: 1 of 1 AMENDED LIMIT OF LIABILITY It is understood and agreed that Item 3., Limit of Liability, as set forth on the Declarations Page, is deleted in its entirety and replaced with the following: Item 3. Limit of Liability (Inclusive of Defense Costs): (A) Each LOSS $50,000,000 (B) Each POLICY YEAR $50,000,000 Excess of: (A) Each LOSS $95,000,000 (B) Each POLICY YEAR $95,000,000 which in turn is excess of the Deductible/Retention shown below: Retention Amount: $None ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. July 31, 2000 - --------------------- --------------- Authorized Representative Date CHUBB ATLANTIC INDEMNITY LTD. ENDORSEMENT INSURED: The Procter & Gamble Company ENDORSEMENT NO.: 2 DATE ISSUED: July 31, 2000 TO BE ATTACHED TO AND FORM PART OF POLICY NO. (01)3310-04-49 NAME OF COMPANY: Chubb Atlantic Indemnity Ltd. PRODUCER: H&H Park International Limited EFFECTIVE DATE: June 30, 2000 PAGE: 1 of 1 PRIOR AND PENDING LITIGATION - EXCESS It is understood and agreed that the company shall not be liable to make any payment for Loss in connection with any Claim based upon, arising out of, relating to, in consequence of, or in any way involving: (1) any litigation, arbitration, claims, demands, causes of action, equitable, legal or quasi-legal proceedings, decrees or judgments (collectively referred to as litigation) against any INSUREDS occurring prior to or pending as of June 30, 1994, of which the INSUREDS has received notice or otherwise had knowledge as of such date; or (2) any subsequent litigation arising from, or based on substantially the same matters as alleged in the prior or pending litigation included in (1) above; or (3) any Wrongful Act of the INSUREDS which gave rise to the prior or pending litigation included in (1) above. ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. July 31, 2000 - --------------------- --------------- Authorized Representative Date -----END PRIVACY-ENHANCED MESSAGE-----