1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Registration number 33-63707 A. Full title of the plan: THE GILLETTE COMPANY SAVINGS PLAN FOR ARROWPARK EMPLOYEES B. Name of the issuer of the securities held pursuant to the plan and the address of its principal executive office: The Gillette Company Prudential Tower Building Boston, MA 02199 2 FINANCIAL STATEMENTS OF THE GILLETTE COMPANY SAVINGS PLAN FOR ARROWPARK EMPLOYEES The following audited financial statements with independent auditors' report thereon are enclosed with this report: 1. Statements of Net Assets Available for Plan Benefits as of December 31, 1998 and 1997. 2. Statements of Changes in Net Assets Available for Plan Benefits for each of the years in the two -year period ended December 31, 1998. EXHIBIT 23.2 Independent Auditor's Consent SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Advisory Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. THE GILLETTE COMPANY SAVINGS PLAN FOR ARROWPARK EMPLOYEES By ROBERT E. DICENSO Robert E. DiCenso Date: June 29, 1999 3 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Financial Statements December 31, 1998 and 1997 With Independent Auditors' Report Thereon 4 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES TABLE OF CONTENTS PAGE Independent Auditors' Report 1 Statements of Net Assets Available for Plan Benefits 2 Statements of Changes in Net Assets Available for Plan Benefits 3-4 Notes to Financial Statements 5-11 Note: Supplemental schedules required by the Employee Retirement Income Security Act of 1974, as amended (ERISA), have not been included due to their inclusion in master trust information filed with the Department of Labor of The Gillette Company Savings Plan Trust. 5 INDEPENDENT AUDITORS' REPORT The Savings Plan Committee The Gillette Company Savings Plan for Arrow Park Employees: We have audited the statements of net assets available for plan benefits of The Gillette Company Savings Plan for Arrow Park Employees as of December 31, 1998 and 1997 and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 net assets available for plan benefits of The Gillette Company Savings Plan for Arrow Park Employees as of December 31, 1998 and 1997 and the changes in net assets available for plan benefits for the years then ended in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The Fund Information in the statement of changes in net assets available for plan benefits is presented for purposes of additional analysis rather than to present the changes in net assets available for plan benefits of each fund. The Fund Information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. May 21, 1999 6 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Statements of Net Assets Available for Plan Benefits December 31, 1998 and 1997 1998 1997 ----------- --------- Assets: Investment in the Savings Plan Trust $11,500,182 9,490,518 ----------- --------- Net assets available for plan benefits $11,500,182 9,490,518 =========== ========= See accompanying notes to financial statements. 2 7 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Statements of Changes in Net Assets Available for Plan Benefits, with Fund Information Year ended December 31, 1998 FIDELITY RETIREMENT FIDELITY GILLETTE GOVERNMENT U.S. COMPANY FIXED MONEY FIDELITY EQUITY STOCK INCOME MARKET MAGELLAN INDEX FUND FUND PORTFOLIO FUND PORTFOLIO ---- ---- --------- ---- --------- Additions to net asset attributed to: Net investment income from the Savings Plan Trust $ (140,866) 147,521 7,594 244,652 732,224 Contributions: Employee contributions 241,327 88,837 10,482 106,115 102,963 Employer contributions 68,332 28,360 3,160 29,611 24,705 ----------- --------- ------- --------- --------- Total additions 168,793 264,718 21,236 380,378 859,892 Deductions from net assets attributed to: Benefit payments (27,043) (26,793) (733) (11,373) (54,771) Forfeitures (2,419) (209) -- (716) (284) ----------- --------- ------- --------- --------- Total deductions (29,462) (27,002) (733) (12,089) (55,055) Net increase prior to interfund transfers 139,331 237,716 20,503 368,289 804,837 Net transfers in (out): Loans issued (43,709) (29,741) (1,021) (23,877) (17,920) Loans repaid 37,917 19,335 997 14,491 16,519 Other transfers 82,451 (18,511) (29,970) (34,235) (69,617) ----------- --------- ------- --------- --------- 76,659 (28,917) (29,994) (43,621) (71,018) Net increase(decrease) 215,990 208,799 (9,491) 324,668 733,819 Net assets available for plan benefits: Beginning of year 2,285,861 2,260,884 75,832 684,402 2,582,529 ----------- --------- ------- --------- --------- End of year $ 2,501,851 2,469,683 66,341 1,009,070 3,316,348 =========== ========= ======= ========= ========= FIDELITY FIDELITY FIDELITY FIDELITY GROWTH INVESCO GROWTH EMERGING DIVERSIFIED & TOTAL COMPANY MARKETS INTERNATIONAL INCOME RETURN FUND FUND FUND FUND FUND ---- ---- ---- ---- ---- Additions to net asset attributed to: Net investment income from the Savings Plan Trust 119,255 (776) 2,804 42,381 116,787 Contributions: Employee contributions 56,266 703 3,164 14,425 55,350 Employer contributions 15,034 145 585 3,367 15,763 ------- ------ ------ ------- ------- Total additions 190,555 72 6,553 60,173 187,900 Deductions from net assets attributed to: Benefit payments (686) -- -- -- (6,081) Forfeitures (173) -- -- -- (206) ------- ------ ------ ------- ------- Total deductions (859) -- -- -- (6,287) Net increase prior to interfund transfers 189,696 72 6,553 60,173 181,613 Net transfers in (out): Loans issued (19,014) (291) -- -- (5,318) Loans repaid 7,871 700 -- -- 5,144 Other transfers 1,521 (1,987) 13,548 88,292 (36,784) ------- ------ ------ ------- ------- (9,622) (1,578) 13,548 88,292 (36,958) Net increase(decrease) 180,074 (1,506) 20,101 148,465 144,655 Net assets available for plan benefits: Beginning of year 410,996 5,298 23,795 99,491 829,771 ------- ------ ------ ------- ------- End of year 591,070 3,792 43,896 247,956 974,426 ======= ====== ====== ======= ======= FIDELITY U.S. BOND PARTICIPANT INDEX LOAN FUND FUND TOTAL ---- ---- ----- Additions to net asset attributed to: Net investment income from the Savings Plan Trust 3,383 -- 1,274,959 Contributions: Employee contributions 7,599 -- 687,231 Employer contributions 1,971 -- 191,033 ------ -------- ---------- Total additions 12,953 -- 2,153,223 Deductions from net assets attributed to: Benefit payments (1,159) (10,804) (139,443) Forfeitures (109) -- (4,116) ------ -------- ---------- Total deductions (1,268) (10,804) (143,559) Net increase prior to interfund transfers 11,685 (10,804) 2,009,664 Net transfers in (out): Loans issued (1,642) 142,533 -- Loans repaid 1,789 (104,763) -- Other transfers 5,292 -- -- ------ -------- ---------- 5,439 37,770 -- Net increase(decrease) 17,124 26,966 2,009,664 Net assets available for plan benefits: Beginning of year 32,845 198,814 9,490,518 ------ -------- ---------- End of year 49,969 225,780 11,500,182 ====== ======== ========== See accompanying notes to financial statements. 3 8 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Statements of Changes in Net Assets Available for Plan Benefits, with Fund Information - Continued Year ended December 31, 1997 FIDELITY RETIREMENT GILLETTE FIDELITY GOVERNMENT COMPANY INTERMEDIATE FIXED MONEY FIDELITY STOCK BOND INCOME MARKET MAGELLAN FUND FUND FUND PORTFOLIO FUND ----------- ------- --------- ------ ------- Additions to net asset attributed to: Net investment income from the Savings Plan Trust $ 492,089 167 144,167 3,252 122,921 Contributions: Employee contributions 251,531 -- 94,550 13,767 125,437 Employer contributions 71,732 -- 28,931 3,689 34,366 ----------- ------- --------- ------ ------- Total additions 815,352 167 267,648 20,708 282,724 Deductions from net assets attributed to: Benefit payments (8,070) -- (39,309) (211) (1,566) Forfeitures (666) -- (104) (69) -- ----------- ------- --------- ------ ------- Total deductions (8,736) -- (39,413) (280) (1,566) Net increase prior to interfund transfers 806,616 167 228,235 20,428 281,158 Net transfers in (out): Loans issued (60,907) (237) (14,513) (1,063) (17,623) Loans repaid 19,412 -- 13,490 165 13,495 Other transfers 132,687 (10,142) (176,147) 39,745 2,835 ----------- ------- --------- ------ ------- 91,192 (10,379) (177,170) 38,847 (1,293) Net increase(decrease) 897,808 (10,212) 51,065 59,275 279,865 Net assets available for plan benefits: Beginning of year 1,388,053 10,212 2,209,819 16,557 404,537 ----------- ------- --------- ------ ------- End of year $ 2,285,861 -- 2,260,884 75,832 684,402 =========== ======= ========= ====== ======= FIDELITY U.S. FIDELITY FIDELITY FIDELITY FIDELITY EQUITY GROWTH EMERGING DIVERSIFIED BALANCED INDEX COMPANY MARKETS INTERNATIONAL FUND PORTFOLIO FUND FUND FUND -------- --------- ------- ------ ------ Additions to net asset attributed to: Net investment income from the Savings Plan Trust 66,259 612,450 54,733 (3,132) 1,616 Contributions: Employee contributions -- 89,540 67,735 3,215 1,508 Employer contributions -- 22,443 17,502 865 319 -------- --------- ------- ------ ------ Total additions 66,259 724,433 139,970 948 3,443 Deductions from net assets attributed to: Benefit payments (8,231) (6,680) (6,855) -- -- Forfeitures -- -- (86) -- -- -------- --------- ------- ------ ------ Total deductions (8,231) (6,680) (6,941) -- -- Net increase prior to interfund transfers 58,028 717,753 133,029 948 3,443 Net transfers in (out): Loans issued (2,172) (13,494) (6,386) -- -- Loans repaid -- 4,886 2,408 -- -- Other transfers (927,373) 131,219 23,985 4,350 20,352 -------- --------- ------- ------ ------ (929,545) 122,611 20,007 4,350 20,352 Net increase(decrease) (871,517) 840,364 153,036 5,298 23,795 Net assets available for plan benefits: Beginning of year 871,517 1,742,165 257,960 -- -- -------- --------- ------- ------ ------ End of year -- 2,582,529 410,996 5,298 23,795 ======== ========= ======= ====== ====== FIDELITY FIDELITY GROWTH INVESCO U.S. & TOTAL BOND PARTICIPANT INCOME RETURN INDEX LOAN FUND FUND FUND FUND TOTAL ------ ------- ------ ------- --------- Additions to net asset attributed to: Net investment income from the Savings Plan Trust 13,250 102,039 1,690 -- 1,611,501 Contributions: Employee contributions 7,937 65,143 11,865 -- 732,228 Employer contributions 1,836 17,745 2,898 -- 202,326 ------ ------- ------ ------- --------- Total additions 23,023 184,927 16,453 -- 2,546,055 Deductions from net assets attributed to: Benefit payments -- (9,740) -- (2,659) (83,321) Forfeitures -- -- -- -- (925) ------ ------- ------ ------- --------- Total deductions -- (9,740) -- (2,659) (84,246) Net increase prior to interfund transfers 23,023 175,187 16,453 (2,659) 2,461,809 Net transfers in (out): Loans issued (2,182) (11,724) (1,157) 131,458 -- Loans repaid -- 3,914 104 (57,874) -- Other transfers 78,650 662,394 17,445 -- -- ------ ------- ------ ------- --------- 76,468 654,584 16,392 73,584 -- Net increase(decrease) 99,491 829,771 32,845 70,925 2,461,809 Net assets available for plan benefits: Beginning of year -- -- -- 127,889 7,028,709 ------ ------- ------ ------- --------- End of year 99,491 829,771 32,845 198,814 9,490,518 ====== ======= ====== ======= ========= See accompanying notes to financial statements. 4 9 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 (1) DESCRIPTION OF THE PLAN The following brief description of The Gillette Company Savings Plan for Arrow Park Employees (the "Plan") is provided for general information purposes only. Participants should refer to the Plan document for more complete information. (a) GENERAL The Plan became effective on July 1, 1988 and is a contributory defined contribution plan covering all eligible employees of the Arrow Park facility of The Gillette Company's Stationary Products Group who are covered by a collective bargaining agreement and who have completed six full months of employment. The Plan was amended and restated in its entirety effective January 1, 1996 and The Gillette Company (the "Company") assumed sponsorship and administration of the Plan as of such date. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) CONTRIBUTIONS Participants may elect to contribute in whole percentage increments up to 17% of their annual base compensation. The Company will make matching contributions on behalf of a participant equal to 50% of the participant's contribution up to 6% of the participants' annual compensation. (c) VESTING Participants immediately vest in their own contributions and actual earnings thereon. Vesting in company contributions occurs at a rate of 25% per year of service with full vesting after four years of service, upon attainment of age 65, or termination of employment due to death or disability. Nonvested Company contributions will be forfeited by participants who terminate employment and will be used to reduce future Company matching contributions. (d) PARTICIPANTS' ACCOUNTS A separate account is established for each participant at the time of enrollment in the Plan. The balance in each account is invested in accordance with the directions given by the participant in one or more of the Plan's investment fund offerings. A participant may direct employee contributions in any of the following 11 investment options: - Gillette Company Stock Fund Invests primarily in shares of The Gillette Company common stock. - Fixed Income Fund Seeks to preserve principal as well as generate interest income through investment in high quality short and intermediate term investment contracts as well as other instruments issued by insurance companies and banks. (Continued) 5 10 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 - Fidelity Retirement Government Money Market Portfolio Seeks to keep invested principal stable while generating current interest or income by investing in high quality money market instruments issued or guaranteed by the U.S. government or its agencies. - Fidelity Magellan Fund Seeks long-term capital appreciation by investing primarily in common stocks and other securities of all types of domestic and international companies in all industries. - Fidelity U.S. Equity Index Portfolio Seeks to provide investment results that correspond to a recognized index of stock market performance, and invests primarily in the common stocks of the companies that make up the designated stock index. - Fidelity Growth Company Fund Seeks long-term capital appreciation by investing primarily in securities of domestic and foreign growth-oriented companies. - INVESCO Total Return Fund Seeks to provide high total return through capital growth and current income by investing in stocks and in fixed and variable income securities. - Fidelity Diversified International Seeks capital growth by investing primarily in equity securities of companies located outside the U.S. Seeks stocks that are undervalued compared to industry norms in their countries. - Fidelity U.S. Bond Index Fund Invests in investment grade (medium to high quality) or above with maturities of at least one year. - Fidelity Growth & Income Seeks high total return through a combination of current income and capital appreciation. Invests primarily in U.S. and foreign stocks. - Fidelity Emerging Markets Fund Seeks capital appreciation from emerging markets around the world. Each of the Funds may also hold a portion of its assets in short-term investments in order to meet liquidity needs for transfers, loans, and withdrawals. (Continued) 6 11 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 (e) PARTICIPANT LOANS The maximum loan available to each participant is the lesser of (1) $50,000 reduced by the highest outstanding loan balance due from the participant during the preceding twelve months, or (2) 50% of the participant's vested account balance, reduced by the current outstanding loan balance due from the participant. The minimum loan amount available to participants is $500. Each loan shall bear interest at a rate determined by the Savings Plan Committee. A participant must make a payment of principal and interest to the Plan on at least a quarterly basis. Repayment of the loan must be made over a period not to exceed five years. (f) PLAN EARNINGS As of the close of each business day, the Plan trustee is responsible for determining the fair market value of each of the investment options, which would include all accrued earnings. The increase or decrease in the fair market value of each investment fund since the preceding business day is allocated among the participant accounts invested in each fund based on the proportionate number of shares or units of the fund held by each participant at the close of the preceding business day. (g) BENEFIT PAYMENTS Upon termination of employment, the participant or his or her surviving spouse or beneficiary, will receive a lump sum distribution of the participant's vested account balance, or if the account balance exceeds $5,000 at such time, he/she may elect to defer payment. Early withdrawals may also be made in the event of financial hardship and other circumstances, based upon special guidelines detailed in the Plan documents. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF ACCOUNTING The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from those estimates. The accompanying financial statements are presented on the accrual basis of accounting. Benefits payable at year end are not accrued for as they are considered to be a component of the net assets available for plan benefits. (b) INVESTMENTS Investments are allocations of the assets of The Gillette Company Master Savings Plan Trust ("Savings Plan Trust") based upon the proportionate interest of the Plan in the trust. (Continued) 7 12 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 Investments of the trust are stated at fair value, which for shares of Company stock held in the trust is defined as the composite closing price of the stock on the New York Stock Exchange. Guaranteed investment contracts and synthetic investment contracts are valued at contract value. The fair value for all other investments are determined daily by the trustee on a per share basis using security prices quoted on national exchanges, and amortized cost in the case of any short-term and money market securities held. Participant notes receivable are valued at cost, which approximates fair value. Security transactions received prior to 4:00 p.m. Eastern time by Fidelity are recognized on that business day. Transactions received after 4:00 p.m. Eastern time are valued as of the next business day. Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Net appreciation (depreciation) in the fair value of investments includes both realized and unrealized gains and losses. The Savings Plan Trust's investments in guaranteed and synthetic investment contracts are valued at contract value which approximates fair value. Contract value represents contributions made under the contract plus interest at the contract rate. The crediting interest rate is variable for the synthetic contracts and is reset quarterly based upon the fair value of the underlying securities. The crediting interest rate is fixed for guaranteed contracts. The average yield for the year ended December 31, 1998 is 6.40% and the crediting interest rate as of December 31, 1998 is 6.19% for these investment contracts. (c) PAYMENT OF BENEFITS Benefits are recorded when paid. (3) FUNDING POLICY The Company's funding policy is to make contributions to the Plan in accordance with the manner described in note 1. (4) PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. In the event of Plan termination, participants will become fully vested in their accounts. (5) INVESTMENTS Investments of the Plan are held in trust by Fidelity Management Trust Company. The Plans participating in the Savings Plan Trust are The Gillette Company Employees' Savings Plan and The Gillette Company Savings Plan for Arrow Park Employees. Trust income is allocated ratably between the plans in accordance with the assets of each Plan invested in the trust. (Continued) 8 13 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 The net assets of the Savings Plan Trust at December 31, 1998 and 1997 are as follows: 1998 1997 -------------- ------------- Investments, at fair value: Marketable securities: Gillette common stock $1,421,628,142 1,551,947,454 Registered investment companies: Fidelity Short-Term Investment Fund 54,284,783 23,695,057 Fidelity Retirement Government Money Market Portfolio 22,247,679 10,344,002 Fidelity Magellan Fund 104,133,549 46,585,401 Fidelity U.S. Equity Index Portfolio 188,119,328 91,919,213 Fidelity Growth Company Fund 47,723,974 41,787,957 Fidelity Emerging Markets Fund 869,866 1,220,995 Fidelity Diversified International Fund 16,836,592 6,256,456 Fidelity Growth & Income Fund 35,977,890 21,222,508 INVESCO Total Return Fund 66,763,014 24,955,015 Fidelity U.S. Bond Index Fund 17,783,501 10,760,825 Investment contracts 330,165,797 312,826,658 Participant loans 33,652,383 29,104,490 -------------- ------------- Total investments 2,340,186,498 2,172,626,031 Receivable from Duracell Inc. Thrift Plan 2,890,395 -- -------------- ------------- Total investment and net assets $2,343,076,893 2,172,626,031 ============== ============= Assets allocated to The Gillette Company Employees' Savings Plan $2,331,576,711 2,163,135,513 Assets allocated to The Gillette Company Savings Plan for Arrow Park Employees $ 11,500,182 9,490,518 ============== ============= (Continued) 9 14 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 The statements of change in net assets of the Savings Plan Trust for the years ended December 31, 1998 and 1997 are as follows: 1998 1997 --------------- ------------- Employee contributions $ 50,400,338 47,855,615 Employer contributions 18,776,685 17,683,710 Investment income: Net appreciation (depreciation) on fair value of investments: Gillette common stock (68,234,619) 368,245,796 Fidelity Intermediate Bond Fund -- (89,828) Fidelity Magellan Fund 12,773,190 5,830,143 Fidelity Balanced Fund -- 1,100,411 Fidelity U.S. Equity Index Portfolio 24,256,268 19,620,590 Fidelity Growth Company Fund 7,200,486 2,204,172 Fidelity Emerging Markets Fund (745,082) (881,794) Fidelity Diversified International Fund 476,479 246,019 Fidelity Growth & Income Fund 5,136,757 2,048,113 INVESCO Total Return Fund 1,974,014 2,287,046 Fidelity U.S. Bond Index Fund 294,579 315,599 Dividends 28,572,861 24,656,455 Interest 23,120,340 22,065,612 --------------- ------------- Net investment income 34,825,273 447,648,334 Transferred from Duracell Inc. Thrift Plan 235,469,789 -- --------------- ------------- Total additions 339,472,085 513,187,659 Benefit payments 168,845,644 130,062,739 Forfeitures 175,579 120,990 --------------- ------------- Total deductions 169,021,223 130,183,729 --------------- ------------- Net increase 170,450,862 383,003,930 Net assets: Beginning of year 2,172,626,031 1,789,622,101 --------------- ------------- End of year $ 2,343,076,893 2,172,626,031 =============== ============= (6) ADMINISTRATIVE EXPENSES The Company bears administrative costs of maintaining the Plan and investment expenses associated with the Fixed Income Fund and The Gillette Company Stock Fund. Investment expenses associated with the Fidelity funds offered as investment options under the Plan are deducted from the assets of each of those funds. (Continued) 10 15 THE GILLETTE COMPANY SAVINGS PLAN FOR ARROW PARK EMPLOYEES Notes to Financial Statements December 31, 1998 and 1997 (7) INCOME TAXES A favorable tax determination letter was received from the Internal Revenue Service on April 18, 1996 stating that the existing Plan and its underlying trust qualified under section 401(a) of the Internal Revenue Code of 1986 (the "Code") as a profit sharing plan, and is exempt from federal income taxes. Further, the features of the Plan relating to tax deferred savings qualified under section 401(k) of the Code. In the opinion of the Plan administrator and the Plan's tax advisor, the Plan and its underlying trust have operated within the terms of the Plan document and remain qualified under the applicable provisions of the Internal Revenue Code. 11