SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission File Number 1-922
THE GILLETTE COMPANY
(Exact name of registrant as specified in its charter)
Incorporated in Delaware 04-1366970
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Prudential Tower Building, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 421-7000
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class
Common Stock, $1.00 par value
Shares Outstanding June 30, 1994 . . . . . . . . . . . . . . . . 221,129,617
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PAGE 1
PART I. FINANCIAL INFORMATION
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales........................................ $1,406.5 $1,237.3 $2,767.6 $2,453.9
Cost of Sales.................................... 500.4 463.7 999.0 927.2
Gross Profit................................. 906.1 773.6 1,768.6 1,526.7
Selling, General and Administrative expenses..... 613.1 529.4 1,178.5 1,020.1
Profit from operations....................... 293.0 244.2 590.1 506.6
Nonoperating Charges (Income):
Interest income................................ (5.7) (9.6) (11.2) (15.5)
Interest expense............................... 13.9 13.8 27.3 29.9
Exchange....................................... 29.6 28.2 61.5 52.4
Other charges - net............................ (1.3) (3.7) (3.3) (3.4)
36.5 28.7 74.3 63.4
Income before Income Taxes and Cumulative
Effect of Accounting Changes............... 256.5 215.5 515.8 443.2
Income Taxes..................................... 94.3 80.8 189.6 166.2
Income before Cumulative Effect of
Accounting Changes......................... 162.2 134.7 326.2 277.0
Cumulative Effect of Accounting Changes.......... - - - 138.6
Net Income 162.2 134.7 326.2 138.4
Preferred Stock dividends, net of tax benefit.... 1.1 1.2 2.3 2.4
Net Income Available to Common Stockholders...... $ 161.1 $ 133.5 $ 323.9 $ 136.0
Income per common share before cumulative
effect of accounting changes................... $ .73 $ .61 $ 1.47 $ 1.25
Cumulative effect of accounting changes.......... - - - .63
Net Income per Common Share...................... $ .73 $ .61 $ 1.47 $ .62
Dividends declared per common share.............. $ .25 $ .21 $ .25 $ .21
Average number of common shares outstanding
(thousands) 221,081 220,362 221,019 220,288
<FN>
See Accompanying Notes to Consolidated Financial Statements.
/TABLE
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PAGE 2
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Millions of dollars)
(Unaudited)
<CAPTION>
June 30 December 31
1994 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 104.4 $ 37.1
Short-term investments, at cost, which
approximates market value................. 2.3 1.5
Receivables, less allowances of $39.9
($45.9 at 12/31/93)...................... 1,052.7 1,226.9
Inventories:
Raw materials and supplies............... 204.2 209.1
Work in process.......................... 88.6 90.8
Finished goods........................... 721.4 574.7
Total Inventories...................... 1,014.2 874.6
Prepaid expenses, principally taxes.......... 391.1 387.9
Total Current Assets................... 2,564.7 2,528.0
Property, Plant and Equipment, at cost........... 2,674.8 2,575.9
Less accumulated depreciation............ 1,415.3 1,361.4
Net Property, Plant and Equipment...... 1,259.5 1,214.5
Intangible Assets, less accumulated amortization 915.5 916.9
Other Assets..................................... 407.3 442.9
$5,147.0 $5,102.3
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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PAGE 3
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(Millions of dollars)
(Unaudited)
<CAPTION>
June 30 December 31
1994 1993
<S> <C> <C>
Current Liabilities:
Loans payable................................ $ 416.1 $ 395.0
Current portion of long-term debt............ 25.5 46.2
Accounts payable............................. 233.4 268.9
Accrued liabilities.......................... 609.2 807.1
Dividends payable............................ - 46.4
Income taxes................................. 204.0 196.7
Total Current Liabilities................. 1,488.2 1,760.3
Long-Term Debt................................... 828.4 840.1
Deferred Income Taxes............................ 167.0 166.1
Other Long-Term Liabilities...................... 885.0 835.5
Minority Interest................................ 16.6 21.3
Stockholders' Equity:
8.0% Cumulative Series C ESOP Convertible
Preferred, without par value, issued: 1994,
163,947 shares; 1993, 164,243 shares....... 98.8 99.0
Unearned ESOP Compensation................... (49.0) (53.8)
Common stock, par value $1.00 per share:
Authorized 580,000,000 shares
Issued: 1994, 278,821,689 shares;
1993, 278,587,610 shares........... 278.8 278.6
Additional paid-in capital................... 266.2 259.4
Earnings reinvested in the business.......... 2,626.5 2,357.9
Cumulative foreign currency
translation adjustments.................... (412.5) (415.0)
Treasury stock, at cost:
1994, 57,692,072 shares;l993, 57,697,990 shares (1,047.0) (1,047.1)
Total Stockholders' Equity............... 1,761.8 1,479.0
$5,147.0 $5,102.3
<FN>
See Accompanying Notes to Consolidated Financial Statements
/TABLE
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PAGE 4
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
1994 1993
<S> <C> <C>
Operating Activities
Net income $ 326.2 $ 138.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes - 138.6
Depreciation and amortization 100.6 102.4
Other 9.7 20.6
Changes in assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable 141.2 140.3
Inventories (163.2) (132.9)
Accounts payable and accrued liabilities (185.1) (217.3)
Other working capital items (3.2) 37.2
Other non-current assets and liabilities 89.1 46.5
Net cash provided by operating activities 315.3 273.8
Investing Activities
Additions to property, plant & equipment (150.7) (126.1)
Disposals of property, plant & equipment 8.5 14.0
Acquisition of businesses, less cash acquired (5.3) (418.9)
Other 8.0 (1.2)
Net cash used in investing activities (139.5) (532.2)
Financing Activities
Proceeds from exercise of stock option and
purchase plans 7.2 5.6
Decrease in long-term debt (42.8) (6.2)
Increase in loans payable 30.9 419.5
Dividends paid (104.1) (88.3)
Net cash provided by (used in) financing
activities (108.8) 330.6
Effect of Exchange Rate Changes on Cash .3 (3.4)
Increase in Cash and Cash Equivalents 67.3 68.8
Cash and Cash Equivalents at Beginning of Year 37.1 35.3
Cash and Cash Equivalents at End of Quarter $ 104.4 $ 104.1
Supplemental disclosure of cash paid for:
Interest $ 17.5 $ 22.5
Income taxes $ 113.4 $ 70.1
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 3.5 $ 629.0
Cash paid 5.3 (390.4)
Liabilities assumed $ (1.8) $ 238.4
<FN>
See Accompanying Notes to Consolidated Financial Statements
/TABLE
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THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Comments
Reference is made to the registrant's 1993 annual report to stockholders,
which contains, at pages 26 through 37, financial statements and the notes
thereto.
For interim reporting purposes, advertising expenses are charged to operations
as a percentage of sales based on estimated sales and advertising expense for
the full year.
With respect to the financial information for the interim periods included in
this report, which is unaudited, the management of the Company believes that
all adjustments, consisting only of normal recurring accruals necessary to a
fair presentation of the results for such interim periods, have been included.
Acquisition
On May 7, 1993, the Company acquired Parker Pen Holdings Limited (Parker Pen),
a worldwide writing instruments company, headquartered in England. The
acquisition has been accounted for by the purchase method of accounting. The
purchase price and other costs of the acquisition amounted to $458 million and
are included in goodwill pending an independent appraisal of Parker Pen's net
assets acquired. The Company consolidated Parker Pen results of operations
commencing with the Third Quarter, 1993, including amortization of a
proportionate amount of the goodwill over a 40-year period.
The following unaudited pro forma summary presents the combined results of
operations of the Company and Parker Pen as if the acquisition had occurred at
the beginning of each period presented. The results do not purport to indicate
what would have occurred had the acquisition been made on those dates or what
results may be in the future.
Pro Forma
Six Months ended
June 30
(Millions of dollars, except per share amounts) 1994 1993
Net sales $2,767.6 $2,604.8
Before cumulative effect of accounting changes:
Income $ 326.2 $ 284.9
Income per common share $ 1.47 $ 1.28<PAGE>
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PAGE 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
In reviewing the following analysis, it should be understood that results for
any interim period are not necessarily indicative of the results for the
entire year.
Second Quarter 1994 versus 1993
Sales for the three months ended June 30, 1994, were $1.41 billion, an
increase of 14% from $1.24 billion for the same period in 1993. The growth
was due entirely to volume, including unmatched sales of Parker Pen and
favorable product mix. The combined effect of fluctuations in exchange rates
and changes in selling prices had no impact. Without Parker Pen, sales
increased 8%. Profit from operations was $293.0 million, up 20% from $244.2
million a year earlier. Net income of $162.2 million increased 20% compared
with $134.7 million reported in the second quarter of 1993. Net income per
common share of $.73 increased 20% over the $.61 reported a year earlier.
This improvement was achieved despite the continued economic weakness in
Europe and the unfavorable impact of weaker European currencies. Domestic
sales gained 12% and sales from foreign operations increased 15%.
Sales and profits of the Company's blade and razor business were considerably
higher than those of the prior year. Geographic expansion, the continued
growth of the Gillette Sensor System and Sensor for Women, along with the
successful introduction of the SensorExcel system in Continental Europe and
the introduction of the Custom Plus Disposable Razor, were somewhat offset by
the negative effect of the European recession and weaker currencies.
Sales of Braun products surpassed those of the prior year as Europe, the
United States and Japan posted increases. The growth of new products in the
shaver and oral care businesses and the success of the new FlavorSelect
coffeemaker contributed to the sales increase. Profits increased sharply due
to sales of products with higher profit margins as well as to lower overhead
expenses.
Toiletries and cosmetics sales were significantly higher than those of the
prior year as all geographic regions reported increases. The introduction
of the clear gel deodorant/antiperspirant technology into Soft & Dri and Dry
Idea products, along with the success of Right Guard Gel, and the launch of
the Series line in Continental Europe, contributed to the increase. Profits
were sharply higher due to the sales increase, aided by lower overhead
expenses.
Sales and profits of stationery products were substantially above those of
the prior year, reflecting the inclusion of Parker Pen. Without Parker Pen,
sales were up moderately despite the economic softness in Europe which
reduced gains in other markets.
Oral-B sales in the second quarter rose considerably in all major markets due
to the continuing introduction of new products including the Advantage
toothbrush, specialty rinses and toothpastes. Profits were significantly
lower, primarily in the United States, due to increased advertising support
for the new products.
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PAGE 7
Six Months 1994 versus 1993
Sales for the six months ended June 30, 1994, were $2.77 billion, compared
with $2.45 billion in 1993. The change was due to an increase from new
products including Parker Pen, 20%, offset by a volume/mix decrease, (7)%.
The combined effect of fluctuations in exchange rates and changes in selling
prices had no effect. Without Parker Pen, sales increased 7%. Domestic
sales increased 14%, and sales from foreign operations increased 12%.
Excluding Europe, where the economic weaknesses and the unfavorable impact
of weaker currencies adversely affected sales growth, sales from other
foreign operations increased 23%.
Sales of blades and razors were well above those of a year earlier and
profits were considerably higher. The continued growth of the Gillette
Sensor franchise, including Sensor for Women and the successful launch of
the SensorExcel system, contributed to increases in all major geographic
regions except Europe, where sales were unchanged and profits declined
moderately due to the unfavorable effects of the recession and weaker
currencies.
Sales of Braun products were virtually unchanged from those of the prior
year, due to the continuing effect of the European economic recession and
weaker currencies. Sales growth in the United States, primarily in the oral
care business and the new FlavorSelect coffeemaker, and in Japan, due to the
improved shaver business, offset weaker sales in Europe. Profits increased
substantially as sales of products with higher profit margins offset
shortfalls in Europe.
Toiletries and cosmetics sales for the six months were considerably higher,
with increases in all major markets including Europe where sales were well
above the prior year. Sales increases in deodorant/antiperspirant products,
including the introduction of Right Guard Gel in the United States and the
Series Line in Continental Europe contributed to the growth. Profits were
sharply higher due to higher sales and lower operating costs.
Sales and profits of stationery products for the six months increased
substantially due to the inclusion of Parker Pen. Without Parker Pen sales
increased moderately. Higher sales in the United States and most overseas
regions offset shortfalls in Europe.
Sales of Oral-B products increased in all major geographic regions aided by
new products including the Advantage toothbrush, specialty rinses and
toothpastes. Profits were substantially lower due to the cost associated
with new products.
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PAGE 8
The approximate percentages of consolidated net sales for each of the Company's
business segments are set forth below.
Blades Toiletries
& & Stationery Braun Oral-B
Period Razors Cosmetics Products Products Products
Six Months 1994 38% 19% 14% 22% 7%
Six Months 1993 39% 20% 9% 25% 7%
Gross profit was $1,768.6 million, an increase of $241.9 million or 16% from
1993. The gross profit percentage was 63.9%, compared with 62.2% for the same
period in 1993, reflecting sales gains in products with higher profit margins,
such as the Sensor system, and the impact of lower manufacturing costs.
Selling, general and administrative expenses increased by $158.4 million or
16%. Combined advertising and sales promotion expenses increased 19%.
Spending on research and development increased 2%, while other marketing and
administrative expenses increased 15%.
Profit from operations was $590.1 million, up 16% from $506.6 million in the
prior year. Profit from operations increased 24% within the United States, and
13% in foreign operations.
Net interest expense and net exchange losses were higher for the six months,
but the effective tax rate was lower.
Net income of $326.2 million increased 18%, compared with last year's net
income of $277.0 million, before the effects of accounting changes. Net income
per common share of $1.47 compared with $1.25, before the effects of accounting
changes, an increase of 18% over the prior year.
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PAGE 9
Interim financial results may also be viewed on an organizational basis. For
this purpose, operating profits from major operational units are reported
before net corporate headquarters expense, net interest expense, exchange
losses and income taxes.
Sales of the North Atlantic Group in the quarter were considerably higher and
for the six months were well above the corresponding period of a year ago.
Operating profits in the quarter and for the six months were significantly
above last year.
The Stationery Group's sales and profits in the quarter and for the six
months were significantly higher than those of the prior year reflecting the
inclusion of Parker Pen results.
The International Group's sales and profits increased substantially in the
quarter and for the six months compared with last year.
Sales of the Diversified Group in the quarter were higher and for the six
months were somewhat above those of the prior year. Profits were
significantly higher in the quarter and for the six months were considerably
higher than last year.
Financial Condition
Net cash provided by operating activities for the six months ended June 30,
1994, amounted to $315 million, compared with $274 million in the same period
last year. The increase in 1994 was the result of higher Net Income
partially offset by an increase in working capital requirements.
Net debt (total debt, net of associated swaps, less cash and short-term
investments) at June 30, 1994, amounted to $1.16 billion, compared with $1.26
billion at year-end 1993. The Company's current ratio at June 30, 1994, was
1.72, compared with 1.44 at December 31, 1993.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to legal proceedings and claims arising out of its
business, which cover a wide range of matters, including antitrust and trade
regulation, product liability, contracts, environmental issues, patent and
trademark matters and taxes. Management, after review and consultation with
counsel, considers that any liability from all of these legal proceedings and
claims would not materially affect the consolidated financial position or
results of operations of the Company.
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PAGE 10
Item 6 (a) Exhibits
<TABLE>
Exhibit 11
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Millions of dollars, except per share amounts; shares in millions)
<CAPTION>
Six Months Ended June 30
1994 1993
<S> <C> <C>
Net Income Per Common Share-Assuming No Dilution
Net income as reported....................... $ 326.2 $ 138.4
Less: Preferred Stock Dividends, net of tax
benefit............................... (2.3) (2.4)
Net income available to Common Shareholders.. $ 323.9 $ 136.0
Average common shares outstanding............ 221.0 220.3
Reported net income per common share......... $ 1.47 $ .62
Net Income Per Common Share-Assuming Full Dilution
Net income available to Common Shareholders
(As Above)................................. $ 323.9 $ 136.0
Add: Series C ESOP Preferred Stock Dividend,
net of tax benefit......................... 2.3 2.4
Deduct: Add'l. ESOP Costs, net of tax benefit (1.1) (1.4)
Adjusted Net Income available to common share-
holders.................................... $ 325.1 $ 137.0
Average common shares outstanding............ 221.0 220.3
Add: Conversion of Series C ESOP Preferred
Stock.................................. 3.3 3.3
Net additional common shares upon
exercise of stock options.............. 1.9 1.7
Adjusted average common shares outstanding... 226.2 225.3
Net income per common share -
assuming full dilution..................... $ 1.44 $ .61
</TABLE>
Exhibit 23 Consent of Coopers & Lybrand filed herewith.
Exhibit 27 Financial Data Schedule filed herewith.
Item 6 (b). Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
covered by this report.<PAGE>
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PAGE 11
SIGNATURE
SIGNATURES
Pursuant to the requirements 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.
THE GILLETTE COMPANY
(Registrant)
THOMAS F. SKELLY
Thomas F. Skelly
Senior Vice President and
Chief Financial Officer
August 3, 1994
ANTHONY S. LUCAS
Anthony S. Lucas
Vice President, Controller and
Principal Accounting Officer
August 3, l994
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Stockholders and Board of Directors
of The Gillette Company
We consent to the incorporation in the Quarterly Report of The
Gillette Company to the Securities and Exchange Commission for the
period ended 30 June 1994 on Form 10-Q, and to the incorporation in
the registration statement of The Gillette Company, relating to the
registration of 3,317,440 shares of the Common Stock of The Gillette
Company in connection with its Employee Stock Ownership Plan, of our
report dated 12 May 1993 on our audit of the consolidated financial
statements of Parker Pen Holdings Limited, as of 28 February 1993,
and for the year ended 28 February 1993.
COOPERS & LYBRAND
Coopers & Lybrand
Maidstone, England
3 August 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The data reported in this exhibit are based on unaudited statements but
include all adjustments which the company considers necessary for a fair
presentation of results for this period.
</LEGEND>
<CIK> 0000041499
<NAME> THE GILLETTE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<CASH> 104,400
<SECURITIES> 2,300
<RECEIVABLES> 1,092,600
<ALLOWANCES> 39,900
<INVENTORY> 1,014,200
<CURRENT-ASSETS> 2,564,700
<PP&E> 2,674,800
<DEPRECIATION> 1,415,300
<TOTAL-ASSETS> 5,147,000
<CURRENT-LIABILITIES> 1,488,200
<BONDS> 828,400
<COMMON> 278,800
0
98,800
<OTHER-SE> 1,384,200
<TOTAL-LIABILITY-AND-EQUITY> 5,147,000
<SALES> 2,767,600
<TOTAL-REVENUES> 2,767,600
<CGS> 999,000
<TOTAL-COSTS> 999,000
<OTHER-EXPENSES> 1,178,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,300
<INCOME-PRETAX> 515,800
<INCOME-TAX> 189,600
<INCOME-CONTINUING> 326,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326,200
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.44
</TABLE>
