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 March 31, 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 March 31, 1994 . . . . . . . . . . . . . . . . 221,037,224
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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
March 31
1994 1993
<S> <C> <C>
Net Sales........................................ $1,361.1 $1,216.6
Cost of Sales.................................... 498.6 463.5
Gross Profit................................. 862.5 753.1
Selling, General and Administrative expenses..... 565.4 490.7
Profit from operations....................... 297.1 262.4
Nonoperating Charges (Income):
Interest income................................ (5.5) (5.9)
Interest expense............................... 13.4 16.1
Exchange....................................... 31.9 24.2
Other charges - net............................ (2.0) .3
37.8 34.7
Income before Income Taxes and Cumulative
Effect of Accounting Changes............... 259.3 227.7
Income Taxes..................................... 95.3 85.4
Income before Cumulative Effect of
Accounting Changes......................... 164.0 142.3
Cumulative Effect of Accounting Changes.......... - 138.6
Net Income 164.0 3.7
Preferred Stock dividends, net of tax benefit.... 1.2 1.2
Net Income Available to Common Stockholders...... $ 162.8 $ 2.5
Income per common share before cumulative
effect of accounting changes................... $ .74 $ .64
Cumulative effect of accounting changes.......... - .63
Net Income per Common Share...................... $ .74 $ .01
Dividends declared per common share.............. $ . $ .
Average number of common shares outstanding
(thousands) 220,961 220,223
<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>
March 31 December 31
1994 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 88.3 $ 37.1
Short-term investments, at cost which
approximates market value................. 4.2 1.5
Receivables, less allowances of $40.5
($45.9 at 12/31/93)...................... 1,094.5 1,226.9
Inventories:
Raw materials and supplies............... 213.8 209.1
Work in process.......................... 92.5 90.8
Finished goods........................... 601.0 574.7
Total Inventories...................... 907.3 874.6
Prepaid expenses, principally taxes.......... 397.9 387.9
Total Current Assets................... 2,492.2 2,528.0
Property, Plant and Equipment, at cost........... 2,568.3 2,575.9
Less accumulated depreciation............ 1,368.9 1,361.4
Net Property, Plant and Equipment...... 1,199.4 1,214.5
Intangible Assets, less accumulated amortization 912.1 916.9
Other Assets..................................... 402.2 442.9
$5,005.9 $5,102.3
<FN>
See Accompanying Notes to Consolidated Financial Statements
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PAGE 3
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(Millions of dollars)
(Unaudited)
<CAPTION>
March 31 December 31
1994 1993
<S> <C> <C>
Current Liabilities:
Loans payable................................ $ 318.9 $ 395.0
Current portion of long-term debt............ 47.4 46.2
Accounts payable............................. 249.9 268.9
Accrued liabilities.......................... 663.5 807.1
Dividends payable............................ - 46.4
Income taxes................................. 248.3 196.7
Total Current Liabilities................. 1,528.0 1,760.3
Long-Term Debt................................... 836.7 840.1
Deferred Income Taxes............................ 162.1 166.1
Other Long-Term Liabilities...................... 836.8 835.5
Minority Interest................................ 16.6 21.3
Stockholders' Equity:
8.0% Cumulative Series C ESOP Convertible
Preferred, without par value, issued: 1994,
164,140 shares; 1993, 164,243 shares....... 99.0 99.0
Unearned ESOP Compensation................... (53.8) (53.8)
Common stock, par value $1.00 per share:
Authorized 580,000,000 shares
Issued: 1994, 278,733,159 shares;
1993, 278,587,610 shares........... 278.7 278.6
Additional paid-in capital................... 263.4 259.4
Earnings reinvested in the business.......... 2,520.7 2,357.9
Cumulative foreign currency
translation adjustments.................... (435.2) (415.0)
Treasury stock, at cost:
1994, 57,695,935 shares;l993, 57,697,990 shares (1,047.1) (1,047.1)
Total Stockholders' Equity............... 1,625.7 1,479.0
$5,005.9 $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>
Three Months Ended
March 31
1994 1993
<S> <C> <C>
Operating Activities
Net income $ 164.0 $ 3.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes - 138.6
Depreciation and amortization 48.3 53.6
Other 9.5 10.1
Changes in assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable 98.2 145.3
Inventories (57.1) (25.1)
Accounts payable and accrued liabilities (134.2) (137.6)
Other working capital items 39.7 6.8
Other non-current assets and liabilities 42.3 47.4
Net cash provided by operating activities 210.7 242.8
Investing Activities
Additions to property, plant & equipment (55.3) (52.4)
Disposals of property, plant & equipment 4.7 2.9
Acquisition of businesses, less cash acquired (5.2) -
Other 3.3 3.6
Net cash used in investing activities (52.5) (45.9)
Financing Activities
Proceeds from exercise of stock option and
purchase plans 4.3 4.2
Decrease in long-term debt (3.6) (1.8)
Decrease in loans payable (60.6) (43.1)
Dividends paid (47.6) (40.8)
Net cash used in financing activities (107.5) (81.5)
Effect of Exchange Rate Changes on Cash .5 (3.6)
Increase in Cash and Cash Equivalents 51.2 111.8
Cash and Cash Equivalents at Beginning of Year 37.1 35.3
Cash and Cash Equivalents at End of Quarter $ 88.3 $ 147.1
Supplemental disclosure of cash paid for:
Interest $ 10.9 $ 15.3
Income taxes $ 44.5 $ 31.7
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 3.4 $ -
Cash paid 5.2 -
Liabilities assumed $ (1.8) $ -
<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
have been allocated to goodwill pending an independent appraisal of Parker
Pen's net assets acquired. The Company consolidated Parker Pen results of
opertions 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.
Proforma
Three Months ended
March 31
(Millions of dollars, except per share amounts) 1994 1993
Net sales $1,361 $1,298
Before cumulative effect of accounting changes:
Income $ 164 $ 148
Income per common share $ .74 $ .67<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.
Three Months 1994 versus 1993
Sales for the three months ended March 31, 1994, were $1.36 billion, a gain
of 12% from $1.22 billion in 1993. The change was due to an increase from
new products including Parker Pen, 19%, offset by a volume/mix decrease,
(6)%, while the combined effect of fluctuations in exchange rates and changes
in selling prices accounted for (1)%. Without Parker Pen, sales increased
6%. Domestic sales increased 16%, and sales from foreign operations
increased 10%. Excluding the impact of Europe, sales from foreign operations
increased 27%.
Sales and profits of the Company's blade and razor business were considerably
above those of the prior year. The continued growth of the Gillette Sensor
franchise, particularly Sensor for Women in the United States market along
with the successful introduction of the Sensor Excel system in continental
Europe and Canada, were somewhat offset by the negative effect of the
European recession and weaker currencies.
Sales of Braun products declined slightly from the prior year due to the
effect of the continuing European economic recession and weaker currencies.
Considerable sales growth in the United States, principally in the oral care
business, and in Japan, due to improved shaver business, offset weaker sales
in Europe. Profits were virtually unchanged as substantial increases in non
European markets were offset by the negative factors in Europe.
Toiletries and cosmetics sales in the first quarter were higher in all
markets except Europe, which was moderately lower. Increases in
deodorant/antiperspirant products and Jafra contributed to this growth.
Profits rose over the prior period due to the sales increases.
Sales and profits of stationery products were sharply higher than last year's
first quarter, reflecting the inclusion of Parker Pen results. Without
Parker Pen, sales increased moderately and profits remained unchanged despite
substantial shortfalls in Europe.
Oral-B sales in the first quarter rose considerably, primarily in the United
States, while sales in Europe were well below the prior year. Profits were
substantially lower, primarily in Europe, while profits in the United States
increased.
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
Three Months 1994 36% 18% 13% 26% 7%
Three Months 1993 36% 19% 8% 30% 7%
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PAGE 7
Gross profit was $862.5 million, an increase of $109.4 million or 15% from
1993. The gross profit percentage was 63.4%, compared with 61.9% 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 $74.7 million or
15%.
Combined advertising and sales promotion expenses increased 14%. Spending on
research and development increased 5%, while other marketing and
administrative
expenses increased 12%.
Profit from operations was $297.1 million, up 13% from $262.4 million in the
prior year. Without Parker Pen, profit from operations increased 6%. Profit
from operations increased 15% within the United States, and 13% in foreign
operations.
Net interest expense and the effective tax rate were lower in the quarter,
while net exchange losses were significantly higher.
Net income of $164.0 million climbed 15%, compared with $142.3 million,
before
the effects of accounting changes, in the first quarter of 1993. Net income
per common share was 74 cents, an increase of 16%, compared with the prior
year's first quarter. Net income per common share in the first quarter of
1993
was 64 cents, before the effects of accounting changes.
* * *
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 higher than the
corresponding period of a year ago. Operating profits were well above those
of
last year.
The Stationery Group's sales and profits in the quarter 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 compared with last year.
Sales of the Diversified Group in the quarter were unchanged but profits were
slightly above last year.
Financial Condition
Net cash provided by operating activities for the three months ended March
31,
1994, amounted to $211 million, compared with $243 million in the same period
last year. The decrease in 1994 was largely the result of higher working
capital requirements.
Net debt (total debt, net of associated swaps, less cash and short-term
investments) at March 31, 1994, amounted to $1.12 billion, compared with
$1.26
billion at year-end 1993. The Company's current ratio at March 31, 1994, was
1.63, compared with 1.44 at December 31, 1993.<PAGE>
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PAGE 8
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, consider 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.
An order approving the previously reported settlement of the class action
titled In re Gillette Securitites Litigation was entered by the Federal
District Court in Boston on March 30, 1994 and became final on April 29, 1994.
Item 4. Vote of Security Holders
At its Annual Meeting on April 21, 1994, the stockholders of The Gillette
Company took the following actions:
1. Elected the following three directors for terms to expire at the 1997
Annual Meeting of the stockholders, with votes as indicated opposite each
director's name and with no abstentions or broker nonvotes:
For Withheld
Herbert H. Jacobi 190,932,744 1,079,197
Alexander B. Trowbridge 190,644,093 1,367,848
Joseph F. Turley 190,787,675 1,224,266
2. Approved the Outside Directors' Stock Ownership Plan under which payment
of the outside directors' annual Board retainer fee will be made 50% in
cash and 50% in the common stock of the Company instead of 100% in cash.
The vote was 162,350,549 for and 3,045,656 against the proposal, with
1,910,707 abstentions and 24,705,029 broker nonvotes.
3. Approved the amendment of the 1971 Stock Option Plan. The amendment
extends the period for grants under the plan to April 15, 1999, increases
the number of stock options available for grant by 8,000,000, clarifies
the definition of eligible employee, and limits to 100,000 the number of
stock options that can be granted to any participant in a calendar year.
The vote was 157,683,307 for and 7,324,957 against the proposal, with
2,297,128 abstentions and 24,706,549 broker nonvotes.
4. Approved the amendment of the Stock Equivalent Unit Plan. The amendment
extends the period for grants under the plan to April 15, 1999, increases
the number of units available for grant under the plan by 100,000,
clarifies the defintion of eligible employee, and limits to 50,000 the
number of units that can be granted to any participant in a calendar
year.
The vote was 184,230,750 for and 5,904,800 against the proposal, with
1,876,391 abstentions and no broker nonvotes.
5. Approved the appointment by the Board of Directors of KPMG Peat Marwick as
auditors for the year 1994. The vote was 190,523,929 for and 832,502
against the proposal, with 655,510 abstentions and no broker nonvotes.
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PAGE 9
Item 6 (a) Exhibits
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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>
Three Months Ended March 31
1994 1993
<S> <C> <C>
Net Income Per Common Share-Assuming No Dilution
Net income as reported....................... $ 164.0 $ 3.7
Less: Preferred Stock Dividends, net of tax
benefit............................... (1.2) (1.2)
Net income available to Common Shareholders.. $ 162.8 $ 2.5
Average common shares outstanding............ 221.0 220.2
Reported net income per common share......... $ .74 $ .01
Net Income Per Common Share-Assuming Full Dilution
Net income available to Common Shareholders
(As Above)................................. $ 162.8 $ 2.5
Add: Series C ESOP Preferred Stock Dividend,
net of tax benefit......................... 1.2 1.2
Deduct: Add'l. ESOP Costs, net of tax benefit (.6) (.7)
Adjusted Net Income available to common share-
holders.................................... $ 163.4 $ 3.0
Average common shares outstanding............ 221.0 220.2
Add: Conversion of Series C ESOP Preferred
Stock.................................. 3.3 3.3
Net additional common shares upon
exercise of stock options.............. 1.8 1.9
Adjusted average common shares outstanding... 226.1 225.4
Net income per common share -
assuming full dilution..................... $ .72 $ .01
</TABLE>
Exhibit 23 Consent of Coopers & Lybrand filed herewith.
Item 6 (b). Reports on Form 8-K
A report on Form 8-K dated Janudary 10, 1994 was filed by the Company
reporting the Company's estimated record sales, profit from operations and
earnings in the quarter ended December 31, 1993 and a realignment plan to
take advantage of opportunities created by the continuing trend to more
open world trade and the growth of the Company's global operations.<PAGE>
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PAGE 10
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)
ANTHONY S. LUCAS
Anthony S. Lucas
Vice President, Controller and
Principal Accounting Officer
May 2, l994
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
The Stockholders and Board of Directors
of The Gillette Company
We consent to the incorporation in the Quarterly Report to the
Securities and Exchange Commission of The Gillette Company for the
period ending 31 March 1994 on Form 10-Q, 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
29 April 1994
