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 September 30, 1995 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 September 30, 1995 . . . . . . . . . . . . . . 443,756,661
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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 Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales........................................ $1,669.8 $1,503.4 $4,806.8 $4,271.0
Cost of Sales.................................... 612.5 546.2 1,754.8 1,545.2
Gross Profit................................. 1,057.3 957.2 3,052.0 2,725.8
Selling, General and Administrative expenses..... 719.2 659.5 2,062.9 1,838.0
Profit from operations....................... 338.1 297.7 989.1 887.8
Non-operating Charges (Income):
Interest income................................ (2.6) (5.5) (7.3) (16.7)
Interest expense............................... 15.3 18.0 42.7 45.3
Exchange....................................... 5.9 12.0 12.9 73.5
Other charges - net............................ 1.0 1.0 9.4 (2.3)
19.6 25.5 57.7 99.8
Income before Income Taxes .................. 318.5 272.2 931.4 788.0
Income Taxes..................................... 116.3 100.0 340.0 289.6
Net Income................................... 202.2 172.2 591.4 498.4
Preferred Stock dividends, net of tax benefit.... 1.2 1.2 3.5 3.5
Net Income Available to Common Stockholders...... $ 201.0 $ 171.0 $ 587.9 $ 494.9
Net Income per Common Share...................... $ .46 $ .39 $ 1.33 $ 1.12
Dividends declared per common share.............. $ .15 $ .125 $ .30 $ .25
Average number of common shares outstanding
(thousands) 443,577 442,466 443,294 442,187
<FN>
1994 per share amounts and average number of shares outstanding have been restated to give
effect to the two-for-one stock split effected as a 100% common stock dividend to holders
of record on June 1, 1995.
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>
September 30 December 31
1995 1994
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 67.3 $ 43.8
Short-term investments, at cost, which
approximates market value................. 1.2 2.3
Receivables, less allowances of $46.8
($52.1 at 12/31/94)...................... 1,263.9 1,379.5
Inventories:
Raw materials and supplies............... 224.9 207.3
Work in process.......................... 145.0 95.0
Finished goods........................... 796.0 638.9
Total Inventories...................... 1,165.9 941.2
Deferred Income Taxes........................ 253.6 267.6
Prepaid expenses............................. 110.8 113.0
Total Current Assets................... 2,862.7 2,747.4
Property, Plant and Equipment, at cost........... 3,137.0 2,902.2
Less accumulated depreciation............ 1,626.3 1,491.2
Net Property, Plant and Equipment...... 1,510.7 1,411.0
Intangible Assets, less accumulated amortization 1,017.0 887.4
Deferred Income Taxes............................ 127.5 133.6
Other Assets..................................... 378.5 314.6
$5,896.4 $5,494.0
<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>
September 30 December 31
1995 1994
<S> <C> <C>
Current Liabilities:
Loans payable................................ $ 540.7 $ 344.4
Current portion of long-term debt............ 28.0 28.1
Accounts payable............................. 301.5 334.6
Accrued liabilities.......................... 723.3 788.2
Dividends payable............................ - 55.4
Deferred Income Taxes........................ 33.6 47.0
Income taxes................................. 173.6 185.5
Total Current Liabilities................. 1,800.7 1,783.2
Long-Term Debt................................... 549.8 715.1
Deferred Income Taxes............................ 197.6 186.7
Other Long-Term Liabilities...................... 914.9 774.3
Minority Interest................................ 18.5 17.4
Stockholders' Equity:
8.0% Cumulative Series C ESOP Convertible
Preferred, without par value, issued: 1995,
161,792 shares; 1994, 162,928 shares....... 97.5 98.2
Unearned ESOP Compensation................... (39.2) (44.2)
Common stock, par value $1.00 per share:
Authorized 1,160,000,000 shares
Issued: 1995, 559,054,624 shares;
1994, 558,242,410 shares........... 559.1 558.2
Additional paid-in capital................... 11.4 (1.4)
Earnings reinvested in the business.......... 3,285.0 2,830.2
Cumulative foreign currency
translation adjustments.................... (452.7) (377.1)
Treasury stock, at cost:
1995, 115,297,963 shares;l994, 115,343,404 shares (1,046.2) (1,046.6)
Total Stockholders' Equity............... 2,414.9 2,017.3
$5,896.4 $5,494.0
<FN>
1994 common stock, treasury stock and additional paid-in capital have been
restated to give effect to the two-for-one stock split effected as a 100%
common stock dividend to holders of record on June 1, 1995.
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>
Nine Months Ended
September 30
1995 1994
<S> <C> <C>
Operating Activities
Net income $ 591.4 $ 498.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 173.8 152.7
Other (2.2) 19.3
Changes in assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable 107.8 109.0
Inventories (226.4) (235.8)
Accounts payable and accrued liabilities (100.1) (77.6)
Other working capital items 14.4 (29.2)
Other non-current assets and liabilities 14.6 16.5
Net cash provided by operating activities 573.3 453.3
Investing Activities
Additions to property, plant & equipment (251.6) (239.8)
Disposals of property, plant & equipment 18.2 16.7
Acquisition of businesses, less cash acquired (149.8) (25.9)
Other 3.9 11.7
Net cash used in investing activities (379.3) (237.3)
Financing Activities
Proceeds from exercise of stock option and
purchase plans 11.5 11.9
Decrease in long-term debt (14.2) (45.0)
Increase in loans payable 24.4 18.7
Dividends paid (191.9) (160.5)
Net cash used in financing activities (170.2) (174.9)
Effect of Exchange Rate Changes on Cash (.3) .4
Increase in Cash and Cash Equivalents 23.5 41.5
Cash and Cash Equivalents at Beginning of Year 43.8 37.1
Cash and Cash Equivalents at End of Quarter $ 67.3 $ 78.6
Supplemental disclosure of cash paid for:
Interest $ 46.8 $ 47.5
Income taxes $ 175.6 $ 186.0
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 154.8 $ 8.1
Cash paid 150.0 25.9
Liabilities assumed $ 4.8 $ (17.8)
<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 1994 annual report to stockholders,
which contains, at pages 28 through 40, 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.
Acquisitions
Through the third quarter, the Company acquired a blade and razor business,
purchased an oral-care business and completed payments on a prior acquisition
for an aggregate amount of $150 million. These acquisitions will be accounted
for by the purchase method of accounting. The results of operations of the new
acquisitions will be included in the consolidated financial statements
beginning in the fourth quarter 1995, and the annual effect will be immaterial.
Realignment Reserve Status
In the fourth quarter of 1993, the Company established a reserve for a
realignment plan resulting in a 1993 fourth quarter charge to profit from
operations of $262.6 million ($164.1 million after taxes, or $.37 per share).
The realignment reserve included costs that are classified into two major
categories as follows:
1. Costs associated with the closure and disposal of major manufacturing
facilities in all business segments, due principally to excess
manufacturing capacity caused by falling global trade barriers.
2. Costs associated with organizational realignment and related work force
reductions to improve the Company's competitive positioning of its
business and adaptation to the continuing trend of more open world trade.
A summary of these realignment costs follows:
Pre-Tax $ Millions
Original Charges Reserve
Realignment Through Balance
Reserve 9/30/95 9/30/95
1. Closure of manufacturing facilities $72.0 $42.2 $29.8
2. Other Realignment Activities
a) Integration of various functions 41.6 31.9 9.7
b) Downsizing of operations 80.2 60.4 19.8
c) Integration of Parker Pen 14.9 10.8 4.1
d) Other asset impairments 53.9 45.7 8.2
Total $262.6 $191.0 $ 71.6
Through September 30, 1995, 1,956 positions were eliminated. The
realignment program continues to be implemented, and realignment
activities are planned to be ongoing into 1996.<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.
Third Quarter 1995 versus 1994
Sales for the quarter ended September 30, 1995, were $1.67 billion, an 11%
increase over the same quarter of the prior year. This gain reflected a 7%
increase from volume and new products and a 4% favorable combined effect of
fluctuations in exchange rates and in selling prices. Profit from
operations was $338.1 million, up 14% from $297.7 million reported in the
third quarter of 1994. Net income of $202.2 million increased 17% compared
with $172.2 million a year earlier. Net income per common share of $.46
gained 18% over the $.39 reported a year earlier. Sales of domestic and
foreign operations were considerably higher than those of the prior year.
Sales of the Company's blade and razor products were notably higher in the
quarter, and profits were well above those of the prior year. These
increases reflect the continued growth of the Gillette Sensor franchise,
including SensorExcel and Sensor for Women Shaving Systems and the Custom
Plus disposable razor, the impact of geographic expansion and the improving
European currencies and economic conditions.
Sales of Braun products increased sharply particularly in Europe and Japan.
The growth of new products, the success of the new Flex Integral shaver in
Japan and European markets and the favorable response to the Braun Oral-B
plaque remover and Braun Silk-epil products contributed to this sales
increase. Profits were significantly higher, due primarily to sales of
products with higher profit margins.
Toiletries and cosmetics sales were considerably higher than those of the
prior year. The expansion of the Gillette Series male grooming line in
Europe, the continuing growth of clear gel deodorant/antiperspirant products
in the United States and Europe and the favorable response to Satin Care in
the United States contributed to the increase. Jafra sales and profits
continue to be adversely affected by economic conditions in Mexico. Total
Segment profits were unchanged as gains in most major markets were offset by
the negative impact of Jafra Mexico.
Sales of stationery products exceeded those of the prior year due
principally to increases in Asia-Pacific and European markets. Profits were
significantly higher due primarily to sales gains and lower product costs.
Oral-B sales in the third quarter were substantially higher than those of
the prior year with gains in international and domestic markets due to the
success of the Advantage Control Grip and Contura toothbrushes. Profits
were significantly higher, primarily in the United States, reflecting the
favorable sales response to new products.
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PAGE 7
Nine Months 1995 versus 1994
Sales for the nine months ended September 30, 1995 were $4.81 billion, a
13% increase over the $4.27 billion reported in the same period of the
prior year. This gain reflected a 9% increase from volume and new
products and a 4% favorable combined effect of fluctuations in exchange
rates and in selling prices. Sales from foreign operations climbed
sharply over those of the prior year, while domestic sales were higher.
Sales of the Company's blade and razor products were significantly
higher than those of the prior year. This increase was attributable to
geographic expansion, the continued growth of the Gillette Sensor,
SensorExcel and Sensor for Women Shaving Systems, the Custom Plus
disposable razor and the improving European currencies and economic
conditions. Profits were considerably higher as domestic and most
international markets offset the unfavorable effect of exchange
fluctuations in Latin America.
Sales of Braun products increased substantially over those of the prior
year particularly in the major markets of Europe and Japan. The growth
of new products, the success of the new Flex Integral shaver and the
favorable response to the Braun Oral-B plaque remover and the
Supervolume hairstyling appliance contributed to this sales increase.
Profits were significantly higher, aided by an emphasis on sales of
products with higher profit margins.
Toiletries and cosmetics sales were well above those of the prior year.
The increase was due to the continuing expansion of the Gillette Series
male grooming line in Europe, the strong growth of clear gel
deodorant/antiperspirant products in the United States and Europe, and
the favorable acceptance of Satin Care female shaving gel. Sales and
profits were unfavorably impacted by the devaluation of the Mexican
Peso. Profits were below those of the prior year, as the impact of
Jafra Mexico continued to offset significant gains in Europe and the
United States.
Sales of stationery products surpassed those of the prior year as gains
in the United States, Europe and Asia-Pacific offset lower sales in
Latin America due to unfavorable currency fluctuations in Brazil and
Mexico. Profits were considerably higher due to the higher sales and
lower product cost.
Oral-B sales increased appreciably over those of the prior year, as the
success of new products contributed to significant gains in
international markets and a modest increase in the United States.
Profits rose moderately as gains in domestic and most international
markets offset declines in Europe.
The approximate percentages of consolidated net sales for each of the
Company's business segments are set forth below.
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PAGE 8
Blades Toiletries
& & Stationery Braun Oral-B
Period Razors Cosmetics Products Products Products
Nine Months 1995 39% 19% 13% 23% 6%
Nine Months 1994 39% 20% 13% 21% 7%
Gross profit was $3,052.0 million, an increase of $326.2 million, or 12%,
from 1994. The gross profit percentage of sales was 63.5%, compared with
63.8% for the same period in 1994. The decrease is attributable to higher
costs in Brazil, reflecting the lower devaluation of its currency. This is
offset in Non-Operating Charges by substantially lower exchange losses.
Selling, general and administrative expenses increased by $224.9 million, or
12%. Combined advertising and sales promotion expenses were the primary
contributors to this change, increasing 15% over those of the prior year.
Spending on research and development increased 10%, while other marketing
and administrative expenses increased 10%.
Profit from operations was $989.1 million, up 11% from $887.8 million a year
earlier. Profit from operations increased significantly in foreign
operations and rose moderately in the United States.
Net exchange losses were substantially lower than those of the prior year,
due to the stablization of the Brazilian currency. The effective tax rate
was lower for the nine-month period, while net interest expense was higher.
Net income of $591.4 million increased 19%, compared with $498.4 million in
1994. Net income per common share of $1.33 increased 19% over the $1.12
reported a year earlier.
* * * * * *
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 and for the nine months were
considerably higher than those of the corresponding periods of a year ago.
Operating profits in the quarter were well above and for the nine months were
significantly above those of last year.
The International Group's sales in the quarter and for the nine months were
sharply above those of last year. Profits in the quarter were considerably
higher than, and for the nine months were well above, those of last year.
Sales of the Diversified Group, which now include results of the Stationery
Group, were notably higher in the quarter and for the nine months were
substantially higher than those of the prior year. Profits for both periods
increased sharply.
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PAGE 9
Financial Condition
Net cash provided by operating activities for the nine months ended
September 30, 1995, amounted to $573 million, compared with $453 million in
the same period last year. The increase in 1995 was the result of higher
net income and lower working capital requirements.
Net debt (total debt, net of associated swaps, less cash and short-term
investments) at September 30, 1995, amounted to $1.09 billion, compared with
$1.04 billion at year-end 1994. The Company's current ratio at September 30,
1995, was 1.59, compared with 1.54 at December 31, 1994.
Inventories rose $225 million, or 24%, over those at year end 1994. This
increase is common in the third quarter in order to meet the anticipated
fourth quarter sales demands.
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,
results of operations, or liquidity 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>
Nine Months Ended September 30
1995 1994
<S> <C> <C>
Net Income Per Common Share-Assuming No Dilution
Net income as reported....................... $ 591.4 $ 498.4
Less: Preferred Stock Dividends, net of tax
benefit............................... (3.5) (3.5)
Net income available to Common Shareholders.. $ 587.9 $ 494.9
Average common shares outstanding............ 443.3 442.2
Reported net income per common share......... $ 1.33 $ 1.12
Net Income Per Common Share-Assuming Full Dilution
Net income available to Common Shareholders
(As Above)................................. $ 587.9 $ 494.9
Add: Series C ESOP Preferred Stock Dividend,
net of tax benefit......................... 3.5 3.5
Deduct: Add'l. ESOP Costs, net of tax benefit (1.2) (1.7)
Adjusted Net Income available to common share-
holders.................................... $ 590.2 $ 496.7
Average common shares outstanding............ 443.3 442.2
Add: Conversion of Series C ESOP Preferred
Stock.................................. 6.5 6.6
Net additional common shares upon
exercise of stock options.............. 5.6 3.8
Adjusted average common shares outstanding... 455.4 452.6
Net income per common share -
assuming full dilution..................... $ 1.30 $ 1.10
1994 per share amounts and average number of shares outstanding have been
restated to give effect to the two-for-one stock split effected as a 100%
common stock dividend to holders of record on June 1, 1995.
</TABLE>
Exhibit 27 Financial Data Schedule filed herewith.
Item 6 (b). Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the period
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
October 31, 1995
CHARLES W. CRAMB
Charles W. Cramb
Vice President, Controller and
Principal Accounting Officer
October 31, l995
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<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 67,300
<SECURITIES> 1,200
<RECEIVABLES> 1,310,700
<ALLOWANCES> 46,800
<INVENTORY> 1,165,900
<CURRENT-ASSETS> 2,862,700
<PP&E> 3,137,000
<DEPRECIATION> 1,626,300
<TOTAL-ASSETS> 5,896,400
<CURRENT-LIABILITIES> 1,800,700
<BONDS> 549,800
<COMMON> 559,100
0
97,500
<OTHER-SE> 1,758,300
<TOTAL-LIABILITY-AND-EQUITY> 5,896,400
<SALES> 4,806,800
<TOTAL-REVENUES> 4,806,800
<CGS> 1,754,800
<TOTAL-COSTS> 1,754,800
<OTHER-EXPENSES> 2,062,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,700
<INCOME-PRETAX> 931,400
<INCOME-TAX> 340,000
<INCOME-CONTINUING> 591,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 591,400
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.30
</TABLE>
