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, 1996 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, 1996 . . . . . . . . . . . . . . . . 445,473,548
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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
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales........................................ $1,745.7 $1,601.0 $3,422.6 $3,137.0
Cost of Sales.................................... 629.3 574.8 1,241.6 1,142.3
Gross Profit................................. 1,116.4 1,026.2 2,181.0 1,994.7
Selling, General and Administrative expenses..... 747.0 704.3 1,437.0 1,343.7
Profit from operations....................... 369.4 321.9 744.0 651.0
Non-operating Charges (Income):
Interest income................................ (1.9) (3.1) (3.8) (4.7)
Interest expense............................... 13.2 14.2 27.5 27.4
Exchange....................................... 2.7 4.9 5.8 7.0
Other charges - net............................ 2.0 1.9 .5 8.4
16.0 17.9 30.0 38.1
Income before Income Taxes .................. 353.4 304.0 714.0 612.9
Income Taxes..................................... 128.1 110.9 258.8 223.7
Net Income................................... 225.3 193.1 455.2 389.2
Preferred Stock dividends, net of tax benefit.... 1.1 1.1 2.3 2.3
Net Income Available to Common Stockholders...... $ 224.2 $ 192.0 $ 452.9 $ 386.9
Net Income per Common Share...................... $ .51 $ .43 $ 1.02 $ .87
Dividends declared per common share.............. .18 .15 .18 .15
Average number of common shares outstanding
(thousands) 445,147 443,278 444,915 443,151
<FN>
See Accompanying Notes to Consolidated Financial Statements.
/TABLE
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<TABLE>
PAGE 2
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Millions of dollars)
(Unaudited)
<CAPTION>
June 30 December 31
1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 55.1 $ 47.9
Short-term investments, at cost, which
approximates market value................. 1.9 1.6
Receivables, less allowances of $47.0
($59.2 at 12/31/95)...................... 1,467.4 1,659.5
Inventories:
Raw materials and supplies............... 247.9 231.8
Work in process.......................... 122.9 127.3
Finished goods........................... 822.4 676.0
Total Inventories...................... 1,193.2 1,035.1
Deferred Income Taxes........................ 191.3 220.2
Prepaid expenses............................. 145.8 140.2
Total Current Assets................... 3,054.7 3,104.5
Property, Plant and Equipment, at cost........... 3,332.0 3,261.5
Less accumulated depreciation............ 1,658.5 1,624.6
Net Property, Plant and Equipment...... 1,673.5 1,636.9
Intangible Assets, less accumulated amortization 1,216.6 1,221.4
Other Assets..................................... 457.2 377.5
$6,402.0 $6,340.3
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
PAGE 3
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(Millions of dollars)
(Unaudited)
<CAPTION>
June 30 December 31
1996 1995
<S> <C> <C>
Current Liabilities:
Loans payable................................ $ 569.1 $ 576.2
Current portion of long-term debt............ 19.6 26.5
Accounts payable............................. 311.8 400.3
Accrued liabilities.......................... 605.1 806.3
Dividends payable............................ - 66.7
Income taxes................................. 300.9 248.0
Total Current Liabilities................. 1,806.5 2,124.0
Long-Term Debt................................... 683.0 691.1
Deferred Income Taxes............................ 61.8 72.7
Other Long-Term Liabilities...................... 950.3 919.2
Minority Interest................................ 23.2 20.0
Stockholders' Equity:
8.0% Cumulative Series C ESOP Convertible
Preferred, without par value, issued: 1996,
159,470 shares; 1995, 160,701 shares....... 96.1 96.9
Unearned ESOP Compensation................... (29.8) (34.3)
Common stock, par value $1.00 per share:
Authorized 1,160,000,000 shares
Issued: 1996, 560,874,056 shares;
1995, 559,718,438 shares........... 560.9 559.7
Additional paid-in capital................... 45.3 31.1
Earnings reinvested in the business.......... 3,755.5 3,382.7
Cumulative foreign currency
translation adjustments.................... (495.0) (477.0)
Treasury stock, at cost:
1996, 115,400,508 shares;l995, 115,254,353 shares (1,055.8) (1,045.8)
Total Stockholders' Equity............... 2,877.2 2,513.3
$6,402.0 $6,340.3
<FN>
See Accompanying Notes to Consolidated Financial Statements
/TABLE
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<TABLE>
PAGE 4
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
1996 1995
<S> <C> <C>
Operating Activities
Net income $ 455.2 $ 389.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 138.9 112.9
Other (11.6) .7
Changes in assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable 167.2 119.4
Inventories (180.2) (130.8)
Accounts payable and accrued liabilities (269.1) (230.3)
Other working capital items 62.4 50.4
Other non-current assets and liabilities (10.8) 27.0
Net cash provided by operating activities 352.0 338.5
Investing Activities
Additions to property, plant & equipment (201.4) (147.1)
Disposals of property, plant & equipment 28.9 13.0
Acquisition of businesses, less cash acquired (17.4) (16.4)
Other (2.2) (1.4)
Net cash used in investing activities (192.1) (151.9)
Financing Activities
Purchase of treasury stock (10.5) -
Proceeds from exercise of stock option and
purchase plans 15.8 6.4
Decrease in long-term debt (9.0) (9.2)
Increase (decrease) in loans payable 3.7 (42.5)
Dividends paid (149.1) (124.2)
Net cash used in financing activities (149.1) (169.5)
Effect of Exchange Rate Changes on Cash (3.6) 1.0
Increase in Cash and Cash Equivalents 7.2 18.1
Cash and Cash Equivalents at Beginning of Year 47.9 43.8
Cash and Cash Equivalents at End of Quarter $ 55.1 $ 61.9
Supplemental disclosure of cash paid for:
Interest $ 29.1 $ 28.2
Income taxes $ 160.5 $ 118.6
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 17.4 $ 16.4
Cash paid 17.4 16.4
Liabilities assumed $ - $ -
<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 1995 annual report to stockholders,
which contains, at pages 28 through 40, financial statements and the notes
thereto, which is incorporated by reference in the registrant's annual report
on Form 10-K for the year ended December 31, 1995.
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.
Realignment Plan
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. Through
June 30, 1996, $68.4 million has been charged against the original
reserve of $72.0 million.
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.
Through June 30, 1996, $184.8 million has been charged against the
original reserve of $190.6 million.
Through June 30, 1996, 2,316 positions were eliminated. All realignment
projects have been implemented, and activities are ongoing in 1996.
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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 1996 versus 1995
Sales for the quarter ended June 30, 1996, were $1.75 billion, a 9% increase
over the same quarter of the prior year. This gain was due directly to a 9%
increase from volume and new products. Profit from operations was $369.4
million, up 15% from $321.9 million reported in the second quarter of 1995.
Net income of $225.3 million increased 17%, compared with $193.1 million a
year earlier. Net income per common share of $.51 gained 19% over the $.43
reported a year earlier. Sales of domestic operations increased
substantially over those of the prior year. Sales in foreign operations
were higher, as sharp increases in AMEE markets, which include Africa,
Middle East, Eastern Europe and India, combined with higher sales in Latin
America were partially offset by the sluggish economic environments of some
key European markets and Japan.
Led by substantial growth in the United States and AMEE markets, sales of
the Company's blade and razor products were well above those of the prior
year, and profits were sharply higher. These increases reflect the
continued growth of the Gillette Sensor franchise, including SensorExcel and
SensorExcel for Women, as well as the CustomPlus disposable razor.
Sales of Braun products were considerably higher than those of the prior
year, particularly in the United States. U.S. sales reflect the inclusion
of the electronic infrared ear thermometers from the acquisition of
Thermoscan Inc.in November, 1995. Excluding Thermoscan, sales were
relatively unchanged, as the ongoing favorable response to new products was
impacted by difficult economic environments in Japan, Germany and Italy.
Profits were well above those of the prior year, due primarily to increases
in the United States.
Toiletries and cosmetics sales were notably higher and profits were sharply
above those of the prior year due to growth in most major markets. These
increases reflect the continuing expansion of the Gillette Series male
grooming line, the growth of clear gel deodorant/antiperspirant products,
the success of Satin Care female shaving gel and new products, resulting in
growth for all major markets. While showing improvement over the prior
year, Jafra sales continue to be adversely affected by economic conditions
in Mexico.
Sales of stationery products matched those of the prior year, as increases
in the United States, Asia-Pacific and AMEE were somewhat offset by
shortfalls in Europe and Latin America. Profits were significantly higher,
due to lower product costs and savings associated with the integration of
Parker.
Oral-B sales in the second quarter rose substantially over those of 1995,
due to increases in the United States, Latin America and other major
markets. This is attributable to the success of new products combined with
the favorable impact of the PRO oral care business, which was acquired in
the third quarter of 1995. Profits rose sharply, due to sales of higher
margined new products and lower operating expenses.
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PAGE 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months 1996 versus 1995
Sales for the six months ended June 30, 1996, were $3.42 billion, a 9%
increase over the $3.14 billion reported in the same period of the prior
year. This gain reflected an 8% increase from volume and new products and a
1% favorable net effect of higher selling prices, partially offset by
unfavorable exchange. Domestic sales increased substantially. Sales from
foreign operations were moderately higher, paced by significant growth in
AMEE markets, while sales in Europe and Latin America were virtually
unchanged.
Sales of the Company's blade and razor products were well above those of
1995, due to sharp increases in the United States and AMEE markets, which
more than offset lower sales in Latin America. These increases reflect the
continued growth of the Gillette Sensor franchise and geographic expansion.
Profits were substantially higher.
Sales of Braun products were well above those of the prior year due
primarily to increases in the United States. Sales in 1996 include
electronic infrared ear thermometers. Sales in foreign markets were
slightly higher, although impacted by difficult economic conditions in
Germany, Italy and Japan. Profits were considerably higher, benefiting from
sales of products with higher profit margins.
Toiletries and cosmetic sales were considerably higher than those in 1995.
The increase was due to the continuing expansion of the Gillette Series male
grooming line, the continuing growth of clear gel deodorant/antiperspirant
products and Satin Care female shaving gel, and favorable responses to new
products like White Rain Body Wash. Although starting to show improvement,
Jafra sales continue to be negatively impacted by economic conditions in
Mexico. Segment profits were virtually unchanged from those of the prior
year, due to higher promotional spending for new products and the impact of
Jafra Mexico.
Sales of stationery products rose slightly, as increases in the United
States and AMEE offset declines in Europe and Latin America. Profits were
considerably higher.
Oral-B sales were significantly higher than those of the prior year. This
gain was paced by the success of new products in most major markets and the
favorable effect of the PRO oral care business. Profits were substantially
higher, due to increases in the United States, which offset declines in
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 1996 38% 19% 12% 24% 7%
Six Months 1995 38% 18% 13% 24% 7%
Gross profit was $2,181.0 million, an increase of $186.3 million, or 9%,
from 1995. The gross profit percentage of sales was 63.7%, compared with
63.6% for the same period in 1995.
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PAGE 8
Selling, general and administrative expenses increased by $93.3 million, or
7%. Combined advertising and sales promotion expenses were the primary
contributors to this change, increasing 11% over those of the prior year.
Spending on research and development increased 15%, while other expenses
increased 3%.
Profit from operations was $744.0 million, up 14% from $651.0 million a year
earlier. Profit from operations increased significantly in the United
States and was higher in foreign operations.
Net interest expense was slightly higher in the six months, while net
exchange losses and the effective tax rate were lower.
Net income of $455.2 million increased 17%, compared with $389.2 million in
1995. Net income per common share of $1.02 increased 17% over the $.87
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 were well above and for the
six months considerably higher, than those of the corresponding periods of a
year ago. Operating profits in the quarter and for the six months were
considerably above those of last year.
The International Group's sales for the quarter and for the six months were
well above those of last year. Profits in the quarter were well above and
for the six months were significantly higher than those of last year.
Sales of the Diversified Group in the quarter and for the six months were
notably higher than those of the prior year. Profits were substantially
higher in both periods.
Financial Condition
Net cash provided by operating activities for the six months ended
June 30, 1996, amounted to $352 million, compared with $339 million in the
same period last year.
Net debt (total debt, net of associated swaps, less cash and short-term
investments) at June 30, 1996, amounted to $1.23 billion, compared with $1.28
billion at year-end 1995. The Company's current ratio at June 30, 1996, was
1.69, compared with 1.46 at December 31, 1995.
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PAGE 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject, from time to time, 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.
Item 5. Other Information
Reference is made to the section titled "Cautionary Statement" under Item 7.
Management's Discussion and analysis of Financial condition and Results of
Operations in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, which is incorporated by reference. <PAGE>
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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
1996 1995
<S> <C> <C>
Net Income Per Common Share-Assuming No Dilution
Net income as reported....................... $ 455.2 $ 389.2
Less: Preferred Stock Dividends, net of tax
benefit............................... (2.3) (2.3)
Net Income available to Common Shareholders.. $ 452.9 $ 386.9
Average common shares outstanding............ 444.9 443.2
Reported net income per common share......... $ 1.02 $ .87
Net Income Per Common Share-Assuming Full Dilution
Net Income available to Common Shareholders
(As Above)................................. $ 452.9 $ 386.9
Add: Series C ESOP Preferred Stock Dividend,
net of tax benefit......................... 2.3 2.3
Deduct: Add'l. ESOP Costs, net of tax benefit (.5) (.8)
Adjusted Net Income available to Common Share-
holders.................................... $ 454.7 $ 388.4
Average common shares outstanding............ 444.9 443.2
Add: Conversion of Series C ESOP Preferred
Stock.................................. 6.4 6.5
Net additional common shares upon
exercise of stock options.............. 6.1 5.0
Adjusted average common shares outstanding... 457.4 454.7
Net Income per Common Share -
assuming full dilution..................... $ .99 $ .85
</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
August 1, 1996
CHARLES W. CRAMB
Charles W. Cramb
Vice President, Controller and
Principal Accounting Officer
August 1, 1996
<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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 55,100
<SECURITIES> 1,900
<RECEIVABLES> 1,514,400
<ALLOWANCES> 47,000
<INVENTORY> 1,193,200
<CURRENT-ASSETS> 3,054,700
<PP&E> 3,332,000
<DEPRECIATION> 1,658,500
<TOTAL-ASSETS> 6,423,300
<CURRENT-LIABILITIES> 1,838,700
<BONDS> 683,000
<COMMON> 560,900
0
96,100
<OTHER-SE> 2,220,200
<TOTAL-LIABILITY-AND-EQUITY> 6,423,300
<SALES> 3,422,600
<TOTAL-REVENUES> 3,422,600
<CGS> 1,241,600
<TOTAL-COSTS> 1,241,600
<OTHER-EXPENSES> 1,437,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,500
<INCOME-PRETAX> 714,000
<INCOME-TAX> 258,800
<INCOME-CONTINUING> 455,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 455,200
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 0.99
</TABLE>
