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, 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 September 30, 1996 . . . . . . . . . . . . . . . 445,983,335
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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
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales........................................ $1,803.3 $1,669.8 $5,225.9 $4,806.8
Cost of Sales.................................... 648.4 612.5 1,890.0 1,754.8
Gross Profit................................. 1,154.9 1,057.3 3,335.9 3,052.0
Selling, General and Administrative expenses..... 760.2 719.2 2,197.2 2,062.9
Profit from operations....................... 394.7 338.1 1,138.7 989.1
Non-operating Charges (Income):
Interest income................................ (1.8) (2.6) (5.6) (7.3)
Interest expense............................... 14.3 15.3 41.8 42.7
Exchange....................................... 3.2 5.9 9.0 12.9
Other charges - net............................ .1 1.0 .6 9.4
15.8 19.6 45.8 57.7
Income before Income Taxes .................. 378.9 318.5 1,092.9 931.4
Income Taxes..................................... 137.4 116.3 396.2 340.0
Net Income................................... 241.5 202.2 696.7 591.4
Preferred Stock dividends, net of tax benefit.... 1.2 1.2 3.5 3.5
Net Income Available to Common Stockholders...... $ 240.3 $ 201.0 $ 693.2 $ 587.9
Net Income per Common Share...................... $ .54 $ .46 $ 1.56 $ 1.33
Dividends declared per common share.............. .18 .15 .36 .30
Average number of common shares outstanding
(thousands) 445,718 443,577 445,181 443,294
<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)
<CAPTION>
September 30 December 31
1996 1995
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 63.7 $ 47.9
Short-term investments, at cost, which
approximates market value................. 4.4 1.6
Receivables, less allowances of $41.0
($59.2 at 12/31/95)...................... 1,539.1 1,659.5
Inventories:
Raw materials and supplies............... 240.2 231.8
Work in process.......................... 131.4 127.3
Finished goods........................... 874.2 676.0
Total Inventories...................... 1,245.8 1,035.1
Deferred Income Taxes........................ 205.0 220.2
Prepaid expenses............................. 147.3 140.2
Total Current Assets................... 3,205.3 3,104.5
Property, Plant and Equipment, at cost........... 3,461.1 3,261.5
Less accumulated depreciation............ 1,686.6 1,624.6
Net Property, Plant and Equipment...... 1,774.5 1,636.9
Intangible Assets, less accumulated amortization 1,216.6 1,221.4
Other Assets..................................... 445.0 377.5
$6,641.4 $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)
<CAPTION>
September 30 December 31
1996 1995
(Unaudited)
<S> <C> <C>
Current Liabilities:
Loans payable................................ $ 587.6 $ 576.2
Current portion of long-term debt............ 17.0 26.5
Accounts payable............................. 308.5 400.3
Accrued liabilities.......................... 670.7 806.3
Dividends payable............................ - 66.7
Income taxes................................. 318.4 248.0
Total Current Liabilities................. 1,902.2 2,124.0
Long-Term Debt................................... 681.8 691.1
Deferred Income Taxes............................ 52.3 72.7
Other Long-Term Liabilities...................... 935.8 919.2
Minority Interest................................ 27.4 20.0
Stockholders' Equity:
8.0% Cumulative Series C ESOP Convertible
Preferred, without par value, issued: 1996,
158,900 shares; 1995, 160,701 shares....... 95.8 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, 561,376,027 shares;
1995, 559,718,438 shares........... 561.4 559.7
Additional paid-in capital................... 54.3 31.1
Earnings reinvested in the business.......... 3,915.6 3,382.7
Cumulative foreign currency
translation adjustments.................... (498.8) (477.0)
Treasury stock, at cost:
1996, 115,392,692 shares;l995, 115,254,353 shares (1,056.6) (1,045.8)
Total Stockholders' Equity............... 3,041.9 2,513.3
$6,641.4 $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>
Nine Months Ended
September 30
1996 1995
<S> <C> <C>
Operating Activities
Net income $ 696.7 $ 591.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 210.1 173.8
Other (11.9) (2.2)
Changes in assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable 91.0 107.8
Inventories (238.4) (226.4)
Accounts payable and accrued liabilities (205.8) (100.1)
Other working capital items 59.5 14.4
Other non-current assets and liabilities (10.9) 14.6
Net cash provided by operating activities 590.3 573.3
Investing Activities
Additions to property, plant & equipment (367.9) (251.6)
Disposals of property, plant & equipment 34.3 18.2
Acquisition of businesses, less cash acquired (20.5) (149.8)
Other (9.5) 3.9
Net cash used in investing activities (363.6) (379.3)
Financing Activities
Purchase of treasury stock (11.4) -
Proceeds from exercise of stock option and
purchase plans 24.0 11.5
Decrease in long-term debt (163.3) (14.2)
Increase in loans payable 177.0 24.4
Dividends paid (230.5) (191.9)
Net cash used in financing activities (204.2) (170.2)
Effect of Exchange Rate Changes on Cash (6.7) (.3)
Increase in Cash and Cash Equivalents 15.8 23.5
Cash and Cash Equivalents at Beginning of Year 47.9 43.8
Cash and Cash Equivalents at End of Quarter $ 63.7 $ 67.3
Supplemental disclosure of cash paid for:
Interest $ 43.3 $ 46.8
Income taxes $ 231.2 $ 175.6
Non-cash investing and financing activities:
Acquisition of businesses:
Fair value of assets acquired $ 24.0 $ 154.8
Cash paid 20.5 150.0
Liabilities assumed $ 3.5 $ 4.8
<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 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 associated with the closure and disposal
of manufactuing facilities and related work force reductions. As of
September 30, 1996, realignment activities were virtually completed, and the
reserve has been fully utilized against realignment activities.
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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 1996 versus 1995
Sales for the quarter ended September 30, 1996, were $1.80 billion, an
increase of 8% over the same quarter of the prior year. This growth was due
to a 9% increase from volume and new products and a 1% decrease from the
combined effect of unfavorable exchange rates partly offset by higher selling
prices. Profit from operations was $394.7 million, up 17% from $338.1
million reported in 1995. Net income of $241.5 million increased 19%,
compared with $202.2 million reported in the third quarter of 1995. Net
income per common share of $.54 rose 17% over the $.46 reported a year
earlier.
Sales of domestic operations increased significantly over those of the prior
year. Sales in foreign operations increased modestly, as strong growth in
AMEE markets, which include Africa, Middle East, Eastern Europe and India,
combined with higher sales in Latin America, were partially offset by the
continued sluggish economic environment of key European markets and Japan.
Sales of blade and razor products were well above those of the prior year,
and profits were considerably higher, paced by sharp increases in the United
States and AMEE markets. These increases reflect the continued growth and
expansion of the Gillette Sensor franchise, including Sensor Excel and Sensor
Excel for Women, along with the Custom Plus disposable razor.
Braun product sales were modestly higher than those of 1995 due to
significant increases in the United States. U.S. sales include those of the
electronic infrared ear thermometers from the acquisition of Thermoscan,
Inc., in November, 1995. Without Thermoscan, sales were virtually unchanged
from a year ago as the continued favorable response to new products was
adversely impacted by the economic environments in the key markets of Japan,
Germany and Italy. Profits were notably higher than those of the prior year
due to sales of products with higher profit margins and lower operating
expenses.
Sales of toiletries and cosmetics products were considerably higher and
profits were significantly higher than those of last year due to growth in
most major markets. The continuing expansion of the Gillette Series male
grooming line, the success of Satin Care female shaving gel, the growth of
clear gel deodorant/antiperspirant products, and new products all contributed
to this increase. Jafra sales continued to improve over the prior year in
Mexico, where economic conditions are showing signs of stabilizing.
Stationery products sales were well above those of the prior year, as
increases in the United States and AMEE markets were partially offset by
shortfalls in Europe and Latin America. Profits were sharply higher, due to
lower product costs and operating expenses.
Sales and profits of Oral-B products were significantly higher than those of
1995, due to increases in the United States, Latin America and other major
markets. The success of new products, plus the favorable impact of the PRO
oral care business that was acquired in the third quarter of 1995, and lower
operating expenses contributed to these gains.
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PAGE 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months 1996 versus 1995
Sales for the nine months ended September 30, 1996, were $5.23 billion, an
increase of 9% over the $4.81 billion reported in 1995. This gain is
attributable to the increase from volume and new products as the effect of
pricing offset unfavorable exchange. Sales in the United States were sharply
higher. Sales in foreign operations were somewhat higher, paced by
substantial growth in AMEE markets, while sales changed little in Europe and
increased slightly in Latin America.
Sales of blade and razor products were well above those for the prior year
due to substantial increases in the United States and AMEE markets. This
gain is attributable to the continued growth of the Gillette Sensor franchise
and geographic expansion. Profits were significantly higher.
Braun product sales exceeded those of the prior year, due primarily to
significant increases in the United States. Sales in 1996 include electronic
infrared ear thermometers. Sales in foreign markets were level with those of
the prior year due to the continued unfavorable impact of economic conditions
in Germany, Italy and Japan. Profits were notably higher, due primarily to
sales of products with higher profit margins.
Sales of toiletries and cosmetic products were appreciably higher than those
of the prior year reflecting gains in all geographic areas. The gain was due
to the continuing expansion of the Gillette Series male grooming line, the
growth of clear gel deodorant/antiperspirant products and Satin Care female
shaving gel. Jafra sales in Mexico matched those of the prior year as
economic conditions have stablilized. Segment profits were sharply higher
due to increases in the United States and AMEE markets.
Sales of stationery products grew modestly, as increases in the United States
more than offset declines in Europe and Latin America. Profits were
considerably higher as sales of products with higher product margins and
lower operating expenses offset higher promotional spending.
Sales of Oral-B products were substantially higher than those of 1995 due to
significant increases in major geographic locations except Europe, which was
virtually unchanged. This gain was attributable to the success of new
products and the favorable impact of the PRO oral care business acquired in
1995. Profits were sharply higher, due primarily to increases in the United
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
Nine Months 1996 39% 19% 12% 23% 7%
Nine Months 1995 39% 19% 13% 23% 6%
Gross profit was $3,335.9 million, an increase of $283.9 million, or 9%,
from 1995. The gross profit percentage of sales was 63.8%, compared with
63.5% for the same period in 1995.
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PAGE 8
Selling, general and administrative expenses increased by $134.3 million, or
7%. Combined advertising and sales promotion expenses were the primary
contributors to this change, increasing 10% over those of the prior year.
Spending on research and development increased 14%, while other expenses
increased 3%.
Profit from operations was $1,138.7 million, up 15% from $989.1 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 nine months, while net
exchange losses and the effective tax rate were lower.
Net income of $696.7 million increased 18%, compared with $591.4 million in
1995. Net income per common share of $1.56 increased 17% over the $1.33
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
nine months considerably higher, than those of the corresponding periods of a
year ago. Operating profits in the quarter and for the nine months were
significantly above those of last year.
The International Group's sales for the quarter were considerably above and
for the nine months were well above those of last year. Profits in the
quarter were slightly above and for the nine months were considerably higher
than those of last year.
Sales of the Diversified Group in the quarter and for the nine months were
well above those of the prior year. Profits were substantially higher in
both periods.
Financial Condition
Net cash provided by operating activities for the nine months ended
September 30, 1996, amounted to $590 million, compared with $573 million in
the same period last year.
Net debt (total debt, net of associated swaps, less cash and short-term
investments) at September 30, 1996, amounted to $1.23 billion, compared with
$1.28 billion at year-end 1995. The Company's current ratio at September 30,
1996, was 1.69, compared with 1.46 at December 31, 1995.
Proposed Merger with Duracell International Inc.
On September 12, 1996, the Company announced that it had signed an agreement
to merge with Duracell International Inc., subject to the approval of
Gillette and Duracell stockholders and certain customary conditions. Under
terms of this agreement, Gillette will issue .904 share of Gillette common
stock for each share of Duracell common stock or approximately 108 million
primary shares in total. Gillette will assume some 6.7 million Duracell
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PAGE 9
options which will be converted to Gillette stock at the exchange ratio of
.904. The transaction is intended to be a tax-free exchange of shares and
to qualify for pooling accounting treatment. Subject to obtaining approval
by stockholders of both companies and satisfaction of the customary
conditions, the Merger is expected to be effective by year end. Affiliates
of Kohlberg Kravis Roberts & Co. L.P. which own 41.1 million shares of
Duracell representing 34% of its outstanding shares have agreed to vote in
favor of the Merger.
For the fiscal year ended June 30, 1996, Duracell had revenues of $2,290
million and net income of $244.7 million. For additional information
relating to the proposed acquisition of Duracell see the Company's Form 8-K
filed on September 16, 1996, which is incorporated herein by reference.
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
Forward-Looking Statements
Forward-looking statements made or incorporated by reference herein are not
guarantees of future performance and are subject to risks and uncertainties
that could cause actual results to differ materially. The following are
some of the factors that could cause actual results to differ materially
from those in the forward-looking statements: the pattern of sales,
including variations in sales volume within a period, which makes
forward-looking statements about sales and earnings difficult and may result
in variances of actual results from those contained in statements made at
any time prior to the period's close; vigorous competition within Gillette's
product markets, including pricing and promotional, advertising or other
activities in order to preserve or gain market share, the timing of which
cannot be foreseen by Gillette; the reliance on the development of new
products and the inherent risks associated with new product introductions,
including uncertainty of trade and customer acceptance and competitive
reaction; the costs and effects of unanticipated legal and administrative
proceedings; the impact of unusual items resulting from ongoing evaluations
of business strategies, asset valuations and organizational structure; the
fact that, historically, over two-thirds of Gillette's sales have been made
outside the United States, making forward-looking statements more difficult;
and the possibility of one or more of the global markets in which Gillette
competes being impacted by variations in political, economic or other
factors, such as currency exchange rates, inflation rates, recessionary or
expansive trends, tax changes, legal and regulatory changes or other
external factors over which Gillette has no control.
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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
1996 1995
<S> <C> <C>
Net Income Per Common Share-Assuming No Dilution
Net income as reported....................... $ 696.7 $ 591.4
Less: Preferred Stock Dividends, net of tax
benefit............................... (3.5) (3.5)
Net Income available to Common Shareholders.. $ 693.2 $ 587.9
Average common shares outstanding............ 445.2 443.3
Reported net income per common share......... $ 1.56 $ 1.33
Net Income Per Common Share-Assuming Full Dilution
Net Income available to Common Shareholders
(As Above)................................. $ 693.2 $ 587.9
Add: Series C ESOP Preferred Stock Dividend,
net of tax benefit......................... 3.5 3.5
Deduct: Add'l. ESOP Costs, net of tax benefit (.6) (1.2)
Adjusted Net Income available to Common Share-
holders.................................... $ 696.1 $ 590.2
Average common shares outstanding............ 445.2 443.3
Add: Conversion of Series C ESOP Preferred
Stock.................................. 6.4 6.5
Net additional common shares upon
exercise of stock options.............. 7.2 5.6
Adjusted average common shares outstanding... 458.8 455.4
Net Income per Common Share -
assuming full dilution..................... $ 1.52 $ 1.30
</TABLE>
Exhibit 27 Financial Data Schedule filed herewith.
Item 6 (b). Reports on Form 8-K
On September 16, 1996, the Company filed a current report on Form 8-K with
respect to its agreement to merge with Duracell International Inc.<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 30, 1996
CHARLES W. CRAMB
Charles W. Cramb
Vice President, Controller and
Principal Accounting Officer
October 30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 63,700
<SECURITIES> 4,400
<RECEIVABLES> 1,580,100
<ALLOWANCES> 41,000
<INVENTORY> 1,245,800
<CURRENT-ASSETS> 3,205,300
<PP&E> 3,461,100
<DEPRECIATION> 1,686,600
<TOTAL-ASSETS> 6,641,400
<CURRENT-LIABILITIES> 1,902,200
<BONDS> 681,800
<COMMON> 561,400
0
95,800
<OTHER-SE> 2,384,700
<TOTAL-LIABILITY-AND-EQUITY> 6,641,400
<SALES> 5,225,900
<TOTAL-REVENUES> 5,225,900
<CGS> 1,890,000
<TOTAL-COSTS> 1,890,000
<OTHER-EXPENSES> 2,197,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,800
<INCOME-PRETAX> 1,092,900
<INCOME-TAX> 396,200
<INCOME-CONTINUING> 696,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 696,700
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.52
</TABLE>
