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, 2000 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, 2000 . . . . . . . . . . . . . . . . 1,043,889,622
<PAGE>
<TABLE>
PAGE 1
PART I. FINANCIAL INFORMATION
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(Millions, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Net Sales .......................................... $ 2,045 $ 1,939
Cost of Sales ...................................... 749 693
------- -------
Gross Profit ................................... 1,296 1,246
Selling, General and Administrative Expenses ....... 857 799
------- -------
Profit from Operations ......................... 439 447
Nonoperating Charges (Income):
Interest income .................................. (1) (2)
Interest expense ................................. 49 28
Exchange ......................................... 8 9
Other charges - net .............................. (3) -
------- -------
53 35
------- -------
Income before Income Taxes ..................... 386 412
Income Taxes ....................................... 128 143
------- -------
Net Income ..................................... $ 258 $ 269
======= =======
Net Income per Common Share
Basic .......................................... $ .24 $ .24
Assuming full dilution ......................... $ .24 $ .24
Dividends per Common Share
Declared ....................................... $ .1625 $ -
Paid ........................................... $ .1475 $ .1275
Weighted average number of common shares outstanding
Basic .......................................... 1,056 1,107
Assuming full dilution ......................... 1,074 1,132
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PAGE 2
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
ASSETS
(Millions)
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .......................... $ 101 $ 80
Trade receivables, less allowances 2000, $51;
1999, $74 1,711 2,433
Other receivables .................................. 306 352
Inventories:
Raw materials and supplies ...................... 223 229
Work in process ................................. 249 192
Finished goods .................................. 1,293 1,200
------- -------
Total Inventories ......................... 1,765 1,621
Deferred income taxes .............................. 294 317
Other current assets ............................... 338 329
------- -------
Total Current Assets ...................... 4,515 5,132
------- -------
Property, Plant and Equipment, at cost ............... 5,972 5,962
Less accumulated depreciation ..................... 2,323 2,295
------- -------
Net Property, Plant and Equipment ............ 3,649 3,667
------- -------
Intangible Assets, less accumulated amortization ..... 2,325 2,358
Other Assets ......................................... 693 629
------- -------
$11,182 $11,786
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PAGE 3
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(Millions, except per share amount)
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Loans payable .................................... $ 1,965 $ 1,440
Current portion of long-term debt ................ 365 358
Accounts payable ................................. 472 513
Accrued liabilities .............................. 1,146 1,488
Dividends payable ................................ 171 157
Income taxes ..................................... 247 224
-------- --------
Total Current Liabilities ..................... 4,366 4,180
-------- --------
Long-Term Debt ..................................... 2,825 2,931
Deferred Income Taxes .............................. 457 423
Other Long-Term Liabilities ........................ 785 795
Minority Interest .................................. 39 38
Contingent Redemption Value of Common Stock
Put Options ...................................... 252 359
Stockholders' Equity:
8.0% Cumulative Series C ESOP Convertible
Preferred, without par value, issued: 2000,
.1 shares; 1999, .1 shares ..................... 84 85
Unearned ESOP compensation ....................... (3) (4)
Common stock, par value $1.00 per share:
Authorized 2,320 shares
Issued: 2000, 1,364 shares; 1999, 1,364 shares . 1,364 1,364
Additional paid-in capital ....................... 869 748
Earnings reinvested in the business .............. 6,233 6,147
Accumulated other comprehensive income ........... (1,074) (1,061)
Treasury stock, at cost: 2000, 320 shares;
l999, 299 shares ....................... (5,015) (4,219)
-------- --------
Total Stockholders' Equity ............... 2,458 3,060
-------- --------
$ 11,182 $ 11,786
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PAGE 4
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions)
(Unaudited)
<CAPTION> Three Months Ended
March 31
-----------------
2000 1999
---- ----
<S> <C> <C>
Operating Activities
Net income .................................... $ 258 $ 269
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 127 121
Other ....................................... 6 1
Changes in assets and liabilities, net of
effects from acquisition and divestitures
of businesses:
Accounts receivable ....................... 720 616
Inventories ............................... (177) (240)
Accounts payable and accrued liabilities .. (345) (175)
Other working capital items ............... (4) (197)
Other noncurrent assets and liabilities ... (39) (87)
----- -----
Net cash provided by operating activities 546 308
----- -----
Investing Activities
Additions to property, plant and equipment .... (211) (173)
Disposals of property, plant and equipment .... 66 54
Other ......................................... (1) 1
----- -----
Net cash used in investing activities .... (146) (118)
----- -----
Financing Activities
Purchase of treasury stock .................... (790) -
Proceeds from sale of put options ............. 9 16
Proceeds from exercise of stock option and
purchase plans ........................... 6 61
Proceeds from long-term debt .................. - 668
Decrease in long-term debt .................... (51) -
Increase (Decrease) in loans payable .......... 526 (809)
Dividends paid ................................ (158) (142)
Other ......................................... 80 13
----- -----
Net cash used in financing
activities ............................. (378) (193)
----- -----
Effect of Exchange Rate Changes on Cash ........... (1) 3
----- -----
Increase in Cash and Cash Equivalents ............. 21 -
Cash and Cash Equivalents at Beginning of Year .... 80 102
----- -----
Cash and Cash Equivalents at End of Quarter ....... $ 101 $ 102
===== =====
Supplemental disclosure of cash paid for:
Interest ...................................... $ 50 $ 30
Income taxes .................................. $ 37 $ 43
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
PAGE 5
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Millions)
(Unaudited)
Three Months Ended
March 31
------------------
2000 1999
---- ----
Net Income $ 258 $ 269
Other Comprehensive Income, net of tax:
Foreign Currency Translation (13) (136)
---- ----
Comprehensive Income $ 245 $ 133
==== ====
Foreign currency translation is after unfavorable tax effects for three months
of $32 million in 2000 and $54 million in 1999.
Accumulated Other Comprehensive Income
- --------------------------------------
The accumulated balances for the components of Other Comprehensive Income are:
<TABLE>
Accumulated
Foreign Other
Currency Pension Comprehensive
Translation Adjustment Income
----------- ---------- -------------
Balance December 31, 1998 $ (826) $ (47) $ (873)
Change in period (136) - (136)
------ ------ ------
Balance March 31, 1999 $ (962) $ (47) $ (1,009)
====== ====== ======
Balance December 31, 1999 $(1,031) $ (30) $ (1,061)
Change in period (13) - (13)
------ ------ ------
Balance March 31, 2000 $(1,044) $ (30) $ (1,074)
====== ====== ======
(/TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
PAGE 6
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Millions, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Net Income, as reported ............. $ 258 $ 269
Less: Preferred stock dividends .... 1 1
------ ------
Net Income, basic ................... $ 257 $ 268
Effect of dilutive securities:
Convertible preferred stock ..... 1 1
------ ------
Net Income, assuming full dilution .. $ 258 $ 269
====== ======
Common shares, basic ................ 1,056 1,107
Effect of dilutive securities:
Convertible preferred stock ..... 11 12
Stock options ................... 7 13
------ ------
Common shares, assuming full dilution 1,074 1,132
====== ======
Net Income per Common Share
Basic ............................. $ .24 $ .24
====== ======
Assuming full dilution ............ $ .24 $ .24
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
PAGE 7
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Comments
- -------------------
Reference is made to the registrant's 1999 Annual Report to stockholders, which
contains, at pages 19 through 34, financial statements and the notes thereto,
which are incorporated by reference in the registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
For interim reporting purposes, advertising expenses are charged to operations
as a percentage of sales, based on estimated sales and related advertising
expense for the full year. On an annual basis, advertising costs are expensed in
the year incurred.
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 necessary for a fair presentation of the results for such interim
periods have been included.
Prior year financial statements have been reclassified to conform to the 2000
presentations.
Accounting Pronouncements
- -------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company will
adopt SFAS 133 no later than January 1, 2001. Its impact on the consolidated
financial statements is still being evaluated, but it is not expected to be
material.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition." An amendment in March 2000 delayed the
effective date until the second quarter of 2000. It will not have a material
impact on the consolidated financial statements.
Advertising
- -----------
The advertising expense detailed below is included in selling, general and
administrative expenses.
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
---- ----
<S> <C> <C>
Net Sales ................ $ 2,045 $ 1,939
Advertising .............. 121 88
% of Net Sales ........ 5.9% 4.5%
</TABLE>
<PAGE>
PAGE 8
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reorganization and Realignment
- ------------------------------
On September 28, 1998, the Company announced a reorganization to realign its
worldwide operations. In connection with the reorganization and realignment, and
in accordance with EITF issue 94-3 and SFAS 121, the Company recorded in the
third quarter of 1998 a charge to operating expenses of $535 million ($347
million after taxes, or $.30 in net income per common share, fully diluted).
There have been no material modifications to the scope of the original plan. The
program was essentially completed during the quarter ended March 31, 2000.
Certain plan costs relating to specific program activities varied from original
estimates. Eligible total program spending, however, remained unchanged from the
initial provision of $535 million. Total program spending of $535 million
includes accruals for cash severance payments that are extending beyond the
completion of program activities, due to the severance payment deferral options
available to terminated employees. Employee-related expenses for severance
payments and other benefits, which were not separately disclosed at the
program's inception, were reclassified in the initial provision.
Details of the reorganization and realignment charges follow. The other benefits
portion of employee-related expenses, shown below, includes fringe benefits,
outplacement fees and special termination benefits related to pensions.
<TABLE>
<CAPTION>
Plan
Activity Current Inception
Initial Through Quarter Through
(Millions) Provision Dec.31,1999 Activity Mar.31,2000
- --------------------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Employee-related expenses
Severance payments $265 $141 $ 68 $209
Other benefits 120 99 35 134
Asset impairments
Prop., plant, & equip. 122 122 26 148
Other assets 13 13 - 13
Distributor buyout costs 15 21 10 31
---- ---- ---- ----
Total $535 $396 $139 $535
==== ==== ==== ====
</TABLE>
Severance payments were below the initial provision as the Company achieved
efficiencies versus the original plan estimates in the actual severance rates
paid to terminated employees. Asset impairment costs for property, plant and
equipment were above the initial provision for two reasons. First, as factories
were closed, there were certain instances where we chose not to redeploy
equipment, as planned, at other facilities; and, second, the number of
warehouses and office facility closures exceeded the original plan. Distributor
buyout costs were also above the initial provision, as the Company achieved the
objectives and scope of the original program, although the effort was more
costly than planned.
In accordance with EITF issue 94-3, certain expenses related to the program,
primarily employee and equipment relocation, were not provided for, nor charged
to, the reorganization and realignment reserve. Those expenses, which are
therefore recognized as incurred, amounted to $61 million for the full year in
1999. In the first quarter of 2000, they were $9 million, compared to no expense
in the first quarter of 1999. The expenses are included in selling, general and
administrative expenses.
<PAGE>
PAGE 9
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share Repurchase Program
- ------------------------
The Company has an ongoing share repurchase program that authorizes the purchase
of up to 125 million shares in the open market or in privately negotiated
transactions, depending on market conditions and other factors. From the
inception of the program through December 31, 1999, the Company repurchased 69
million shares in the open market for $3,173 million. In the first quarter of
2000, the Company repurchased 22 million shares in the open market for $798
million. The Company plans to purchase the remaining authorized shares in the
open market or in privately negotiated transactions, depending on market
conditions and other factors.
In 2000, the Company continued to sell equity put options as an enhancement to
its ongoing share repurchase program and collected $9 million in premiums
through March 31, 2000. These options provide the Company with an additional
opportunity to supplement open-market purchases of its common stock if the
options expire "in the money". In addition, the premiums received are a source
of funding for share purchases. The options are exercisable only on the last day
of their term. The Company, at its discretion, may elect to settle by paying net
cash or by purchasing the shares. To date, the Company has purchased shares upon
settlement and intends to continue this practice.
The option prices are based on the market value of the Company's stock at the
date of issuance. The redemption value of the outstanding options, which
represents the options' price multiplied by the number of shares under option,
is presented in the accompanying consolidated balance sheet as "Contingent
Redemption Value of Common Stock Put Options." All of the outstanding put
options mature in the second quarter.
At March 31, 2000, a portion of the outstanding put options had strike prices
which were greater than the closing price for Gillette common stock on March 31,
2000. Those options were therefore "in the money". Although the options are not
excercisable until a future date, the "in the money" premium at March 31, 2000
was $8 million.
Employee Stock Ownership Plan
- -----------------------------
On April 25, 2000, the trustee for the ESOP trust redeemed the Series C
preferred stock, held by the trust, for common stock. The redemption was made by
the trustee in order to receive the common stock dividend, which now provides a
higher return to holders than the preferred stock dividend. The redemption has
no impact on fully diluted EPS and closes the gap between basic and fully
diluted EPS. The preferred shares had a stated cost of $84 million and were
redeemed for common stock held in the Company's treasury with a cost of $174
million. This impact will be reflected in the second quarter balance sheet.
Total stockholders' equity is unchanged as a result of the redemption.
<PAGE>
PAGE 10
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Information by Business Segment
- -----------------------------------------
Net sales, profit from operations and assets for each of the Company's business
segments are set forth below. There are no material intersegment revenues.
Net Sales
-------------------
Three Months Ended
March 31
-------------------
(Millions) 2000 1999
------ ------
Blades & Razors $ 718 $ 652
Toiletries 230 225
Duracell Products 464 476
Oral-B Products 155 145
Braun Products 340 298
Stationery Products 138 143
------ ------
Total $2,045 $1,939
====== ======
Profit/(Loss) from Operations
-------------------
Three Months Ended
March 31
-------------------
(Millions) 2000 1999
------ ------
Blades & Razors $ 284 $ 266
Toiletries 29 30
Duracell Products 62 92
Oral-B Products 23 23
Braun Products 55 38
Stationery Products (3) 1
------ ------
Subtotal Reportable Segments 450 450
All Other (11) (3)
------ ------
Total $ 439 $ 447
====== ======
<PAGE>
PAGE 11
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Assets
-------------------------------------------
Mar. 31, Dec. 31, Mar. 31, Dec. 31,
(Millions) 2000 1999 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Blades & Razors $ 3,541 $ 3,532 $ 3,347 $ 3,378
Toiletries 652 696 747 771
Duracell Products 3,086 3,310 3,014 3,288
Oral-B Products 658 663 725 680
Braun Products 1,482 1,602 1,574 1,679
Stationery Products 1,114 1,214 1,211 1,330
------- ------- ------- -------
Subtotal Reportable Segments 10,533 11,017 10,618 11,126
All Other 649 769 841 776
------- ------- ------- -------
Total $ 11,182 $11,786 $11,459 $11,902
======= ======= ======= =======
</TABLE>
<PAGE>
PAGE 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Results for any interim period, such as those described in the following
analysis, are not necessarily indicative of results for the entire year.
First Quarter 2000 versus 1999
- ------------------------------
Sales for the quarter ended March 31, 2000, were $2.05 billion, an increase of
5% versus the same quarter of the prior year. Excluding the adverse effects of
exchange, sales climbed 9%, attributable to volume/mix.
Sales in North America were 6% above those of the prior year, driven by sales
increases of 15% for blades and razors and 16% for Braun. Sales in Latin America
were up 19% from 1999, due largely to improving regional economic conditions, as
well as the launch of the Mach3 shaving system and higher prices, in dollar
terms, in Brazil. Sales in Europe were 1% below those of the previous year, as
favorable volume mix in blades and razors together with new Braun products were
more than offset by unfavorable exchange related to the continued weakening of
the Euro. Sales in Europe would have increased 10% without the impact of
unfavorable exchange. Sales in the AMEE region (Africa, Middle East and Eastern
Europe) were up 4%, but would have increased by 10% without the unfavorable
impact of exchange. While the region continued to improve, with Russia showing
strong growth, AMEE's sales performance was negatively affected by our move to
reduce trade receivables in certain key markets. Sales in the Asia-Pacific
region were 8% above those of the prior year, reflecting Braun strength in
Japan.
Sales of blades and razors rose 10%, and profits 7%, due primarily to strong
sales of the Mach3 system in North America, Europe and Latin America. Sales in
North America grew by 15%, aided by initial shipments of the SensorExcel for
Women Fashion line and new elastomer-handle disposable razors. Sales in Latin
America climbed 29%, reflecting the successful launch of the Mach3 system in
Brazil. In Europe, trade destocking activity continued, partially offset by a
50% increase in Mach3 cartridge shipments and initial sell in of the Sensor
Excel for Women Fashion razor. Total blades and razors profit grew at a slower
rate than sales, primarily due to a strong increase in advertising.
Toiletries sales were 2% above those of the prior year, reflecting the
performance of pre- and post-shave products in Europe and the AMEE region.
Profits were $29 million in 2000 and $30 million in 1999.
Sales of Duracell products declined 2%. In North America, sales were 3% above
those of the prior year, however, we believe sales were dampened by the Year
2000 effect in the fourth quarter. Sales in Latin America were 9% above those of
the prior year, reflecting share gains and economic improvement in several
countries. Sales in Europe were 13% below those of the previous year, due
primarily to depreciation of the Euro, as well as overall softness in the
European battery market. Asia-Pacific battery sales were 16% below those of the
prior year, largely as a result of lower overall battery sales in Korea as well
as low-priced alkaline competition in China. Duracell profit from operations was
33% below the previous year due to lower sales, increased marketing support and
lower expenses in 1999 related to harmonization of Duracell employee benefit
programs.
Sales of Oral-B products were 8% above those of 1999, with gains in all major
geographies except the AMEE region. Sales growth of 4% in North America was
driven by the CrossAction toothbrush. In Latin America and the Asia-Pacific
region, all major markets recorded double-digit sales growth, and European sales
would have increased 17% without the 10% unfavorable impact of exchange. Profit
from operations was 2% below that of 1999, due to higher advertising expenses in
connection with the CrossAction toothbrush launch in Europe.
<PAGE>
PAGE 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales of Braun products were 14% above those of the prior year. Sales increases,
aided by broad-based advertising support, were achieved across all geographies.
Sales of the Braun Syncro electric shaver drove growth in Germany and Japan,
while improving economic conditions and increased distribution led to strong
growth in the AMEE region and Latin America. Profit from operations was 46%
above those of 1999, reflecting the sales growth and improved mix.
Sales of stationery products were virtually unchanged versus those of 1999,
after adjusting for 4% unfavorable exchange. Stationery products incurred a loss
from operations of $3 million for the quarter, compared to a profit from
operations of $1 million in the first quarter of 1999.
Costs and Expenses
- ------------------
Gross profit was $1.30 billion, an increase of 4% versus 1999. Gross profit as a
percentage of sales was 63.4%, compared with 64.3% in 1999. The slight decline
in margin was due to unfavorable segment mix, as Braun, a relatively high
product cost business, was our fastest growing segment in the quarter.
Additionally, competitive market prices led to lower sales of Duracell products.
Selling, general and administrative expenses increased by $58 million, or 7%.
Combined advertising and sales promotion expenses grew 8%, with advertising as a
percent of sales increasing by nearly one and a half points to 5.9%. Other
marketing and administrative expenses were 9% above those of the prior year.
Profit from operations was $439 million, down 2%, versus $447 million a year
earlier.
Net interest expense was higher, due to increased borrowings to fund the share
repurchase program. Net exchange losses and the effective tax rate were lower.
Net income of $258 million was 4% below the $269 million in 1999. Basic and
diluted net income per common share of $.24 were both equal to 1999 results.
Trade Inventory Reduction Initiative
- ------------------------------------
During the fourth quarter of 1999, the Company announced a program to reduce
trade inventories, primarily blade inventories in Europe and to a lesser extent
in Latin America, in response to major changes occurring in the retail trade.
The program continued in the first quarter, with blade shipments below consumer
take away in Europe, North America and Latin America. This program will continue
throughout the remainder of the year.
<PAGE>
PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Product Category Review
- -----------------------
The Company continues to carefully review every product category and will look
to prune, divest or discontinue product categories that do not demonstrate the
potential for acceptable rates of growth.
Reorganization and Realignment
- ------------------------------
On September 28, 1998, the Company announced a reorganization and realignment
program that resulted in a third-quarter charge to operations of $535 million
($347 million after taxes, or $.30 in net income per common share, fully
diluted).
The program resulted in the closure of 14 factories, 13 warehouses and 34 office
facilities, as well as a reduction of 4,623 employees across all business
segments, geographies and employee groups. Project activity was essentially
complete at March 31, 2000.
Details of the facility closures and employee reductions follow.
<TABLE>
<CAPTION>
Plan
Current Inception
Initial Quarter Through
Plan Activity March 31, 2000
------- -------- ------------------
<S> <C> <C> <C>
Facility Closures
Factories 14 3 14
Warehouses 12 2 13
Office Facilities 30 5 34
Employee reductions 4,700 1,173 4,623
At March 31, 2000, the carrying value of assets held for sale was $15 million.
Pretax cash outlays were $16 million in 1998, $197 million in 1999 and are
estimated to be $113 million in 2000. Cash severance payments will extend beyond
the completion of program activities, due to the severance payment deferral
options available to terminated employees. In 2000, cash benefits generated from
the program are expected to be in line with original estimates.
Additional reorganization and realignment details are provided in the Notes to
Consolidated Financial Statements.
</TABLE>
<PAGE>
PAGE 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Net cash provided by operating activities for the three months ended March 31,
2000, amounted to $546 million, compared with $308 million in the same period
last year. A significant portion of this change was due to movement in both
accounts receivable and inventories that compared favorably with that of 1999,
reflecting the efforts of our working capital action plan. Other working capital
items compared favorably to 1999 due to the timing of tax payments in 1999.
Net debt (loans payable, current portion of long-term debt and long-term debt,
net of associated swaps, less cash and cash equivalents) at March 31, 2000,
amounted to $4.96 billion, compared with $4.53 billion at year-end 1999. The
increase was due primarily to additional debt used to finance the share
repurchase program. The Company's current ratio at March 31, 2000, was 1.03,
compared with 1.23 at December 31, 1999, reflecting increased loans payable as a
result of the share repurchase program.
The change in our foreign currency translation adjustment through March 31, 2000
was a loss of $13 million, including a loss of approximately $60 million on
significant physical plant and operating assets in Euroland. Hedging gains on
the Euro, also included in foreign currency translation adjustment, offset the
Euro losses. Losses through March 31, 1999, were $136 million, with Brazil
accounting for nearly two-thirds of the loss.
Year 2000
- ---------
The Company's Year 2000 initiative was extremely successful. No interruptions to
Gillette business processes occurred.
<PAGE>
PAGE 16
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, advertising, 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 4. Vote of Security Holders
At its Annual Meeting on April 20, 2000, the stockholders of The Gillette
Company took the following actions:
1. Elected the following four directors for terms to expire at the 2003
Annual Meeting of Stockholders, with votes as indicated opposite each
director's name:
For Withheld
----------- ----------
Michael C. Hawley 840,536,320 53,631,472
Dennis F. Hightower 880,188,971 13,978,821
Herbert H. Jacobi 880,378,656 13,789,136
Henry R. Kravis 879,177,072 14,990,720
2. Approved the appointment by the Board of Directors of KPMG as auditors
for the year 2000. The vote was 887,537,272 for and 2,905,500 against the
proposal, with 3,725,020 abstentions.
Item 5. Other Information
Cautionary Statement
- --------------------
From time to time, the Company makes statements that constitute or contain
"forward-looking" information as that term is defined within the meaning of the
Federal securities laws. These statements may be identified by such
forward-looking words as "expect," "look," "believe," "anticipate," "may,"
"will," and variations of these words or other forward-looking terminology.
Forward-looking statements made by the Company are not guarantees of future
performance. The Company assumes no obligation to update any forward-looking
information. Actual results may differ materially from those in the
forward-looking statements as the result of risks and uncertainties, including
those listed below.
* the pattern of the Company's sales, including variations in sales volume
within periods, which makes forward-looking statements about sales and
earnings difficult and may result in the material variance of actual
results from those contained in statements made at any time prior to the
period's close;
* vigorous competition within the Company's product markets, including
pricing, promotional, advertising or other activities, in order to
preserve or gain market share, the timing of which cannot be foreseen by
the Company;
* the Company's 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;
<PAGE>
PAGE 17
PART II. OTHER INFORMATION
* the impacts of unusual items resulting from ongoing evaluations of
business strategies, asset valuations and organizational structure;
* a substantial portion of the Company's sales having been made outside the
United States, making forecasting of sales more difficult;
* the impact on sales or earnings of fluctuations in exchange rates in one
or more of the Company's geographic markets;
* the ability of the Company to successfully reduce trade inventories to
levels consistent with the changing needs of the more concentrated retail
trade;
* the ability of the Company to successfully reduce working capital;
* the possibility of one or more of the global markets in which the Company
competes being impacted by variations in political, economic or other
factors, such as inflation rates, recessionary or expansive trends, tax
changes, legal and regulatory changes or other external factors over which
the Company has no control;
* the effects of rapid technological change on product development,
differentiation, acceptance and costs, including technological advances of
competitors;
* the effects of patents, including possible new patents granted to
competitors or challenges to Company patents and expiration of patents,
which affect competition and product acceptance;
Item 6(a) Exhibits
Exhibit 27 Financial Data Schedule
Item 6(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarterly period ended March
31, 2000.
<PAGE>
PAGE 18
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)
MARK N. EDOFF
Mark N. Edoff
Principal Accounting Officer
May 12, 2000
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 101,000
<SECURITIES> 0
<RECEIVABLES> 1,762,000
<ALLOWANCES> 51,000
<INVENTORY> 1,765,000
<CURRENT-ASSETS> 4,515,000
<PP&E> 5,972,000
<DEPRECIATION> 2,323,000
<TOTAL-ASSETS> 11,182,000
<CURRENT-LIABILITIES> 4,366,000
<BONDS> 2,825,000
0
84,000
<COMMON> 1,364,000
<OTHER-SE> 1,010,000
<TOTAL-LIABILITY-AND-EQUITY> 11,182,000
<SALES> 2,045,000
<TOTAL-REVENUES> 2,045,000
<CGS> 749,000
<TOTAL-COSTS> 749,000
<OTHER-EXPENSES> 857,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,000
<INCOME-PRETAX> 386,000
<INCOME-TAX> 128,000
<INCOME-CONTINUING> 258,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,000
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
