UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995 Commission file number 1-434
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-0411980
(State of incorporation) (I.R.S. Employer Identification No.)
One Procter & Gamble Plaza, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 983-1100
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 .
There were 686,325,234 shares of Common Stock outstanding as of October 20,
1995.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<CAPTION>
Millions of Dollars
Three Months Ended September 30
1995 1994
---- ----
<S> <C> <C>
NET SALES $9,027 $8,177
Cost of products sold 5,211 4,636
Marketing, research and administrative expenses 2,381 2,271
------ ------
OPERATING INCOME 1,435 1,270
Interest expense 123 119
Other income, net 62 85
------ ------
EARNINGS BEFORE INCOME TAXES 1,374 1,236
Income taxes 478 444
------ ------
NET EARNINGS $ 896 $ 792
====== ======
PER COMMON SHARE:
Net earnings $ 1.27 $ 1.12
Net earnings assuming full dilution $ 1.18 $ 1.05
Dividends per common share $ .40 $ .35
AVERAGE COMMON SHARES OUTSTANDING (in millions) 686.6 684.7
</TABLE>
Certain reclassifications of prior year's amounts have been made to conform with
the current year presentation. Costs related to research and development are now
reported as an element of marketing, research and administrative expenses. Costs
related to delivery of finished product are included in cost of products sold.
Net sales include revenues from other operating arrangements, such as joint
ventures.
-2-
<PAGE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of Dollars
September 30 June 30
ASSETS 1995 1995
<S> <C> <C>
CURRENT ASSETS --------- ---------
Cash and cash equivalents $ 1,589 $ 2,028
Investment securities 404 150
Accounts receivable 3,977 3,562
Inventories
Raw materials and supplies 1,358 1,315
Work in process 275 247
Finished products 1,951 1,891
Deferred income taxes 785 804
Prepaid expenses and other current assets 1,047 845
--------- ---------
11,386 10,842
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT 17,661 17,739
LESS ACCUMULATED DEPRECIATION 6,815 6,713
--------- ---------
10,846 11,026
--------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,448 4,572
OTHER ASSETS 1,687 1,685
--------- ---------
TOTAL $28,367 $28,125
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 7,496 $ 7,678
Debt due within one year 1,197 970
--------- ---------
8,693 8,648
--------- ---------
LONG-TERM DEBT 5,018 5,161
OTHER LIABILITIES 3,047 3,196
DEFERRED INCOME TAXES 585 531
SHAREHOLDERS' EQUITY
Preferred stock 1,906 1,913
Common stock-shares outstanding-Sept. 30 686,599,982 687 687
-June 30 686,574,055
Additional paid-in capital 734 693
Currency translation adjustments (94) 65
Reserve for ESOP debt retirement (1,705) (1,734)
Retained earnings 9,496 8,965
--------- ---------
11,024 10,589
--------- ---------
TOTAL $28,367 $28,125
========= =========
</TABLE>
-3-
<PAGE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of Dollars Three Months Ended September 30
1995 1994
-------- --------
<S> <C> <C>
Cash and Cash Equivalents, beginning of year $2,028 $2,373
OPERATING ACTIVITIES
Net earnings 896 792
Depreciation, depletion and amortization 323 304
Deferred income taxes 89 65
Increase in accounts receivable (448) (360)
Increase in inventories (184) (80)
Change in payables and accrued liabilities (50) 240
Decrease in other liabilities (72) (124)
Other (217) (246)
-------- --------
337 591
INVESTING ACTIVITIES -------- --------
Capital expenditures (435) (345)
Proceeds from asset sales and retirements 68 150
Acquisitions (71) (607)
Investment securities (252) 137
-------- --------
(690) (665)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (301) (265)
Additions to short-term debt 484 360
Additions to long-term debt 33 230
Reduction of long-term debt (242) (232)
Proceeds from stock options 15 10
Purchase of treasury shares (65) (2)
-------- --------
(76) 101
-------- --------
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS (10) 29
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (439) 56
-------- --------
Cash and Cash Equivalents, end of period $1,589 $2,429
======== ========
SUPPLEMENTAL DISCLOSURE
Non-cash transactions:
Liabilities assumed in acquisitions -- 140
Reduction in employee stock ownership plan debt,
guaranteed by the Company 29 26
Conversion of preferred to common stock 7 10
<FN>
The interim financial statements are unaudited, but in the opinion of the
Company include all adjustments, consisting only of normal recurring items,
necessary for a fair presentation of the data.
</TABLE>
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Worldwide Results of Operations
- -------------------------------
Worldwide net earnings for the quarter ending September 30, 1995 were $896
million or $1.27 per share. This represents a 13% increase over the same quarter
of the prior year, when net earnings were $792 million or $1.12 per share.
Worldwide net sales for the quarter were $9,027 million, a 10% increase from the
prior year's $8,177 million. The sales increase reflects record shipments and
unit volume growth of 9%. The effects of stronger European and Asian currencies
on both sales and earnings were offset by the weaker Mexican peso. Gross margin
was 42.3% for the current quarter versus 43.3% for the first quarter of the
prior year.
Gross margin for the prior fiscal year was 41.5%. These margin trends reflect
higher raw material costs, primarily pulp. Operating margin for the quarter
improved to 15.9%, compared to 15.5% for the same quarter of the prior year, as
continued focus on cost control largely offset the effects of higher raw
material prices and increased research and development costs.
North America
- -------------
Net sales for the North American region increased 7% on a 6% unit volume
increase. Earnings for the region increased 8%, as cost control actions largely
offset increased raw material prices, primarily pulp, and continued investment
in the health care business. The unit volume gains were driven by the Food and
Beverage business which contributed nearly half of the region's unit volume
growth. Solid progress in all categories of the Paper business also contributed
to the unit volume growth, although related earnings were negatively affected by
higher pulp prices that were not fully recovered through pricing. The Laundry
and Cleaning business contributed approximately 25% of the region's unit volume
growth. Beauty Care unit volume achieved solid growth, driven by hair care.
Health Care unit volume declined slightly due to softness in the respiratory
category.
Europe, Middle East and Africa
- ------------------------------
First quarter sales for the Europe, Middle East and Africa region increased
16%. Unit volume was up 12%, led by gains in Eastern Europe. The region's
earnings grew 20% over the same quarter last year. Favorable exchange rates
added 6% to sales, more than offsetting product mix impacts. Broad-based unit
volume gains across the region's businesses drove the earnings growth,
complemented by continuing cost control actions.
Asia
- ----
Asia maintained its strong growth rate with a 22% increase in unit volume, led
by China. The region delivered 12% sales and 9% earnings growth over the same
quarter of the prior year. Favorable exchange rates increased sales by 6%,
helping to mitigate the effects of lower pricing and product mix. Double-digit
unit volume growth was achieved by the region's key businesses, with Laundry and
Cleaning continuing to lead the growth. The results of the region reflect the
continuing investment in this fast-growing market.
-5-
<PAGE>
Latin America
- -------------
Latin America delivered unit volume growth of 6%, despite a 3% decline in
Mexico. Sales for the region were down 4%, as favorable pricing helped lessen
the effect of unfavorable exchange rates. Earnings for the region were down 7%,
primarily due to the continuing effects of the Mexican Peso devaluation.
Excluding Mexico, net earnings for the region increased over the same quarter of
the prior year. Unit volume growth in the region was led by the Paper business,
driven by the success of Pampers Uni.
Restructuring Reserve Status
- ----------------------------
In the year ending June 30, 1993, a reserve of $2,402 million was established to
cover a worldwide restructuring effort to consolidate manufacturing systems and
reduce overhead costs. The primary elements of this reserve were costs related
to fixed asset disposals and separation-related costs (86% of the total). The
following information relates to the June 1993 reserve (in millions of dollars
pre-tax):
<TABLE>
<CAPTION>
Original Balance July-September Balance
Reserve 6/30/95 Charges 9/30/95
-------- ------- -------------- -------
<S> <C> <C> <C> <C>
Separation-related costs<F1> $ 965 $ 369 $ 37 $ 332
Disposals of Fixed Assets 1,109 597 33 564
Other<F2> 328 194 5 189
------ ----- ---- ------
$2,402 $1,160 $ 75 $1,085
====== ====== ==== ======
<FN>
<F1> Includes separation allowances and related benefits, out placement
services, and personnel relocation costs.
<F2> Includes closing, environmental remediation and contract termination
costs for sites shut down or divested, offset by proceeds from asset
sales. No cost element within this category exceeds 5% of the total
reserve.
</FN>
</TABLE>
Execution of the restructuring program continues to be on track, and the cost of
completing it is expected to approximate the original estimates. As anticipated,
charges for the disposal of fixed assets will lag behind spending for
separation-related programs. About two-thirds of the sites and production
modules to be closed have been announced in order to provide advance notice to
employees.
Benefits continue to be obtained from the restructuring program. Incremental
savings of almost $30 million after-tax are estimated for the July-September
quarter, bringing cumulative restructuring savings to approximately 90% of the
$500 million after-tax objective established in June 1993. Based on current
projections, the Company believes cumulative restructuring savings ultimately
will exceed the original estimate by approximately 20%. For this purpose,
restructuring savings are estimated gross savings, which have been offset to
some degree by lower pricing and other actions to build the business.
-6-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's 1995 Annual Meeting of Shareholders held on October 10, 1995,
the following actions were taken:
The following Directors were elected for terms of office expiring in 1998:
<TABLE>
<CAPTION>
Votes For Votes Abstentions* Broker
Withheld Non-Votes*
<S> <C> <C> <C> <C>
Joseph T. Gorman 622,853,407 5,331,925 N/A N/A
Jerry R. Junkins 622,803,505 5,381,827 N/A N/A
Lynn M. Martin 622,379,700 5,805,632 N/A N/A
John E. Pepper 622,525,218 5,660,114 N/A N/A
Ralph Snyderman 622,788,631 5,396,701 N/A N/A
Robert D. Storey 622,643,306 5,542,026 N/A N/A
<FN>
* Pursuant to the terms of the Notice of Annual Meeting and Proxy Statement,
proxies received were voted, unless authority was withheld, in favor of the
election of the six nominees named.
</FN>
</TABLE>
A proposal by the Board of Directors to ratify the appointment of Deloitte &
Touche LLP as the Company's independent auditors to conduct the annual audit of
the financial statements of the Company and its subsidiaries for the fiscal year
ending June 30, 1996, was approved by the shareholders. The shareholders cast
622,175,988 votes in favor of this proposal and 3,590,759 votes against. There
were 2,418,585 abstentions.
A proposal by the Board of Directors to ratify an amendment to The Procter &
Gamble 1993 Non-Employee Directors' Stock Plan was approved by the shareholders.
The shareholders cast 575,752,396 votes in favor of this proposal and 52,432,936
against. Pursuant to the terms of the Notice of Annual Meeting and Proxy
Statement, abstentions were treated as votes against this proposal.
A shareholder resolution proposed by Evelyn Y. Davis was defeated by the
shareholders. The proposal sought to reinstate the system of electing all
Directors annually, in place of the system of classifying Directors into three
classes with overlapping three-year terms which was approved by the shareholders
in 1985. The Board opposed the resolution. The shareholders cast 158,229,332
votes in favor of the resolution and 393,147,816 against. There were 10,674,673
abstentions and 66,133,511 broker non-votes.
A shareholder resolution proposed by The New York City Employees' Retirement
System was defeated by the shareholders. The proposal requested the Company to
endorse the CERES Principles as a commitment to be publicly accountable for its
environmental impact. The Board opposed the resolution. The shareholders cast
47,248,737 votes in favor of the resolution and 477,709,200 against. There were
37,093,883 abstentions and 66,133,512 broker non-votes.
-7-
<PAGE>
A shareholder resolution proposed by Rabbi Benno M. Wallach, D.D. was defeated
by the shareholders. The proposal recommended that the Board present at least
two candidates for each available opening on the Board of Directors. The Board
opposed the resolution. The shareholders cast 39,745,602 votes in favor of the
resolution and 512,908,012 against. There were 9,402,107 abstentions and
66,129,611 broker non-votes.
A shareholder resolution proposed by Madeline H. Wallach was defeated by the
shareholders. The proposal recommended that the Board eliminate the Executive
Incentive Compensation system. The Board opposed the resolution. The
shareholders cast 57,385,587 votes in favor of the resolution and 490,078,337
against. There were 14,262,117 abstentions and 66,459,291 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3-1) Amended Articles of Incorporation (Incorporated by reference to
Exhibit (3-1) of the Company's Annual Report on Form 10-K for
the year ended June 30, 1993).
(3-2) Regulations (Incorporated by reference to Exhibit (3-2) of the
Company's Annual Report on Form 10-K for the year ended June
30, 1993).
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1995.
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 PROCTER & GAMBLE COMPANY
/s/E. H. EATON
- ------------------------------
E. H. Eaton
Vice President and Comptroller
(Principal Accounting Officer)
Date: November 13, 1995
-8-
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
(3-1) Amended Articles of Incorporation (Incorporated by reference
to Exhibit (3-1) of the Company's Annual Report on Form 10-K
for the year ended June 30, 1993).
(3-2) Regulations (Incorporated by reference to Exhibit (3-2) of
the Company's Annual Report on Form 10-K for the year ended
June 30, 1993).
(11) Computation of Earnings per Share 10
(12) Computation of Ratio of Earnings to Fixed Charges 11
(27) Financial Data Schedule 12
-9-
EXHIBIT (11)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
================================
Computation of Earnings Per Share
--------------------------------------------
Dollars and Share Amounts in Millions
<CAPTION>
Three Months Ended September 30
<S> <C> <C>
NET EARNINGS PER SHARE 1995 1994
- ---------------------- ------ ------
Net earnings $ 896 $ 792
Deduct preferred stock dividends 26 26
------ ------
Net earnings applicable to common stock $ 870 $ 766
- --------------------------------------- ====== ======
Average number of common shares
outstanding 686.6 684.7
Per Share
- ---------
Net earnings per share $ 1.27 $ 1.12
====== ======
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $ 896 $ 792
Deduct differential -- preferred
vs. common dividends 10 11
------ ------
Net earnings applicable to common stock $ 886 $ 781
- --------------------------------------- ====== ======
Average number of common shares
outstanding 686.6 684.7
Add potential effect of:
Exercise of options 9.2 6.5
Conversion of preferred stock 52.2 53.2
------ ------
Average number of common shares
outstanding, assuming full dilution 748.0 744.4
====== ======
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution $ 1.18 $ 1.05
====== ======
</TABLE>
-10-
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
Millions of Dollars
<CAPTION>
Three Months
Years Ended June 30 Ended Sept. 30
------------------------------------------------- --------------
1991 1992 1993 1994 1995 1994 1995
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED
- -------------------
Earnings from operations before income taxes
after eliminating undistributed earnings
of 20% to 50% owned affiliates $2,652 $2,870 $ 294 $3,307 $4,022 $1,239 $1,246
Fixed charges excluding capitalized interest 435 584 631 569 571 142 145
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,087 $3,454 $ 925 $3,876 $4,593 $1,381 $1,391
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense $ 395 $ 510 $ 552 $ 482 $ 488 $ 119 $ 123
1/3 of rental expense 40 74 79 87 83 23 22
------ ------ ------ ------ ------ ------ -------
435 584 631 569 571 142 145
Capitalized interest 17 25 25 19 23 3 1
------ ------ ------ ------ ------ ------ -------
TOTAL FIXED CHARGES, AS DEFINED $ 452 $ 609 $ 656 $ 588 $ 594 $ 145 $ 146
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 6.8 5.7 1.4 6.6 7.7 9.5 9.5
</TABLE>
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000080424
<NAME> THE PROCTER & GAMBLE COMPANY
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,589
<SECURITIES> 404
<RECEIVABLES> 3,977
<ALLOWANCES> 0
<INVENTORY> 3,584
<CURRENT-ASSETS> 11,386
<PP&E> 17,661
<DEPRECIATION> 6,815
<TOTAL-ASSETS> 28,367
<CURRENT-LIABILITIES> 8,693
<BONDS> 5,018
<COMMON> 687
0
1,906
<OTHER-SE> 8,431
<TOTAL-LIABILITY-AND-EQUITY> 28,367
<SALES> 9,027
<TOTAL-REVENUES> 9,027
<CGS> 5,211
<TOTAL-COSTS> 2,381
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 1,374
<INCOME-TAX> 478
<INCOME-CONTINUING> 896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 896
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.18
</TABLE>
