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 March 31, 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 687,372,624 shares of Common Stock outstanding as of April
21, 1995.
-1-
PART I. FINANCIAL INFORMATION
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Millions of Dollars
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1995 1994 1995 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES $8,312 $7,441 $24,940 $22,793
Cost of products sold 4,879 4,208 14,307 12,830
Marketing, administrative, and
other operating expenses 2,376 2,310 7,132 6,932
-------- -------- -------- ---------
OPERATING INCOME 1,057 923 3,501 3,031
Interest expense 124 119 368 367
Other income/(expense), net<F1> 5 (78) 200 121
-------- -------- -------- ---------
EARNINGS BEFORE INCOME TAXES 938 726 3,333 2,785
Income taxes 307 244 1,160 980
-------- -------- -------- ---------
NET EARNINGS $ 631 $ 482 $ 2,173 $ 1,805
======== ======== ======== =========
PER COMMON SHARE:
Net earnings $ .88 $ .66 $ 3.06 $ 2.53
Net earnings assuming full dilution $ .81 $ .64 $ 2.85 $ 2.38
Dividends per common share $ .35 $. 31 $ 1.05 $ .93
AVERAGE COMMON SHARES OUTSTANDING (in millions) 685.7 682.7
<FN>
<F1> Includes $77 million ($50 million after-tax) charge related to
the Japan earthquake and $157 million ($102 million after-tax) charge
related to two interest rate swaps in 1995 and 1994, respectively.
</TABLE>
-2-
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
Millions of Dollars
<CAPTION>
March 31 June 30
ASSETS 1995 1994
--------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,258 $ 2,373
Marketable securities 109 283
Accounts receivable, less allowance for
doubtful accounts 3,479 3,115
Inventories
Raw materials and supplies 1,209 1,087
Work in process 228 213
Finished products 1,914 1,577
Deferred income taxes 813 716
Prepaid expenses and other current assets 1,085 624
---------- ----------
11,095 9,988
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT 16,995 15,896
LESS ACCUMULATED DEPRECIATION 6,387 5,872
---------- ----------
10,608 10,024
---------- ----------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,362 3,754
OTHER ASSETS 1,734 1,769
---------- ----------
TOTAL $ 27,799 $ 25,535
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 7,430 $ 6,665
Debt due within one year 1,061 1,375
---------- ----------
8,491 8,040
---------- ----------
LONG-TERM DEBT 5,157 4,980
OTHER LIABILITIES 3,260 3,336
DEFERRED INCOME TAXES 572 347
SHAREHOLDERS' EQUITY
Preferred stock 1,919 1,942
Common stock-shares outstanding-Mar. 31 687,222,409 687 684
-June 30 684,348,359
Additional paid-in capital 663 560
Currency translation adjustments (74) (63)
Reserve for ESOP debt retirement (1,734) (1,787)
Retained earnings 8,858 7,496
---------- ----------
10,319 8,832
---------- ----------
TOTAL $ 27,799 $ 25,535
========== ==========
</TABLE>
-3-
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of Dollars Nine Months Ended March 31
1995 1994
-------- --------
<S> <C> <C>
Cash and Cash Equivalents, beginning of year $2,373 $2,322
OPERATING ACTIVITIES
Net earnings 2,173 1,805
Depreciation, depletion and amortization 914 842
Deferred income taxes 192 115
Increase in accounts receivable (176) (150)
Increase in inventories (312) (71)
Change in payables and accrued liabilities 240 (186)
Decrease in other liabilities (436) (116)
Other (75) 81
-------- --------
2,520 2,320
-------- --------
INVESTING ACTIVITIES
Capital expenditures (1,325) (1,189)
Proceeds from asset sales and retirements 292 52
Acquisitions (631) (228)
Marketable securities 174 (130)
-------- --------
(1,490) (1,495)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (797) (711)
Additions to short-term debt (175) 160
Additions to long-term debt 328 419
Reduction of long-term debt (563) (583)
Proceeds from stock options 52 37
Purchase of treasury shares (15) (9)
-------- --------
(1,170) (687)
EFFECT OF EXCHANGE RATES ON CASH AND -------- --------
CASH EQUIVALENTS 25 (36)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS (115) 102
-------- --------
Cash and Cash Equivalents, end of period $2,258 $2,424
======== ========
SUPPLEMENTAL DISCLOSURE
Non-cash transactions
Liabilities assumed in acquisitions 512 34
Reduction in employee stock ownership plan debt,
guaranteed by the Company 53 49
Conversion of preferred to common stock 24 20
<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-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Worldwide net earnings for the quarter ending March 31, 1995 were $631
million, 31% above the same quarter in the prior year, including a $50
million charge for incremental costs associated with the January
earthquake in Japan. Net earnings for the same period of the prior
fiscal year were $482 million, including a $102 million charge related
to two interest rate swap contracts. Excluding the unusual items in
both years, net earnings were $681 million, a 17% increase over the
third quarter of the prior year, and earnings per share were $.95,
also a 17% increase.
Worldwide net sales for the quarter increased 12% over the same
quarter of the prior year to $8,312 million. Strong unit volume
growth continued, with a worldwide increase of 12% over the same
quarter a year ago. Acquisitions contributed approximately 2% to the
unit volume growth rate.
Year-to-date results reflect strong unit volume growth and cost
containment efforts, despite upward pressure on raw material prices.
Worldwide net earnings for the first nine months of the fiscal year
were $2,173 million compared to $1,805 million in the prior year, a
20% increase, including the cost associated with the Japan earthquake
and the $102 million charge related to two interest rate contracts, in
the respective periods. Excluding the unusual items in both years,
earnings and earnings per share increased 17% for the July-March
period to $2,223 million and $3.13 per share, respectively.
UNITED STATES
- -------------
The United States achieved 10% sales growth in the quarter on a 9%
unit volume increase, which is the largest year-to-year increase in
unit volume in six years. Excellent unit volume growth was achieved
by all sectors, with double-digit volume increases in the Health Care
and Beauty Care businesses. The Diaper category unit volume continued
to show a year-to-year volume decline in the current quarter, although
volume increased over the prior quarter following the introduction of
a new product and price reductions. In addition, competitive activity
in the Shortenings & Oils and Hard Surface Cleaners categories
negatively impacted unit volume growth. Strong growth in the Laundry,
Fabric Conditioners and Tissue/Towel categories more than offset those
impacts. Positive product mix impacts offset the effect of
competitive pricing in several categories, primarily diapers.
United States net earnings increased 8% in the third quarter. The
benefit of cost containment efforts was impacted by higher raw
material prices, primarily pulp, and continued research and
development investment, primarily in pharmaceuticals. Selling price
increases on tissue and towel products have recently been announced in
response to increased pulp prices.
Year-to-date earnings in the United States have increased 9% over the
first nine months of the prior year. The earnings increase reflects a
7% increase in sales on a 6% unit volume increase. The benefits of
continued cost containment efforts have been reduced by increased raw
material prices. Unit volume growth increased across all sectors year
to date, led by double-digit growth in the Beauty Care business.
-5-
INTERNATIONAL
- ------------
International volume increased 14% over the same quarter of the prior
year. Continued competitive pricing in a number of markets limited
sales growth to 11%. International earnings increased 23% for the
quarter, reflecting aggressive cost reduction efforts.
The impact of favorable exchange rates in Central Europe and Japan has
offset the Mexican peso devaluation resulting in a small net positive
impact on International sales and earnings.
Europe continued to post strong net earnings gains, as unit volume
growth of 15% and lower costs offset the impact of reduced pricing.
The European Laundry business remains strong, supplemented by
continued growth in the Health Care and Beauty Care businesses. The
European Paper business continued to grow, with strength in both
diapers and feminine hygiene products.
The balance of International achieved 14% unit volume growth. Solid
quarterly net earnings growth for this segment is attributable to
aggressive cost increase recovery in Latin America. Unit volume in
Japan was up, despite the temporary shut down of the Akashi paper
plant due to the January earthquake. The impact of the delays is not
expected to materially impact future results.
For the first nine months of the fiscal year, International earnings
have increased 22% over the prior period. Year-to-date sales growth
of 9% was driven by 15% unit volume growth, reflecting continued
competitive pricing in a number of markets. Unit volume growth and
cost containment efforts continue to drive earnings growth in
substantially all regions. On a year-to-date basis, countervailing
exchange rate changes resulted in an immaterial impact on
International earnings.
OTHER INCOME/(EXPENSE) - NET
- -------------------------
As discussed previously, the third quarter and year-to-date amounts of
other income/(expense) - net include unusual items in both years. The
current periods reflect a $77 million pre-tax charge for incremental
costs associated with the January earthquake in Japan. This charge
reflects the cost of employee assistance, cleanup and repair of
facilities, and non-recurring expenses directly associated with the
earthquake. The prior year periods include a $157 million pre-tax
charge related to two interest rate swap contracts.
RISK MANAGEMENT ACTIVITIES
- ------------------------
In response to currency exchange rate movements during the quarter,
the Company expanded certain of its risk management activities.
Certain foreign subsidiaries increased transactional hedging
activities performed locally to manage the exposure related to
commercial transactions and intercompany receivables and payables.
Generally, any change in the market value of the financial instrument
is offset by a corresponding change in the hedged exposure. In
addition, the Company purchased additional foreign currency put
options as a hedge against the effect of exchange rate fluctuations on
income. These contracts give the Company the right, but not the
obligation, to sell foreign currencies, primarily European currencies
and the yen, in exchange for U.S. dollars at predetermined exchange
rates. Those purchased options that do not qualify for hedge
accounting are carried on a current market value basis.
-6-
RESTRUCTURING RESERVE STATUS
- -------------------------
In the year ending June 30, 1993, a pre-tax 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-March Balance
Reserve 6/30/94 Charges 3/31/95
-------- ------- ---------- -------
<S> <C> <C> <C> <C>
Separation-related costs<F1> $ 965 $ 596 $ 162 $ 434
Desposals of Fixed Assets 1,109 960 272 688
Other<F2> 328 227 (16) 243
------ ------ ------ ------
$2,402 $1,783 $ 418 $1,365
<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. The negative amount of charges
represents proceeds received on asset sales, primarily during the
third quarter.
</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. We have
announced more than half of the sites and production modules to be
closed in order to provide advance notice to employees.
Benefits continue to be obtained from the restructuring program. We
estimate that incremental savings of almost $70 million after tax were
achieved in the January-March quarter, bringing cumulative
restructuring savings to approximately three-quarters of the $500
million after-tax objective established in June 1993. These amounts
reflect estimated gross savings, which may be offset to some degree by
other actions, such as lower pricing or increased research and
development spending.
-7-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) An 8-K Report containing an exhibit under Item 7 entitled "Press
Release Issued by Registrant on January 26, 1995" was filed on
January 26, 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: May 10, 1995
-8-
EXHIBIT INDEX
Exhibit No. Page No.
(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 Nine Months Ended
March 31 March 31
------------------ -----------------
NET EARNINGS PER SHARE 1995 1994 1995 1994
- ---------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings $ 631 $ 482 $2,173 $1,805
Deduct preferred stock dividends 26 26 77 76
-------- -------- -------- --------
Net earnings applicable to common stock $ 605 $ 456 $2,096 $1,729
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 685.7 682.7 685.7 682.7
Per Share
- ---------
Net Earnings per share $ .88 $ .66 $3.06 $ 2.53
======== ======== ======== ========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net Earnings $ 631 $ 482 $2,173 $1,805
Deduct differential -- preferred
vs. common dividends 11 13 34 39
-------- -------- -------- --------
Net earnings/(loss) applicable to common stock $ 620 $ 469 $2,139 $1,766
- ---------------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 685.7 682.7 685.7 682.7
Add potential effect of:
Exercise of options 11.4 6.1 11.4 6.1
Conversion of preferred stock 52.9 54.1 52.9 54.1
-------- -------- -------- --------
Average number of common shares
outstanding, assuming full dilution 750.0 742.9 750.0 742.9
======== ======== ======== ========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution $ .81 $ .64 $2.85 $ 2.38
======== ======== ======== ========
</TABLE>
-10-
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
Millions of Dollars
<CAPTION>
Nine Months
Years Ended June 30 Ended Mar. 31
------------------------------------------------ -------------------
1990 1991 1992 1993 1994 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 $2,401 $2,652 $2,870 $ 294 $3,307 $2,761 $3,357
Fixed charges excluding capitalized interest 480 435 584 631 569 430 438
-------- -------- -------- -------- -------- -------- --------
TOTAL EARNINGS, AS DEFINED $2,881 $3,087 $3,454 $ 925 $3,876 $3,191 $3,795
======== ======== ======== ======== ======== ======== ========
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense $ 442 $ 395 $ 510 $ 552 $ 482 $ 367 $ 368
1/3 of rental expense 38 40 74 79 87 63 70
-------- -------- -------- -------- -------- -------- --------
480 435 584 631 569 430 438
Capitalized interest 3 17 25 25 19 15 8
-------- -------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES, AS DEFINED $ 483 $ 452 $ 609 $ 656 $ 588 $ 445 $ 446
======== ======== ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 6.0 6.8 5.7 1.4 6.6 7.2 8.5
</TABLE>
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE
NINE MONTHS ENDED MARCH 31, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,258
<SECURITIES> 109
<RECEIVABLES> 3,479
<ALLOWANCES> 0
<INVENTORY> 3,351
<CURRENT-ASSETS> 11,095
<PP&E> 16,995
<DEPRECIATION> 6,387
<TOTAL-ASSETS> 27,799
<CURRENT-LIABILITIES> 8,491
<BONDS> 5,157
<COMMON> 687
0
1,919
<OTHER-SE> 7,713
<TOTAL-LIABILITY-AND-EQUITY> 27,799
<SALES> 24,940
<TOTAL-REVENUES> 24,940
<CGS> 14,307
<TOTAL-COSTS> 7,132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368
<INCOME-PRETAX> 3,333
<INCOME-TAX> 1,160
<INCOME-CONTINUING> 2,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,173
<EPS-PRIMARY> 3.06
<EPS-DILUTED> 2.85
</TABLE>
