UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
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 681,966,608 shares of Common Stock outstanding as of October 18,
1996.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Consolidated Statements of Earnings of The Procter & Gamble Company and
subsidiaries for the three months ended September 30, 1996 and 1995, the
Consolidated Balance Sheets as of September 30, 1996 and June 30, 1996, and the
Consolidated Statements of Cash Flows for the three months ended September 30,
1996 and 1995 follow. In the opinion of management, these unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position, results of operations, and cash flows for the interim period
reported. However, such financial statements may not be necessarily indicative
of annual results. Certain reclassifications of prior year's amounts have been
made to conform with the current year's presentation.
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Amounts in Millions Except Per Share Amounts
Three Months Ended September 30
1996 1995
-------- --------
<S> <C> <C>
NET SALES $8,903 $9,027
Cost of products sold 5,002 5,211
Marketing, research, and administrative expenses 2,354 2,381
-------- --------
OPERATING INCOME 1,547 1,435
Interest expense 112 123
Other income, net 56 62
-------- --------
EARNINGS BEFORE INCOME TAXES 1,491 1,374
Income taxes 512 478
-------- --------
NET EARNINGS $ 979 $ 896
======== ========
NET EARNINGS PER COMMON SHARE $ 1.39 $ 1.27
FULLY DILUTED NET EARNINGS
PER COMMON SHARE $ 1.30 $ 1.18
DIVIDENDS PER COMMON SHARE $ .45 $ .40
AVERAGE COMMON SHARES OUTSTANDING 683.8 686.6
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Amounts in Millions
September 30 June 30
ASSETS 1996 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,595 $ 2,074
Investment securities 462 446
Accounts receivable 2,848 2,841
Inventories
Materials and supplies 1,247 1,254
Work in process 247 210
Finished goods 1,739 1,666
Deferred income taxes 774 598
Prepaid expenses and other current assets 1,348 1,718
---------- ----------
TOTAL CURRENT ASSETS 11,260 10,807
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT 18,392 18,112
LESS ACCUMULATED DEPRECIATION 7,216 6,994
---------- ----------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,176 11,118
---------- ----------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,231 4,281
OTHER NON-CURRENT ASSETS 1,497 1,524
---------- ----------
TOTAL ASSETS $28,164 $27,730
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,867 $ 6,709
Debt due within one year 1,101 1,116
---------- ----------
TOTAL CURRENT LIABILITIES 7,968 7,825
---------- ----------
LONG-TERM DEBT 4,629 4,670
DEFERRED INCOME TAXES 663 638
OTHER NON-CURRENT LIABILITIES 2,892 2,875
SHAREHOLDERS' EQUITY
Preferred stock 1,879 1,886
Common stock-shares outstanding-Sept. 30 681.9 682 686
-June 30 685.6
Additional paid-in capital 918 862
Currency translation adjustments (430) (418)
Reserve for ESOP debt retirement (1,645) (1,676)
Retained earnings 10,608 10,382
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 12,012 11,722
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,164 $27,730
========== ==========
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Amounts in Millions Three Months Ended September 30
1996 1995
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $2,074 $2,028
OPERATING ACTIVITIES
Net earnings 979 896
Depreciation and amortization 329 323
Deferred income taxes (109) 89
Increase in accounts receivable (8) (443)
Increase in inventories (111) (184)
Decrease in accounts payable (566) (513)
Change in other operating assets and liabilities 904 157
Other 25 12
-------- --------
TOTAL OPERATING ACTIVITIES 1,443 337
-------- --------
INVESTING ACTIVITIES
Capital expenditures (400) (435)
Proceeds from asset sales 239 68
Acquisitions (10) (71)
Change in investment securities 5 (252)
-------- --------
TOTAL INVESTING ACTIVITIES (166) (690)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (334) (301)
Change in short-term debt (9) 484
Additions to long-term debt 11 33
Reduction of long-term debt (16) (242)
Proceeds from stock options 21 15
Treasury purchases (424) (65)
-------- --------
TOTAL FINANCING ACTIVITIES (751) (76)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (5) (10)
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS 521 (439)
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,595 $1,589
======== ========
</TABLE>
Item 2. Management's Discussion and Analysis
Results of Operations -- First Quarter Fiscal 1997 Compared with First Quarter
Fiscal 1996
Worldwide net earnings for the first quarter of fiscal year 1997 were $979
million or $1.39 per share. This represents a 9% increase over prior year first
quarter earnings of $896 million or $1.27 per share.
Sales for the quarter were $8.9 billion, down 1% compared to prior year first
quarter sales of $9.0 billion. Worldwide unit volume grew 1% from the first
quarter a year ago. The difference between the sales and unit volume trends was
largely due to weaker currencies. Excluding the effect of unfavorable exchange
rates, particularly in Japan and Germany, sales increased consistent with unit
volume growth.
The company's results were affected by competitive pressures in Japan and
difficult economic conditions in Latin America. In addition, the further
roll-out of the Efficient Consumer Response program (ECR) within Europe and Asia
impacted results. Specifically, the initial roll-out resulted in a reduction of
trade inventories, slowing growth in the affected markets. When implemented
several years ago in the United States, this program resulted in negative
short-term business effects, but yielded stronger consumer loyalty and improved
profit margins longer term.
Gross margin was 43.8% for the current quarter, compared to 42.3% in the first
quarter of the prior year and 41.2% for the full fiscal year ended June 30,
1996. Operating margin was 17.4% compared with 15.9% in the prior first quarter
and 13.6% for the prior fiscal year, reflecting continued improvement in gross
margin, efforts to improve efficiencies, and simplify operations, resulting in
lower costs.
North America
- ------------------
Net sales for the North America region increased 1% compared with the same
quarter a year ago, on a 2% unit volume increase. The sales and volume growth in
the quarter was affected by capacity constraints on certain key categories, such
as tissue and towel. Earnings for the region grew 9%, reflecting broad-based
margin growth from improved pricing and costs.
The region's unit volume growth was led by the laundry and cleaning business,
with particularly strong growth in the laundry and fabric conditioners
categories. The paper business increased unit volume over a strong base period,
despite capacity constraints in the tissue and towel category, where volume
declined slightly due to reduced merchandising efforts pending planned capacity
additions. This impact was offset primarily by the effect of acquisitions, as
well as growth in the diapers and feminine hygiene categories. Importantly,
earnings in this business led the region's growth, with improved pricing
actions. The beauty care business also increased unit volume on the strength of
the hair care category, as well as excellent growth in deodorants. Food and
beverage increased unit volume, when adjusted for the effect of acquisitions and
divestitures, as strength in the peanut butter and snack categories was
moderated by softness in baking mixes and shortening and oils. Unit volume in
the health care business was about flat, excluding the prior year divestiture of
the Company's share of a joint venture. Oral care volume was up, but the effect
was more than offset by the decline in respiratory care volume. The health care
business also impacted the region's earnings growth, reflecting the volume
softness in certain categories, as well as the increased investment to
reestablish oral care growth.
Europe, Middle East and Africa
- -------------------------------------
Sales in Europe, Middle East and Africa declined 1%, as unfavorable exchange
rates, which reduced sales by 2%, combined with lower pricing related to ECR.
Unit volume increased 5%, to a new record level. Net earnings increased 13% over
the first quarter of last year, reflecting the solid volume progress and the
margin improvement impact of lower costs.
Central and Eastern Europe led the region's unit volume growth, increasing
shipments by nearly 50%, primarily on the strength of the laundry and cleaning
business. The Middle East and Africa region also had double-digit unit volume
growth, while the remainder of the region was fairly flat, due to the impacts of
expanding ECR.
Asia
- -----
First quarter results of the Asia region were impacted by the competitive
environment in Japan and exchange rate effects. Sales declined 14%, including 9%
related to unfavorable exchange rate movements. Unit volume was down 9%, largely
due to the Japan situation and the impact of ECR-related trade inventory
reductions. Additionally, China's unit volume growth was below recent levels, as
trade inventories were adjusted in response to price increases taken earlier in
the quarter. The Company's market share position remains strong, and unit volume
in China is expected to rebound in the second quarter. Net earnings in Asia were
down 10%, consistent with the sales trend in region.
Latin America
- -----------------
Sales in Latin America were down 1% in the first quarter, as pricing policies
designed to address inflation and devaluation trends helped offset volume
softness. Unit volume in the quarter was down 6%, reflecting declining markets
due to slow economic recovery in key markets. Net earnings increased 11% on
improved margins, largely reflecting the pricing actions.
RESTRUCTURING RESERVE STATUS
- -------------------------------------
In the year ended June 30, 1993, a reserve of $2.4 billion 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 separations. The balance of the reserve at
September 30, 1996 was $610 million, with approximately half of the balance
representing planned fixed asset disposals, all of which have been announced.
The restructuring program is expected to be substantially completed during the
current fiscal year. Based on current management estimates, the cost of the
program is expected to approximate the original estimate, although certain
immaterial reclassifications have been made within the elements of the reserve.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As first reported in the Company's Annual Report on Form 10-K for the period
ended June 30, 1993, the Company agreed to participate in the Toxic Substances
Control Act ("TSCA") Section 8(e) Compliance Audit Program of the United States
Environmental Protection Agency ("EPA"). As a participant, the Company agreed to
audit its files for materials which under current EPA guidelines would be
subject to notification under Section 8(e) of TSCA and to pay stipulated
penalties for each report submitted under this program. Pursuant to a Consent
Order dated October 3, 1996, the Company paid a $1,000,000 civil penalty to
settle this matter.
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's 1996 Annual Meeting of Shareholders held on October 8, 1996,
the following actions were taken:
The following Directors were elected for terms of office expiring in 1999:
Votes Broker
Votes For Withheld Abstentions* Non-Votes*
- --------------------------------------------------------------------------
Donald R. Beall 615,643,696 8,090,616 N/A N/A
Gordon F. Brunner 614,726,954 9,007,358 N/A N/A
Richard B. Cheney 615,218,839 8,515,473 N/A N/A
Harald Einsmann 614,933,806 8,800,506 N/A N/A
Durk I. Jager 613,506,451 10,227,861 N/A N/A
Charles R. Lee 615,788,146 7,946,166 N/A N/A
* 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.
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, 1997, was approved by the shareholders. The shareholders cast
617,921,161 votes in favor of this proposal and 3,355,861 votes against. There
were 2,457,290 abstentions.
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 168,678,826
votes in favor of the resolution and 372,169,835 against. There were 8,923,917
abstentions and 73,961,734 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,
1996.
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 8, 1996
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
EXHIBIT (11)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
================================================
Computation of Earnings Per Share
--------------------------------------------
<CAPTION>
Amounts in Millions Except Per Share Amounts
Three Months Ended September 30
1996 1995
------- -------
<S> <C> <C>
NET EARNINGS PER SHARE
- ----------------------
Net earnings $ 979 $ 896
Deduct preferred stock dividends 26 26
-------- --------
Net earnings applicable to common stock $ 953 $ 870
- --------------------------------------- ======== ========
Average number of common shares outstanding 683.8 686.6
Per Share
- ---------
Net earnings per share $ 1.39 $ 1.27
======== ========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $ 979 $ 896
Deduct differential -- preferred
vs. common dividends 8 10
-------- --------
Net earnings applicable to common stock $ 971 $ 886
- --------------------------------------- ======== ========
Average number of common shares outstanding 683.8 686.6
Add potential effect of:
Exercise of options 10.3 9.2
Conversion of preferred stock 51.2 52.2
-------- --------
Average number of common shares
outstanding, assuming full dilution 745.3 748.0
======== ========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution $ 1.30 $ 1.18
======== ========
</TABLE>
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
================================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<CAPTION>
Millions of Dollars
Three Months
Years Ended June 30 Ended Sept. 30
---------------------------------------------- --------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED
- -------------------
Earnings from operations before income taxes
after eliminating undistributed earnings
of equity method investees $2,870 $ 294 $3,307 $4,022 $4,695 $1,246 $1,486
Fixed charges, excluding capitalized interest 584 631 569 571 576 145 136
------ ------- ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,454 $ 925 $3,876 $4,593 $5,271 $1,391 $1,622
====== ======= ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense (including capitalized interest) $ 535 $ 577 $ 501 $ 511 $ 493 $ 124 $ 112
1/3 of rental expense 74 79 87 83 92 22 24
------ ------- ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $ 609 $ 656 $ 588 $ 594 $ 585 $ 146 $ 136
====== ======= ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 5.7 1.4 6.6 7.7 9.0 9.5 11.9
</TABLE>
<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, 1996 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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,595
<SECURITIES> 462
<RECEIVABLES> 2,848
<ALLOWANCES> 0
<INVENTORY> 3,233
<CURRENT-ASSETS> 11,260
<PP&E> 18,392
<DEPRECIATION> 7,216
<TOTAL-ASSETS> 28,164
<CURRENT-LIABILITIES> 7,968
<BONDS> 4,629
0
1,879
<COMMON> 682
<OTHER-SE> 9,441
<TOTAL-LIABILITY-AND-EQUITY> 28,164
<SALES> 8,903
<TOTAL-REVENUES> 8,903
<CGS> 5,002
<TOTAL-COSTS> 2,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 1,491
<INCOME-TAX> 512
<INCOME-CONTINUING> 979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 979
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.30
</TABLE>
