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, 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 685,925,464 shares of Common Stock outstanding as of April 19, 1996.
-1-
PART I. FINANCIAL INFORMATION
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<CAPTION>
Millions of Dollars Except Per Share Amounts
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES $8,587 $8,318 $26,704 $24,980
Cost of products sold 5,026 4,888 15,502 14,364
Marketing, research, and
administrative expenses 2,368 2,366 7,222 7,074
-------- -------- --------- ---------
OPERATING INCOME 1,193 1,064 3,980 3,542
Interest expense 121 124 367 368
Other income/(expense), net<F1> 75 (2) 189 159
-------- -------- --------- ---------
EARNINGS BEFORE INCOME TAXES 1,147 938 3,802 3,333
Income taxes 387 307 1,310 1,160
-------- -------- --------- ---------
NET EARNINGS $ 760 $ 631 $ 2,492 $ 2,173
======== ======== ========= =========
PER COMMON SHARE:
Net earnings $ 1.07 $ .88 $ 3.52 $ 3.06
Net earnings assuming full dilution $ 1.01 $ .81 $ 3.30 $ 2.85
Dividends $ .40 $ .35 $ 1.20 $ 1.05
AVERAGE COMMON SHARES OUTSTANDING 686.5 685.7
<FN>
<F1>Includes $77 million ($50 million after-tax) charge related to the Kobe,
Japan earthquake in 1995.
</FN>
<FN>
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.
</TABLE>
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<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of Dollars
March 31 June 30
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,022 $ 2,028
Investment securities 446 150
Accounts receivable 3,465 3,562
Inventories
Raw materials and supplies 1,312 1,315
Work in process 261 247
Finished products 1,864 1,891
Deferred income taxes 818 804
Prepaid expenses and other current assets 1,015 845
--------- ---------
11,203 10,842
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT 18,076 17,739
LESS ACCUMULATED DEPRECIATION 7,067 6,713
--------- ---------
11,009 11,026
--------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,324 4,572
OTHER ASSETS 1,561 1,685
--------- ---------
TOTAL $28,097 $28,125
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,658 $ 7,678
Debt due within one year 991 970
--------- ---------
7,649 8,648
--------- ---------
LONG-TERM DEBT 5,169 5,161
OTHER LIABILITIES 2,860 3,196
DEFERRED INCOME TAXES 690 531
SHAREHOLDERS' EQUITY
Preferred stock 1,891 1,913
Common stock-shares outstanding-Mar. 31 686,348,534 686 687
-June 30 686,574,055
Additional paid-in capital 837 693
Currency translation adjustments (258) 65
Reserve for ESOP debt retirement (1,676) (1,734)
Retained earnings 10,249 8,965
--------- ---------
11,729 10,589
--------- ---------
TOTAL $28,097 $28,125
========= =========
</TABLE>
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<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of Dollars Nine Months Ended March 31
1996 1995
-------- --------
<S> <C> <C>
Cash and Cash Equivalents, beginning of year $2,028 $2,373
OPERATING ACTIVITIES
Net earnings 2,492 2,173
Depreciation, depletion and amortization 975 914
Deferred income taxes 187 192
Increase in accounts receivable (30) (176)
Increase in inventories (109) (312)
Change in payables and accrued liabilities (742) 240
Decrease in other liabilities (133) (436)
Other (184) (75)
-------- --------
2,456 2,520
-------- --------
INVESTING ACTIVITIES
Capital expenditures (1,475) (1,325)
Proceeds from asset sales and retirements 326 292
Acquisitions (144) (631)
Change in investment securities (296) 174
-------- --------
(1,589) (1,490)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (902) (797)
Change in short-term debt 449 (175)
Additions to long-term debt 329 328
Reduction of long-term debt (461) (563)
Proceeds from stock options 74 52
Purchase of treasury shares (310) (15)
-------- --------
(821) (1,170)
EFFECT OF EXCHANGE RATE CHANGES ON CASH -------- --------
AND CASH EQUIVALENTS (52) 25
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (6) (115)
-------- --------
Cash and Cash Equivalents, end of period $2,022 $2,258
======== ========
SUPPLEMENTAL DISCLOSURE Non-cash transactions:
Liabilities assumed in acquisitions 32 512
Reduction in employee stock ownership plan debt,
guaranteed by the Company 58 53
Conversion of preferred to common stock 22 24
<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 Results of Operations
- -------------------------------
Worldwide net earnings for the quarter ending March 31, 1996 were $760 million,
a 20% increase over the same quarter of the prior year net earnings of $631
million. Earnings per share for the quarter were $1.07 compared to $0.88 in the
third quarter of the prior year, a 22% increase. Net earnings for the same
quarter of the prior year included a $50 million charge related to the
earthquake in Kobe, Japan. Excluding that charge, quarterly net earnings and
earnings per share increased 12% and 13%, respectively.
Worldwide third quarter net sales were $8.59 billion for the quarter, a 3%
increase over the same quarter of the prior year, on comparable unit volume
growth.
Gross margin was 41.5% for the current quarter versus 41.2% for the same quarter
of the prior year. Operating margin for the quarter was 13.9%, an improvement
over 12.8% for the same quarter of the prior year. The improvement reflects
continued efforts to improve efficiencies and simplify operations, resulting in
lower costs to complement unit volume growth.
For the nine months ended March 31, 1996, worldwide net earnings were $2.49
billion or $3.52 per share, an increase of 15% over the same period of the prior
year. Worldwide net sales fiscal year-to-date increased 7% to $26.70 billion, on
comparable unit volume growth.
North America
- -------------
North America achieved 4% unit volume growth and 6% sales growth for the quarter
versus a strong year-ago period. Positive pricing impacts and lower costs drove
the region's 19% net earnings growth. The Laundry and Cleaning segment led the
region's unit volume growth, with progress across substantially all categories.
The Paper business achieved particularly strong net earnings results on
important unit volume growth, with the diaper and feminine protection categories
contributing double-digit unit volume increases. Food and Beverage contributed
to the earnings growth with moderate volume increases and reduced green coffee
bean prices. Despite flat volume, earnings in Beauty Care increased as a result
of product mix and cost control efforts. The regional Health Care business was
negatively impacted by competitive activity in the OTC health care categories,
resulting in the segment's year-to-year decline in sales and net earnings.
For the July-March period, the North America region increased sales 7%, on unit
volume growth of 6%. Net earnings improved 12% over the prior year period.
Europe
- ------
Third quarter unit volume for Europe, Middle East and Africa was flat, primarily
due to the transition to value pricing in key Western European markets. This
strategy to deliver better value to consumers was introduced several years ago
in the United States and improved long-term results. Developing markets like
Eastern Europe continued to generate excellent unit volume growth versus the
same period of the prior year. The region's sales and earnings were at about the
same level as the prior year due to the combined effects of pricing and a strong
prior year performance.
-5-
For the July-March period, unit volume in Europe, Middle East and Africa grew
6%, which, when combined with favorable exchange rates, drove 9% sales growth.
Excellent cost reduction results helped the region achieve 15% net earnings
growth for the nine months to date.
Asia
- ----
Asia unit volume growth in the quarter remained strong, up 16% over the same
period of the prior year. Sales growth was 4%, due primarily to lower pricing
and unfavorable exchange rates in Japan. Exchange rates contributed a 5% decline
across the region. Quarterly net earnings increased 11%, reflecting favorable
mix effects and improved costs on certain key brands. China and the Philippines
led the region with double-digit unit volume increases and improved earnings
contribution.
For the nine months ended March 31, 1996, Asia unit volume grew 18%, with a
sales increase of 7%. Net earnings increased by 9% over the prior year.
Latin America
- -------------
Unit volume for the Latin America region declined 5% in the quarter, as strong
unit volume results in Brazil, Argentina and Venezuela were offset by market
softening and an unusually strong year ago comparison in Mexico. Unfavorable
exchange rate movements in the region contributed to a sales and net earnings
decline of 4% for the quarter, despite continued cost control efforts in the
region.
For the July-March period, unit volume grew 3% in the Latin America region.
Sales and net earnings were down 4%, as unfavorable exchange rates and the
impact of the recession in Mexico affected results.
Restructuring Reserve Status
- ----------------------------
In the year ending June 30, 1993, a reserve of $2.40 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 separation-related costs (86% of the total).
The following information relates to the June 1993 reserve (in million of
dollars pre-tax):
<TABLE>
<CAPTION>
Original Balance July-March Balance
Reserve 6/30/95 Charges 3/31/96
-------- ------- ---------- -------
<S> <C> <C> <C> <C>
Separation-related costs<F1> $ 965 $ 369 $ 105 $ 264
Disposals of Fixed Assets 1,109 597 143 454
Other<F2> 328 194 27 167
-------- -------- ---------- --------
$2,402 $1,160 $ 275 $ 885
======== ======== ========== ========
<FN>
<F1> Includes separation allowances and related benefits, out placement
services, and personnel relocation costs
<F2> Including 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>
-6-
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. Over 80% of the sites and production modules to be closed have
been announced in order to provide advance notice to the employees.
Benefits continue to be obtained from the restructuring program. With estimated
incremental savings of approximately $30 million after-tax for the January-March
quarter, cumulative restructuring savings have exceeded the $500 million
after-tax objective established in June 1993. The Company continues to believe
that cumulative restructuring savings will exceed the original estimate by
approximately 20%. Restructuring savings are estimated gross savings, which have
been offset to some degree by lower pricing and other actions to build the
business.
PART II. OTHER INFORMATION
Item 5. Other Information
On May 9, 1996, P&G settled its derivatives lawsuit against Bankers
Trust. As a result of the settlement, the remaining reserve, which
was originally established in March 1994, will be reversed,
positively impacting fourth quarter pre-tax earnings by approximately
$120 million.
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
(99) Press Release - Litigation Settlement
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
-7-
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
E. H. EATON
- --------------------------------------
E. H. Eaton
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 10, 1996
-8-
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
(99) Press Release - Litigation Settlement 13
-9-
EXHIBIT (11)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
<CAPTION>
Dollars and Share Amounts in Millions
Three Months Ended Nine Months Ended
March 31 March 31
------------------- ------------------
<S> <C> <C> <C> <C>
NET EARNINGS PER SHARE 1996 1995 1996 1995
- ---------------------- -------- -------- -------- --------
Net earnings $ 760 $ 631 $2,492 $2,173
Deduct preferred stock dividends 26 26 78 77
-------- -------- -------- --------
Net earnings applicable to common stock $ 734 $ 605 $2,414 $2,096
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 686.5 685.7 686.5 685.7
Per Share
- ---------
Net earnings per share $ 1.07 $ .88 $ 3.52 $ 3.06
======== ======== ======== ========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $ 760 $ 631 $2,492 $2,173
Deduct differential -- preferred
vs. common dividends 9 11 29 34
-------- -------- -------- --------
Net earnings applicable to common stock $ 751 $ 620 $2,463 $2,139
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 686.5 685.7 686.5 685.7
Add potential effect of:
Exercise of options 8.7 11.4 8.7 11.4
Conversion of preferred stock 52.0 52.9 52.0 52.9
-------- -------- -------- --------
Average number of common shares
outstanding, assuming full dilution 747.2 750.0 747.2 750.0
======== ======== ======== ========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution $ 1.01 $ .81 $ 3.30 $ 2.85
======== ======== ======== ========
</TABLE>
-10-
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<CAPTION>
Millions of Dollars
Nine Months
Years Ended June 30 Ended Mar. 31
------------------------------------------------- ---------------
1991 1992 1993 1994 1995 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 $2,652 $2,870 $ 294 $3,307 $4,022 $3,357 $3,823
Fixed charges excluding capitalized interest 435 584 631 569 571 438 432
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,087 $3,454 $ 925 $3,876 $4,593 $3,795 $4,255
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- --------------------------------------------
Interest expense $ 395 $ 510 $ 552 $ 482 $ 488 $ 368 $ 367
1/3 of rental expense 40 74 79 87 83 70 65
------ ------ ------ ------ ------ ------ ------
435 584 631 569 571 438 432
Capitalized interest 17 25 25 19 23 8 5
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $ 452 $ 609 $ 656 $ 588 $ 594 $ 446 $ 437
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 6.8 5.7 1.4 6.6 7.7 8.5 9.7
</TABLE>
<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, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,022
<SECURITIES> 446
<RECEIVABLES> 3,465
<ALLOWANCES> 0
<INVENTORY> 3,437
<CURRENT-ASSETS> 11,203
<PP&E> 18,076
<DEPRECIATION> 7,067
<TOTAL-ASSETS> 28,097
<CURRENT-LIABILITIES> 7,649
<BONDS> 5,169
0
1,891
<COMMON> 686
<OTHER-SE> 9,152
<TOTAL-LIABILITY-AND-EQUITY> 28,097
<SALES> 26,704
<TOTAL-REVENUES> 26,704
<CGS> 15,502
<TOTAL-COSTS> 7,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> 3,802
<INCOME-TAX> 1,310
<INCOME-CONTINUING> 2,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,492
<EPS-PRIMARY> 3.52
<EPS-DILUTED> 3.30
</TABLE>
EXHIBIT (99)
PRESS RELEASE
LITIGATION SETTLEMENT
FOR IMMEDIATE RELEASE
---------------------
P&G SETTLES DERIVATIVES LAWSUIT WITH BANKERS TRUST
---------------------------------------------------
CINCINNATI, May 9, 1996 -- The Procter & Gamble Company today reached
an agreement to settle its lawsuit against Bankers Trust. The suit involves two
derivative contracts on which Bankers Trust claimed P&G owed approximately $200
million. Under the terms of the agreement, P&G will absorb $35 million of the
amount in dispute, and Bankers Trust will absorb the rest, or about 83% of the
total.
"We are pleased with the settlement and are glad to have this issue
resolved," said John E. Pepper, P&G chairman and chief executive.
The settlement with Bankers Trust will be charged to the reserve that
was established in March, 1994. As a result of the settlement, fourth quarter
1996 results will reflect a reversal of the remaining reserve, increasing
before-tax earnings by approximately $120 million.
# # #
P&G Contacts: Linda L. Ulrey (513) 983-9332
Elaine Plummer (513) 983-7756
Corporate Communications (513) 945-8500
-13-
