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 December 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 686,413,929 shares of Common Stock outstanding as of January 19,
1996.
-1-
<PAGE>
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 Six Months Ended
December 31 December 31
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $9,090 $8,485 $18,117 $16,662
Cost of products sold 5,265 4,840 10,476 9,476
Marketing, research, and
administrative expenses 2,473 2,437 4,854 4,708
-------- -------- -------- --------
OPERATING INCOME 1,352 1,208 2,787 2,478
Interest expense 123 125 246 244
Other income, net 52 76 114 161
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 1,281 1,159 2,655 2,395
Income taxes 445 409 923 853
-------- -------- -------- --------
NET EARNINGS $ 836 $ 750 $ 1,732 $ 1,542
======== ======== ======== ========
PER COMMON SHARE:
Net earnings $ 1.18 $ 1.06 $ 2.45 $ 2.18
Net earnings assuming full dilution $ 1.11 $ .99 $ 2.29 $ 2.04
Dividends $ .40 $ .35 $ .80 $ .70
AVERAGE COMMON SHARES OUTSTANDING 686.5 685.2
</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
December 31 June 30
ASSETS 1995 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,668 $ 2,028
Investment securities 448 150
Accounts receivable 3,899 3,562
Inventories
Raw materials and supplies 1,417 1,315
Work in process 271 247
Finished products 1,857 1,891
Deferred income taxes 790 804
Prepaid expenses and other current assets 1,093 845
--------- ---------
11,443 10,842
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT 17,913 17,739
LESS ACCUMULATED DEPRECIATION 6,953 6,713
--------- ---------
10,960 11,026
--------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,304 4,572
OTHER ASSETS 1,508 1,685
--------- ---------
TOTAL $28,215 $28,125
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,860 $ 7,678
Debt due within one year 1,418 970
--------- ---------
8,278 8,648
--------- ---------
LONG-TERM DEBT 4,978 5,161
OTHER LIABILITIES 2,958 3,196
DEFERRED INCOME TAXES 617 531
SHAREHOLDERS' EQUITY
Preferred stock 1,901 1,913
Common stock-shares outstanding-Dec. 31 686,027,828 686 687
-June 30 686,574,055
Additional paid-in capital 763 693
Currency translation adjustments (181) 65
Reserve for ESOP debt retirement (1,705) (1,734)
Retained earnings 9,920 8,965
--------- ---------
11,384 10,589
--------- ---------
TOTAL $28,215 $28,125
========= =========
</TABLE>
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<PAGE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of Dollars Six Months Ended December 31
1995 1994
-------- --------
<S> <C> <C>
Cash and Cash Equivalents, beginning of year $2,028 $2,373
OPERATING ACTIVITIES
Net earnings 1,732 1,542
Depreciation, depletion and amortization 651 603
Deferred income taxes 164 155
Increase in accounts receivable (452) (447)
Increase in inventories (190) (109)
Change in payables and accrued liabilities (549) 36
Decrease in other liabilities (175) (308)
Other (56) (202)
-------- --------
1,125 1,270
-------- --------
INVESTING ACTIVITIES
Capital expenditures (992) (866)
Proceeds from asset sales and retirements 239 158
Acquisitions (147) (616)
Change in investment securities (300) 106
-------- --------
(1,200) (1,218)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (601) (531)
Additions to short-term debt 848 260
Additions to long-term debt 64 328
Reduction of long-term debt (419) (312)
Proceeds from stock options 32 28
Purchase of treasury shares (175) (9)
-------- --------
(251) (236)
EFFECT OF EXCHANGE RATE CHANGES ON CASH -------- --------
AND CASH EQUIVALENTS (34) (5)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (360) (189)
-------- --------
Cash and Cash Equivalents, end of period $1,668 $2,184
======== ========
SUPPLEMENTAL DISCLOSURE Non-cash transactions:
Liabilities assumed in acquisitions 12 449
Reduction in employee stock ownership plan debt,
guaranteed by the Company 29 26
Conversion of preferred to common stock 12 16
<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 December 31, 1995 were $836
million, an 11% increase over the same quarter of the prior year net earnings of
$750 million. Earnings per share for the quarter were $1.18 compared to $1.06
per share in the second quarter of the prior year, also an 11% increase.
Worldwide net sales were $9,090 million, representing an increase of 7% over the
same quarter of the prior year, on 8% unit volume growth.
For the first six months of the fiscal year, worldwide net earnings were $1,732
million or $2.45 per share, an increase of 12% over the same period of the prior
year. Worldwide net sales increased 9% to $18,117 million, on comparable unit
volume growth.
Gross margin was 42.1% for the current quarter versus 43.0% for the same quarter
of the prior year. Raw material prices, primarily pulp, continued to affect
margin trends. As a comparison, the prior full fiscal year gross margin was
41.5%. Operating margin for the quarter was 14.9%, an improvement over 14.2% for
the same quarter of the prior year. The improvement reflects the effect of
continued cost control efforts.
NORTH AMERICA
Net sales and unit volume for the North American region grew 7% over the same
quarter of the prior year. Earnings for the region increased 9%. The Laundry &
Cleaning business led the region's growth, propelled by a significant unit
volume increase. The Paper business also contributed to the unit volume growth,
with particular strength in the tissue and towel and diaper categories. Margins
continued to be affected by an increase in pulp prices over same quarter prior
year. The Beauty Care and Food & Beverage businesses maintained strong unit
volume growth, with double-digit growth in the hair care, coffee, juice and
personal cleansing categories. The results of the Health Care business were
affected by heavy competitive activity in the oral care and gastro-intestinal
categories, which has hampered unit volume growth.
For the July-December period, the North American region had unit volume and
sales growth of 7%. Net earnings increased 8% over the prior year.
EUROPE
Second quarter sales for the Europe, Middle East and Africa region increased
11% over the same quarter of the prior year. The increase was led by a 7% unit
volume growth, complemented by favorable pricing and exchange rates. Central and
Eastern Europe achieved volume growth of over 50% with increased expansion into
these markets, contributing nearly half of the region's unit volume growth. Net
earnings for the region were up 26%, as incremental restructuring savings and
on-going cost control benefits were realized. A simplification of trade terms
has recently been announced, which could negatively affect growth trends in the
short-term. This move to value pricing eliminates inefficient promotion costs
by rolling them into lower list prices. When implemented in the United
States, this change led to improved results.
Europe experienced 9% unit volume growth for the July-December period with a 14%
increase in sales. Net earnings increased 23% over the same period of the prior
year.
-5-
<PAGE>
ASIA
Asia achieved unit volume growth of 16%, led primarily by record shipments in
China. Sales for the region increased 6%, with a 7% net earnings increase.
Unfavorable exchange rates, lower pricing and product mix limited the sales and
earnings growth relative to the increased unit volume. Laundry and Beauty Care
continued to lead growth within the region, experiencing double-digit volume
increases.
For the first six months of the fiscal year, Asia had a 19% increase in unit
volume and 9% sales growth. Net earnings increased by 8% over the prior period.
LATIN AMERICA
Despite continuing economic difficulties in Latin America, the region delivered
8% unit volume growth in the quarter. Exchange effects, combined with higher
costs, resulted in a sales and net earnings decline of 4% and 1%, respectively.
Significant unit volume growth in Brazil and Venezuela compensated for flat
unit volume in Mexico. Excluding Mexico, net earnings for the region increased
by 22%.
For the July-December period, unit volume for the region grew 7%. Sales and net
earnings both declined 4% from the prior year period.
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-Dec. Balance
Reserve 6/30/95 Charges 12/31/95
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Separation-related costs<F1> $ 965 $ 369 $ 57 $ 312
Disposals of Fixed Assets 1,109 597 84 513
Other<F2> 328 194 5 189
-------- -------- ------ --------
$ 2,402 $ 1,160 $ 146 $ 1,014
======== ======== ====== ========
<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>
-6-
<PAGE>
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 employees.
Benefits continue to be obtained from the restructuring program. Incremental
savings of approximately $25 million after-tax are estimated for the
October-December quarter, bringing cumulative restructuring savings near the
$500 million after-tax objective established in June 1993. Based on current
projections, the Company believes cumulative restructuring savings ultimately
may 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 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 December 31,
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: February 13, 1996
-7-
<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 9
(12) Computation of Ratio of Earnings to Fixed Charges 10
(27) Financial Data Schedule 11
-8-
EXHIBIT (11)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
Dollars and Share Amounts in Millions
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
---------------------- ---------------------
<S> <C> <C> <C> <C>
NET EARNINGS PER SHARE 1995 1994 1995 1994
- ---------------------- -------- -------- -------- --------
Net earnings $ 836 $ 750 $1,732 $1,542
Deduct preferred stock dividends 26 26 52 51
-------- -------- -------- --------
Net earnings applicable to common stock $ 810 $ 724 $1,680 $1,491
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 686.5 685.2 686.5 685.2
Per Share
- ------------
Net earnings per share $ 1.18 $ 1.06 $ 2.45 $ 2.18
======== ======== ======== ========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $ 836 $ 750 $1,732 $1,542
Deduct differential -- preferred
vs. common dividends 10 11 20 23
-------- -------- -------- --------
Net earnings applicable to common stock $ 826 $ 739 $1,712 $1,519
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 686.5 685.2 686.5 685.2
Add potential effect of:
Exercise of options 9.4 7.4 9.4 7.4
Conversion of preferred stock 52.1 53.0 52.1 53.0
-------- -------- -------- --------
Average number of common shares
outstanding, assuming full dilution 748.0 745.6 748.0 745.6
======== ======== ======== ========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution 1.11 $ .99 2.29 $ 2.04
======== ======== ======== ========
</TABLE>
-9-
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
Millions of Dollars
<CAPTION>
Six Months
Years Ended June 30 Ended Dec. 31
-------------------------------------------------- ---------------
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 $2,414 $2,663
Fixed charges excluding capitalized interest 435 584 631 569 571 291 268
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,087 $3,454 $ 925 $3,876 $4,593 $2,705 $2,931
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense $ 395 $ 510 $ 552 $ 482 $ 488 $ 244 $ 246
1/3 of rental expense 40 74 79 87 83 47 22
------ ------ ------ ------ ------ ------ ------
435 584 631 569 571 291 268
Capitalized interest 17 25 25 19 23 5 1
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $ 452 $ 609 $ 656 $ 588 $ 594 $ 296 $ 269
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 6.8 5.7 1.4 6.6 7.7 9.1 10.9
</TABLE>
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED DECEMBER 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,668
<SECURITIES> 448
<RECEIVABLES> 3,899
<ALLOWANCES> 0
<INVENTORY> 3,545
<CURRENT-ASSETS> 11,443
<PP&E> 17,913
<DEPRECIATION> 6,953
<TOTAL-ASSETS> 28,215
<CURRENT-LIABILITIES> 8,278
<BONDS> 4,978
0
1,901
<COMMON> 686
<OTHER-SE> 8,797
<TOTAL-LIABILITY-AND-EQUITY> 28,215
<SALES> 18,117
<TOTAL-REVENUES> 18,117
<CGS> 10,476
<TOTAL-COSTS> 4,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> 2,655
<INCOME-TAX> 923
<INCOME-CONTINUING> 1,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,732
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.29
</TABLE>
