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, 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 679,464,805 shares of Common Stock outstanding as of January 24,
1997.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Consolidated Statements of Earnings of The Procter & Gamble Company and
subsidiaries for the three and six months ended December 31, 1996 and 1995, the
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1996, and the
Consolidated Statements of Cash Flows for the six months ended December 31, 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 STATEMENT OF EARNINGS
<CAPTION>
Millions of Dollars Except Per Share Amounts
Three Months Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $9,142 $9,090 $18,045 $18,117
Cost of products sold 5,068 5,265 10,070 10,476
Marketing, research, and
administrative expenses 2,553 2,473 4,907 4,854
-------- -------- --------- ---------
OPERATING INCOME 1,521 1,352 3,068 2,787
Interest expense 134 123 246 246
Other income, net 45 52 101 114
-------- -------- --------- ---------
EARNINGS BEFORE INCOME TAXES 1,432 1,281 2,923 2,655
Income taxes 488 445 1,000 923
-------- -------- --------- ---------
NET EARNINGS $ 944 $ 836 1,923 $ 1,732
======== ======== ========= =========
PER COMMON SHARE:
Net earnings $ 1.35 $ 1.18 $ 2.74 $ 2.45
Net earnings assuming full dilution $ 1.26 $ 1.11 $ 2.56 $ 2.29
Dividends $ .45 $ .40 $ .90 $ .80
AVERAGE COMMON SHARES OUTSTANDING 682.2 686.5
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
<CAPTION>
Amounts in Millions
December 31 June 30
1996 1996
ASSETS --------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,189 $ 2,074
Investment securities 532 446
Accounts receivable 2,928 2,841
Inventories
Materials and supplies 1,257 1,254
Work in process 279 210
Finished products 1,691 1,666
Deferred income taxes 764 598
Prepaid expenses and other current assets 1,481 1,718
--------- ---------
TOTAL CURRENT ASSETS 11,121 10,807
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT 18,641 18,112
LESS ACCUMULATED DEPRECIATION 7,371 6,994
--------- ---------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,270 11,118
--------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,203 4,281
OTHER NON-CURRENT ASSETS 1,526 1,524
--------- ---------
TOTAL ASSETS $28,120 $27,730
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,846 $ 6,709
Debt due within one year 1,118 1,116
--------- ---------
TOTAL CURRENT LIABILITIES 7,964 7,825
--------- ---------
LONG-TERM DEBT 4,283 4,670
DEFERRED INCOME TAXES 698 638
OTHER NON-CURRENT LIABILITIES 2,864 2,875
SHAREHOLDERS' EQUITY
Preferred stock 1,874 1,886
Common stock-shares outstanding-Dec. 31 679.5 680 686
-June 30 685.6
Additional paid-in capital 968 862
Currency translation adjustments (436) (418)
Reserve for ESOP debt retirement (1,645) (1,676)
Retained earnings 10,870 10,382
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 12,311 11,722
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,120 $27,730
========= =========
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Amounts in Millions
Six Months Ended December 31
1996 1995
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $2,074 $2,028
OPERATING ACTIVITIES
Net earnings 1,923 1,732
Depreciation, depletion and amortization 667 651
Deferred income taxes (89) 164
Increase in accounts receivable (83) (421)
Increase in inventories (102) (190)
Change in accounts payable and accruals 222 (549)
Change in other operating assets and liabilities 74 (531)
Other 10 269
-------- --------
TOTAL OPERATING ACTIVITIES 2,622 1,125
-------- --------
INVESTING ACTIVITIES
Capital expenditures (847) (992)
Proceeds from asset sales and retirements 268 239
Acquisitions (121) (147)
Change in investment securities (82) (300)
-------- --------
TOTAL INVESTING ACTIVITIES (782) (1,200)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (667) (601)
Additions to short-term debt 23 848
Additions to long-term debt 8 64
Reduction of long-term debt (350) (419)
Proceeds from stock options 50 32
Purchase of treasury shares (776) (175)
-------- --------
TOTAL FINANCING ACTIVITIES (1,712) (251)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (13) (34)
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS 115 (360)
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,189 $1,668
======== ========
</TABLE>
Item 2. Management Discussion and Analysis
Results of Operations
- ---------------------
Worldwide net earnings for the second quarter of fiscal year 1997 were $944
million, a 13% increase over the same quarter of the prior year. Earnings per
share for the quarter were $1.35 per share, a 14% increase over the same quarter
of last year. The difference between the net earnings and earnings per share
increases was primarily due to the company's stock repurchase program.
Net sales for the quarter were $9.14 billion, up 1% compared to prior year
second quarter sales of $9.09 billion. Worldwide unit volume grew 2% from the
second quarter a year ago. The difference between the sales and unit volume
trends was largely due to weaker currencies in Europe and Asia, primarily
Germany and Japan.
For the first six months of the fiscal year, worldwide net earnings were $1.92
billion, an 11% increase over the prior year. Earnings per share were $2.74 per
share, a 12% increase over the prior year. Worldwide unit volume for the first
six months was up 2% over the prior year, while net sales were stable, primarily
reflecting unfavorable exchange rates.
The company's results were impacted by competitive pressures in Japan and
difficult economic conditions in Latin America. In addition, the continued
roll-out of the Efficient Consumer Response program (ECR) within Europe and Asia
has impacted results. Specifically, as ECR is rolled out in new markets, trade
inventories are reduced, which negatively impacts short-term growth rate trends.
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 44.6% for the current quarter, compared to 42.1% in the second
quarter of the prior year and 41.2% for the full fiscal year ended June 30,
1996. The key driver of the gross margin improvement has been lower commodity
prices, primarily pulp which declined in the latter part of the prior year, and
cost reduction programs throughout the company. Operating margin was 16.6%
compared to 14.9% in the prior second quarter and 13.6% for the prior fiscal
year, reflecting the higher gross margins, partially offset by increased costs
related to marketing, research and administrative activities.
North America
- -------------
Net sales for the North America region increased 3% compared with the same
quarter a year ago, on a 5% unit volume increase. The net sales and unit volume
progress was achieved despite capacity constraints in certain key categories,
particularly tissue and towel. Net earnings for the region increased 15%,
benefiting from lower commodity prices and cost reductions.
The region's volume growth was led by the laundry and cleaning business,
specifically, strong growth in the laundry and fabric softener categories. Food
and beverage also posted strong volume growth on the strength of the snacks
category, which is benefiting from increased capacity, and the coffee category.
The paper business also increased total unit volume, despite continued capacity
constraints in the tissue and towel categories, due to growth generated from
feminine hygiene products. The paper business led the region's earnings growth,
primarily due to lower pulp prices, which declined in the latter part of the
prior year. Beauty Care increased volumes, led by strong growth in the hair
care and deodorants categories. Excluding the impacts of the prior year
divestiture of the Company's share of a joint venture, unit volume in the
health care business increased modestly due to increased volume in oral care.
Importantly, despite the modest unit volume growth, health care's earnings
showed significant improvement due to increased licensing activity.
For the first six months of the fiscal year, the North American region had net
sales and unit volume growth of 2% and 3%, respectively. Net earnings increased
12% over the same period in the prior year.
Europe, Middle East and Africa
- ------------------------------
Net sales in Europe, Middle East and Africa for the second quarter were stable,
as unfavorable exchange rates and lower pricing offset a 4% increase in volume.
Net earnings for the quarter grew 24% compared to the same period a year ago,
reflecting the margin improvement impact of lower costs, led by pulp.
Central and Eastern Europe led the region's volume growth, increasing shipments
by nearly 40%, with strong gains in most core segments. Middle East and Africa
also had double-digit volume growth. Western Europe's unit volume declined
slightly.
For the July-December period, the region's net sales declined 1%. Unit volume
and net earnings increased 4% and 17% respectively, for the same period.
Asia
- ----
Second quarter operations in Asia continue to be impacted by the competitive
environment in Japan, the impact of the ECR roll-out and exchange rate effects.
Sales for the region declined 8% compared to the same quarter of the prior year
on a unit volume decline of 7%. Importantly, China's unit volume growth improved
over the first quarter. A 5% decline in the region's sales attributable to
unfavorable exchange rates was offset by more favorable pricing. Net earnings in
Asia for the second quarter increased 12% on improved margins.
Net sales and unit volume for the July-December period declined 10% and 8%,
respectively. Net earnings increased 2% over the same period in the prior year.
Latin America
- -------------
Net sales in Latin America increased 3% in the second quarter, despite a 3%
decline in volume, due to pricing designed to address inflation and devaluation,
particularly in Mexico. The unit volume decline was caused by the continued
economic difficulties and slow economic recovery in certain key markets. Net
earnings for the region increased 35% on improved margins, reflecting both
pricing and cost reductions from standardization and simplification efforts.
For the July-December period, net sales and net earnings were up 1% and 24%,
respectively. Unit volume was down 5% compared to the same period in the prior
year.
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 December
31, 1996 was approximately $490 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.
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
The Company filed Current Reports on Form 8-K containing information
pursuant to Item 9 entitled "Sales of Equity Securities Pursuant to
Regulations," dated November 18, 1996, December 3, 1996, December 16,
1996, December 20, 1996, January 7, 1997, January 17, 1997 and
January 28, 1997 and an Amended Current Report on Form 8-K containing
information pursuant to Item 9 entitled "Sales of Equity Securities
Pursuant to Regulations," dated December 3, 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
E. H. EATON
- --------------------------------------
E. H. Eaton
Vice President and Comptroller
(Principal Accounting Officer)
Date: February 11, 1997
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
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
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 Six Months Ended
December 31 December 31
------------------ ----------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET EARNINGS PER SHARE
- ----------------------
Net earnings $ 944 $ 836 $1,923 $1,732
Deduct preferred stock dividends 26 26 52 52
-------- -------- -------- --------
Net earnings applicable to common stock $ 918 $ 810 $1,871 $1,680
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 682.2 686.5 682.2 686.5
Per Share
- ---------
Net earnings per share $ 1.35 $ 1.18 $ 2.74 $ 2.45
======== ======== ======== ========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $ 944 $ 836 $1,923 $1,732
Deduct differential -- preferred
vs. common dividends 8 10 16 20
-------- -------- -------- --------
Net earnings applicable to common stock $ 936 $ 826 $1,907 $1,712
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 682.2 686.5 682.2 686.5
Add potential effect of:
Exercise of options 10.9 9.4 10.9 9.4
Conversion of preferred stock 51.2 52.1 51.2 52.1
-------- -------- -------- --------
Average number of common shares
outstanding, assuming full dilution 744.3 748.0 744.3 748.0
======== ======== ======== ========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution 1.26 1.11 2.56 2.29
======== ======== ======== ========
</TABLE>
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
===============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<CAPTION>
Millions of Dollars
Six Months
Years Ended June 30 Ended Dec. 31
-------------------------------------------------- -----------------
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 $2,663 $2,937
Fixed charges excluding capitalized interest 584 631 569 571 576 268 294
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,454 $ 925 $3,876 $4,593 $5,271 $2,931 $3,231
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- --------------------------------------------
Interest expense (including capitalized interest) $ 535 $ 577 $ 501 $ 511 $ 493 $ 247 $ 246
1/3 of rental expense 74 79 87 83 92 22 48
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $ 609 $ 656 $ 588 $ 594 $ 585 $ 269 $ 294
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 5.7 1.4 6.6 7.7 9.0 10.9 11.0
</TABLE>
<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, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,189
<SECURITIES> 532
<RECEIVABLES> 2,928
<ALLOWANCES> 0
<INVENTORY> 3,227
<CURRENT-ASSETS> 11,121
<PP&E> 18,641
<DEPRECIATION> 7,371
<TOTAL-ASSETS> 28,120
<CURRENT-LIABILITIES> 7,964
<BONDS> 4,283
0
1,874
<COMMON> 680
<OTHER-SE> 9,757
<TOTAL-LIABILITY-AND-EQUITY> 28,120
<SALES> 18,045
<TOTAL-REVENUES> 18,045
<CGS> 10,070
<TOTAL-COSTS> 4,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> 2,923
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 1,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,923
<EPS-PRIMARY> 2.74
<EPS-DILUTED> 1.56
</TABLE>
