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, 1997 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 1,343,992,178 shares of Common Stock outstanding as of October 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 months ended September 30, 1997 and 1996, the
Consolidated Balance Sheets as of September 30, 1997 and June 30, 1997, and the
Consolidated Statements of Cash Flows for the three months ended September 30,
1997 and 1996 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
1997 1996
---- ----
<S> <C> <C>
NET SALES $9,355 $8,903
Cost of products sold 5,208 5,050
Marketing, research, and administrative expenses 2,408 2,306
------ ------
OPERATING INCOME 1,739 1,547
Interest expense 121 112
Other income, net 51 56
------ ------
EARNINGS BEFORE INCOME TAXES 1,669 1,491
Income taxes 582 512
------ ------
NET EARNINGS $1,087 $ 979
====== ======
NET EARNINGS PER COMMON SHARE $ .79 $ .70
FULLY DILUTED NET EARNINGS
PER COMMON SHARE $ .73 $ .65
DIVIDENDS PER COMMON SHARE $ .253 $ .225
AVERAGE COMMON SHARES OUTSTANDING 1,348.3 1,367.6
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Amounts in Millions
September 30 June 30
ASSETS 1997 1997
------------ -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,059 $ 2,350
Investment securities 599 760
Accounts receivable 2,917 2,738
Inventories
Materials and supplies 1,188 1,131
Work in process 291 228
Finished goods 1,854 1,728
Deferred income taxes 630 661
Prepaid expenses and other current assets 1,369 1,190
------- -------
TOTAL CURRENT ASSETS 10,907 10,786
------- -------
PROPERTY, PLANT, AND EQUIPMENT 19,102 18,625
LESS ACCUMULATED DEPRECIATION 7,681 7,249
------- -------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,421 11,376
------- -------
GOODWILL AND OTHER INTANGIBLE ASSETS 5,777 3,949
OTHER NON-CURRENT ASSETS 1,527 1,433
------- -------
TOTAL ASSETS $29,632 $27,544
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 7,193 $ 6,949
Debt due within one year 2,629 849
------- -------
TOTAL CURRENT LIABILITIES 9,822 7,798
------- -------
LONG-TERM DEBT 4,143 4,143
DEFERRED INCOME TAXES 536 559
OTHER NON-CURRENT LIABILITIES 3,022 2,998
SHAREHOLDERS' EQUITY
Preferred stock 1,848 1,859
Common stock-shares outstanding-Sept. 30 1,345.1 1,345 1,351
-June 30 1,350.8
Additional paid-in capital 620 559
Currency translation adjustments (991) (819)
Reserve for ESOP debt retirement (1,612) (1,634)
Retained earnings 10,899 10,730
------- -------
TOTAL SHAREHOLDERS' EQUITY 12,109 12,046
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $29,632 $27,544
======= =======
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Amounts in Millions Three Months Ended September 30
1997 1996
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $2,350 $2,074
OPERATING ACTIVITIES
Net earnings 1,087 979
Depreciation and amortization 388 329
Deferred income taxes (1) (109)
Changes in:
Accounts receivable (98) (8)
Inventories (246) (111)
Accounts payable and accruals 179 162
Other operating assets and liabilities (140) 176
Other 3 25
-------- --------
TOTAL OPERATING ACTIVITIES 1,172 1,443
-------- --------
INVESTING ACTIVITIES
Capital expenditures (543) (400)
Proceeds from asset sales 128 239
Acquisitions (1,956) (10)
Change in investment securities 163 5
-------- --------
TOTAL INVESTING ACTIVITIES (2,208) (166)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (367) (334)
Change in short-term debt 1,731 (9)
Additions to long-term debt 2 11
Reduction of long-term debt (52) (16)
Proceeds from stock options 21 21
Treasury purchases (557) (424)
-------- --------
TOTAL FINANCING ACTIVITIES 778 (751)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (33) (5)
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (291) 521
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,059 $2,595
======== ========
</TABLE>
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS -- FIRST QUARTER FISCAL 1997 COMPARED WITH FIRST QUARTER
FISCAL 1996
Net earnings for the July-September quarter were $ .79 per share, a 13 percent
increase over the same quarter of the prior year. Worldwide net earnings for the
quarter were $1,085 million, an 11 percent increase. The differential between
the earnings per share and net earnings increases was primarily due to the
company's stock repurchase program.
Worldwide net sales for the quarter were $9.4 billion, a five percent increase
over the same quarter of the prior year, on eight percent unit volume growth.
The difference between the sales and volume growth rates was largely due to
weaker currencies in Western Europe and Asia. Net acquisitions and divestitures,
led by the July 1997 addition of Tambrands, contributed one percent to the unit
volume growth rate.
The Company's ongoing program of simplification and standardization did not have
a significant impact on earnings in the current quarter. This program includes
re-engineering of the manufacturing and distribution processes, organization
design projects, consolidation of selected manufacturing facilities, simplified
product line-ups and sales of non-strategic brands.
Gross margin was 44.3 percent for the quarter compared to 43.3 percent in the
same quarter of the prior year and 42.7 percent for the full fiscal year ended
June 30, 1997. The key driver of the margin improvement has been a continuation
of the effective focus on cost control through simplification and
standardization efforts throughout the company. Operating margin was 18.6
percent for the quarter compared to 17.4 percent in the same quarter year ago
and 15.3 percent for the prior fiscal year. This improvement was a reflection of
the higher volumes and gross margins, partially offset by higher costs related
to marketing, research, and administrative activities.
NORTH AMERICA
- -------------
Net sales for the North America region were up six percent, on equal volume
growth. Net earnings grew five percent as the impact of volume growth was
partially offset by increased spending on new product initiatives and provisions
for simplification and standardization projects.
The region's six percent unit volume growth was broad based with contributions
from all segments and was led by the laundry, tissue and towel, and snacks
categories. The tissue and towel and snacks growth was achieved behind increases
in productive capacity. The laundry category continued strong shipments behind
product initiatives. Feminine protection also achieved significant growth driven
primarily by the acquired Tambrands business. Unit volume growth within the
Beauty Care segment was achieved behind new product initiatives in hair care and
deodorants. Health Care achieved unit volume increase in both over the counter
medicines and pharmaceuticals, while continuing to invest in new brand
development.
EUROPE, MIDDLE EAST, AND AFRICA
- -------------------------------
Net sales in Europe, Middle East, and Africa were flat on a 10 percent unit
volume increase, as the favorable impact of volume growth was offset by
unfavorable exchange rates, primarily in Germany, France and Italy. The region's
net earnings grew six percent as the favorable impacts of volume and higher
gross margins were partially offset by higher new brand initiative spending and
unfavorable exchange rates.
The region's unit volume growth was led by continued double digit growth in
Central and Eastern Europe and the Middle East and Africa. Western Europe also
achieved solid unit volume growth led by continued growth in laundry and the
addition of Tambrands.
ASIA
- ----
Net sales in Asia grew four percent for the quarter on unit volume growth of
eight percent, as pricing actions in China and other southeast Asia countries
were offset by weaker currencies throughout the region. The region's net
earnings increased 35 percent as the favorable impacts of volume growth and
pricing were partially offset by increased spending on product initiatives and
unfavorable exchange rates. Asia unit volume growth was led by double digit
growth in China, the Philippines and Indonesia. Importantly, Japan's volume
increased behind new brand initiatives, despite the continuing weakness in
consumer demand in the overall market.
LATIN AMERICA
- -------------
Net sales in Latin America were up 15 percent driven by improved pricing in key
countries. Net earnings increased 112 percent, which included the gain on the
sale of a non-strategic brand. Unit volume for the region was up four percent,
driven by double digit gains in Brazil, which benefited from an acquisition in
the laundry category, and Venezuela. Mexico's unit volume was down, primarily
due to the divestiture of the non-strategic brand.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds:
(a) On October 15, 1997, the Company amended its Amended Articles of
Incorporation (see 8-K filed October 15, 1997) to increase the number of
authorized shares of Common Stock from 2,000,000,000 to 5,000,000,000.
(b) On October 15, 1997, the Company amended its Amended Articles of
Incorporation to change the dividend rate for its Series A ESOP Convertible
Class A Preferred Stock (the "Series A Preferred Stock"), so that such dividend
rate would equal the higher of the existing dividend rate on the Series A
Preferred Stock or the then current dividend on the Company's Common Stock. This
change will result in the conversion of Series A Preferred Stock gradually into
shares of Common Stock, rather than being converted all at once at such time as
the dividend rate on the Common Stock exceeds the dividend rate on the Series A
Preferred Stock. A corresponding change was made to the dividend rate on the
Series B ESOP Convertible Class A Preferred Stock.
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's 1997 Annual Meeting of Shareholders held on October 14, 1997,
the following actions were taken:
The following Directors were elected for terms of office expiring in 2000:
<TABLE>
<CAPTION>
Authority Broker
Votes For Withheld Abstentions<F1> Non-Votes<F1>
----------------------------------------------------------
<S> <C> <C> <C> <C>
Edwin L. Artzt 583,421,618 11,351,066 N/A N/A
Norman R. Augustine 589,931,064 4,841,620 N/A N/A
Richard J. Ferris 589,587,874 5,184,810 N/A N/A
John C. Sawhill 589,832,186 4,940,498 N/A N/A
John F. Smith, Jr. 589,829,996 4,942,688 N/A N/A
Marina v.N. Whitman 589,562,509 5,210,175 N/A N/A
<FN>
<F1>Pursuant to the terms of the Notice of Annual Meeting and Proxy Statements,
proxies received were voted, unless authority was withheld, in favor of the
election of the six nominees named.
</FN>
</TABLE>
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, 1998, was approved by the shareholders. The shareholders cast
590,205,490 votes in favor of this proposal and 1,965,859 votes against. There
were 2,601,335 abstentions.
A proposal by the Board of Directors to amend the Amended Articles of
Incorporation to increase the authorized shares of Common Stock was approved by
the shareholders. The shareholders cast 498,186,203 votes in favor of this
proposal and 93,528,199 votes against. There were 3,058,282 abstentions.
A proposal by the Board of Directors to amend the Amended Articles of
Incorporation to revise the terms of the Preferred Stock was approved by the
shareholders. The shareholders cast votes as follows:
<TABLE>
<CAPTION>
Common and Common Stock Series B Preferred
Preferred Stock Stock
-------------------------------------------------------
<S> <C> <C> <C>
Votes for 521,018,896 472,145,951 18,211,999
Votes Against 8,359,304 7,577,820 397,676
Abstentions 6,025,605 5,318,910 412,743
Broker Non-Votes 59,368,879 59,368,879 0
</TABLE>
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 168,409,296
votes in favor of the resolution and 348,606,400 against. There were 18,353,911
abstentions and 59,403,077 broker non-votes.
A shareholder resolution proposed by the Sisters of the Holy Names of
Washington, in conjunction with six co-sponsoring religious organizations, was
defeated by the shareholders. The proposal requested the Company to report on
the steps it would take to eliminate the use of chlorine in paper and pulp
products. The Board opposed the resolution. The shareholders cast 28,902,894
votes in favor of the resolution and 472,117,965 against. There were 34,376,907
abstentions and 59,374,918 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3-1) Amended Articles of Incorporation (Incorporated by reference to the
Company's 8-K filed on October 15, 1997).
(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 September 11, September 29, October 27, October 30,
November 5 and November 10, 1997.
Also the Company filed a Current Report on Form 8-K pursuant to Item 5
entitled "Other Events" and Item 7 "Financial Statements and Exhibits"
dated October 15, 1997 containing the Amended Articles of Incorporation.
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/D. R. WALKER
- --------------------------------------
D. R. Walker
Vice President and Comptroller
(Principal Accounting Officer)
Date: November 13, 1997
EXHIBIT INDEX
Exhibit No. Page No.
(3-1) Amended Articles of Incorporation (Incorporated by reference to
the Company's 8-K filed on October 15, 1997).
(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 September 30
1997 1996
-------- --------
<S> <C> <C>
NET EARNINGS PER SHARE
- ----------------------
Net earnings $1,087 $ 979
Deduct preferred stock dividends 26 26
-------- --------
Net earnings applicable to common stock $1,061 $ 953
- --------------------------------------- ======== ========
Average number of common shares outstanding 1,348.3 1,367.6
Per Share
- ---------
Net earnings per share $ .79 $ .70
======== ========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $1,087 $ 979
Deduct differential -- preferred
vs. common dividends 7 8
-------- --------
Net earnings applicable to common stock $1,080 $ 971
- --------------------------------------- ======== ========
Average number of common shares outstanding 1,348.3 1,367.6
Add potential effect of:
Exercise of options 25.0 20.6
Conversion of preferred stock 100.6 102.4
-------- --------
Average number of common shares
outstanding, assuming full dilution 1,473.9 1,490.6
======== ========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution $ .73 $ .65
======== ========
</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
------------------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
<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 $ 294 $3,307 $4,022 $4,695 $5,274 $1,486 $1,676
Fixed charges, excluding capitalized interest 631 569 571 576 534 136 146
------- ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $ 925 $3,876 $4,593 $5,271 $5,808 $1,622 $1,822
======= ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense (including capitalized interest) $ 577 $ 501 $ 511 $ 493 $ 457 $ 112 $ 121
1/3 of rental expense 79 87 83 92 77 24 25
------- ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $ 656 $ 588 $ 594 $ 585 $ 534 $ 136 $ 146
======= ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 1.4 6.6 7.7 9.0 10.9 11.9 12.5
</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, 1997 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-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,059
<SECURITIES> 599
<RECEIVABLES> 2,990
<ALLOWANCES> (73)
<INVENTORY> 3,336
<CURRENT-ASSETS> 10,907
<PP&E> 19,102
<DEPRECIATION> 7,681
<TOTAL-ASSETS> 29,632
<CURRENT-LIABILITIES> 9,822
<BONDS> 4,143
0
1,848
<COMMON> 1,345
<OTHER-SE> 8,916
<TOTAL-LIABILITY-AND-EQUITY> 29,632
<SALES> 9,355
<TOTAL-REVENUES> 9,355
<CGS> 5,208
<TOTAL-COSTS> 2,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 1,669
<INCOME-TAX> 583
<INCOME-CONTINUING> 1,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,087
<EPS-PRIMARY> .79
<EPS-DILUTED> .73
</TABLE>
