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, 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 677,363,608 shares of Common Stock outstanding as of April 18, 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 nine months ended March 31, 1997 and 1996, the
Consolidated Balance Sheets as of March 31, 1997 and June 30, 1996, and the
Consolidated Statements of Cash Flows for the nine months ended March 31, 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 STATEMENT OF EARNINGS
<CAPTION>
Millions of Dollars Except Per Share Amounts
Three Months Ended Nine Months Ended
March 31 .. March 31
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES $ 8,771 $ 8,587 $26,816 $26,704
Cost of products sold 4,918 5,026 14,988 15,502
Marketing, research, and
administrative expenses 2,470 2,368 7,377 7,222
------- ------- ------- -------
OPERATING INCOME 1,383 1,193 4,451 3,980
Interest expense 106 121 352 367
Other income, net 53 75 154 189
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES 1,330 1,147 4,253 3,802
Income taxes 449 387 1,449 1,310
------- ------- ------- -------
NET EARNINGS $ 881 $ 760 $ 2,804 $ 2,492
======= ======= ======= =======
PER COMMON SHARE:
Net earnings $ 1.26 $ 1.07 $ 4.00 $ 3.52
Net earnings assuming full dilution $ 1.18 $ 1.01 $ 3.74 $ 3.30
Dividends $ .45 $ .40 $ 1.35 $ 1.20
AVERAGE COMMON SHARES OUTSTANDING 681.4 686.5
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of Dollars
March 31 June 30
ASSETS 1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,421 $ 2,074
Investment securities 562 446
Accounts receivable 2,728 2,841
Inventories
Materials and supplies 1,158 1,254
Work in process 281 210
Finished products 1,649 1,666
Deferred income taxes 705 598
Prepaid expenses and other current assets 1,365 1,718
-------- --------
TOTAL CURRENT ASSETS 10,869 10,807
-------- --------
PROPERTY, PLANT, AND EQUIPMENT 18,377 18,112
LESS ACCUMULATED DEPRECIATION 7,303 6,994
-------- --------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,074 11,118
-------- --------
GOODWILL AND OTHER INTANGIBLE ASSETS 4,032 4,281
OTHER ASSETS 1,490 1,524
-------- --------
TOTAL ASSETS $ 27,465 $ 27,730
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,392 $ 6,709
Debt due within one year 1,232 1,116
-------- --------
TOTAL CURRENT LIABILITIES 7,624 7,825
-------- --------
LONG-TERM DEBT 4,001 4,670
DEFERRED INCOME TAXES 712 638
OTHER NON-CURRENT LIABILITIES 2,776 2,875
SHAREHOLDERS' EQUITY
Preferred stock 1,866 1,886
Common stock-shares outstanding-Mar. 31 679.1 679 686
-June 30 685.6
Additional paid-in capital 1,074 862
Currency translation adjustments (771) (418)
Reserve for ESOP debt retirement (1,637) (1,676)
Retained earnings 11,141 10,382
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,352 11,722
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 27,465 $ 27,730
======== ========
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of Dollars Nine Months Ended March 31
1997 1996
------- -------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 2,074 $ 2,028
OPERATING ACTIVITIES
Net earnings 2,804 2,492
Depreciation and amortization 1,012 975
Deferred income taxes (19) 187
Change in:
Accounts receivable 29 (4)
Inventories (60) (109)
Accounts Payables and Accruals (7) (742)
Other Operating Assets & Liabilities 167 (435)
Other 83 92
------- -------
TOTAL OPERATING ACTIVITIES 4,009 2,456
------- -------
INVESTING ACTIVITIES
Capital expenditures (1,322) (1,475)
Proceeds from asset sales and retirements 284 326
Acquisitions (121) (144)
Change in investment securities (93) (296)
------- -------
TOTAL INVESTING ACTIVITIES (1,252) (1,589)
------- -------
FINANCING ACTIVITIES
Dividends to shareholders (998) (902)
Change in short-term debt (49) 449
Additions to long-term debt 24 329
Reduction of long-term debt (389) (461)
Proceeds from stock options 103 74
Purchase of treasury shares (1,058) (310)
------- -------
TOTAL FINANCING ACTIVITIES (2,367) (821)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (43) (52)
------- -------
CHANGE IN CASH AND CASH EQUIVALENTS 347 (6)
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD 2,421 $ 2,022
======= =======
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
- ---------------------
Worldwide net earnings for the third quarter of fiscal year 1997 were $881
million, a 16% increase over the same quarter of the prior year. Earnings per
share for the quarter were $1.26, an 18% increase over the same quarter of the
prior year. The difference between the net earnings and earnings per share
increases was primarily due to the company's share repurchase program.
Net sales for the quarter were $8.77 billion, up 2% compared to the prior year
third quarter sales of $8.59 billion. Worldwide unit volume grew 4% from the
third quarter a year ago. Weaker currencies in Europe, Asia and Latin America
negatively impacted sales, causing the difference between sales and volume
growth rates.
In the first nine months of the fiscal year, worldwide net earnings were $2.80
billion, a 13% increase compared to the same prior year period. Year-to-date
earnings per share were $4.00 per share, a 14% increase over the prior year.
Worldwide unit volume for the first nine months was up 2% over the prior year,
while sales were relatively stable at $26.8 billion, primarily reflecting
unfavorable exchange rates.
Gross margin was 43.9% for the current quarter, compared to 41.5% in the third
quarter of the prior year and 41.2% for the full fiscal year ended June 30,1996.
The key driver of the margin improvement has been cost reduction programs
throughout the company and lower commodity prices, primarily pulp. Operating
margin was 15.8% for the current quarter, an improvement over the 13.9%
operating margin in the prior year third quarter and 13.6% for the prior fiscal
year. This improvement was a reflection of higher gross margins, partially
offset by increased costs related to marketing, research and administrative
activities.
North America
- -------------
Net sales for the North America region remained relatively stable compared with
the third quarter a year ago, on a 2% unit volume increase. The difference
between sales and volume growth rates is primarily a reflection of lower pricing
in the laundry category and commodity-based price reductions in the paper
categories. Third quarter net earnings for the region increased 6% (compared to
the same prior year period), as the region continued to benefit from
simplification and standardization cost savings.
The region's unit volume growth was led by the laundry, fabric conditioners and
snacks categories. Importantly, laundry achieved volume growth over a very
strong year ago base period and snacks continued to achieve double digit unit
volume growth, benefitting from new production capacity. The paper business also
increased unit volume led by strong growth in the feminine protection category
and the Scott Baby Fresh acquisition in the diaper/wipes category. Beauty care
volume declined in the current quarter due to softness in the hair care
category, primarily reflecting trade inventory adjustments. Excluding the
impacts of the prior year period divestiture of the Company's share of a joint
venture, unit volume in the health care business improved over prior year period
due to increased respiratory care volume. Health care's earnings also showed
strong improvement due to increased licensing activity.
For the first nine months of the fiscal year, the North American region had net
sales and unit volume growth of 1% and 3%, respectively. Year to date net
earnings increased 10% over the prior year.
Europe, Middle East and Africa
- ------------------------------
Third quarter net sales in Europe, Middle East and Africa increased by 3%
compared to the prior year quarter, as unit volume growth of 9% was partially
offset by unfavorable exchange rates. Net earnings for the quarter grew 20%
compared to the same period a year ago, reflecting volume gains and cost savings
as the region begins to benefit from Efficient Consumer Response (ECR).
Central and Eastern Europe led the region's volume growth, increasing shipments
by over 45%. The Middle East and Africa also had double digit increases. Market
share for these two geographies continues to build across most core categories.
Importantly, Western Europe, led by Germany, showed volume improvement over the
comparable prior year period in which the Company began its transition to ECR.
For the July-March period, the region's net sales remained stable on unit volume
growth of 6%, reflecting unfavorable exchange rates and lower pricing. Year to
date net earnings increased 18% over prior year.
Asia
- ----
Asia continued to be impacted by the transition to ECR and competitive pressures
in Japan. Third quarter sales for the region increased 1% over the same prior
year period, as improved pricing and product mix offset continued softness in
Japan and the impact of unfavorable exchange rates. Unit volume growth declined
by 1% during the quarter, with the negative impacts of Japan largely offset by
the acceleration of unit volume growth rates in the Philippines and the
continued growth in China. Net earnings for the quarter grew by 37%, driven
primarily by pricing actions and improved product mix.
Net sales and unit volume for the July-March period declined 7% and 6%,
respectively. Year-to-date net earnings for the period were up 12%.
Latin America
- -------------
Net sales for the third quarter in Latin America grew 12% compared to the prior
year quarter, on unit volume growth of 1%, as pricing designed to address
inflation and devaluation was partially offset by unfavorable exchange rates.
The region continues to be impacted by economic difficulties in certain key
markets, as acquisitions in the laundry category were largely responsible for
the unit volume increase. Net earnings for the quarter increased 53% on improved
margins, primarily reflecting pricing, as well as the impact of divestitures of
certain non-strategic brands.
For the July-March period, net sales and net earnings were up 5% and 33%,
respectively. The region's year-to-date unit volume was down 3% for the first
three quarters.
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 March
31, 1997 was approximately $380 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.
Pending Acquisition
- -------------------
In April 1997, the Company entered into an agreement to acquire Tambrands, Inc.,
a company in the feminine hygiene category, for approximately $2 billion. The
acquisition is subject to approval by the shareholders of Tambrands, Inc., and
regulatory clearance. It is expected to close in fiscal 1998.
Pending Accounting Pronouncements
- ---------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which revises the manner in which earnings per share
is calculated. The statement is effective for our reporting period ending
December 31, 1997 and is not expected to have a significant impact on the
Company's earnings per share.
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 February 21, 1997, March 4, 1997, March 24, 1997,
April 7, 1997, April 9, 1997, April 23, 1997, April 25, 1997 and May 2,
1997.
The Company also filed a Current Report on Form 8-K pursuant to Item 5
entitled "Other Events" dated April 9, 1997 containing a joint press
release by the Company and Tambrands Inc. and the Agreement and Plan of
Merger among the Company, C. R. MacIntosh, Inc. and Tambrands Inc.
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 8, 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 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 Nine Months Ended
March 31 March 31
------------------ -----------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
NET EARNINGS PER SHARE
Net earnings $ 881 $ 760 $ 2,804 $ 2,492
Deduct preferred stock dividends 26 26 78 78
-------- -------- --------- ---------
Net earnings applicable to common stock $ 855 $ 734 $ 2,726 $ 2,414
- --------------------------------------- ======== ======== ========= =========
Average number of common shares outstanding 681.4 686.5 681.3 686.5
Per Share
- ---------
Net earnings per share $ 1.26 $ 1.07 $ 4.00 $ 3.52
======== ======== ========= =========
NET EARNINGS PER SHARE ASSUMING
FULL DILUTION
- -------------------------------
Net earnings $ 881 $ 760 $ 2,804 $ 2,492
Deduct differential -- preferred
vs. common dividends 8 9 24 29
-------- -------- --------- ---------
Net earnings applicable to common stock $ 873 $ 751 $ 2,780 $ 2,463
- --------------------------------------- ======== ======== ========= =========
Average number of common shares outstanding 681.4 686.5 681.3 686.5
Add potential effect of:
Exercise of options 10.6 8.7 10.7 8.7
Conversion of preferred stock 51.0 52.0 51.0 52.0
-------- -------- --------- ---------
Average number of common shares
outstanding, assuming full dilution 743.0 747.2 743.0 747.2
======== ======== ========= =========
Per share assuming full dilution
- --------------------------------
Net earnings per share assuming full dilution $ 1.18 $ 1.01 $ 3.74 $ 3.30
========= ======== ========= =========
</TABLE>
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
------------------------------------------ ----------------
1992 1993 1994 1995 1996 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 $2,870 $ 294 $3,307 $4,022 $4,695 $3,823 $4,215
Fixed charges excluding capitalized interest 584 631 569 571 576 432 420
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,454 $ 925 $3,876 $4,593 $5,271 $4,255 $4,635
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense including capitalized interest $ 535 $ 577 $ 501 $ 511 $ 493 $ 372 $ 352
1/3 of rental expense 74 79 87 83 92 65 68
------ ------ ------ ------ ------ ------ ------
$ 609 $ 656 $ 588 $ 594 $ 585 $ 437 $ 420
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 5.7 1.4 6.6 7.7 9.0 9.7 11.0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENS FOR THE
NINE MONTHS ENDED MARCH 31, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,421
<SECURITIES> 562
<RECEIVABLES> 2,728
<ALLOWANCES> 0
<INVENTORY> 3,088
<CURRENT-ASSETS> 10,869
<PP&E> 18,377
<DEPRECIATION> 7,303
<TOTAL-ASSETS> 27,465
<CURRENT-LIABILITIES> 7,624
<BONDS> 4,001
0
1,866
<COMMON> 679
<OTHER-SE> 9,807
<TOTAL-LIABILITY-AND-EQUITY> 27,465
<SALES> 26,816
<TOTAL-REVENUES> 26,816
<CGS> 14,988
<TOTAL-COSTS> 7,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352
<INCOME-PRETAX> 4,253
<INCOME-TAX> 1,449
<INCOME-CONTINUING> 2,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,804
<EPS-PRIMARY> 4.00
<EPS-DILUTED> 3.74
</TABLE>
