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, 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 1,342,369,018 shares of Common Stock outstanding as of January 27,
1998.
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, 1997 and 1996, the
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1997, and the
Consolidated Statements of Cash Flows for the six months ended December 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 Six Months Ended
December 31 December 31
1997 1996 1997 1996
------- ------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $9,641 $9,142 $18,996 $18,045
Cost of products sold 5,322 5,095 10,530 10,145
Marketing, research, and
administrative expenses 2,631 2,526 5,039 4,832
-------- -------- --------- ---------
OPERATING INCOME 1,688 1,521 3,427 3,068
Interest expense 141 134 262 246
Other income, net 47 45 98 101
-------- -------- --------- ---------
EARNINGS BEFORE INCOME TAXES 1,594 1,432 3,263 2,923
Income taxes 548 488 1,130 1,000
-------- -------- --------- ---------
NET EARNINGS $1,046 $ 944 $ 2,133 $ 1,923
======== ======== ========= =========
PER COMMON SHARE:
Basic net earnings $ .76 $ .67 $ 1.55 $ 1.37
Dilutive net earnings $ .71 $ .63 $ 1.44 $ 1.28
Dividends $ .253 $ .225 $ .506 $ .45
AVERAGE COMMON SHARES OUTSTANDING 1,346.0 1,364.4
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
<CAPTION>
Amounts in Millions
December 31 June 30
ASSETS 1997 1997
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,305 $ 2,350
Investment securities 1,207 760
Accounts receivable 3,009 2,738
Inventories
Materials and supplies 1,200 1,131
Work in process 302 228
Finished products 1,737 1,728
Deferred income taxes 573 661
Prepaid expenses and other current assets 1,520 1,190
--------- ---------
TOTAL CURRENT ASSETS 10,853 10,786
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT 19,337 18,625
LESS ACCUMULATED DEPRECIATION 7,833 7,249
--------- ---------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,504 11,376
--------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS 6,213 3,949
OTHER NON-CURRENT ASSETS 1,145 1,433
--------- ---------
TOTAL ASSETS $29,715 $27,544
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,522 $ 6,949
Debt due within one year 2,918 849
--------- ---------
TOTAL CURRENT LIABILITIES 9,440 7,798
--------- ---------
LONG-TERM DEBT 4,587 4,143
DEFERRED INCOME TAXES 598 559
OTHER NON-CURRENT LIABILITIES 2,972 2,998
SHAREHOLDERS' EQUITY
Preferred stock 1,842 1,859
Common stock-shares outstanding-Dec. 31 1,341.8 1,342 1,351
-June 30 1,350.8
Additional paid-in capital 667 559
Currency translation adjustments (1,303) (819)
Reserve for ESOP debt retirement (1,613) (1,634)
Retained earnings 11,183 10,730
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 12,118 12,046
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $29,715 $27,544
========= =========
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Amounts in Millions
Six Months Ended December 31
1997 1996
-------- --------
<S> <C> <C>
BEGINNING CASH $2,350 $2,074
OPERATING ACTIVITIES
Net earnings 2,133 1,923
Depreciation and amortization 774 667
Deferred income taxes 51 (89)
Changes in:
Accounts receivable (215) (83)
Inventories (212) (102)
Accounts payable and accruals (395) 222
Other operating assets and liabilities (270) 74
Other (31) 10
-------- --------
TOTAL OPERATING ACTIVITIES 1,835 2,622
-------- --------
INVESTING ACTIVITIES
Capital expenditures (1,071) (847)
Proceeds from asset sales 141 268
Acquisitions (2,379) (121)
Change in investment securities (257) (82)
-------- --------
TOTAL INVESTMENT ACTIVITIES (3,566) (782)
-------- --------
FINANCING ACTIVITIES
Dividends to shareholders (732) (667)
Change in short-term debt 2,004 23
Additions to long-term debt 503 8
Reduction of long-term debt (110) (350)
Proceeds from stock options 54 50
Purchase of treasury shares (960) (776)
-------- --------
TOTAL FINANCING ACTIVITIES 759 (1,712)
-------- --------
EXCHANGE EFFECT ON CASH (73) (13)
-------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (1,045) 115
-------- --------
ENDING CASH $1,305 $2,189
======== ========
</TABLE>
Item 2. Management Discussion and Analysis
RESULTS OF OPERATIONS
- ---------------------
Basic net earnings for the October-December quarter of fiscal year 1998 were
$.76 per share, a 13 percent increase over the same quarter of the prior year.
Worldwide net earnings for the quarter were $1,046 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 $9.6 billion, a five percent increase
over the same quarter of the prior year, on eight percent unit volume growth.
Acquisitions, primarily Tambrands, net of divestitures, contributed two percent
to the unit volume growth rate. The difference between the sales and volume
growth rates was largely due to weaker currencies in Asia and western Europe.
Basic earnings per share for the first six months of the fiscal year were $1.55,
a 13 percent increase over the prior year. Worldwide net earnings were $2,133
million, an 11 percent increase over the prior year. Worldwide net sales for the
first six months were $19.0 billion, up five percent over the prior year, on
eight percent unit volume growth. Unfavorable exchange rates caused the
difference between sales and volume growth rates.
Gross margin was 44.8 percent for the current quarter compared to 44.3 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 17.5
percent for the current quarter compared to 16.6 percent in the same quarter
year ago and 15.3 percent for the prior fiscal year. This improvement was a
reflection of the higher gross margins and lower administrative and other costs
relative to sales, partially offset by higher marketing and research costs.
NORTH AMERICA
- -------------
Second quarter net sales for the North America region were up seven percent
versus the same quarter of the prior year, on six percent volume growth. Net
earnings grew 15 percent behind volume growth and continued savings from
simplification and standardization projects partially reduced by increased
investment in product initiatives.
The region's six percent unit volume growth was led by the Paper, Food and
Beverage, and Laundry and Cleaning segments. The growth was driven primarily by
feminine protection, which benefited from the Tambrands acquisition, and by
tissue and towel and snacks, which benefited from increases in production
capacity. The laundry category continued strong shipments behind product
initiatives. Unit volume growth within the Beauty Care segment was achieved
behind new product initiatives in hair care and deodorants. Health Care unit
volume was down due to competitive pressure in oral care.
For the first six months of the fiscal year, net sales for the North America
region were up six percent on equal unit volume growth. Net earnings increased
nine percent over the same period in the prior year, and included the impact of
provisions for simplification and standardization projects in the first quarter.
EUROPE, MIDDLE EAST, AND AFRICA
- -------------------------------
Second quarter net sales in Europe, Middle East, and Africa were up four percent
on a 12 percent unit volume increase, as the favorable impact of volume growth
was partially offset by unfavorable exchange rates across Europe. The region's
net earnings grew 17 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 strength in laundry and the
addition of Tambrands.
For the first six months of the fiscal year, the region's net sales and unit
volume grew two percent and 11 percent respectively. Net earnings increased
11 percent over the same period in the prior year.
ASIA
- ----
Asia unit volume for the second quarter was flat due to market contraction
caused by economic troubles which have impacted most Asian countries. Net sales
were down five percent versus the same quarter year ago, with the impact of
weaker currencies across the region partially offset by price increases. The
region's net earnings were down four percent due to unfavorable exchange rates
and higher investment in product initiatives.
On a year to date basis, sales were down one percent while unit volume increased
four percent. Net earnings increased 12 percent reflecting the favorable impact
of volume growth and pricing partially offset by product initiative spending and
unfavorable exchange rates.
Earnings in Asia over the balance of the current fiscal year are expected to be
well below year ago as the full effect of the economic crisis in that region is
felt. However, this is not expected to be significant to the Company's overall
earnings growth rate for the current fiscal year. While the region is expected
to recover from these difficulties, the depth and duration of the economic
effects are still uncertain.
LATIN AMERICA
- -------------
Net sales in Latin America were up 18 percent for the quarter on 15 percent
volume growth. Net earnings increased 10 percent, with the favorable impact of
volume growth partially offset by increased marketing support to counter
competitive pressure in Brazil. Unit volume growth for the region was broad
based with almost all countries recording increases. Mexico led this growth
behind the acquisition of a paper business and volume growth in the base
business. Brazil benefited from prior year acquisitions in the laundry category.
On a year to date basis, sales increased 17 percent with unit volume up
10 percent. Net earnings increased 53 percent, benefiting from the first
quarter sale of a non-strategic brand.
ADOPTION OF NEW ACCOUNTING STANDARD
- -----------------------------------
Effective with the quarter ended December 31, 1997 the Company adopted FAS 128
Earnings Per Share. The impact is not material.
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
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
Regulation S," dated December 2 and December 3, 1997, January 5,
January 6, January 8, January 28 and January 31, 1998.
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: February 13, 1998
EXHIBIT INDEX
Exhibit No. Page No.
(3-1) Amended Articles of Incorporation (Incorporated
by reference to 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 9
(12) Computation of Ratio of Earnings to Fixed Charges 10
(27) Financial Data Schedule 11
EXHIBIT (11)
<TABLE>
<CAPTION>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
================================================
COMPUTATION OF EARNINGS PER SHARE
--------------------------------------------------------------
Amounts in Millions, Except Per Share Amounts
Three Months Ended Six Months Ended
December 31 December 31
------------------ ------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE 1997 1996 1997 1996
- ------------------------ -------- -------- -------- -------
Net earnings $1,046 $ 944 $2,133 $1,923
Deduct preferred stock dividends 26 26 52 52
-------- -------- -------- --------
Net earnings applicable to common stock $1,020 $ 918 $2,081 $1,871
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 1,346.0 1,364.4 1,346.0 1,364.4
Per Share
- ---------
Basic earnings per share $ .76 $ .67 $ 1.55 $ 1.37
======== ======= ======== ========
DILUTIVE EARNINGS PER SHARE
- ---------------------------
Net earnings $1,046 $ 944 $2,133 $1,923
Deduct differential -- preferred
vs. common dividends 6 8 13 16
-------- -------- -------- --------
Net earnings applicable to common stock $1,040 $ 936 $2,120 $1,907
- --------------------------------------- ======== ======== ======== ========
Average number of common shares outstanding 1,346.0 1,364.4 1,346.0 1,364.4
Add potential effect of:
Exercise of options 24.0 21.8 24.0 21.8
Conversion of preferred stock 100.3 102.4 100.3 102.4
-------- -------- -------- --------
Average number of common shares
outstanding, assuming dilution 1,470.3 1,488.6 1,470.3 1,488.6
======== ======== ======== ========
Dilutive earnings per share $ .71 $ .63 $ 1.44 $ 1.28
======== ======== ======== ========
</TABLE>
EXHIBIT (12)
<TABLE>
<CAPTION>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
===============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
----------------------------------------------------------------------------------------
Millions of Dollars
Six Months
Years Ended June 30 Ended Dec. 31
---------------------------------------------- -----------------
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 $2,937 $3,304
Fixed charges excluding capitalized interest 631 569 571 576 534 294 312
---- ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $925 $3,876 $4,593 $5,271 $5,808 $3,231 $3,616
==== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense (including capitalized interest) $577 $ 501 $ 511 $ 493 $ 457 $ 246 $ 262
1/3 of rental expense 79 87 83 92 77 48 50
---- ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $656 $ 588 $ 594 $ 585 $ 534 $ 294 $ 312
==== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 1.4 6.6 7.7 9.0 10.9 11.0 11.6
</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, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,305
<SECURITIES> 1,207
<RECEIVABLES> 3,009
<ALLOWANCES> 0
<INVENTORY> 3,239
<CURRENT-ASSETS> 10,853
<PP&E> 19,337
<DEPRECIATION> 7,833
<TOTAL-ASSETS> 29,715
<CURRENT-LIABILITIES> 9,440
<BONDS> 4,587
0
1,842
<COMMON> 1,342
<OTHER-SE> 8,934
<TOTAL-LIABILITY-AND-EQUITY> 29,715
<SALES> 18,996
<TOTAL-REVENUES> 18,996
<CGS> 10,530
<TOTAL-COSTS> 5,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262
<INCOME-PRETAX> 3,263
<INCOME-TAX> 1,130
<INCOME-CONTINUING> 2,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,133
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.44
</TABLE>
