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, 1998 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 1,340,981,582 shares of Common Stock outstanding as of April 24,
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 nine months ended March 31, 1998 and 1997, the
Consolidated Balance Sheets as of March 31, 1998 and June 30, 1997, and the
Consolidated Statements of Cash Flows for the nine months ended March 31, 1998
and 1997 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
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES $8,881 $8,771 $27,878 $26,816
Cost of products sold 5,228 4,983 15,758 15,129
Marketing, research, and
administrative expenses 2,137 2,405 7,177 7,236
------ ------ ------ ------
OPERATING INCOME 1,516 1,383 4,943 4,451
Interest expense 134 106 395 352
Other income, net 50 53 147 154
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES 1,432 1,330 4,695 4,253
Income taxes 471 449 1,602 1,449
------ ------ ------ ------
NET EARNINGS $ 961 $ 881 $ 3,093 $ 2,804
=== === ===== =====
PER COMMON SHARE:
Basic net earnings $ .69 $ .63 $ 2.24 $ 2.00
Dilutive net earnings $ .65 $ .59 $ 2.09 $ 1.87
Dividends $.253 $.225 $ .759 $ .675
AVERAGE COMMON SHARES OUTSTANDING 1,344.9 1,362.8
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEET
<CAPTION>
Millions of Dollars
March 31 June 30
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS ------- -------
Cash and cash equivalents $ 1,464 $ 2,350
Investment securities 842 760
Accounts receivable 2,758 2,738
Inventories
Materials and supplies 1,253 1,131
Work in process 332 228
Finished products 1,885 1,728
Deferred income taxes 611 661
Prepaid expenses and other current assets 1,673 1,190
------- -------
TOTAL CURRENT ASSETS 10,818 10,786
------- -------
PROPERTY, PLANT, AND EQUIPMENT 19,816 18,625
LESS ACCUMULATED DEPRECIATION 8,017 7,249
------- -------
TOTAL PROPERTY, PLANT, AND EQUIPMENT 11,799 11,376
------- -------
GOODWILL AND OTHER INTANGIBLE ASSETS 6,967 3,949
OTHER ASSETS 1,112 1,433
------- -------
TOTAL ASSETS $30,696 $27,544
====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accruals $ 6,879 $ 6,949
Debt due within one year 2,249 849
------- -------
TOTAL CURRENT LIABILITIES 9,128 7,798
------- -------
LONG-TERM DEBT 5,438 4,143
DEFERRED INCOME TAXES 482 559
OTHER NON-CURRENT LIABILITIES 3,262 2,998
SHAREHOLDERS' EQUITY
Preferred stock 1,831 1,859
Common stock-shares outstanding-Mar. 31 1,341.3 1,341 1,351
-June 30 1,350.8
Additional paid-in capital 764 559
Currency translation adjustments (1,275) (819)
Reserve for ESOP debt retirement (1,607) (1,634)
Retained earnings 11,332 10,730
------- -------
TOTAL SHAREHOLDERS' EQUITY 12,386 12,046
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $30,696 $27,544
====== ======
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Millions of Dollars Nine Months Ended March 31
1998 1997
<S> <C> <C>
------ ------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $2,350 $2,074
OPERATING ACTIVITIES
Net earnings 3,093 2,804
Depreciation and amortization 1,173 1,012
Deferred income taxes (100) (19)
Change in:
Accounts receivable 63 29
Inventories (425) (60)
Accounts Payables and Accruals (50) (7)
Other Operating Assets & Liabilities (131) 167
Other (323) 83
------ ------
TOTAL OPERATING ACTIVITIES 3,300 4,009
------ ------
INVESTING ACTIVITIES
Capital expenditures (1,662) (1,322)
Proceeds from asset sales and retirements 501 284
Acquisitions (3,205) (121)
Change in investment securities 111 (93)
------- -------
TOTAL INVESTING ACTIVITIES (4,255) (1,252)
------- -------
FINANCING ACTIVITIES
Dividends to shareholders (1,097) (998)
Change in short-term debt 1,331 (49)
Additions to long-term debt 1,429 24
Reduction of long-term debt (232) (389)
Proceeds from stock options 124 103
Purchase of treasury shares (1,412) (1,058)
------ ------
TOTAL FINANCING ACTIVITIES 143 (2,367)
------ -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (74) (43)
------ ------
CHANGE IN CASH AND CASH EQUIVALENTS (886) 347
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD 1,464 2,421
===== =====
</TABLE>
Item 2. Management Discussion and Analysis
RESULTS OF OPERATIONS
- ---------------------
Basic net earnings for the January-March quarter of fiscal year 1998 were
$.69 per share, a 10 percent increase over the same quarter of the prior year.
Worldwide net earnings for the quarter were $961 million, a nine percent
increase. The difference between the earnings per share and the net earnings
increases was primarily due to the Company's share repurchase program.
Worldwide net sales for the quarter were $8.9 billion, a one percent increase
over the same quarter of the prior year. Excluding the effect of weaker
currencies, primarily in Asia and Western Europe, sales increased by six
percent. Unit volume increased three percent, with the difference in sales
and volume growth caused primarily by price increases in all regions.
For the first nine months of the fiscal year, basic net earnings per share
were $2.24, a 12 percent increase versus a year ago. Worldwide net earnings
were $3.093 billion, a 10 percent increase over the prior year. Worldwide
sales for the nine month period grew four percent to $27.9 billion on six
percent unit volume growth.
Operating margin was 17.1 percent for the quarter compared to 15.8 percent in
the same quarter a year ago and 15.3 percent for the prior fiscal year. The
improvement in operating margin reflected the reduction of manufacturing
expenses, partially offset by higher selling, research and administrative
expenses. The Company's ongoing program of simplification and standardization
did not have a significant impact on operating margin, since gains on sales of
non-strategic brands were reinvested in other projects.
Gross margin was 41.1 percent for the current quarter compared to 43.2 percent
in the same quarter of the prior year and 42.7 percent for the full fiscal
year ended June 30, 1997. Gross margin was negatively impacted this quarter
by provisions for shutdown costs of a laundry site, a pulp mill, and other
simplification and standardization projects, partially offset by lower
manufacturing expenses.
NORTH AMERICA
- -------------
Net sales in North America were up two percent versus the same quarter in the
prior year on one percent unit volume growth. Net sales growth outpaced
volume due to pricing. The region achieved a 10 percent net earnings increase
due to pricing and lower costs. A $200 million after tax gain on the sale of
the Duncan Hines business was reinvested in simplification and standardization
projects, including the closing of a laundry plant, a pulp mill, and other
projects.
The region's unit volume softness was caused by a number of factors, most
notably pricing, as competition has lagged behind the Company in the
implementation of price increases in tissue and towel and laundry. In addition,
the growth rate in snacks was reduced due to competitive pressure. Volume
softness in these categories and the impact of the sale of the Duncan Hines
business were partially offset by volume strength in beauty care, led by hair
care and deodorants, feminine protection, which benefited from the Tambrands
acquisition, and pharmaceuticals.
For the first nine months of the fiscal year, net sales for the North America
region were up five percent on four percent unit volume growth. Net earnings
increased 10 percent.
EUROPE, MIDDLE EAST, AND AFRICA
- -------------------------------
Third quarter net sales in Europe, Middle East, and Africa increased one
percent on a five percent unit volume increase. Excluding the effects of
unfavorable exchange rates, net sales increased eight percent. The region's
sales were positively impacted by increased pricing, primarily in laundry,
paper, and beverage. Net earnings grew 36 percent behind volume gains, higher
gross margins, and the sale of minor brands.
Unit volume growth in the region was led by continued double digit growth in
Central and Eastern Europe and the Middle East and Africa. Western Europe's
volume was flat behind the short-term softness related to pricing and
competitive activity in the laundry category, which offset favorable impacts
of the Tambrands acquisition.
For the first nine months of the fiscal year, sales increased two percent on
nine percent unit volume growth. Net earnings increased 18 percent,
reflecting the favorable impact of volume growth and pricing, offset by higher
initiative spending and unfavorable exchange rates.
ASIA
- ----
Third quarter net sales in Asia fell seven percent versus the same quarter of
the prior year, on three percent volume growth. Excluding the effects of
unfavorable exchange rates, sales increased by 11 percent, primarily due to
higher volume and price increases designed to recover currency devaluation.
Net earnings were down 81 percent due to unfavorable exchange rates and
higher investment in product initiatives.
Asia third quarter unit volume gains from the acquisition of the Ssangyong
Paper Company in Korea and increased ownership of China ventures were
partially offset by lower consumption, reflecting the economic difficulties in
the region, and in particular the worsening climate in Japan. The business
climate in Asia is expected to remain difficult for at least the remainder of
the calendar year.
On a year to date basis, sales were down three percent while unit volume
increased four percent. Net earnings decreased 20 percent.
LATIN AMERICA
- -------------
Third quarter net sales in Latin America were up 11 percent on unit volume
growth of 14 percent, as the positive impact of higher pricing was offset by
unfavorable exchange rates. Net earnings decreased two percent. The prior
year's earnings benefited from the divestiture of certain non-strategic brands.
Excluding that effect, the region's net earnings would have increased
approximately in line with sales growth. Earnings for the current period were
also depressed by increased marketing support to counter competitive pressure
in Brazil.
The volume growth was led by Mexico, which benefited from the acquisition of
the Loreto y Pena paper business and growth in its base business, and
Venezuela.
On a year to date basis, sales were up 15 percent on 11 percent unit volume
growth. Net earnings increased 32 percent, benefiting from the first quarter
sale of a non-strategic brand.
Effective with the quarter ended March 31, 1998, Brazil and Peru no longer
report results on a hyper-inflationary basis. This change had no material
effect on the quarter's results, or the results for the nine month period.
FINANCIAL CONDITION
- -------------------
During the nine months ended March 31, 1998, the Company acquired Tambrands,
Inc., the Loreto y Pena paper business in Mexico, and Ssangyong Paper Company
in Korea, and increased its interest in ventures in China, Argentina, and
Chile. Long-term debt and debt due within one year increased from June 30,
1997, to March 31, 1998, to finance the bulk of these acquisitions.
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 March 5, March 16 and March 27, 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
D. R. WALKER
- --------------------------------------
D. R. Walker
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 14, 1998
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 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
---------------------------------
Amounts in Millions, Except per Share Amounts
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
------------------ -----------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE 1998 1997 1998 1997
- ------------------------ ------ ------ ------ ------
Net earnings $ 961 $ 881 $3,093 $2,804
Deduct preferred stock dividends 26 26 78 78
------ ------ ------ ------
Net earnings applicable to common stock $ 935 $ 855 $3,015 $2,726
- --------------------------------------- ====== ====== ====== ======
Average number of common shares outstanding 1,344.9 1,362.8 1,344.9 1,362.8
Per Share
- ------------
Basic earnings per share $ .69 $ .63 $ 2.24 $ 2.00
====== ====== ====== ======
DILUTIVE EARNINGS PER SHARE
- ---------------------------
Net earnings $ 961 $ 881 $3,093 $2,804
Deduct differential -- preferred
vs. common dividends 6 8 19 24
------ ------ ------ ------
Net earnings applicable to common stock $ 955 $ 873 $3,074 $2,780
- --------------------------------------- ====== ====== ====== ======
Average number of common shares outstanding 1,344.9 1,362.8 1,344.9 1,362.8
Add potential effect of:
Exercise of options 22.6 21.4 22.6 21.4
Conversion of preferred stock 100.0 102.0 100.0 102.0
------ ------ ------ ------
Average number of common shares
outstanding, assuming dilution 1,467.5 1,486.2 1,467.5 1,486.2
======= ======= ======= =======
Dilutive earnings per share $ .65 $ .59 $ 2.09 $ 1.87
====== ====== ====== ======
</TABLE>
EXHIBIT (12)
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
Millions of Dollars
<CAPTION>
Nine Months
Years Ended June 30 Ended March 31
-------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<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 $4,215 $4,723
Fixed charges excluding capitalized interest 631 569 571 576 534 420 466
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $ 925 $3,876 $4,593 $5,271 $5,808 $4,635 $5,189
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
- -------------------------
Interest expense including capitalized $ 577 $ 501 $ 511 $ 493 $ 457 $ 352 $ 395
interest 1/3 of rental expense 79 87 83 92 77 68 71
------ ------ ------ ------ ------ ------ ------
$ 656 $ 588 $ 594 $ 585 $ 534 $ 420 $ 466
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 1.4 6.6 7.7 9.0 10.9 11.0 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 NINE MONTHS ENDED MARCH 31,
1998 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-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,464
<SECURITIES> 842
<RECEIVABLES> 2,758
<ALLOWANCES> 0
<INVENTORY> 3,470
<CURRENT-ASSETS> 10,818
<PP&E> 19,816
<DEPRECIATION> 8,017
<TOTAL-ASSETS> 30,696
<CURRENT-LIABILITIES> 9,128
<BONDS> 5,438
0
1,831
<COMMON> 1,341
<OTHER-SE> 9,214
<TOTAL-LIABILITY-AND-EQUITY> 30,696
<SALES> 27,878
<TOTAL-REVENUES> 27,878
<CGS> 15,758
<TOTAL-COSTS> 7,177
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395
<INCOME-PRETAX> 4,695
<INCOME-TAX> 1,602
<INCOME-CONTINUING> 3,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,093
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.09
</TABLE>
