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 March 31, 1999 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 1,328,502,347 shares of Common Stock outstanding as of March 31,
1999.
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, 1999 and 1998, the
Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998, and the
Consolidated Statements of Cash Flows for the nine months ended March 31, 1999
and 1998 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
periods 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 Nine Months Ended
March 31 March 31
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 9,231 $ 8,881 $28,675 $27,878
Cost of products sold 4,944 5,228 15,501 15,758
Marketing, research, and
administrative expenses 2,622 2,137 7,798 7,177
-------- -------- -------- --------
OPERATING INCOME 1,665 1,516 5,376 4,943
Interest expense 168 134 491 395
Other income, net 53 50 163 147
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 1,550 1,432 5,048 4,695
Income taxes 510 471 1,699 1,602
-------- -------- -------- --------
NET EARNINGS $ 1,040 $ 961 $ 3,349 $ 3,093
======== ======== ======== ========
PER COMMON SHARE:
Basic net earnings $ 0.76 $ 0.69 $ 2.46 $ 2.24
Diluted net earnings $ 0.72 $ 0.65 $ 2.30 $ 2.09
Dividends $ 0.285 $ 0.253 $ 0.855 $ 0.759
AVERAGE COMMON SHARES
OUTSTANDING 1,329.4 1,344.9
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Amounts in Millions
March 31 June 30
ASSETS 1999 1998
------ -------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,255 $ 1,549
Investment securities 832 857
Accounts receivable 2,822 2,781
Inventories
Materials and supplies 1,200 1,225
Work in process 399 343
Finished products 1,837 1,716
Deferred income taxes 631 595
Prepaid expenses and other current assets 1,779 1,511
-------- --------
TOTAL CURRENT ASSETS 11,755 10,577
PROPERTY, PLANT AND EQUIPMENT 21,589 20,152
LESS ACCUMULATED DEPRECIATION 8,645 7,972
-------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT 12,944 12,180
GOODWILL AND OTHER INTANGIBLE ASSETS 6,964 7,011
OTHER NON-CURRENT ASSETS 1,210 1,198
-------- --------
TOTAL ASSETS $32,873 $30,966
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 7,043 $ 6,969
Debt due within one year 3,082 2,281
-------- --------
TOTAL CURRENT LIABILITIES 10,125 9,250
LONG-TERM DEBT 6,403 5,765
DEFERRED INCOME TAXES 634 428
OTHER NON-CURRENT LIABILITIES 2,786 3,287
-------- --------
TOTAL LIABILITIES 19,948 18,730
SHAREHOLDERS' EQUITY
Preferred stock 1,793 1,821
Common stock-shares outstanding - Mar 31 1,328.5 1,329
June 30 1,337.4 1,337
Additional paid-in capital 1,184 907
Reserve for ESOP debt retirement (1,575) (1,616)
Accumulated comprehensive income (1,491) (1,357)
Retained earnings 11,685 11,144
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,925 12,236
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,873 $30,966
======== ========
</TABLE>
<TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Amounts in Millions Nine Months Ended March 31
1999 1998
------- -------
<S> <C> <C>
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $1,549 $2,350
OPERATING ACTIVITIES
Net earnings 3,349 3,093
Depreciation and amortization 1,256 1,173
Deferred income taxes 172 (100)
Change in:
Accounts receivable (36) 63
Inventories (158) (425)
Accounts Payables and Accruals 96 (50)
Other Operating Assets & Liabilities (835) (131)
Other (217) (323)
------- -------
TOTAL OPERATING ACTIVITIES 3,627 3,300
------- -------
INVESTING ACTIVITIES
Capital expenditures (1,934) (1,662)
Proceeds from asset sales and retirements 360 501
Acquisitions (117) (3,205)
Change in investment securities 51 111
------- -------
TOTAL INVESTING ACTIVITIES (1,640) (4,255)
------- -------
FINANCING ACTIVITIES
Dividends to shareholders (1,242) (1,097)
Change in short-term debt 750 1,331
Additions to long-term debt 952 1,429
Reduction of long-term debt (346) (232)
Proceeds from stock options 182 124
Purchase of treasury shares (1,586) (1,412)
------- -------
TOTAL FINANCING ACTIVITIES (1,290) 143
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 9 (74)
------- -------
CHANGE IN CASH AND CASH EQUIVALENTS 706 (886)
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,255 $1,464
======= =======
</TABLE>
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Millions
1. These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998. The results of
operations for the three and nine-month periods ended March 31, 1999, are
not necessarily indicative of the results for the full year.
2. Comprehensive Income - Total comprehensive income is comprised primarily of
net earnings, net currency translation gains and losses, and net unrealized
gains and losses on securities. Total comprehensive income for the three
months ended March 31, 1999 and 1998 was $666 and $989, respectively. For
the nine months ended March 31, 1999 and 1998, total comprehensive income
was $3,215 and $2,638 respectively.
3. Segment Information
<TABLE>
<CAPTION>
Europe,
Three Months North Middle East Latin
Ended March 31 America and Africa Asia America Corporate Total
------- ------------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales
1999 $ 4,632 $ 2,874 $ 910 $ 652 $ 163 $ 9,231
1998 4,339 2,886 845 653 158 8,881
Earnings Before Income Taxes
1999 1,011 427 88 77 (53) 1,550
1998 864 446 53 92 (23) 1,432
Net Earnings
1999 652 290 56 61 (19) 1,040
1998 561 295 26 73 6 961
<CAPTION>
Europe,
Nine Months North Middle East Latin
Ended March 31 America and Africa Asia America Corporate Total
------- ------------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales
1999 $14,311 $ 9,126 $ 2,669 $ 2,067 $ 502 $28,675
1998 13,853 8,928 2,627 1,938 532 27,878
Earnings Before Income Taxes
1999 3,341 1,447 354 283 (377) 5,048
1998 2,957 1,355 305 274 (196) 4,695
Net Earnings
1999 2,150 961 237 224 (223) 3,349
1998 1,903 905 195 215 (125) 3,093
</TABLE>
Item 2. Management Discussion and Analysis
RESULTS OF OPERATIONS
- ---------------------
Basic net earnings for the three months ended March 31, 1999 were $ .76 per
share, a 10 percent increase over the same quarter of the prior year. Worldwide
net earnings for the quarter were $1.04 billion, an eight 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 $9.2 billion, a four percent increase
over the same quarter of the prior year. Unit volume was flat, with the
difference in sales and volume growth caused by premium-priced initiatives and
price increases.
Basic net earnings for the nine months ended March 31, 1999 were $2.46 per
share, a 10 percent increase versus a year ago. Net earnings for the same period
were $3.35 billion, an eight percent increase over the prior year. Worldwide
sales for the nine-month period grew three percent to $28.7 billion, ahead of
flat unit volume, due largely to favorable pricing impacts. Unfavorable exchange
rates reduced sales by two percent year-to-date.
Gross margin was 46.4 percent for the quarter ended March 31, 1999 compared to
41.1 percent in the same quarter of the prior year and 43.3 percent for the full
fiscal year ended June 30, 1998. Gross margin was positively impacted this
quarter by improved pricing, product mix, and lower manufacturing expenses. In
addition, the year ago quarter's gross margin was negatively impacted by
provisions for shutdown costs of a laundry site, a pulp mill, and other
simplification and standardization projects.
Operating margin was 18.0 percent for the quarter compared to 17.1 percent in
the same quarter a year ago and 16.3 percent for the prior fiscal year. The
improvement in operating margin reflected improvements in gross margin,
partially offset by higher marketing, research and administrative expenditures
behind product innovations.
NORTH AMERICA
- -------------
Net sales in North America for the quarter ended March 31, 1999 increased seven
percent versus the same quarter in the prior year, outpacing a five percent unit
volume growth, primarily as a result of the successful launches of
premium-priced initiatives in paper and beauty care and improved pricing in the
paper and laundry and cleaning businesses. The region's net earnings were up 16
percent due primarily to increased unit volume, pricing, and effective control
of manufacturing costs, partially offset by increased investment in initiatives.
The business in North America continues to strengthen, with volume up six
percent excluding the sale of Duncan Hines. The region's overall unit volume
growth was driven by the laundry and cleaning business, behind the continued
success of the launch of Febreze, the recent launch of Tide with Bleach that
sanitizes laundry and share growth behind Cascade Plus. Shares are also growing
in fabric conditioners behind new initiatives. In addition, the Oil of Olay
Cosmetics and Rash-Guard Diaper initiatives are contributing to stronger volumes
in the beauty care and paper businesses.
For the nine months ended March 31, 1999, net sales were up three percent on
a two percent improvement in unit volume. Net earnings increased 13 percent.
EUROPE, MIDDLE EAST, AND AFRICA
- -------------------------------
Net sales for Europe, Middle East, and Africa for the three months ended March
31, 1999, were flat versus the same quarter of the prior year, on a five percent
decline in unit volume, as the region's results continue to be negatively
impacted by the economic crisis and currency devaluation in Russia. Sales
outperformed volume due to favorable pricing, primarily in laundry and paper
products, and favorable exchange effects in Western Europe. The region's net
earnings declined two percent due to the impact of the economic crisis in
Russia. Excluding Russia, earnings in the region increased by double digits.
The decline in unit volume caused by the economic crisis in Russia was partially
offset by the launch of initiatives in the region. The beverage business showed
significant improvement behind the continued success of the Sunny Delight launch
in the United Kingdom, where results are nearly double our initial objectives.
The region also benefited from the expansion of Pringles into multiple countries
and the continued tissue/towel regional expansion.
For the nine months ended March 31, 1999, sales increased two percent on a three
percent decline in unit volume. Net earnings increased six percent.
ASIA
- ----
Net sales in Asia for the three months ended March 31, 1999 increased eight
percent versus the same quarter of the prior year, on a six percent decline in
unit volume. The increase in sales was driven by improved pricing throughout the
region and strengthening exchange rates in Japan and Korea. Net earnings for the
quarter increased 117 percent versus a weak year ago base period, as improved
pricing more than offset increased investment on new brand initiatives.
The region's volumes continue to be impacted by recession and market contraction
in several of the developing markets. However, Japan continues to grow unit
volume and market share in its base businesses behind the successful launch of
several initiatives in paper, laundry and cleaning and beauty care.
For the nine months ended March 31, 1999, sales increased two percent on flat
unit volume. Net earnings increased 21 percent.
LATIN AMERICA
- -------------
Net sales in Latin America for the three months ended March 31, 1999 were flat
versus the same quarter of the prior year, on six percent decline in unit
volume. Improved pricing across the region offset unfavorable exchange rates.
Volume was negatively impacted by continued competitive pressures in laundry &
cleaning, primarily in the Southern Cone, and a reduction in trade inventory
levels in Mexico. Earnings for the region were down 16 percent, as the improved
pricing was more than offset by unfavorable exchange rates and increased
investment in initiatives, particularly the expansion of Ariel into the Southern
Cone.
For the nine months ended March 31, 1999, sales increased seven percent on a
four percent increase in unit volume. Net earnings increased four percent.
FINANCIAL CONDITION
- -------------------
Total debt increased $1.4 billion since June 30, 1998. The incremental debt was
used primarily to finance the previously announced share repurchase program.
YEAR 2000 UPDATE
- ----------------
As outlined in the 10-K for the year ended June 30, 1998, the Company has
developed plans to address the possible exposures related to the impact on its
computer systems of the Year 2000. These plans have not changed materially in
terms of scope or estimated costs to complete, and are progressing according to
previously identified time schedules.
Implementation of required changes to critical systems is expected to be
completed by June 1999. Testing and certification of critical systems, which
includes review of documented remediation work and test results by technical
experts, key users, and a central project team, is expected to be successfully
completed by December 31, 1999. Critical systems compliance has progressed as
follows:
<TABLE>
<CAPTION>
% of Applications Year 2000 Compliant
-------------------------------------
Actual Planned
March 1999 June 1999
---------- ---------
<S> <C> <C>
Critical plant-based manufacturing,
operating, and control systems 96% 100%
All other critical systems 98% 100%
</TABLE>
Incremental costs, which include contractor costs to modify existing systems and
costs of internal resources dedicated to achieving Year 2000 compliance, are
charged to expense as incurred. Costs are expected to total approximately $100
million, of which 75% has been spent to date.
ORGANIZATION 2005
- -----------------
As previously announced, the Company is currently designing Organization 2005, a
realignment of the organization structure, work processes and culture to
accelerate growth. We anticipate there will be significant costs associated with
this reorganization that are beyond our current ongoing program of
simplification and standardization. These costs, which will commence in the
final quarter of the current fiscal year, involve the costs to transition from a
geographic basis of management to product-based Global Business Units,
standardize and streamline our selling, administrative, and product supply
organizations and transition to our Global Business Services organization. We
are still completing the design work which will enable us to determine the
specific nature, amount and timing of these costs, and we'll provide more
information late this fiscal year. Still, we would expect to commit to an
increase in our earnings growth rate that is commensurate with the magnitude of
these costs.
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 Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
(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 no Current Reports on Form 8-K during the quarter
ended March 31, 1999 and through the date of this report.
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: April 23, 1999
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 Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
(11) Computation of Earnings per Share 11
(12) Computation of Ratio of Earnings to Fixed Charges 12
(27) Financial Data Schedule 13
EXHIBIT (11)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
Computation of Earnings Per Share
---------------------------------
Amounts in Millions Except Per Share Amounts
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC NET EARNINGS PER SHARE
Net earnings $ 1,040 $ 961 $ 3,349 $ 3,093
Deduct preferred stock dividends 28
26 82 78
---------- ----------- ---------- ----------
Net earnings applicable to common stock $ 1,012 $ 935 $ 3,267 $ 3,015
========== =========== ========== ==========
Average number of common shares outstanding 1,329.4 1,344.9 1,329.4 1,344.9
========== =========== ========== ==========
Basic net earnings per share $ 0.76 $ 0.69 $ 2.46 $ 2.24
========== =========== ========== ==========
DILUTED NET EARNINGS PER SHARE
Net earnings $ 1,040 $ 961 $ 3,349 $ 3,093
Deduct differential - preferred
vs. common dividends
6 6 17 19
---------- ----------- ---------- ----------
Net earnings applicable to common stock $ 1,034 $ 955 $ 3,332 $ 3,074
========== =========== ========== ==========
Average number of common shares outstanding 1,329.4 1,344.9 1,329.4 1,344.9
Add potential effect of:
Exercise of options 21.4 22.6 21.4 22.6
Conversion of preferred stock 97.5 100.0 97.5 100.0
---------- ----------- ---------- ----------
Average number of common shares
outstanding, assuming dilution 1,448.3 1,467.5 1,448.3 1,467.5
========== =========== ========== ==========
Diluted earnings per share $ 0.72 $ 0.65 $ 2.30 $ 2.09
========== =========== ========== ==========
</TABLE>
EXHIBIT (12)
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
=============================================
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
Millions of Dollars
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended June 30 March 31
-------------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
<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 $3,307 $4,022 $4,695 $5,274 $5,704 $4,723 $5,065
Fixed charges, excluding capitalized interest 569 571 576 534 639 466 562
------ ------ ------ ------ ------ ------ ------
TOTAL EARNINGS, AS DEFINED $3,876 $4,593 $5,271 $5,808 $6,343 $5,189 $5,627
====== ====== ====== ====== ====== ====== ======
FIXED CHARGES, AS DEFINED
Interest expense including capitalized interest $ 501 $ 511 $ 493 $ 457 $ 548 $ 395 $ 491
1/3 of rental expense 87 83 92 77 91 71 71
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES, AS DEFINED $ 588 $ 594 $ 585 $ 534 $ 639 $ 466 562
====== ====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 6.6 7.7 9.0 10.9 9.9 11.0 10.0
</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, 1999 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-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,255
<SECURITIES> 832
<RECEIVABLES> 2,822
<ALLOWANCES> 0
<INVENTORY> 3,436
<CURRENT-ASSETS> 11,755
<PP&E> 21,589
<DEPRECIATION> 8,645
<TOTAL-ASSETS> 32,873
<CURRENT-LIABILITIES> 10,125
<BONDS> 6,403
0
1,793
<COMMON> 1,329
<OTHER-SE> 9,803
<TOTAL-LIABILITY-AND-EQUITY> 32,873
<SALES> 28,675
<TOTAL-REVENUES> 28,675
<CGS> 15,501
<TOTAL-COSTS> 7,798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 491
<INCOME-PRETAX> 5,048
<INCOME-TAX> 1,699
<INCOME-CONTINUING> 3,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,349
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.30
</TABLE>
