FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10747
Duracell International Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1240267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Berkshire Corporate Park, Bethel, CT 06801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 796-4000
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
Number of Shares of Common Stock, Par Value $.01,
Outstanding as of October 29, 1994 117,636,280
<PAGE>
DURACELL INTERNATIONAL INC.
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION:
Consolidated Unaudited Financial Statements
Consolidated Income Statement for the
Three Fiscal Months Ended October 1, 1994
and September 25, 1993 1
Consolidated Balance Sheet - October 1, 1994 and June 30, 1994 2
Statement of Consolidated Cash Flows for the
Three Fiscal Months Ended October 1, 1994
and September 25, 1993 3
Notes to Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Results of
Operations and Financial Condition 6-8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
<TABLE>
Duracell International Inc.
Consolidated Income Statement
(Unaudited)
<CAPTION>
For the Three Fiscal Months Ended
In millions, except per share amounts October 1, 1994 September 25, 1993
<S> <C> <C>
Revenue $492.1 $437.5
Operating expenses:
Cost of products sold 172.0 152.5
Selling, general and administrative expenses 224.7 203.2
Total operating expenses 396.7 355.7
Operating income 95.4 81.8
Interest expense 7.5 8.0
Other expense .8 1.3
Income before income taxes 87.1 72.5
Provision for income taxes 34.1 28.1
Net income $ 53.0 $ 44.4
Earnings per share $ 0.44 $ 0.37
Weighted average shares and share equivalents
outstanding 121.2 118.4
Cash dividends per share on common stock $ 0.22 $ 0.16
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duracell International Inc.
Consolidated Balance Sheet
<CAPTION>
In millions October 1, June 30,
1994 1994
<S> (unaudited)
ASSETS <C> <C>
Current assets:
Cash and cash equivalents $ 43.9 $ 36.1
Accounts receivable,less allowance of $20.4 & $23.2 383.6 322.8
Inventories 250.5 229.9
Deferred income taxes 62.8 80.3
Prepaid and other current assets 45.4 51.4
Total current assets 786.2 720.5
Property, plant and equipment, net of accumulated
depreciation of $218.2 and $204.8 323.3 313.2
Intangibles,net of accumulated amortization of
$289.3 and $277.0 1,230.3 1,235.4
Other assets 13.9 17.2
Total assets $2,353.7 $2,286.3
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 94.6 $ 107.3
Short-term borrowings 57.8 51.0
Accrued liabilities 207.9 183.2
Total current liabilities 360.3 341.5
Long-term debt 379.4 355.0
Postretirement benefits other than pensions 96.3 95.3
Deferred income taxes 275.7 280.9
Other non-current liabilities 51.2 60.1
Total liabilities 1,162.9 1,132.8
Commitments and contingencies
Equity:
Common stock and capital surplus 1,076.0 1,070.9
Retained earnings 125.8 98.7
Accumulated translation adjustment (11.0) (16.1)
Total equity 1,190.8 1,153.5
Total liabilities and equity $2,353.7 $2,286.3
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duracell International Inc.
Statement of Consolidated Cash Flows
(Unaudited)
<CAPTION>
For the Three Fiscal Months Ended
In millions October 1, September 25,
1994 1993
<S> <C> <C>
Operating activities:
Net income $ 53.0 $ 44.4
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 11.0 10.1
Amortization 11.5 10.7
Provision for deferred taxes 11.1 13.6
Other noncash items 0.3 1.1
(Increase) decrease in:
Accounts receivable (58.8) (76.5)
Inventories (18.6) (11.6)
Other working capital 25.2 41.0
Cash provided by operating activities 34.7 32.8
Investing activities:
Purchase of property, plant and equipment
and other (20.5) (11.0)
Cash used by investing activities (20.5) (11.0)
Financing activities:
Issuance of common stock 3.3 5.4
Dividends paid (25.9) (18.5)
Issuance of revolving credit borrowings, net 75.8 5.0
Repayment of commercial paper, net (55.1) (6.2)
Net change in other borrowings and other (5.4) (4.7)
Cash used by financing activities (7.3) (19.0)
Effect of exchange rate changes on cash 0.9 2.4
Increase in cash and cash equivalents 7.8 5.2
Cash and cash equivalents, beginning of period 36.1 25.9
Cash and cash equivalents, end of period $ 43.9 $ 31.1
Cash paid during the period for:
Interest $ 7.2 $ 6.9
Taxes $ 2.4 $ 2.9
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
DURACELL INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in millions except per share amounts)
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements of Duracell
International Inc. (the "Company") are unaudited, but in the
opinion of management contain all adjustments which are of a
normal and recurring nature necessary to present fairly the
financial position and the results of operations and cash flows
for the periods presented.
The results of operations for these periods are not necessarily
indicative of the results to be expected for the full year.
Worldwide battery sales are significantly greater in the second
half of the calendar year than the first half due to consumers'
traditionally strong purchases during the holiday season.
The Company's fiscal year ends June 30.
Inventories
Inventories are valued at the lower of cost or market using the
first-in, first-out method.
Advertising
Accruals for advertising costs are recorded in interim periods
based upon forecasted expenditures for the current fiscal year
and charged to expense proportionally to the ratio of
year-to-date sales to the most recent forecast of annual sales.
Earnings Per Share
Earnings per share is calculated by dividing net income by the
weighted average number of common shares and share equivalents
outstanding during the period.
2. Inventories
The cost of inventories by stage of manufacture was:
<TABLE>
<CAPTION> October 1, June 30,
1994 1994
<S> <C> <C>
Finished goods $152.0 $141.0
Work in process 61.2 66.3
Raw materials and supplies 37.3 22.6
Total $250.5 $229.9
</TABLE>
<PAGE>
3. Equity
The Company paid quarterly cash dividends of $0.22 and $0.16 per
share of common stock during the first quarter of fiscal 1995
and 1994, respectively. Total dividends paid during these
periods were $25.9 and $18.5, respectively.
Common stock and capital surplus increased $5.1 reflecting
proceeds of $3.3 from stock option exercises and $1.8 of tax
benefits arising from stock option transactions.
4. Commitments and Contingencies
On July 8, 1994, the Company received a settlement offer from
the U.S. Internal Revenue Service (the "IRS") to resolve all
issues arising from the IRS's recently completed audit of the
Company's income tax returns for the years ended June 30, 1988,
1989 and 1990. The IRS offer was made pursuant to its
Intangibles Settlement Initiative, a program designed by the IRS
to allow an early settlement of a large number of pending cases
involving acquisitions that included significant intangible
assets. Management expects to settle pursuant to the IRS offer.
The settlement will reduce the U.S. net operating loss
carryforward for tax purposes at June 30, 1994 from $350 to
approximately $130 and will impact cash flows principally over
three years. Because the proposed settlement relates to
deductions claimed in connection with assets acquired by the
Company in June 1988, the additional tax that will ultimately
result from the proposed settlement has been recorded as an
increase to both deferred tax liabilities and goodwill of $105
on the June 30, 1994 balance sheet. The proposed settlement will
not have a significant impact on the Company's future earnings.
In September, 1994, Duracell Inc. (the Company's U.S. operating
subsidiary) entered into an Administrative Order By Consent with
the U.S. Environmental Protection Agency ("EPA") whereunder
Duracell has agreed to prepare and submit to the EPA a plan for
a complete remedial investigation and feasability study relating
to mercury and volatile organic compounds contamination at the
Company's Lexington, North Carolina manufacturing site. The
Company has also agreed to implement such plan following the
EPA's approval of it. Comprehensive remediation actions have
taken place at the Lexington site over the past ten years.
Management believes those actions, combined with its anticipated
future remediation efforts, should adequately address the EPA's
concerns. As of October 1, 1994, Duracell estimates that future
costs will not exceed $8 million, for which the Company has
reserved.
<PAGE>
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
<TABLE>
Summarized below are the results of operations for the three
fiscal months ended October 1, 1994 and September 25, 1993,
respectively (in millions, except per share amounts):
<CAPTION> Three Months Ended % Change
October 1, September 25,
1994 1993 Reported Performance*
<S> <C> <C> <C> <C>
Alkaline unit volume:
North America 339.0 285.6 19 19
Europe 141.3 141.2 - -
Other Int'l Markets 155.9 132.7 17 17
636.2 559.5 14 14
Revenue:
North America $ 281.7 $ 248.9 13 14
Europe 131.7 124.0 6 2
Other Int'l Markets 78.7 64.6 22 23
$ 492.1 $ 437.5 12 11
Operating income:
North America $ 80.7 $ 68.3 18 19
Europe 26.3 24.5 7 4
Other Intl Markets 10.8 8.2 32 33
117.8 101.0 17 16
Corporate/R&D (22.4) (19.2) (17) (17)
$ 95.4 $ 81.8 17 16
Interest expense 7.5 8.0 6 9
Other expense 0.8 1.3 38 47
Income before income taxes 87.1 72.5 20 20
Tax expense 34.1 28.1 (21) (22)
Effective tax rate 39.1% 38.8% (0.3pp) (0.3pp)
Net income $ 53.0 $ 44.4 19 19
Earnings per share $ 0.44 $ 0.37 19 16
<FN>
* Performance - adjusted for foreign exchange (i.e., foreign
currency translation, defined as the impact of translating the
income statement from local currency to U.S. dollars).
</TABLE>
<PAGE>
Overview
Earnings for the first quarter of 1995 were $53 million or $0.44
per share, representing a 19% increase over the corresponding
period in 1994. This increase resulted from double-digit gains
in worldwide alkaline volume, revenue and operating income, led
by strong performances in North America and Other International
Markets.
Operating income increased 17% on the strength of alkaline
volume driven revenue gains and grew faster than revenue as a
result of leveraging of non-advertising and promotion expenses.
Partially offsetting the operating income growth was higher tax
expense, which increased $6 million to $34.1 million, primarily
as a result of increased earnings.
North America
Alkaline volume growth was driven by increased sales to mass
merchandise outlets and expanded distribution in wholesale
clubs. The revenue increase reflects alkaline volume growth and
increased lithium sales, partially offset by lower priced
volume. Operating income rose 18%, driven by the revenue gain
and leveraging of non-advertising and promotion expenses,
partially offset by higher advertising and promotion costs to
support the DURACELL brand.
Europe
Alkaline volume was flat as a result of lingering economic
softness, particularly in Italy and the Benelux countries, and
timing delays in the United Kingdom associated with introduction
of superior performing alkaline batteries and the roll-out of
new plastic-free, environmentally sensitive packaging.
Excluding favorable currency translation of $6 million, revenue
increased 2%, reflecting price increases and increased high
power sales, partially offset by unfavorable country mix.
Despite increased investment in advertising and promotion,
operating income increased 4% on a performance basis through
leveraging of non-advertising and promotion expenses.
Other International Markets
Alkaline volume growth was driven by continued alkaline
penetration and expanding distribution in Asia, Africa and the
Middle East, as well as new distribution in China. In addition,
Mexico benefited from new distribution and improved economic
conditions, and Australian volumes improved from economic
recovery. Revenue increased reflecting the volume growth,
higher prices and new high power sales. Operating income growth
was driven by the revenue increase and leveraging of operating
expenses, partially offset by higher administrative costs
associated with continued geographic expansion.
<PAGE>
Income Tax Expense
The provision for income taxes increased as a result of higher
pre-tax income and a higher effective tax rate resulting from
country mix of income.
<TABLE>
Financial Condition
<CAPTION> Three Months Ended
October 1, 1994 September 25, 1993
<S> <C> <C>
Cash provided by operating activities $34.7 $32.8
Capital expenditures 21.0 9.4
Dividends paid 25.9 18.5
Debt repayments (borrowings) (15.3) 1.3
</TABLE>
Cash from operations was used principally for continued
investment in the business through capital expenditures. The
increase in capital expenditures is expected to continue during
fiscal 1995 and over the next several years, when compared to
prior years, for capacity expansion, efficiencies in the
manufacturing process, and investments to develop new high power
rechargeable batteries. These expenditures will include the
construction of manufacturing facilities in China and India, as
well as a rechargeable nickel metal hydride cell manufacturing
facility in the United States. The rechargeable nickel metal
hydride facility will be owned by a joint venture, formed in
October 1994, between affiliates of the Company (40%), Toshiba
Battery Co. Ltd. of Japan (40%) and Varta Batterie AG of Germany
(20%).
The Company will rely on cash generated from operations to fund
its future working capital and capital expenditure requirements
needed to support continued alkaline and lithium growth,
geographic expansion and investment in high power rechargeable
batteries. Funds available from unused bank credit facilities
will be used primarily to fund seasonal working capital during
the year when receivables and inventories rise to meet operating
requirements.
Taxes paid ($2.4 million) have remained low in relation to the
tax provision ($34.1 million) as taxable income was shielded by
deductions for amortization and depreciation taken earlier for
tax purposes than recognized for book purposes, principally in
the United States. As of the end of fiscal 1994, the U.S. tax
net operating loss carryforward was $130 million. See Footnote
4 in the Notes to Consolidated Unaudited Financial Statements
for discussion regarding the U.S. Internal Revenue Service's
audit of the Company's 1988, 1989 and 1990 U.S. tax returns.
Dividends paid increased 40%, reflecting the March 1994 dividend
increase and greater number of shares outstanding.
As of October 1, 1994, Duracell had $812 million in
contractually committed lines of credit from long-term bank
credit facilities under which $332 million was outstanding.
Commitments under the facilities are used to support commercial
paper, of which $66 million was outstanding at October 1, 1994.
Duracell's commercial paper program is rated investment grade.
Unused borrowing capacity under its principal bank credit
facilities at October 1, 1994 was $480 million.<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Statement re: computation of earnings per share.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the
three fiscal months ended October 1, 1994.
<PAGE>
SIGNATURE
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.
DURACELL INTERNATIONAL INC.
November 14, 1994 By: Robert A. Burgholzer, Jr.
Robert A. Burgholzer, Jr.
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
<TABLE>
EXHIBIT i
DURACELL INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
For the Three Fiscal Months Ended
October 1, 1994 and September 25, 1993
<CAPTION>
Three Fiscal Months Ended
In millions, except per share amounts October 1, 1994 September 25, 1993
<S> <C> <C>
Primary Computations:
Weighted average number of shares outstanding 117.5 115.3
Effect of outstanding stock options 3.7 3.1
Weighted average number of shares and share
equivalents outstanding 121.2 118.4
Per share amounts:
Net income (a) $ 0.44 $ 0.37
Fully Diluted Computations:
Weighted average number of shares outstanding 117.5 115.3
Effect of outstanding stock options 4.0 3.9
Weighted average number of shares and share
equivalents outstanding 121.5 119.2
Per share amounts:
Net income (a) $ 0.44 $ 0.37
<FN>
(a) These calculations are submitted in accordance with
Regulation S-K item 601(b)(11).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Accounts receivable are shown net of the allowance.
PP&E is shown net of accumulated depreciation.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> OCT-01-1994
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 384
<ALLOWANCES> 20
<INVENTORY> 251
<CURRENT-ASSETS> 786
<PP&E> 323
<DEPRECIATION> 218
<TOTAL-ASSETS> 2354
<CURRENT-LIABILITIES> 360
<BONDS> 379
<COMMON> 1
0
0
<OTHER-SE> 1190
<TOTAL-LIABILITY-AND-EQUITY> 2354
<SALES> 492
<TOTAL-REVENUES> 492
<CGS> 172
<TOTAL-COSTS> 172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 87
<INCOME-TAX> 34
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
