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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 September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-10747
Duracell International Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1240267
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Berkshire Corporate Park, Bethel, CT 06801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 796-4000
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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
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Number of Shares of Common Stock, Par Value $.01,
Outstanding as of October 28, 1995 118,432,370
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DURACELL INTERNATIONAL INC.
TABLE OF CONTENTS
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<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION:
Consolidated Unaudited Financial Statements
Consolidated Income Statement for the Three Fiscal Months Ended
September 30, 1995 and October l, 1994 1
Consolidated Balance Sheet - September 30, 1995 and
June 30, 1995 2
Statement of Consolidated Cash Flows for the Three Fiscal Months
Ended September 30, 1995 and October 1, 1994 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
</TABLE>
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Duracell International Inc.
Consolidated Income Statement
(Unaudited)
<TABLE>
<CAPTION>
For the Three Fiscal Months Ended
- ---------------------------------------------------------------------------
September 30, October 1,
In millions, except per share amounts 1995 1994
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<S> <C> <C>
Revenue $ 538.9 $ 492.1
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Operating expenses:
Cost of products sold 200.7 172.0
Selling, general and admin. exp. 234.9 224.7
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Total operating expenses 435.6 396.7
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Operating income 103.3 95.4
Interest expense 6.9 7.5
Other expense 1.0 0.1
Mark-to-market loss 7.6 0.7
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Income before income taxes 87.8 87.1
Provision for income taxes 34.2 34.1
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Net income $ 53.6 $ 53.0
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Earnings per share $ 0.44 $ 0.44
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Weighted average shares and share equivalents
outstanding 120.6 121.2
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Cash dividends per share on common stock $ 0.26 $ 0.22
======= =======
</TABLE>
See notes to consolidated financial statements.
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Duracell International Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
In millions September 30, June 30,
1995 1995
- -------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
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Current assets:
Cash and cash equivalents $ 37.3 $ 35.0
Accounts receivable, less allowance
of $19.8 and $19.1 452.0 390.0
Inventories 280.8 284.4
Deferred income taxes 35.3 41.1
Prepaid and other current assets 49.2 61.3
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Total current assets 854.6 811.8
Property,plant and equipment, net of accumulated
depreciation of $252.7 and $248.7 390.2 378.3
Intangibles, net of accumulated amortization of
$337.5 and $328.5 1,193.0 1,208.9
Other assets 21.3 20.8
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Total assets $2,459.1 $2,419.8
========= =========
LIABILITIES AND EQUITY
- ----------------------
Current liabilities:
Accounts payable $ 113.8 $ 117.8
Short-term borrowings 37.8 59.0
Accrued liabilities 234.8 195.6
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Total current liabilities 386.4 372.4
Long-term debt 379.7 364.5
Postretirement benefits other than pensions 99.5 98.4
Deferred income taxes 248.0 269.1
Other non-current liabilities 57.0 52.0
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Total liabilities 1,170.6 1,156.4
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Commitments and contingencies
Equity:
Common stock and capital surplus 1,102.9 1,095.8
Retained earnings 244.6 221.7
Accumulated translation adjustment (17.8) (12.9)
Treasury stock (41.2) (41.2)
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Total equity 1,288.5 1,263.4
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Total liabilities and equity $2,459.1 $2,419.8
========== ========
</TABLE>
See notes to consolidated financial statements.
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Duracell International Inc.
Statement of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Fiscal Months Ended
- -----------------------------------------------------------------------------
September 30, October 1,
In million 1995 1994
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<S> <C> <C>
Operating activities:
Net income $ 53.6 $ 53.0
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 11.7 11.0
Amortization 11.7 11.5
Provision for deferred taxes (7.3) 11.1
Other noncash items 10.1 0.3
(Increase) decrease in:
Accounts receivable (64.5) (58.8)
Inventories 0.7 (18.6)
Other working capital 48.6 25.2
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Cash provided by operating activities 64.6 34.7
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Investing activities:
Purchase of property, plant and equipment (28.8) (21.0)
Proceeds from sale of assets and other (0.1) 0.5
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Cash used by investing activities (28.9) (20.5)
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Financing activities:
Issuance of common stock 3.5 3.3
Dividends paid (30.7) (25.9)
Issuance of revolving credit borrowings,net 5.4 75.8
Issuance (repayment) of commercial paper,net 1.4 (55.1)
Net change in other borrowings and other (13.8) (5.4)
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Cash used by financing activities (34.2) (7.3)
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Effect of exchange rate changes on cash 0.8 0.9
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Increase in cash and cash equivalents 2.3 7.8
Cash and cash equivalents, beginning of period 35.0 36.1
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Cash and cash equivalents, end of period $ 37.3 $ 43.9
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Cash paid during the period for:
Interest $ 8.7 $ 7.2
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Taxes $ 2.1 $ 2.4
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</TABLE>
See notes to consolidated financial statements.
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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 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>
September 30, June 30,
1995 1995
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<S> <C> <C>
Finished goods $ l66.8 $171.3
Work in process 72.6 75.4
Raw materials and supplies 41.4 37.7
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Total $280.8 $284.4
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</TABLE>
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3. Equity
The Company paid cash dividends of $0.26 and $0.22 per share of
common stock during the first three months of fiscal 1996 and
1995, respectively. Total dividends paid during these periods
were $30.7 and $25.9, respectively.
Common stock and capital surplus increased $7.1 reflecting
proceeds of $3.5 from stock option exercises and $3.6 of tax
benefits arising from stock option transactions.
4. Mark-to-Market
The Company uses forward foreign currency contracts to
effectively protect its cash flows against unfavorable movements
in exchange rates. The majority of the forward contracts are
used to protect against currency-driven intercompany product
costs. In accordance with current accounting standards, the
Company defers unrealized gains and losses arising from
contracts that hedge existing and identified foreign currency
firm third party commitments until the realized transaction
occurs. Unrealized gains and losses arising from contracts that
hedge anticipated intercompany transactions are recorded
currently in income, on the "mark-to-market" line. These
unrealized gains and losses will fluctuate from quarter to
quarter and represent timing issues only, with no economic
benefit or cost to the Company until realized. Upon
realization, the gains or losses arising on the forward
contracts are offset by gains or losses on the related foreign
currency exposures.
5. Commitments and Contingencies
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 submitted to the EPA a plan for a complete remedial
investigation and feasibility 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 many years, but some additional
remediation work is proposed in the plan submitted to the EPA.
As of September 30, 1995, Duracell estimates that future
investigatory and remediation costs will be approximately $4
million, the cost of which the Company has fully reserved. The
Company believes that the amount reserved is sufficient to
remediate the property; however, the final remediation plan has
not been agreed to by the EPA. The Company believes that if
additional remedial work is required by the EPA beyond the work
planned by the Company, such additional remediation would not
likely exceed an additional $6 million.
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Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Summarized below are the results of operations for the three
fiscal months ended and September 30, 1995 and October 1, 1994
(in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Fiscal Months Ended % Change
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Sept. 30, October 1,
1995 1994 Reported Perf.*
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<S> <C> <C> <C> <C>
Alkaline unit volume:
North America 371.8 339.0 10 10
Europe 149.8 141.3 6 6
Other International
Markets 171.9 155.9 10 10
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693.5 636.2 9 9
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Revenue:
North America $312.9 $281.7 11 11
Europe 135.7 131.7 3 --
Other International
Markets 90.3 78.7 15 24
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$538.9 $492.1 10 10
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Operating income:
North America $ 87.7 $ 80.7 9 9
Europe 26.8 26.3 2 2
Other International
Markets 11.5 10.8 6 18
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126.0 117.8 7 8
Corporate/R & D (22.7) (22.4) (1) (2)
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$103.3 $ 95.4 8 10
Interest expense 6.9 7.5 8 5
Other expense 1.0 0.1 NM NM
Mark-to-market loss 7.6 0.7 NM NM
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Income before income taxes 87.8 87.1 1 2
Tax expense 34.2 34.1 -- (1)
Effective tax rate 38.9% 39.1% 0.2pp 0.2pp
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Net income $ 53.6 $ 53.0 1 2
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Per share development:
Earnings before
mark-to-market $0.48 $0.44 9 9
Mark-to-market loss (0.04) -- NM NM
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Net income $0.44 $0.44 -- 2
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</TABLE>
* 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).
<PAGE>
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Overview
Earnings for the first quarter ended September 30, 1995 were $58
million or $0.48 per share before an unrealized accounting loss,
an increase of 9% from $0.44 per share in the year-earlier
quarter. This improvement reflects gains in worldwide alkaline
volume, revenue and operating income, led by strong performances
in North America and Other International Markets. Inclusive of
the unrealized accounting loss, which resulted from "marking to
market" the Company's forward foreign currency contracts for
intercompany purchases, net income totaled $54 million, or $0.44
per share.
North America
Alkaline volume grew 10%, reflecting strong ongoing demand for
battery-powered consumer devices and hurricane-related demand.
Sales increased 11%, reflecting the volume growth and the
benefits of price increases implemented during the fourth
quarter of fiscal 1995, as well as increased nickel metal
hydride revenues resulting from the newly launched retail sales
of camcorder batteries in the United States and increased
purchases of rechargeable batteries by computer manufacturers.
Partially offseting these factors was the impact of unfavorable
product mix, including larger size multipacks. Operating income
rose 9%, driven by the revenue gain and leveraging of operating
expenses, partially offset by the impact of unfavorable product
mix and higher costs associated with performance improvements to
alkaline batteries.
Europe
Alkaline volume increased 6%, benefiting from continued
expansion into Eastern Europe, but tempered by soft demand in
some key Western Europe markets, notably Germany (high trade
stocks) and Italy (economically driven weak demand in the
south). Excluding favorable currency translation of $4 million,
revenue was flat, as the volume gains were offset by unfavorable
country mix. On a performance basis, operating income increased
2% as the unfavorable mix issues were more than offset by
leveraging of operating expenses.
Other International Markets
Alkaline volume growth was driven by continuing geographic
expansion and broader distribution in China and other Asian
markets such as Taiwan and Korea, as well as the benefits of
continuing economic stability in Brazil and hurricane-related
demand in the Caribbean. These gains were partially offset by
weak alkaline volume in Mexico, as was anticipated, stemming
from the severe economic slump in that country. Absent the
downturn in Mexico, and the unfavorable translation impact of
the weaker peso, alkaline volume in Other International Markets
would have been up 19%, and revenue and operating income would
have each increased 27%.
The revenue increase reflects the volume growth and higher
prices across most markets. Operating income growth was driven
by the revenue increase, partially offset by higher costs
associated with continued geographic expansion and increased
advertising and promotion activity.
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Financial Condition
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<CAPTION>
Three Months Ended
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September 30, October 1,
1995 1994
----------------------------
<S> <C> <C>
Cash provided by operating activities . . $64.6 $34.7
Capital expenditures . . . . . . . . . . 28.8 21.0
Dividends paid . . . . . . . . . . . . . 30.7 25.9
Debt reduction (borrowings), net . . . . 7.0 (15.3)
</TABLE>
Cash Flow
Cash provided by operating activities was used principally for
continued investment in the business through capital
expenditures and the payment of cash dividends to shareholders.
Cash provided by operating activities increased as a result of
control over inventory levels, which remained consistent with
the prior year-end. Capital expenditures increased for alkaline
capacity expansion at existing manufacturing sites and the
construction of new alkaline manufacturing facilities in China
and India.
The Company will rely on cash generated from operations to fund
its future working capital and capital expenditure requirements
needed to support continued alkaline 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.
Dividends paid increased 19%, as a result of the February 1995
per share dividend increase from $0.22 per share to $0.26 per
share. As of November 8, 1995 3,000,000 shares remained of the
Board of Directors' authorization for the repurchase of up to
4,000,000 shares of the Company's common stock.
As of September 30, 1995, the Company had $817 million in
contractually committed lines of credit from long-term bank
credit facilities under which $369 million was outstanding.
Commitments under the facilities are used to support commercial
paper, of which $227 million was outstanding at September 30,
1995. The Company's commercial paper program is rated
investment grade. Unused borrowing capacity under its principal
bank credit facilities at September 30, 1995 was $448 million.
Taxes paid ($2.1 million) were low in relation to the tax
provision ($34.2 million) due to the timing of tax
payments.
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PART II
OTHER INFORMATION
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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 September 30, 1995.
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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 13, 1995 By: Robert A. Burgholzer, Jr.
---------------------------------
Robert A. Burgholzer, Jr.
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 472
<ALLOWANCES> 20
<INVENTORY> 281
<CURRENT-ASSETS> 855
<PP&E> 643
<DEPRECIATION> 253
<TOTAL-ASSETS> 2,459
<CURRENT-LIABILITIES> 386
<BONDS> 380
<COMMON> 1
0
0
<OTHER-SE> 1,288
<TOTAL-LIABILITY-AND-EQUITY> 2,459
<SALES> 539
<TOTAL-REVENUES> 539
<CGS> 201
<TOTAL-COSTS> 201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 88
<INCOME-TAX> 34
<INCOME-CONTINUING> 54
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT i
DURACELL INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
For the Three Fiscal Months Ended
September 30, 1995 and October 1, 1994
<TABLE>
<CAPTION>
Three Fiscal Months Ended
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September 30, October 1,
In millions, except per share amounts 1995 1994
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<S> <C> <C>
Primary Computations:
Weighted average number of shares outstanding 117.9 117.5
Effect of outstanding stock options 2.7 3.7
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Weighted average number of shares and share
equivalents outstanding 120.6 121.2
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Per share amounts:
Net income (a) $0.44 $0.44
====== ======
Fully Diluted Computations:
Weighted average number of shares outstanding 117.9 117.5
Effect of outstanding stock options 2.8 4.0
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Weighted average number of shares and share
equivalents outstanding 120.7 121.5
===== =====
Per share amounts:
Net income (a) $0.44 $0.44
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</TABLE>
_________________________________
(a) These calculations are submitted in accordance with Regulation S-K
item 601 (b)(11)
