<PAGE> 1
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 April 1, 1995
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 April 28, 1995 117,281,266
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DURACELL INTERNATIONAL INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Unaudited Financial Statements
Consolidated Income Statement for the Three and 1
Nine Fiscal Months Ended April 1, 1995 and March 26, 1994
Consolidated Balance Sheet - April 1, 1995 and 2
June 30, 1994
Statement of Consolidated Cash Flows for the 3
Nine Fiscal Months Ended April 1, 1995
and March 26, 1994
Notes to Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Results of Operations 6-12
and Financial Condition
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
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Duracell International Inc.
Consolidated Income Statement
(Unaudited)
<TABLE>
<CAPTION>
For the Three Fiscal For the Nine Fiscal
Months Ended Months Ended
- ----------------------------------------------------------------------------------------------------------------------
April 1, March 26, April 1, March 26,
In millions, except per share amounts 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $369.2 $337.9 $1,591.5 $1,436.0
------ ------ -------- --------
Operating expenses:
Cost of products sold 141.9 130.5 554.5 494.8
Selling, general and administrative expenses 193.8 176.9 716.5 655.5
------ ------ -------- --------
Total operating expenses 335.7 307.4 1,271.0 1,150.3
------ ------ -------- --------
Operating income 33.5 30.5 320.5 285.7
Interest expense 6.6 6.6 20.6 22.9
Other (income) expense (3.3) (1.6) 0.2 0.9
Mark-to-market (gain) loss (10.8) 0.1 (11.1) 0.9
------ ------ -------- --------
Income before income taxes 41.0 25.4 310.8 261.0
Provision for income taxes 15.7 10.5 121.4 102.6
------ ------ -------- --------
Net income 25.3 14.9 189.4 158.4
====== ====== ======== ========
Earnings per share $ 0.21 $ 0.12 $ 1.57 $ 1.33
====== ====== ======== ========
Weighted average shares and share equivalents
outstanding 120.1 120.4 120.8 118.9
====== ======= ======== ========
Cash dividends per share on common stock $ 0.26 $ 0.22 $ 0.70 $ 0.54
====== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
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Duracell International Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 1, June 30,
In millions 1995 1994
- ----------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 34.1 $ 36.1
Accounts receivable, less allowance of $18.0 and $23.2 328.0 322.8
Inventories 272.2 229.9
Deferred income taxes 50.7 80.3
Prepaid and other current assets 58.1 51.4
-------- --------
Total current assets 743.1 720.5
Property, plant and equipment, net of accumulated depreciation of
$240.6 and $204.8 358.8 313.2
Intangibles, net of accumulated amortization of $310.5 and $277.0 1,217.5 1,235.4
Other assets 21.4 17.2
-------- --------
Total assets $2,340.8 $2,286.3
======== ========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable $ 101.0 $ 107.3
Short-term borrowings 38.7 51.0
Accrued liabilities 186.9 183.2
-------- ---------
Total current liabilities 326.6 341.5
Long-term debt 351.9 355.0
Postretirement benefits other than pensions 97.6 95.3
Deferred income taxes 282.6 280.9
Other non-current liabilities 49.7 60.1
-------- --------
Total liabilities 1,108.4 1,132.8
-------- --------
Commitments and contingencies
Equity:
Common stock and capital surplus 1,085.7 1,070.9
Retained earnings 205.9 98.7
Accumulated translation adjustment (18.0) (16.1)
Treasury stock (41.2) --
-------- --------
Total equity 1,232.4 1,153.5
-------- --------
Total liabilities and equity $2,340.8 $2,286.3
======== ========
</TABLE>
See notes to consolidated financial statements.
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Duracell International Inc.
Statement of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Fiscal Months Ended
- -------------------------------------------------------------------------------------------------
April 1, March 26,
In millions 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $189.4 $158.4
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 33.3 29.4
Amortization 34.7 32.1
Provision for deferred taxes 34.6 56.5
Other noncash items (11.1) 1.8
(Increase) decrease in:
Accounts receivable (21.7) (16.8)
Inventories (45.6) (10.0)
Other working capital (11.7) 4.0
------ ------
Cash provided by operating activities 201.9 255.4
------ ------
Investing activities:
Purchase of property, plant and equipment and other (80.4) (40.8)
------ ------
Cash used by investing activities (80.4) (40.8)
------ ------
Financing activities:
Issuance of common stock 9.2 13.5
Dividends paid (82.2) (62.8)
Purchases of treasury stock (41.2) --
Repayment of revolving credit borrowings, net (102.1) (159.2)
Issuance (repayment) of commercial paper, net 94.9 (18.5)
Net change in other borrowings and other (6.9) 11.6
------ ------
Cash used by financing activities (128.3) (215.4)
------ ------
Effect of exchange rate changes on cash 4.8 --
------ ------
Decrease in cash and cash equivalents (2.0) (0.8)
Cash and cash equivalents, beginning of period 36.1 25.9
------ ------
Cash and cash equivalents, end of period $ 34.1 $ 25.1
====== ======
Cash paid during the period for:
Interest $ 22.0 $ 23.3
====== ======
Taxes $ 73.5 $ 37.4
====== ======
</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>
April 1, June 30,
1995 1994
-------- --------
<S> <C> <C>
Finished goods $161.0 $141.0
Work in process 68.9 66.3
Raw materials and supplies 42.3 22.6
------ ------
Total $272.2 $229.9
====== ======
</TABLE>
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3. INCOME TAXES
The Company has resolved all issues arising from the IRS's audit of
the Company's income tax returns for the years ended June 30, 1988,
1989 and 1990. The settlement was made pursuant to the IRS's
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. The
settlement reduced 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
settlement relates to deductions claimed in connection with assets
acquired by the Company in June 1988, the additional tax that will
result from the settlement has been recorded as an increase to both
deferred tax liabilities and goodwill of $105 on the June 30, 1994
balance sheet. The settlement will not have a significant impact on
the Company's future earnings.
4. DEBT
Effective October 28, 1994 the Company amended two of its principal
credit facilities, resulting in a reduction in the commitment fees and
a two year maturity extension to 1999.
5. EQUITY
The Company paid cash dividends of $0.70 and $0.54 per share of common
stock during the first nine months of fiscal 1995 and 1994,
respectively. Total dividends paid during these periods were $82.2 and
$62.8, respectively.
Common stock and capital surplus increased $14.8 reflecting proceeds
of $9.2 from stock option exercises and approximately $5.6 of tax
benefits arising from stock option transactions.
During December 1994 and January 1995 the Company repurchased 1,000,000
shares of its stock in open market purchases at a total cost of $41.2.
6. 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
April 1, 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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<PAGE> 8
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 and nine fiscal
months ended April 1, 1995 and March 26, 1994 (in millions, except per share
amounts):
<TABLE>
<CAPTION>
Three Fiscal Months Ended Nine Fiscal Months Ended
---------------------------------------- --------------------------------------------
% Change % Change
----------------- -------------------
April 1, March April 1, March 26,
1995 26, 1994 Reported Perf.* 1995 1994 Reported Perf. *
---- -------- -------- ------- ---- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alkaline unit volume:
North America 210.6 187.8 12 12 1,038.8 907.4 14 14
Europe 136.7 127.5 7 7 534.6 520.6 3 3
Other International Markets 154.5 131.1 18 18 520.7 434.7 20 20
------ ------ -------- --------
501.8 446.4 12 12 2,094.1 1,862.7 12 12
====== ====== ======== ========
Revenue:
North America $177.6 $170.1 4 5 $ 858.6 $ 780.1 10 10
Europe 114.8 100.8 14 3 467.2 439.2 6 (1)
Other International Markets 76.8 67.0 15 26 265.7 216.7 23 26
------ ------ -------- --------
$369.2 $337.9 9 8 $1,591.5 $1,436.0 11 9
====== ====== ======== ========
Operating income:
North America $ 33.7 $ 29.4 15 15 $ 252.9 $ 223.6 13 13
Europe 13.8 12.4 11 1 97.1 90.5 7 1
Other International Markets 10.4 9.9 5 22 40.5 32.9 23 29
------ ------ -------- --------
57.9 51.7 12 12 390.5 347.0 13 11
Corporate/Research &
Development (24.4) (21.2) (15) (15) (70.0) (61.3) (14) (14)
------ ------ -------- --------
$ 33.5 $ 30.5 10 11 $ 320.5 $ 285.7 12 11
Interest expense 6.6 6.6 -- 1 20.6 22.9 10 12
Other expense (income) (3.3) (1.6) NM NM 0.2 0.9 78 82
Mark-to-market (gain) loss (10.8) 0.1 NM NM (11.1) 0.9 NM NM
------ ------ -------- --------
Income before income taxes 41.0 25.4 61 61 310.8 261.0 19 18
Tax expense 15.7 10.5 (50) (47) 121.4 102.6 (18) (17)
Effective tax rate 38.3% 41.3% 3.0pp 3.0pp 39.1% 39.3% 0.2pp 0.2pp
------ ------ -------- --------
Net income $ 25.3 $ 14.9 70 72 $ 189.4 $ 158.4 20 18
====== ====== ======== ========
Per share development:
Earnings before mark-to-market $ 0.16 $ 0.12 33 33 $ 1.52 $ 1.33 14 14
Mark-to-market gain 0.05 -- NM NM 0.05 -- NM NM
------ ------ -------- --------
Net income $ 0.21 $ 0.12 75 75 $ 1.57 $ 1.33 18 16
====== ====== ======== ========
</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).
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<PAGE> 9
Overview
Earnings for the third quarter ended April 1, 1995 were $19 million or $0.16
per share before an unrealized accounting gain, an increase of 33% from $0.12
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 accounting gain, which resulted from "marking to market" the Company's
forward foreign currency contracts for intercompany purchases, net income
totaled $25 million, or $0.21 per share.
Exclusive of the accounting gain, net income for the nine months ended April 1,
1995 increased 16% to a record $183 million, or $1.52 per share, versus income
of $158 million, or $1.33 per share, in the prior year period. This growth
was driven by double-digit gains in worldwide alkaline volume, sales and
operating income of 12%, 11% and 12% respectively. Adding back the unrealized
accounting gain, earnings for the nine months were $189 million, or $1.57 per
share.
THIRD QUARTER ENDED APRIL 1, 1995
North America
Alkaline volume grew 12% reflecting market growth and expansion of warehouse
club business, while sales grew 4%. The principal reasons for the gap between
volume and sales growth was the non-repeat of pipeline filling by a
rechargeable battery customer, combined with reclassification of some
rechargeable sales into the Other International Markets segment and increased
sales to the warehouse club trade channel. A much smaller spread existed in
the USA consumer business during the quarter, where volume increased 11%
against an 8% improvement in sales. Operating income rose 15%, 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 increased 7%, benefiting from the launch of improved alkaline
batteries and expansion into Eastern Europe. Excluding favorable currency
translation of $11 million, revenue increased 3%, reflecting volume gains
partially offset by unfavorable mix. On a performance basis, operating income
increased 1% as the benefit of increased sales was partially offset by
increased costs to support new business in Eastern Europe.
Other International Markets
Alkaline volume growth was driven by the benefits of economic stability and
alkaline penetration in Brazil, expanded distribution in Taiwan, Hong Kong and
Korea, continuing expansion into China and economic recovery in Australia.
Revenue increased 15% reflecting the volume growth, higher prices and increased
rechargeable sales. Revenue and operating income were both adversely affected
by foreign currency translation, related to the devaluation of the Mexican
peso. On a performance basis, operating income growth of 22% was driven by the
revenue increase and leveraging of operating expenses, partially offset by
higher costs associated with continued geographic expansion.
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Income Tax Expense
The third quarter increase results from higher earnings (including
mark-to-market), partially offset by a lower effective tax rate. The effective
tax rate decreased due to recognition of an Australian net operating loss
carryforward benefit, partially offset by a higher Italian statutory tax rate.
NINE MONTHS ENDED APRIL 1, 1995
North America
Alkaline volume grew as a result of expanded warehouse club distribution and
increased demand in the mass merchandiser category. Higher sales reflect
alkaline volume growth and increased lithium battery shipments. Operating
income rose 13%, driven by higher sales and improved leveraging of
non-advertising and promotion operating expenses, partially offset by increased
investment in advertising and promotion.
Europe
Alkaline volume increased 3% as new distribution into Eastern Europe and the
launch of better performing alkaline batteries were mitigated by the impact of
unfavorable economic conditions, particularly in France and Spain. Excluding
favorable currency translation of $33 million, sales decreased 1% due to
unfavorable mix. On a performance basis, operating income grew 1% as the
impact of lower sales (excluding favorable currency translation) and increased
costs to support new business in Eastern Europe were offset by leveraging of
operating expenses.
Other International Markets
Expanded distribution throughout Asia (including China), Africa and the Middle
East, combined with market and share growth in Mexico, Brazil and Australia
resulted in alkaline volume and sales increases of 20% and 23%, respectively.
On a performance basis, leveraging of operating expenses helped operating
income grow faster than sales.
Income Tax Expense
The provision for income taxes increased as a result of higher pre-tax income.
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<PAGE> 11
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
April 1, 1995 March 26, 1994
------------- --------------
<S> <C> <C>
Cash provided by operating activities .................... $201.9 $255.4
Capital expenditures ..................................... 76.9 40.7
Dividends paid ........................................... 82.2 62.8
Purchases of treasury stock .............................. 41.2 --
Debt reduction net ....................................... 15.5 165.9
</TABLE>
CASH FLOW
Cash provided by operating activities was used principally for continued
investment in the business through capital expenditures and returned to
shareholders through dividends and repurchase of common stock. Cash provided
by operating activities decreased as a result of the increased working capital
requirements (principally accounts receivable and inventory) due to growth of
the business and geographic expansion. The increase in capital expenditures is
expected to continue during the remainder of fiscal 1995 and over the next
several years, when compared to prior years, for capacity expansion in existing
manufacturing sites and the construction of new alkaline manufacturing
facilities in China and India, efficiencies in the manufacturing process, and
investments to manufacture new high power nickel metal hydride and lithium ion
rechargeable batteries.
In August 1992, Duracell, Toshiba Battery Co., Ltd. and Varta Batterie A.G.
(the "Alliance members") signed a Technical Cooperation Agreement (the
"Agreement") whereunder they agreed to engage in joint research and development
of superior performing, cadmium-free nickel metal hydride rechargeable cells.
These cells are used in powering high-power devices with rapidly growing
markets, such as laptop computers, cellular phones and other consumer
electronic devices. Nickel metal hydride batteries last longer on a single
charge than conventional nickel cadmium rechargeable batteries and are
environmentally safer. The Agreement has a five year term. Each of the
Alliance members has the right to use any technological developments emanating
from their joint efforts, as well as the right to license the other members'
pre-existing nickel metal hydride technology on commercially reasonable terms.
The Alliance members remain in active technical collaboration.
In October 1994, affiliated companies of the Alliance members formed a joint
venture for the purpose of manufacturing nickel metal hydride cells in the
United States. Duracell's and Toshiba's affiliates each hold a forty percent
(40%) interest in the joint venture and Varta's affiliate has a twenty percent
(20%) stake. Mebane, North Carolina has been selected as the site for the
joint venture's manufacturing facility and the facility is in the planning
stage with construction expected to begin in 1995. The cells made by the joint
venture will be sold to the Alliance members and will supplement the parties'
cell needs now being satisfied by production at Toshiba's existing nickel metal
hydride plant in Japan. The duration of the joint venture is indefinite and
Duracell's initial equity contribution is expected to be $20 million, which
will be paid into the joint venture over several years beginning in fiscal
1995. In addition to the equity contributions from the three partners, the
joint venture will utilize third party borrowings to fund its capital
expenditure and working capital requirements.
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
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<PAGE> 12
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 31%, reflecting the per share dividend increases and
the greater number of shares outstanding. During December and January the
Company repurchased a total of 1,000,000 shares of its common stock in open
market purchases at a total cost of $41.2 million. As of May 8, 1995 3,000,000
shares remained of the Board of Directors' authorization for the purchase of up
to 4,000,000 shares of the Company's common stock.
As of April 1, 1995, the Company had $815 million in contractually committed
lines of credit from long-term bank credit facilities under which $347 million
was outstanding. Commitments under the facilities are used to support
commercial paper, of which $216 million was outstanding at April 1, 1995. The
Company's commercial paper program is rated investment grade. Unused borrowing
capacity under its principal bank credit facilities at April 1, 1995 was $468
million.
Taxes paid ($73.5 million) have remained low in relation to the tax provision
($121.4 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 3 in
the Notes to Consolidated Unaudited Financial Statements for discussion
regarding the settlement of U.S. Internal Revenue Service's audit of the
Company's 1988, 1989 and 1990 U.S. tax returns.
RISK MANAGEMENT
Foreign Exchange
International operations account for approximately half of the Company's
revenue and operating income. The Company is exposed to foreign exchange risk
on transactions which are denominated in a currency other than the operating
unit's functional currency. Such transactions include foreign currency
denominated imports and exports of raw materials and finished goods (both
intercompany and third party), loan payments and dividend payments. In almost
all cases the functional currency is the unit's local currency.
It is the Company's policy to reduce foreign currency cash flow exposure due to
exchange rate fluctuations by hedging anticipated and firmly committed foreign
currency transactions wherever possible. The Company does not hedge foreign
currency translation or foreign currency net assets or liabilities unless such
net amounts are expected to be remitted in the form of dividends or payment of
intercompany loans. The Company does not speculate in foreign currencies. The
counterparties to the forward contracts are financial institutions with
investment grade credit ratings.
The Company closely monitors its foreign currency cash flow transactions and
executes forward contracts to reduce its foreign exchange exposures. The use
of forward contracts effectively protects the cash flows of the Company against
unfavorable movements in exchange rates, to the extent of the amount under the
contracts. The use of forward contracts also effectively prevents the Company
from benefiting in the event of favorable movements in exchange rates, to the
extent of the amount under the contracts.
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<PAGE> 13
As of April 1, 1995 forward exchange contracts outstanding totaled $421 million
and generally mature within 15 months. Gains and losses realized upon
settlement of these contracts are offset by gains and losses on the related
foreign currency exposures. The fair value of forward contracts represents
unrealized gains or losses which will fluctuate from quarter to quarter
depending upon the movements of the underlying foreign exchange rates and will
reverse upon settlement of the forward contracts, generally within 15 months.
These unrealized gains or losses are timing issues only and represent no actual
economic cost or benefit to the Company. In accordance with current accounting
regulations, the Company records currently in income such gains and losses
arising from contracts which hedge anticipated intercompany transactions.
As of April 1, 1995 the fair value of forward contracts was favorable $7.4
million (contracts with favorable values totaling $15.3 million, partially
offset by contracts with unfavorable values totaling $7.9 million) based on
dealer quotes. Of this fair value, $11.1 arose from forward contracts related
to anticipated intercompany transactions, and is reflected in other income.
The remaining fair value of $(3.7) million arose from forward contracts which
hedge existing and identified future foreign currency firm third party
commitments and has been deferred, and will be included in the value of the
related foreign currency transactions as they occur.
The table below summarizes by major currency the contractual amounts of the
Company's forward exchange contracts in U.S. dollars. Foreign currency amounts
are translated at April 1, 1995 rates. The "buy" amounts represent the U.S.
dollar equivalent of commitments to purchase currencies, and the "sell" amounts
represent the U.S. dollar equivalent of commitments to sell currencies:
<TABLE>
<CAPTION>
April 1, 1995
-------------
BUY SELL
--- ----
<S> <C> <C>
U. S. Dollar $111,704 $ 13,764
Belgian Franc 237,799 77,615
Swedish Krona 17,679 25,042
Spanish Peseta 12,822 13,292
German Mark 10,666 28,891
Japanese Yen 12,713 3,375
British Pound 4,122 44,392
Italian Lira 70,045
Canadian Dollar 36,349
French Franc 36,323
Australian Dollar 11,288
Austrian Schilling 13,435
Dutch Guilder 8,536 14,023
Other 5,002 31,079
-------- --------
$421,043 $418,913
======== ========
</TABLE>
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<PAGE> 14
Interest Rate Swaps
The Company utilizes interest rate swaps to reduce the impact on interest
expense of fluctuating rates on variable rate debt. Swaps or other financial
instruments that are speculative are not permitted by the Company's internal
policies. As of April 1, $150 million notional amount of interest rate swaps
were outstanding, effectively fixing that amount (38% of total debt) of
variable rate U.S. dollar debt to an average 7.44% fixed rate U.S. dollar debt.
The Company is subject to market risk to the extent that interest rates on the
swapped portion of the debt fall below 7.44%. No funds under the swap
contracts were actually borrowed or are to be repaid. Under interest rate
swaps, the Company agrees with the other parties to exchange, at specified
intervals, the difference between the fixed-rate and floating-rate interest
amounts calculated by reference to the agreed notional principal amount. The
Company is the payor at a fixed rate (7.44% as of April 1, 1995) and receives a
variable rate which is the flat rate for commercial paper as published by the
Federal Reserve (6.1% as of April 1, 1995). Amounts due to or from the counter
parties to interest rate swaps are reflected in interest expense in the periods
in which they accrue. Interest expense reflects the effective interest rate
which is fixed through the interest rate swaps. The fair value of interest
rate swaps as of April 1, 1995 was unfavorable $1.5, based on dealer quotes.
These swaps mature on various dates beginning November 1998 and ending May
1999. The Company is exposed to credit-related losses in the event of
nonperformance by the counterparties to these swaps, although no such losses
are expected as the counterparties are commercial banks having an investment
grade credit rating.
Commodity Swaps
The Company is exposed to risk from fluctuating prices for commodities used in
the manufacture of batteries. Some of this risk is hedged through commodity
swaps executed over the counter with a commercial bank. The Company utilizes
commodity swaps to effectively fix the price the Company will pay for zinc,
which is a principal component in the manufacturing process, over the life of
the swap. Swaps or other financial instruments that are speculative are not
permitted by the Company's internal policies. Costs of products sold reflects
the commodity cost including the effects of the commodity swaps. As of
April 1, 1995 $17.3 million of commodity swaps were outstanding, maturing
through July 1, 1996. The maturity of the contracts highly correlates to the
actual purchases of the commodity. Under such contracts the Company pays the
counterparty at a fixed rate, and receives from the counterparty a floating
rate per pound of zinc; only the net differential is actually paid or received.
The amounts paid or received are calculated based on the notional amounts under
the contracts. The use of such commodity swaps effectively protects the
Company against an increase in the price of the commodity, to the extent of the
notional amount under the contract. This also effectively prevents the Company
from benefiting in the event of a decrease in the price of the commodity, to
the extent of the notional amount under the contract. The fair value of
commodity swaps as of April 1, 1995 was favorable $0.1 million, based on
dealer quotes. This fair value has not been recorded by the Company as of
April 1, 1995, and will be reflected in the cost of the commodity as it is
actually purchased. The Company is exposed to credit-related losses in the
event of nonperformance by the counterparty to these swaps, although no such
losses are expected as the counterparty is a commercial bank having an
investment grade credit rating.
- 12 -
<PAGE> 15
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 April 1, 1995.
- 13 -
<PAGE> 16
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.
May 10, 1995 By: Robert A. Burgholzer, Jr.
---------------------------------
Robert A. Burgholzer, Jr.
Vice President and Controller
(Principal Accounting Officer)
- 14 -
<PAGE> 17
EXHIBITS INDEX
--------------
Exhibits Number Description
- --------------- ------------
Ex-11(i) Statement re: computation of earnings per share.
Ex-27 Financial Data Schedule
<PAGE> 1
EXHIBIT i
DURACELL INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE THREE AND NINE FISCAL MONTHS ENDED
APRIL 1, 1995 AND MARCH 26, 1994
<TABLE>
<CAPTION>
Three Fiscal Months Nine Fiscal Months
Ended Ended
- ---------------------------------------------------------------------------------------------------
April 1, March 26, April 1, March 26,
In millions, except per share amounts 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary Computations:
Weighted average number of shares outstanding 116.9 116.7 117.3 116.1
Effect of outstanding stock options 3.2 3.7 3.5 2.8
------ ------ ------ ------
Weighted average number of shares and share
equivalents outstanding 120.1 120.4 120.8 118.9
====== ====== ====== ======
Per share amounts:
Net income (a) $ 0.21 $ 0.12 $ 1.57 $ 1.33
====== ====== ====== ======
Fully Diluted Computations:
Weighted average number of shares outstanding 116.9 116.7 117.3 116.1
Effect of outstanding stock options 3.2 3.9 3.5 3.9
------ ------ ------ ------
Weighted average number of shares and share
equivalents outstanding 120.1 120.6 120.8 120.0
====== ====== ====== ======
Per share amounts:
Net income (a) $ 0.21 $ 0.12 $ 1.57 $ 1.32
====== ====== ====== ======
</TABLE>
___________________
(a) These calculations are submitted in accordance with Regulation S-K
item 601 (b)(11)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> APR-01-1995
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 346
<ALLOWANCES> 18
<INVENTORY> 272
<CURRENT-ASSETS> 743
<PP&E> 599
<DEPRECIATION> 241
<TOTAL-ASSETS> 2,341
<CURRENT-LIABILITIES> 327
<BONDS> 352
<COMMON> 1
0
0
<OTHER-SE> 1,231
<TOTAL-LIABILITY-AND-EQUITY> 2,341
<SALES> 1,592
<TOTAL-REVENUES> 1,592
<CGS> 555
<TOTAL-COSTS> 555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 311
<INCOME-TAX> 121
<INCOME-CONTINUING> 189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 0
</TABLE>
