<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 30, 1996
/ / 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)
<TABLE>
<S> <C>
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)
</TABLE>
(203) 796-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE ON WHICH REGISTERED
- --------------------------------------------- --------------------------------
<S> <C>
Common Stock New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF ACT:
NONE
Indicate by a 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as of September 13, 1996 was approximately $7,453 million. Limited
partnerships affiliated with Kohlberg Kravis Roberts & Co., L.P. and directors
and executive officers of the registrant are considered affiliates for purposes
of this calculation but should not necessarily be deemed affiliates for any
other purpose.
<TABLE>
<S> <C>
Number of shares of Common Stock, par value $0.01, outstanding as
of September 13, 1996.......................................... 119,403,902
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
June 30, 1996 are incorporated by reference into Part I and Part II of this
Report.
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PART I
ITEM 1. BUSINESS
Duracell International Inc. ("Duracell" or the "Company") manufactures and
markets, primarily under the DURACELL(R) brand, high performance alkaline
batteries, primary lithium batteries and other battery types. Duracell also
markets rechargeable nickel metal hydride batteries and a lighting products
line. Duracell maintains a leading position in North American and European
consumer battery markets with its "copper and black" DURACELL brand alkaline
batteries. Alkaline batteries accounted for approximately 83% of Duracell's
sales during fiscal 1996. Duracell's batteries are sold worldwide through
consumer channels, to industrial users and to manufacturers of battery-powered
consumer, industrial, medical and military equipment.
Duracell has experienced 23 consecutive years of sales increases, due in
large part to the expanding market for its principal product, alkaline
batteries. Duracell markets consumer batteries worldwide under the DURACELL
brand.
The Company is a Delaware corporation organized in 1988 at the direction of
Kohlberg Kravis Roberts & Co., L.P. ("KKR") to effect the acquisition of
Duracell Inc., its battery-related subsidiaries and affiliates and certain
related assets from Kraft, Inc. (the "Acquisition"). The Acquisition was
completed on June 24, 1988. Most of the businesses of Duracell are conducted
under the same trade names used before the Acquisition.
In May 1991, the Company completed an initial public offering of 34,500,000
shares of its Common Stock and became a listed company on the New York Stock
Exchange. A second public offering of 5,000,000 shares of Common Stock was
completed in October 1991.
On September 12, 1996 it was announced that the Company has signed an
agreement to merge with The Gillette Company. The merger is expected to be
completed by the end of calendar 1996. Under the terms of the merger agreement,
each outstanding share of Duracell common stock will be exchanged for .904
shares of Gillette common stock.
FINANCIAL INFORMATION ABOUT THE COMPANY'S GEOGRAPHIC AREAS OF OPERATION
Information about Duracell's geographic areas of operation is incorporated
by reference to Note 14, Geographic Areas of Operations, which appears on page
53 of Duracell's Annual Report to Shareholders for the fiscal year ended June
30, 1996.
PRODUCTS
Duracell's battery line comprises alkaline, lithium, zinc air and nickel
metal hydride rechargeable batteries. Duracell also sells zinc carbon type
batteries. Alkaline batteries produce a far greater amount of energy within any
given battery size than is possible in zinc carbon batteries, the dominant
battery type throughout the world until the 1980s. This performance superiority
has resulted in alkaline batteries steadily displacing zinc carbon batteries.
Duracell is at the forefront of primary lithium battery development and is
a leading primary lithium battery manufacturer for consumer devices. Lithium
batteries have performance advantages over conventional consumer batteries in
certain applications, their extremely high energy density and long shelf life
being the most notable advantages.
Duracell's line of zinc air batteries, most of which are "button cells,"
are used principally in hearing aids and medical equipment.
Over the past several years Duracell, Toshiba Battery Co., Ltd. of Japan
and Varta Batterie AG of Germany have engaged in joint research and development
of nickel metal hydride rechargeable cells. Nickel metal hydride rechargeable
batteries are becoming the battery of choice for use in devices having high
power requirements such as camcorders, portable computers and cellular phones.
They are also an environmentally attractive substitute for the nickel-cadmium
batteries now being used to power many such devices. During
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fiscal 1995 affiliates of the three companies formed a joint venture for the
purpose of constructing and operating a manufacturing facility in the United
States to produce nickel metal hydride cells for use in rechargeable batteries
sold by the three companies. The facility was completed during fiscal 1996 and
will begin commercial production in early fiscal 1997. Duracell has a 40%
interest in the joint venture, with Toshiba and Varta holding the remaining 40%
and 20%, respectively.
Duracell is continuing its efforts to convince the leading manufacturers of
portable computers, cellular telephones and other devices with high power
requirements to design-in standardized nickel metal hydride rechargeable
batteries as the power source for their devices. Duracell also plans to begin
manufacturing rechargeable lithium ion batteries in the United States during
fiscal 1997.
NORTH AMERICAN OPERATIONS
In North America, alkaline batteries account for a substantial majority of
household battery sales. Duracell's management estimates that in fiscal 1996,
alkaline batteries accounted for approximately 88% of the United States consumer
battery market. The DURACELL brand has the leading alkaline market share.
Duracell competes with several major brands in the highly competitive
United States battery market. Eveready Battery Company, a subsidiary of Ralston
Purina Company, manufactures Energizer brand alkaline batteries and is
Duracell's primary U.S. competitor. Other U.S. competitors include Rayovac
Corporation and numerous imported brands.
In Canada, the DURACELL brand has the leading alkaline market share in a
market where Duracell's management estimates that alkaline batteries account for
approximately 75% of the consumer battery market. Eveready Battery Company is
Duracell's primary Canadian competitor.
INTERNATIONAL OPERATIONS
Duracell's international operations are divided organizationally into two
groups: Europe and Other International Markets, consisting of Mexico, South
America, the Caribbean, the Middle East, India, Africa, China, the Pacific Rim
and various other developing alkaline markets.
Although Duracell is truly a pan-European battery business, Duracell's
European operations concentrate on the largest markets, namely the United
Kingdom, Germany, France, Spain and Italy. Duracell Europe also has a strong
brand presence in Scandinavia, the Benelux countries, Portugal and Austria. The
Eastern European countries offer significant potential for growth, and Duracell
has established business units in a number of them, including: Hungary, Czechia,
Poland and Russia. The DURACELL brand is the leading alkaline battery brand in
Europe. Duracell also markets a series of national brands, most notably
SUPERPILA (Italy), DAIMON (Germany) and HELLESENS/TUDOR (Scandinavia). In
Europe, the DURACELL brand competes with the Energizer brand and numerous
national alkaline brands, several of which are important brands in the country
of their manufacture, but DURACELL is in most instances the leading alkaline
brand. In European markets, where zinc carbon batteries maintain a higher market
share than in North America, Duracell sells more zinc carbon batteries than it
sells in any other market.
The DURACELL brand competes with numerous brands in Other International
Markets. Most of the batteries sold by Duracell in Other International Markets
are alkaline batteries. Although Duracell has achieved a high alkaline share in
numerous countries included in Other International Markets, overall alkaline
sales as a percentage of total battery sales are low as compared to zinc carbon
battery sales. Duracell's management believes that the countries comprising
Duracell's Other International Markets have significant potential for continued
alkaline penetration.
In fiscal 1996, Duracell acquired Eveready South Africa, the leading
consumer battery company in that country. In May, 1996 Duracell announced the
intended acquisition of STC Corporation's SUNPOWER trademark and consumer
battery sales and distribution operations in South Korea, for approximately $115
million. SUNPOWER is a major battery brand in South Korea. Completion of the
transaction is expected by the end of calendar 1996.
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In fiscal 1994, Duracell formed joint venture companies in both China and
India to manufacture and distribute DURACELL brand alkaline batteries. Duracell
holds a controlling interest in each of these companies. China and India offer
significant growth opportunities for Duracell due to the size of these markets.
New alkaline manufacturing facilities in these countries were substantially
completed during fiscal 1996, and production is expected to begin at both
facilities by the end of calendar 1996.
MARKETING AND DISTRIBUTION
Duracell promotes its batteries through a variety of means, including
television advertising, store displays and trade and consumer promotions.
Duracell's advertising emphasizes the long service life of DURACELL batteries
and product differentiation, such as the new Duracell(R) PowerCheck(TM)
batteries featuring an on-label tester. Duracell sponsors various trade and
consumer promotions intended to foster brand awareness and to maintain
favorable, multiple display positions in retail stores. Duracell distributes its
products principally through retailers, ranging from mass merchandisers and
warehouse clubs to sole proprietor outlets.
Each of Duracell's principal foreign subsidiaries has its own sales and
marketing staffs. Major accounts are serviced by the local sales force. Smaller
retail accounts are usually serviced through local distributors.
Duracell works closely with many original equipment manufacturers in their
development of new battery-powered devices designed to be used with Duracell's
batteries. Such efforts have been instrumental in developing the consumer
primary lithium battery market and are essential to Duracell's success in
selling standard size nickel metal hydride batteries and successfully
introducing lithium ion rechargeable batteries.
MANUFACTURING AND RAW MATERIALS
Duracell manufactures batteries in the United States, Canada, Mexico, South
Africa, the United Kingdom and Belgium. Duracell's Aarschot, Belgium facility is
believed to be the largest alkaline battery plant in the world. Construction of
alkaline manufacturing facilities in China and India is substantially complete.
Duracell's plants are modern and its manufacturing process is highly
automated. Labor costs represent a relatively small portion of product cost. In
the United States and Europe, Duracell manufactures many of the components used
in its assembly of alkaline batteries. The most significant raw materials used
by Duracell in its manufacture of alkaline batteries are steel, zinc and
electrolytic manganese dioxide powder. There is a variety of worldwide sources
for these raw materials and Duracell's management believes it will continue to
have access to adequate quantities of such materials at competitive prices.
Duracell is presently purchasing cells used in its production of
rechargeable nickel metal hydride batteries from Toshiba Battery Co., Ltd. The
U.S. joint venture formed by affiliates of Duracell, Toshiba and Varta has
completed the construction of a new nickel metal hydride cell manufacturing
facility in Mebane, North Carolina. See Note 2 to the Consolidated Financial
Statements.
SEASONALITY
Worldwide battery sales are significantly greater in the second half of the
calendar year than the first half as a result of industry-wide marketing
programs and consumers' traditionally strong purchases of battery-powered
products during the holiday season.
BACKLOG
The vast majority of Duracell's sales are made through consumer sales
channels; therefore, most customer orders are satisfied within only a few
business days. Consequently, Duracell's order backlog is not significant.
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CUSTOMERS
Duracell's business is not dependent on any single customer or limited
group of customers, the loss of which would have a material adverse effect on
its business. There is, however, a trend toward larger retailers, particularly
mass merchandisers and warehouse clubs, controlling an increasing share of the
consumer battery market in more developed markets such as the United States.
COMPETITION
The worldwide battery market is highly competitive, particularly as to
price and product performance.
PATENTS AND TRADEMARKS
As a result of continuous engineering, and research and development by
Duracell's engineers and scientists, Duracell has been issued a considerable
number of patents throughout the world. The Company also owns numerous
registered trademarks, including DURACELL, DYNACHARGE, COPPER TOP, ACTIVAIR,
SUPERPILA, DAIMON, HELLESENS, DURABEAM, PROCELL and MALLORY, which are used in
connection with the sale of its batteries and lighting products. Duracell's
management believes such patents and trademarks have considerable value,
particularly the DURACELL trademark.
RESEARCH AND DEVELOPMENT
Duracell's research and development staff is located in a modern laboratory
facility in Needham, Massachusetts. Duracell also operates technical centers in
the United Kingdom and in Connecticut.
Duracell's research and development efforts focus on the search for new
high-power batteries for the consumer market and on the improvement of its
existing products. In fiscal 1996, Duracell concentrated much of its research
and development efforts on enhancing the performance of its alkaline and nickel
metal hydride rechargeable batteries, and the development of a new line of
rechargeable lithium ion batteries. Duracell will continue such emphasis in
fiscal 1997.
Duracell spent $34.4 million, $34.7 million and $29.6 million on research
and development and $23.1 million, $22.9 million and $22.8 million on
engineering activities in fiscal 1996, 1995 and 1994, respectively.
EMPLOYEES
Duracell had approximately 9,600 employees at June 30, 1996. Duracell's
United States labor force is not unionized. Approximately 1,800 international
employees are members of national labor unions. Management believes that
Duracell's overall relations with its employees are good.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Duracell and its officers from time to time make written or oral
forward-looking statements, including statements contained in Duracell's filings
with the Securities and Exchange Commission and in reports to stockholders. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, important factors that could cause Duracell's
actual results to differ materially from those projected in forward looking
statements of the Company made by or on behalf of the Company are set forth
below:
- A significant decline in the growth rate in the household battery
market in major markets such as the United States, Europe, and those
countries within Duracell's Other International Markets segment in which
Duracell has significant operations.
- Actions by competitors or certain key customers which result in
Duracell's loss of a significant distribution channel or customer. For
example, the decision by a major retailer to no longer sell DURACELL
batteries or the inability to implement anticipated price increases,
resulting in lower-than-expected operating profits.
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- Slower than expected development of Duracell's rechargeable
business. Duracell expects that as the markets for personal computers,
cellular phones and other consumer electronics mature, the number of
battery sizes will consolidate to relatively few standard sizes, making the
sale of such devices on a "batteries not included" basis, as well as sale
of replacement batteries through normal retail channels, more prevalent.
This pattern has been followed historically for battery powered products
such as cameras and camcorders. Failure of the cellular phone and personal
computer categories to follow this pattern would have an adverse effect on
Duracell's expected growth in sales and profitability of high power
rechargeable batteries.
- Introduction of new value-added product features or new battery
chemistries by a competitor which attract sufficient consumers to
deteriorate Duracell's market share.
- Because of the significance of Duracell's operations outside of the
United States, and in such diverse markets as South Africa, China, India,
Mexico, among others, the Company is subject to the effects of, and changes
in, the monetary, fiscal and legal policies of foreign governments and
agencies. Other factors affecting Duracell's business are social and
economic conditions, the ability to obtain or hedge foreign currency in
accordance with Duracell's policy, and foreign exchange rate fluctuations.
Nationalization of Duracell's businesses and unstable governments would
also adversely affect the Company's results.
- Delays or unanticipated inefficiencies in Duracell's new alkaline
plants in China and India.
- The adoption of unanticipated environmental regulations in
Duracell's major markets which impact alkaline demand.
- Significant damage to a major Duracell manufacturing facility which
results in a loss of business momentum.
ITEM 2. PROPERTIES
Duracell has 12 manufacturing sites around the world and occupies numerous
warehouses and offices. The following table sets forth information with respect
to Duracell's manufacturing sites:
<TABLE>
<CAPTION>
LOCATION OF PLANT STATUS
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<S> <C>
North America
Cleveland, Tennessee Leased
Lancaster, South Carolina Owned
LaGrange, Georgia Owned
Lexington, North Carolina Owned
Waterbury, Connecticut Owned
Mississauga, Ontario, Canada Leased
International
Aarschot, Belgium Owned
Dongguan, China* Owned
Gurgaon, India* Owned
Mexico City, Mexico Owned
Port Elizabeth, South Africa Owned
Wrexham, Wales Leased
</TABLE>
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* Scheduled to begin commercial production in December 1996, these are joint
venture companies in which Duracell owns a controlling interest.
Duracell leases its corporate headquarters facility in Bethel, Connecticut.
Duracell's management believes that Duracell's facilities are adequate for
its operations, are in good operating condition and that its alkaline
manufacturing plants have sufficient global capacity to meet
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foreseeable market requirements. Duracell continues to add alkaline battery
capacity through the procurement of higher speed assembly equipment to meet
growing demand in the U.S. and throughout the world.
ITEM 3. LEGAL PROCEEDINGS
Other than ordinary litigation incidental to the battery business, such as
product liability claims, and other than in the environmental areas described
below, there are no significant legal or administrative proceedings to which
Duracell is a party defendant.
Duracell uses hazardous materials in its manufacture of batteries and,
consequently, is subject to numerous national, state and local laws and
regulations governing the use, discharge and disposal of such materials. Certain
jurisdictions have enacted or are considering legislation regulating the heavy
metal content of batteries. Duracell's manufacturing facilities are believed to
be in substantial compliance with current laws and regulations, and Duracell has
ongoing technical programs directed towards minimizing its use of hazardous
materials. Compliance with current laws and regulations has not had, and is not
expected to have, a material adverse effect on Duracell's financial condition.
Capital expenditures for Duracell's ongoing environmental protection programs
are not expected to be material to Duracell's financial condition. It is
impossible to predict the effect which future domestic or foreign regulation
(which could include regulation of the heavy metal content of batteries or the
disposal of batteries or of by-products of battery production) could have on
Duracell's business, earnings or cash flow.
In September, 1994, Duracell 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 ("RIFS") relating to mercury and volatile organic
compounds contamination at Duracell's Lexington, North Carolina manufacturing
site. The investigation work under the RIFS has been completed and certain
supplemental investigatory activities are presently being discussed with the
EPA. Comprehensive remediation actions have taken place at the Lexington site
over many years, but additional remediation work will be necessary based upon
the outcome of the RIFS. During 1996, Duracell has revised its estimates related
to remediation costs based on additional information obtained as the
investigation progressed. As of June 30, 1996, Duracell believes that reasonably
estimable investigatory and remediation costs will be approximately $6 million,
which is fully reserved. However, site investigation is not yet complete and the
remediation plan has not been agreed to by the EPA. Duracell believes that if
additional remedial work is required, such additional remediation would not
likely exceed an additional $10 million.
In addition to the Lexington site, Duracell is also involved in several
other environmental remediation programs. The future cost of these remediations
is not expected to be material to Duracell's results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol DUR. The number of holders of record of Common Stock at August 24,
1996 was 6,176. The Common Stock commenced public trading on May 2, 1991 at the
time of the initial public offering. On August 19, 1992, the Company declared
its initial quarterly cash dividend on the Common Stock at the rate of $.08 per
share. The quarterly dividend was subsequently increased to $.16 per share with
the dividend paid in the third quarter of fiscal 1993, to $.22 per share with
the dividend paid in the third quarter of fiscal 1994, to $.26 per share with
the dividend paid in the third quarter of fiscal 1995 and to $.29 per share with
the dividend paid in the third quarter of fiscal 1996. The closing price of the
Common Stock on September 13, 1996 was $62 27/64 per share.
The high, low and closing prices for a share of Duracell common stock on
the New York Stock Exchange for each fiscal quarter of 1996 and 1995 were as
follows (in dollars):
<TABLE>
<CAPTION>
HIGH LOW CLOSE
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<S> <C> <C> <C>
1996
Fourth Quarter................................................ 50 1/4 41 3/4 43 1/8
Third Quarter................................................. 54 44 7/8 49 5/8
Second Quarter................................................ 55 44 7/8 51 3/4
First Quarter................................................. 47 3/8 41 3/8 44 7/8
1995
Fourth Quarter................................................ 47 41 7/8 43 1/4
Third Quarter................................................. 45 3/8 36 3/4 44 3/4
Second Quarter................................................ 46 40 3/4 43 3/8
First Quarter................................................. 47 1/4 39 45 5/8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in Note 19, Selected Financial Data, which
appears on page 55 of the Annual Report to Shareholders for the fiscal year
ended June 30, 1996 is incorporated into this Report by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the heading "Financial Review" on pages 32
to 41 of the Annual Report to Shareholders for the fiscal year ended June 30,
1996 is incorporated into this Report by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, independent auditors'
report thereon and supplementary data on pages 42 to 56 of the Annual Report to
Shareholders for the fiscal year ended June 30, 1996 are incorporated into this
Report by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages and their
employment history are as follows:
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
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<S> <C> <C>
Earnest J. Edwards....... 58 Director of the Company since October, 1995; Vice President
and Controller, Aluminum Company of America.
C. Robert Kidder......... 52 Director of the Company since June, 1988; Chairman of the
Board and Chief Executive Officer, Borden, Inc. since
January, 1995; Chairman of the Board and Chief Executive
Officer of the Company and Duracell Inc. from April, 1992
until January, 1995 and October, 1994, respectively; Chairman
of the Board, President and Chief Executive Officer of the
Company and Duracell Inc. from August, 1991 until April,
1992.
Charles E. Kiernan....... 51 Director of the Company since October, 1994; President and
Chief Operating Officer of the Company and Duracell Inc.
since January, 1995 and October, 1994, respectively;
President, Duracell North America from September, 1993 to
October, 1994; President, Duracell USA from April, 1992 to
September, 1993; Senior Vice President, Marketing and
Manufacturing Operations, Duracell USA from September, 1991
to April, 1992.
Henry R. Kravis.......... 52 Director of the Company since June, 1988; General Partner,
Kohlberg Kravis Roberts & Co., L.P. ("KKR") and KKR
Associates.
G. Wade Lewis............ 49 Director of the Company since October, 1993; Senior Vice
President, Finance and Chief Financial Officer of the Company
since June, 1988.
Arno A. Penzias.......... 63 Director of the Company since June, 1995; Vice President and
Chief Scientist, Bell Laboratories, Lucent Technologies.
Charles R. Perrin........ 51 Director of the Company since June, 1988; Chairman of the
Board since January, 1995; Chief Executive Officer of the
Company and Duracell Inc. since October, 1994; President and
Chief Operating Officer of the Company and Duracell Inc. from
April, 1992 to October, 1994; President, Duracell North
America and International Development Markets, prior thereto.
Paul E. Raether.......... 50 Director of the Company since June, 1992; General Partner,
KKR and KKR Associates.
George R. Roberts........ 53 Director of the Company since June, 1988; General Partner,
KKR and KKR Associates.
William S. Shanahan...... 56 Director of the Company since April, 1996; President and
Chief Operating Officer, Colgate-Palmolive Company since
November, 1992; Senior Executive Vice President and Chief
Operating Officer prior thereto.
Paula Stern.............. 51 Director of the Company since October, 1994; President, The
Stern Group (economic analysis and trade advisory firm);
Senior Fellow, Progressive Policy Institute.
Scott M. Stuart.......... 37 Director of the Company since June, 1992; General Partner,
KKR and KKR Associates.
J. Norman Allen.......... 45 President, New Products and Technology ("NPT") Division since
February, 1995; Senior Vice President, NPT Division from
February, 1994 to February, 1995; Vice President, NPT
Division, prior thereto.
</TABLE>
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<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- ------------------------- --- -------------------------------------------------------------
<S> <C> <C>
David G. Bluestein....... 50 President, Duracell North America since October, 1994;
President, Duracell's International Development Markets
("IDM") Division from August, 1991 to October, 1994.
Robert A. Burgholzer, Jr. 53 Vice President and Controller of the Company since April,
1990.
Gregg A. Dwyer........... 52 Senior Vice President, General Counsel and Secretary of the
Company since June, 1988.
Barbara J. Johnson....... 45 Vice President, Taxes of the Company since November, 1993;
Completion of Graduate Studies and Other Academic Pursuits
from October, 1990 until May, 1993; Partner, Deloitte &
Touche, prior thereto.
Nancy A. Reardon......... 44 Senior Vice President, Human Resources of the Company since
September, 1991.
Christophe Ripert........ 44 President, Duracell Europe Division since July, 1992; Zone
Manager, Duracell Europe, prior thereto.
Walter B. Rogers......... 53 Vice President, Investor Relations of the Company since
February, 1992; Vice President, Communications, General Host
Corp., prior thereto.
Steven G. Staves......... 44 President, IDM Division since February, 1995; Various
Executive Positions, Sterling-Winthrop, Inc., prior thereto.
Somerset S. Waters....... 49 Vice President and Treasurer of the Company since December,
1994; Assistant Treasurer, Black & Decker Corporation prior
thereto.
</TABLE>
Mr. Kidder is a director of Borden, Inc., EDS and Dean Witter, Discover &
Co.
Mr. Kravis is a director of American Re Corporation, AutoZone, Inc.,
Borden, Inc., Bruno's, Inc., Flagstar Companies, Inc., Flagstar Corporation,
IDEX Corporation, K-III Communications Corp., Merit Behavioral Care Corporation,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Safeway Inc., Union Texas
Petroleum Holdings, Inc. and World Color Press, Inc.
Mr. Raether is a director of Bruno's, Inc., Fred Meyer, Inc., Flagstar
Companies, Inc., Flagstar Corporation, and IDEX Corporation.
Mr. Roberts is a director of AutoZone, Inc., Borden, Inc., Bruno's, Inc.,
Flagstar Companies, Inc., Flagstar Corporation, IDEX Corporation, K-III
Communications Corp., Merit Behavioral Care Corporation, Owens-Illinois, Inc.,
Owens-Illinois Group, Inc., Safeway Inc., Union Texas Petroleum Holdings, Inc.
and World Color Press, Inc.
Mr. Shanahan is a director of Molson Companies Ltd.
Ms. Stern is a director of Harcourt General Inc., Wal*Mart Corp. and
Westinghouse Electric Corporation.
Mr. Stuart is a director of Borden, Inc. and World Color Press, Inc.
Messrs. Kravis and Roberts are first cousins.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or accrued by the
Company for the Chief Executive Officer and the other four most highly
compensated executive officers of the Company during the last three fiscal years
(the position titles are those presently held by the named individuals).
Page 10
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- AWARDS
OTHER ANNUAL ------------ ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ----------------------------- ------ -------- -------- --------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Perrin............ 1996 $622,136 $487,500 $46,998 -- $ 4,500
Chairman of the Board and 1995 535,049 531,787 30,613 24,000 4,500
Chief Executive Officer 1994 439,393 373,490 36,491 -- 4,436
Charles E. Kiernan........... 1996 $403,018 $279,825 $39,888 -- $ 4,500
President and 1995 326,895 288,788 43,680 39,000 5,112
Chief Operating Officer 1994 264,736 224,114 35,766 -- 4,905
David G. Bluestein........... 1996 $296,929 $170,500 $40,287 -- $ 4,500
President, Duracell North 1995 256,904 221,125 31,883 6,000 4,770
America 1994 222,679 146,250 8,395 -- 4,230
G. Wade Lewis................ 1996 $314,505 $184,860 $34,306 -- $ 4,500
Senior Vice President and 1995 294,338 238,950 14,703 -- 4,845
Chief Financial Officer 1994 278,639 200,200 42,183 -- 4,767
Christophe Ripert............ 1996 $363,596 $183,727 $56,755(1) -- $ 98,314(3)
President, Duracell Europe 1995 322,985 223,556 60,438(1) -- 81,709(3)
1994 263,072 187,370 66,076(1) -- 82,583(3)
</TABLE>
- ---------------
(1) Fiscal 1996 includes $18,120 for a Company-paid leased automobile and
$28,701 of family education related payments. Fiscal 1995 includes $19,299
for a Company-paid leased automobile and $26,363 of family education
related payments. Fiscal 1994 includes $25,924 for a Company-paid leased
automobile and $23,929 of payments for family travel.
(2) The amounts reported as "All Other Compensation" reflect the employer
matching contributions under the Duracell Inc. Thrift Plan; Mr. Ripert does
not participate in the Thrift Plan.
(3) Fiscal 1996 and 1995 constitute $98,314 and $81,709, respectively, of
housing allowance payments. Fiscal 1994 includes $80,483 of housing
allowance payments and $2,100 of foreign currency protection payments.
The following table provides information on option exercises in fiscal 1996
by the named executive officers and the value of such officers' unexercised
options at June 30, 1996.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR-END (#) FISCAL YEAR-END(1) ($)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Perrin...... 50,000 $2,256,250 479,200 98,000 $15,731,550 $ 752,800
Charles E. Kiernan..... 18,000 $ 834,188 103,750 66,750 $ 2,508,251 $ 373,688
David G. Bluestein..... -- -- 36,500 39,500 $ 322,975 $ 325,975
G. Wade Lewis.......... -- -- 42,500 42,500 $ 390,363 $ 390,363
Christophe Ripert...... -- -- 37,500 37,500 $ 344,438 $ 344,438
</TABLE>
- -------------------------
(1) Values are based upon the difference between the option exercise prices and
the June 30, 1996 closing price for the Company's Common Stock of $43.13 per
share.
PENSION PLANS
Duracell Inc. established the Duracell Pension Plan for Salaried Employees
- -- 1976 (the "Prior Plan") effective September 30, 1976 for its U.S. salaried
employees. For service after September 30, 1976, the pension benefits provided
by the Prior Plan are equal to 1.67% of a participant's average pay (including
salary, bonus, and overtime wages) for the five highest consecutive years within
the last ten years of service times years of service reduced by 1.67% of the
participant's social security benefit times years of service. For service
Page 11
<PAGE> 12
before October 1, 1976, the Prior Plan provided a pension benefit equal to 1.0%
of a participant's average pay for the five highest consecutive years within the
last ten years of service times years of service.
In connection with the Company's 1988 acquisition of Duracell Inc. and its
battery-related subsidiaries and affiliates from Kraft, Inc. (the
"Acquisition"), Kraft, Inc. retained all assets and liabilities of the Prior
Plan and fully vested all participants in their then accrued benefits under the
Prior Plan.
On July 1, 1988, Duracell Inc. established the Duracell Inc. Pension Plan
for Salaried Employees (the "Salaried Plan"). The pension formula for the
Salaried Plan was the same as the formula in the Prior Plan, and it recognized
all years of service a participant had prior to the Acquisition. However, the
pension benefits payable under the Salaried Plan were reduced by the amount
payable under the Prior Plan.
Effective July 1, 1989, the Salaried Plan was amended and restated so as to
comply with certain provisions of the Tax Reform Act of 1986. Under the amended
and restated Plan (the "Cash Balance Plan") each participant has an account
balance which represents his or her benefit under the Cash Balance Plan. The
participant's initial account balance equals the present value of his or her
benefit earned through June 30, 1989 under the Salaried Plan. Benefit accruals
earned after June 30, 1989 are credited monthly to the participant's account and
are comprised of the sum of three components: Company Credits, Supplemental
Credits and Interest Credits.
The Company Credits equal the product of the participant's pay and an
accrual percentage. The accrual percentages are set forth in the following
table:
<TABLE>
<CAPTION>
YEARS OF SERVICE ACCRUAL PERCENTAGE
-----------------------------------------------------------------------------
<S> <C>
0 to 4.99.................................................. 4.0%
5 to 9.99.................................................. 5.0%
10 to 19.99................................................ 6.5%
20 to 29.99................................................ 8.5%
30 and over................................................ 11.0%
</TABLE>
Supplemental Credits are granted to participants who were age 30 or over on
December 31, 1990. This Supplemental Credit is a fixed percentage of pay that is
credited to the participant's account. The supplemental percentages are set
forth in the following table:
<TABLE>
<CAPTION>
AGE ON DECEMBER 31, 1990 SUPPLEMENTAL PERCENTAGE
-----------------------------------------------------------------------------
<S> <C>
30 to 32 years........................................ 0.50%
33 to 35 years........................................ 1.00%
36 to 38 years........................................ 2.00%
39 to 41 years........................................ 2.75%
42 to 44 years........................................ 3.75%
45 to 47 years........................................ 4.75%
48 to 50 years........................................ 5.75%
51 to 53 years........................................ 6.75%
54 to 56 years........................................ 8.00%
57 to 59 years........................................ 9.00%
60 and over........................................... 10.00%
</TABLE>
The Interest Credits are equal to the monthly interest rate times the
participant's account balance at the end of the previous month. The interest
rate, which is equal to a five-year average of the yield on one year treasury
bills, is computed at the beginning of the plan year and is used throughout the
plan year. The annual interest rate credit for fiscal 1996 is 4.75%.
Benefits earned under the Cash Balance Plan are vested after five years of
service. The Cash Balance Plan limits the pay that is counted in the pension
formula. The limit is $150,000 for fiscal 1996. A limit is also imposed on the
amount of benefit payable to the participant from the Cash Balance Plan.
Benefits under the Cash Balance Plan are payable upon normal retirement
(age 65), vested termination or death. A participant may elect to commence
benefit payments on the first day of the month that is coincident with or next
following the earlier of his or her fifty-fifth birthday or the first
anniversary of
Page 12
<PAGE> 13
separation of employment. The benefits are payable in the form of an increasing
annuity, level annuity or lump sum which are all actuarially equivalent.
All of the individuals named in the table entitled "Summary Compensation
Table," except Christophe Ripert, are participants in the Cash Balance Plan. As
of June 30, 1996, Charles R. Perrin had 11 full years of credited service,
Charles E. Kiernan had 10 full years of credited service, David G. Bluestein had
6 full years of credited service, and G. Wade Lewis had 19 full years of
credited service. The estimated annual benefits payable upon retirement at 65 is
$67,023 for Charles R. Perrin, $64,450 for Charles E. Kiernan, $57,843 for David
G. Bluestein and $83,286 for G. Wade Lewis.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
On July 1, 1995 Duracell Inc. established the Duracell Inc. Supplemental
Employee Retirement Plan (the "Supplemental Plan"). The Supplemental Plan was
made effective retroactive to July 1, 1994, and is a non-qualified plan. The
Supplemental Plan is designed to provide the benefit which would have been
earned under the Cash Balance Plan for that portion of a participant's
compensation which was excluded from the calculation of the benefit payable
under the Cash Balance Plan due to Internal Revenue Code limitations. All of the
individuals named in the table entitled "Summary Compensation Table," except
Christophe Ripert, are participants in the Supplemental Plan. The estimated
benefits payable as a lump sum upon retirement at 65 pursuant to the
Supplemental Plan is $3,009,249 for Charles R. Perrin, $1,541,973 for Charles E.
Kiernan, $939,639 for David G. Bluestein, and $1,422,435 for G. Wade Lewis.
DURACELL UK PENSION PLAN
All United Kingdom employees who are over the age of 21 and have completed
one year of service are eligible for participation in the Duracell UK Pension
Plan (the "UK Plan").
Each participating employee contributes to the UK Plan a certain percentage
of his total earnings. Each employee participating in the UK Plan will be
entitled to a monthly retirement benefit commencing on the retirement at age 65
(male) or 60 (female) or over. Benefits are computed on a formula based on the
employee's final average annual salary (average of the highest three consecutive
years of the last ten years earnings before retirement), the amount of the
employee's contributions to the UK Plan and the number of years of membership in
the UK Plan.
The UK Plan also provides for incapacity pension benefits to be paid upon
26 weeks of continuous sickness absence of the employee and for a death benefit
to be paid upon the death of the employee.
Christophe Ripert is the only executive officer who is presently
participating in the UK Plan. As of June 30, 1996, Mr. Ripert had four years of
credited service. The estimated annual benefit payable to Mr. Ripert upon
retirement at age 65 is $92,183.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives an annual fee
of $30,000. Directors who are also employees of the Company or its subsidiaries
receive no remuneration for serving as directors. Ms. Stern and Messrs. Edwards,
Penzias and Shanahan have been granted 1,500 restricted shares of the Company's
Common Stock. The restrictions on the sale or transfer of these 1,500 shares
lapse pro rata over a period of three years, or sooner in the event of a change
of control of the Company, provided the recipient continues to serve as a
director. Each non-employee director is also granted a formula-based stock
option under the Duracell Shares Plan upon his or her election as a director.
Ms. Stern was granted an option to purchase 3,000 shares of the Company's Common
Stock in October, 1994 at an option price of $42.13 per share. Mr. Penzias was
granted an option to purchase 2,500 shares of the Company's Common Stock in
June, 1995 at an option price of $43.00. Mr. Edwards was granted an option to
purchase 2,000 shares of the Company's Common Stock in October, 1995 at an
option price of $50.81 per share. Mr. Shanahan was granted an option to purchase
1,500 shares of the Company's Common Stock in April, 1996 at an option price of
$44.31 per share. Mr. Kidder has been granted an unfunded life insurance benefit
in the amount of $648,000.
Page 13
<PAGE> 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 13, 1996, assuming the exercise of all
options exercisable on, or within 60 days of, such date, by (i) each director,
(ii) the Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company, (iii) all executive officers and
directors as a group and (iv) the Company's principal stockholders. Other than
as set forth in the table below, there are no persons known to the Company to
beneficially own more than 5% of the Common Stock as of September 13, 1996. On
September 23, 1996, The Gillette Company (Prudential Tower Building, Boston,
Massachusetts 02199) ("Gillette") filed a Schedule 13D with the U.S. Securities
and Exchange Commission with respect to the 41,100,000 shares of Common Stock
owned by KKR Associates as described in the table below. According to the
Schedule 13D, Gillette and Alaska Acquisition Corp., a wholly-owned subsidiary
of Gillette ("Subs"), may be deemed to have acquired beneficial ownership of
such shares as a result of the execution of a Stockholders Agreement, dated as
of September 12, 1996, between Gillette and certain limited partnerships
affiliated with KKR that are the record owners of such shares, pursuant to
which, among other things, such limited partnerships granted to Sub., a
wholly-owned subsidiary of Gillette, an irrevocable proxy to vote such shares of
Common Stock in favor of the merger between the Company and Gillette.
<TABLE>
<CAPTION>
NAME FULLY DILUTED PERCENTAGE
- ------------------------------------------------------------------ ------------- ----------
<S> <C> <C>
KKR Associates1
9 West 57th Street
New York, New York 10019........................................ 41,100,000 33.52%
Charles R. Perrin2, 8............................................. 575,106 .47%
Charles E. Kiernan3, 8............................................ 104,150 9
David G. Bluestein8............................................... 57,289 9
Earnest J. Edwards................................................ 1,500 9
C. Robert Kidder4, 8.............................................. 308,817 .25%
Henry R. Kravis1, 5............................................... -- --
G. Wade Lewis8.................................................... 93,168 9
Arno A. Penzias................................................... 2,125 9
Paul E. Raether1, 6............................................... -- --
Christophe Ripert8................................................ 37,500 9
George R. Roberts1, 7............................................. -- --
William S. Shanahan............................................... 2,500 9
Paula Stern....................................................... 2,250 9
Scott M. Stuart1.................................................. 4,528 9
All directors and executive officers as a group (22 persons)8..... 1,335,171 1.09%
</TABLE>
- ---------------
1 Shares of Common Stock shown as owned by KKR Associates are owned of record by
limited partnerships affiliated with KKR (the "Common Stock Partnerships") of
which KKR Associates is the sole general partner and as to which it possesses
sole voting and investment power. Messrs. Kravis, Raether, Roberts and Stuart
and Robert I. MacDonnell, Michael W. Michelson, Saul A. Fox, James H. Greene,
Jr., Michael T. Tokarz, Clifton S. Robbins, Perry Golkin and Edward A.
Gilhuly, as the general partners of KKR Associates, may be deemed to share
beneficial ownership of such shares. Each of these individuals disclaims
beneficial ownership of any shares shown as owned by KKR Associates.
2 A private foundation established by Mr. Perrin owns 46,400 shares. Mr. Perrin
has disclaimed beneficial ownership of these shares.
3 A trust for the benefit of Mr. Kiernan's family owns 44,503 shares. Mr.
Kiernan has disclaimed beneficial ownership of these shares.
4 A trust for the benefit of members of Mr. Kidder's family owns 43,000 shares.
Mr. Kidder has disclaimed beneficial ownership of these shares.
5 A trust for the benefit of members of Mr. Kravis's family owns 50,000 shares.
Mr. Kravis has disclaimed beneficial ownership of these shares.
6 A trust for the benefit of members of Mr. Raether's family owns 50,000 shares.
Mr. Raether has disclaimed beneficial ownership of these shares.
7 A private foundation established by Mr. Roberts owns 70,000 shares. Mr.
Roberts has disclaimed beneficial ownership of these shares.
Page 14
<PAGE> 15
8 Includes the following shares issuable upon the exercise of outstanding stock
options that are exercisable now or within 60 days after September 13, 1996:
479,200 for Mr. Perrin; 115,000 for Mr. Kidder; 103,750 for Mr. Kiernan;
36,500 for Mr. Bluestein; 42,500 for Mr. Lewis; 37,500 for Mr. Ripert; and
907,325 for all directors and executive officers as a group.
9 Less than 0.1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
KKR renders management, consulting and financial services to the Company
and its subsidiaries for an annual fee of $600,000, payable quarterly in
arrears. The Company believes that this fee is no less favorable than that which
could be obtained for comparable services from unaffiliated third parties.
Messrs. Kravis, Raether, Roberts and Stuart are general partners of KKR.
The Common Stock Partnerships hold an aggregate of 41.1 million shares of
Common Stock, which they purchased at the time of the Acquisition in June, 1988
at a price of $5.00 per share. The general partner of the Common Stock
Partnerships is KKR Associates, a New York limited partnership of which Henry R.
Kravis, George R. Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W.
Michelson, Saul A. Fox, James H. Greene, Scott M. Stuart, Michael T. Tokarz,
Clifton S. Robbins, Perry Golkin and Edward A. Gilhuly are the general partners
and certain past and present employees of KKR and partnerships and trusts for
the benefit of the families of such general partners and employees and a former
partner of KKR are the limited partners. KKR Associates has sole voting and
investment power with respect to such shares, except as described in Item 12 on
page 14. The funds for these purchases were contributed by the limited partners
of the Common Stock Partnerships and KKR Associates from their respective
assets.
The Common Stock Partnerships have the right, under certain circumstances
and subject to certain conditions, to require the Company to register under the
Securities Act shares of Common Stock held by them. The Common Stock
Partnerships have both demand and "piggyback" registration rights. Under the
agreements providing for registration rights, the Company will pay all expenses
in connection with any such registration. Certain senior Company managers,
including eight of its current executive officers, were also given certain
"piggyback" registration rights with respect to the Common Stock purchased by
them in June, 1988.
For further information regarding the equity ownership of the Company see
"Security Ownership of Certain Beneficial Owners and Management."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kravis, Raether and Stuart served as members of the Management
Compensation and Employee Benefits and Stock Option Committees during fiscal
1996. Messrs. Kravis, Raether and Stuart are general partners of KKR.
Page 15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Annual Report:
(1) The following consolidated financial statements of Duracell
International Inc. and the independent auditors' report are
incorporated by reference in Part II, Item 8.
- Consolidated Income Statement for the years ended June 30, 1996, 1995
and 1994
- Consolidated Balance Sheet as of June 30, 1996 and 1995
- Statement of Consolidated Cash Flows for the years ended June 30,
1996, 1995 and 1994
- Statement of Consolidated Equity for the years ended June 30, 1996,
1995 and 1994
- Notes to Consolidated Financial Statements
- Independent Auditors' Report
(2) The following Financial Statement Schedule is included herein:
- Schedule II-Valuation and Qualifying Accounts for the years ended
June 30, 1996, 1995 and 1994..................................Page 23
Schedules other than those listed above have been omitted from this Report
because they are either not required, not applicable, or the required
information is included in the Consolidated Financial Statements or the
Notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Duracell International Inc. (incorporated
herein by reference to Exhibit 3.1 to Form S-1 [No. 33-39301] of Duracell
International Inc.).
3.2 By-laws of Duracell International Inc. (incorporated herein by reference to Exhibit
3.2 to Form S-1 [No. 33-39301] of Duracell International Inc.).
3.3 Amendment adopted April 29, 1991, to the By-laws of Duracell International Inc.
(incorporated herein by reference to Exhibit 3.3 to Form S-1 [No. 33-39301] of
Duracell International Inc.).
10.1 Form of Common Stock Subscription Agreement entered into between Duracell Holdings
Corporation and certain executives as of June 24, 1988, including form of Option
Agreement attached thereto as Exhibit A (incorporated herein by reference to Exhibit
10.1 to Form S-1 [No. 33-23528] of Duracell Holdings Corporation).
10.2 Stock Option Plan for Key Employees of Duracell International Inc. and Subsidiaries
(incorporated herein by reference to Exhibit 4.4 to Form S-8 [No. 33-39817] of
Duracell International Inc.).
10.3 Duracell Shares Plan (incorporated herein by reference to Exhibit A to Duracell
International Inc. Proxy Statement relating to the Annual Meeting of Stockholders
held on October 27, 1992).
10.4 Amended and Restated Credit Agreement, dated as of March 29, 1991, among Duracell
International Inc. and certain of its affiliates and the Banks listed therein,
including The First National Bank of Chicago as agent (incorporated herein by
reference to Exhibit 10.3 to Form S-1 [No. 33-39301] of Duracell International Inc.).
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
10.5 First Amendment, dated as of June 24, 1991, to the Second Amended and Restated Credit
Agreement, dated as of March 29, 1991, among Duracell International Inc. and certain
of its affiliates and the Banks listed therein, including The First National Bank of
Chicago, as agent (incorporated herein by reference to Exhibit 10.4 to Duracell
International Inc. Annual Report on Form 10-K for the year ended June 30, 1991).
10.6 Second Amendment, dated as of August 23, 1991, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit 10.5 to
Duracell International Inc. Annual Report on Form 10-K for the year ended June 30,
1991).
10.7 Third Amendment, dated as of December 13, 1991, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit 10.7 to
Duracell International Inc. Annual Report on Form 10-K for the year ended June 30,
1992).
10.8 Waiver dated as of May 12, 1992, with respect to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit 10.8 to
Duracell International Inc. Annual Report on Form 10-K for the year ended June 30,
1992).
10.9 Fourth Amendment, dated as of October 16, 1992, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit (i) to
Duracell International Inc. report on Form 10-Q for the quarter ended September 26,
1992).
10.10 Fifth Amendment, dated as of December 22, 1993, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit (ii) to
Duracell International Inc. report on Form 10-Q for the quarter ended December 25,
1993).
10.11 Sixth Amendment, dated as of October 28, 1994, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit (ii) to
Duracell International Inc. report on Form 10-Q for the quarter ended December 31,
1994).
10.12 Amended and Restated Multi-Option Financing Facility Agreement, dated as of November
16, 1990, among Duracell Holdings Corporation and certain of its affiliates, and the
Financial Institutions listed therein, including Bank of America International
Limited as facility agent and The First National Bank of Chicago as documentation
agent (incorporated herein by reference to Exhibit to Duracell Holdings Corporation's
report on Form 10-Q for the quarter ended December 29, 1990).
10.13 First Amendment, dated as of March 19, 1991, to the Amended and Restated Multi-Option
Financing Facility Agreement, dated as of November 16, 1990, among Duracell
International Inc. and certain affiliates and the Financial Institutions listed
therein, including Bank of America International Limited as facility agent and The
First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.6 to Form S-1 [No. 33-39301] of Duracell International Inc.).
</TABLE>
Page 17
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
10.14 Second Amendment, dated as of June 24, 1991, to the Amended and Restated Multi-Option
Financing Facility Agreement, dated as of November 16, 1990 among Duracell
International Inc. and certain of its affiliates, the Financial Institutions listed
therein, including Bank of America International Limited as facility agent and The
First Bank of Chicago as documentation agent (incorporated herein by reference to
Exhibit 10.8 to Duracell International Inc. Annual Report on Form 10-K for the year
ended June 30, 1991).
10.15 Third Amendment, dated as of August 23, 1991, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First Bank of Chicago as documentation agent (incorporated herein by reference to
Exhibit 10.9 to Duracell International Inc. Annual Report on Form 10-K for the year
ended June 30, 1991).
10.16 Fourth Amendment, dated as of December 13, 1991, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990, among
Duracell International Inc. and certain affiliates and the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.13 to Duracell International Inc. Annual Report on Form 10-K
for the year ended June 30, 1992).
10.17 Fifth Amendment and Waiver, dated as of May 15, 1992, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.14 to Duracell International Inc. Annual Report on Form 10-K
for the year ended June 30, 1992).
10.18 Sixth Amendment, dated as of October 16, 1992, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit (ii) to Duracell International Inc. report on Form 10-Q for the
quarter ended September 26, 1992).
10.19 Seventh Amendment, dated as of August 30, 1993, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.17 to Duracell International Inc. Annual Report on Form 10-K
for the year ended June 30, 1993).
10.20 Eighth Amendment, dated as of December 22, 1993, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit (iii) to Duracell International Inc. report on Form 10-Q for the
quarter ended December 25, 1993).
10.21 Ninth Amendment, dated as of October 28, 1994, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990, among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
the First National Bank of Chicago as documentation agent (Incorporated herein by
reference to Exhibit (iii) to Duracell International Inc. report on Form 10-Q for the
quarter ended December 31, 1994).
</TABLE>
Page 18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
10.22 Stock Purchase Agreement, dated as of May 4, 1988, as amended and restated as of June
23, 1988, by and between Duracell International Inc. and Kraft, Inc., including list
of omitted schedules (incorporated herein by reference to Exhibit 21 to Form S-1 [No.
33-23528] of Duracell Holdings Corporation).
11.1 Duracell International Inc. computation of earnings per share of Common Stock for the
years ended June 30, 1996, 1995 and 1994.
13.2 Pages 32 through 56 of the Company's Annual Report to Stockholders for the year ended
June 30, 1996.
21.1 Active Subsidiaries and Branches of Duracell International Inc.
23.0 Consent of Deloitte & Touche LLP.
24.0 Powers of Attorney.
27.0 Financial Data Schedule (as required by the SEC for EDGAR filers).
</TABLE>
(d) The Company has no unconsolidated subsidiaries.
Page 19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 23, 1996 By /s/ ROBERT A. BURGHOLZER, JR.
-----------------------------
Robert A. Burgholzer, Jr.
Vice President and Controller
(Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated this 23rd day of September, 1996
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- ---------------------------------------
<C> <S>
/s/ CHARLES R. PERRIN Chairman of the Board and Chief
- ----------------------------------------------- Executive Officer
Charles R. Perrin*
/s/ G. WADE LEWIS Director, Senior Vice President,
- ----------------------------------------------- Finance and Chief Financial Officer
G. Wade Lewis
/s/ CHARLES E. KIERNAN Director, President and Chief Operating
- ----------------------------------------------- Officer
Charles E. Kiernan*
/s/ EARNEST J. EDWARDS Director
- -----------------------------------------------
Earnest J. Edwards*
/s/ C. ROBERT KIDDER Director
- -----------------------------------------------
C. Robert Kidder*
/s/ HENRY R. KRAVIS Director
- -----------------------------------------------
Henry R. Kravis*
/s/ ARNO A. PENZIAS Director
- -----------------------------------------------
Arno A. Penzias*
/s/ PAUL E. RAETHER Director
- -----------------------------------------------
Paul E. Raether*
/s/ GEORGE R. ROBERTS Director
- -----------------------------------------------
George R. Roberts*
</TABLE>
Page 20
<PAGE> 21
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- ---------------------------------------
<C> <S>
/s/ WILLIAM S. SHANAHAN Director
- -----------------------------------------------
William S. Shanahan*
Director
- -----------------------------------------------
Paula Stern
/s/ SCOTT M. STUART Director
- -----------------------------------------------
Scott M. Stuart*
</TABLE>
* By /s/ G. WADE LEWIS
-------------------
G. Wade Lewis
Attorney-In-Fact
Page 21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Duracell International Inc.:
We have audited the consolidated financial statements of Duracell
International Inc. and its subsidiaries as of June 30, 1996 and 1995 and for
each of the three years in the period ended June 30, 1996, and have issued our
report thereon dated August 9, 1996 (September 12, 1996 as to the announcement
of the merger described in Note 17); such consolidated financial statements and
report are included in your 1996 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of Duracell International Inc. and its
subsidiaries, listed in Item 14(a)(2). This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
August 9, 1996
Page 22
<PAGE> 23
SCHEDULE II
DURACELL INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
(C)
(B) ADDITIONS
BALANCE ------------------------- (E)
AT CHARGED TO CHARGED TO BALANCE
(A) BEGINNING COSTS AND OTHER (D) AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS(1) DEDUCTIONS(2) OF YEAR
- ----------------------------------- --------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1996............................... $19.1 $ 10.5 $ (0.5) $(6.5) $22.6
1995............................... $23.2 $ 6.3 $ (0.9) $(9.5) $19.1
1994............................... $18.1 $ 9.0 $ 0.4 $(4.3) $23.2
</TABLE>
- ---------------
Notes: (1) Principally foreign exchange.
(2) Principally write-offs.
Page 23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Duracell International Inc. (incorporated
herein by reference to Exhibit 3.1 to Form S-1 [No. 33-39301] of Duracell
International Inc.).
3.2 By-laws of Duracell International Inc. (incorporated herein by reference to Exhibit
3.2 to Form S-1 [No. 33-39301] of Duracell International Inc.).
3.3 Amendment adopted April 29, 1991, to the By-laws of Duracell International Inc.
(incorporated herein by reference to Exhibit 3.3 to Form S-1 [No. 33-39301] of
Duracell International Inc.).
10.1 Form of Common Stock Subscription Agreement entered into between Duracell Holdings
Corporation and certain executives as of June 24, 1988, including form of Option
Agreement attached thereto as Exhibit A (incorporated herein by reference to Exhibit
10.1 to Form S-1 [No. 33-23528] of Duracell Holdings Corporation).
10.2 Stock Option Plan for Key Employees of Duracell International Inc. and Subsidiaries
(incorporated herein by reference to Exhibit 4.4 to Form S-8 [No. 33-39817] of
Duracell International Inc.).
10.3 Duracell Shares Plan (incorporated herein by reference to Exhibit A to Duracell
International Inc. Proxy Statement relating to the Annual Meeting of Stockholders
held on October 27, 1992).
10.4 Amended and Restated Credit Agreement, dated as of March 29, 1991, among Duracell
International Inc. and certain of its affiliates and the Banks listed therein,
including The First National Bank of Chicago as agent (incorporated herein by
reference to Exhibit 10.3 to Form S-1 [No. 33-39301] of Duracell International Inc.).
10.5 First Amendment, dated as of June 24, 1991, to the Second Amended and Restated Credit
Agreement, dated as of March 29, 1991, among Duracell International Inc. and certain
of its affiliates and the Banks listed therein, including The First National Bank of
Chicago, as agent (incorporated herein by reference to Exhibit 10.4 to Duracell
International Inc. Annual Report on Form 10-K for the year ended June 30, 1991).
10.6 Second Amendment, dated as of August 23, 1991, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit 10.5 to
Duracell International Inc. Annual Report on Form 10-K for the year ended June 30,
1991).
10.7 Third Amendment, dated as of December 13, 1991, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit 10.7 to
Duracell International Inc. Annual Report on Form 10-K for the year ended June 30,
1992).
10.8 Waiver dated as of May 12, 1992, with respect to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit 10.8 to
Duracell International Inc. Annual Report on Form 10-K for the year ended June 30,
1992).
10.9 Fourth Amendment, dated as of October 16, 1992, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit (i) to
Duracell International Inc. report on Form 10-Q for the quarter ended September 26,
1992).
10.10 Fifth Amendment, dated as of December 22, 1993, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit (ii) to
Duracell International Inc. report on Form 10-Q for the quarter ended December 25,
1993).
10.11 Sixth Amendment, dated as of October 28, 1994, to the Second Amended and Restated
Credit Agreement, dated as of March 29, 1991, among Duracell International Inc. and
certain of its affiliates and the Banks listed therein, including The First National
Bank of Chicago, as agent (incorporated herein by reference to Exhibit (ii) to
Duracell International Inc. report on Form 10-Q for the quarter ended December 31,
1994).
10.12 Amended and Restated Multi-Option Financing Facility Agreement, dated as of November
16, 1990, among Duracell Holdings Corporation and certain of its affiliates, and the
Financial Institutions listed therein, including Bank of America International
Limited as facility agent and The First National Bank of Chicago as documentation
agent (incorporated herein by reference to Exhibit to Duracell Holdings Corporation's
report on Form 10-Q for the quarter ended December 29, 1990).
10.13 First Amendment, dated as of March 19, 1991, to the Amended and Restated Multi-Option
Financing Facility Agreement, dated as of November 16, 1990, among Duracell
International Inc. and certain affiliates and the Financial Institutions listed
therein, including Bank of America International Limited as facility agent and The
First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.6 to Form S-1 [No. 33-39301] of Duracell International Inc.).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
10.14 Second Amendment, dated as of June 24, 1991, to the Amended and Restated Multi-Option
Financing Facility Agreement, dated as of November 16, 1990 among Duracell
International Inc. and certain of its affiliates, the Financial Institutions listed
therein, including Bank of America International Limited as facility agent and The
First Bank of Chicago as documentation agent (incorporated herein by reference to
Exhibit 10.8 to Duracell International Inc. Annual Report on Form 10-K for the year
ended June 30, 1991).
10.15 Third Amendment, dated as of August 23, 1991, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First Bank of Chicago as documentation agent (incorporated herein by reference to
Exhibit 10.9 to Duracell International Inc. Annual Report on Form 10-K for the year
ended June 30, 1991).
10.16 Fourth Amendment, dated as of December 13, 1991, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990, among
Duracell International Inc. and certain affiliates and the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.13 to Duracell International Inc. Annual Report on Form 10-K
for the year ended June 30, 1992).
10.17 Fifth Amendment and Waiver, dated as of May 15, 1992, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.14 to Duracell International Inc. Annual Report on Form 10-K
for the year ended June 30, 1992).
10.18 Sixth Amendment, dated as of October 16, 1992, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit (ii) to Duracell International Inc. report on Form 10-Q for the
quarter ended September 26, 1992).
10.19 Seventh Amendment, dated as of August 30, 1993, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit 10.17 to Duracell International Inc. Annual Report on Form 10-K
for the year ended June 30, 1993).
10.20 Eighth Amendment, dated as of December 22, 1993, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990 among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
The First National Bank of Chicago as documentation agent (incorporated herein by
reference to Exhibit (iii) to Duracell International Inc. report on Form 10-Q for the
quarter ended December 25, 1993).
10.21 Ninth Amendment, dated as of October 28, 1994, to the Amended and Restated
Multi-Option Financing Facility Agreement, dated as of November 16, 1990, among
Duracell International Inc. and certain of its affiliates, the Financial Institutions
listed therein, including Bank of America International Limited as facility agent and
the First National Bank of Chicago as documentation agent (Incorporated herein by
reference to Exhibit (iii) to Duracell International Inc. report on Form 10-Q for the
quarter ended December 31, 1994).
10.22 Stock Purchase Agreement, dated as of May 4, 1988, as amended and restated as of June
23, 1988, by and between Duracell International Inc. and Kraft, Inc., including list
of omitted schedules (incorporated herein by reference to Exhibit 21 to Form S-1 [No.
33-23528] of Duracell Holdings Corporation).
11.1 Duracell International Inc. computation of earnings per share of Common Stock for the
years ended June 30, 1996, 1995 and 1994.
13.2 Pages 32 through 56 of the Company's Annual Report to Stockholders for the year ended
June 30, 1996.
21.1 Active Subsidiaries and Branches of Duracell International Inc.
23.0 Consent of Deloitte & Touche LLP.
24.0 Powers of Attorney.
27.0 Financial Data Schedule (as required by the SEC for EDGAR filers).
</TABLE>
<PAGE> 1
EXHIBIT 11.1
DURACELL INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Primary Computations:
Weighted average number of shares outstanding.................... 118.6 117.4 116.4
Effect of outstanding stock options............................ 2.6 3.3 2.8
---- ---- ----
Weighted average number of shares and share equivalents
outstanding................................................. 121.2 120.7 119.2
==== ==== ====
Per share amounts:
Net income(a)(b)............................................... $ 2.02 $ 1.95 $ 1.68
==== ==== ====
Fully Diluted Computations:
Weighted average number of shares outstanding.................... 118.6 117.4 116.4
Effect of outstanding stock options............................ 2.6 3.3 3.2
---- ---- ----
Weighted average number of shares and share equivalents
outstanding................................................. 121.2 120.7 119.6
==== ==== ====
Per share amounts:
Net income(a)(b)............................................ $ 2.02 $ 1.95 $ 1.67
==== ==== ====
</TABLE>
- ---------------
(a) These calculations are submitted in accordance with Regulation S-K item 601
(b) (11).
(b) Calculated by dividing the following by the weighted average number of
shares and share equivalents:
<TABLE>
<S> <C> <C> <C>
Net income.................................................. $244.7 $235.8 $200.2
====== ====== ======
</TABLE>
Page 24
<PAGE> 1
FINANCIAL REVIEW
RESULTS OF OPERATIONS
1996 marked another year of solid gains in Duracell's four key measures:
alkaline volume, revenue, operating income and earnings per share. During the
year, Duracell also made substantial progress in addressing strategic priorities
in support of long-term growth. Highlights include:
- - record investments in capital spending -- including new alkaline plants in
China and India which will begin production in fiscal 1997
- - introduction of new DURACELL(R) PowerCheck batteries, featuring the only
on-battery fuel gauge in the market, which adds value for the consumer and
should stimulate alkaline penetration and volume growth
- - completion of the rechargeable nickel metal hydride joint venture's
manufacturing facility, 40% of which is owned by Duracell
- - the acquisition of Eveready South Africa, which establishes clear market
leadership in that country
- - acceleration of the timeframe for production of lithium ion rechargeable
batteries, now planned for fiscal 1997
Following is a summary of Duracell's financial achievements over the last
five years:
<TABLE>
<CAPTION>
(Units/$ in millions, except per share amounts) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Alkaline Volume 3,032 2,726 2,437 2,196 1,978
Revenue $2,290 $2,079 $1,871 $1,742 $1,617
Gross Profit 1,448 1,352 1,224 1,102 1,026
Advertising and Promotion 492 464 428 357 327
Research and Development 34 35 30 26 21
Other Operating Expenses 477 443 410 412 393
Operating Income Before Restructuring 445 410 356 307 285
Operating Margin Before Restructuring 19.4% 19.7% 19.0% 17.6% 17.6%
Restructuring -- -- -- 65 --
Operating Income 445 410 356 242 285
Interest Expense 25 27 30 46 80
Tax Expense 156 152 120 59 44
Effective Tax Rate 38.9% 39.2% 37.5% 32.2% 20.9%
Income Before Extraordinary Items and Accounting Change $ 245 $ 236 $ 200 $ 124 $ 167
Per Share Summary:
Before Restructuring $ 2.02(1) $ 1.95(1) $ 1.68 $ 1.44 $ 1.43
Restructuring -- -- -- (0.40) --
Income Before Extraordinary Items and Accounting Change $ 2.02(1) $ 1.95(1) $ 1.68 $ 1.04 $ 1.43
Weighted Average Shares and Share Equivalents 121 121 119 119 117
</TABLE>
(1) Income per share, before extraordinary items and accounting change, was
$2.10 and $1.93 in 1996 and 1995, respectively, before the impact of marking to
market forward foreign currency contracts. See Note 10 to the Consolidated
Financial Statements.
32
<PAGE> 2
Key measures of 1996 results are as follows:
- - Alkaline Volume Improved 11%
Unit gains were driven by market growth, share gains, geographic expansion,
expanded customer base and strong customer alliances.
- - Revenue Increased 10% (11% Performance*)
Driven primarily by increased alkaline volume and geographic expansion, 1996
was the twenty-third consecutive year of revenue growth. Sales of
rechargeable batteries nearly doubled from 1995's level.
- - Advertising and Promotion Increased to Record Level
Record investments were made in new advertising and promotional programs to
support brand awareness.
- - Investment in Research and Development Remained Strong
Duracell's continuing commitment to this area has led to the alkaline
PowerCheck on-battery tester and the further development of rechargeable
nickel metal hydride and lithium ion batteries.
- - Other Operating Expenses Leveraged
Despite significant spending in support of geographic expansion, other
operating expenses declined as a percentage of revenue.
- - Operating Income Grew 9%
Operating income grew as a result of the revenue increase and continued
leveraging of other operating expenses.
- - EPS Rose 9% to $2.10 -- Exclusive of Mark-to-Market Impact
*"PERFORMANCE" -- EXCLUDES THE IMPACT OF FOREIGN CURRENCY TRANSLATION (I.E., THE
IMPACT OF TRANSLATING THE INCOME STATEMENT FROM LOCAL CURRENCY INTO U.S.
DOLLARS).
[GRAPHS]
REVENUE GROWTH
(millions of dollars)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
1,617 1,742 1,871 2,079 2,290
</TABLE>
OPERATING INCOME GROWTH
(millions of dollars)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
285 307 356 410 445
</TABLE>
Restructuring: $65
Operating Income
IMPROVEMENT IN EARNINGS PER SHARE
(in dollars)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
1.43 1.44 1.68 1.93 2.10
</TABLE>
Restructuring: $.40
Earnings Per Share
Excluding mark-to-market of -$.08 in F'96 and $.02 in F'95.
33
<PAGE> 3
THE EXPANDED CAPACITY AND GREATER OUTPUT OF DURACELL'S NORTH AMERICAN OPERATIONS
PAID OFF IN FISCAL 1996 WITH A 14 PERCENT INCREASE IN ALKALINE VOLUME, A GAIN
DRIVEN BY CONTINUING MARKET GROWTH AND STRONGER-THAN-EVER WAREHOUSE CLUB
BUSINESS. IN THE FOURTH QUARTER, AS THE ROLLOUT OF DURACELL POWERCHECK BATTERIES
BEGAN, THE MOMENTUM CONTINUED -- VOLUME WAS UP 20 PERCENT OVER THE PREVIOUS
YEAR'S FOURTH QUARTER.
ILLUSTRATIONS BY JEAN WISENBAUGH
FISCAL YEAR 1996 VERSUS FISCAL YEAR 1995
North America
<TABLE>
<CAPTION>
% Increase
1996 1995 Rpt. Perf.
<S> <C> <C> <C> <C>
Alkaline Unit Volume 1,539 1,349 14 14
Revenue $1,250 $1,119 12 12
Operating Income $ 356 $ 327 9 9
</TABLE>
Duracell's North American operations generated double-digit growth rates in
alkaline unit volume and revenue, but product mix issues and higher
production costs held the operating income growth rate to 9%. The volume
gains reflect continued market growth (i.e., device growth), expansion of
warehouse club volumes and strong fourth quarter volumes as customers
purchased in anticipation of the July 1996 price increase. Volumes also
benefited from renewed business with a major Canadian account. Revenue
growth resulted from the alkaline volume gains, increased sales of
rechargeable batteries and the benefit of the fourth quarter fiscal 1995
price increase, partially offset by unfavorable product mix. Product mix
issues include the shift toward multi-packs, at a lower average price per
battery.
Although operating income grew slower than revenue as a result of the
impact of the adverse product mix and higher production costs, operating
income was up 9% due to the sales growth and operating expense leverage.
Europe
<TABLE>
<CAPTION>
% Increase
1996 1995 Rpt. Perf.
<S> <C> <C> <C> <C>
Alkaline Unit Volume 749 704 6 6
Revenue $ 632 $ 614 3 1
Operating Income $ 132 $ 128 4 2
</TABLE>
Duracell Europe achieved modest volume growth despite generally soft
economic conditions. Alkaline volume increased 6% as new distribution into
Emerging Markets (notably Poland and Russia), renewed business with a major
retailer in France, and rebound from a weak prior year in Spain were
mitigated by the impact of unfavorable economic conditions in Italy and
Germany. Nonrecurrence of military orders in the U.K. also held down overall
volume growth. Sales growth was not as strong as volume growth, due to the
shift towards multi-packs, growth in lower-priced Emerging Markets, customer
mix and a competitive pricing environment. Operating income grew in line
with sales, as the impact of unfavorable mix and increased costs to support
the new business in Emerging Markets were offset by leveraging of operating
expenses.
Other International Markets
<TABLE>
<CAPTION>
% Increase
1996 1995 Rpt. Perf.
<S> <C> <C> <C> <C>
Alkaline Unit Volume 744 673 11 11
Revenue $ 408 $ 346 18 27
Operating Income $ 59 $ 52 14 23
</TABLE>
Expanded distribution in China and other Asian markets (e.g., Korea,
Taiwan), combined with continued stable economic conditions in Brazil, led
the volume growth in Duracell's Other International Markets segment. These
successes were partially offset by weakness in Mexico, which continued the
economic malaise which followed the December 1994 peso devaluation, and the
impact of efforts to control product diversion in the Middle East/Africa.
Volumes in Japan and Hong Kong were down from the prior year, due to
economic conditions and the
[GRAPHS]
ALKALINE UNIT VOLUME GROWTH
(millions of units)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
1,978 2,196 2,437 2,726 3,032
</TABLE>
34
<PAGE> 4
DURACELL'S FAST-GROWING OTHER INTERNATIONAL MARKETS SEGMENT OVERCAME TWO
SIGNIFICANT HURDLES - A PERSISTENTLY SLUGGISH MEXICAN ECONOMY AND PRODUCT
DIVERSION IN THE MIDDLE EAST/AFRICA - TO POST DOUBLE-DIGIT GAINS IN THREE KEY
MEASURES: VOLUME, REVENUE AND OPERATING INCOME. LEADING THIS PERFORMANCE WERE
DURACELL'S BUSINESSES IN BRAZIL AND CHINA.
changeover to a direct sales force, respectively. Excluding Mexico, volume
grew 17% (although Mexico's performance did improve late in the fiscal year,
with fourth quarter volumes up 10% from the prior year). Revenue benefited
from the volume growth and the impact of increased prices across most
markets, along with increased high-power sales. The addition of Eveready
South Africa (acquired during the fourth quarter of fiscal 1996) also
contributed to the revenue increase.
Operating income growth reflects the revenue results and the benefits of
increased pricing, mitigated by higher spending in support of geographic
expansion. The impact of a non-recurring inventory fair value adjustment
related to the Eveready South Africa acquisition also adversely affected
operating income in the fourth quarter. Accounting rules for acquisitions
require that inventory on hand at the time of the acquisition be written up
to its "fair value," substantially reducing the gross profit recorded when
such inventory is sold.
FISCAL YEAR 1995 VERSUS FISCAL YEAR 1994
North America
<TABLE>
<CAPTION>
% Increase
1995 1994 Rpt. Perf.
<S> <C> <C> <C> <C>
Alkaline Unit Volume 1,349 1,182 14 14
Revenue $1,119 $1,009 11 11
Operating Income $ 327 $ 279 17 17
</TABLE>
North America's growth led the way for Duracell's record results. For the
second consecutive year, North America experienced double-digit gains in
alkaline volume, revenue and operating income. Alkaline volume growth was
driven by market growth (i.e., device growth) in the mass merchandise
outlets in the United States, expansion of warehouse club volumes and
increased shipments to Original Equipment Manufacturers ("OEM's"). Revenue
increased as a result of the higher alkaline volume and increased primary
lithium sales, although the revenue growth rate was tempered by a higher mix
of lower priced alkaline volume (multi-packs; OEM sales). An alkaline price
increase was implemented during the fourth quarter of fiscal 1995.
Operating income growth reflects the revenue increase and the improved
leverage of non-advertising and promotion expenses.
Europe
<TABLE>
<CAPTION>
% Increase
1995 1994 Rpt. Perf.
<S> <C> <C> <C> <C>
Alkaline Unit Volume 704 683 3 3
Revenue $ 614 $ 576 7 (1)
Operating Income $ 128 $ 120 7 --
</TABLE>
Although hindered by ongoing economic weakness throughout Europe, alkaline
volume growth was achieved through continued expansion into Eastern Europe
and the launch of improved product during 1995. The ongoing economic
weakness has resulted in consumers trading down to lower priced, lower
performing batteries. Increased shipments to nontraditional customers, such
as industrial and military business in the U.K., also contributed to the
volume growth.
Reported revenue benefited from $44 million of favorable currency
translation, while on a performance basis revenue was down slightly, as
volume growth was offset by unfavorable product and country mix. Operating
income grew in line with revenues, as the costs associated with geographic
expansion offset leveraging of other operating expenses.
Other International Markets
<TABLE>
<CAPTION>
% Increase
1995 1994 Rpt. Perf.
<S> <C> <C> <C> <C>
Alkaline Unit Volume 673 572 18 18
Revenue $ 346 $ 287 21 25
Operating Income $ 52 $ 42 23 33
</TABLE>
[GRAPHS]
GEOGRAPHIC EXPANSION
Countries in which Duracell exceeds 1 million units
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
30 33 39 40 50
</TABLE>
35
<PAGE> 5
WHAT WILL POWER THE FUTURE GROWTH OF DURACELL? CONTINUING, SIGNIFICANT
INVESTMENTS IN ENHANCING THE PERFORMANCE OF ITS ALKALINE BATTERIES AND IN
DEVELOPING NEW HIGH-POWER PRODUCTS, SUCH AS NICKEL METAL HYDRIDE AND LITHIUM ION
RECHARGEABLE BATTERIES. THE 3C ALLIANCE JOINT VENTURE TO MANUFACTURE NICKEL
METAL HYDRIDE CELLS, IN WHICH DURACELL OWNS A 40 PERCENT STAKE, IS SCHEDULED TO
BEGIN COMMERCIAL PRODUCTION EARLY IN FISCAL 1997; THE COMPANY IS SCHEDULED TO
BEGIN PRODUCTION OF LITHIUM ION RECHARGEABLE BATTERIES LATER IN THE FISCAL YEAR.
Alkaline volume growth in Other International Markets was driven by the
benefits of geographic expansion, highlighted by China and other Asian
markets including Taiwan and Hong Kong. Additionally, economic stability and
recovery in Brazil and Australia contributed to strong volume growth in
those markets. The economic turmoil in Mexico which followed the December
1994 peso devaluation hindered results in the second half of the fiscal
year, although Mexico's alkaline volume did increase 10% for the full year.
Other parts of Latin America also suffered some economic weakness, and
consumer offtake in India was disappointing.
Revenue increased as a result of the volume growth and higher prices,
although reported results were hindered by $17 million of negative
translation effects from the Mexican peso devaluation. Operating income
growth reflects the revenue increase and improved operating leverage,
mitigated by higher spending in support of geographic expansion.
CORPORATE/RESEARCH & DEVELOPMENT
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating Expenses $102 $97 $85
</TABLE>
Significant investments in research continue to be made to develop new
high-power products, such as nickel metal hydride and lithium ion
rechargeable batteries, and to further enhance the performance and quality
of DURACELL alkaline batteries. Corporate expenses increased when comparing
1995 to 1994 due to increased amortization of goodwill as a result of the
IRS settlement discussed in Note 12.
INTEREST EXPENSE
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest Expense $25 $27 $30
</TABLE>
High levels of capital investment during 1996 resulted in a greater portion
of interest being related to construction in progress and allocated to those
new assets. Thus interest expense decreased from 1995 despite increased
borrowings associated with the acquisition of Eveready South Africa during
the fourth quarter of 1996. The decrease from 1994 to 1995 was due to lower
average debt levels, partially offset by higher interest rates in North
America and Mexico.
TAX EXPENSE
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Earnings Before Taxes $400 $388 $320
Tax Expense 156 152 120
Effective Tax Rate 39% 39% 38%
</TABLE>
Higher tax expense was incurred primarily as a result of increased earnings
before taxes.
[GRAPHS]
EARNINGS BEFORE TAXES
(millions of $)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
211 248 320 383 417
</TABLE>
Restructuring: $65
Earnings before taxes
Excluding mark-to-market of $(17) in F'96 and $5 in F'95
36
<PAGE> 6
THIS YEAR, DURACELL SPENT $139 MILLION TO ACQUIRE EVEREADY SOUTH AFRICA, WHICH
COMMANDS THE LEADING SHARE OF THAT COUNTRY'S BATTERY MARKET. THE ACQUISITION
SUPPORTS DURACELL'S CONTINUING STRATEGY OF AGGRESSIVELY ENTERING NEW AND
PROMISING CONSUMER BATTERY MARKETS AROUND THE WORLD AND PROVIDES AN INSTANT
SALES AND DISTRIBUTION CHANNEL IN SOUTH AFRICA. BEYOND ESTABLISHING DURACELL AS
THE BATTERY MARKET LEADER IN THE COUNTRY, THE PURCHASE PROVIDES A BASE FOR
DURACELL'S GROWTH IN OTHER AFRICAN MARKETS.
FINANCIAL CONDITION
Following is a summary of Duracell's key cash flow components:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
<S> <C> <C> <C>
Cash provided by operating activities $ 267 $ 225 $ 245
Capital expenditures (172) (108) (69)
Acquisition of Eveready South Africa (139) -- --
Dividends paid (131) (113) (89)
Debt increase (reduction) 160 23 (94)
</TABLE>
Cash Provided by Operating Activities Remains Strong
Cash from operations grew 19% to $267 million, providing funds for record
levels of investment to support future growth and for the return of cash to
shareholders through increased dividends. Working capital requirements
increased due to growth of the business and geographic expansion.
Capital Spending Reached an All-Time High
Capital investments exceeded $170 million and provided added alkaline
capacity to support continued growth, including the new plants in China and
India, as well as continued manufacturing productivity gains in existing
alkaline plants.
Acquisitions
On April 15, 1996 Duracell purchased Eveready South Africa, the leading
manufacturer and distributor of consumer batteries in South Africa, for
approximately $139 million. Eveready South Africa is not affiliated with
U.S.-based Eveready Battery Company. The acquisition positions Duracell as
the leading consumer battery company in South Africa and provides a strong
base for Duracell's continued growth there and in other strategic African
markets. The acquisition did not materially impact Duracell's fiscal 1996
results and is not expected to have a material impact on future results.
In May, 1996 Duracell announced the intended acquisition of STC
Corporation's SUNPOWER trademark and consumer battery sales and distribution
operations in South Korea, for approximately $115 million. SUNPOWER is a
major battery brand in South Korea. Completion of the transaction requires
certain government approvals, which are still pending.
Dividends Paid to Shareholders Totaled $131 Million
Quarterly dividends were increased 12% in March 1996 to an all-time high of
$.29 per share.
Debt was Incurred to Support Increased Activity
The majority of the increase in debt levels related to the Eveready South
Africa acquisition. Duracell's debt-to-capital ratio as of June 30, 1996 was
29%.
[GRAPHS]
INVESTMENTS IN CAPITAL PROJECTS
(millions of $)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
54 42 69 108 172
</TABLE>
PER SHARE QUARTERLY DIVIDEND GROWTH
(in $)
<TABLE>
<CAPTION>
8/92 2/93 2/94 2/95 2/96
<C> <C> <C> <C> <C>
0.08 0.16 0.22 0.26 0.29
</TABLE>
37
<PAGE> 7
DURACELL HAS BALANCED THE SHORT-TERM REWARD OF DIVIDEND PAYMENTS TO SHAREHOLDERS
WITH THE LONGER-TERM REWARD PROVIDED BY CONTINUED INVESTMENT IN GROWTH. THE
COMPANY PLANS TO USE OPERATING CASH FLOW TO FUND FUTURE WORKING CAPITAL AND
CAPITAL EXPENDITURE REQUIREMENTS, INCLUDING PROJECTS THAT WILL INCREASE
MANUFACTURING CAPACITY TO SUPPORT CONTINUED ALKALINE VOLUME GROWTH, INITIATIVES
IN GEOGRAPHIC EXPANSION AND INCREASED INVESTMENTS IN THE HIGH-POWER NICKEL METAL
HYDRIDE AND LITHIUM ION RECHARGEABLE BATTERY BUSINESS.
CASH FLOW
Cash provided by operating activities was used principally for continued
investment in the business through capital expenditures and returned to
shareholders through the payment of dividends. The level of capital
expenditures is expected to be reasonably consistent over the next several
years, as spending on the new alkaline manufacturing facilities in China and
India is replaced by increased investments to manufacture new high-power
nickel metal hydride and lithium ion rechargeable batteries as well as
continued expansion of alkaline capacity.
Duracell plans to use the 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.
In August 1992, Duracell, Toshiba Battery Co., Ltd. and Varta Batterie
A.G. (the "Alliance members") entered into a five year agreement to engage
in joint research and development of nickel metal hydride rechargeable
cells, which are used in high power devices such as laptop computers,
cellular phones and other consumer electronic devices. In October 1994,
affiliated companies of the Alliance members formed a joint venture to
manufacture nickel metal hydride cells in the United States, and production
will commence in fiscal 1997. Duracell holds a 40% interest in the joint
venture, which has an indefinite duration, and expects to contribute
$20 million of capital (portions of which were contributed during 1995 and
1996). In addition to the equity contributions by the Alliance partners, the
joint venture will utilize third party borrowings. Duracell has guaranteed
its 40% share of such borrowings, as described in Note 2 of the Consolidated
Financial Statements.
Dividends paid increased 16% over the prior year, reflecting the per
share dividend increases and the greater number of shares outstanding.
Duracell 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 million to
approximately $130 million, impacting cash flows principally during fiscal
years 1995 through 1997. Because the settlement relates to deductions
claimed in connection with assets acquired by Duracell 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 million on
the June 30, 1994 balance sheet.
[GRAPHS]
DEBT-TO-CAPITAL RATIO
(percent)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
42 34 26 25 29
</TABLE>
38
<PAGE> 8
IN A YEAR OF UNPRECEDENTED INVESTMENT IN ITS CORE BUSINESS AND KEY STRATEGIC
INITIATIVES - INCLUDING DURACELL'S FIRST ACQUISITION IN MORE THAN A DECADE,
CONTINUING CONSTRUCTION AT NEW MANUFACTURING PLANTS, ACCELERATED PRODUCTION
CAPACITY AT ITS EXISTING PLANTS AND THE INTRODUCTION OF POWERCHECK BATTERIES -
DURACELL PAID CASH DIVIDENDS TO SHAREHOLDERS OF $131 MILLION, OR $1.10 PER
COMMON SHARE, DURING FISCAL 1996. THAT COMPARES TO DIVIDENDS OF $113 MILLION, OR
$.96 PER COMMON SHARE, IN THE PREVIOUS YEAR.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, Duracell had $818 million in contractually committed
lines of credit from long-term bank credit facilities under which $479
million was outstanding. Commitments under the facilities are used to
support commercial paper, of which $434 million was outstanding at June 30,
1996. Duracell's commercial paper program is rated investment grade. Unused
borrowing capacity under its principal bank credit facilities at June 30,
1996 was $339 million.
In September, 1994, Duracell entered into an administrative order by
consent with the U.S. Environmental Protection Agency ("EPA") whereunder
it has submitted to the EPA a plan for a complete remedial investigation and
feasibility study ("RIFS") relating to mercury and volatile organic
compounds contamination at its Lexington, North Carolina manufacturing site.
The investigation work under the RIFS has been completed and certain
supplemental investigatory activities are presently being discussed with the
EPA. Comprehensive remediation actions have taken place at the Lexington
site over many years, but additional remediation work will be necessary
based upon the outcome of the RIFS. During 1996, Duracell has revised its
estimates related to remediation costs based on additional information
obtained as the investigation progressed. As of June 30, 1996, Duracell
believes that reasonably estimable investigatory and remediation costs will
be approximately $6 million, which is fully reserved. However, site
investigation is not yet complete and the remediation plan has not been
agreed to by the EPA. Duracell believes that if additional remedial work is
required, such additional remediation would not likely exceed an additional
$10 million.
Restructuring
On July 25, 1996, Duracell announced that it is actively evaluating a
restructuring that is expected to result in a charge of about $60 million in
the second half of fiscal 1997. Although specifics have not been worked out,
a significant portion of the charge would be tied to restructuring
Duracell's European operations, where growth has been limited in recent
years due to sluggish economic conditions.
FINANCIAL STRATEGY
After fully funding investments in its core business and key strategic
initiatives, and maintaining the capital structure necessary to sustain an
investment grade credit rating, Duracell returned a portion of cash flow to
shareholders by paying cash dividends of $131 million, or $1.10 per common
share, during the fiscal year ended June 30, 1996. This return amounted to
51% of net income, compared with 48% in 1995 and 44% in 1994. Duracell
expects to continue paying cash dividends with a payout ratio in line with
comparable consumer product companies.
During fiscal 1995 Duracell repurchased 1,000,000 shares of its common
stock in open market purchases at a total cost of $41.2 million. Future
excess cash may be used to repurchase shares of Duracell's common stock
depending upon prevailing market conditions. Duracell has the authorization
to purchase up to 3,000,000 shares of its common stock reflecting the
original 4,000,000 share authorization by the Board of Directors less the
1,000,000 shares purchased through June 1996.
RISK MANAGEMENT
Foreign Exchange
International operations account for approximately half of Duracell's
revenue and operating income. Duracell 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 Duracell's policy to reduce foreign currency cash flow exposure due
to exchange rate fluctuations by hedging anticipated and firmly committed
foreign
[GRAPHS]
INCREASES IN DIVIDENDS PAID
(millions of $)
<TABLE>
<CAPTION>
1993 1994 1995 1996
<C> <C> <C> <C>
55 89 113 131
</TABLE>
39
<PAGE> 9
FOR ANY COMPANY OPERATING INTERNATIONALLY, FINANCIAL TRANSACTIONS ARE SUBJECT TO
MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES. TO ADDRESS THIS FISCAL RISK,
DURACELL HEDGES FOREIGN CURRENCY TRANSACTIONS WHEREVER ECONOMICALLY FEASIBLE,
WITHIN LIMITS SET BY ITS OWN RISK MANAGEMENT POLICY. DURACELL USES FORWARD
CONTRACTS, INTEREST RATE SWAPS AND COMMODITY SWAPS TO HEDGE ITS EXPOSURES TO
MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES, INTEREST RATES AND COMMODITY
PRICES, RESPECTIVELY. USE OF SPECULATIVE DERIVATIVES IS PROHIBITED BY INTERNAL
POLICY.
currency transactions wherever economically feasible (within risk limits
established by Duracell's policy). Duracell does not speculate in foreign
currencies. Duracell does not hedge foreign currency income 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. In almost all cases the counterparties to the forward contracts are
financial institutions with investment grade credit ratings. Approximately
40% of Duracell's foreign currency forward contracts are with a single
financial institution.
Duracell 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 Duracell's cash flows against
unfavorable movements in exchange rates, to the extent of the amount under
the contracts. The use of forward contracts also effectively prevents
Duracell from benefiting in the event of favorable movements in exchange
rates, to the extent of the amount under the contracts.
As of June 30, 1996, forward exchange contracts outstanding totaled $591
million and generally mature within one year. In accordance with current
accounting standards, Duracell defers unrealized gains and losses arising
from contracts that hedge existing and identified foreign currency firm
third party commitments until the related transaction occurs. Gains and
losses arising from contracts that hedge existing transactions (e.g., debt
denominated in a foreign currency) are recorded currently in income, and
offset gains or losses arising from the transactions being hedged.
Unrealized gains and losses arising from contracts that hedge anticipated
intercompany transactions are recorded currently in income. 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 hedged transactions.
Interest Rate Swaps
Duracell 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 Duracell's internal
policies. As of June 30, 1996, $150 million notional amount of interest rate
swaps were outstanding, effectively fixing that amount of variable rate U.S.
dollar debt to an average 7.44% fixed rate U.S. dollar debt. No funds under
the swap contracts were actually borrowed or are to be repaid. As of June
30, 1996 Duracell had an additional $50 million notional amount interest
rate swap related to an operating lease. Under the terms of the lease,
Duracell's rental expense fluctuates with interest rates. The interest rate
swap effectively fixes a portion of this variable rental expense, through
fiscal 1998. Under interest rate swaps, Duracell 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. These swaps mature on various dates
beginning June 1998 and ending May 1999. Duracell 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.
[GRAPHS]
GROWTH IN INCOME
(million of $)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
167 171 200 233 255
</TABLE>
Restructuring: $47
Income
Excluding mark-to-market of -$10 in F'96 and $3 in F'95
40
<PAGE> 10
AFTER A YEAR OF UNPRECEDENTED ACTIVITY IN FISCAL 1996, DURACELL ENTERS 1997 WITH
STRONG MOMENTUM AND HIGH EXPECTATIONS. THE NEW YEAR WILL BE A PIVOTAL ONE FOR
THE DEVELOPMENT AND PRODUCTION OF LITHIUM ION AND NICKEL METAL HYDRIDE
RECHARGEABLE BATTERIES. BUT THE COMPANY'S AMBITION AND ATTENTION ARE ALSO
FOCUSED ON THE ADVERTISING AND PROMOTIONAL LAUNCH OF POWERCHECK BATTERIES;
PRODUCTION START-UPS AT NEW MANUFACTURING PLANTS IN CHINA AND INDIA; THE
INTEGRATION OF RECENTLY ACQUIRED EVEREADY SOUTH AFRICA; AND COMPLETION OF A
RESTRUCTURING PLAN FOR SEVERAL ASPECTS OF THE BUSINESS, INCLUDING DURACELL'S
SIGNIFICANT EUROPEAN OPERATIONS.
Commodity Swaps
Duracell 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 commercial banks. Duracell utilizes
commodity swaps to effectively fix the price it pays for zinc and other
principal components in the manufacturing process, over the life of the
swap. Swaps or other financial instruments that are speculative are not
permitted by Duracell's internal policies. Costs of products sold reflects
the commodity cost including the effects of the commodity swaps. As of June
30, 1996 $38 million of commodity swaps were outstanding, maturing through
June 1998. Under such contracts Duracell pays the counterparty at a fixed
rate, and receives from the counterparty a floating rate per pound of
material; 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 Duracell
against an increase in the price of the commodity, to the extent of the
notional amount under the contract. This also effectively prevents Duracell
from benefiting in the event of a decrease in the price of the commodity, to
the extent of the notional amount under the contract. Duracell 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 counterparties are
commercial banks having an investment grade credit rating.
See Note 10 to the Consolidated Financial Statements for more detail
regarding Duracell's use of derivatives.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Duracell and its officers from time to time make written or oral
forward-looking statements, including statements contained in Duracell's
filings with the Securities and Exchange Commission and in reports to
stockholders. Investors should be aware of factors that could cause
Duracell's actual results to differ materially from those projected in
forward-looking statements made by or on behalf of Duracell.
Such factors include economic conditions and consumer spending habits in
countries where Duracell does significant business; advertising, pricing or
product development activities by competitors; governmental actions (both
foreign and domestic) affecting monetary, fiscal and legal policies; delays
or unanticipated inefficiencies as new plants begin production; and the
degree of acceptance by both original equipment manufacturers and consumers
of Duracell's new rechargeable nickel metal hydride and lithium ion
batteries.
[GRAPHS]
YEAR END STOCK PRICE
(in $)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<C> <C> <C> <C> <C>
27.63 31.00 39.00 43.25 43.13
</TABLE>
41
<PAGE> 11
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
For the Years Ended June 30, 1996, 1995 and 1994
(in millions, except per share amounts) 1996 1995 1994
<S> <C> <C> <C>
REVENUE $2,289.6 $2,079.0 $1,871.3
Cost of products sold 841.6 727.3 647.6
GROSS PROFIT 1,448.0 1,351.7 1,223.7
Selling, general and administrative expense 1,003.0 942.0 867.5
OPERATING INCOME 445.0 409.7 356.2
Interest expense 24.5 27.0 29.6
Other income (expense) (20.2) 5.4 (6.4)
Income before income taxes 400.3 388.1 320.2
Provision for income taxes 155.6 152.3 120.0
NET INCOME $ 244.7 $ 235.8 $ 200.2
EARNINGS PER SHARE $ 2.02 $ 1.95 $ 1.68
Weighted average shares and share equivalents outstanding 121.2 120.7 119.2
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 12
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1996 and 1995
(dollar amounts in millions, except per share amounts) 1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43.6 $ 35.0
Accounts receivable, less allowance of $22.6 and $19.1 473.3 390.0
Inventories 318.4 284.4
Deferred income taxes 31.4 41.1
Prepaid and other current assets 59.3 61.3
TOTAL CURRENT ASSETS 926.0 811.8
Property, plant and equipment, net 492.1 378.3
Intangibles, net 1,271.7 1,208.9
Other assets 38.7 20.8
TOTAL ASSETS $2,728.5 $2,419.8
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 136.8 $ 117.8
Short-term borrowings 54.0 59.0
Accrued liabilities 195.4 195.6
TOTAL CURRENT LIABILITIES 386.2 372.4
Long-term debt 521.1 364.5
Postretirement benefits other than pensions 103.3 98.4
Deferred income taxes 260.8 269.1
Other non-current liabilities 53.9 52.0
TOTAL LIABILITIES 1,325.3 1,156.4
Commitments and contingencies
Equity:
Preferred stock -- 100 million shares authorized
and unissued; par value per share $.01; none
outstanding -- --
Common stock -- 150 million shares authorized;
120.4 million and 118.7 million shares issued
and 119.4 and 117.7 million outstanding; par
value per share $.01 1.2 1.2
Capital surplus 1,147.6 1,094.6
Retained earnings 335.7 221.7
Accumulated translation adjustment (40.1) (12.9)
Treasury stock (41.2) (41.2)
TOTAL EQUITY 1,403.2 1,263.4
TOTAL LIABILITIES AND EQUITY $ 2,728.5 $ 2,419.8
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 13
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended June 30, 1996, 1995 and 1994
(in millions) 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 244.7 $ 235.8 $ 200.2
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangibles 47.7 46.3 43.1
Depreciation 49.4 45.8 40.2
Provision for deferred taxes 30.6 44.6 71.8
Other noncash items 25.9 (2.6) 1.8
Changes in assets and liabilities:
Accounts receivable (81.9) (79.0) (53.8)
Inventories (27.6) (55.4) (35.3)
Other assets (14.0) (9.0) (16.0)
Accrued interest and taxes (7.9) 3.2 (7.2)
Other liabilities (0.3) (5.2) --
CASH PROVIDED BY OPERATING ACTIVITIES 266.6 224.5 244.8
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (172.1) (108.1) (69.0)
Acquisition of new business (139.0) -- --
Proceeds from sale of assets and other (10.9) (7.5) 1.9
CASH USED BY INVESTING ACTIVITIES (322.0) (115.6) (67.1)
FINANCING ACTIVITIES:
Issuance of common stock 38.6 16.1 15.9
Dividends paid (130.7) (112.8) (88.6)
Purchases of treasury stock -- (41.2) --
Repayment of revolving credit borrowings, net (54.8) (96.7) (176.7)
Issuance of commercial paper, net 208.6 103.8 56.2
Net changes in other borrowings and other 8.2 17.7 25.0
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 69.9 (113.1) (168.2)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5.9) 3.1 0.7
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8.6 (1.1) 10.2
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 35.0 36.1 25.9
CASH AND CASH EQUIVALENTS, END OF YEAR $ 43.6 $ 35.0 $ 36.1
CASH PAID DURING THE YEAR FOR:
Interest $ 31.8 $ 30.6 $ 30.6
Taxes $ 132.9 $ 104.6 $ 54.9
</TABLE>
See notes to consolidated financial statements.
44
<PAGE> 14
STATEMENT OF CONSOLIDATED EQUITY
For the Years Ended June 30, 1996, 1995 and 1994
(in millions, except per share amounts)
<TABLE>
<CAPTION>
RETAINED
EARNINGS ACCUMULATED
COMMON COMMON CAPITAL (ACCUMULATED TRANSLATION TREASURY TOTAL
SHARES STOCK SURPLUS DEFICIT) ADJUSTMENT STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 114.9 $1.2 $1,015.0 $ (12.9) $(21.5) $ 981.8
Net income 200.2 200.2
Translation adjustment 5.4 5.4
Exercise of stock options 2.5 15.9 15.9
Dividends paid ($.76 per share) (88.6) (88.6)
Tax benefit related to stock options 38.8 38.8
BALANCE AT JUNE 30, 1994 117.4 1.2 1,069.7 98.7 (16.1) 1,153.5
Net income 235.8 235.8
Translation adjustment 3.2 3.2
Exercise of stock options 1.3 16.1 16.1
Dividends paid ($.96 per share) (112.8) (112.8)
Treasury shares repurchased (1.0) (41.2) (41.2)
Tax benefit related to stock options 8.8 8.8
BALANCE AT JUNE 30, 1995 117.7 1.2 1,094.6 221.7 (12.9) (41.2) 1,263.4
Net Income 244.7 244.7
Translation adjustment (27.2) (27.2)
Exercise of stock options 1.7 38.6 38.6
Dividends paid ($1.10 per share) (130.7) (130.7)
Tax benefit related to stock options 14.4 14.4
BALANCE AT JUNE 30, 1996 119.4 $1.2 $1,147.6 $ 335.7 $(40.1) $(41.2) $1,403.2
</TABLE>
See notes to consolidated financial statements
45
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions except per share amounts)
1. BACKGROUND
Duracell International Inc. (the "Company") manufactures and markets high
performance alkaline batteries and other battery types, including
rechargeable nickel metal hydride batteries and primary lithium batteries.
The Company's batteries are sold worldwide, under the DURACELL trademark and
other Company brand names, through consumer channels, to industrial users,
and to manufacturers of battery-powered consumer, industrial, medical, and
military equipment.
2. JOINT VENTURE
In August 1992, the Company, Toshiba Battery Co., Ltd. and Varta Batterie
A.G. (the "Alliance members") signed a Technical Cooperation 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' preexisting 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. The Company's and Toshiba's affiliates each hold a forty
percent interest in the joint venture and Varta's affiliate has a twenty
percent stake. Construction of the joint venture's manufacturing facility in
Mebane, North Carolina is complete, and production will begin in fiscal
1997. 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 the Company's initial
capital contribution is expected to be $20, which is being paid into the
joint venture over several years.
In addition to the equity contributions for the three partners, the joint
venture will utilize third party borrowings to fund its capital expenditure
and working capital requirements. In August 1995 the joint venture issued
$75 of industrial development bonds to fund the construction and outfitting
of the Mebane manufacturing facility. The bonds are secured by the assets of
the joint venture, and each of the three partners has severally guaranteed
their proportionate share of the principal, interest and other bond
obligations.
The joint venture is accounted for using the equity method of accounting.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the Company and majority-owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. The Company's fiscal year ends June 30.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents for the purpose of reporting cash flows include
cash on deposit and amounts due from banks maturing within 90 days of
purchase.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
Property, Plant and Equipment
Depreciation is determined on a straight-line basis over the estimated
useful lives of the assets. The estimated useful lives are principally 10 to
40 years for buildings and improvements and 5 to 15 years for machinery and
equipment. Interest costs aggregating $8.0, $4.8 and $2.1 during the fiscal
years ended June 30, 1996, 1995 and 1994, respectively, for the purchase and
construction of long-term assets were capitalized and are being amortized
over the related assets' estimated useful lives. Incremental start-up costs
directly associated with major new facilities which are incurred prior to
such facilities becoming operational are deferred and amortized on a
straight-line basis over a relatively short period after production
commences. Costs deferred as of June 30, 1996 were immaterial.
Intangibles
Patents are amortized on a straight-line basis over periods ranging up to 10
years and computer software is amortized over 3 to 5 years. All other
intangibles are amortized on a straight-line basis over 40 years. The
Company periodically evaluates the recoverability of goodwill and other
intangible assets by assessing whether the unamortized intangible asset can
be recovered over its remaining life through expected future undiscounted
operating cash flows. Any impairment loss required would be determined by
comparing the carrying value of the asset to its current market value, or a
discounted cash flow calculation if no market value were readily available.
Income Taxes
Income tax expense is based on reported results of operations before income
taxes. Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes. Deferred
tax balances are adjusted to reflect tax rates, based on current tax laws,
that will be in effect in the years in which the temporary differences are
expected to reverse.
46
<PAGE> 16
Translation of Foreign Currencies
Assets and liabilities of subsidiaries, other than those located in highly
inflationary countries, are translated at the rate of exchange in effect on
the balance sheet date; income and expenses are translated at the average
rates of exchange prevailing during the year. The related translation
adjustments are reflected in the accumulated translation adjustment section
of the consolidated balance sheet. Foreign currency gains and losses
resulting from transactions, except for intercompany loans of a long-term
investment nature, and the translation of financial statements of
subsidiaries in highly inflationary countries are included in results of
operations.
Derivative Financial Instruments
The Company does not speculate in derivatives. The Company uses three
principal types of derivatives: foreign exchange contracts (which reduce the
Company's cash flow exposures to changes in currency exchange rates);
commodity swap contracts (which effectively fix the commodity price to the
Company); and interest rate swaps (which effectively convert a portion of
the Company's variable rate obligations to a fixed rate). The fair value of
forward contracts which hedge firm third party commitments is deferred and
recognized as part of the related foreign currency transactions as they
occur. Forward contracts related to anticipated intercompany purchases and
sales are marked to market through other income (expense). Commodity swap
contracts are accounted for on a settlement basis, with the net amounts paid
or received under such contracts included in the cost of the commodity
acquired. Interest rate swaps are also accounted for on a settlement basis,
with net interest paid or received on the swaps included in interest
expense. See Note 10 for more information regarding the Company's derivative
financial instruments.
Earnings Per Share
Per share amounts are calculated by dividing net income by the weighted
average number of common shares and common share equivalents outstanding
during the period.
Stock Options
The Financial Accounting Standards Board has issued FAS No. 123, "Accounting
for Stock-Based Compensation," which will be adopted by the Company as
required for fiscal 1997. As permitted by FAS No. 123, the Company will
continue to apply its current accounting policy under Accounting Principles
Board Opinion No. 25 and will include the additional disclosures required by
FAS No. 123.
4. ACQUISITIONS
On April 15, 1996 the Company purchased Eveready South Africa ("ERSA"), the
leading manufacturer and distributor of consumer batteries in South Africa,
for approximately $139. ERSA is not affiliated with U.S.-based Eveready
Battery Company. The acquisition did not materially impact the Company's
fiscal 1996 results and is not expected to have a material impact on future
results.
The assets acquired and liabilities assumed are included in the Company's
consolidated financial statements based upon a preliminary allocation of the
purchase price. In conjunction with the acquisition, liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 167
Cash paid (139)
Liabilities assumed $ 28
</TABLE>
In May, 1996 the Company announced the intended acquisition of STC
Corporation's SUNPOWER trademark and consumer battery sales and distribution
operations in South Korea, for approximately $115 million. SUNPOWER is a
major battery brand in South Korea. Completion of the transaction requires
certain government approvals, which are still pending.
5. INVENTORIES
The cost of inventories by stage of manufacture was:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $174.2 $171.3
Work in process 87.3 75.4
Raw materials and supplies 56.9 37.7
$318.4 $284.4
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 21.9 $ 13.8
Buildings and improvements 109.8 107.8
Machinery and equipment 483.8 410.2
Construction in progress 155.9 95.2
771.4 627.0
Less accumulated depreciation (279.3) (248.7)
$ 492.1 $ 378.3
</TABLE>
7. INTANGIBLES
The following summarizes intangible assets, net of accumulated amortization
of $374.3 and $328.5 at June 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Goodwill $ 590.7 $ 499.2
Trademarks and tradenames 406.6 417.4
Patents and computer software 40.9 50.4
Other 233.5 241.9
$1,271.7 $1,208.9
</TABLE>
47
<PAGE> 17
8. ACCRUED LIABILITIES
Accrued liabilities were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Compensation $ 49.9 $ 52.9
Advertising and promotion 49.4 44.8
Income taxes 11.0 25.9
Other 85.1 72.0
$195.4 $195.6
</TABLE>
9. DEBT
The following summarizes the debt structure of the Company:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Short-term borrowings $ 54.0 $ 59.0
Long-term debt:
Commercial paper 433.8 225.2
Foreign revolving credit loans 66.5 126.9
Other 20.8 12.4
Total long-term debt 521.1 364.5
$575.1 $423.5
</TABLE>
Short-term borrowings
The weighted average interest rate for all short-term borrowings was 6.1%
and 5.1% at June 30, 1996 and 1995, respectively.
Long-term debt
At June 30, 1996, the Company had long-term bank credit facilities totaling
$818 which expire on December 30, 1997 and 1999. Availability under these
credit agreements at June 30, 1996 was $339. In addition, the Company has
other international credit arrangements with banks totaling $436 of which
$382 was available at June 30, 1996. Several of the Company's subsidiaries
have the ability to borrow from a long-term bank credit facility and the
other international credit arrangements.
Absent the effects of interest rate swap agreements, the effective
interest rates at June 30, 1996 were 5.6% on commercial paper and 4.7% on
foreign revolving credit loans, respectively. Incorporating the effects of
the interest rate swap agreements discussed in Note 10, the effective
interest rate on $434 of domestic borrowings was 6.2%.
Under its long-term bank credit facilities, the Company is required to
repay $27 and $434 in 1997 and 1999, respectively. Commercial paper and
revolving credit loans are classified as noncurrent as the Company has the
intent and ability to refinance these borrowings on a long-term basis.
The credit facilities require, under some conditions, that a portion of
the net proceeds from the sale of assets be applied to reduce commitments or
repay advances under the credit facilities. These facilities also contain
financial and other restrictive covenants, including limitations on
indebtedness and liens.
10. FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposures to
changes in interest rates, commodity prices and foreign exchange rates. The
Company does not hold or issue financial instruments for trading or
speculative purposes. The notional amounts of derivatives summarized in this
Note do not necessarily represent amounts actually exchanged by the parties.
The gains and losses arising from these derivatives are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates, commodity prices and exchange rates. While these
instruments are subject to the risk of loss from changes in exchange and
interest rates, and commodity prices, those losses would generally be
offset by gains on the related exposures.
Approximately 34% of the Company's financial instruments are with a
single financial institution. The Company is exposed to credit-related
losses in the event of nonperformance by counterparties to financial
instruments, but it does not expect any counterparties to fail as
substantially all counterparties have investment grade credit ratings.
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 economically feasible
(within risk limits established in the Company's policy). 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 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.
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 related
transaction occurs. Gains and losses arising from contracts that hedge
existing transactions (e.g. debt denominated in a foreign currency) are
recorded currently in income, and offset gains or losses arising from the
transactions being hedged. Unrealized gains and losses arising from
contracts that hedge anticipated intercompany transactions are recorded
currently in income. 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 hedged transactions.
48
<PAGE> 18
As of June 30, 1996, forward exchange contracts outstanding totaled $591
and generally mature within one year. The fair value of forward contracts at
June 30, 1996 was unfavorable $12.4 (contracts with unfavorable values
totaling $18.0, partially offset by contracts with favorable values totaling
$5.6) based on dealer quotes. Of this fair value, $(11.6) arose from forward
contracts related to anticipated intercompany transactions, and is reflected
in other income. The remaining fair value of $(.8) 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 following table summarizes by major currency the contractual amounts
of the Company's forward exchange contracts in U.S. dollars. Foreign
currency amounts are translated at year-end 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>
June 30, 1996 June 30, 1995
Buy Sell Buy Sell
<S> <C> <C> <C> <C>
U.S. Dollar $250.7 $ 47.1 $107.0 $ 19.1
Belgian Franc 249.6 60.5 206.4 65.2
Swedish Krona 18.0 30.4 13.9 21.0
Spanish Peseta 6.2 17.1 13.0 14.0
German Mark 19.2 30.4 10.7 28.3
Japanese Yen 31.2 18.2
British Pound 5.6 130.3 4.0 38.5
Italian Lira 68.1 63.6
Canadian Dollar 0.6 35.2 30.1
Mexican Peso 50.6 35.2
French Franc 47.5 28.7
Australian Dollar 5.8 18.7 8.5
South African Rand 10.7
Austrian Schilling 11.6 10.7
Dutch Guilder 2.9 10.0 10.0 10.4
Other 1.5 44.9 5.1 19.3
$591.3 $613.1 $388.3 $392.6
</TABLE>
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 June 30, 1996, $150 notional amount of interest rate swaps
were outstanding, effectively fixing that amount (26% of total debt) of
variable rate U.S. dollar debt to an average 7.44% fixed rate U.S. dollar
debt. As of June 30, 1995, $150 notional amount of interest rate swaps were
outstanding, with a weighted average interest rate of 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 June 30, 1996) and receives a variable rate which is the flat rate for
commercial paper as published by the Federal Reserve (5.5% as of June 30,
1996). Amounts due to or from the counterparties 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 June 30,
1996 and 1995 was unfavorable $4.7 and $6.8, based on dealer quotes. These
swaps mature on various dates beginning November 1998 and ending May 1999.
As of June 30, 1996 and 1995 the Company had an additional $50 notional
amount interest rate swap related to an operating lease. Under the terms of
the lease, the Company's rental expense fluctuates with interest rates. The
interest rate swap effectively fixes a portion of this variable rental
expense, through fiscal 1998. The fair value of this interest rate swap as
of June 30, 1996 was not significant.
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 commercial banks. The Company
utilizes commodity swaps to effectively fix the price the Company will pay
for zinc and other principal components 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 June 30, 1996 and 1995 $37.8 and $26.6, respectively,
of commodity swaps were outstanding, maturing through June 30, 1998. 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
material; 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 June 30, 1996 and 1995 was unfavorable $4.1
and $0.5, respectively, based on dealer quotes. This fair value has not been
recorded by the Company as of June 30, 1996, and will be reflected in the
cost of the commodity when it is actually purchased.
With respect to trade receivables, concentration of credit risk is
limited, due to the diverse geographic areas covered by the Company's
operations. A significant portion of the Company's North American business
is comprised of major mass merchandisers and warehouse clubs. The Company
performs ongoing credit evaluations of the financial strength of its
customers, and believes that its credit risk for trade receivables is
limited. Any probable bad debt loss has been provided for in the allowance
for doubtful accounts.
The carrying amounts for cash, receivables, accounts payable, accrued
liabilities and short-term borrowings approximate fair
49
<PAGE> 19
value because of the short maturity of these instruments. The fair value of
long-term debt is estimated based on current rates offered to the Company
for debt of like maturities, and approximates its carrying value.
11. CAPITAL STOCK AND STOCK OPTIONS
The Company maintains two stock option plans. The Duracell Shares Plan
provides options to all employees to purchase up to 8,000,000 shares of
common stock. Options become exercisable either (i) upon the attainment of
specified appreciation in the market value of the Company's common stock or
(ii) one-half of the then unvested options during fiscal 1998 and the
balance during fiscal 1999. At June 30, 1996 exercise prices ranged from
$30.50 to $52.63 per share. The options expire seven years from the date of
grant or earlier in certain circumstances. The Stock Option Plan for Key
Employees (adopted in 1988) provides options to key employees to purchase up
to 10,000,000 shares. Substantially all of the outstanding options under the
latter plan are fully exercisable. At June 30, 1996, exercise prices range
from $5.00 to $52.63 per share. The options expire 10 years from the date of
grant or earlier in certain circumstances.
Information regarding the Company's two option plans is summarized below
(options in thousands):
<TABLE>
<CAPTION>
Stock Options Price Per Share
<S> <C> <C>
Outstanding at June 30, 1993 12,064 $ 5.00-35.63
Granted 601 30.50-40.31
Exercised (2,463) 5.00-39.06
Canceled (690) 5.00-39.06
Outstanding at June 30, 1994 9,512 $ 5.00-40.31
Granted 714 30.50-45.63
Exercised (1,329) 5.00-39.13
Canceled (511) 8.50-45.63
Outstanding at June 30, 1995 8,386 $ 5.00-45.63
Granted 344 30.50-52.63
Exercised (1,638) 5.00-45.63
Canceled (295) 30.50-52.63
Outstanding at June 30, 1996 6,797 $ 5.00-52.63
Exercisable at June 30, 1996 3,215 $ 5.00-52.63
</TABLE>
At June 30, 1996, limited partnerships in which Kohlberg Kravis Roberts &
Co., L.P. is the general partner owned an aggregate of 41,100,000 shares of
the Company's common stock.
12. INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
U.S. federal $ 64.1 $ 45.9 $ 2.9
State 8.5 8.4 .8
Foreign 52.4 53.4 44.5
125.0 107.7 48.2
Deferred:
U.S. federal 12.7 33.8 72.4
State 14.9 12.1 7.1
Foreign 3.0 (1.3) (7.7)
30.6 44.6 71.8
$155.6 $152.3 $120.0
</TABLE>
The domestic and foreign components of income before income taxes were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Domestic $290.7 $262.4 $224.6
Foreign 109.6 125.7 95.6
$400.3 $388.1 $320.2
</TABLE>
Deferred tax assets and liabilities arise from the impact of temporary
differences between the amount of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for tax purposes
and resulted from:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Operating loss and credit carryforwards $ 53.2 $ 73.2
Postretirement benefit obligation 42.1 40.0
Other 56.7 46.2
152.0 159.4
Deferred tax liabilities:
Intangibles 239.2 265.9
Property, plant and equipment 51.2 48.3
Other 72.8 60.0
363.2 374.2
Valuation allowance (20.0) (23.6)
$231.2 $238.4
</TABLE>
The change in the valuation allowance for deferred tax assets resulted from
management's evaluation of the utilization of state and certain foreign
operating loss carryforwards.
The Company did not recognize deferred tax benefits for losses incurred
in certain countries. It provides for deferred federal, state and
50
<PAGE> 20
foreign income taxes primarily for temporary differences, which result from
recording certain transactions in different years for income tax purposes
than for financial reporting purposes.
The reconciliation between the actual provision for income taxes and the
provision for income taxes at the U.S. federal statutory rate of 35% is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income before income taxes $400.3 $388.1 $320.2
Income tax expense at U.S. federal statutory rate 140.1 135.8 112.1
Tax benefit not currently utilizable 5.3 5.7 4.0
Utilization of net operating loss carryforwards (6.1) (6.4) (5.6)
Goodwill amortization 4.7 4.9 3.8
Changes in tax laws .4 .4 (.7)
Foreign earnings taxed at different rates 7.5 8.2 6.7
State, local, and withholding tax net of federal income tax benefit 9.9 11.0 4.5
Other (6.2) (7.3) (4.8)
$155.6 $152.3 $120.0
</TABLE>
Upon adoption of FAS No. 109 in 1994, $22.4 of previously unrecorded tax
benefits arising from stock option exercises were recognized in capital
surplus.
During 1995 the Company formally resolved all issues arising from the
U.S. Internal Revenue Service's (the "IRS") 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, impacting
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 resulting 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.
No provision was made in 1996 for U.S. income taxes on the undistributed
earnings of the foreign subsidiaries as it is the Company's intention to
utilize those earnings in the foreign operations for an indefinite period of
time or repatriate such earnings only when tax effective to do so. At June
30, 1996 undistributed earnings of the foreign subsidiaries amounted to
$227. It is not practicable to determine the amount of income or withholding
tax that would be payable upon the remittance of those earnings.
At June 30, 1996, the Company had U.S. foreign tax credit carryforwards
of $27, which expire in 1997-2001. Foreign net operating loss carryforwards
which expire beginning in 1997 are $61.
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
Retirement Health Care and Life Insurance Plan
The Company provides certain postretirement health care and life insurance
benefits for qualifying retired employees in the United States.
Substantially all of these employees may become eligible for coverage. Most
retirees outside the United States are covered by government-sponsored and
administered programs.
The net postretirement benefits expense for the fiscal years ended June
30, 1996, 1995 and 1994 include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Benefits earned during the year $ 3.3 $ 3.1 $ 3.8
Interest cost on the unfunded benefit obligation 4.6 3.9 4.6
Other (3.0) (3.4) (2.3)
$ 4.9 $ 3.6 $ 6.1
</TABLE>
Postretirement benefits are paid by the Company as incurred. The following
table summarizes the actuarially determined status of these benefits at June
30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 11.5 $ 8.6
Fully eligible active participants 10.1 8.8
Other active participants 41.8 38.2
63.4 55.6
Unrecognized prior service gain 6.8 8.9
Unrecognized net gain 33.0 34.3
Accrued postretirement benefit costs $103.2 $98.8
</TABLE>
This obligation was determined by application of the terms of the
postretirement health care and life insurance plan together with relevant
actuarial assumptions. The assumptions used were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Discount rate 8.3% 8.0%
Initial health care cost trend rate 9.4% 10.0%
Ultimate health care cost trend rate 5.4% 5.4%
Year in which ultimate trend rate achieved 2002 2002
</TABLE>
An increase in the assumed health care trend rates of 1% in each year would
increase the aggregate of service and interest cost for 1996 by $1.9 and
would increase the June 30, 1996 accumulated postretirement benefit
obligation by $12.5.
During 1994, the Company made certain changes to its postretirement
health care and life insurance benefits that became effective January 1,
1995. These changes include, among others, contributions on the part of
retirees as well as sharing costs of medical inflation above defined
parameters, and reduced the Company's 1994 expense by $2.9.
51
<PAGE> 21
Retirement Income Plans
Most U.S. employees of the Company are covered under a noncontributory
defined benefit pension plan (the "Cash Balance Plan"). Certain employees in
other countries are covered under contributory and noncontributory defined
benefit pension plans. The Cash Balance Plan provides benefits that are
generally based on years of credited service with the Company and a
percentage of the employees' eligible compensation. The Company's funding
policy for the Cash Balance Plan is to contribute annually the amount
necessary to satisfy the funding standards under the Employee Retirement
Income Security Act of 1974.
The net pension expense for the fiscal years ended June 30, 1996, 1995
and 1994 includes the following components:
<TABLE>
<CAPTION>
Domestic International
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Benefits earned during the year $ 9.3 $ 8.6 $ 7.8 $ 2.3 $ 2.4 $ 2.3
Interest cost on projected benefit obligation 3.4 2.6 2.0 3.2 3.2 2.8
Actual return on plan assets (8.0) (5.7) (.6) (7.8) (1.5) (5.4)
Other 3.8 2.2 (2.1) 4.5 (1.3) 3.1
$ 8.5 $ 7.7 $ 7.1 $ 2.2 $ 2.8 $ 2.8
</TABLE>
The following table summarizes amounts included in the Company's
consolidated balance sheets and the funded status of the Company's domestic
and international pension plans at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
International
1996 1995
Assets Accum. Assets Accum.
exceed benefits exceed benefits
Domestic accum. exceed accum. exceed
1996 1995 benefits assets benefits assets
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $51.1 $39.3 $27.0 $ 6.2 $23.4 $ 6.5
Accumulated benefit obligation $57.4 $45.6 $27.0 $ 9.4 $23.4 $10.2
Projected benefit obligation $57.4 $45.6 $36.7 $ 9.7 $32.5 $10.5
Plan assets at fair value 56.0 40.7 44.2 -- 37.1 --
Projected benefit obligation in excess of
(less than) fair value of plan assets 1.4 4.9 (7.5) 9.7 (4.6) 10.5
Unrecognized prior service cost 3.0 3.5 (2.5) -- .2 --
Unrecognized net gain (loss) 1.5 (1.4) 11.0 1.9 6.8 2.1
Accrued pension cost $ 5.9 $ 7.0 $ 1.0 $11.6 $ 2.4 $12.6
</TABLE>
The assumptions used in determining pension costs and funded status
information shown above were:
<TABLE>
<CAPTION>
Domestic International
1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Weighted average of increase in compensation levels 6.5% 6.5% 4.0-6.0% 4.0-6.5%
Discount rate 8.0% 7.5% 7.0-9.0% 7.0-9.0%
Expected long-term rate of return on plan assets 9.0% 9.0% 7.0-9.3% 7.0-9.5%
</TABLE>
52
<PAGE> 22
Plan assets consist primarily of marketable securities and fixed interest
bonds.
The Company sponsors a defined contribution 401(k) thrift plan for
U.S.-based employees. The Company matches 50% of employee contributions up
to 3% of eligible compensation subject to certain limitations. Total Company
contributions to the plan were $4.1, $3.6 and $3.2 for fiscal years ended
June 30, 1996, 1995 and 1994, respectively.
14. GEOGRAPHIC AREAS OF OPERATIONS
The Company operates manufacturing facilities and distribution and sales
offices worldwide. Manufacturing is conducted in the United States, Canada,
Mexico, South Africa, the United Kingdom, and Belgium. Manufacturing
facilities are currently under construction in China and India.
Information concerning geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SALES:
North America(1) $1,249.6 $1,119.2 $1,008.8
Europe 632.2 614.2 575.9
Other International Markets 407.8 345.6 286.6
$2,289.6 $2,079.0 $1,871.3
OPERATING INCOME:
North America $ 356.2 $ 327.2 $ 279.1
Europe 131.9 127.4 119.6
Other International Markets 59.1 51.9 42.2
547.2 506.5 440.9
Corporate/Research & Development (102.2) (96.8) (84.7)
$ 445.0 $ 409.7 $ 356.2
IDENTIFIABLE ASSETS: (2)
North America $1,037.6 $ 917.6
Europe 661.5 664.1
Other International Markets 486.1 241.8
2,185.2 1,823.5
Corporate/Research & Development 543.3 596.3
$2,728.5 $2,419.8
</TABLE>
(1) Does not include sales to affiliated companies of $185.3, $142.7 and
$99.9 for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
(2) Included in the Company's consolidated balance sheet as of June 30, 1996
are the net assets of manufacturing facilities in Belgium, Canada, China,
India, Mexico, South Africa and the United Kingdom, which total
approximately $201.
North America includes the United States and Canada. Other International
Markets include Mexico, Brazil, China, South Africa, Australia, India and
Japan, as well as other countries within South America, Latin America, the
Pacific Rim, the Middle East and Africa.
Corporate/Research & Development expenses include worldwide headquarters'
administrative costs, amortization of intangibles, research and development,
and other unallocable expenses.
15. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Following is other supplemental income statement information:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Advertising and promotion $492.2 $464.2 $427.9
Research and development 34.4 34.7 29.6
Foreign exchange gains (losses) excluding mark-to-market (5.4) 1.0 (6.7)
</TABLE>
16. COMMITMENTS AND CONTINGENCIES
At June 30, 1996, the Company had various noncancelable operating leases for
distribution centers, office buildings, transportation, computer, and other
equipment. Certain leases contain escalation clauses based upon increases in
the consumer price index. Capital leases as of June 30, 1996 and 1995 were
not significant.
Rental expense for all operating leases was $26.5, $23.7 and $19.0 for
the fiscal years ended June 30, 1996, 1995 and 1994, respectively. Future
minimum payments under noncancelable operating leases at June 30, 1996 are:
<TABLE>
<S> <C>
1997 $21.6
1998 17.1
1999 12.7
2000 9.4
2001 8.9
2002 and thereafter 7.2
$76.9
</TABLE>
During fiscal 1996 the Company moved into a new headquarters facility under
an operating lease. Under the terms of that lease, the Company is obligated
to either purchase the facility prior to 2003 for approximately $70 (the
estimated fair value of the facility) or make a payment to the lessor at
that time of as much as $60, depending on the facts and circumstances at the
conclusion of the lease. Neither of these amounts has been included in the
preceding table.
At June 30, 1996, the Company had legally binding commitments to purchase
materials aggregating $180 during 1997. The Company expects its capital
expenditures to be reasonably consistent over the next several years;
legally binding commitments at June 30, 1996 were not material.
See Note 2 for a discussion of the Company's contingent liability
regarding obligations of its joint venture with Toshiba and Varta.
The Company is involved in legal proceedings related to product liability
and other matters, which are incidental to the business, as well as
environmental remediation programs at several manufacturing sites. In the
opinion of management, the outcome of such proceedings and programs will not
materially affect the Company's consolidated results of operations or
financial position.
53
<PAGE> 23
In September, 1994, the Company entered into an administrative order by
consent with the U.S. Environmental Protection Agency ("EPA") whereunder it
has submitted to the EPA a plan for a complete remedial investigation and
feasibility study ("RIFS") relating to mercury and volatile organic
compounds contamination at its Lexington, North Carolina manufacturing site.
The investigation work under the RIFS has been completed and certain
supplemental investigatory activities are presently being discussed with the
EPA. Comprehensive remediation actions have taken place at the Lexington
site over many years, but additional remediation work will be necessary
based upon the outcome of the RIFS. During 1996, the Company has revised
estimates related to remediation costs based on additional information
obtained as the investigation progressed. As of June 30, 1996, the Company
believes that reasonably estimable investigatory and remediation costs will
be approximately $6, which is fully reserved. However, site investigation is
not yet complete and the remediation plan has not been agreed to by the EPA.
The Company believes that if additional remedial work is required, such
additional remediation would not likely exceed an additional $10.
Kraft, Inc. has agreed to indemnify the Company for certain environmental
and workplace liabilities arising out of discontinued non-battery operations
of the Company and for certain taxes arising prior to June 24, 1988--the
date on which the Company acquired the assets of the battery businesses from
Kraft, Inc.
17. SUBSEQUENT EVENTS
Restructuring
On July 25, 1996 the Company announced that it is actively evaluating a
restructuring that is expected to result in a charge of about $60 in the
second half of fiscal 1997. Although specifics have not been worked out, a
significant portion of the charge would be tied to restructuring the
Company's European operations, where growth has been limited in recent years
due to sluggish economic conditions.
Merger
On September 12, 1996 it was announced that the Company has signed an
agreement to merge with The Gillette Company effective December 15, 1996.
Under the terms of the merger agreement, each outstanding share of Duracell
common stock will be exchanged for .904 shares of Gillette common stock.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized below are quarterly financial data for the fiscal years ended
June 30, 1996 and 1995. The results of operations for each quarter are not
necessarily comparable to the results of other quarters or the full year.
Worldwide battery sales are significantly greater in the first half of the
Company's fiscal year than the second half due to consumers' traditionally
strong purchases during the holiday season.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $538.9 $492.1 $784.1 $730.2 $404.3 $369.2 $562.2 $487.5
Operating income 103.3 95.4 201.9 191.6 39.4 33.5 100.5 89.3
Mark-to-market, net of tax effect (4.5) (0.4) 2.3 0.6 (3.5) 6.4 (4.1) (3.5)
Net income 53.6 53.0 120.3 111.1 19.4 25.3 51.4 46.3
Per share data:(1)
Mark-to-market (.04) -- .02 -- (.03) .05 (.04) (.03)
Net income .44 .44 .99 .92 .16 .21 .42 .38
Cash dividends .26 .22 .26 .22 .29 .26 .29 .26
Weighted average shares and share equivalents outstanding 120.6 121.2 121.7 121.1 121.7 120.1 121.5 120.5
</TABLE>
(1) Quarterly per share data may not equal the annual amounts due to changes
in the weighted average shares and share equivalents outstanding.
54
<PAGE> 24
19. SELECTED FINANCIAL DATA (UNAUDITED)
Set forth below is selected consolidated financial data of the Company at
and for each of the five fiscal years in the period ended June 30, 1996.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $2,289.6 $2,079.0 $1,871.3 $1,742.2 $1,616.7
Restructuring -- -- -- (65.0) --
Operating income 445.0 409.7 356.2 241.6(1) 285.3
Interest expense 24.5 27.0 29.6 45.6 80.3
Income before extraordinary items and accounting change 244.7 235.8 200.2 123.9(2) 166.8
Extraordinary items, net of income tax benefit -- -- -- -- (39.0)
Accounting change, net of income tax benefit -- -- -- (75.4) --
Net income 244.7(4) 235.8(4) 200.2 48.5 127.8
Per share data:
Income before extraordinary items and accounting change 2.02 1.95 1.68 1.04(3) 1.43
Extraordinary items -- -- -- -- (.34)
Accounting change -- -- -- (.63) --
Net income 2.02(5) 1.95(5) 1.68 .41 1.09
Dividends 1.10 .96 .76 .48 --
Weighted average shares and share equivalents outstanding 121.2 120.7 119.2 118.8 116.9
BALANCE SHEET DATA:
Total assets $2,728.5 $2,419.8 $2,286.3 $1,997.6 $2,156.6
Working capital 539.8 439.4 379.0 202.5 215.8
Total debt 575.1 423.5 406.0 504.5 734.1
Stockholders' equity 1,403.2 1,263.4 1,153.5 981.8 1,008.0
</TABLE>
(1) Operating income was $306.6 before the restructuring charge.
(2) Income before extraordinary items and accounting change was $171.3
before the impact of restructuring costs.
(3) Income before extraordinary items and accounting change per share was
$1.44 before the impact of restructuring costs.
(4) Income before extraordinary items and accounting change was $254.6 and
$232.7 for 1996 and 1995, respectively, before the impact of marking to
market forward contracts, as discussed in Note 10.
(5) Net income per share was $2.10 and $1.93 for 1996 and 1995,
respectively, before the impact of marking to market forward contracts, as
discussed in Note 10.
55
<PAGE> 25
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation, integrity, and
objectivity of the financial information presented in this Annual Report.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, and include amounts that are based
upon management's best estimates and judgments.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance of the reliability of financial records and the
proper safeguarding of assets. Such controls are based on established
policies and procedures, are implemented by trained personnel, and provide
for appropriate division of responsibility. The internal control system is
monitored through a comprehensive internal audit program. Additionally, the
Company has distributed a Code of Conduct for conducting business in a
lawful and ethical manner.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors, whose appointment is ratified annually by
shareholders. The independent auditors conduct a review of internal
accounting controls to the extent required by generally accepted auditing
standards and perform such tests and related procedures as they deem
necessary to arrive at an opinion on the fairness of the Company's financial
statements.
The Board of Directors, through its Audit Committee composed solely of
non-management directors, meets periodically with management, the internal
auditors, and the independent auditors to review accounting principles,
internal accounting controls, and financial reporting practices of the
Company. Both the internal auditors and the independent auditors have free
access to the Audit Committee with or without the presence of management.
/s/ Charles R. Perrin
Charles R. Perrin
Chairman and Chief Executive Officer
/s/ G. Wade Lewis
G. Wade Lewis
Senior Vice President and Chief Financial Officer
/s/ Robert A. Burgholzer, Jr.
Robert A. Burgholzer, Jr.
Vice President and Controller
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Duracell
International Inc. and its subsidiaries as of June 30, 1996 and 1995, and
the related statements of consolidated operations, equity, and cash flows
for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Duracell
International Inc. and its subsidiaries at June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
August 9, 1996
(September 12, 1996 as to the announcement of the merger described in Note
17)
56
<PAGE> 1
EXHIBIT 21.1
DURACELL INTERNATIONAL INC.
ACTIVE SUBSIDIARIES AND BRANCHES
<TABLE>
<CAPTION>
NAME STATE/COUNTRY
- --------------------------------------------------------------------------------------------
<S> <C>
Duracell Canada Inc. Canada
Duraname Corp. USA (Delaware)
Duracell Danmark A/S Denmark
Duracell Finland OY Finland
Duracell Batteries Limited United Kingdom
Duracell (1993) Limited United Kingdom
Duracell UK Pension Plan Trustees Limited United Kingdom
Duracell SpA Italy
SpA Superpila Italy
Pile Superpila SRL Italy
Tudor Hellesens Svenska AB Sweden
Duracell SARL France
Duracell France SNC France
NV Duracell Belgium SA Belgium
NV Duracell Batteries SA Belgium
SA Duracell Benelux NV Belgium
NV PL Battery SA Belgium
Taiwan Branch Taiwan
Hong Kong Branch Hong Kong
Duracell Batteries Sucursal en Espana (Branch) Spain
ARO Moscow (Branch) Russia
Duracell Inc. USA (Delaware)
Duracell International Corporation USA (Delaware)
PL Battery Inc. USA (Delaware)
Duracell High Power Inc. USA (Delaware)
Duracell GmbH Germany
Duracell Nederland BV Netherlands
Duracell Hellesens Inc. Switzerland
Duracell Asia Limited Hong Kong
Taiwan Branch Taiwan
Hong Kong Branch Hong Kong
Korean Branch Korea
Duracell (SEA) Pte. Limited Singapore
Duracell Battery Japan Ltd. Japan
Duracell Mideast and Africa LLC Dubai
Duracell New Zealand Limited New Zealand
Duracell Australia Pty. Limited Australia
Duracell Caribbean, Inc. Puerto Rico
Duracell SA de CV Mexico
Duracell do Brazil Industria E Comercio Ltda. Brazil
Duracell Argentina SA Argentina
Duracell Chile Sociedad Comercial Limitada Chile
</TABLE>
Page 25
<PAGE> 2
<TABLE>
<CAPTION>
NAME STATE/COUNTRY
- --------------------------------------------------------------------------------------------
<S> <C>
Duracell Colombia Ltda. Colombia
Duracellven CA Venezuela
Daimon-Duracell (Pilhas) Limitada Portugal
Duracell Norge A/S Norway
Duracell International GmbH Austria
Duracell Svenska NV Sweden
Duracell International KFT Hungary
Duracell International Spol. s.r.o. Czech Republic
Duracell Poland S. P. Zoo Poland
Duracell (China) Limited China
Duracell Mauritius Mauritius
Duracell India Private Limited India
Duracell Atlantic, Inc. USA (Delaware)
Duracell South Africa (Branch) South Africa
Duracell Morocco (Branch) Morocco
Duracell Caribbean (Branch) Puerto Rico
Duracell (Malaysia) SDN BHD Malaysia
Duracell Thailand Ltd. Thailand
Duracell Korea Limited Korea
Eveready South Africa (Proprietary) Limited South Africa
Isle of
Guernsey Branch Guernsey
ESA Enterprises SA Panama
Isle of
Guernsey Branch Guernsey
South African Branch South Africa
</TABLE>
Page 26
<PAGE> 1
EXHIBIT 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement No. 33-39817 of Duracell International Inc. on
Form S-8 of our report dated August 9, 1996, appearing in the Company's Annual
Report to Shareholders for the year ended June 30, 1996 and incorporated by
reference in this Annual Report on Form 10-K of Duracell International Inc. for
the year ended June 30, 1996.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 13, 1996
Page 27
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
---------------------
Know All Men By These Presents, that the undersigned Directors of
Duracell International Inc. constitute and appoint G. Wade Lewis or Charles R.
Perrin as their true and lawful attorneys-in-fact and agents, with full power
of substitution, for him or and in his or her name, place and stead, to sign
Duracell International Inc.'s Form 10-K Annual Report for the year ended June
30, 1996, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the 27th day of September, 1996.
/s/ Arno A. Penzias /s/ Charles R. Perrin
- ------------------------- -------------------------
Arno A. Penzias Charles R. Perrin
/s/ Earnest J. Edwards /s/ Paul E. Raether
- ------------------------- -------------------------
Earnest J. Edwards Paul E. Raether
/s/ C.Robert Kidder /s/ George R. Roberts
- ------------------------- -------------------------
C.Robert Kidder George R. Roberts
/s/ Charles E. Kiernan
- ------------------------- -------------------------
Charles E. Kiernan Paula Stern
/s/ Henry R. Kravis /s/ Scott M. Stuart
- ------------------------- -------------------------
Henry R. Kravis Scott M. Stuart
/s/ G. Wade Lewis /s/ William S. Shanahan
- ------------------------- -------------------------
G. Wade Lewis William S. Shanahan
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 496
<ALLOWANCES> 23
<INVENTORY> 318
<CURRENT-ASSETS> 926
<PP&E> 771
<DEPRECIATION> 279
<TOTAL-ASSETS> 2729
<CURRENT-LIABILITIES> 386
<BONDS> 521
0
0
<COMMON> 1
<OTHER-SE> 1402
<TOTAL-LIABILITY-AND-EQUITY> 2729
<SALES> 2290
<TOTAL-REVENUES> 2290
<CGS> 842
<TOTAL-COSTS> 842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 400
<INCOME-TAX> 155
<INCOME-CONTINUING> 245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 245
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
</TABLE>
