The Procter & Gamble Company is an American consumer goods group with headquarters in Cincinnati, Ohio, which is represented in 70 countries.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1996 Commission file number 1-434 THE PROCTER & GAMBLE COMPANY (Exact name of registrant as specified in its charter) Ohio 31-0411980 (State of incorporation) (I.R.S. Employer Identification No.) One Procter & Gamble Plaza, Cincinnati, Ohio 45202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (513) 983-1100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . There were 685,925,464 shares of Common Stock outstanding as of April 19, 1996. -1- PART I. FINANCIAL INFORMATION <TABLE> THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS <CAPTION> Millions of Dollars Except Per Share Amounts Three Months Ended Nine Months Ended March 31 March 31 1996 1995 1996 1995 ------- ------- ------- ------- <S> <C> <C> <C> <C> NET SALES $8,587 $8,318 $26,704 $24,980 Cost of products sold 5,026 4,888 15,502 14,364 Marketing, research, and administrative expenses 2,368 2,366 7,222 7,074 -------- -------- --------- --------- OPERATING INCOME 1,193 1,064 3,980 3,542 Interest expense 121 124 367 368 Other income/(expense), net<F1> 75 (2) 189 159 -------- -------- --------- --------- EARNINGS BEFORE INCOME TAXES 1,147 938 3,802 3,333 Income taxes 387 307 1,310 1,160 -------- -------- --------- --------- NET EARNINGS $ 760 $ 631 $ 2,492 $ 2,173 ======== ======== ========= ========= PER COMMON SHARE: Net earnings $ 1.07 $ .88 $ 3.52 $ 3.06 Net earnings assuming full dilution $ 1.01 $ .81 $ 3.30 $ 2.85 Dividends $ .40 $ .35 $ 1.20 $ 1.05 AVERAGE COMMON SHARES OUTSTANDING 686.5 685.7 <FN> <F1>Includes $77 million ($50 million after-tax) charge related to the Kobe, Japan earthquake in 1995. </FN> <FN> Certain reclassifications of prior year's amounts have been made to conform with the current year presentation. Costs related to research and development are now reported as an element of marketing, research and administrative expenses. Costs related to delivery of finished product are included in cost of products sold. Net sales include revenues from other operating arrangements, such as joint ventures. </TABLE> -2- <TABLE> THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET <CAPTION> Millions of Dollars March 31 June 30 ASSETS 1996 1995 --------- --------- <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 2,022 $ 2,028 Investment securities 446 150 Accounts receivable 3,465 3,562 Inventories Raw materials and supplies 1,312 1,315 Work in process 261 247 Finished products 1,864 1,891 Deferred income taxes 818 804 Prepaid expenses and other current assets 1,015 845 --------- --------- 11,203 10,842 --------- --------- PROPERTY, PLANT, AND EQUIPMENT 18,076 17,739 LESS ACCUMULATED DEPRECIATION 7,067 6,713 --------- --------- 11,009 11,026 --------- --------- GOODWILL AND OTHER INTANGIBLE ASSETS 4,324 4,572 OTHER ASSETS 1,561 1,685 --------- --------- TOTAL $28,097 $28,125 ========= ========= <CAPTION> LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> CURRENT LIABILITIES Accounts payable and accruals $ 6,658 $ 7,678 Debt due within one year 991 970 --------- --------- 7,649 8,648 --------- --------- LONG-TERM DEBT 5,169 5,161 OTHER LIABILITIES 2,860 3,196 DEFERRED INCOME TAXES 690 531 SHAREHOLDERS' EQUITY Preferred stock 1,891 1,913 Common stock-shares outstanding-Mar. 31 686,348,534 686 687 -June 30 686,574,055 Additional paid-in capital 837 693 Currency translation adjustments (258) 65 Reserve for ESOP debt retirement (1,676) (1,734) Retained earnings 10,249 8,965 --------- --------- 11,729 10,589 --------- --------- TOTAL $28,097 $28,125 ========= ========= </TABLE> -3- <TABLE> THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS <CAPTION> Millions of Dollars Nine Months Ended March 31 1996 1995 -------- -------- <S> <C> <C> Cash and Cash Equivalents, beginning of year $2,028 $2,373 OPERATING ACTIVITIES Net earnings 2,492 2,173 Depreciation, depletion and amortization 975 914 Deferred income taxes 187 192 Increase in accounts receivable (30) (176) Increase in inventories (109) (312) Change in payables and accrued liabilities (742) 240 Decrease in other liabilities (133) (436) Other (184) (75) -------- -------- 2,456 2,520 -------- -------- INVESTING ACTIVITIES Capital expenditures (1,475) (1,325) Proceeds from asset sales and retirements 326 292 Acquisitions (144) (631) Change in investment securities (296) 174 -------- -------- (1,589) (1,490) -------- -------- FINANCING ACTIVITIES Dividends to shareholders (902) (797) Change in short-term debt 449 (175) Additions to long-term debt 329 328 Reduction of long-term debt (461) (563) Proceeds from stock options 74 52 Purchase of treasury shares (310) (15) -------- -------- (821) (1,170) EFFECT OF EXCHANGE RATE CHANGES ON CASH -------- -------- AND CASH EQUIVALENTS (52) 25 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (6) (115) -------- -------- Cash and Cash Equivalents, end of period $2,022 $2,258 ======== ======== SUPPLEMENTAL DISCLOSURE Non-cash transactions: Liabilities assumed in acquisitions 32 512 Reduction in employee stock ownership plan debt, guaranteed by the Company 58 53 Conversion of preferred to common stock 22 24 <FN> The interim financial statements are unaudited, but in the opinion of the Company include all adjustments, consisting only of normal recurring items, necessary for a fair presentation of the data. </TABLE> -4- MANAGEMENT'S DISCUSSION AND ANALYSIS Worldwide Results of Operations - ------------------------------- Worldwide net earnings for the quarter ending March 31, 1996 were $760 million, a 20% increase over the same quarter of the prior year net earnings of $631 million. Earnings per share for the quarter were $1.07 compared to $0.88 in the third quarter of the prior year, a 22% increase. Net earnings for the same quarter of the prior year included a $50 million charge related to the earthquake in Kobe, Japan. Excluding that charge, quarterly net earnings and earnings per share increased 12% and 13%, respectively. Worldwide third quarter net sales were $8.59 billion for the quarter, a 3% increase over the same quarter of the prior year, on comparable unit volume growth. Gross margin was 41.5% for the current quarter versus 41.2% for the same quarter of the prior year. Operating margin for the quarter was 13.9%, an improvement over 12.8% for the same quarter of the prior year. The improvement reflects continued efforts to improve efficiencies and simplify operations, resulting in lower costs to complement unit volume growth. For the nine months ended March 31, 1996, worldwide net earnings were $2.49 billion or $3.52 per share, an increase of 15% over the same period of the prior year. Worldwide net sales fiscal year-to-date increased 7% to $26.70 billion, on comparable unit volume growth. North America - ------------- North America achieved 4% unit volume growth and 6% sales growth for the quarter versus a strong year-ago period. Positive pricing impacts and lower costs drove the region's 19% net earnings growth. The Laundry and Cleaning segment led the region's unit volume growth, with progress across substantially all categories. The Paper business achieved particularly strong net earnings results on important unit volume growth, with the diaper and feminine protection categories contributing double-digit unit volume increases. Food and Beverage contributed to the earnings growth with moderate volume increases and reduced green coffee bean prices. Despite flat volume, earnings in Beauty Care increased as a result of product mix and cost control efforts. The regional Health Care business was negatively impacted by competitive activity in the OTC health care categories, resulting in the segment's year-to-year decline in sales and net earnings. For the July-March period, the North America region increased sales 7%, on unit volume growth of 6%. Net earnings improved 12% over the prior year period. Europe - ------ Third quarter unit volume for Europe, Middle East and Africa was flat, primarily due to the transition to value pricing in key Western European markets. This strategy to deliver better value to consumers was introduced several years ago in the United States and improved long-term results. Developing markets like Eastern Europe continued to generate excellent unit volume growth versus the same period of the prior year. The region's sales and earnings were at about the same level as the prior year due to the combined effects of pricing and a strong prior year performance. -5- For the July-March period, unit volume in Europe, Middle East and Africa grew 6%, which, when combined with favorable exchange rates, drove 9% sales growth. Excellent cost reduction results helped the region achieve 15% net earnings growth for the nine months to date. Asia - ---- Asia unit volume growth in the quarter remained strong, up 16% over the same period of the prior year. Sales growth was 4%, due primarily to lower pricing and unfavorable exchange rates in Japan. Exchange rates contributed a 5% decline across the region. Quarterly net earnings increased 11%, reflecting favorable mix effects and improved costs on certain key brands. China and the Philippines led the region with double-digit unit volume increases and improved earnings contribution. For the nine months ended March 31, 1996, Asia unit volume grew 18%, with a sales increase of 7%. Net earnings increased by 9% over the prior year. Latin America - ------------- Unit volume for the Latin America region declined 5% in the quarter, as strong unit volume results in Brazil, Argentina and Venezuela were offset by market softening and an unusually strong year ago comparison in Mexico. Unfavorable exchange rate movements in the region contributed to a sales and net earnings decline of 4% for the quarter, despite continued cost control efforts in the region. For the July-March period, unit volume grew 3% in the Latin America region. Sales and net earnings were down 4%, as unfavorable exchange rates and the impact of the recession in Mexico affected results. Restructuring Reserve Status - ---------------------------- In the year ending June 30, 1993, a reserve of $2.40 billion was established to cover a worldwide restructuring effort to consolidate manufacturing systems and reduce overhead costs. The primary elements of this reserve were costs related to fixed asset disposals and separation-related costs (86% of the total). The following information relates to the June 1993 reserve (in million of dollars pre-tax): <TABLE> <CAPTION> Original Balance July-March Balance Reserve 6/30/95 Charges 3/31/96 -------- ------- ---------- ------- <S> <C> <C> <C> <C> Separation-related costs<F1> $ 965 $ 369 $ 105 $ 264 Disposals of Fixed Assets 1,109 597 143 454 Other<F2> 328 194 27 167 -------- -------- ---------- -------- $2,402 $1,160 $ 275 $ 885 ======== ======== ========== ======== <FN> <F1> Includes separation allowances and related benefits, out placement services, and personnel relocation costs <F2> Including closing, environmental remediation and contract termination costs for sites shut down or divested, offset by proceeds from asset sales. No cost element within this category exceeds 5% of the total reserve. </FN> </TABLE> -6- Execution of the restructuring program continues to be on track, and the cost of completing it is expected to approximate the original estimates. As anticipated, charges for the disposal of fixed assets will lag behind spending for separation related programs. Over 80% of the sites and production modules to be closed have been announced in order to provide advance notice to the employees. Benefits continue to be obtained from the restructuring program. With estimated incremental savings of approximately $30 million after-tax for the January-March quarter, cumulative restructuring savings have exceeded the $500 million after-tax objective established in June 1993. The Company continues to believe that cumulative restructuring savings will exceed the original estimate by approximately 20%. Restructuring savings are estimated gross savings, which have been offset to some degree by lower pricing and other actions to build the business. PART II. OTHER INFORMATION Item 5. Other Information On May 9, 1996, P&G settled its derivatives lawsuit against Bankers Trust. As a result of the settlement, the remaining reserve, which was originally established in March 1994, will be reversed, positively impacting fourth quarter pre-tax earnings by approximately $120 million. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (3-1) Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993) (3-2) Regulations (Incorporated by reference to Exhibit (3-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993) (11) Computation of Earnings per Share (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule (99) Press Release - Litigation Settlement (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1996. -7- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. THE PROCTER & GAMBLE COMPANY E. H. EATON - -------------------------------------- E. H. Eaton Vice President and Comptroller (Principal Accounting Officer) Date: May 10, 1996 -8- EXHIBIT INDEX Exhibit No. Page No. (3-1) Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993) (3-2) Regulations (Incorporated by reference to Exhibit (3-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 1993) (11) Computation of Earnings per Share 10 (12) Computation of Ratio of Earnings to Fixed Charges 11 (27) Financial Data Schedule 12 (99) Press Release - Litigation Settlement 13 -9-