Exhibit (13)
------------
Annual Report to shareholders. (Pages 1-5, 16-36, and 42)
TO OUR SHAREHOLDERS
Your company made strong progress in fiscal 1993/94 against its four
primary business objectives: increasing the flow of innovative new products
to the market place; expanding the global presence of P&G brands; offering
better value to consumers; and increasing the efficiency and productivity
of our operations.
The Combination of these and many other efforts by our superb P&G
organization produced another year of healthy growth in volume and
earnings.
Net earnings for fiscal year 1993/94 achieved a record level of $2.2
billion, or $3.09 per common share. This compares to a loss of $.7 billion
in 1992/93, when results were significantly reduced by a provision for
restructuring and the prior years' effect of accounting changes.
Excluding these charges from our year-ago results, 1993/94 earnings
were up 10%, equalling the average growth rate over the last 35 years.
Earnings growth for 1993/94 was depressed 5% by a $102 million charge to
write off the option portion of two interest rate swaps.
HIGHLIGHTS OF THE YEAR
- - - NET EARNINGS were $2.3 billion, up 15% over earnings of $2.0 billion in
1992/93, excluding the unusual items in both years.
- - - EARNINGS PER SHARE, excluding unusual items in both years, were $3.24, up
15%.
- - - AFTER-TAX PROFIT MARGIN in 1993/94 was 7.6%, excluding the derivatives
write-off, the highest level in 21 years.
- - - UNIT VOLUME, excluding the impact of acquisitions and divestitures, grew
5%, with International up 7% and the United States up 4%. Every business
sector and geographic region increased unit volume versus year ago.
- - - NET SALES of $30.3 billion were about even with the prior year. Less
favorable foreign currency exchange rates reduced sales 4%. The
divestiture of our pulp and 100% juice businesses and lower pricing reduced
sales 1%. Excluding these effects, sales would have been up 5%, in line
with volume growth.
- - - CASH FLOW from operations set a new record at $3.6 billion. The
improvement reflects higher earnings and continued reduction in working
capital. This enabled the Company to reduce debt and further strengthen
its financial condition.
- - - DIVIDENDS increased 13% to $1.24 per share. Beginning with the August
1994 dividend, the annual dividend rate will be raised an additional 13% to
$1.40 per share, marking the 39th consecutive year of increased dividend
payments.
- - - RETURN ON EQUITY was 23%, excluding unusual items. This is the highest
level in 44 years, reflecting improved profitability and the write-off of
underperforming assets included in the 1993 restructuring reserve.
(Picture of Edwin L. Artzt, Chairman of the Board and Chief Executive)
1
P&G ACHIEVING RESTRUCTURING GOALS
Among the most important achievements of 1993/94 was the Company's
exceptional progress toward our plant consolidation and "Strengthening
Global Effectiveness" (SGE) overhead reduction goals. Last year, P&G set
aside $1.5 billion from net earnings to cover the cost of a worldwide
restructuring that would result in a 20% reduction in the number of
manufacturing plants and a 12% reduction in worldwide enrollment.
The Company is making steady progress toward its restructuring goals
and is already seeing benefits. In 1993/94, we achieved about a third of
the $500 million ongoing after-tax savings goal for this program. These
savings have enabled us to reduce pricing to provide better value for
consumers and contributed to record margins.
U.S. BUSINESS CONTINUES HEALTHY GROWTH TREND
The U.S. business had an excellent year in 1993/94.
Earnings were up 9% and unit volume was up 4%, even though total
consumer purchases in our categories grew only 1% during the year.
- - - LAUNDRY AND HOUSEHOLD CLEANING'S Hard Surface Cleaners business rolled
out eight new products and turned in its strongest year of volume growth
since the introduction of Mr. Clean in 1959. Fabric conditioners also
turned in record volume behind new products on Bounce and Ultra Downy
triple-concentrate.
- - - BEAUTY CARE built volume in Hair Care with Pantene Pro-V and new shampoo,
conditioning and styling products and packaging on Vidal Sassoon.
Cover Girl strengthened its market leadership with continued share
growth, though unit volume declined for cosmetics and fragrances overall,
largely due to reductions in market size and the discontinuation of the
unprofitable Clarion brand. Max Factor International completed the
introduction of an all-new line of cosmetics worldwide and early consumer
response has been encouraging.
We expect the planned acquisition of Giorgio Beverly Hills Inc.,
announced in July 1994, to strengthen P&G's cosmetics and fragrances
business. This acquisition will give the Company a strong foothold in the
U.S. fine fragrance market, with leadership brands and a strong management
team.
- - - HEALTH CARE'S respiratory business grew both volume and market share,
largely with the introduction of Vicks DayQuil Allergy and DayQuil Sinus.
In addition, P&G entered the over-the-counter analgesics category with
Aleve. This new P&G brand, a joint venture with Syntex, is a non-
prescription strength, fast-acting form of the medicine in Naprosyn, the
number one selling brand in its class for 10 years.
Our pharmaceutical business delivered strong volume growth in 1993/94,
led by its Didro-Kit therapy for osteoporosis which is now approved for use
in nine countries outside the U.S. Asacol, a treatment for ulcerative
colitis, achieved category leadership in the U.S. in the past year. And
early results were very encouraging for Ziac, a new prescription blood
pressure medication that P&G Pharmaceuticals is marketing with Lederle
Laboratories.
- - - PAPER'S Tissue and Towel category achieved outstanding results, exceeding
last year's record volume and
(Stylized picture of globe with caption "Unit volume was up 4% and
earnings were up 9% versus 1992/93 for the U.S. business.")
profit performance. This marks the seventh consecutive year of volume and
profit growth for the Category.
Our Bath Tissue business completed national expansion of Charmin Ultra
and our Paper Towel business began national expansion of Bounty Extra
Durable last quarter.
Both of these introductions utilize a proprietary papermaking
technology which enables us to improve absorbency, softness and strength
while reducing manufacturing costs.
Although diaper volume declined for the year, we've taken steps to
improve consumer value through lower prices and have accelerated the pace
of product innovation.
During the year, we applied our new "curly fiber" technology to
Pampers and Luvs, producing a diaper that is 50% thinner and more
absorbent.
Pampers Trainers was introduced nationally and, as the fiscal year
ended, two new products entered test markets--Pampers Stretch and Luvs with
Dri-Weave. Pampers Stretch has an elastic side panel for better fit and
the new Luvs diaper has a dri-weave topsheet similar to the one on Always
that keeps wetness away from the skin.
- - - FOOD AND BEVERAGE continued to make excellent profit progress and in
1993/94 achieved its longstanding goal of delivering profit margins in line
with the Company's average.
The business is growing behind products such as Sunny Delight juice
drink, which is now one of the Company's 10 largest U.S. brands, and
Pringles potato crisps, which delivered strong growth in the U.S. and
abroad. Pringles is now P&G's biggest export to international markets.
INTERNATIONAL BUILDS WORLDWIDE LEADERSHIP THROUGH PRODUCT INNOVATION
Despite sluggish economic conditions in key market, International had
another good year in 1993/94. Every region achieved volume gains.
Overall, unit volume was up 7%.
Acquisitions added another three percentage points, bringing
International's total volume growth to 10% above the prior year. Volume
growth and improved profit margins, reflecting good cost control, led to a
15% increase in earnings.
As in the U.S., International growth reflects a steady stream of
product innovations, complemented by geographic expansions and better
consumer value.
- - - IN EUROPE, P&G's largest International business, the laundry category
continued to build share with the introduction of a major product
improvement for oily and greasy stains on market-leading Ariel. While the
European laundry market remains intensely competitive, we are meeting this
challenge through continued product innovation.
- - - EUROPEAN HEALTH AND BEAUTY CARE achieved market leadership for the first
time in shampoo--behind Pantene Pro-V. Europe also made significant gains
in Cosmetics and Fragrances, increasing volume behind the successful
launches of Boss Elements and Roma Uomo fragrances and continued good
performance by Ellen Betrix cosmetics in Germany and Max Factor
International in the United Kingdom.
- - - EUROPEAN PAPER recorded strong growth led by Always, the region's leading
feminine protection business. Europe now sells 38% of P&G's worldwide
volume in feminine
(Caption in second paragraph stating "The Company is making steady
progress toward its restructuring goals and is already seeing
benefits.")
3
protection and diaper products. During 1993/94, the European organization
introduced Always Pantiliners into much of the region as well as consumer-
preferred Pampers Baby Dry, Pampers Ultra Dry Thins and Pampers Trainers.
- - - NEW TISSUE/TOWEL BUSINESS--More recently, P&G expanded its growth
opportunities in Europe by entering the $5.5 billion tissue/towel market
with the July 1994 acquisition of VP-Schickedanz. This is the Company's
first move into the tissue business outside North America. VPS has an
experienced organization with modern manufacturing facilities and high
quality, profitable brands such as Tempo, the leading European paper
handkerchief, and Bess bath tissue, the leading brand in Germany. Based on
proven technology and successful brands in the U.S., along with significant
growth potential in a market where per capita tissue usage is well below
U.S. levels, we expect to significantly build this business over time.
- - - EASTERN EUROPE continued its strong growth with volume up 20% in 1993/94.
Laundry detergents are the Company's largest business in this region. P&G
is the market leader in the Czech and Slovak Republics, with brands such as
Tix, Tide and Ariel. In Russia, Tide is the best-selling western laundry
detergent after only six months on the market.
Pampers is the number one diaper in Hungary and Poland and is a strong
second in the Czech and Slovak Republics. P&G also strengthened its
dentifrice business in 1993/94. Blend-aMed is the number one dentifrice
brand in Hungary and Poland.
- - - ASIA/PACIFIC recorded 25% volume growth, led by gains in China, Taiwan,
Malaysia, Singapore, Korea, Indonesia, Thailand and India.
Japan remains the largest business in Asia/Pacific and set new volume
records, despite a tough competitive climate and weak economic conditions.
The introduction of the new Vidal Sassoon hair care line was a major factor
in the broad-based growth in this region. Feminine protection products
were also an important contributor.
China was the fastest-growing country in the region. P&G is China's
market leader in hair care and, with the completion of the three joint
ventures during this fiscal year, is now the largest detergent manufacturer
in China, as well. Our other Chinese businesses--Skin Care, Feminine
Protection and Personal Cleansing--are also growing.
- - - LATIN AMERICA continued broad-based volume growth. Mexico delivered the
biggest volume gains on existing businesses, while acquisitions played an
important role in the growth of other Latin American markets.
The Company strengthened its position in the feminine protection
category with the acquisition of the Higibras/ProHigiene companies in
Brazil. In addition, we expanded our core laundry and dishwashing business
through acquisition of the Quimica and Llauro companies in Argentina.
- - - CANADA continued to build its Laundry and Cleaning business with the
introduction of Tide with Advanced Color Guard. Paper led Canada in unit
volume growth as P&G's technologies were applied to the Royale bath tissue,
kitchen towel and facial tissue products.
(Caption in paragraph "- New Tissue/Towel Business" stating "P&G
people are characterized by their innovation, speed and ability to
work together across both functional and geographic boundaries.")
(Stylized picture of globe with caption "International earnings grew
15%, unit volume was up 7%--or 10% including acquisitions.")
P&G POSITIONED FOR THE FUTURE
Never has the Company been as well positioned in as many product categories
and in as many regions of the world as it is today.
The key to our success is and always has been our ability to develop
and advance our people. That's why we're particularly proud of the
Opportunity 2000 Award just given to P&G by the United States Department of
Labor. This award, which is presented to a single company each year,
recognizes the efforts of men and women throughout our organization to
promote and advance employees of all origins and backgrounds.
P&G has the strongest group of employees in any consumer goods company
in the world--people who are characterized by their innovation, speed and
ability to work together across both functional and geographic boundaries.
These characteristics have always been our Company's greatest
strength, and will continue to be Procter & Gamble's most valued resource
in the years ahead.
Respectfully,
/s/EDWIN L. ARTZT
Edwin L. Artzt
Chairman of the Board
and Chief Executive
/s/JOHN E. PEPPER
John E. Pepper
President
August 10, 1994
5
THE FINANCIAL STATEMENTS
RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
------------------------------------------------------------
Company management is responsible for the preparation, accuracy and
integrity of the financial statements and other financial information
included in this Annual Report. This responsibility includes preparing the
statements in accordance with generally accepted accounting principles and
necessarily includes estimates that are based on management's best
judgments.
To help insure the accuracy and integrity of Company financial data,
management maintains internal controls which are designed to provide
reasonable assurance that transactions are executed as authorized and
accurately recorded and that assets are properly safeguarded. These
controls are monitored by an extensive and ongoing program of internal
audits. It is essential for all Company employees to conduct their business
affairs in keeping with the highest ethical standards as outlined in our
code of conduct, P&G, Your Personal Responsibility. Careful selection of
employees, and appropriate divisions of responsibility, also help us to
achieve our control objectives.
The financial statements have been audited by the Company's
independent public accountants, Deloitte & Touche. Their report is also
shown on this page.
The Board of Directors, acting through its Audit Committee composed
entirely of outside directors, oversees the adequacy of the Company's
control environment. The Audit Committee meets periodically with
representatives of Deloitte & Touche, and internal financial management to
review accounting, control, auditing and financial reporting matters. The
independent auditors and the internal auditors also have full and free
access to meet privately with the Committee.
/s/EDWIN L. ARTZT /s/ERIK G. NELSON
Edwin L. Artzt Erik G. Nelson
Chairman of the Board and Chief Executive Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------
DELOITTE & 250 East Fifth Street
TOUCHE Cincinnati, Ohio 45202
----------------
D&T logo
To the Board of Directors and Shareholders of The Procter & Gamble Company:
We have audited the accompanying consolidated balance sheets of The Procter
& Gamble Company and subsidiaries as of June 30, 1994 and 1993 and the
related consolidated statements of earnings, retained earnings, and cash
flows for each of the three years in the period ended June 30, 1994. These
financial statements are the responsibility of the companies' 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 audits 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, the financial statements referred to above present
fairly, in all material respects, the financial position of the companies
at June 30, 1994 and 1993 and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 1994,
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective July 1,
1992, the Company changed its methods of accounting for other post
retirement benefits and income taxes.
/s/DELOITTE & TOUCHE
August 10, 1994
16
The Procter & Gamble Company and Subsidiaries
CONSOLIDATED STATEMENT
OF EARNINGS
Years Ended June 30 (Millions of Dollars Except Per Share Amounts) 1994 1993 1992
__________________________________________________________________________________________________
NET SALES $30,296 $30,433 $29,362
Cost of products sold 17,355 17,683 17,324
Marketing, administrative, and other operating expenses 9,361 9,589 9,171
Provision for restructuring -- 2,705 --
__________________________________________________________________________________________________
OPERATING INCOME 3,580 456 2,867
Interest expense 482 552 510
Other income/expense, net 248 445 528
__________________________________________________________________________________________________
EARNINGS BEFORE INCOME TAXES & PRIOR YEARS'
EFFECT OF ACCOUNTING CHANGES 3,346 349 2,885
Income taxes 1,135 80 1,013
__________________________________________________________________________________________________
NET EARNINGS BEFORE PRIOR YEARS' EFFECT OF
ACCOUNTING CHANGES 2,211 269 1,872
Prior years' effect of accounting changes -- (925) --
__________________________________________________________________________________________________
NET EARNINGS/(LOSS) $ 2,211 $ (656) $ 1,872
__________________________________________________________________________________________________
_______ _________ ________
PER COMMON SHARE:
NET EARNINGS BEFORE PRIOR YEARS' EFFECT OF
ACCOUNTING CHANGES $ 3.09 $ 0.25 $ 2.62
Prior years' effect of accounting changes -- $ (1.36) --
NET EARNINGS/(LOSS) $ 3.09 $ (1.11) $ 2.62
NET EARNINGS/(LOSS) ASSUMING FULL DILUTION $ 2.91 $ (0.96) $ 2.45
DIVIDENDS $ 1.24 $ 1.10 $ 1.025
AVERAGE SHARES OUTSTANDING (IN MILLIONS) 683.1 680.4 677.4
__________________________________________________________________________________________________
CONSOLIDATED STATEMENT
OF RETAINED EARNINGS
Years Ended June 30 (Millions of Dollars) 1994 1993 1992
__________________________________________________________________________________________________
BALANCE AT BEGINNING OF YEAR $ 6,248 $ 7,810 $ 6,775
Net earnings/(loss) 2,211 (656) 1,872
Dividends to shareholders
Common (847) (748) (694)
Preferred, net of related tax benefit (102) (102) (94)
Excess of cost over the stated value of common shares
purchased for treasury (14) (56) (49)
__________________________________________________________________________________________________
BALANCE AT END OF YEAR $ 7,496 $ 6,248 $ 7,810
__________________________________________________________________________________________________
_______ ________ ________
See accompanying Notes To Consolidated Financial Statements.
17
The Procter & Gamble Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30 (Millions of Dollars) 1994 1993
_______________________________________________________________________________________________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,373 $ 2,322
Marketable securities 283 306
Accounts receivable 3,115 3,111
Inventories 2,877 2,903
Deferred income taxes 716 740
Prepaid expenses and other current assets 624 593
_______________________________________________________________________________________________
9,988 9,975
PROPERTY, PLANT, AND EQUIPMENT 10,024 9,485
GOODWILL AND OTHER INTANGIBLE ASSETS 3,754 3,762
OTHER ASSETS 1,769 1,713
_______________________________________________________________________________________________
TOTAL $25,535 $24,935
_______________________________________________________________________________________________
_______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 2,604 $ 2,269
Accounts payable - other 660 642
Accrued liabilities 2,961 2,838
Taxes payable 440 726
Debt due within one year 1,375 1,812
_______________________________________________________________________________________________
8,040 8,287
LONG-TERM DEBT 4,980 5,174
OTHER LIABILITIES 3,336 3,850
DEFERRED INCOME TAXES 347 183
_______________________________________________________________________________________________
16,703 17,494
_______________________________________________________________________________________________
SHAREHOLDERS' EQUITY
Convertible Class A preferred stock 1,942 1,969
Common stock - shares outstanding: 1994 - 684,348,359;
1993 - 681,754,226 684 682
Additional paid-in capital 560 477
Currency translation adjustments (63) (99)
Reserve for employee stock ownership plan debt retirement (1,787) (1,836)
Retained earnings 7,496 6,248
_______________________________________________________________________________________________
8,832 7,441
_______________________________________________________________________________________________
TOTAL $25,535 $24,935
_______________________________________________________________________________________________
_______ _______
See accompanying Notes To Consolidated Financial Statements.
18
The Procter & Gamble Company and Subsidiaries
CONSOLIDATED STATEMENT
OF CASH FLOWS
Years Ended June 30 (Millions of Dollars) 1994 1993 1992
__________________________________________________________________________________________________
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 2,322 $ 1,776 $ 1,384
__________________________________________________________________________________________________
OPERATING ACTIVITIES
Net earnings before prior years' effect of
accounting changes 2,211 269 1,872
Provision for restructuring -- 2,705 --
Depreciation, depletion and amortization 1,134 1,140 1,051
Deferred income taxes 196 (1,065) 125
Change in accounts receivable 40 (9) 23
Decrease in inventories 25 97 160
Increase in payables and accrued liabilities 98 55 45
Change in other liabilities (353) 67 (48)
Other 298 79 (203)
__________________________________________________________________________________________________
3,649 3,338 3,025
__________________________________________________________________________________________________
INVESTING ACTIVITIES
Capital expenditures (1,841) (1,911) (1,911)
Proceeds from asset sales and retirements 105 725 291
Acquisitions (295) (138) (1,240)
Change in marketable securities 23 (306) --
__________________________________________________________________________________________________
(2,008) (1,630) (2,860)
__________________________________________________________________________________________________
FINANCING ACTIVITIES
Dividends to shareholders (949) (850) (788)
Change in short-term debt (281) (277) (156)
Additions to long-term debt 414 1,001 1,608
Reduction of long-term debt (797) (939) (433)
Proceeds from stock options 36 77 71
Purchase of treasury shares (14) (55) (49)
__________________________________________________________________________________________________
(1,591) (1,043) 253
__________________________________________________________________________________________________
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 1 (119) (26)
__________________________________________________________________________________________________
INCREASE IN CASH AND CASH EQUIVALENTS 51 546 392
__________________________________________________________________________________________________
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,373 $ 2,322 $ 1,776
__________________________________________________________________________________________________
_______ _______ _______
SUPPLEMENTAL DISCLOSURE
Cash payments for:
Interest, net of amount capitalized $ 487 $ 592 $ 475
Income taxes 1,225 1,035 811
Non-cash transactions:
Reductions in employee stock ownership plan debt,
guaranteed by the Company 49 46 43
Liabilities assumed in acquisitions 65 83 660
Conversion of preferred to common shares 27 20 9
__________________________________________________________________________________________________
See accompanying Notes To Consolidated Financial Statements.
19
The Procter & Gamble Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The financial statements include the
accounts of The Procter & Gamble Company and its majority-owned
subsidiaries. Investments in 20% to 50% owned affiliates in which
significant management control is exercised are included at original
cost adjusted for the change in equity since acquisition. Other
investments are carried at cost.
ACCOUNTING CHANGES: Effective July 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 106, Accounting for
Postretirement Benefits Other than Pensions. The new Statement requires
accrual of postretirement health care and life insurance benefits
during an employee's years of active service rather than on the
previous pay-as-you-go basis during the retirement years.
Effective July 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The new
Statement requires deferred taxes on the Balance Sheet to be stated at
enacted tax rates expected to be in effect when these balances reverse,
i.e. when taxes actually will be paid or recovered. Previously,
deferred taxes were based on the enacted tax rate when these amounts
were first recognized.
Effective July 1, 1994, the Company will adopt Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits, and Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The
effects of adoption of these new standards are not expected to be
material.
CURRENCY TRANSLATION: Assets and liabilities denominated in most
foreign currencies are translated into U.S. dollars at year-end
exchange rates and related gains and losses are reflected in
shareholders' equity. Significant currencies include the German mark,
Belgian franc, British pound, Canadian dollar and Japanese yen, with
any related exposure managed primarily through local financing. Gains
and losses from foreign currency transactions and translation of
balance sheets in highly inflationary economies are determined based on
historical or current exchange rates as appropriate, and are included
in earnings. Losses included in net earnings for 1994, 1993 and 1992
were $27, $42 and $50, respectively.
CASH EQUIVALENTS: Highly liquid investments with maturities of three
months or less when purchased are considered to be cash equivalents.
INVENTORY VALUATION: Inventories are valued at the lower of cost or
market. Cost for inventories is primarily determined by the last-in,
first-out method or the average cost method.
Futures contracts are purchased primarily to hedge certain
agricultural commodity requirements. Gains and losses on these
contracts are included in earnings when the related products are sold.
GOODWILL AND OTHER INTANGIBLE ASSETS: The cost of intangible assets is
amortized on a straight-line basis over the estimated periods
benefited, but not exceeding 40 years with an average remaining life of
28 years. The realizability of goodwill and other intangibles is
evaluated periodically as events or circumstances indicate a possible
inability to recover their carrying amount. Such evaluation is based on
various analyses, including cash flow and profitability projections
that incorporate, as applicable, the impact on existing company
businesses. The analyses necessarily involve significant management
judgment to evaluate the capacity of an acquired business to perform
within projections. Historically, the Company has generated sufficient
returns from acquired businesses to recover the cost of their
intangible assets.
DEPRECIATION: For financial accounting purposes, depreciation is
calculated on a straight-line basis over the estimated useful lives of
the assets.
20
OTHER EXPENSES: Research and development expenses are charged to
earnings in the year incurred and were $1,059, $956 and $861 for the
years ending June 30, 1994, 1993 and 1992.
NET EARNINGS PER COMMON SHARE: Net earnings less preferred dividends
(net of related tax benefits) are divided by the average number of
common shares outstanding during the year to derive net earnings per
common share. Fully diluted earnings per share are calculated using the
treasury stock method and include an adjustment for preferred stock
dividend requirements.
RECLASSIFICATIONS: Certain reclassifications of prior years' amounts
have been made to conform with the current year presentation.
2. PROVISION FOR RESTRUCTURING
A restructuring provision of $2,705 which reduced after-tax earnings by
$1,746 or $2.57 per share, was established in fiscal 1993. A charge of
$2,402 covers a worldwide restructuring effort to optimize product
supply systems and reduce overhead costs, and a $303 charge related to
the divestiture of the 100% juice business. The provision includes
costs associated with the closure or disposal of facilities, employee
separation and exit from certain non-strategic businesses.
The restructuring provision was determined based on estimates
prepared at the time the restructuring actions were approved by
management and the Board of Directors. The cost of completing the
restructuring program is expected to approximate the original
estimates.
3. ACQUISITIONS
In fiscal 1992 the Company purchased Revlon, Inc.'s worldwide Max
Factor and Betrix lines of cosmetics and fragrances for $1,025, net of
cash acquired, including goodwill and other intangible assets of $927.
Other acquisitions accounted for as purchases totaled $295, $138, and
$215 in 1994, 1993 and 1992, respectively. The increase in goodwill and
other intangible assets amounted to $209, $57, and $93 in those years.
The pro forma full year effect of the above acquisitions on
consolidated earnings would not have been material in the respective
years.
4. BALANCE SHEET INFORMATION
June 30 1994 1993
_______________________________________________________________________
INVENTORIES
Raw materials and supplies $ 1,087 $ 1,154
Work in process 213 196
Finished products 1,577 1,553
_______________________________________________________________________
2,877 2,903
Replacement cost of LIFO inventories 663 1,097
Stated value of LIFO inventories 462 1,013
_______________________________________________________________________
Excess of replacement cost over the stated value 201 84
PROPERTY, PLANT, AND EQUIPMENT
Buildings 3,027 2,703
Machinery and equipment 12,249 11,607
Land 550 494
Timberlands, less depletion 70 73
_______________________________________________________________________
15,896 14,877
Less accumulated depreciation 5,872 5,392
_______________________________________________________________________
10,024 9,485
21
The Procter & Gamble Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share amounts)
4. BALANCE SHEET INFORMATION (continued)
June 30 1994 1993
_______________________________________________________________________
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill $ 3,564 $ 3,472
Trademarks and other intangible assets 946 957
_______________________________________________________________________
4,510 4,429
Less accumulated amortization 756 667
_______________________________________________________________________
3,754 3,762
Marketing expenses 842 753
Compensation expenses 393 395
Restructuring reserves 870 817
Other 856 873
_______________________________________________________________________
2,961 2,838
OTHER LIABILITIES
Postretirement health care and life insurance
benefits 1,432 1,410
Restructuring reserves 1,035 1,810
Other 869 630
_______________________________________________________________________
3,336 3,850
5. LONG-TERM DEBT
The following presents the carrying value of outstanding long-term
debt:
June 30 1994 1993
_______________________________________________________________________
9 1/2% notes due 1998 $ 200 $ 200
6 1/4% notes due 1995 200 200
8% notes due 2003 200 200
7.1% notes due 1994 200 200
6.85% notes due 1997 200 200
7 3/8% debentures due 2023 175 175
8.7% notes due 2001 175 175
5.2% notes due 1995 150 150
9 5/8% notes due 2001 150 150
8 1/2% notes due 2009 149 149
10 7/8% Canadian dollar bonds due 2001 145 157
Commercial paper 765 423
9.36% ESOP debentures, Series A, due 2021,
guaranteed by the Company 1,000 1,000
8.08%-8.33% serial ESOP notes, due 1994-2004,
guaranteed by the Company 787 836
Other, due in varying amounts through 2036 978 1,609
_______________________________________________________________________
5,474 5,824
Less amounts included in debt due within one year 494 650
_______________________________________________________________________
Total long-term debt 4,980 5,174
_______________________________________________________________________
The following payments are required during the next five fiscal years:
1995-$494; 1996-$468; 1997-$416; 1998-$322; and 1999-$293.
The fair value of the underlying long-term debt, excluding amounts due
within one year, was $5,205 and $5,656 at June 30, 1994 and 1993,
respectively.
Certain commercial paper balances have been classified as long-term
debt. The Company has the intent and ability to renew the commercial
paper obligations on a long-term basis and has entered into swap
arrangements that convert them to fixed rate obligations.
22
6. FINANCIAL INSTRUMENTS
The Company is subject to market rate risk from exposure to changes in
interest rates and currency exchange rates and enters into various
financial instrument transactions to manage these exposures. Financial
instruments used for these purposes are evaluated against the Company's
policies in areas such as counterparty exposure and hedging practices,
and are monitored using techniques such as market value and sensitivity
analyses.
INTEREST RATE INSTRUMENTS
The Company's financing and cash management activities entail market
rate risk from exposure to changes in interest rates. The Company
assesses the exposure of its overall financing position on a net basis,
after considering the extent to which variable rate liabilities can be
offset with variable rate assets, typically cash equivalents and
marketable securities. The Company's objective is to optimize interest
expense consistent with maintaining an acceptable level of exposure to
the risk of interest rate fluctuation. In order to achieve this
objective, the Company targets a mix of fixed and variable rate debt
based on an assessment of interest rate trends. To obtain this mix in a
cost efficient manner, the Company primarily utilizes interest rate
swaps, including foreign currency interest rate swaps, that have the
effect of converting specific debt obligations of the Company from
fixed to variable rate, or vice versa, as required. Amounts due to or
from the counterparties to interest rate swaps are reflected in
interest expense in the periods in which they accrue.
A portion of interest rate exposure is managed through the use of
options to manage the Company's overall risk profile and reduce
interest expense. When using written option contracts, the Company
receives a premium in exchange for providing a counterparty the right
to enter into a swap. Gains and losses on such options are recognized
currently. The notional amounts of such instruments were $1,094 and
$845 at June 30, 1994 and 1993, respectively. The fair values were $40
at June 30, 1994 and $14 at June 30, 1993, reflecting the approximate
cost to terminate the options.
The net effect of interest rate instruments on interest expense for
1994 and 1993 was insignificant, but this measurement does not capture
the value to the Company of managing to a targeted mix of fixed and
variable rate debt.
The option portion of the two out-of-policy leveraged interest rate
swaps entered into during 1994 were closed in the January-March
quarter. The related $157 charge in the quarter to close these options
is reflected in other income/expense, net. Leveraged options can
magnify the impact of interest rate changes. At June 30, 1994 no such
instruments were in our portfolio and it is the Company's intent not to
enter such leveraged contracts in the future.
Based on the Company's overall variable rate exposure at June 30,
1994, including interest rate swaps and options, a 300 basis point
interest rate change would not have a material effect on earnings.
The following information includes all interest rate instruments. The
notional amount is the reference point for determining amounts due or
receivable under the contracts. The fair value approximates the cost to
settle the outstanding contracts. The carrying value includes the net
amount due to counterparties under swap contracts, the marked-to-market
value of written options, and currency translation associated with
currency interest rate swaps.
23
The Procter & Gamble Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share amounts)
June 30 1994 1993
_______________________________________________________________________
Notional amount $ 3,543 $ 3,773
_______________________________________________________________________
Fair value: gains 13 77
losses 252 199
_______________________________________________________________________
Net fair value 239 122
Less: carrying value 193 74
_______________________________________________________________________
Estimated unrealized loss 46 48
_______________________________________________________________________
The estimated unrealized losses shown above represent the incremental
charge to earnings to immediately settle all interest rate swaps.
However, it is the Company's current intention to leave these
instruments outstanding until maturity over various periods extending
to the year 2004, in which case no incremental charge to earnings will
be realized.
CURRENCY INSTRUMENTS
The Company is subject to market rate risk from exposure to changes in
currency exchange rates primarily in three areas: commercial
transactions, intercompany financings and net investments in foreign
subsidiaries.
The primary purpose of the Company's foreign currency hedging
activities is to protect against the risk that local currency cash
flows associated with purchase transactions will be adversely affected
by changes in exchange rates. Although this foreign currency exposure
is managed locally, corporate policy prescribes the range of hedging
activity into which the subsidiary operations may enter. To execute
this policy, the Company utilizes forward exchange contracts and
options with durations of generally less than twelve months. The impact
of changes in the value of these instruments typically offsets changes
in the value of the underlying transactions. For accounting purposes,
gains and losses on option contracts that hedge identifiable
anticipated transactions and on forward contracts that hedge firm
commitments are included in the measurement of the related transaction.
Gains and losses on instruments used for other purposes are recognized
currently.
The Company manages its foreign exchange exposure associated with
intercompany financing transactions primarily using foreign currency
swaps. Gains and losses on such instruments mitigate the impact on
earnings of currency exchange rate changes on the underlying
transactions.
The impact of net asset exposures related to investments in foreign
subsidiaries are managed primarily through local currency financing,
and by foreign currency denominated debt issued by the parent company.
As discussed in the interest rate instruments section, the Company has
also entered into currency interest rate swaps, which effectively
convert the principal and interest cash flows of certain existing debt
to foreign currency obligations. The currency translation associated
with these obligations is designated as a hedge of the net investment
in the foreign subsidiaries and reflected in the currency translation
adjustment in shareholders' equity.
Currency instruments outstanding at June 30, 1994 were as follows:
( ) = Liability Notional Amount Carrying Value
____________________________________________________________________
Forward contracts $1,873 $ (10)
Currency options 1,138 10
Currency swaps 646 (62)
______ ______
3,657 (62)
24
The aggregate notional amount of currency instruments with off-balance
sheet risk at June 30, 1993 was $2,409. The aggregate notional amount
of currency instruments outstanding at June 30, 1994 increased over the
prior year primarily due to an increased level of transaction hedging
activity by our international subsidiaries, a timing change related to
certain purchased option contracts, and the impact of a weaker dollar
at year end which increased the notional value in dollars. The major
currency exposures hedged by the Company include the German mark,
Japanese yen and British pound sterling.
The aggregate fair value of currency instruments at June 30, 1994 and
1993 included the following unrealized amounts: $11 in net gains ($16
in gains, offset by $5 in losses), and $17 in net gains ($36 in gains,
offset by $19 in losses), respectively.
OTHER FINANCIAL INSTRUMENTS
The carrying value of other financial instruments approximated fair
value at June 30, 1994 and 1993.
CREDIT RISK
Credit risk arising from the inability of a counterparty to meet the
terms of the contracts is generally limited to the amounts, if any, by
which the counterparties' obligations exceed the obligations of the
Company. It is the Company's policy to only enter into financial
instruments with a diversity of creditworthy counterparties. Therefore,
the Company does not expect to incur credit losses on financial
instruments.
MARKET VALUATION METHODS
The estimated fair value amounts of financial instruments presented
have been determined using available market information and valuation
methodologies, primarily discounted cash flow analysis. Such estimates
require considerable judgments in interpreting market data, and changes
in assumptions or estimation methods may significantly affect the fair
value estimates.
7. SHAREHOLDERS' EQUITY (Share Amounts in Thousands)
PREFERRED STOCK
Authorized Class A preferred stock is 600,000 shares without par value
with stated value of $1 per share.
There were 34,269, 35,246, and 35,872 outstanding shares of Series
A ESOP Convertible Class A Preferred Stock issued at $27.50 per share
and held by the employee stock ownership plan at June 30, 1994, 1993
and 1992, respectively. There were 977, 626, and 324 shares converted
into common shares and retired in 1994, 1993, and 1992 respectively.
Each issued share has a liquidation value of $27.50 and is
convertible at the option of the holder into one share of the
Company's common stock.
There were 19,142 shares of Series B ESOP Convertible Class A
Preferred Stock issued to the employee stock ownership plan in
December 1990 at $52.24 per share and are currently outstanding. Each
issued share has a liquidation value of $52.24 and is convertible at
the option of the holder into one share of the Company's common
stock.
At June 30, 1994 there were 200,000 shares of authorized and unissued
Class B preferred stock (non-voting) without par value with stated
value of $1 per share.
COMMON STOCK
Authorized common stock is 2,000,000 shares without par value and with
stated value of $1 per share. Changes in outstanding shares were as
follows:
25
The Procter & Gamble Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share amounts)
Years ended June 30 1994 1993 1992
____________________________________________________________________________________
Shares outstanding beginning of year (excludes
55,521, 55,866 and 55,956 treasury shares) 681,754 678,794 676,179
Purchased for treasury (255) (1,401) (1,270)
Issued for employee plans (includes 1,275,
1,746 and 1,360 treasury shares) 2,849 4,361 3,885
____________________________________________________________________________________
Shares outstanding end of year (excludes
54,501, 55,521 and 55,866 treasury shares) 684,348 681,754 678,794
Under the Company's stock option plans, options have been granted to
key employees to purchase common shares of the Company within a
ten-year term at the market value on the dates of the grants. Stock
option activity was as follows:
Years Ended June 30 1994 1993 1992
______________________________________________________________________________________________
Average Average Average
Shares Price Shares Price Shares Price
______________________________________________________________________________________________
Outstanding at beginning of year 28,497 $34.73 27,822 $30.56 26,820 $25.97
Options granted 3,880 56.81 4,279 51.56 4,616 51.02
Options exercised (1,673) 21.35 (3,380) 21.08 (3,341) 21.34
Options canceled (148) 43.16 (224) 43.94 (273) 38.34
_______________________________________________________________________________________________
Outstanding at end of year 30,556 38.23 28,497 34.73 27,822 30.56
Options exercisable at June 30 26,685 24,255 23,254
There were 6,418, 3,095, and 11,791 shares available for the granting
of options at June 30, 1994, 1993, and 1992, respectively.
ADDITIONAL PAID-IN CAPITAL
Increases in additional paid-in capital resulted from the conversion of
preferred shares and the excess amount realized over the stated value
of common shares issued pursuant to employee stock option and
remuneration plans and amounted to $83, $112 and $99 for the years
ended June 30, 1994, 1993 and 1992, respectively. The transfer to
common shares and related expenses of the two-for-one stock split
reduced additional paid-in capital by $342 in 1992.
CURRENCY TRANSLATION ADJUSTMENTS credited/(charged) to shareholders'
equity amounted to $36, ($211) and $168 during the years ended June 30,
1994, 1993 and 1992, including tax effects of $30, ($1) and $39.
RESERVE FOR EMPLOYEE STOCK OWNERSHIP PLAN DEBT RETIREMENT was reduced
by $49, $46 and $43 during the years ended June 30, 1994, 1993 and 1992
for repayments of the Series A ESOP debt principal.
8. RETIREMENT PLANS
PROFIT SHARING PLANS
The Company maintains defined contribution profit sharing plans which
provide retirement benefits to a significant number of employees.
Amounts credited to these plans were:
Years Ended June 30 1994 1993 1992
_________________________________________________________________________________
Preferred shares of Procter & Gamble stock allocated
at market value $117 $111 $104
Profit sharing expense-cash contributions 157 167 172
Benefits earned by participants 274 278 276
26
The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership
Plan is the largest plan and covers most employees in the United
States. Annual credits to participants' accounts are based on
individual base salary and years of service. The total credited to all
accounts does not exceed 15% of total salaries and wages of
participants. Within this plan, a leveraged employee stock ownership
trust borrowed $1 billion in 1989 and the Company has guaranteed this
debt. The proceeds were used to buy Series A ESOP Convertible Class A
Preferred Stock and shares are allocated each year to individual
accounts.
Principal and interest payments of $117 on the borrowed funds were
paid each fiscal year by the trust from dividends on preferred shares
and cash payments from the Company as follows:
Years Ended June 30 1994 1993 1992
_____________________________________________________________________________________________________
Interest Principal Total Interest Principal Total Interest Principal Total
________ _________ _____ ________ _________ _____ ________ _________ _____
Preferred dividends $22 $49 $71 $26 $46 $72 $30 $43 $73
Company payment 46 -- 46 45 -- 45 44 -- 44
_____________________________________________________________________________________________________
Total debt service 68 49 117 71 46 117 74 43 117
PENSION PLANS
Other employees, primarily outside the U.S., are covered by local
pension or retirement plans. Pension expense included:
Years Ended June 30 1994 1993 1992
____________________________________________________________________________
Benefits earned by participants during the year $ 84 $ 66 $ 57
Interest on projected benefit obligations 97 86 73
Return on plan assets (63) (71) (53)
Net amortizations and other 3 15 (1)
____________________________________________________________________________
Pension expense 121 96 76
Funded plan assets are held in restricted trusts or foundations that
are segregated from the assets of the Company. The assets are held in
stocks, bonds, insurance contracts and other investments within the
limits prescribed by local laws and in line with local investment
practices for pension and retirement plans. Funding policies vary by
country and consider such factors as actuarial reports, tax regulations
and local practices.
Obligations and assets at year-end were:
June 30 1994 1993 1992
______________________________________________________________________________
Accumulated benefit obligation $1,125 $ 870 $ 857
Vested benefit obligation 979 770 760
Net assets at market value 806 690 636
Projected benefit obligation 1,488 1,158 1,126
Unrecognized prior service costs and losses 165 84 162
Accrued pension costs 517 384 328
Benefit obligations were based on a long term rate of return on plan
assets of 9% and a rate of increase in compensation of 6% for all years
presented; the average discount rate was 7.4% for 1994, and 8.0% for
1993 and 1992.
OTHER RETIREE BENEFITS
The Company provides certain health care and life insurance benefits
for substantially all of the Company's domestic employees who become
eligible for these benefits when they meet minimum age and service
requirements. Generally, the health care plans require contributions
from retirees and pay a stated percentage of expenses reduced by
deductibles and other coverages. Retiree contributions change annually
in line with medical cost trends.
27
The Procter & Gamble Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions except per share amounts)
In 1990, The P&G Profit Sharing Trust and Employee Stock Ownership
Plan borrowed $1,000 which is guaranteed and carried as debt by the
Company. The proceeds were used to buy plan assets of 19.142 million
shares of Series B ESOP Convertible Class A Preferred Stock of the
Company for the purpose of partially funding retiree medical benefits.
The fair values of the shares at June 30, 1994 and 1993 were $1,022 and
$1,000. There were also other employee benefit trust assets of $40 and
$21 on June 30, 1994 and 1993. Interest payments on the loan amounted
to $94, $94 and $101 in 1994, 1993 and 1992, with $79 funded each year
by preferred stock dividends and the remainder by Company cash
payments. The preferred stock dividends were presented as a reduction
of interest expense in 1992; beginning in 1993, concurrent with the
adoption of Statement of Financial Accounting Standards (SFAS) No. 106,
Accounting For Postretirement Benefits Other Than Pensions, these
dividends were considered a reduction of benefit expense.
Effective July 1, 1992, the Company implemented SFAS No. 106, which
requires earlier recognition of costs on an accrual basis rather than
the previous cash, or pay-as-you-go, basis. The effect of the
accounting change on prior years, or accumulated benefit obligation,
was $1,422, or $900 after tax, at July 1, 1992. The accumulated benefit
obligation and net liability at year-end were:
ACCUMULATED BENEFIT OBLIGATION AND NET LIABILITY
June 30 1994 1993
_______________________________________________________________
Retirees $ 512 $ 463
Employees eligible to retire 126 186
Other active employees 603 903
______ ______
Accumulated benefit obligation 1,241 1,552
Unrecognized gain/(loss) 293 (80)
Less: plan assets (61) (21)
______ ______
Net liability 1,473 1,451
In 1992, benefit expense was $31. In 1994 and 1993 expenses were:
BENEFIT EXPENSE
Years Ended June 30 1994 1993
_______________________________________________________________
Benefits earned by employees during the year $ 60 $ 59
Interest cost on accumulated benefit obligation 116 113
Return on plan assets (21) --
Net amortization and deferral (79) (90)
______ ______
Sub-total 76 82
Dividends on plan's preferred stock (79) (79)
______ ______
Benefit expense (3) 3
Expense is determined by using preceding year-end rate assumptions as
follows:
1994 1993
_________________________________________________________________
Discount rate 8.0% 8.0%
Assumed rate of return on plan assets 9.0% 9.0%
Initial health care cost trend rate* 11.0% 12.7%
*Assumed at June 30, 1994 to decline gradually to 5% in 2006 and
thereafter. Assumed at June 30, 1993 to decline gradually to 6% in
2008 and thereafter.
The pre-tax effect of a 1% increase in the assumed health care cost
trend rate would increase the accumulated benefit obligations at June
30, 1994 and 1993 by approximately $185 and $243, along with increases
of $33 and $34 in the 1994 and 1993 annual costs.
28
9. INCOME TAXES
Effective July 1, 1992, the Company adopted SFAS #109, Accounting for
Income Taxes. The cumulative effect of the accounting change in prior
years was $25 added tax expense.
The components of earnings before income taxes and prior years'
effects of accounting changes were:
Years Ended June 30 1994 1993 1992
_______________________________________________________________________________
United States $2,216 $ 318 $ 2,166
International 1,130 31 719
_______________________________________________________________________________
Total 3,346 349 2,885
Income tax expenses including prior years' effect of accounting
changes were:
Years Ended June 30 1994 1993 1992
_______________________________________________________________________________
Current tax expense
United States Federal $ 574 $ 635 $ 556
International 298 432 242
Other 67 78 90
_______________________________________________________________________________
Total 939 1,145 888
Deferred tax expense
United States Federal 118 (489) 76
International & other 78 (576) 49
_______________________________________________________________________________
Total 196 (1,065) 125
Deferred Taxes on prior years' effect of accounting
changes -- (497) --
Taxes credited to Shareholders' Equity for the years ended June 30,
1994 and 1993 were $91 and $74.
Taxes generally are provided currently on undistributed earnings of
foreign subsidiaries, except when those earnings are considered to be
reinvested indefinitely ($2,731 at June 30, 1994).
The components of deferred income tax expense were:
Years Ended June 30 1994 1993 1992
_______________________________________________________________________________
Depreciation $ 84 $ 73 $ 77
Provision for restructuring 223 (912) 52
Other (111) (226) (4)
_______________________________________________________________________________
Total 196 (1,065) 125
Deferred tax assets and liabilities included:
June 30 1994 1993
_________________________________________________________________________________________________
Assets Liabilities Total Assets Liabilities Total
______ ___________ _____ ______ ___________ _____
Current deferred taxes
Restructuring reserve $ 274 $ -- $ 274 $ 234 $ -- $ 234
Other 442 -- 442 506 -- 506
______________________________________________________________________________________________
Total 716 -- 716 740 -- 740
Non-current deferred taxes
Depreciation -- (1,173) (1,173) -- (1,133) (1,133)
Restructuring reserve 364 -- 364 623 -- 623
Postretirement benefits 540 -- 540 522 -- 522
Loss carryforwards 282 -- 282 226 -- 226
Valuation reserves (262) -- (262) (226) -- (226)
Other -- (98) (98) -- (195) (195)
______________________________________________________________________________________________
Total 924 (1,271) (347) 1,145 (1,328) (183)
29
The effective income tax rates, excluding prior years' effect of
accounting changes were 33.9%, 22.9% and 35.1% in 1994, 1993 and 1992
compared to the U.S. statutory rate of 35% for 1994 and 34% for 1993
and 1992. In 1993, the effective rate was increased 4.2% by state and
local taxes, and 5.1% by goodwill and other acquisition effects; and
decreased 15.0% by the impact of international rates and credits. In
1992, state and local taxes increased the rate by 1.8%.
10. SEGMENT INFORMATION
The Company's operations are characterized by interrelated raw
materials and manufacturing facilities and centralized research and
administrative staff functions, making any separate profit
determination by product group dependent upon the assumptions
regarding the allocation of common costs. Different assumptions or
physical or organizational arrangements would produce different
results.
Sales between geographic areas and those between business segments
included in net sales are made at prices approximating market and are
eliminated from total net sales. Corporate earnings include interest
income and expense and other general corporate income and expense.
Corporate assets include primarily cash and cash equivalents.
Laundry and Cleaning Products include detergents, hard surface
cleaners and fabric conditioners. Personal Care Products include
personal cleansing products, deodorants, hair care products, skin care
products, cosmetics, oral care products, paper tissue products,
disposable diapers, digestive health products, respiratory care
products, and other pharmaceuticals. Sales of disposable diapers
represented approximately 15%, 15% and 16% of consolidated sales in
1994, 1993 and 1992 respectively. Food and Beverage Products include
shortening and oil, snacks, prepared baking mixes, peanut butter,
coffee, and juice products. Products of the Laundry and Cleaning,
Personal Care, and Food and Beverage segments are distributed
primarily through grocery stores and other retail outlets. Pulp and
Chemicals are sold direct to customers and through jobbers. Net sales
of Pulp and Chemicals include intersegment sales amounting to $146 in
1994, $309 in 1993 and $449 in 1992.
GEOGRAPHIC AREAS
International
__________________________________
Canada, Asia,
Latin America
Years Ended June 30 United States Europe and Other Total Corporate Total
____________________________________________________________________________________________________________
Net Sales 1992 $15,579 $8,371 $6,211 $14,582 $ (799) $29,362
1993 15,362 9,206 6,650 15,856 (785) 30,433
1994 15,019 8,671 7,387 16,058 (781) 30,296
____________________________________________________________________________________________________________
Net Earnings Before 1992 1,461 362* 263 625 (214) 1,872
Prior Years' Effect 1993** 415 28 59 87 (233) 269
of Accounting Changes 1994 1,691 424 343 767 (247)*** 2,211
____________________________________________________________________________________________________________
Assets 1992 10,811 6,329 4,060 10,389 2,825 24,025
1993 10,027 5,471 4,641 10,112 4,796 24,935
1994 9,948 5,535 5,153 10,688 4,899 25,535
<FN>
*Includes a 1992 gain of $61 on the sale of an Italian coffee business.
<FN>
**Includes 1993 after-tax provisions for restructuring in the United States $1,138; Europe $314; Canada, Asia,
Latin America and Other - $266; and Corporate - $28. Total - $1,746.
<FN>
***Includes a 1994 after-tax charge of $102 to close out the written option portion of two leveraged interest rate
swaps.
30
BUSINESS SEGMENTS
Product Groups
_______________________________________________
Laundry and Personal Food and Pulp and
Years Ended June 30 Cleaning Care Beverage Chemicals Corporate Total
__________________________________________________________________________________________________________
Net Sales 1992 $ 9,531 $15,142 $3,709 $1,429 $ (449) $29,362
1993 10,061 16,238 3,271 1,172 (309) 30,433
1994 9,762 16,640 3,290 750 (146) 30,296
____________________________________________________________________________________________________________
Earnings Before Income 1992 1,278 1,651 229* 74 (347) 2,885
Taxes & Prior Years' Effect 1993** 837 117 (195) (59) (351) 349
of Accounting Changes 1994 1,483 1,946 371 26 (480)*** 3,346
____________________________________________________________________________________________________________
Assets 1992 4,399 12,630 2,492 1,679 2,825 24,025
1993 4,422 12,811 2,173 733 4,796 24,935
1994 4,690 13,184 2,054 708 4,899 25,535
____________________________________________________________________________________________________________
Capital 1992 467 1,125 151 143 25 1,911
Expenditures 1993 575 1,134 107 80 15 1,911
1994 588 1,060 136 40 17 1,841
____________________________________________________________________________________________________________
Depreciation, 1992 215 593 129 108 6 1,051
Depletion and 1993 233 675 144 78 10 1,140
Amortization 1994 248 720 113 40 13 1,134
<FN>
*Includes a 1992 gain of $103 on the sale of an Italian coffee business.
<FN>
**Includes 1993 provisions for restructuring of Laundry and Cleaning - $559; Personal Care - $1,539; Food and
Beverage - $450; Pulp and Chemicals - $123; and Corporate - $34. Total - $2,705.
<FN>
***Includes a 1994 charge of $157 to close out the written option portion of two leveraged interest rate swaps.
11. QUARTERLY RESULTS (UNAUDITED)
Millions of Dollars Except Per Share Amounts Quarter Ended Total
____________________________________________________________________________________
Sept. 30 Dec. 31 Mar. 31 Jun. 30 Year
_______________________________________________________
Net sales 1993-94 $7,564 $7,788 $7,441 $7,503 $30,296
1992-93 7,879 7,839 7,350 7,365 30,433
Operating income 1993-94 1,085 1,023 923 549 3,580
1992-93 720 914 767 (1,945) 456
Earnings/(Loss) before income 1993-94 1,054 1,005 726 561 3,346
taxes & prior years' effect of 1992-93 657 882 747 (1,937) 349
accounting changes
*Net earnings 1993-94 670 653 482 406 2,211
1992-93 (515) 576 502 (1,219) (656)
Per common share:
*Net earnings/(loss) before 1993-94 .95 .92 .66 .56 3.09
prior years' effect of 1992-93 .57 .81 .70 (1.83) .25
accounting changes
*Net earnings/(loss) 1993-94 .95 .92 .66 .56 3.09
1992-93 (.79) .81 .70 (1.83) (1.11)
*Net earnings/(loss) 1993-94 .89 .85 .64 .53 2.91
assuming full dilution 1992-93 (.71) .76 .66 (1.67) (.96)
<FN>
*1992-93 includes a restructuring charge of $200 after tax in September and $1,546 after tax in June,
and a $925 charge for the prior years' effect of accounting changes in the September quarter.
31
FINANCIAL REVIEW 1979-1994
Years Ended June 30 (Millions of Dollars Except Per Share Amounts)
1979 1980 1981 1982 1983 1984
____________________________________________________________________________________________
Net Sales $9,329 $10,772 $11,416 $11,994 $12,452 $12,946
Operating Income $1,044 $ 1,123 $ 1,201 $ 1,365 $ 1,529 $ 1,387
Net Earnings $ 575 $ 640 $ 593** $ 777 $ 866 $ 890
Net Earnings Per Common Share $ .87 $ .97 $ .90** $ 1.17 $ 1.30 $ 1.34
Net Earnings as Percent of
Net Sales 6.2% 5.9% 5.2%** 6.5% 7.0% 6.9%
Dividends Per Common Share $ .388 $ .425 $ .475 $ .513 $ .563 $ .60
<FN>
*Includes in 1987 a pre-tax charge of $805 for restructuring reserve and in 1993 a pre-tax charge
of $2,705 for a restructuring reserve.
<FN>
**Includes in 1981 an extraordinary charge of $75 ($.12 per common share) associated with the
suspension of sale of Rely tampons; in 1987, a charge of $459 ($.68 per common share) for a
restructuring reserve; in 1993, a charge of $1,746 ($2.57 per share) for restructuring reserves
and a charge for the prior years' effect of accounting changes of $925 ($1.36 per common share);
and in 1994, a charge of $102 ($.15 per common share) to write-off the option portion of two
interest rate swaps.
Net earnings and dividends per common share have been adjusted for the stock splits in 1983,
1989 and 1992.
ANALYSIS AND DISCUSSION
1994 -- Worldwide net earnings were $2,211 million including a $102
million after-tax charge for writing off the option portion of two
interest rate swap contracts. In the previous year, an after-tax loss
of $656 million was recorded due to two unusual items: restructuring
reserves totaling $1,746 million after-tax, and the prior years'
effects of two accounting changes amounting to $925 million. Excluding
these unusual items in both years, net earnings would have been $2,313
million in 1994, up 15% over earnings of $2,015 million in the
previous year. Foreign exchange rates reduced net earnings by less
than 3%.
Net sales for the year just ended were $30.3 billion, about even
with sales of $30.4 billion in the previous year. Growth in unit
volume increased net sales by 5%. This increase was offset by less
favorable foreign exchange rates, 4%, and the divestiture of our pulp
and 100% juice businesses and lower selling prices, 1%.
Excluding acquisitions and divestitures, worldwide unit volumes were
up 5%, 4% in the United States and 7% in International. Including
acquisitions and divestitures, worldwide unit volume would be up 5%,
with U.S. up 1% and International up 10%.
Cost of products sold as a percentage of net sales was 57.3%, which
compares with 58.1% for the preceding year. Restructuring savings
contributed .2% of this .8% decline as plant sourcing savings from
lower depreciation and enrollment reductions are beginning to be
realized.
Marketing, administrative and other operating expenses were 30.9% of
sales, down from 31.5% in the previous year which can entirely be
ascribed to restructuring savings, primarily from enrollment
reductions.
Operating income, excluding restructuring reserves in the prior
year, was up 13%, and pretax operating margins were 11.8% compared to
10.4% a year ago.
Interest expenses decreased $70 million from the previous year due
to lower borrowing rates and lower debt outstanding. Other
income/expense, net decreased $197 million from the prior year
reflecting the $157 million loss on two interest swaps this past year
and $41 million one-time profit in the previous year from the sale of
businesses.
The effective tax rate was 33.9% for 1994, which compares with 22.9%
for 1993. The 1993 restructuring reserve reduced pre-tax earnings
significantly and accentuated the percent impact of certain cost
elements not tax affected at the 34% U.S. statutory rate. Excluding
the restructuring reserve, the 1993 effective tax rate would have been
34.0%.
32
The Procter & Gamble Company and Subsidiaries
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
___________________________________________________________________________________________________________________________
$13,552 $15,439 $17,000 $19,336 $21,398 $24,081 $27,026 $29,362 $30,433 $30,296
$ 976 $ 1,305 $ 807* $ 1,796 $ 2,039 $ 2,302 $ 2,702 $ 2,867 $ 456* $ 3,580
$ 635 $ 709 $ 327** $ 1,020 $ 1,206 $ 1,602 $ 1,773 $ 1,872 $ (656)** $ 2,211**
$ .95 $ 1.05 $ .47** $ 1.49 $ 1.78 $ 2.25 $ 2.46 $ 2.62 $ (1.11)** $ 3.09**
4.7% 4.6% 1.9%** 5.3% 5.6% 6.7% 6.6% 6.4% -- 7.3%**
$ .65 $ .656 $ .675 $ .688 $ .75 $ .875 $ .975 $ 1.025 $ 1.10 $ 1.24
In the following year-to-year comparison of geographic and business
segments, the previous year's earnings have been adjusted upward to
exclude the cost impact of restructuring reserves and all volume
comparisons exclude the impact of acquisitions and divestures to more
comparably present on-going results of the year just ended with those
of the prior year.
In the United States, after-tax earnings were up 9% versus the
previous year. Net profit margins improved to a record 11.3% with
restructuring benefits and other cost improvements contributing to the
increase over the previous year's 10.1% margin. Unit volume increased
4%, while net sales declined 2%, primarily due to the divestiture of
the pulp and 100% juice businesses and, to a lesser degree, lower
pricing.
Total International after-tax earnings were up 15% over the previous
year's results with net profit margins improving by 14%, from 4.2% to
4.8%. International unit volume increased 7%, and net sales were up
just 1% from the prior year due primarily to the impact of exchange
rates.
Net earnings in Europe were up 24% on a unit volume gain of 5%
primarily due to lower product cost. Net sales were down 6% due to
exchange rates. Excluding exchange effects, sales in Europe would have
been up 5%. In the balance of International, net earnings were up 6%
on a unit volume increase of 9%. Net sales were up 11%.
Worldwide laundry and cleaning products earnings were up 6% on unit
volume growth of 3%, primarily in the U.S. Unit shipment increases in
the global laundry and fabric conditioner categories accounted for the
largest increases in unit volumes shipped, while hard surface cleaners
led the U.S. in the percentage increase of units shipped. Net sales
were down 3% due to exchange rate effects and lower pricing.
Personal Care earnings were up 18% on an 8% unit volume increase.
The global hair care business contributed about 50% of the unit volume
growth largely due to the growth of Pantene Pro-V and Vidal Sassoon.
The Personal Care net sales increase of 2% was depressed by the impact
of exchange rates and lower pricing.
Food and Beverage earnings were up 45% to a record $371 million,
importantly due to the full year effect of the 100% juice divestiture
in fiscal 1993. The profit margin was 11%, in line with the Company
average. Unit volume was up 1% due largely to the growth of Sunny
Delight juice in the U.S. and Pringles worldwide.
33
ANALYSIS AND DISCUSSION (continued)
The recent crop freezes in Brazil will reduce the supply of coffee
which has resulted in higher green coffee bean prices. The freeze did
not negatively impact earnings in the year just ended. However, higher
selling prices could contract the size of the coffee market in 1994/95
and beyond. Although this could negatively impact coffee profits, the
effect is not expected to be material to the Company's earnings.
Pulp and Chemicals earnings and sales declined substantially due to
the sale of all but the timberland portion of our pulp business. This
resulted in a total decline of $38 million in earnings and $422
million in sales. The sale of the timberlands was concluded in July
1994.
The $163 million decline in pre-tax earnings in the Corporate
segment is primarily due to the previously discussed $157 million
pre-tax loss from closing the option portion of two interest rate
swaps.
1993 -- Worldwide, the Company had a $656 million after-tax loss due
to two unusual items, the restructuring reserves and accounting
changes described below:
- A $1,746 million after-tax provision for restructuring was
established including (1) $1,546 million in the fourth quarter
to cover worldwide manufacturing consolidations and an overhead
reduction initiative through organizational restructuring under
the Strengthening Global Effectiveness (SGE) program; and (2)
an after-tax reserve of $200 million in September 1992 for
divestiture of the 100% juice business.
- Two new mandatory accounting standards covering retiree health
and life insurance benefits, and deferred taxes, SFAS No.106
and No.109, respectively, were retroactively adopted effective
July, 1992. The current and prior years' impacts on net
earnings were $63 million and $925 million, respectively.
Excluding the restructuring reserves and the prior years' effect of
accounting changes, net earnings would have been $2,015 million. Also,
excluding the $63 million current year effect of accounting changes,
1993 net earnings would have been $2,078 million up 11% from the
previous year.
Net sales exceeded $30 billion for the first time and were up 4%
compared with the previous year. Worldwide unit volume grew 3% led by
a 10% increase in the International businesses. United States unit
volume excluding the divested juice and pulp business was up only 1%
for the full year, but improved during each quarter of the year with
volume up 6% in the April-June quarter.
Worldwide cost of products sold as a percentage of net sales was
58.1% which compared with 59.0% for the previous year. Marketing,
administrative and other expenses as a percentage of net sales was
31.5%, up from 31.2% in the previous year.
Operating Income excluding the restructuring provision was up 10%
from the previous year, and the operating margin was 10.4% in 1993, up
from 9.8% and 10.0% in the previous two years.
Interest expense increased $42 million. This included $79 million
from preferred dividends no longer reducing interest expense for
accounting purposes beginning in 1993, partially offset by $37 million
lower interest expense primarily from lower borrowing rates. Other
income/expense, net decreased $83 million, primarily due to a $103
million gain on the sale of the Italian coffee business in the
previous year.
The unusually low 22.9% effective tax rate in 1993 was due to the
pre-tax restructuring reserve reducing before tax earnings to a
relatively small amount which accentuated the percentage impact of
certain cost elements not tax affected at the 34% U.S. statutory rate.
Excluding the restructuring reserve, the 1993 effective tax rate would
have been 34.0% which compares with 35.1% and 34.0% for the previous
two years.
34
The Procter & Gamble Company and Subsidiaries
In the following year-to-year comparisons of geographic and business
segments, 1993 earnings have been adjusted upward to exclude the cost
impact of the restructuring reserves and the current and prior years'
effect of accounting changes to make the ongoing results for 1993 and
1992 more comparable.
In the United States, after-tax earnings were $1,558 million, up 7%
from the previous year. The net profit margin for the year was 10.1%,
the highest level achieved over the past decade and up from 9.4% in
1992. Notable margin improvements were realized by laundry and
cleaning products and food and beverage products, primarily coffee and
peanut butter.
International after-tax earnings were $681 million, up 9% over the
previous year. International again established a unit volume record,
with double-digit increases in Latin America, Asia-Pacific, European
paper and citrus products, and the Middle East-Africa-General Export
businesses.
Worldwide laundry and cleaning earnings were $1,389 million, up 9%
versus the previous year. The profit margin was 13.8%, up slightly
from 13.4% in the previous year. Segment sales grew 6% to $10 billion
on an 8% increase in unit volumes, led by double digit gains in
International.
Personal care earnings were virtually the same as the previous year.
Lower domestic diaper earnings offset earnings growth elsewhere in the
segment. Segment sales increased 7% to $16 billion in 1993.
International sales were up 13% and broadly based. U.S. sales were up
1% with lower diaper volumes slowing the growth in domestic sales.
Food and beverage segment earnings were up 98% to $249 million
versus $126 million in the previous year, excluding the one-time 1992
gain from sale of the Italian coffee business. The profit margin more
than doubled, increasing to 7.6% in 1993 due primarily to the
divestiture of the 100% juice business. Sales were down $438 million,
due to a 7% decline in shipment volume, primarily reflecting the
divestiture of the 100% juice business.
Pulp and chemicals earnings were down $12 million to $62 million and
sales were down 18% with the declines largely attributable to the
divestiture of the pulp business in 1993.
During the year, the Company entered into agreements to dispose of
most of its commercial pulp business. Although the pulp business has
been profitable, Company strategy no longer recognizes an advantage to
vertical integration of the pulp supply for its consumer paper brands.
These assets have been sold to focus efforts on and to fund the growth
of the Company's consumer businesses. The sales, which include pulp
plants and timberlands, are expected to bring a total price of $1.2
billion, including $.7 billion received in 1993. The impact on 1993
earnings was not material, and the impact from the remaining sales is
not expected to be material.
FINANCIAL CONDITION
JUNE 30, 1994
The Company's balance sheet remains strong. Cash and cash equivalents
totaled $2,373 million, an increase of $51 million from the previous
year. Cash flow from operating activities reached a record $3,649
million up $311 million over the previous year, despite the negative
cash impact of executing the projects contained in the 1993
restructuring reserves. Charges in 1994 to the restructuring reserve
established in June 1993 totaled $600 million of which $360 million
impacted cash primarily due to separation costs. Increased earnings
and continuing reductions in working capital were key factors in
offsetting these charges.
Total debt excluding exchange effects decreased $664 million from
the previous year-end, reflecting reductions in both short term and
long term debt.
Accrued environmental liabilities for on-site remediation and
certain settlement costs at June 30, 1994 and 1993 amounted to $127
million and $133 million respectively. At both year-
35
The Procter & Gamble Company and Subsidiaries
FINANCIAL CONDITION (continued)
ends, the majority of these liabilities were anticipated exit costs
accrued in the 1993 restructuring reserve and related to the closing
of manufacturing facilities. In addition, the Company is involved in
clean-up efforts at off-site Superfund locations, many of which are
still in the preliminary stages of investigation. The related off-site
liabilities for these efforts at June 30, 1994 and 1993 were $8
million and $9 million respectively, with a high end of the range at
June 30, 1994 of $12 million. Remediation and settlement expenses at
all sites were not material during the past fiscal year.
Regarding investing activities, capital expenditures were
approximately the same level for each of the past three years and were
$1.8 billion and $1.9 billion for 1994 and 1993 respectively. A
similar level of capital expenditures is anticipated in the coming
year.
Dividends of $1.24 per common share were paid during the past year,
up from $1.10 and $1.025 per share in the previous two years. In July
1994, the Company announced a 13% increase in the annual rate from
$1.24 to $1.40 per common share, effective with the quarterly dividend
paid in mid-August to shareholders of record on July 22, 1994. This
marks the 39th consecutive fiscal year of increased common share
dividend payments.
The effects of inflation have not been a significant factor on
earnings growth in recent years.
In July 1994, the Company completed the acquisition of the European
tissue business of Vereinigte Papierwerke Schickedanz AG which is
primarily centered in Germany. This includes Tempo, the leading
European paper handkerchief brand and Bess, the leading bath tissue
brand in Germany. Also in July 1994, the Company announced the planned
acquisition of the Giorgio Beverly Hills Inc. prestige fragrance
business from Avon Products, Inc. This included the Giorgio, Red and
Wings fragrances for men and women. Both of these acquisitions, with a
purchase price totaling about $600 million, are being financed
primarily from available cash funds. Also, in July 1994 the Company
sold its timberland properties and thereby completed the divestiture
of the commercial pulp business. As previously indicated, this
divestiture did not have a material impact on earnings.
JUNE 30, 1993
Cash and cash equivalents were $2,322 million, an increase of $546
million over the previous year-end. In addition, marketable securities
of $306 million were added to the short-term investment portfolio
during the year and carried on the balance sheet as a current asset.
Cash flow from operating activities amounted to $3,338 million, up
$313 million from the previous year. Reductions in working capital
accounted for $143 million of this increase, and included a $97
million reduction in inventories.
The increase of $611 million in other assets on the balance sheet
was due to increases in joint venture investments and increased
receivables from asset sales.
In fiscal 1993, the Company established restructuring reserves of
$2.7 billion, including $2.4 billion for manufacturing consolidations
and other organizational restructuring. Of the latter amount, $1.2
billion related to non-cash charges, primarily the carrying value of
anticipated disposals of fixed assets from manufacturing plant
closings. The remaining $1.2 billion is anticipated cash outlays,
primarily employee separations and costs related to separation
partially offset by cash anticipated from asset disposals. These
outlays will continue over the next several years and are expected to
be funded from cash generated from operations.
The Procter & Gamble Company
SHAREHOLDER INFORMATION
COMMON STOCK PRICE RANGE AND DIVIDENDS
Price Range Dividends
_____________________________________________ __________________
1993-94 1992-93 1993-94 1992-93
_____________________________________________ __________________
Quarter Ended High Low High Low
_____________________________________________ __________________
September 30 $53.63 $45.25 $51.50 $45.88 $.310 $.275
December 31 58.88 46.88 55.75 47.50 .310 .275
March 31 60.00 51.25 54.38 49.00 .310 .275
June 30 58.63 51.75 52.38 45.25 .310 .275
____________________________________________________________________
SHAREHOLDER RECORDS
Shareholder records are maintained by the Company. Questions
concerning shareholder accounts, stock transfer or name changes should
be directed to the Shareholder Services Department address shown at
right or by calling 1-800-742-6253.
Stock certificates are valuable and should be safeguarded since
replacement takes time and requires a service charge to the
shareholder. If a stock certificate is lost, stolen or destroyed,
notify the Shareholder Services Department promptly.
Please also notify Shareholder Services in writing of any address
change. This will help prevent returned dividend checks and other
financial mailings.
DUPLICATE MAILINGS
Financial reports must be mailed for each separate account unless you
instruct us otherwise. If you wish to help us reduce costs by
discontinuing multiple mailings to your address, please contact
Shareholder Services.
DIVIDEND REINVESTMENT
A Dividend Reinvestment Plan is available to shareholders of record.
If interested, contact the Shareholder Services Department.
SHAREHOLDERS' MEETING
The next annual meeting of the shareholders will be held on Tuesday,
October 11, 1994, at the Company's General Offices, Two Procter &
Gamble Plaza, Cincinnati, OH 45202.
TRANSFER AGENT
The Procter & Gamble Company
Shareholder Services Department
P.O. Box 599
Cincinnati, Ohio 45201-0599
REGISTRAR
PNC Bank, Ohio, N.A.
P.O. Box 1198
Cincinnati, Ohio 45201-1198
EXCHANGE LISTING
New York, Cincinnati, Amsterdam, Paris, Basle, Geneva, Lausanne,
Zurich, Frankfurt, Antwerp, Brussels, Tokyo.
SHAREHOLDERS OF COMMON STOCK
There were 198,078 Common Stock shareholders of record, including
participants in the Dividend Reinvestment Plan and the Stock
Investment Program, as of July 22, 1994.
FORM 10-K
Beginning in October 1994, shareholders may obtain a copy of the
Company's 1994 report to the Securities and Exchange Commission on
Form 10-K by sending a request to Mr. Robert J. Thompson, Manager,
Shareholder Services, at the above Shareholder Services address.
COMPANY INFORMATION
Copies of P&G's global Environmental Report, corporate contributions
and diversity program reports, corporate brochure and fact sheets are
available by writing to the Shareholder Services address above.
This report printed on recycled paper made from 50% recycled fiber
including 10% post-consumer waste.