1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Registration numbers 33-9495, 33-56218 and 33-59125 A. Full title of the plan: THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN B. Name of the issuer of the securities held pursuant to the plan and the address of its principal executive office: The Gillette Company Prudential Tower Building Boston, MA 02199 2 FINANCIAL STATEMENTS OF THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN The following audited financial statements with independent auditors' report thereon are enclosed with this report: 1. Statements of Net Assets Available for Plan Benefits as of December 31, 1998 and 1997. 2. Statements of Changes in Net Assets Available for Plan Benefits for each of the years in the two -year period ended December 31, 1998. EXHIBIT 23.2 Independent Auditor's Consent SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Savings Plan Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN By ROBERT E. DICENSO Robert E. DiCenso Date: June 29, 1999 3 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Financial Statements December 31, 1998 and 1997 With Independent Auditors' Report Thereon 4 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Financial Statements December 31, 1998 and 1997 Table of Contents Page(s) ------- Independent Auditors' Report 1 Statements of Net Assets Available for Plan Benefits 2 Statements of Changes in Net Assets Available for Plan Benefits 3 Notes to Financial Statements 4-17 Note: Supplemental schedules required by the Employee Retirement Income Security Act of 1974, as amended (ERISA), have not been included due to their inclusion in master trust information filed with the Department of Labor for The Gillette Company Savings Plan Trust. 5 INDEPENDENT AUDITORS' REPORT The Savings Plan Committee The Gillette Company: We have audited the statements of net assets available for plan benefits of The Gillette Company Employees' Savings Plan as of December 31, 1998 and 1997, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of The Gillette Company Employees' Savings Plan at December 31, 1998 and 1997, and the changes in net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. May 21, 1999 1 6 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Statements of Net Assets Available for Plan Benefits December 31, 1998 and 1997 1998 1997 -------------- ------------- Assets: Investment in the Savings Plan Trust $2,331,576,711 2,163,135,513 -------------- ------------- Net assets available for plan benefits $2,331,576,711 2,163,135,513 ============== ============= See accompanying notes to financial statements. 2 7 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Statements of Changes in Net Assets Available for Plan Benefits Years ended December 31, 1998 and 1997 1998 1997 --------------- --------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust $ 33,550,314 446,036,833 Contributions: Employee contributions 49,713,107 47,123,387 Employer contributions 18,585,652 17,481,384 Transfer of assets from Duracell Inc. Thrift Plan 235,469,789 -- --------------- --------------- Total additions 337,318,862 510,641,604 --------------- --------------- Deductions from net assets attributed to: Benefit payments (168,706,201) (129,979,418) Forfeitures (171,463) (120,065) --------------- --------------- Total deductions (168,877,664) (130,099,483) --------------- --------------- Net increase in assets 168,441,198 380,542,121 Net assets available for plan benefits: Beginning of year 2,163,135,513 1,782,593,392 --------------- --------------- End of year $ 2,331,576,711 2,163,135,513 =============== =============== See accompanying notes to financial statements. 3 8 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (1) DESCRIPTION OF THE PLAN The Gillette Company Employees' Savings Plan (the "Plan") is a defined contribution plan sponsored by The Gillette Company (the "Company"). The following provides only general information and participants should refer to the Plan document for a more complete description of the Plan's provisions. (a) GENERAL The Plan is a defined contribution plan subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Effective January 1, 1993 regular employees of the Company and its participating subsidiaries became eligible to join the Plan on date of hire. (b) PARTICIPANT CONTRIBUTIONS Eligible employees may voluntarily contribute from 2% to 10% of their compensation as matched savings, and from 1% to 5% of their compensation as unmatched savings. All contributions must be in even 1% increments. All matched savings contributed by an employee are divided equally between tax deferred and taxed savings. Unmatched savings may be designated by an employee to be either tax deferred or taxed, but not both. Tax deferred contributions made by an employee in any plan year may not exceed the annual limit set by law, which was $10,000 and $9,500 for 1998 and 1997, respectively. (c) EMPLOYER CONTRIBUTIONS For all employee contributions designated as matched savings, the Company will contribute $1 for every $2 contributed by the employee. All matching contributions provided by the Company are invested in the Gillette Company Stock Fund. (d) VESTING Participants are immediately vested in their own employee contributions plus the actual earnings thereon. Matching contributions from the Company vest after the participant has completed the earliest of five years of service, two years from date of entry into the Plan, or the attainment of age 65. Participants are also 100% vested in the Company contributions credited to their accounts upon death, retirement, total and permanent disability, or layoff for lack of work when it is not probable that the participant will be recalled to work within one year of the layoff. (e) PARTICIPANTS' ACCOUNTS A separate account is established for each participant at the time of enrollment in the Plan. The balance in each account is invested, in accordance with the directions given by the participant, in one or more of the following Funds: Gillette Company Stock Fund Invests primarily in shares of The Gillette Company common stock. (Continued) 4 9 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 Fixed Income Fund Seeks to preserve principal as well as generate interest income through investment in high quality short and intermediate term investment contracts as well as other instruments issued by insurance companies and banks. Fidelity Retirement Government Money Market Portfolio Seeks to keep invested principal stable while generating current interest or income by investing in high quality money market instruments issued or guaranteed by the U.S. government or its agencies. Fidelity Magellan Fund Seeks long-term capital appreciation by investing primarily in common stocks and other securities of all types of domestic and international companies in all industries. Fidelity U.S. Equity Index Portfolio Seeks to provide investment results that correspond to a recognized index of stock market performance, and invests primarily in the common stocks of the companies that make up the designated stock index. Fidelity Growth Company Fund Seeks long-term capital appreciation by investing primarily in securities of domestic and foreign growth-oriented companies. INVESCO Total Return Fund Seeks to provide high total return through capital growth and current income by investing in stocks and in fixed and variable income securities. Fidelity Diversified International Fund Seeks capital growth by investing primarily in equity securities of companies located outside the U.S. Seeks stocks that are undervalued compared to industry norms in their countries. Fidelity U.S. Bond Index Fund Invests in investment grade (medium to high quality) or above with maturities of at least one year. Fidelity Growth & Income Fund Seeks high total return through a combination of current income and capital appreciation. Invests primarily in U.S. and foreign stocks. Fidelity Emerging Markets Fund Seeks capital appreciation from emerging markets around the world. Each of the Funds may also hold a portion of its assets in short-term investments in order to meet liquidity needs for transfers, loans, and withdrawals. (Continued) 5 10 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (f) PARTICIPANT LOANS The maximum loan available to each participant is the lesser of (1) $50,000 reduced by the highest outstanding loan balance due from the participant during the preceding twelve months, or (2) 50% of the participant's vested account balance, reduced by the current outstanding loan balance due from the participant. The minimum loan amount available to participants is $500. Each loan shall bear interest at a rate determined by the Savings Plan Committee. Repayment of the loan must be made over a period not to exceed five years. (g) PLAN EARNINGS As of the close of each business day, the Plan trustee is responsible for determining the fair market value of each of the investment options, which would include all accrued earnings. The increase or decrease in the fair market value of each investment fund since the preceding business day is allocated among the participant accounts invested in each fund based on the proportionate number of shares or units of the fund held by each participant at the close of the preceding business day. With respect to the Gillette Company Stock Fund, the trustee is responsible for determining the participants' accounts entitled to receive each quarterly dividend and the number of shares to be credited to each account, as of the quarterly ex-dividend date. On the dividend payment date, the trustee also makes all necessary adjustments to each participant account to reflect any differences between the value of such Company stock credited to participants' accounts and the actual purchase and sales price of such shares, along with any interest or other income earned by the Fund since the preceding dividend payment date. Such adjustments are included in the dividend credited to participants' accounts. (h) BENEFIT PAYMENTS Upon termination of employment, the participant or his or her surviving spouse or beneficiary, will receive a lump sum distribution of the participant's vested account balance, or if the account balance exceeds $5,000 at such time, he/she may elect to defer payment or receive periodic installments. If the termination of employment is due to retirement, total and permanent disability or death, a participant (or surviving spouse) may also elect to have the proceeds of the distribution used to purchase an annuity contract for his/her benefit. Early withdrawals may also be made in the event of financial hardship and other circumstances, based upon special guidelines detailed in the Plan documents. (i) FORFEITURES Forfeitures by Plan participants are used to reduce Company contributions. (Continued) 6 11 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF ACCOUNTING The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from those estimates. The accompanying financial statements are presented on the accrual basis of accounting. Benefits payable at year end are not accrued for as they are considered to be a component of the net assets available for plan benefits. (b) INVESTMENTS Investments are allocations of the assets of The Gillette Company Master Savings Plan Trust ("Savings Plan Trust") based upon the proportionate interest of the Plan in the Savings Plan Trust. Investments of the trust are stated at fair value, which for shares of Company stock held in the trust is defined as the composite closing price of the stock on the New York Stock Exchange. Guaranteed investment contracts and synthetic investment contracts are valued at contract value. The fair value for all other investments is determined daily by the trustee on a per share basis using security prices quoted on national exchanges, and amortized cost in the case of any short-term and money market securities held. Participant notes receivable are valued at cost, which approximates fair value. Security transactions received prior to 4:00 pm Eastern time by Fidelity are recognized on that business day. Transactions received after 4:00 pm Eastern time are valued as of the next business day. Interest income is recorded on the accrual basis and dividend income is recorded on the ex-dividend date. Net appreciation (depreciation) in the fair value of investments includes both realized and unrealized gains and losses. The Savings Plan Trust's investments in guaranteed and synthetic investment contracts are valued at contract value which approximates fair value. Contract value represents contributions made under the contract plus interest at the contract rate. The crediting interest rate is variable for the synthetic contracts and is reset quarterly based upon the fair value of the underlying securities. The crediting interest rate is fixed for guaranteed contracts. The average yield for the year ended December 31, 1998 is 6.40% and the crediting interest rate as of December 31, 1998 is 6.19% for these investment contracts. (c) PAYMENT OF BENEFITS Benefits are recorded when paid. (Continued) 7 12 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (3) FUNDING POLICY The Company's funding policy is to make contributions to the Plan in accordance with the manner described in note 1. (4) PLAN TERMINATION The Company expects the Plan to continue indefinitely, but reserves the right to amend or terminate the Plan at its discretion. If the Plan is terminated or if contributions are completely discontinued, each participant's interest in that portion of his or her account balance attributable to Company contributions shall become fully vested. Upon termination of the Plan, the Trust may continue in existence at the direction of the Board of Directors of the Company, subject to the provisions of the Plan and the Trust agreement, or the Trust may be terminated and the assets distributed to participants. (Continued) 8 13 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements, Continued (5) CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1998 FIDELITY RETIREMENT GILLETTE GOVERNMENT COMPANY FIXED MONEY FIDELITY STOCK INCOME MARKET MAGELLAN FUND FUND PORTFOLIO FUND --------------- ------------ ----------- ------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust $ (51,898,771) 20,681,897 914,554 15,699,499 Contributions: Employee contributions 29,401,274 3,648,815 525,388 4,465,169 Employer contributions 18,585,652 -- -- -- Transfer of assets from Duracell Inc. Thrift Plan 34,167,806 40,444,609 834,060 37,965,425 --------------- ------------ ----------- ------------- Total additions 30,255,961 64,775,321 2,274,002 58,130,093 Deductions from net assets attributed to: Benefit payments (88,497,123) (52,366,984) (5,889,927) (3,911,054) Forfeitures (171,463) -- -- -- --------------- ------------ ----------- ------------- Total deductions (88,668,586) (52,366,984) (5,889,927) (3,911,054) Net increase (decrease) prior to interfund transfers (58,412,625) 12,408,337 (3,615,925) 54,219,039 Net interfund transfers in (out): Loans issued (9,504,386) (1,990,504) (137,092) (1,061,351) Loans repaid 10,015,645 1,396,543 159,538 1,178,208 Other transfers (72,543,682) 36,752,749 13,316,911 3,482,295 --------------- ------------ ----------- ------------- (72,032,423) 36,158,788 13,339,357 3,599,152 Net increase (decrease) (130,445,048) 48,567,125 9,723,432 57,818,191 Net assets available for plan benefits: Beginning of year 1,549,661,593 334,260,831 10,268,170 45,900,999 --------------- ------------ ----------- ------------- End of year $ 1,419,216,545 382,827,956 19,991,602 103,719,190 =============== ============ =========== ============= FIDELITY U.S. FIDELITY EQUITY GROWTH INDEX COMPANY PORTFOLIO FUND ------------ ------------ Additions to net assets attributed to: Net investment income from the Savings Plan Trust 25,972,224 10,563,466 Contributions: Employee contributions 3,133,989 3,854,165 Employer contributions -- -- Transfer of assets from Duracell Inc. Thrift Plan 67,858,802 -- ------------ ------------ Total additions 96,965,015 14,417,631 Deductions from net assets attributed to: Benefit payments (6,217,745) (3,853,017) Forfeitures -- ------------ ------------ Total deductions (6,217,745) (3,853,017) Net increase (decrease) prior to interfund transfers 90,747,270 10,564,614 Net interfund transfers in (out): Loans issued (684,864) (607,246) Loans repaid 482,671 620,192 Other transfers 5,880,572 (4,821,617) ------------ ------------ 5,678,379 (4,808,671) Net increase (decrease) 96,425,649 5,755,943 Net assets available for plan benefits: Beginning of year 89,336,684 41,376,961 ------------ ------------ End of year 185,762,333 47,132,904 ============= ============ (Continued) 9 14 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements, Continued (5) CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1998, CONTINUED: FIDELITY FIDELITY FIDELITY INVESCO EMERGING DIVERSIFIED GROWTH & TOTAL MARKETS INTERNATIONAL INCOME RETURN FUND FUND FUND FUND -------------- -------------- -------------- -------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust $ (741,864) 744,282 6,924,933 3,446,953 Contributions: Employee contributions 226,121 530,680 1,615,262 1,677,795 Employer contributions -- -- -- -- Transfer of assets from Duracell Inc. Thrift Plan -- 10,091,698 -- 37,828,701 -------------- -------------- -------------- -------------- Total additions (515,743) 11,366,660 8,540,195 42,953,449 Deductions from net assets attributed to: Benefit payments (185,042) (836,860) (2,105,375) (2,069,119) Forfeitures -- -- -- -- -------------- -------------- -------------- -------------- Total deductions (185,042) (836,860) (2,105,375) (2,069,119) Net increase (decrease) prior to interfund transfers (700,785) 10,529,800 6,434,820 40,884,330 Net interfund transfers in (out): Loans issued (26,935) (32,564) (205,227) (321,191) Loans repaid 16,265 56,993 231,198 367,076 Other transfers 361,832 231,166 8,146,126 3,096,523 -------------- -------------- -------------- -------------- 351,162 255,595 8,172,097 3,142,408 Net increase (decrease) (349,623) 10,785,395 14,606,917 44,026,738 Net assets available for plan benefits: Beginning of year 1,215,697 6,232,661 21,123,017 24,125,244 -------------- -------------- -------------- -------------- End of year $ 866,074 17,018,056 35,729,934 68,151,982 ============== ============== ============== ============== U.S. BOND PARTICIPANT INDEX LOAN FUND FUND TOTAL -------------- -------------- -------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust 1,243,141 -- 33,550,314 Contributions: Employee contributions 634,449 -- 49,713,107 Employer contributions -- -- 18,585,652 Transfer of assets from Duracell Inc. Thrift Plan -- 6,278,688 235,469,789 -------------- -------------- -------------- Total additions 1,877,590 6,278,688 337,318,862 Deductions from net assets attributed to: Benefit payments (1,005,585) (1,768,370) (168,706,201) Forfeitures -- -- (171,463) -------------- -------------- -------------- Total deductions (1,005,585) (1,768,370) (168,877,664) Net increase (decrease) prior to interfund transfers 872,005 4,510,318 168,441,198 Net interfund transfers in (out): Loans issued (125,413) 14,696,773 -- Loans repaid 161,835 (14,686,164) -- Other transfers 6,097,125 -- -- -------------- -------------- -------------- 6,133,547 10,609 -- Net increase (decrease) 7,005,552 4,520,927 168,441,198 Net assets available for plan benefits: Beginning of year 10,727,980 28,905,676 2,163,135,513 -------------- -------------- -------------- End of year 17,733,532 33,426,603 2,331,576,711 ============== ============== ============== (Continued) 10 15 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements, Continued (5) CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1997 FIDELITY RETIREMENT GILLETTE FIDELITY GOVERNMENT COMPANY INTERMEDIATE FIXED MONEY STOCK BOND INCOME MARKET FUND FUND FUND PORTFOLIO --------------- --------------- --------------- --------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust $ 382,295,874 135,362 19,748,355 439,278 Contributions: Employee contributions 26,899,546 -- 4,307,341 644,933 Employer contributions 17,481,384 -- -- -- --------------- --------------- --------------- --------------- Total additions 426,676,804 135,362 24,055,696 1,084,211 Deductions from net assets attributed to: Benefit payments (71,917,356) (729,362) (40,701,584) (4,717,505) Forfeitures (120,065) -- -- -- --------------- --------------- --------------- --------------- Total deductions (72,037,421) (729,362) (40,701,584) (4,717,505) Net increase (decrease) prior to interfund transfers 354,639,383 (594,000) (16,645,888) (3,633,294) Net interfund transfers in (out): Loans issued (10,332,596) (31,040) (2,834,569) (178,374) Loans repaid 8,557,304 -- 1,673,673 180,682 Other transfers (108,628,945) (8,491,508) 62,274,277 8,001,778 --------------- --------------- --------------- --------------- (110,404,237) (8,522,548) 61,113,381 8,004,086 Net increase (decrease) 244,235,146 (9,116,548) 44,467,493 4,370,792 Net assets available for plan benefits: Beginning of year 1,305,426,447 9,116,548 289,793,338 5,897,378 --------------- --------------- --------------- --------------- End of year $ 1,549,661,593 -- 334,260,831 10,268,170 =============== =============== =============== =============== FIDELITY U.S. FIDELITY FIDELITY FIDELITY EQUITY GROWTH MAGELLAN BALANCED INDEX COMPANY FUND FUND PORTFOLIO FUND --------------- --------------- --------------- --------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust 8,678,247 1,187,143 21,059,474 6,238,947 Contributions: Employee contributions 4,383,711 -- 2,979,719 4,296,784 Employer contributions -- -- -- -- --------------- --------------- --------------- --------------- Total additions 13,061,958 1,187,143 24,039,193 10,535,731 Deductions from net assets attributed to: Benefit payments (1,857,129) (350,578) (4,907,432) (1,939,117) Forfeitures -- -- -- -- --------------- --------------- --------------- --------------- Total deductions (1,857,129) (350,578) (4,907,432) (1,939,117) Net increase (decrease) prior to interfund transfers 11,204,829 836,565 19,131,761 8,596,614 Net interfund transfers in (out): Loans issued (1,354,083) (156,736) (957,461) (749,634) Loans repaid 1,171,217 -- 532,214 774,517 Other transfers 996,278 (16,095,622) 8,766,229 (2,222,080) --------------- --------------- --------------- --------------- 813,412 (16,252,358) 8,340,982 (2,197,197) Net increase (decrease) 12,018,241 (15,415,793) 27,472,743 6,399,417 Net assets available for plan benefits: Beginning of year 33,882,758 15,415,793 61,863,941 34,977,544 --------------- --------------- --------------- --------------- End of year 45,900,999 -- 89,336,684 41,376,961 =============== =============== =============== =============== (Continued) 11 16 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements, Continued (5) CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1997, CONTINUED: FIDELITY FIDELITY FIDELITY FIDELITY INVESCO EMERGING DIVERSIFIED GROWTH & TOTAL MARKETS INTERNATIONAL INCOME RETURN FUND FUND FUND FUND -------------- -------------- -------------- -------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust $ (846,361) 480,528 2,803,389 3,077,360 Contributions: Employee contributions 222,804 340,774 816,379 1,696,966 Employer contributions -- -- -- -- -------------- -------------- -------------- -------------- Total additions (623,557) 821,302 3,619,768 4,774,326 Deductions from net assets attributed to: Benefit payments (164,157) (295,525) (438,684) (548,897) Forfeitures -- -- -- -- -------------- -------------- -------------- -------------- Total deductions (164,157) (295,525) (438,684) (548,897) Net increase (decrease) prior to interfund transfers (787,714) 525,777 3,181,084 4,225,429 Net interfund transfers in (out): Loans issued (12,648) (25,605) (89,550) (202,097) Loans repaid 34,071 34,484 76,943 428,823 Other transfers 1,981,988 5,698,005 17,954,540 19,673,089 -------------- -------------- -------------- -------------- 2,003,411 5,706,884 17,941,933 19,899,815 Net increase (decrease) 1,215,697 6,232,661 21,123,017 24,125,244 Net assets available for plan benefits: Beginning of year -- -- -- -- -------------- -------------- -------------- -------------- End of year $ 1,215,697 6,232,661 21,123,017 24,125,244 ============== ============== ============== ============== U.S. BOND PARTICIPANT INDEX LOAN FUND FUND TOTAL -------------- -------------- -------------- Additions to net assets attributed to: Net investment income from the Savings Plan Trust 739,237 -- 446,036,833 Contributions: Employee contributions 534,430 -- 47,123,387 Employer contributions -- -- 17,481,384 -------------- -------------- -------------- Total additions 1,273,667 -- 510,641,604 Deductions from net assets attributed to: Benefit payments (619,122) (792,970) (129,979,418) Forfeitures -- -- (120,065) -------------- -------------- -------------- Total deductions (619,122) (792,970) (130,099,483) Net increase (decrease) prior to interfund transfers 654,545 (792,970) 380,542,121 Net interfund transfers in (out): Loans issued (124,480) 17,048,873 -- Loans repaid 105,944 (13,569,872) -- Other transfers 10,091,971 -- -- -------------- -------------- -------------- 10,073,435 3,479,001 -- Net increase (decrease) 10,727,980 2,686,031 380,542,121 Net assets available for plan benefits: Beginning of year -- 26,219,645 1,782,593,392 -------------- -------------- -------------- End of year 10,727,980 28,905,676 2,163,135,513 ============== ============== ============== (Continued) 12 17 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (6) INVESTMENTS Investments of the Savings Plan Trust are held in trust by Fidelity Management Trust Company. The Plans participating in the Savings Plan Trust are The Gillette Company Employees' Savings Plan and The Gillette Company Savings Plan for Arrow Park Employees. Trust income is allocated ratably between the plans in accordance with the assets of each Plan invested in the trust. The net assets of the Savings Plan Trust at December 31, 1998 and 1997 are as follows: 1998 1997 -------------- -------------- Investments, at fair value: Marketable securities: Gillette common stock $1,421,628,142 1,551,947,454 Registered investment companies: Fidelity Short-term Investment Fund 54,284,783 23,695,057 Fidelity Retirement Government Money Market Portfolio 22,247,679 10,344,002 Fidelity Magellan Fund 104,133,549 46,585,401 Fidelity U.S. Equity Index Portfolio 188,119,328 91,919,213 Fidelity Growth Company Fund 47,723,974 41,787,957 Fidelity Emerging Markets Fund 869,866 1,220,995 Fidelity Diversified International Fund 16,836,592 6,256,456 Fidelity Growth & Income Fund 35,977,890 21,222,508 INVESCO Total Return Fund 66,763,014 24,955,015 Fidelity U.S. Bond Index Fund 17,783,501 10,760,825 Investment contracts 330,165,797 312,826,658 Participant loans 33,652,383 29,104,490 -------------- -------------- Total investments 2,340,186,498 2,172,626,031 Receivable from Duracell Inc. Thrift Plan 2,890,395 -- -------------- -------------- Total investments and net assets $2,343,076,893 2,172,626,031 ============== ============== Assets allocated to The Gillette Company Savings Plan for Arrow Park Employees $ 11,500,182 9,490,518 Assets allocated to The Gillette Company Employees' Savings Plan $2,331,576,711 2,163,135,513 ============== ============== (Continued) 13 18 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 The statements of changes in net assets of the Savings Plan Trust for the years ended December 31, 1998 and 1997 are as follows: 1998 1997 --------------- --------------- Employee contributions $ 50,400,338 47,855,615 Employer contributions 18,776,685 17,683,710 Investment income: Net appreciation (depreciation) on fair value of investments: Gillette common stock (68,234,619) 368,245,796 Fidelity Intermediate Bond Fund -- (89,828) Fidelity Magellan Fund 12,773,190 5,830,143 Fidelity Balanced Fund -- 1,100,411 Fidelity U.S. Equity Index Portfolio 24,256,268 19,620,590 Fidelity Growth Company Fund 7,200,486 2,204,172 Fidelity Emerging Markets Fund (745,082) (881,794) Fidelity Diversified International Fund 476,479 246,019 Fidelity Growth & Income Fund 5,136,757 2,048,113 INVESCO Total Return Fund 1,974,014 2,287,046 Fidelity U.S. Bond Index Fund 294,579 315,599 Dividends 28,572,861 24,656,455 Interest 23,120,340 22,065,612 --------------- --------------- Net investment income 34,825,273 447,648,334 Transferred from Duracell Inc. Thrift Plan 235,469,789 -- --------------- --------------- Total additions 339,472,085 513,187,659 Benefit payments 168,845,644 130,062,739 Forfeitures 175,579 120,990 --------------- --------------- Total deductions 169,021,223 130,183,729 --------------- --------------- Net increase 170,450,862 383,003,930 Net assets: Beginning of year 2,172,626,031 1,789,622,101 --------------- --------------- End of year $ 2,343,076,893 2,172,626,031 =============== =============== (Continued) 14 19 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (7) UNIT VALUATION Participants' accounts are maintained on a "unit value" basis. The total units used in valuing participants' accounts and the per unit values at December 31, 1997 and the four quarters ended December 31, 1998 are as follows: FIDELITY RETIREMENT GILLETTE COMPANY GOVERNMENT MONEY STOCK FUND FIXED INCOME FUND MARKET PORTFOLIO ---------- ----------------- ---------------- UNITS VALUE UNITS VALUE UNITS VALUE ----- ----- ----- ----- ----- ----- December 31, 1997 15,429,114 $ 100.44 334,260,831 $ 1.00 10,268,170 $ 1.00 March 31, 1998 14,926,657 118.68 336,309,811 1.00 13,397,776 1.00 June 30, 1998 29,731,324 56.87 320,108,787 1.00 17,025,922 1.00 September 30, 1998 29,271,537 30.25 328,177,181 1.00 33,287,340 1.00 December 31, 1998 29,682,960 47.81 382,827,956 1.00 19,157,542 1.00 FIDELITY FIDELITY U.S. FIDELITY GROWTH MAGELLAN FUND EQUITY INDEX PORTFOLIO COMPANY FUND ------------- ---------------------- ------------ UNITS VALUE UNITS VALUE UNITS VALUE ----- ----- ----- ----- ----- ----- December 31, 1997 481,799 $ 95.27 2,553,936 $ 34.98 955,147 $ 43.32 March 31, 1998 481,707 108.81 2,661,332 39.69 914,162 48.38 June 30, 1998 514,803 109.63 2,629,750 40.49 917,420 49.14 September 30, 1998 514,849 97.52 2,674,750 36.33 887,474 45.04 December 31, 1998 858,460 120.82 4,225,713 43.96 923,812 51.02 FIDELITY GROWTH & FIDELITY EMERGING FIDELITY DIVERSIFIED INCOME FUND MARKET FUND INTERNATIONAL FUND ----------- ----------- ------------------ UNITS VALUE UNITS VALUE UNITS VALUE ----- ----- ----- ----- ----- ----- December 31, 1997 554,410 $ 38.10 126,635 $ 9.60 386,402 $ 16.13 March 31, 1998 708,854 42.84 213,922 10.21 429,890 18.28 June 30, 1998 712,506 44.01 220,369 8.06 439,763 18.72 September 30, 1998 704,790 38.62 111,344 6.09 394,802 16.01 December 31, 1998 779,449 45.84 122,847 7.05 960,387 17.72 FIDELITY U.S. BOND INVESCO TOTAL INDEX FUND RETURN FUND ---------- ----------- UNITS VALUE UNITS VALUE ----- ----- ----- ----- December 31, 1997 994,252 $ 10.79 829,331 $ 29.09 March 31, 1998 1,247,098 10.78 900,326 31.43 June 30, 1998 1,291,087 10.85 906,466 31.34 September 30, 1998 1,473,370 11.15 897,621 29.47 December 31, 1998 1,609,213 11.02 2,173,214 31.36 c 15 20 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 (8) PARTICIPATION BY FUND The total number of plan participants in each of the investment funds on December 31, 1998 and 1997 are as follows: 1998 1997 ---- ---- Gillette Company Stock Fund 12,148 9,346 Fixed Income Fund 6,415 4,095 Fidelity Retirement Government Money Market Portfolio 644 651 Fidelity Magellan Fund 5,643 3,087 Fidelity U.S. Equity Index Portfolio 6,163 3,021 Fidelity Growth Company Fund 2,471 2,543 Fidelity Growth & Income Fund 1,001 629 Fidelity Emerging Markets Fund 250 205 Fidelity Diversified International Fund 1,932 380 Fidelity U.S. Bond Index Fund 837 778 INVESCO Total Return Fund 3,879 1,422 The numbers shown above reflect the fact that participants may elect to invest in more than one fund. (9) ADMINISTRATIVE EXPENSES The Company bears all trustee and administrative costs of maintaining the Plan and investment expenses associated with the Fixed Income Fund and the Gillette Company Stock Fund. Investment expenses associated with the Fidelity funds offered as investment options under the Plan are deducted from the assets of each of those funds. (10) INCOME TAXES A favorable tax determination letter was received from the Internal Revenue Service on July 19, 1994 stating that the existing Plan and its underlying trust qualified under section 401(a) of the Internal Revenue Code of 1986 (the "Code") as a profit sharing plan, and is exempt from federal income taxes. Further, the features of the Plan relating to tax deferred savings qualified under section 401(k) of the Code. In the opinion of the Plan administrator and the Plan's tax advisor, the Plan and its underlying trust have operated within the terms of the Plan document and remain qualified under the applicable provisions of the Internal Revenue Code. (11) PLAN MERGER AND TERMINATION OF DURACELL INC. PLANS Effective December 31, 1998, the Duracell Inc. Thrift Plan ("Duracell Plan") was merged into The Gillette Company Employees' Savings Plan. The financial statements reflect the plan merger as of December 31, 1998, the effective date of the transaction. On the effective date, $232,579,430 of the $235,469,789 of the net assets attributable to the participants of the Duracell Plan was transferred into the Gillette Employees' Savings Plan. The remaining $2,890,359 of net assets from the Duracell Plan was transferred in January, 1999 and is a receivable from the Duracell Plan at December 31, 1998. (Continued) 16 21 THE GILLETTE COMPANY EMPLOYEES' SAVINGS PLAN Notes to Financial Statements December 31, 1998 and 1997 Additionally, the Duracell Inc. Cash Balance Plan was terminated effective December 31, 1998. During the first quarter of 1999, rollover contributions of certain Duracell Inc. Cash Balance Plan participants totaling $84,824,210 were made to the Gillette Company Employees' Savings Plan. (12) CASH ADVANCE TO THE PLAN TRUSTEE The Company has deposited with the Plan trustee a cash advance to provide liquidity to the Gillette Company Stock Fund in order to make distributions, loans and transfers from the Fund on a timely basis. Any interest earned on the balance is allocated to participant accounts within the Gillette Company Stock Fund. The outstanding balance of the cash advance to the trustee as of December 31, 1998 was $1,500,000. 17