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 Master Savings Plan Trust.
Report of Independent Registered Public Accounting Firm
The Savings Plan Committee
The Gillette Company Employees´ Savings Plan:
We have audited the statements of net assets available for plan benefits of The Gillette Company Employees´ Savings Plan
(the Plan) as of December 31, 2003 and 2002, 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 the Public Company Accounting Oversight Board (United States). 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, 2003 and 2002, and the
changes in net assets available for plan benefits for the years then ended in conformity with United States generally accepted
accounting principals.
/s/ KPMG LLP
Boston, Massachusetts
June 18, 2004
-1-
THE GILLETTE COMPANY
EMPLOYEES´ SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2003 and 2002
2003 2002
------------------- -------------------
Assets:
Investment in the Savings Plan Trust $ 1,873,214,825 1,598,785,801
------------------- -------------------
Net assets available for plan benefits $ 1,873,214,825 1,598,785,801
=================== ===================
See accompanying notes to financial statements.
-2-
THE GILLETTE COMPANY
EMPLOYEES´ SAVINGS PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 2003 and 2002
2003 2002
------------------- -------------------
Additions to net assets attributed to:
Net investment gain (loss) from the Savings Plan Trust $ 298,762,621 (138,767,735)
Contributions:
Employee contributions 52,063,203 53,444,988
Employer contributions 27,264,875 27,918,233
------------------- -------------------
Total additions 378,090,699 (57,404,514)
------------------- -------------------
Deductions from net assets attributed to:
Benefit payments (145,515,572) (180,808,564)
Forfeitures (275,745) (261,929)
------------------- -------------------
Total deductions (145,791,317) (181,070,493)
------------------- -------------------
Net increase (decrease) prior to transfers 232,299,382 (238,475,007)
Transfer from The Gillette Company ESOP 42,129,642 --
------------------- -------------------
Net increase (decrease) 274,429,024 (238,475,007)
------------------- -------------------
Net assets available for plan benefits:
Beginning of year 1,598,785,801 1,837,260,808
------------------- -------------------
End of year $ 1,873,214,825 1,598,785,801
=================== ===================
See accompanying notes to financial statements.
-3-
THE GILLETTE COMPANY
EMPLOYEES´ SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(1) Description of the Plan
| |
The
Gillette Company Employees´ Savings Plan (the Plan) is 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. |
| |
The
Plan is a defined contribution plan subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA), as amended.
Regular employees of the Company and its participating subsidiaries
are eligible to join the Plan on their 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 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 $12,000 and $11,000 for 2003 and 2002, respectively. |
| |
(c)
Employer Contributions |
| |
The
Company contributes $1.00 for every $1.00 of each participant´s matched
savings for the first 5% of each participant's contribution and $0.20 for
every $1.00 of the next 5% of each participant´s contribution. |
| |
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 three 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
Company-initiated termination (other than for cause as determined by the Company). |
| |
(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 Plan´s
investment fund offerings (the Funds). A participant may direct employee contributions
in any of the following Funds: |
-4-
| |
Gillette
Company Stock Fund |
| |
Invests
in shares of The Gillette Company common stock. |
| |
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. |
| |
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. |
| |
U.S.
Equity Index Commingled Fund |
| |
Seeks
to provide investment results that correspond to the Standard & Poor´s
500 Index and invests primarily in the common stocks of the companies
that make up that stock index. |
| |
Fidelity
Growth Company Fund |
| |
Seeks
long-term capital appreciation by investing primarily in securities of domestic and
foreign growth oriented companies. |
| |
Fidelity
Emerging Markets Fund |
| |
Seeks
capital appreciation from emerging markets around the world. |
| |
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
Growth & Income Portfolio Fund |
| |
Seeks
high total return through a combination of current income and capital appreciation.
Invests primarily in U.S. and foreign stocks. |
| |
Fidelity
U.S. Bond Index Fund |
| |
Invests
in investment grade (medium to high quality) or above securities with maturities of
at least one year. |
| |
Seeks
to increase the value of investments over the long term through capital growth. |
| |
Vanguard
Total Stock Market Index Fund - Admiral Class |
| |
Seeks
to have investment characteristics effectively equal to the unmanaged Wilshire 5000 Index. |
-5-
| |
Washington
Mutual Investors Fund Class R.5 |
| |
Seeks
to produce current income and to provide an opportunity for growth. |
| |
John
Hancock Small Cap Growth Fund - Class A |
| |
Seeks
long term capital appreciation by investing primarily in stocks of small capitalization
companies. |
| |
Vanguard
Balanced Index Fund |
| |
Seeks
growth and income by investing in equities and bonds. |
| |
The
Fidelity Spartan U.S. Equity Index Fund and the Washington Mutual Investors Fund were
closed effective April 23, 2003. The participant balances in these
funds were transferred to Fidelity U.S. Equity Index Commingled Pool and
Washington Mutual Investors Fund Class R-5, respectively. A new fund, Vanguard Total
Stock Market Index Fund - Admiral Class, was added during the current Plan
year. |
| |
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. |
| |
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. |
| |
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 includes 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. Any interest or other income earned
by the Fund, other than dividends, is allocated quarterly to participant
accounts on a proportionate basis. |
| |
Upon
termination of employment, the participant or 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, they may
elect to defer payment or receive periodic installments. A participant (or surviving
spouse or other beneficiary) may also elect to have the proceeds of the
distribution used to purchase an annuity contract for his or 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
document. |
-6-
| |
Forfeitures
by Plan participants are used to reduce Company contributions. |
(2) Summary of Significant
Accounting Policies
| |
The
accompanying financial statements are prepared on the accrual basis of accounting. |
| |
The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of net
assets available for plan benefits at the date of the financial statements, and the
reported amounts of additions to and deductions from net assets
available for plan benefits. Actual results could differ from those
estimates. |
| |
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. See note 5 for a detailed description of the
Savings Plan Trust. |
| |
Investments
of the Savings Plan Trust are stated at fair value except for guaranteed and
synthetic investment contracts which 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
years ended December 31, 2003 and 2002 is 5.06% and 5.52%, respectively, and the
crediting interest rate as of December 31, 2003 and 2002 is 4.83% and
5.35%, respectively, for these investment contracts. Fair value for
shares of Company common stock held in the trust is defined as the closing price
of the common stock as reported by the New York Stock Exchange. 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 loans receivable are valued at cost, which
approximates fair value. |
| |
Fund
transactions received prior to 4:00 p.m. Eastern time by Fidelity Management
Trust Company are recognized on that business day. Transactions
received after 4:00 p.m. Eastern time are valued as of the next business
day. Transfers to or from the Gillette Company Stock Fund are valued at the actual
purchase or sale price reflecting commissions and transaction fees.
Contributions and loan payments into the Gillette Company Stock Fund
are invested based upon the weighted average purchase price (including
commissions and transaction fees) of the shares of Company common stock
acquired. Withdrawals from the Gillette Company Stock Fund are valued
based upon the weighted average sale price (including commissions and
transaction fees) of the shares sold. Transfers from the Gillette Company Stock Fund
are invested in the receiving investment Fund(s) following the
settlement period. 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. |
| |
Benefits
are recorded when paid. |
-7-
(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 their 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. |
-8-
(5) Investments
| |
Investments
of the Savings Plan Trust are held in trust by Fidelity Management Trust Company.
Since April 2003, the plans participating in the Savings Plan Trust were The
Gillette Company Employees' Savings Plan and The Gillette Company Employee
Stock Ownership Plan (ESOP). Trust income is allocated ratably between the plans in
accordance with the assets of each plan invested in the Savings Plan Trust.
The net assets of the Savings Plan Trust at December 31, 2003 and 2002 are as
follows: |
2003 2002
------------------- -------------------
Investments, at fair value:
Marketable securities:
Gillette Company Stock Fund $ 1,171,019,453 745,656,670
Registered investment companies:
Fidelity Short Term Investment Fund 4,474,507 5,412,969
Fidelity Retirement Government Money Market Portfolio 41,471,952 45,835,083
Fidelity Magellan Fund 98,180,328 80,912,462
Fidelity Spartan U.S. Equity Index Fund -- 98,210,103
Fidelity Growth Company Fund 94,286,899 60,578,581
Fidelity Emerging Markets Fund 7,177,908 3,819,469
Fidelity Diversified International Fund 32,796,089 19,164,253
Fidelity Growth & Income Portfolio Fund 33,449,652 25,399,373
Fidelity U.S. Bond Index Fund 30,136,434 31,183,390
PIMCO Mid Cap Fund 12,336,912 6,145,681
Washington Mutual Investors Fund -- 10,821,140
John Hancock Small Cap Growth Fund - Class A 6,248,788 3,205,818
Vanguard Balanced Index Fund 39,665,084 32,897,709
Vanguard Total Stock Market Adm 4,516,245 --
Fidelity U.S. Equity Index Portfolio 122,499,243 --
AF Washington Mutual Inv R-5 16,077,146 --
Investment contracts, at contract value 414,356,214 402,628,447
Participant loans, at cost 26,932,508 26,914,653
------------------- -------------------
Total investments and net assets $ 2,155,625,362 1,598,785,801
=================== ===================
Assets allocated to The Gillette Company Employees´
Savings Plan $ 1,873,214,825 1,598,785,801
Assets allocated to The Gillette Company Employee
Stock Ownership Plan 282,410,537 --
| |
The
aggregate fair value of investment contracts was $432,635,224 and $430,370,600 at
December 31, 2003 and 2002, respectively. |
-9-
| |
The
statements of changes in net assets of the Savings Plan Trust for the years ended
December 31, 2003 and 2002 are as follows: |
2003 2002
------------------- -------------------
Employee contributions $ 52,063,203 53,444,988
Employer contributions 27,264,875 27,918,233
Investment income (loss):
Net appreciation (depreciation) on fair value of investments:
Gillette Company Stock Fund 201,814,537 (73,917,325)
Fidelity Magellan Fund 18,544,989 (27,935,165)
Fidelity Spartan U.S. Equity Index Fund 3,452,766 (32,526,804)
Fidelity Growth Company Fund 25,458,247 (32,663,519)
Fidelity Emerging Markets Fund 1,898,186 (547,324)
Fidelity Diversified International Fund 8,621,085 (2,299,591)
Fidelity Growth & Income Portfolio Fund 4,783,806 (6,316,274)
Fidelity U.S. Bond Index Fund (199,593) 1,019,317
PIMCO Mid Cap Fund 2,297,978 (1,419,287)
Washington Mutual Investors Fund 104,886 (2,309,704)
John Hancock Small Cap Growth Fund - Class A 1,170,851 (1,344,070)
Vanguard Balanced Index Fund 5,560,694 (5,028,786)
Vanguard Total Stock Market Adm 442,220 --
Fidelity U.S. Equity Index Portfolio 23,310,394 --
AF Washington Mutual Investors R-5 2,623,112 --
Dividends 25,755,037 22,966,351
Interest 22,107,554 23,554,446
------------------- -------------------
Net investment gain (loss) 347,746,749 (138,767,735)
Transfer of assets from the ESOP 289,451,693 --
------------------- -------------------
Total additions 716,526,520 ( 57,404,514)
------------------- -------------------
Benefit payments (159,411,214) ( 180,808,564)
Forfeitures (275,745) (261,929)
------------------- -------------------
Total deductions (159,686,959) (181,070,493)
------------------- -------------------
Net increase (decrease) in assets 556,839,561 (238,475,007)
Net assets:
Beginning of year 1,598,785,801 1,837,260,808
------------------- -------------------
End of year $ 2,155,625,362 1,598,785,801
=================== ===================
-10-
(6)
Administrative Expenses
| |
The
Company bears all trustee and administrative costs of maintaining the Plan and
investment expenses associated with the Gillette Company Stock Fund.
Investment expenses associated with all other funds offered as investment
options under the Plan, including the Fixed Income Fund effective May 1,
2003, are deducted from the assets of each of those funds. |
(7) Income Taxes
| |
A
favorable tax determination letter was received from the Internal Revenue Service on
March 13, 2002 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. The Plan has been amended since receiving the
determination letter. However, the Company and the Plan´s tax counsel believe
the Plan is designed and is currently being operated in compliance with the
applicable provisions of the Code. |
(8) Plan Merger
| |
Shares
of the Gillette Company Stock Fund allocated to the ESOP accounts of participants not
eligible for Company subsidized retiree medical benefits, valued at $42,129,642,
were transferred to a special account under this Plan on April 1, 2003. |
(9) Party-in-Interest
Transactions
| |
Fidelity
Investments, a wholly owned subsidiary of FMR Corporation, manages several of the
Plan´s investment options as detailed in note 1(e). Fidelity
Management Trust Company and Fidelity Investments Institutional Operations
Company, both wholly owned subsidiaries of FMR Corporation, are the Plan´s
trustee and recordkeeper, respectively. Therefore, transactions between
Fidelity Investments and both the trustee and the recordkeeper qualify as
party-in-interest transactions. |
(10) Plan Amendments
| |
Effective
April 1, 2002, the Company amended the Plan to remove the limitation that
restricted the ability of participants under age 50 to transfer the Company
matching contribution portion of the participants´ accounts from the
Gillette Company Stock Fund to other funds. |
| |
Effective
December 1, 2003, accounts of $5,000 or less will be automatically distributed to
participants or beneficiaries. |
| |
Effective
December 1, 2003, a terminated employee, their spouse or domestic partner
beneficiary may continue to make loan payments directly to the Trustee until the
loan is fully repaid. Repayment of the loan must be made over a period not to
exceed five years from the date the loan was originally issued. |
-11-