Filed by The Procter & Gamble Company Pursuant to Rule 425
under the Securities Act of 1933
Subject Company: The Gillette Company
Commission File No.: 001-00922
Registration No. 333-123309
BOSTON, May 05, 2005 (BUSINESS WIRE) -- The Gillette Company (NYSE:G) today
reported record first-quarter results, with double-digit percentage increases in
net sales, profit from operations, net income and diluted net income per share.
Strong retail demand for new products, the strength of established brands, a
favorable mix to more profitable premium offerings, ongoing overhead cost
savings and manufacturing productivity all contributed to the record
performance.
Net sales for the first quarter rose 17 percent to $2.61 billion from $2.24
billion in the first quarter last year. Solid volume gains and trade-up were
achieved across Gillette's core categories and in all regions, with notable
growth in the developing markets of Russia, Turkey and Eastern Europe. Sales
also benefited from five additional days in the first quarter of 2005 versus
2004. Favorable foreign exchange contributed 3 percentage points to the net
sales gain.
Profit from operations for the quarter climbed 15 percent to $640 million from
$556 million last year. The significant profit increase reflected strong demand
for premium products across all major lines, and sustained manufacturing
productivity and overhead reductions. Profit growth was tempered somewhat by
costs related to the planned closure of a battery factory in the U.S., and
expenses associated with the proposed merger with Procter & Gamble.
Net income for the quarter rose 19 percent to $449 million from $376 million
last year, driven by the strong operating results and a lower effective tax
rate, down 1 percentage point to 28 percent from a year ago.
Diluted net income per common share rose to a first-quarter record of 45 cents,
up 22 percent from 37 cents a year ago.
"Our year is off to an excellent start, as our record across-the-board results
show," said James M. Kilts, chairman, president and chief executive officer. "We
see strength in all of our categories and regions, fueled by the robust
performance of our existing products and the rollout of our
technologically-advanced, premium products like the M3Power shaving system and
Oral-B Sonic Complete rechargeable toothbrush. We are continuing to deliver
solid manufacturing productivity gains and overhead savings, which are providing
the funds to innovate and support our business."
Mr. Kilts said that "there's more to come in 2005 and beyond. Although we will
face difficult comparisons in our second quarter, we expect ongoing strength for
the first half and full year. We have exciting new products like Venus Vibrance,
now launching in North America, and Oral-B Pulsar, the first battery-powered
manual toothbrush, which will reach stores in July. Our proposed merger with
Procter & Gamble would enhance our ability to accelerate growth opportunities in
key developing markets and innovate on significantly broader platforms over the
long term."
Results by business segment follow.
o Blades and Razors net sales for the first quarter climbed 13 percent
to $1.17 billion. Profit from operations of $469 million was up 12
percent, compared with a year ago. These results reflected strong
trade and consumer demand for new products, which in the first quarter
in North America included Venus Disposable, the best ever women's
disposable razor, and M3Power Nitro, with a striking design that
features a black handle with vibrant green accents. In addition,
M3Power was rolled out across Europe and in Australia. In the quarter,
M3Power was the top-selling razor in the world with a 20 percent value
share. Sales gains were strong in all regions, fueled in part by the
Gillette Vector Plus and Slalom entry level systems, which drove
increasing demand in Russia, China and India. The quarter's
significant profit improvement was due to the strong sales growth,
driven by investment-grade advertising and an ongoing shift in mix to
premium products in all regions.
o Duracell net sales of $462 million for the quarter rose 12 percent,
resulting from accelerating consumption of alkaline batteries in key
markets around the world. Duracell's value share in the U.S. remained
stable, due in part to its stepped-up advertising and improved
marketing programs, and despite continued promotional activity by
low-price and private-label brands compared with the year before. U.S.
category sales growth accelerated to 4 percent from a year ago,
benefiting from a strong post-holiday shopping season. Category growth
was also strong outside the U.S., as Europe, Asia and AMEE (Africa,
Middle East and Eastern Europe) all reported solid sales gains. Profit
from operations of $91 million was up 23 percent from the prior year,
reflecting higher volumes, improved product mix, manufacturing
efficiencies and overhead reductions. Profit growth was restrained by
costs related to a planned facility closure. The Company said that due
to ongoing increases in raw material costs, it will increase Duracell
alkaline battery prices by 6 percent to 7 percent in North America,
effective August 15.
o Oral Care net sales for the quarter climbed 31 percent to $413
million. The strong sales advance reflected the success of new
products introduced over the past year and ongoing growth in
developing markets. Consumer trade-up to the CrossAction Vitalizer and
Advantage Artica manual toothbrushes, and to the ProfessionalCare 8000
and Sonic Complete premium rechargeable brushes, strengthened Oral-B's
number one position in the global brushing market. The acquisitions of
Rembrandt teeth-whitening products and Zooth character-based
children's brushes in 2004 also contributed to the net sales advance.
Profit from operations of $84 million was 53 percent higher than the
prior year. Profit performance reflected higher sales and
significantly improved product mix, which was partially offset by a
double-digit percentage increase in advertising.
o Braun net sales grew 18 percent to $306 million for the quarter. Sales
growth reflected strong performance in the AMEE region, particularly
in Russia and Turkey, as well as ongoing gains in male and female hair
removal led by the Braun Activator premium shaver, the new
youth-oriented cruZer3 shaver and the Silk Epil female epilator.
o During the quarter, Braun increased its value share of the male
electric shaver market in North America and Europe. In the U.S., for
example, Braun posted a 2.7 percentage point gain in value share to
23.3 percent. Profit from operations of $5 million, down from $21
million last year, was tempered by higher costs related to
manufacturing realignment and currency-related increases in
European-based manufacturing costs.
o Personal Care net sales of $256 million for the quarter were up 22
percent. Profit from operations of $28 million was more than double
the level of the year before. Growth was driven by new product
introductions, including the launch of TAG body sprays, ongoing
trade-up to premium products and expansion in developing markets
including Russia, Turkey and Poland. Key to the sales gains was the
strong performance of shave preparations in all regions, including the
launch of Mach3 Gel. The success of Gillette Complete Skin Care in
North America continued, highlighted by a 4 percentage point increase
in value share of the male skin care segment to 23 percent. Profit
growth was also fueled by ongoing manufacturing savings and lower
overhead costs.
Capital expenditures, at $128 million in the first quarter, were up from $91
million a year ago. The Company's strong operating performance led to $263
million in free cash flow(a) in the first quarter of 2005, compared to $432
million in the prior year's first quarter, due in part to working capital
changes resulting in a net use of cash.
(a) Free cash flow, defined as net cash provided by operating activities net of
additions to and disposals of property, plant and equipment, is analyzed by the
Company as a measure of its liquidity, as well as its ability to fund future
growth and to provide a return to shareholders. Free cash flow is not a measure
of the residual cash flow that is available for discretionary expenditures since
the Company has certain non-discretionary obligations such as debt service that
are not deducted from the measure.
The Company currently plans to file its Form 10-Q on May 9, 2005.
This release contains "forward-looking statements" about the Company's future
performance. There are, however, a number of factors that can affect the
Company's future prospects and progress. These include, among other things, the
acceptance of new products, economic conditions and the competitive market
environment, all of which contain elements of uncertainty. Please refer to the
Cautionary Statements contained in the Company's 10-K and 10-Q filings for a
more detailed explanation of the inherent limitations in such forward-looking
statements.
The unaudited consolidated income statement data follow.
(Millions, except per share amounts)
Three Months Ended
March 31,
2005 2004
Net Sales $2,610 $2,235
====== ======
Profit from Operations $ 640 $ 556
====== ======
Income before Income Taxes $ 625 $ 530
Income Taxes $ 176 $ 154
------ -------
Net Income $ 449 $ 376
====== =======
Net Income per Common Share:
Basic $0.45 $0.37
Assuming Full Dilution: $0.45 $0.37
Average Number of Common Shares Outstanding:
Basic 992 1,005
Assuming Full Dilution 1,005 1,012
The data reported above for the three months ended March 31, 2005 and 2004, are
based on unaudited statements of income, but include all adjustments that the
Company considers necessary for a fair presentation of results for these
periods.
The unaudited consolidated balance sheet data follow.
March 31, March 31,
2005 2004
------- ------
(millions)
Cash and Cash Equivalents $ 226 $ 235
Short-term Investments 1,061 410
Net Trade Accounts Receivable 851 850
Inventories 1,405 1,266
Other Current Assets 962 853
Net Property, Plant and Equipment 3,657 3,561
Other Assets, Including Goodwill and Intangibles 2,825 2,657
-------- --------
Total Assets $ 10,987 $ 9,832
======== ========
Total Debt $ 3,317 $ 3,050
Other Current Liabilities 2,927 2,847
Other Noncurrent Liabilities 1,541 1,633
Stockholders' Equity, before
Treasury Stock 10,885 9,155
Treasury Stock (7,683) (6,853)
-------- --------
Stockholders' Equity 3,202 2,302
-------- --------
Total Liabilities and Stockholders' Equity $ 10,987 $ 9,832
======== ========
The data reported above for March 31, 2005 and 2004 are based on unaudited
balance sheets, and include all adjustments that the Company considers necessary
for a fair presentation of financial position for these periods.
Free cash flow, defined as net cash provided by operating activities net of
additions to and disposals of property, plant and equipment, is analyzed by the
Company as a measure of its liquidity, as well as its ability to fund future
growth and to provide a return to shareholders. Free cash flow is not a measure
of the residual cash flow that is available for discretionary expenditures since
the Company has certain non-discretionary obligations such as debt service that
are not deducted from the measure. A reconciliation of free cash flow to the
increase in cash and cash equivalents in accordance with Generally Accepted
Accounting Principles (GAAP) follows.
Three Months Ended
March 31,
------------------
2005 2004
----- -----
(millions)
Free Cash Flow $ 263 $ 432
Additions to property, plant and equipment 128 91
Disposals of property, plant and equipment (10) (7)
Net Cash Provided by Operating Activities $ 381 $ 516
Net Cash Used in Investing Activities $(331) $ (55)
Net Cash Used in Financing Activities(b) $ (41) $(468)
Effect of Exchange Rate Changes on Cash (2) (1)
Increase (Decrease) in Cash and Cash Equivalents
(GAAP basis) $ 7 $ (8)
===== =====
(b) No shares were repurchased, under the approved share repurchase program, for
the three month period ended March 31, 2005. Share repurchases of $188 million
were included in the three month period ended March 31, 2004.
The data reported above are based on unaudited statements of cash flows, and
include all adjustments that the Company considers necessary for a fair
presentation of results for these periods.
The Gillette Company
Christopher M. Jakubik, 617-421-7968
Vice President, Corporate Investor Relations
Eric A. Kraus, 617-421-7194
Vice President, Corporate Communications
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, The Procter & Gamble Company ("P&G") has
filed a registration statement on Form S-4 on March 14, 2005 with the Securities
and Exchange Commission (Registration No. 333-123309), containing a preliminary
joint proxy statement/prospectus, and Amendment No. 1 to the preliminary joint
proxy statement/prospectus on April 22, 2005. INVESTORS AND SECURITY HOLDERS ARE
ADVISED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES
AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors and security
holders may obtain a free copy of the definitive joint proxy
statement/prospectus (when available) and other documents filed by P&G and The
Gillette Company ("Gillette") with the Commission at the Commission's web site
at http://www.sec.gov. Free copies of the definitive joint proxy
statement/prospectus, once available, and each company's other filings with the
Commission may also be obtained from the respective companies. Free copies of
P&G's filings may be obtained by directing a request to P&G Investor Relations
at 513-983-2415. Free copies of Gillette's filings may be obtained by directing
a request to Gillette Investor Relations at 617-421-8172.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such jurisdiction.
PARTICIPANTS IN THE SOLICITATION
P&G, Gillette and their respective directors, executive officers and other
members of their management and employees may be soliciting proxies from their
respective stockholders in favor of the merger. Information concerning persons
who may be considered participants in the solicitation of P&G's stockholders
under the rules of the Commission is set forth in the Proxy Statement filed by
P&G with the Commission on August 27, 2004, and information concerning persons
who may be considered participants in the solicitation of Gillette's
stockholders under the rules of the Commission is set forth in the Proxy
Statement filed by Gillette with the Commission on April 12, 2004.