ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Gillette Company manufactures and sells a wide variety of consumer products throughout the world. We have five principal business segments:
Blades and Razors
We are the world leader in blades and razors. We sell male systems under the Mach3, SensorExcel, Sensor, Atra, and Trac II brands and disposable razors under the Custom Plus and Good News brands. On October 30, 2001, we introduced the Mach3Turbo shaving system, our newest triple blade shaving system for men, which is scheduled to be available to consumers in North America in Spring 2002. Our female systems are sold under the Gillette for Women Venus, Sensor Excel for Women and Sensor for Women brands and our disposable razors under the Agility brand.
Personal Care
We sell shave preparations, after-shave products and deodorants and antiperspirants under the Gillette Series, Satin Care, Right Guard, Soft & Dri and Dry Idea brands.
Duracell
We are the world leader in alkaline batteries for consumers. Our products include the Duracell Ultra and CopperTop alkaline batteries and Duracell primary lithium, zinc air and rechargeable nickel-metal hydride batteries.
Oral Care
We are the world leader in manual and power toothbrushes. We offer manual toothbrushes under the Oral-B brand and power toothbrushes under the Braun and Oral-B brands.
Braun
We sell electric shavers under the Braun brand and hair epilators under the Silk Epil brand. These products include the number one foil electric shaver for men and the number one hair epilator for women. We also sell small household appliances under the Braun brand.
Founded in 1901, we are a Delaware corporation with our registered office in Wilmington, Delaware. As of December 31, 2001, we had manufacturing operations at 34 facilities in 15 countries and distributed our products through wholesalers, retailers and agents in over 200 countries and territories.
BUSINESS SEGMENTS
"Operating Segments and Related Information," containing information on net sales, profit from operations, identifiable assets, capital expenditures and depreciation for each of the last three years, appears in the Company's 2001 Annual Report at pages 48 and 49 and is incorporated herein by reference.
DISTRIBUTION
In major geographic markets, Gillette products are sold directly to retailers and to wholesalers for resale through retail stores. Braun personal diagnostic appliances are sold to retailers and wholesalers, as well as to health care professionals. Oral care products are sold to retailers and wholesalers and directly to dental professionals for distribution to patients. In some small geographic markets, products are distributed through local distributors and sales agents.
PATENTS
Some of Gillette's patents and licenses in the Blade and Razor segment are of substantial value and importance when considered in the aggregate. Additionally, Gillette holds significant patents in its personal care, Duracell, Braun and oral care businesses. No single patent or license held by Gillette is material to Gillette's total business. Gillette has licensed many of its blade and razor patents to other
manufacturers. In all of these categories, Gillette competitors also have significant patent positions. The patents and licenses held by Gillette are of varying remaining durations.
TRADEMARKS
In general, Gillette's principal trademarks have been registered in the United States and throughout the world where Gillette's products are sold. Gillette products are marketed outside the United States under various trademarks, many of which are the same as those used in the United States. The trademark "Gillette" is of principal importance to Gillette. In addition, a number of other trademarks owned by Gillette and its subsidiaries have significant importance within their industries. Gillette's rights in these trademarks endure for as long as they are used or registered.
COMPETITION
All of Gillette's markets are highly competitive. Many of Gillette's competitors are larger and have greater resources than Gillette. The blade and razor business is marked by competition in new technology, as well as in price, marketing, advertising and promotion. Gillette's major competitors worldwide in blades and razors include Pfizer Inc., with its Schick product line, and, in North America and Europe, its Wilkinson Sword product line; and Societe Bic S.A. The personal care segment is highly competitive in terms of price, product innovation and market positioning, with frequent introductions of new brands and marketing concepts, especially for products sold through retail outlets, and with product life cycles typically shorter than in Gillette's other businesses. The Duracell segment is highly competitive in terms of product performance, innovation and price, and in marketing, advertising and promotion. Competition in the oral care segment is focused on product performance, price and professional endorsement. Competition in the electric shavers and epilators product lines is based primarily on product performance, innovation and price.
EMPLOYEES
At year-end, Gillette employed approximately 31,500 persons, about 72% of them outside the United States.
RESEARCH AND DEVELOPMENT
In 2001, research and development expenditures were $187 million, compared with $179 million in 2000 and $201 million in 1999.
RAW MATERIALS
The raw materials used by Gillette to manufacture its products are purchased from a number of suppliers, and substantially all such materials are readily available.
OPERATIONS BY GEOGRAPHIC AREA
Net sales and long-lived assets by geographic area for each of the last three years appear in the 2001 Annual Report at page 49 and are incorporated by reference.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
Gillette owns and leases manufacturing facilities and other real estate properties in the United States and a number of foreign countries. Gillette's executive offices are located in the Prudential
Center, Boston, Massachusetts, where Gillette holds a long-term lease. The following table sets forth Gillette's principal facilities defined as those measuring 250,000 square feet or more:
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* Packaging center that also serves as warehouse/distribution facility
The above facilities are in good repair, meet Gillette's needs adequately and operate at reasonable levels of capacity.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Gillette is subject, from time to time, to legal proceedings and claims arising out of its business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters and taxes. Management, after review and consultation with counsel, considers that any liability from all of these legal proceedings and claims would not materially affect the consolidated financial position, results of operations or liquidity of Gillette.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001.
EXECUTIVE OFFICERS OF REGISTRANT
Information regarding the Executive Officers of Gillette is set out below.
The Executive Officers hold office until the first meeting of the Board of Directors following the Annual Meeting of Stockholders and until their successors are elected or appointed and qualified, unless a shorter period shall have been specified by the terms of their election or appointment, or until their earlier resignation, removal or death.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The information required by this item with respect to Gillette's common stock appears in the 2001 Annual Report on the inside back cover under the caption, "Common Stock," and is incorporated by reference, and at page 50 under the caption, "Quarterly Financial Information," and is incorporated by reference. As of March 25, 2002, the record date for the 2002 Annual Meeting, there were 46,787 Gillette stockholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in the 2001 Annual Report at page 51 under the caption, "Historical Financial Summary," and is incorporated by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item appears in the 2001 Annual Report at pages 17 through 24 under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and is incorporated by reference.
CAUTIONARY STATEMENT
Certain statements that Gillette may make from time to time, including statements contained in this report, constitute "forward-looking statements" under the federal securities laws. Forward-looking statements may be identified by words such as "plans," "expects," "believes," "anticipates," "estimates," "projects," "will" and other words of similar meaning used in conjunction with, among other things, discussions of future operations, acquisitions and divestitures, financial performance, Gillette's strategy for growth, product development and new product launches, market position and expenditures.
Forward-looking statements are based on current expectations of future events, but actual results could vary materially from Gillette's expectations and projections. Investors are cautioned not to place undue reliance on any forward-looking statements. Gillette assumes no obligation to update any forward-looking statements. Gillette cautions that historical results should not be relied upon as indications of future performance.
Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Gillette include the following, some of which are described in greater detail below:
- the pattern of Gillette's sales, including variations in sales volume within periods;
- consumer demands and preferences including the acceptance by Gillette's customers and consumers of new products and line extensions;
- the mix of products sold;
- Gillette's ability to control its internal costs and the cost of raw materials;
- competitive factors including the prices, promotional incentives and trade terms of Gillette's products, the response of Gillette, its customers and competitors to changes in these terms;
- technological advances by Gillette and/or its competitors;
- new patents granted to Gillette and/or its competitors;
- changes in exchange rates in one or more of Gillette's geographic markets;
- changes in accounting policies;
- acquisition and divestiture activities; or
- the impact of general economic conditions in the United States and in other countries in which Gillette currently does business.
COMPETITIVE ENVIRONMENT
Gillette experiences intense competition for sales of its products in most markets. Gillette's products compete with widely advertised, well-known, branded products, as well as private label products, which typically are sold at lower prices. In most of its markets, Gillette has major competitors, some of which are larger and more diversified than Gillette. Aggressive competition within Gillette's markets to preserve, gain or regain market share can affect Gillette's results in any given period.
CHANGES IN TECHNOLOGY AND NEW PRODUCT INTRODUCTIONS
In most product categories in which Gillette competes, there are continuous technological changes and frequent introductions of new products and line extensions. Gillette's ability to successfully introduce new products and/or extend lines of existing products will depend on, among other things, Gillette's ability to identify changing consumer tastes and needs, develop new technology, differentiate its products and gain market acceptance of new products. Gillette cannot be certain that it will successfully achieve these goals.
With respect specifically to primary alkaline batteries, category growth could be adversely affected by the following additional factors:
- technological or design changes in portable electronic and other devices that use batteries as a power source;
- continued improvement in the service life of primary batteries;
- improvements in rechargeable battery technology; and
- the development of new battery technologies.
INTELLECTUAL PROPERTY
Gillette relies upon patent, copyright, trademark and trade secret laws in the United States and in other countries to establish and maintain its proprietary rights in technology, products and Gillette's brands. Gillette's intellectual property rights, however, could be challenged, invalidated or circumvented. Gillette does not believe that its products infringe the intellectual property rights of others, but such claims, if they are established, can result in material liabilities or loss of business.
COST SAVINGS STRATEGY
Gillette has implemented a number of programs designed to reduce costs. Such programs will require, among other things, the consolidation and integration of facilities, functions, systems and procedures, all of which present significant management challenges. There can be no assurance that such actions will be accomplished as rapidly as anticipated or that the full extent of expected cost reductions will be achieved.
SALES AND OPERATIONS OUTSIDE OF THE UNITED STATES
Sales outside of the United States represent a substantial portion of Gillette's business. In addition, Gillette has a number of manufacturing facilities and suppliers located outside of the United States. Accordingly, the following factors could adversely affect operating results in any reporting period:
- changes in political or economic conditions;
- trade protection measures;
- import or export licensing requirements;
- the overlap of different tax structures;
- unexpected changes in regulatory requirements or tax laws; or
- longer payment cycles in certain countries.
Gillette also is exposed to foreign currency exchange rate risk to its sales, profits, and assets and liabilities denominated in currencies other than the U.S. dollar. Although Gillette uses instruments to hedge certain foreign currency risks (through foreign currency forward, swap and option contracts and non-U.S. dollar denominated financings) and is implicitly hedged through its foreign manufacturing operations, there can be no assurance that Gillette will be fully protected against foreign currency fluctuations.
RETAIL ENVIRONMENT
With the growing trend towards retail trade consolidation, especially in developed markets such as the United States and Europe, Gillette is increasingly dependent upon key retailers whose bargaining strength is growing. Accordingly, Gillette faces greater pressure from retail trade customers to provide more favorable trade terms.
Gillette can be negatively affected by changes in the policies of its retail trade customers, such as inventory destocking, limitations on access to shelf space and other conditions. Many of Gillette's customers, particularly Gillette's high-volume retail trade customers, have engaged in accelerated efforts to reduce inventory levels and shrinkage and change inventory delivery systems. While Gillette expects the level of trade inventory of its products to decline over time, the speed and magnitude of such reductions and/or the inability of Gillette to develop satisfactory inventory delivery systems could adversely affect operating results in any reporting period.
EFFECT OF TERRORIST ACTS ON OUR BUSINESS
The terrorist acts of September 11, 2001, the military response, the actual and perceived threat of further terrorist acts and future possible military and political actions have created an atmosphere of economic uncertainty in the United States and in foreign markets and our results may be impacted by adverse macroeconomic effects of those events, especially if the conditions persist. Further, direct attacks or threats on or against our personnel and facilities around the world, our suppliers, customers and other elements of our supply chain and the infrastructures in which our facilities are located could significantly disrupt our business and its prospects, at least in the short term. While we have taken all prudent precautions against foreseeable threats, recent events have proven that the object of terrorist activities is inherently uncertain. Any of these occurrences may have a material adverse effect on our financial position, cash flow or profit from operations in any reporting period.
ITEM 7A.
ITEM 7A. DISCLOSURES CONCERNING MARKET RISK SENSITIVE INSTRUMENTS
The information required by this item appears in the 2001 Annual Report at page 21 under the caption, "Market Risk," and is incorporated by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements and Supplementary Data for The Gillette Company and Subsidiary Companies appear in the 2001 Annual Report at the pages indicated below and are incorporated by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item with respect to Gillette's Directors appears in the 2002 Proxy Statement at pages 4 through 6 and at page 7 under the captions, "Transactions with Directors and Management" and "Section 16(a) Beneficial Ownership Reporting Compliance," the texts of which are incorporated by reference. The information required for Executive Officers of Gillette appears at the end of Part I of this report at pages 4 through 6.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the 2002 Proxy Statement at pages 7 through 17 under the captions, "Compensation of Directors," "Executive Officers' Compensation" and "Gillette Comparative Five-Year Investment Performance," and is incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item concerning the security ownership of certain beneficial owners and management appears in the 2002 Proxy Statement at pages 9 and 10 under the captions, "Stock Ownership of Directors and Executive Officers" and "Stock Ownership Table," and is incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the 2002 Proxy Statement at pages 7 and 17 under the captions, "Transactions with Directors and Management" and "Employment Contracts, Termination of Employment and Change-in-Control Arrangements," and is incorporated by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
FINANCIAL STATEMENTS
The following appear in the 2001 Annual Report at the pages indicated below and are incorporated into Part II by reference.
SCHEDULES
All other required schedule information is included in the Notes to Consolidated Financial Statements or is omitted because it is either not required or not applicable.
EXHIBITS
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* Management contract or compensatory plan or arrangement.
B. REPORTS ON FORM 8-K IN FOURTH QUARTER
None
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GILLETTE COMPANY (Registrant)
By CHARLES W. CRAMB ------------------------------------ Charles W. Cramb Senior Vice President and Chief Financial Officer Date: March 27, 2002
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.