ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Gillette Company, a Delaware corporation incorporated in 1917, was founded in 1901 by King C. Gillette, the inventor of the safety razor. Gillette manufactures and sells a wide variety of consumer products throughout the world. Gillette's primary businesses are:
- Grooming, which includes male and female wet and dry shaving franchises and related toiletries.
- Portable Power, including alkaline and specialty batteries.
- Oral Care, including toothbrushes and power-assisted plaque removers.
Gillette also manufactures and sells stationery products and small household appliances. Gillette has manufacturing operations at 54 facilities in 20 countries and distributes products in over 200 countries and territories.
Grooming
Gillette is the global leader in the Blade and Razor segment of its business. Its shaving systems include the Mach3(R), SensorExcel(R), Sensor(R), and Trac II(R) brands, as well as disposable razors brands such as Custom Plus(R) and Good News(R). The Company is also the world leader in the women's wet shaving market. Gillette's female shaving systems include Gillette for Women SensorExcel(R) and Sensor for Women(R) brands. In the second half of 2000, Gillette expects to unveil a new female shaving system that incorporates features of the Mach3 brand with features custom-designed for women.
The Company sells electric shavers and electric hair epilators as part of its Braun Products segment. These products include the world's number one foil electric shaver for men and electric hair epilator for women. The Toiletries segment includes deodorants, antiperspirants, shave preparations, and after-shave products sold under the Gillette(R) Series, Right Guard(R), Soft & Dri(R), Satin Care(R) and Dry Idea(R) brands.
Portable Power
In the Duracell Products segment, the Company is the global leader in alkaline batteries, including premium-performing Duracell Ultra(R) batteries, as well as Duracell(R) batteries, the best-selling brand of alkaline batteries in the world.
Oral Care
The Company holds the global leadership positions in manual and power-assisted plaque removal with its Oral-B(R) toothbrushes and Braun(R) Oral-B plaque removers. The Company also manufactures and sells other oral care products under the Oral-B brand as part of the Oral-B Products segment of its business.
Other Products
The Company is a top seller of writing instruments and correction products. The products in the Stationery Products segment consist of four major brands, Paper Mate(R), Parker(R), Waterman(R), and Liquid Paper(R). The Company also produces small household appliances through its Braun Products segment. The Company is reviewing the strategic alternatives for these businesses. The Company has reached an agreement to sell its White Rain(R) line of toiletry products to a third party.
Organizational Changes
During 1999, the Company implemented the reorganization announced in the fall of 1998, which created both business management and commercial operations functions. Within commercial operations, which are organized geographically, the Company established a single commercial unit in each market, responsible for
selling and trade marketing. In January 2000, the Company further streamlined its organization by consolidating business management into a single, focused unit responsible for global strategic marketing, product development, manufacturing and distribution.
INDUSTRY 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 1999 Annual Report at page 33 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 and Oral-B products are also sold directly to dental professionals for distribution to patients. In small geographic markets, products are distributed through local distributors and sales agents.
PATENTS
Certain of the Company's patents and licenses in the Blade and Razor segment are of substantial value and importance when considered in the aggregate. Additionally, the Company holds significant patents in its Toiletries, Stationery products, Duracell, Braun, and Oral-B businesses. No patent or license held by the Company is material to the Company'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 the Company are of varying remaining durations.
TRADEMARKS
In general, the Company's principal trademarks have been registered in the United States and throughout the world where the Company'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 the Company. In addition, a number of other trademarks owned by the Company and its subsidiaries have significant importance within their industries. The Company's rights in these trademarks endure for as long as they are used or registered.
COMPETITION
All of the Company's markets are highly competitive. Many of the Company's competitors are larger and have greater resources than the Company. Grooming products are marked by competition in new technology, as well as by competition in price, marketing, advertising and promotion to retail outlets and to consumers. The Company's major competitors worldwide in blades and razors include Warner-Lambert Company, with its Schick product line and, in North America and Europe, its Wilkinson Sword product line, and Societe Bic S.A., a French company. Additional competition in the United States and in certain other markets is provided by the American Safety Razor Company, Inc. under its own brands and a number of private label brands, as well as other private label suppliers. Toiletries is highly competitive in terms of price, product innovation and market positioning, with frequent introduction of new brands and marketing concepts, especially for products sold through retail outlets, and with product life cycles typically shorter than in the other businesses of the Company. Portable power products compete on the basis of product performance, innovation, price and in marketing, advertising and promotion. Competition in oral care products is focused on product performance, price and professional endorsement. Competition in writing instruments is marked by a high degree of competition from domestic and foreign suppliers and low entry barriers, and is focused on a wide variety of factors, including product performance, design and price, with price an especially important factor in the commercial sector. Competition in small household appliance products is based primarily on product performance, innovation and price, with numerous competitors.
EMPLOYEES
At year-end, Gillette employed approximately 39,800 persons, nearly three-quarters of them outside the United States.
RESEARCH AND DEVELOPMENT
In 1999, research and development expenditures were $223 million, compared with $209 million in 1998 and $212 million in 1997.
RAW MATERIALS
The raw materials used by Gillette in the manufacture of 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 1999 Annual Report at page 34 and are incorporated by reference.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns and leases manufacturing facilities and other real estate properties in the United States and a number of foreign countries. The Company's executive offices are located in the Prudential Center, Boston, Massachusetts, where it holds a long-term lease. The following table sets forth the Company's principal plants:
The above facilities are in good repair, meet the Company's needs adequately and operate at reasonable levels of production capacity. - ---------------
* Engaged in the manufacture of products for two or more business segments.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company 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 the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable. ------------------------
EXECUTIVE OFFICERS OF REGISTRANT
Information regarding the Executive Officers of the Company as of March 16, 2000 is set out below.
The Executive Officers hold office until the first meeting of the Board of Directors following the annual meeting of the 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 the Company's common stock appears in the 1999 Annual Report on the inside back cover under the caption, "Common Stock," and at page 34 under the caption, "Quarterly Financial Information," and is incorporated by reference. As of February 29, 2000, the record date for the 2000 Annual Meeting, there were 57,340 Gillette stockholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in the 1999 Annual Report at page 35 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 1999 Annual Report at pages 13 through 17 under the caption, "Management's Discussion," and is incorporated by reference.
CAUTIONARY STATEMENT
From time to time, the Company may make statements which constitute or contain "forward-looking" information as that term is defined within the meaning of the Federal securities laws. These statements may be identified by such forward-looking words as "expect," "look," "believe," "anticipate," "may," "will" and variations of these words or other forward-looking terminology. Forward-looking statements made by the Company are not guarantees of future performance. Actual results may differ materially from those in the forward-looking statements as the result of risks and uncertainties including those listed below. The Company assumes no obligation to update any forward-looking information:
- the pattern of the Company's sales, including variations in sales volume within periods, which makes forward-looking statements about sales and earnings difficult and may result in variance of actual results from those contained in statements made at any time prior to the period's close;
- vigorous competition within the Company's product markets, including pricing and promotional, advertising or other activities in order to preserve or gain market share, the timing of which cannot be foreseen by the Company;
- the Company's reliance on the development of new products and the inherent risks associated with new product introductions, including uncertainty of trade and customer acceptance and competitive reaction;
- the costs and effects of unanticipated legal and administrative proceedings;
- the impacts of unusual items resulting from ongoing evaluations of business strategies, asset valuations and organizational structure;
- a substantial portion of the Company's sales having been made outside the United States, making forecasting of sales more difficult;
- the impact on sales or earnings of fluctuations in exchange rates in one or more of the Company's geographic markets;
- the ability of the Company to successfully reduce trade inventories to levels consistent with the changing needs of the more concentrated retail trade;
- the possibility of one or more of the global markets in which the Company competes being impacted by variations in political, economic or other factors, such as inflation rates, recessionary or expansive trends, tax changes, legal and regulatory changes or other external factors over which the Company has no control.
- the effects of rapid technological change on product development, differentiation, acceptance and costs including technological advances of competitors;
- the effects of patents including possible new patents granted to competitors or challenges to Company patents and expiration of patents, which affect competition and product acceptance.
ITEM 7A.
ITEM 7A. DISCLOSURES CONCERNING MARKET RISK SENSITIVE INSTRUMENTS
The information required by this item appears in the 1999 Annual Report at page 16 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 1999 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 the Directors of the Company appears in the 2000 Proxy Statement at pages 2 through 4 and at pages 7 and 8, under the caption "Company Transactions with Directors and Officers," and at page 18 under the caption "Section 16(a) Beneficial Ownership Reporting Compliance," the texts of which are incorporated by reference.
The information required for Executive Officers of the Company appears at the end of Part I of this report at page 5.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the 2000 Proxy Statement at pages 8 through 17 under the captions "Compensation of Non-Employee Directors", "Personnel Committee Report on Executive Compensation", "Gillette Comparative Five-Year Investment Performance", and "Executive Compensation" 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 2000 Proxy Statement at pages 6 and 7 under the caption "Stock Ownership of Five Percent Beneficial Owners and Management" and is incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the 2000 Proxy Statement at pages 7 and 8 under the caption "Company Transactions with Directors and Officers" 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 1999 Annual Report at the pages indicated below and are incorporated into Part II by reference.
SCHEDULES
The following schedule appears at page 13 of this report:
II. Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because they are either not required or not applicable.
EXHIBITS
- ---------------
* Filed pursuant to Item 14(c).
B. REPORTS ON FORM 8-K
A report on Form 8-K was filed on November 8, 1999, which announced the Company's third-quarter results, an expansion of the stock repurchase program and a program to reduce trade inventories.
OTHER MATTERS
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the following Registration Statements of the registrant on Form S-8 (1) No. 33-27916, filed April 10, 1989, and amended thereafter, which incorporates by reference therein Registration Statements on Form S-8 Nos. 2-90276, 2-63951 and 1-50710, and all amendments thereto, all relating to shares issuable and deliverable under The Gillette Company 1971 Stock Option Plan and 1974 Stock Purchase Plan and on Form S-7 No. 2-41016 relating to shares issuable and deliverable under The Gillette Company 1971 Stock Option Plan; (2) No. 33-9495, filed October 20, 1986, and all amendments thereto, relating to shares and plan interests in The Gillette Company Employees' Savings Plan; (3) No. 2-93230, filed September 12, 1984, and all amendments thereto, relating to shares and plan interests in the Oral B Laboratories Savings Plan; (4) No. 33-56218, filed December 23, 1992, relating to shares and plan interests in The Gillette Company Employees' Savings Plan; (5) No. 33-52465, filed March 1, 1994, and all amendments thereto, relating to shares issuable and deliverable under The Gillette Company Global Employee Stock Ownership Plan; (6) No. 33-53257, filed April 25, 1994, and all amendments thereto, relating to shares issuable and deliverable under The Gillette Company Outside Director's Stock Ownership Plan; (7) No. 33-53258, filed April 25, 1994, and all amendments thereto, relating to shares issuable and deliverable under The Gillette Company 1971 Stock Option Plan; (8) No. 33-59125, filed May 5, 1995, and all amendments thereto, relating to shares and plan interests in The Gillette Company Employees' Savings Plan; (9) No. 33-63707 filed October 26, 1995, and all amendments thereto, relating to shares and plan interests in the Parker Pen 401(K) Plan; (10) No. 333-19133 filed December 31, 1996, and all amendments thereto, relating to shares issuable and deliverable under the Duracell Shares Plan and Stock Option Plan for Key Employees of Duracell International Inc. and Subsidiaries and (11) No. 333-25533 filed April 21, 1997, and all amendments thereto, relating to shares issuable and deliverable under The Gillette Company 1971 Stock Option Plan.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than the payments by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of THE GILLETTE COMPANY:
Under date of February 11, 2000, we reported on the consolidated balance sheet of The Gillette Company and subsidiary companies as of December 31, 1999 and 1998, and the related consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1999, as contained in the 1999 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1999. In connection with our audits of the aforementioned consolidated financial statements, we also audited the financial statement schedule on page 13 of this report. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Boston, Massachusetts February 11, 2000
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(MILLIONS OF DOLLARS)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 30, 2000
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.